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ITALY - OVERSEAS BUSINESS REPORT - OBR9301

SUMMARY

This article is derived from a report dated January 1993, prepared at the
U.S. Department of Commerce - Washington, DC. The article consists of 74
pages and discusses the economic and commercial climate in Italy, with
emphasis on information useful for potential U.S. sellers and investors. It
includes the following sections:

OVERVIEW AND TRADE OUTLOOK
BEST U.S. EXPORT PROSPECTS
DISTRIBUTION AND SALES CHANNELS
U.S. DEPARTMENT OF COMMERCE EXPORT SERVICES
BANKING AND CREDIT
TRADE REGULATIONS
INVESTMENT
OVERVIEW OF TAXES
EMPLOYMENT
GUIDANCE FOR BUSINESS TRAVELERS
SOURCES OF INFORMATION
EXPORT MARKETING PLAN OUTLINE

MARKETING IN ITALY

prepared by

Boyce Fitzpatrick, Office of Western Europe
and the U.S. & Foreign Commercial Service, Italy
January, 1993

C O N T E N T S

OVERVIEW AND TRADE OUTLOOK
General and Economic Background Foreign Trade Outlook European
Community EC Single Internal Market

BEST U.S. EXPORT PROSPECTS
Software Pollution Control Computers Telecommunications Aircraft and
Parts Energy Sector Electronics and Components Health Care Sporting
Goods Electrical Production Water Technology Franchising Cosmetics
Industrial Process Controls Packaging Machinery Security Equipment
Apparel

DISTRIBUTION AND SALES CHANNELS
Marketing Areas Retail Distribution in Italy A Changing Market
Distribution Methods Import Channels Appointing an Agent or a
Distributor EC Legislation on Agents Wholesale and Retail Channels
Transportation Advertising Market Research and Trade Organizations
Trade Fairs Government Procurement

U.S. DEPARTMENT OF COMMERCE EXPORT SERVICES
Export Programs Trade Information Center National Trade Data Bank
Pitfalls to Avoid When Exporting

BANKING AND CREDIT
Availability of Credit Foreign Exchange Policy Quotations and Terms of
Payments Installment Sales and Requirements Obtaining Credit
Information Export Financing Programs

TRADE REGULATIONS
Membership in the EC Import Duties Quotations and Payment Terms
Temporary Imports Goods in Transit Free Trade Zones Inward and Outward
Processing Samples and Advertising Materials Carnets Advance Rulings
from Italian Customs Value-Added Tax Excise Taxes Shipping Documents
Marking and Labeling Import Licensing Technical Standards European
Community Certification Assistance on Standards Electrical Current
Weights and Measures U.S. Export Controls Intellectual Property Rights
Protection Laws Governing Intellectual Property Rights European Patent
Convention

INVESTMENT
Investment Climate Investment Incentives Entry and Repatriation of
Capital Requirements for Business Operation Government's Role in
Industry U.S. Investment in Italy Forms of Business Organizations

OVERVIEW OF TAXES
Corporate Taxation Taxable Income Tax Returns Allowable Deductions
Tax Convention with Italy

EMPLOYMENT
Industrial Relations Dismissal of Workers Employment of Foreign
Workers Worker Advisory Councils

GUIDANCE FOR BUSINESS TRAVELERS
Business Courtesy Commercial Language Business Hours Passports and
Visas Other Information Currency Holidays

SOURCES OF INFORMATION
U.S. Government Other Organizations Exhibition Associations Exhibition
Organizers Italian Trade Associations Italian Government and Agencies
Tax and Accounting Firms U.S. Publications and References Other
Publications and Information Sources

EXPORT MARKETING PLAN OUTLINE

OVERVIEW AND TRADE OUTLOOK

General and Economic Background
The Republic of Italy covers an area of some 301,230 square kilometers
(116,300 square miles) or about the size of Georgia and Florida combined.
Italy is a long boot shaped peninsula extending from the Alps into the
Mediterranean Sea with two large islands of Sicily and Sardinia and numerous
smaller islands offshore. The Italian peninsula is 1,170 kilometers (725
miles) long and from 218 kilometers wide in the north to 129 kilometers wide
in the south (135 to 80 miles). With the Alps in the north and the
Apennines mountain range extending down the center of the peninsula, about
75 percent of the country is mostly rugged and mountainous terrain except in
the valleys and certain coastal areas. The Po River Valley in the north
represents the largest and most fertile area for farming and has the most
developed industrial region.

In the north, winters are cold with precipitation distributed evenly during
the year. The Po River, the longest river in Italy, is fed throughout the
year by the distant mountain snows. The central and southern sections of
the country have a Mediterranean climate with mild winters and hot and dry
summers moderated with ocean breezes.

In 1972, Italy enacted a broad decentralization plan that transferred
considerable authority to 20 regional administrations. These regions have
taken over responsibility for local police, schools, welfare, agricultural
programs, tourist promotion, and industrial development.

Italian is the official language and is spoken throughout the country. In
many remote areas, however, regional dialects continue to be used. In
addition, cultural and linguistic differences are recognized in three
border regions: French in Val d'Aosta, German in Trentino-Alto, and Slovac
in Friuli-Venezia Giulia.

San Marino is a small and independent republic in east-central Italy with an
area of some 62 square kilometers (24 square miles) and a population of
about 22,000. San Marino does not maintain a separate customs area and has
the same currency as Italy.

The Vatican City has a population of 1,000, covers an area of 44 hectares
(109 acres), and is located completely within the city limits of Rome. While
the Vatican is the smallest state in the world, it has its own railway,
coins, stamps, and passports.

Italy's population is 57.8 million and with one of the world's lowest birth
rates and highest longevity rates, the population is graying rapidly.

Italy is one of the original members of the European Community (EC) and
remains a staunch advocate of a unified Europe. It has the fifth largest
industrial economy in the world, but in recent years Italy has been

experiencing difficult economic problems. A series of weak coalition
governments have been unable to implement the reforms needed to cure some of
Italy's long-standing ills. The public sector deficit continues to be above
10 percent of GDP each year; dozens of EC directives are still waiting to
be implemented into national law, and the governmental presence in the
market is large.

However, these factors must be weighed against a surprisingly resilient
private sector, which has kept Italy's exports growing in areas such as high
value consumer goods and specialized tooling, and a determination by the new
government to put Italy back on track on issues related to the budget,
public debt, and competitiveness. Despite considerable resistance by the
traditional parties and the industries concerned, Italy is now moving
towards privatizing some of its huge government-owned stake in industry and
services.

The EC's efforts to develop a single and unified European market has placed
pressure on Italy's traditional approach to government and business. New
directives from Brussels will create the need to make changes to meet new
competitive conditions. Although Italy has made progress in fields such as
telecommunications, transportation, and other infrastructure, much more
remains to be done to provide an efficient infrastructure and public
utilities. Italy's northern regions are concerned about the inefficient and
expensive methods of aiding development in the Mezzogiorno (regions south of
Rome). Also, the Italian manufacturing and distribution system lags behind
that of its major trading partners. While small size and tight quality
controls have done wonders for the economic well being of hundreds of
thousands of entrepreneurs, the Italian consumer is somewhat at a
disadvantage if compared to the Northern European consumers. The Italian
distribution system is fragmented and regionalized and will face strong
price competition from other European countries.

In general, the Italian business scene closely matches the socio-cultural
environment with the family as the primary social cell. Close ties and
networking are also important to political affiliations, sporting groups,
regional affiliations, and of course business connections. The concept of
competition as a promoter of economic development is slowly creeping in, but
is hampered by the huge size of the public sector which sees monopoly as a
factor of stability and survival.

Foreign Trade Outlook
Italy's export-oriented economy dictates the need for the pursuit of liberal
foreign trade policies. Italy belongs to the Organization for Economic
Cooperation and Development (OECD), the International Monetary Fund (IMF),
and the U.N. Economic Commission for Europe, and it is a signatory to the
General Agreement on Tariffs and Trade (GATT). Italy is also a founding
member of the EC and has its customs duties (tariffs) and some elements of
its trade and domestic policy governed by its membership in the European
Community (EC).

Table 1
U.S. - ITALY TRADE HISTORY
(Trade data in billions $)

U.S. Trade Lira per
Year U.S. Exports U.S. Imports Balance U.S. $1.00

1970 1.352 1.317 +0.035 625.0

1971 1.314 1.406 -0.092 619.9
1972 1.426 1.755 -0.329 583.2
1973 2.119 1.988 +0.131 583.0
1974 2.756 2.591 +0.165 650.3
1975 2.868 2.491 +0.377 652.8

1976 3.068 2.545 +0.523 832.3
1977 2.788 3.074 -0.286 882.4
1978 3.360 4.175 -0.815 848.7
1979 4.358 5.046 -0.688 830.9
1980 5.511 4.377 +1.134 856.4

1981 5.360 5.191 +0.169 1,136.8
1982 4.616 5.301 -0.685 1,352.5
1983 3.908 5.455 -1.547 1,518.8
1984 4.375 7.934 -3.559 1,757.0
1985 4.625 9.674 -5.049 1,909.4

1986 4.838 10.607 -5.769 1,490.8
1987 5.530 11.040 -5.510 1,296.1
1988 6.775 11.576 -4.801 1,301.6
1989 7.215 11.933 -4.718 1,372.1
1990 7.992 12.751 -4.759 1,198.1

1991 8.570 11.764 -3.194 1,225.0
1992 9.4 * 11.7 * -2.3 * 1,080.*

* Projected for 1992
Sources: U.S. Bureau of the Census for trade statistics
IMF International Financial Statistics for exchange rates.

Italy has relatively few domestic natural resourcs and must depend on a
heavy volume of imports of energy, semimanufactured goods, capital goods,
and raw materials.

In 1991, the United States accounted for 6.2 percent of total Italian trade
(imports and exports) with the United Kingdom also at 6.2 percent, after
Germany (21.0 percent), and France (14.7 percent). The United States is
Italy's third most important source of imports and third most important
destination for exports. Table 1 reviews bilateral trade between the United
States and Italy.

Reversing the direction of trade, Italy represents the United States' tenth
most important export destination and seventh most important source of
imports.

European Community
As a member of the European Community, Italy must ensure that its domestic
legislation complies with the directives developed by the EC according to
the terms of the Treaty of Rome. There are four main institutions of the EC
that carry out the drafting and administration of the legislative process --
the EC Commission, the European Parliament, the Council of Ministers, and
the European Court of Justice.

The Commission makes proposals for EC directives, and the Council of
Ministers decides whether to accept or reject the proposed legislation. The
EC Commission is located in Brussels and is composed of 17 commissioners,
each of whom is appointed jointly by the EC member governments. Each
commissioner is responsible for several directorate-generals which function
as the civil service in conducting the daily activities of the EC.

Once developed and approved by the Commission, a proposed EC directive is
then passed to the European Parliament in Strasbourg for approval. The
Parliament is composed of 518 members directly elected by voters in the
member countries. Parliament conducts two consecutive readings on proposals
and can approve, fail to disapprove, reject, or recommend changes to a
proposed directive.

The Council of Ministers is the main legislative and decision-making body in
the EC. The 12-member council is composed of foreign ministers or cabinet
officials from member state governments and represent the individual
national governments. The Council of Ministers has power to veto or agree on
proposed legislation. On certain proposed directives, the council voting is
based on a weighted vote system. The presidency of the council is rotated at
6-month intervals so that each member country will have some authority and
responsibility over Community affairs.

Once a proposed directive becomes approved, each member state must then
incorporate the terms of the directive into its own national legislation
within a specific time unless the country obtains a derogation because of
special circumstances. The final arbiter over disputes of EC law is the
European Court of Justice. The European Court is composed of judges
appointed by agreement of the member states for 6-year terms.

EC Single Internal Market
The European Community has embarked on an ambitious program to develop a
more united and barrier-free internal market for trade among the 12 member
countries. As an EC member, Italy participates fully in this program. The
program of product standards harmonization is intended to create a single
internal market of 340 million consumers with freedom of movement for goods,
services, labor, and capital. The purpose of the program is to develop
greater competition, production efficiency, and lower prices for the
consumer.

For more details on European Community product standards and certification
requirements, contact: Single Internal Market Information Service,
International Trade Administration, Room H-3036, U.S. Department of
Commerce, 14th Street and Constitution Avenue, N.W., Washington, DC 20230,
(202) 482-5823.

The Community will continue to develop and adopt common directives that will
establish new EC-wide requirements for a broad range of business activities
and result in the harmonization of standards for all 12 EC countries for
thousands of products. The single internal market program is expected to
create greater economic growth, improve production and marketing
efficiencies, increase competitiveness, and lower costs to the consumer. It
will also create new EC product standards and regulations that will have to
be adhered to by all suppliers to the EC market.

The development of harmonized standards presents both a challenge and an
opportunity for American firms doing business in the EC. American industry
must be informed and respond to the changes and new competition in the
commercial environment. American firms seeking to sell products in Italy, or
to establish a business operation there, should review both the Italian and
EC regulations. In many cases, the national product standards are being
replaced with unified EC-wide standards. These unified standards will make
it easier for U.S. suppliers to produce for export to the EC since one
product will be accepted for sale in all 12 countries. Steps are also being
taken to harmonize national procedures for product testing and certification
and to establish a common EC trademark and copyright laws.

BEST U.S. EXPORT PROSPECTS

Over the years, the United States and Italy have maintained extensive trade
ties. Some of the product sectors identified as having the best sales
prospects for U.S. exporters are outlined below. This section is intended
to provide only an illustrative sampling of the marketing opportunities in
Italy. The U.S. and Foreign Commercial Service in Italy has prepared a
series of marketing briefs that provides more information on sales
opportunities in Italy. The reports may be obtained from the National Trade
Data Bank. The local Commerce Department district offices can be contacted
for additional details and exporting assistance.

Software
The computer software and services market in Italy increased 15 percent in
1991 and is expected to continue as a leading sector. While competition and
market saturation will lower the growth rate into line with the average rate
of other major countries, this sector will remain strong for cost-effective
products. Decreasing profitability, due to price competition and
inefficient distribution channels, may also affect future growth rates in
value terms. Software demand is strong for quality and advanced products.
The United States should continue to be Italy's number one supplier of
software, with over 65 percent of total imports originating in the United
States.

Pollution Control
The pollution control industry is experiencing considerable growth in Italy,
especially because of the recent introduction of new environmental
regulations to comply with EC directives. Budget problems at both national
and local government levels hamper what should be a very dynamic market. The
Italian industry is interested in American expertise and instrumentation, as
U.S. technology and standards are highly regarded and recognized. Over the
medium term, major growth is expected in the waste treatment and management
segment. Good business opportunities should exist for American firms
offering safe recycling and recovery technology, dumping site techniques,
refuse-derived fuel technology, and incineration technology. Management
services for water purifying plants and collection and management of urban
and industrial solid hazardous and nonhazardous wastes are becoming more and
more important and represent a hefty portion of the market demand. Because
of a new law which prohibits the utilization of asbestos and requires its
controled removal and disposal, opportunities may also exist for U.S. firms
offering innovative technologies in asbesos removal.

Computers
The Italian market for computers and peripherals is still one of the most
dynamic national industry sectors, despite a recent slowdown in growth rate.
While mainframes are still experiencing a good growth trend, low-end
proprietary minicomputers suffer from market saturation and strong
competition of multi-user, local area network personal computer systems.
The major growth is expected to be in the areas of workstations with
operating systems and laptop and notebook personal computers. Solid business
opportunities exist for American companies that offer a combination of the
best in technical sophistication, engineering design, commercial
reliability, and competitive pricing.

Telecommunications
The telecommunications sector currently attracts great interest and is

experiencing considerable development in Italy. The combination of the
political awareness of the strategic role of telecommunications and measures
enacted by the EC will be influencing this market over the next few years.
Development of satellite systems for the business community, installation of
optical fiber cables, conversion to digital switching, and the market for
cellular services are a few examples of market expansion. Italy is a market
that is adapting to technical changes, the deregulation process, and growth
in demand. Growth is not uniform throughout the market; therefore, U.S.
firms should first look to mobile telephones and value-added services as the
most profitable subsectors. With a proliferation of local and regional
television and radio stations, there is steady demand for advanced
broadcasting equipment and accessories.

Aircraft and Parts
The Italian market for aircraft and parts for maintenance has seen a
somewhat reduced growth from 1990-1992 as compared with the trend in past
years. However, the market should regain momentum in view of recent
refinancing of programs under Law N808, of December 24, 1985, the so-called
Joint Venture Law and of the continuing implementation of the National Space
Program through 1994. Therefore, aircraft purchases should continue as
Alitalia, the state-controlled commercial airline, is broadening and
improving its services by deploying new aircraft. The importance of imports
to the domestic market remains high. The Italian aviation and aerospace
sector has high regard for U.S. products because of their technical
sophistication, advanced technology, and unique design. Competition from
European industries is increasing, but U.S. commercial leadership is
unanimously recognized.

Energy Sector
As one of the world's most industrialized countries, Italy needs energy to
continue expanding. The country is dependent on imports of oil, coal, and
natural gas. Oil constitutes the primary source producing 60 percent of the
energy. Natural gas supplies 25 percent, followed by coal with 10 percent.
Other sources, such as geothermal energy and hydroelectricity represent only
6 percent of national energy production and is scattered among 25 power
plants.

Nuclear power plants are nonexistent, as environmental and safety concerns
have caused the government to close existing plants and to halt the
construction of new ones. There is also concern about the pollution stemming
from coal generated electricity. Over all, there is intense interest in
energy conservation methods and in developing alternate sources to fossil
fuels.

The main obstacle to a more rapid development of alternative fuels has been
high prices relative to the abundant supplies of cheap oil and coal. This
situation has been changing recently as a result of market adjustments. To
encourage increased capital investment and seek innovative solutions in
reducing pollution, legislation was approved (Law 308 and Provision 15/1989
of the Interministerial Committee for Prices) to provide incentives for the
production of clean energy at reasonable prices.

There are opportunities for U.S. companies in solar energy and in the
biomass sector. Although Italian production is largely self-sufficient for
biomasss appliances such as stoves, ovens, and fireplaces (80 percent of the
total market), there are still good opportunities for U.S. companies
supplying biomass equipment for large industrial or agricultural use.

Electronics and Components

Market demand in the electronics and components sector is expanding
continuously with the increased digitalization of consumer and industrial
equipment. Italy imports large quantities of components, especially
semiconductors for the telecommunications, automotive, and automation
industries. U.S. suppliers will find best sales prospects in areas
traditionally dominated by American technology, such as computers and
military industries. Due to Italy's participation in European research
programs, good prospects also exist for satellite communications equipment.

Health Care
The local health care system provides free medical assistance to all Italian
citizens. There are presently 1,120 public hospitals with 367,600 beds and
650 private clinics with 72,600 beds. The Italian market for electromedical
equipment relies heavily on imports. Technologically advanced products such
as nuclear magnetic resonance imaging equipment and computerized axial
tomography equipment have very good market potential. Ultrasonic and imaging
equipment will continue to increase its market share. Electromedical
equipment, such as anesthesia and resuscitation equipment, electrosurgery
equipment, including lasers and intensive therapy equipment, if supported by
technologically advanced features have excellent market potential. Leading
U.S. manufacturers are present in Italy either directly or through
experienced representatives that are capable of providing after-sales
service. American, Japanese, and German companies are the leading foreign
suppliers to the local market. Superior technology with reliable local
representatives is the winning card. Demand for innovative products will
continue to be very high.

Sporting Goods
Sporting goods has shown a continuously favorable trend in Italy. There is a
strong demand for apparel and accessories because of the increasing
interest in sports by middle-aged consumers. Tennis, cycling, skiing, golf,
riding, sailing, swimming, and gymnastics are the most popular sports
activities in Italy. The apparel subsector holds 78 percent of the total
market: it is dominated by local firms supplying 80 percent of total
consumption. The shoes and sports equipment subsectors (accounting
respectively for 16 and 7 percent of the total market) are open to imports.
Innovative technical features, sophisticated styles, and high performance
are the prerequisites for success in the Italian market. American sporting
goods enjoy a fine image and reputation.

Electrical Production
Italy is concerned about the rising domestic demand for electrical power and
the consequent need to import electricity from neighboring countries such
as France, Austria, and Switzerland. Therefore, the emphasis is on energy
production investments (including incentives to self-producers), energy
source diversification, promotion of conservation technologies, and the
utilization of renewable sources. Particular attention is being given to
the planning and construction of new coal-fired power plants. ENEL, the
state-owned National Electric Power Agency, the major end-user of power
generating equipment and systems, approved a $30 billion investment program,
thus influencing the overall future market demand. U.S. manufacturers and
suppliers should concentrate their marketing efforts on highly sophisticated
and innovative products and systems while maintaining, and possibly
improving, their leadership in licensing and technical cooperation, as the
majority of Italian-built heavy electrical machinery is manufactured by
Italian firms under U.S. licenses.

Water Technology
Italy is experiencing a severe water crisis, as the 11,000 aqueducts that
supply the country with water are inadequate to meet internal demand.
National emphasis is being placed on upgrading the system, with the
government planning to invest over $16 billion over the next several years.
Estimates indicate that total costs to make the system efficient in the next
10 to 15 years, including the construction of new aqueducts, the search for
deeper and nonpolluted aquifers, and the remediation of the polluted ones,
should reach $100 billion. Serious problems also exist with the inadequate
sewage system, the eutrophication of the Adriatic Sea, and heavily polluted
rivers such as the Po and the Lambro. Investment plans amounting to $2.5
billion have been approved or are under consideration. In spite of the
emergency situation, budgetary problems at both national and local level
and the slow allocation process may hinder the development of safe water
supplies in the short term. Investment plans for $1.8 billion in the next 3
years have also been approved to cope with the numerous problems of the city
of Venice -- from the high and damaging tides to the practically nonexistent
sewage system. The water technology sector, however, represents a
potentially lucrative market for those U.S. companies offering sophisticated
equipment and know-how which are willing to enter the Italian market through
joint-venture agreements.

Franchising
The franchising system is expanding rapidly in Italy although its expansion
still lags behind that of most other European countries. The existence of a
small-scale retail network and the strong tradition of individuality and
personal attention to clients that characterizes local business units have
prevented a more rapid growth of the franchising industry. There are
presently some 260 franchisors which control a network of 12,000
franchisees. It is estimated that close to 20 new brands are introduced
every year. The sectors where franchising has been most successful are
apparel, which ranks first with 120 franchisors and 3,600 franchisees, and
mass distribution with 17 franchisors and 2,400 franchisees. Services ranks
third with 38 franchisors and 2,700 franchisees. Specialized food stores,
fast-food restaurants, and nonfood specialty stores are expected to grow at
a very fast pace. Foreign franchise organizations are making their way into
the Italian market, and U.S. companies have been well received. There are
good opportunities ahead in Italy, as new European-wide patterns and trends
in commerce, distribution, consumption, and tastes emerge.

Cosmetics
The Italian market for cosmetics is characterized by a strong demand for
quality and sophisticated products. The development, by means of
biotechnology, of new basic ingredients for cosmetics will favor products
with innovative, effective, and safe formulas. U.S. firms with close
connections to research institutes will have success. Consumer preferences
in sales channels continue to shift with purchases in pharmacies increasing
and perfume stores experiencing a sales drop. Mass market distribution
channels are growing rapidly as consumers are now more attentive and
informed. Hair dressing salons suffered a fall in attendance, while
door-to-door sales, in which U.S. firms have a leading edge, remain rather
stable. Perfume and eye shadow sales are being penalized by overproduction
and extensive competition. Specialized products such as sun and after-sun
products, eye wrinkle protection products, masks, and anti-aging products
are doing well. Nail care products and artificial nails are making a
breakthrough into the skeptical Italian market. Creative advertising
continues to be considered a key factor in market success.

Industrial Process Controls
Industrial process controls include all applications for the automation of

both chemical and physical processes and manufacturing processes. This
definition includes all equipment used for measurement and control as well
as computers and software used in process control operations. The Italian
market in this sector is Europe's fourth largest. Most of the growth in
Italian manufacturing was due to an increasing demand for automated plants
and machines. This growth trend is expected to continue until 1995 with the
value of industrial control devices expanding from the present 11 percent of
the total cost of a plant up to 20 percent of investment. The market for
automation and process systems was $1.8 billion in 1992 with growth
prospects very promising. Another emerging subsector that is small, but has
large and consistent growth, is artificial vision for product quality
inspection and control. The cost-savings applications of this equipment
should increase the potential number of end-users in the next few years.
Small- and medium-sized American companies with sophisticated, high-quality
products will find an excellent and receptive market in Italy.

Packaging Machinery
Italy is the fourth largest producer in the world of packaging machinery and
equipment. The Italian industry's success can be explained by its high
standards of quality and flexibility. The packaging industry is considered
one of Italy's leading sectors for the application of new industrial
technologies. U.S. manufacturers utilizing technological advances to
develop better microwavable packaging, more tamper-evident closures and
packaging, new aseptic packages, and innovative equipment, such as automatic
quality control systems, could compete for a larger share of the Italian
market.

Security Equipment
The market demand for security equipment continues to grow as rising crime
rates cause deep concern and stimulate demand for increased security.
Government entities, banks, and private citizens are now allocating more
funds to this area. The import climate is favorable, but product design and
performance are increasingly important competitive factors as private and
public end-users demand the most innovative products. Customer service is
another key element in marketing security and safety products in Italy.
Considerable importance is given to products' technical features and
reputation. A knowledgeable sales staff is needed to provide expert advice
in both the purchase and the after-sales service stage.

Apparel
The Italian market for apparel is extremely sophisticated. Local production
is quality and style oriented and dictates fashion trends both domestically
and abroad. Numerous local manufacturers utilize inexpensive foreign labor
to offset high domestic costs. U.S. products have acquired and consolidated
a market niche in the quality sports and leisurewear sector. Demand is for
trendy apparel, with a distinct "American" look and a high content of
natural fiber. Design and quality, combined with durability and the use of natural dyes, are added pluses for U.S.-made apparel. Jeans and beachwear,
jackets, leatherwear and outerwear, supported by a promotional campaign and
name brand recognition, will continue to be favored by the very fashion
conscious Italian consumer.

DISTRIBUTION AND SALES CHANNELS

American business representitives will find that selling in Italy offers new
challenges, but it presents no overwhelming problems. Over 7,500 American
companies are actively represented in Italy, with approximately 850 of them
having subsidiaries there.

U.S. executives may find that some commercial practices differ from those in
the United States, but most will look very familiar. The system of retail
and wholesale distribution, for instance, centers on small family-operated
stores, although the supermarket-type operation has gained in importance and
there are a number of substantial department store operations.

Marketing Areas
Italy is almost evenly divided into an industrial northern half and a more
agricultural southern half where economic and market conditions are very
different. The northern area, with a heavy concentration of large
commercial, financial, and industrial enterprises, is a ready market for all
kinds of capital and consumer goods. It accounts for about 65 percent of
total Italian imports and is located near important European industrialized
areas. Per capita income in the north is almost twice what it is in the
south and the standard of living in the north resembles that of France and
Germany. The area's vast industrial complex offers a steady demand for new,
more advanced machinery and equipment.

Administratively, Italy is divided into 20 regions which are in turn further
divided into provinces. Each province is named after the main city or town
that serves as the capital and administrative center of the province.

The population of Italy in 1991 was 57.8 million with a very low growth
rate. Rome, Milan, and Naples all have populations of over 1 million people,
but the marketing areas of these and other large cities extend beyond their
boundary lines and reach a population much larger than that of the cities
themselves. See Table 2 for the populations of Italy's largest cities. Each
of the major cities serves as the nucleus and administrative center of a
particular province. Thus, Lombardy whose capital is Milan, has a population
of over 8.5 million. Piedmont, whose capital is Turin, has a population over
4.5 million. There are about 15 million people in the relatively small area
of the Milan-Turin-Genoa industrial triangle. The Lazio Region, where Rome
is located, has a population of 5 million and Campania, with Naples as the
capital, has a population of 5 million.

Table 2

Population of Italy's 10 Largest Cities
Rome 2,693,400
Milan 1,371,000
Naples 1,054,600
Torino 961,900
Palermo 697,200
Genova 675,600
Bologna 404,300
Firenze 402,300
Bari 341,300
Catania 330,000

The country's leading commercial and industrial center is Milan. This city
has throbbed with economic activity for centuries and is the center of
Italy's business activities. It serves as headquarters for most of the large
industrial and international firms in Italy. Many firms, including those
importing foreign products, usually direct their sales efforts from Milan.
This city is also the seat of many of Italy's leading industry and trade
associations. The American Chamber of Commerce in Italy has its headquarters
in Milan.

The population of Milan is over 1.3 million, with a concentration of
industrial workers and is considered the major commercial center of Italy.

With a preponderance of highly paid workers, Milan sets the pattern for
tastes, consumer preferences, and demand of the area. Turin is another
important commercial and industrial city in the north, and, as Italy's
automobile capital, it is also one of the country's best markets. Fiat
automobiles as well as many subsidiary products of the motor and
metalworking industries are manufactured in Turin. The regions of Piedmont
and Lombardy together account for about 30 percent of Italy's gross national
product. They are the richest and most sought after markets in Italy. Genoa,
Italy's major port, is another important northern commercial and industrial
center.

Further south, the capital city of Rome, in addition to serving as the
location of government administration and procurement, contains the
headquarters of many state-controlled enterprises, including the defense
industries, the oil industry, and the airlines. The state enterprises
include transportation services, the national electric company, and many
major industrial operations. Rome is Italy's largest city and is an
important marketing center serving as a distribution hub for other parts of
central and southern Italy.

Naples, a large port city serving Rome and the south, is an industrial city
whose importance is continuously increasing under government development
programs. The areas surrounding the cities of Bari-Brindisi and Taranto also
have been stimulated by considerable government assistance and private
investments, and now stand out as the most economic developed in southern
Italy.

Retail Distribution in Italy
With a population of 57.8 million, the Italian retail distribution sector is
large in total sales although it serves the consumer at the retail level
through numerous small, family-owned, retail outlets rather than large, mass
market operations. See Table 3 for sales by store class. The market offers
many commercial opportunities because of the large sales volume and a lack
of competitive companies. Most retail stores in Italy can operate no more
than 44 hours per week and must remain closed on Sundays and Monday
mornings. Bill 426 of 1971 restricts the opening of new large retail outlets
in order to maintain and encourage the small family-owned traditional
stores. However, with time, the pressure of competition and the demands of
sophisticated consumers will gradually introduce change in the distribution
system.

In order to satisfy sophisticated Italian consumers, firms operating in the
Italian retail distribution sector find that they must invest large amounts
of money in new techniques, management, research, media promotion, and
equipment. The industry's average return on investment is approximately 13
percent. In terms of existing points of sale, there is a trend from the
family-type stores and street vendors, and to the distribution chains.

Table 3

Retail Distribution
Sales in millions of dollars
1987 1988 1989

Small Food Retail Outlets 243.8 239.6 223.0
Nonfood Retail Outlets 423.2 430.1 411.8
Food Street Vendors 30.4 30.0 29.0
Nonfood Street Vendors 55.6 56.8 53.2
Other (nonfood) 186.3 188.9 181.5

Distribution Chains (food) 2.2 2.4 2.6
Department Stores (nonfood) 0.6 0.6 0.6
-------- ------- -------
Total 942.1 948.4 901.7

Horizontal points of sale such as general stores, which had experienced boom
conditions in the early 1980s, have begun to lose ground to specialized
stores, franchising chains, and hypermarkets. In order to create a unique
business identity, department stores have begun a process of realignment and
now tend to attract the more affluent, quality-oriented consumers as well as
compete on price and product selection.

In the food sector there are some 355,000 licensed food outlets operating in
Italy. Although family-type stores and street vendors comprise over 95
percent of these food retailers, their overall sales volume account for only
70 percent of total expenditures. The highly industrialized north, with 44
percent of the country's population, produces 52 percent of the gross
national product and also has the highest concentration of large
distribution chains.

Supermarket chains now look toward further expansion, particularly in
creating and operating large shopping malls. Where such shopping centers
exist, they are proving to be successful.

A Changing Market
The combined pressures of consumers with higher expectations and the
increased competition have forced distribution chains to rethink their
marketing strategies. In the past, the retail chains have relied heavily on
low prices as a marketing strategy, and this strategy has yielded positive
results. Investment in advertising was high and mainly trade oriented, while
services and convenience were considered important but not fundamental.
Recently, consumers' expectations have been redirected toward better store
accessibility, improved customer service, and higher quality products.

However, large distribution chains involved in aggressive growth strategies
will face several challenges. First, as far as accessibility is concerned,
Law 426 restricts shopping centers of 1,500 square meters and over to
suburban areas. Second, promotions aimed at the consumer will absorb an
increasingly higher percentage of the chain stores' promotional budget.

There are many logistical problems of operating a nationwide sales network
as well as managing the growing personnel and promotion costs. Part-time
employment is presently restricted although there are now some move to
liberalize restrictions. Marketing firms are developing new distribution
techniques designed to employ the casual worker and to target groups of
consumers by catalog, door-to-door sales, teleshopping or telemarketing. The
most widely used methods of direct marketing are:

Direct selling, mainly used in the nonfood sector.

Mail order, catalog sales, or orders placed directly with the supplier.

Mail order marketing has been operating in Italy for approximately 15
years. Although direct marketing is considered a very effective marketing
technique, it still remains a modest channel of distribution for Italian
companies. One of the disadvantages of this technique, which may be
overlooked by foreign investors, is frequent delays by the postal system.
The establishment of a semiprivate nationwide express mail service, the
proliferation of couriers, and the arrival of foreign parcel delivery
services now offer alternatives to the national mail system.

Telephone direct marketing is growing faster than any other selling
technique. With the development of new telephone equipment, the business
world has turned to the use of the telefax, making Italy the second largest
per capita user in the world.

Teleshopping (buying by telephone) is becoming a popular sales approach to
reach the consumer. There are a number of privately owned television
stations which mainly host telemarketing programs.

Telecommunications technologies are playing an increasing role in the
process of restructuring the distribution system. Scanners, electronic cash
registers, and display management systems are now common while computerized
stock control systems, customer databases, and inventory control programs
are being used only by the large distribution networks. The more
sophisticated groups have also resorted to consulting services, resulting in
technical cooperation agreements between a number of Italian and
international chains.

The Italian retail distribution system is faced with new challenges of
competition and technology. It is in the process of being reorganized in
terms of number of points of sale and of marketing strategies. The small
traditional retail outlets are considered obsolete, but the Italian
distribution groups are still too small in many cases to compete effectively
with large chains operating in some of the other European nations. A process
of internationalization is now taking place among Italian and foreign chains
with some agreements already signed. There is, however, room for more.

Distribution Methods
The marketing of products in Italy is accomplished through a variety of
channels, depending on the nature of the product, the sales territory to be
covered, the type of buyer, and the sales promotional activities required.
Brokers, commission merchants, and independent representatives are used
extensively for the sale of raw materials, semifinished products, and
capital goods to the larger manufacturing organizations. However,
well-established distributors are normally employed to reach industrial
firms as well as the large number of wholesalers and retailers engaged in
the marketing of consumer goods.

Agency--Agency contracts are governed by the Italian Civil Code and by a
number of other legislative decrees. An Italian agent for a foreign firm is
generally regarded as being authorized to act for the firm. Depending on the
contract, the principal may be subject to termination compensation payments
and to income taxes and other levies on sales effected through the agent.

Distributorship--Under this arrangement the local distributor takes title of
the merchandise and assumes the risks, and has the obligation to pay any
taxes. Distribution agreements are subject only to the terms of the contract
itself. There are no laws or regulations currently in effect in Italy
providing for advance notice of termination, termination compensation, or
social security payments in connection with these agreements.

Frequently, a distributorship agreement provides for exclusive sales rights.
There is nothing in the Italian law preventing exclusive arrangements in all
or part of Italy. However, if these agreements provide for exclusive sales
rights in all or part of the EC, they should be examined carefully, and with
the assistance of a competent international lawyer, in light of the
antitrust provisions of the EC regulations.

Direct Buying--Direct purchases of imported goods occur frequently in Italy

with wholesalers and large retailers seeking to obtain the lowest cost from
the manufacturer. Certain raw materials and some industrial machinery and
equipment having limited markets are purchased by the end-users directly
from foreign manufacturers or suppliers. Voluntary associations of food
retailers and food wholesalers make substantial purchases directly from
domestic or foreign manufacturers.

Wholesale Outlets--Wholesale establishments are numerous in Italy, but most
of these are still small firms. Their scope is limited to selling only to
small retailers who are not in a position to buy directly from
manufacturers. The larger retail outlets customarily purchase from local
wholesalers only those items that they sell in small quantities. Many of the
larger wholesalers in Italy are familiar with foreign trade practices and
procedures and sell their goods on a countrywide basis.

Retail Outlets--Retail trade is still dominated largely by small individual
outlets run by the owner with the help of family members or with one or two
paid assistants. Small firms are expanding and are adopting new
merchandising techniques. Modern retail outlets, however, such as department
and self-service stores, have been increasing rapidly, particularly in the
cities. The number of stores handling food products exceeds those handling
other lines. Food sales volume is limited by the consumers' traditional
practice of making small purchases as needed on a day-to-day basis.

According to the Ministry of Industry, there are 409,300 food retail
outlets, and 513,500 retailers of nonfood goods in Italy. In addition, there
are also some 217,000 coffee bars, ice cream parlors, cafeterias,
restaurants and hotels, and some 236,500 itinerant or door-to-door sales
representatives who sell foodstuffs, housewares, and textile goods.

Department stores and supermarkets have gained wide public acceptance in the
last few years, but these large establishments account for 7 to 8 percent of
total Italian retail sales. There are some 800 department stores and 2,000
supermarkets in Italy. Issuance of licenses for more department stores and
markets has been limited by the goal of maintaining the existence of small
retailers. Nevertheless, the expansion of chain and department stores is
resulting in more and more centralized buying by head offices.

The advent of large retail organizations has influenced the streamlining of
other distribution outlets. Groups of wholesalers and retailers have formed
associations for bulk purchases by their members. Approximately 150
mail-order firms operate in Italy. Of these, 18 companies hold 75 percent of
the market. However, the mail-order business in the 1990s is expected to
show strong growth and profitability.

Franchising--The franchising system is not currently widely used in Italy
and offers good potential for American firms to extend management skills and
marketing practices. Although efforts are being made to expand franchising
operations, it is generally agreed that the parent company would need to
make a solid commitment and long-term investment in company-owned outlets to
establish its name, to educate the consuming public, and thus attract
potential franchisees.

Franchisors should also bear in mind that a business license is necessary
for each outlet. These may be difficult to obtain, particularly if the
franchise will be competing against small, independent, local companies.

Leasing--It has become common to lease, rather than buy, certain types of
machinery. The leasing of foreign machines is usually arranged with Italian

clients through local branch offices or agents of foreign manufacturers
established to provide this marketing service. Leasing is complicated by the
fact that the importation, payment of customs duties, and other related
business formalities must be taken care of by a firm established in Italy.
Such tasks would usually be done by either an agent of the foreign
manufacturer or by the Italian lessee. Because the lessee is offen not
willing to assume the inconvenience of handling importation of leased
equipment, local representation is usually necessary.

Distribution by U.S. Firms--An American company that is successful in Italy
becomes so because its products are marketed with the same diligence
employed in the U.S. market. Whether the firm establishes a manufacturing
operation or a sales branch, or appoints a commission agent, a stocking
distributor, or a combination agent/distributor, the American exporter must
make a long-term commitment to exporting and follow sound marketing
practices in order to sell successfully in the Italian market. A key factor
in this commitment to serving the overseas buyer is the local stocking of
parts and giving priority to immediate shipment on request of the European
customer.

An American company that is entering the competitive Italian market is
advised to commit the resources needed to market the products properly and
establish long-term sales to achieve maximum sales volume. The appointment
of a resident representative is extremely important. For promotion of
business and knowledge of the market, there is no effective alternative to a
resident representative who is part of the local business community and
readily available to customers. Having a local representative is
particularly important when the product is complex and may be expected to
require follow-up servicing or modification. Local representatives are
familiar with the product and needs of the customer and are in a position to
solve problems. Personalized service is frequently demanded by customers,
creates goodwill, and often stimulates repeat sales. Technical manuals and
promotional literature should be in Italian. Italy is a competitive market
where a reliable supplier is important. Local representatives with solid
reputations and promotional material in Italian reflects a commitment to
customer service and the prestige of the American firm.

A number of U.S. firms maintain their own sales organizations in Italy.
Still others sell through specialized importers or appoint sales agents who
often are manufacturers' brokers. A large, well-established Italian firm
with an efficient nationwide sales organization is likely to insist on an
exclusive arrangement. About 7,500 U.S. firms are represented in the Italian
market through agents, branches, subsidiaries, or licenses. Of these, nearly
850 have a substantial direct capital investment in the form of stock as the
sole owner or partner in an enterprise. Generally, the sales territory
includes all of Italy. In other cases, the territory also covers the whole
European Community depending on the type of product and degree of technical
support needed. Italian distributors also have excellent contacts with
Eastern Europe and the Mediterranean Basin.

Import Channels
Italy has a variety of importers, sales agents, and distributors well versed
in all aspects of international trade. Many goods are handled by importers
who purchase for their own account and distribute throughout the country and
Europe. Because of the size, accessibility, and competitive nature of the
Italian market, importers may insist on an exclusive distributorship. If the
importer is a well qualified and successful firm, an exclusive
distributorship often yields the best results. Wholesalers constitute an
important segment of the importers doing business in this manner. They are
the primary source of supplies for the small- and medium-sized retail

outlets, which often find it impossible to buy directly from manufacturers
that require large orders.

Purchasing associations are formed by independent retailers. These
associations combine purchasing power and operate their own warehouses, thus
performing a function similar to the wholesaler.

There are many commission agents and brokers in Italy serving the domestic
and European markets. An Italian representative can often provide an
excellent starting point in exporting to Southern Europe, Eastern Europe, or
North Africa. The Italian firm can easily handle the logistics, linguistics,
transshipment, and stocks on behalf of the American firm. However, if the
American firm desires these activities to be performed, they should be
explicitly stated in a contract or sales agreement.

If the product normally has a high sales volume and low profit margin, the
Italian firms seek to deal direct with the manufacturer. Sales to a
department store, chain store, or end-user often gives best sales results,
but requires greater promotional effort by the American exporter. The direct
sales method eliminates the added shipping and warehousing expenses, but the
U.S. exporter and Italian importer must handle the shipping formalities and
work harder to ensure a successful business relationship.

The introduction of products into the Italian market should come after the
U.S. exporter has planned and reviewed the consumer and business
environment. See the Exporting Marketing Plan Outline on page 47 for
suggested first steps to take in the planning phase. Product representation
throughout Italy is facilitated by the unified and compact market and may
be achieved with any of the following distribution methods to cover the
entire area, depending on the expected sales volume, product support
requirements, and marketing techniques. However, these methods must be
applied with the U.S. exporter being mindful of the advantages a local
representative would have in serving the home market.

Establishing a sales office to serve the entire country and provide a
distribution base for Western Europe.
Selling through an agent a or distributor whose activity may cover
specified areas, the entire country, or include European-wide sales.
Selling through established wholesalers or dealers.
Selling directly to department stores, chains, retailer cooperatives,
consumer cooperatives, or other purchasing organizations.

The U.S. exporter would be ill-advised, after having appointed a
representative firm, to provide only product literature and samples and then
expect to have good sales results. Regular communications and visits to the
representative, particularly when newly appointed, by seasoned sales
personnel or company technicians can reveal information on market
developments and assist in the solution of any problems. Regular submission
of sales reports can be a vital link to analyzing sales results and
identifying potential problems before they occur. Italian firms can purchase
products and services from international sources and have come to expect
well-designed, high-quality products, with efficient after-sales service. An
effective after-sales servicing system also should be incorporated into
distribution plans.

Appointing an Agent or a Distributor
Italy represents a large and affluent market where language and personal
relationships are valued when conduction business transactions. American
firms have found that relying on local Italian sales agents or distributors,
who have the contacts and understand the market, can most effectively

develop sales.

It is important to obtain specific legal advice on appointing an agent or
distributor, but some general guidelines follow. All agent agreements should
be in writing and state the marketing area and any exclusive arrangements.
Termination of the relationship is the area that most frequently causes
problems for American exporters. Generally, the civil codes protect the
interests of the representative. In the absence of termination provisions in
a written agreement, the law provides for a minimum notice of termination of
4 months. Parties may agree to other terms, provided the notice of
termination is not less than 1 month. An agreement with a definite period
terminates on the agreed expiration date. If the parties continue to operate
under the agreement after that date, the agreement is usually deemed
extended for a further identical period but not for more than a year. If the
American principal wants to terminate the relationship, notice of
termination should be given, even with a definite term contract.

The termination of an agreement without the required notice makes a U.S.
principal liable for compensation. The Italian sales agent could seek to
claim the amount of the commissions that would have been earned during the
termination period or for the amount of actual damages suffered. In
exceptional cases, and only for just cause (such as competition or fraud),
an agreement may be terminated without notice provided the other party is
immediately advised of the reason. In such cases, the courts may be
requested to terminate the contract.

At the expiration or termination of an agreement, by whatever means, an
agent who has increased the value of the business is entitled, in principle,
to an adequate remuneration which cannot exceed the average of the
commissions in 1 year. Such claims by agents are subject to an expiration
term of 1 year.

Three kinds of agreements are commonly used:

Exclusive distributorships, where the distributor has the sole right to
sell specified goods within a defined area.

Quasi-exclusive distributorships, where the distributor sells almost all
the specified products within a defined area.

Informal distributor arrangements under which the grantor imposes heavy
obligations on the distributor and which would cause damage to the
distributorship if the grantor terminated the agreement.

In the absence of mutual agreement, or the failure to meet contract
obligations, a distribution agreement of indefinite term cannot be
terminated by the grantor without reasonable notice or fair compensation. In
general, grantors should consider protecting themselves by entering into
agreements for definite periods rather than an indefinite period. Also,
specific minimum performance clauses should be considered, such as percent
of distributor's sales, minimum annual sales, number of business contacts to
be made, etc., and grantors should propose that U.S. law and courts have
jurisdiction.

EC Legislation on Agents
The careful selection of a dynamic representative is important for
successful sales over the long term. The selection of a good sales
representative is also essential because the EC legislation is restrictive
regarding the termination of agents and distributors. The European Community

Directive EEC 86-653 sets forth conditions on termination of a commercial
agent and provides for appropriate compensation.

Under EC legislation, a commercial agent is a self-employed intermediary who
has continuing authority to negotiate the sale or the purchase of goods on
behalf of another person, or to negotiate and conclude such transactions on
behalf of the principal.

Each party is entitled to a written document setting out the terms of the
contract. The minimum termination notice is 1 month for the first year of
service, 2 months for the second year, and 3 months for the third year and
subsequent years. Agents must be compensated if they brought the principal
new customers or increased the volume of existing business.

The amount of indemnity may not exceed a figure equivalent to an agent's
annual remuneration over the preceding 5 years or the average of the period
in question. The indemnity is not payable if the principal has terminated
the contract because of default by the agent or if the contract is
terminated on grounds of age, infirmity, or illness of the agent.

The local district offices of the International Trade Administration of the
U.S. Department of Commerce offer an Agent/Distributor Service (ADS) to help
U.S. firms find agents or distributors in Italy. The U.S. exporter seeking
an Italian sales agent should ideally visit Italy to make an appraisal of
the relative merits of the prospective agent. Besides acquainting the U.S.
exporter directly with local market conditions and special sales
characteristics, a visit also provides an opportunity to discuss policy and
sales campaigns with the potential agent, and to review responsibility for
customs fees, taxes, labeling, business procedures, and payments. These
responsibilities should always be clearly defined before undertaking a
long-term relationship.

A continued and close working contact between the American firm and the
agent or distributor is very desirable and should be developed early in the
relationship. Certain products and equipment require servicing to maintain
their useful life. The U.S. exporter should determine if servicing is needed
and develop a distribution network to include such servicing by qualified
personnel. To build trust, loyalty, and marketing skills, U.S. producers
frequently bring their agents or distributors to the United States for
training and marketing assistance.

Wholesale and Retail Channels
There are numerous well-established sales outlets in Italy. These firms,
both at the wholesale and retail level, have traditionally been small units
with high overhead. The trend is slowly changing to fewer units dealing with
a greater volume and offering more competitive prices.The increased tempo of
commercial and industrial activity, as well as suburban development, is
slowly bringing about changes in the distribution system.

Wholesalers supply a variety of services to associated small retailers,
including sales promotion, advertising, and retail training. In some cases,
they combine as a group to purchase from manufacturers and then distribute
the goods to their customers.

Retail outlets range from the large department stores to the small shop
owned and operated by an individual. Although some retail outlets are small,
such enterprises are decreasing in number as efficiencies of scale and
purchasing power become the major competitive factors bearing on profit
margins. A trend toward larger outlets has been under way, with the
formation of cooperative chains, expansion of department stores,

establishment of medium-sized department stores, and the development of
chain stores under single management.

Mail-order sales account for a very small part of total retail sales.
Certain firms have used this technique successfully in combination with
their usual retail outlet operation. Promotion is carried out by catalog or
by newspaper advertisements with no personal contact. Hobby centers,
do-it-yourself, auto supply centers, and discount stores also are enjoying
great success.

When seeking sales in Italy, American firms should remember that the average
Italian consumer demands quality and can select from a wide array of
products from around the world. The Italians appreciate style, quality, and
personalized service. Shopping is usually done on a daily basis, and shops
are smaller and more personalized than those found in the United States. The
Italians are friendly to Americans and are aware of U.S. styles, cultural
activities, and events. Many have visited or lived in the United States.
They are more reserved and formal on the initial meeting than their American
business counterparts. Style is important but an ostentatious display of
wealth is considered to be in poor taste.

Transportation
Railroad--The railroad system is nationalized and operated by the Italian
State Railways (Ferrovie dello Stato, abbreviated FS), a government agency.
The railroad provides an efficient and economical method of transportation.
More than half of the rail system is electrified.

Highway--The highway system is approximately 197,000 miles, including over
3,000 miles of super highways called the autostrade. The network connects
the major industrial centers and offers easy access to Northern Europe.
Trucking services are operated mainly by private companies under government
concession.

Air--Alitalia, a state-owned company, is Italy's principal airline,
providing both international and domestic service. Additional domestic
service is provided by ATI, which is a wholly owned subsidiary of Alitalia,
Itavia, and Alisarda airlines. Charter service is offered by SAM, also an
Alitalia subsidiary, while air-taxi service is available from Unijet Italia
in Rome and Agena in Milan. Italy has an extensive airport network
consisting of 19 international, 17 domestic, and 59 general aviation
airports.

Sea--Italy has six major seaports--Genoa, Livorno, Naples, Palermo, Trieste,
and Venice. In addition, there are 35 smaller ports mostly used for coastal
shipping.

Advertising
Advertising in Italy has grown rapidly in volume, importance, and
sophistication. This growth in advertising has been accompanied by a
proliferation of advertising agencies and an expansion of services. Along
with Italian-owned agencies, there are joint ventures with other European or
American firms. While some agencies specialize in specific services and
media, a large number of full service agencies deal with all advertising
aspects and have market research facilities.

The following is a breakdown of media use: newspapers, 35 percent;
magazines, 35 percent; radio and television, 22 percent; movie strips, 2
percent; and other methods, 6 percent.

Newspapers and Periodicals--The main means of product advertising in Italy
is through the daily newspapers. Newspapers work closely with advertising
firms, both Italian and foreign. However, since the newspapers themselves do
not maintain advertising departments, advertising firms must place their ads
with special agencies commissioned by the papers to receive advertising for
them.

Of about 90 daily newspapers in Italy, only a dozen or so are read
throughout the country, and while some 230 Italian and foreign periodicals
are on sale in Italy, only about 20 have a large circulation.

Television--Italy is served by three television networks operated by
Radiotelevisione Italiana (RAI), a government-regulated company in which the
state owns a majority interest. The three networks carry commercials in
programs all day long. In addition, some 100 private television stations are
licensed for local broadcasting.

Radio--There are three radio stations owned and operated by RAI. These are
on the air for more than 340 hours weekly, and commercial time is available.
In addition to the three networks, there are numerous local radio stations.

Motion Picture Theaters--Wide use of film clips is made for advertising
purposes. There are some 10,000 motion picture theaters and many regularly
show advertising. The rates for advertising vary according to the showing
time and class of the theater. Advertising is shown during every
intermission. Therefore, this medium may be used to reach a wide market and
cut across economic strata.

Posters and Billboards--Poster advertising is handled by a number of
specialized companies, as is electric sign advertising, which is subject to
special regulations. Poster advertisement on walls, along streets, in street
cars, buses, and other means of transportation are used to reach the
consumer market. Both posters and billboards are subject to the approval of
provincial authorities and to payment of a tax on poster advertising.

Show Windows and Flyers--Show window advertising is extensively used in
Italy. Displays are usually attractively done and show prices of the items
for sale. Advertising flyers are in common use, and street banners are used
also for special occasions. Loudspeakers are used for advertising at
sporting events. Direct advertising, through the distribution of gifts,
samples, and price reduction coupons, is frequently used to interest
consumers.

For consumer products such as soap, soft drinks, and grocery items, it is
not unusual to offer in the package a free gift or certificate, a discount
coupon, or a chance in an advertising lottery. Free samples appear to be
especially effective for consumer items of nominal cost and high repeat
sales potential. Consumers are also quite receptive to advertising catalogs,
which are frequently passed along from person to person. Distinctive and
imaginatively designed letterheads and trademarks are quite important in
publicizing a company and imparting an image of quality, style, and
sophistication.

Market Research and Trade Organizations
Market research is closely related to advertising, and a number of firms
specialize in this work. There are over 100 market research agencies
operating in Italy, of which several are subsidiaries of well-known American
companies. Large Italian companies, including the leading manufacturers of
consumer goods, conduct market research either through their own specialized

departments or through market research agencies.

Most of the manufacturers' associations are members of the General
Federation of Italian Industry (Confindustria), Viale dell' Astronomia 30,
00144 Rome. This association publishes material of possible interest to
U.S. businesspersons, including an annual review of the Italian economy, and
a bulletin in English several times a year.

There are chambers of commerce in all major Italian cities, and some,
particularly those in large industrial centers such as Milan, publish
economic reviews of their particular regions. A monthly review of the
Italian economy is published by the Union of Italian Chambers of Commerce
(Unione Italiana delle Commercio, Industria E Agricoltura), via Piazza
Sallustio 21, Rome. The American Chamber of Commerce in Italy, Via Cantu' 1,
Milan, publishes a monthly review in English containing information on
current business developments.

Several of the leading banks, such as the Banco di Roma and the Banca
Nazionale Del Lavoro, also publish economic reviews. There are also a number
of periodicals specializing in commercial and financial matters that provide
marketing information.

Marketing reports prepared by the Commerce Department's U.S. and Foreign
Commercial Service in Italy are available on the Italian industry sectors
identified as offering the best sales potential. These reports are made
available to American exporters through the National Trade Data Bank (NTDB)
or by contacting the nearest Department of Commerce district office.

There are numerous advertising agencies with a wide range of services. The
large ones provide a full range of advertising services and are members of
the Institute of Advertising Practitioners, which is closely associated with
the American Association of Advertising Agencies.

Advertising agencies utilize every medium available to advertisers: direct
mailings, press, radio, television, point-of-sale advertising, posters, and
public transportation placards. Other promotional techniques, such as
coupons, samples, premiums, and prizes, are also used. Laws covering gaming
and lotteries as well as restrictive trade practices are strictly enforced
by the government. Firms advertising and selling goods should obtain local
advice regarding provisions of the laws and consumer acceptance of the
promotional or marketing approach.

The names of Italian advertising agencies, market research organizations,
and management and public relations counseling firms may be found in such
publications as the International Directory of Market Research Houses and
Services, American Marketing Association, 420 Lexington Avenue, New York, NY
10017, (212) 687-3280, and the Directory of Marketing Research Agencies and
Management Consultants in the United States and the World, Bradford, P.O.
Box 276, Fairfax, VA 22030, (703) 560-7484.

Trade Fairs
Exhibitions are a cost-effective method to enter a foreign market and meet a
wide range of buyers interested in a particular industry sector. Sales
professionals find that trade fairs attract extensive buyer attendance and
frequently can be used to gauge acceptance and pricing of new products and
to observe the competition. In the course of a few days, a new market
entrant may be able to generate more qualified and motivated prospects than
by using any other sales approach. Also, fairs are useful for finding an
agent, distributor, or representative. The U.S. Department of Commerce
frequently organizes events that are identified as having excellent

prospects for American exporters. Information on participating in Italian
trade fairs can be obtained from Department of Commerce district offices
located throughout the United States.

For information about trade fairs at Fiera Milano, the large international
trade fair site in Milan, firms can contact Fiera Milano's U.S.
representative for information by calling 1-800 524-2193. Fiera Milano
organizes an extensive variety of international shows each year.

Government Procurement
The Italian Government and its agencies do not ordinarily make purchases
abroad except when domestic suppliers cannot adequately meet the needs of
government procurement offices. The term "domestic suppliers" includes the
local subsidiaries, branches, and agents of U.S. firms, and importers and
distributors of merchandise imported from the United States. It is strongly
suggested that U.S. firms utilize the services of Italian agents and
distributors rather than attempt to offer their products directly to Italian
Government agencies.

To be eligible for a government contract, a firm must establish its
financial and technical eligibility by presenting its appropriate
qualifications to the agency with which it wishes to do business. The
required documents include the firm's legal structure, organization,
manufacturing capacity, ownership, experience, and work accomplished in the
past.

Each Italian agency maintains its own list of eligible contractors and
suppliers, and a firm must establish its eligibility directly with each
agency with which it wants to contract.

Each of the Italian Government agencies makes its own purchases except for
office equipment and supplies. Such items are centrally procured by the
government's central purchasing office, the Provveditorato Generale dell
Stato, an agency operating within the Ministry of the Treasury.

In addition to the central government agencies, there are 20 regional
governments, 95 communal authorities, and about 30 state universities
actively procuring a large variety of goods and services.

The Italian Government owns, through several holding companies, all or part
of the stock of hundreds of firms representing a large segment of industry.
These firms, organized and operated as private enterprises, are free to buy
from domestic or foreign sources whatever equipment and supplies they need
for their operations. The general tendency among these firms, as well as
among the majority of other large Italian industrial concerns, is to make
every effort to eliminate what they consider to be the unnecessary costs of
intermediaries. Consequently, they establish relations with Italian or
foreign manufacturers who are in the best position to supply their needs.

U.S. DEPARTMENT OF COMMERCE EXPORT SERVICES

Export Programs
The U.S. Commerce Department assists firms seeking to export products and
services. The first step in the exporting process is to contact a local
Department of Commerce U.S. and Foreign Commercial Service (US&FCS) district
office. District offices are located in major cities throughout the United
States and serve as the first point of contact for export assistance. Each
district office maintains commercial reference materials, including market
information and trade leads from overseas. The US&FCS also has offices

located at U.S. embassies and consulates throughout the world which provide
assistance and information to traveling business persons.

The following is a list of Commerce assistance available for the interested
exporter. Additional information is available from the local US&FCS district
offices.

Foreign Economic Trends (FET) Report -- a report providing general
economic and commercial background information on the Italian economy and
identifying some of the best sales prospects.

Customized Sales Survey (CSS)--a survey of the overseas market that is
custom-tailored for a product or service. Basic questions are researched and
answered about the probability for success and the best approach to the
market is identified for the product.

Agent/Distributor Service (ADS)--a search for potential agents,
distributors, or representatives that are qualified and interested in
dealing with a specific product in Italy or for any other country specified.

Gold Key--a schedule of appointments with qualified distributors in Italy
arranged by the US&FCS trade specialists in order to assist a U.S. firm
develop sales and reach its commercial objectives.

World Traders Data Report (WTDR)--a report providing an evaluation and
background data on a foreign firm.

Single Company Promotion (SCP)--a promotional program tailored for a U.S.
firm's product overseas provided by the US&FCS in Italy. Activities include
press receptions, mailings, catering, speakers, and printing flyers to
assist the American firm.

Trade Opportunity Program (TOP)--trade leads and investment opportunities
provided by U.S. embassies and consulates around the world for U.S.
exporters.

Commercial News U.S.A. (CNUSA)--a monthly illustrated publication of
American goods and services that is distributed to over 110,000 foreign
decisionmakers and importers worldwide.

Trade Shows, Trade Missions or Catalog Shows--trade events identified by
the U.S. Department of Commerce as having excellent sales potential for
American firms.

Trade Information Center
In addition to the Commerce Department's district offices located in major
cities throughout the United States, the Trade Information Center also
provides a one-stop source for information on all federal government export
programs. The center can provide such information as:

How to get started in exporting
Foreign market research
Export financing
Locating overseas buyers
Trade missions and fairs
Export seminars and conferences
Where to obtain tariff rates and licensing requirements

To reach the Center dial:

1-800 USA - TRADE (1-800 872-8723)

Business firms can call the Trade Information Center Monday through Friday,
8:30 a.m. to 6:00 p.m. EST. Hearing-impaired can reach the Center by calling
(1-800) 833-8723.

National Trade Data Bank
The National Trade Data Bank (NTDB) has been designed to bring a vast amount
of trade statistics and overseas marketing information together for ease of
access and increased use. By using the CD-ROM (compact disk--read only
memory), the equivalent of more than 200,000 pages of exporting information
is available. Additional information is added to the data base monthly.

For the serious exporter, the NTDB is a powerful resource to learn about
export markets, analyze trading patterns and trends, and understand trade
practices of foreign countries and develop business contacts for
distributing products overseas.

The NTDB is available for public use in the Commerce district offices and at
numerous public and university libraries throughout the United States. For
those with a computer equipped with a CD-ROM reader, the CD disk is
available for direct sale to the public. The cost of a single disk is $35;
an annual subscription of 12 disks is $360. Users may place orders or obtain
additional information on equipment needed to use the system by calling the
NTDB Help Line on (202) 482-1986.

Pitfalls to Avoid When Exporting
In exporting there is no substitute for experience. The following provides a
list of 10 of the most important steps a firm or individual should take
before entering the international market.

Obtain qualified export counseling or study international trade procedures.

Develop a marketing and financial plan. Include specific dates and
milestones to determine progress. Identify the key individual within the
firm to achieve these results.

Ensure a commitment of time and resources by all levels of management to
pursue exporting over the long term.

Take sufficient caution when selecting overseas agents or distributors.

Focus efforts on a core overseas market and expand in an orderly manner.

Do not neglect overseas clients when domestic sales increase or when
attending a U.S. trade event.

Modify products to meet cultural preferences or product standards of other
countries.

Provide product labels and sales literature in the local language and use
metric units.

Use an export management company or broker if exporting is beyond the
resources of the firm.

Consider licensing or joint venture arrangements to expand export sales.

BANKING AND CREDIT

Availability of Credit
Italy has a well-developed banking and credit system with numerous
corresponding U.S. banks. The Italian banks are subject to close government
supervision since the granting of credit and the administration of savings
are considered functions of "national interest." The establishment of a new
bank or the opening of a branch of an existing bank must be authorized by
the Bank of Italy, the central bank of Italy.

The Italian banking system consists of two sectors: a commercial banking
sector, which primarily accepts demand and short-term deposits, and a
"special credit institutes" sector. Short-term financing for foreign and
domestic firms is available from the commercial banking sector, including
branch offices of many U.S. banks. The special institutes generally
specialize in particular types of investment finance, for example,
agriculture, industry, real estate, housing, and credit. The principal
institutes for medium- and long-term industrial credit are the Istituto
Mobiliare Italiano (IMI), Banca di Credito Finanziario (Mediobanca), and
Ente Finanziario Interbancario (EFIBANCA).

U.S. firms desiring to finance major portions of their capital investment
outside the United States may find capital available in the Eurodollar
market. Several major U.S. banks have branches in Italy, principally in Rome
and Milan, to assist in financing capital investment.

There are numerous banking offices located throughout the country, with
nearly 1,100 banks and 14,000 branches performing commercial services. Among
the most important are the Banca Nazionale del Lavoro, Banca Commerciale
Italiana, Banco di Roma, and the Banco di Napoli. These banks are a
principal source of credit information.

Numerous U.S. banks perform banking services in Italy through branches,
subsidiaries, or representatives. Many American banks can also provide their
commercial customers with bank reports on an overseas buyer as well as
provide assistance on letters of credit and foreign exchange.

Foreign Exchange Policy
Italy has no restrictions on the amount of foreign exchange instruments,
currency, or checks which may be brought into the country. Normally, lire 1
million may be taken out of the country, but any amount declared on entry
may be reexported.

Italian exchange regulations are issued by the Italian Exchange Office
(Ufficio Italiano dei Cambi--UIC), Via Quattro Fontane 123, Rome 00184,
under authority of the Ministry of Foreign Trade. Foreign exchange may be
sold or acquired from the Bank of Italy or any of the banks authorized by
the Bank of Italy. In practice, all commercial banks are authorized to
conduct foreign exchange transactions.

Dollar currency, travelers checks, and, in some cases, personal checks, may
be exchanged at banks, exchange offices, and authorized tourist offices and
hotels. Major credit cards are accepted with proper identification. It is
best to first confirm what form of payment is accepted.

Quotations and Terms of Payments
When providing the Italian buyer with a price quote, American firms most
frequently provide a quote that includes packing costs, insurance, and

freight. This is called the c.i.f. price. The average Italian business
representative can then usually determine the charges for customs, taxes,
and local transportation to arrive at the final landed cost to importer. The
customary terms of sale in Italy are either cash or net. Sales made on cash
terms call for payment before delivery, on delivery, or shortly after
delivery -- usually within 10 days from the date of delivery. A 2 to 5
percent discount is made for payment of the full amount of the transaction
at the end of the specified period from 1 to 4 months from the date of the
invoice. The length of the period depends on the commodity involved, the
credit standing of the buyer, and the motivation of the seller. A period of
up to 2 years is often allowed for payment of capital goods, store
equipment, trucks, and similar heavy equipment.

Italian firms indicate that some American suppliers are too rigid in their
payment terms and have thus lost business to other suppliers because of
their rigidity. Financing is considered as much a competitive factor as the
product itself, the delivery date, or after-sales service.

While some U.S. manufacturers request payment upon receipt of the goods,
more successful sellers are offering terms allowing settlement of the
account from 60 to 120 days following receipt of the order.

The use of irrevocable letters of credit for the Italian market has declined
appreciably in recent years. Although such instruments are still required by
American exporters, especially when the Italian customer's credit reputation
is not well known, the growing reluctance of Italian firms to provide
letters of credit has required American exporters to utilize other methods
to assure payment or lose the sale to other suppliers in the competitive
Italian market. The Italian businessperson is reluctant to pay a high fee
for a letter of credit when other suppliers or means of payment are
available. American firms have put to greater use the export credit
insurance and guarantee programs available through the Foreign Credit
Insurance Association (FCIA).

Information on specific Italian firms is available from the U.S. Department
of Commerce through its World Traders Data Reports Service. American banks
also provide credit information service as well as private agencies.

Just as the terms of any sales offer should be presented in a clear and
detailed manner, shipments should conform to the contract and to any samples
which may have been sent to the Italian importer. Special attention should
be given to the prompt observance of agreed delivery schedules, as prompt
delivery may be a decisive and possibly an overriding consideration of the
importer in placing additional orders. When shipping on letter of credit,
all terms specified on the letter of credit must be strictly observed. If
the terms are no followed, the letter of credit may not be honored by the
bank.

Installment Sales and Requirements
Selling on the installment plan was first introduced in Italy in the field
of capital goods, and it has played an important role in the industrial
development of the country. The payment term usually granted in sales of
manufacturing equipment ranges from 180 days to 5 years, with the buyer
making an initial cash payment and then settling the balance in monthly,
quarterly, or semiannual installments. Sales contracts on installment credit
for machinery usually provide for a lien against the merchandise on behalf
of the seller. As a general rule, the lien is established in favor of a bank
which, in turn, makes the funds available to pay the seller.

Installment sales credit is extended in the great majority of cases by

domestic or foreign firms already established in Italy or elsewhere in the
EC. Italian importers should be advised to check with the Italian Foreign
Exchange Office (Ufficio Italiano dei Cambi) on installment sales and
transactions exceeding 20 million lire. Banks, or other financial
institutions, must file a Foreign exchange statistical return (Comunicazione
valutaria statistica) on transactions exceeding 20 million lire.

If settlement takes place more than 12 months after importation, importers
must choose an authorized bank as their bank of domicile through which they
must carry out all payment operations. Deferred payments for imports are
permitted freely if settlement is to take place within 5 years after
importation.

For all authorized imports, the authorized banks provide exchange or permit
payment in Italian lire to a foreign account, provided that the appropriate
payment terms are observed.

Installment sales credits are extended, in the majority of cases, by
domestic or foreign firms operating in Italy. However, in these instances
the buyer bears the foreign exchange risk. Italian firms also make financing
arrangements with the Export-Import Bank of the United States. Financing
through the Eximbank carries no exchange risk.

Installment sales also are very common in Italy in the field of durable
consumer goods. They account for some 35 to 50 percent of all domestic sales
of consumer durable such as television sets, refrigerators, and washing
machines.

The financing of installment credit in connection with sales of consumer
goods is accomplished by the local banks through the discounting of bills of
exchange submitted by manufacturers or distributors established in Italy.
The bills of exchange commonly known as carta rataele (installment paper)
are signed by the buyers of the goods. Normal credit terms at the trade and
consumer levels is 30 days, occasionally extending to 60 days. At the retail
level, most outlets, except grocery stores, offer their customers credit,
usually 30 days. Credit card sales are as popular in Italy as they are in
the United States, and consumers are purchasing a wider variety of products
with credit cards.

Competition has required the use of liberal financing terms to the buyer as
opposed to requiring payment on a letter of credit or cash basis. Letters of
credit can be used initially for new accounts, with more liberal terms
granted if justified by volume and customer reliability. Knowledge of
industry practice and the customer is generally the prime consideration in
deciding whether to use sight drafts, time drafts, or open accounts. Usual
terms of sale are payment within 30 to 90 days after delivery, varying with
the commodity and the credit standing of the purchaser. American banks can
advise on using letters of credit as well as on short-term credit financing
terms. Credit financing may include overdraft facilities, term loans,
discounting, factoring, and exchange insurance.

Obtaining Credit Information
In addition to the World Traders Data Reports (WTDR) service provided by the
Commerce Department to examine the reliability of a foreign firm, background
information on Italian firms can also be obtained from the following sources:

Foreign Credit Interchange Bureau, National Association of Credit
Management, 475 Park Avenue South, New York, NY 10003.

Dun and Bradstreet, Inc., 99 Church Street, New York, NY 10007.

Gradon America, 71 West 23rd Street, Suite 1629, New York, NY 10010.

Owens Online, 11701 Belcher Road South, Suite #111, Largo, FL 34643-5116

Major banks--contact the international section of any large city bank for
assistance.

The American Bureau of Collections, Inc., 1100 Main Street, Buffalo, NY
14209-2356 (a collection bureau with an overseas network).

Export Financing Programs
Several programs exist to help finance exports. The following export
financing programs may be of interest to a U.S. exporter:

The Small Business Administration (SBA) provides financing for the
establishment, operation, or expansion of a small business, including firms
engaged in exporting. the SBA's Export Revolving Line of Credit Guarantee
Program provides pre-export financing for sales and for foreign market
development. SBA also has a program in cooperation with the Export-Import
Bank of the United States to participate in loans to small firms.

The Export-Import Bank of the United States (Exim-bank) is an independent
U.S. Government agency that helps to finance the sale of U.S. goods and
services to foreign buyers. Eximbank can provide loans directly to foreign
buyers, provide U.S. suppliers and their banks with credit risk protection,
or originate direct financing. Eximbank has regional offices located in New
York, Chicago, Houston, Miami, and Los Angeles.

The Foreign Credit Insurance Association (FCIA) is a private sector
association of insurance companies. The FCIA acts in conjunction with, and
as an agent for, Eximbank to cover export sale repayment losses due to
political or commercial causes.

The Overseas Private Investment Corporation (OPIC) assists U.S. private
investment to promote the economic and social progress of developing
countries. Programs include political risk insurance, special insurance
coverage for natural resource projects, leasing, and contractor's risks.

The International Bank for Reconstruction and Development (IBRD), under
the World Bank Group, promotes development of member countries mainly by
extending conventional loans for specific high-priority projects.

TRADE REGULATIONS

Membership in the EC
Italy has been a member of the European Community (EC) since its inception
in 1958. The other EC members are Belgium, Denmark, France, Germany, Greece,
Ireland, Luxembourg, the Netherlands, Portugal, Spain, and the United
Kingdom. Other countries have applied for membership.

The EC forms a customs union and a large unified market having free trade
among the member states. It levies a common tariff on imported products
coming from non-EC countries such as the United States, Japan, and Canada.
The EC also has a common agricultural policy, joint transportation policy,
and free movement of goods and capital within the member states. Other
aspects of commercial activity are being harmonized.

The EC grants tariff preferences to more than 100 developing countries and
about 40 overseas territories under the EC's Generalized System of
Preferences (GSP). Imports of nearly all semimanufactured and manufactured
goods originating in these countries and territories enter the Community
duty free. Annual duty-free quotas are established for those products, and a
system of providing certificates of origin has been established to ensure
that goods are not diverted through the GSP countries to take advantage of
the lower tariff concessions.

Free trade agreements have been developed between the European Community and
the European Free Trade Association (EFTA), which includes Finland, Austria,
Norway, Iceland, Lechitenstein, Sweden, and Switzerland. Under the terms of
these agreements, most industrial products and certain processed
agricultural products are exempt from import duties if traded within this
trading bloc of 19 nations. The result of the agreements reached between the
12 EC members and the 7 EFTA members is an open trading area for most
industrial products of 19 nations with an affluent population of 380 million.

While customs duty rates are the same for all 12 EC countries, the
value-added tax (VAT) and excise tax on products and services usually differ
from country to country. These taxes are levied in the country of final
destination. See the "Value-Added Tax" section for the Italian rates.

Import Duties
Italy applies the EC tariffs (customs duties), which are based on the
international Harmonized System (HS) of product classification. Duty rates
on manufactured goods from the United States generally range from 5 to 8
percent and are normally levied on the c.i.f. value of the goods at the port
of entry. The c.i.f. value is the price of the goods (usually the sales
price) plus packing costs, insurance, and freight charges to the port of
entry. Most raw materials enter duty free or at low rates while agricultural
products face higher rates and special levies. For information on EC duty
rates levied on agricultural products, contact the U.S. Department of
Agriculture, (202) 447-2144. For information on EC duty rates of
manufactured and industrial products, contact the U.S. Department of
Commerce, Office of European Community Affairs, (202) 482-2905.

The Harmonized System is an international system designed to classify goods
for customs administration and to develop trade statistics. It is arranged
into 99 chapters. The sections are established according to categories such
as agriculture, chemicals, chief material of the product, or type of
manufacturing industry. The chapters and sections start with agricultural
and primary products followed by products that are more processed and
technically more complex.

The HS classification number consists of a minimum of six digits, which are
common to all countries using the Harmonized System. Additional digits can
be used to meet each nation's individual statistical requirements and give
greater detail as needed.

If a HS number of the product being shipped is requested by the Italian
importer, this information may be obtained from any ITA district office or
from the Office of European Community Affairs, (202) 482-2905. The HS number
is usually requested by the Italian importer to determine what customs duty
will be levied at time of importation. The following is a summary of the Harmonized System classification:

On entry, some stamp or administrative taxes may be levied. Italian customs
officers may assess certain charges (diritti doganali) at the port of entry

according to their judgment. The rate of the diritti doganali may vary
substantially depending on the specific port of entry.

Summary of Harmonized System

Chapter Products Covered
1-15 Live animals, animal or vegetable products.
16-24 Prepared food, beverages, spirits, tobacco.
25-40 Minerals, chemicals, plastic and rubber articles.
41-49 Hides, skins, leather goods, wood, pulp, paper.
50-63 Textiles and textile articles.
64-67 Footwear, headgear, umbrellas.
68-70 Stone, plaster, cement articles.
71 Precious/semiprecious stones, metals and articles, imitation
jewelry, coins.
72-83 Base metals and articles.
84-85 Machinery and mechanical appliances, electrical equipment, sound
recorders.
86-89 Vehicles, aircraft, and vessels.
90-92 Optical, photographic, cinematographic, measuring, checking,
medical, clocks and watches, musical instruments.
93 Arms and ammunition.
94-96 Miscellaneous manufactured articles.
97 Works of art.
98-99 Reserved for country use.

Quotations and Payment Terms
U.S. sales quotations are usually given on a c.i.f. basis which is the sales
price plus costs (such as packing), insurance charges, and air or ocean
freight to point of importation. The c.i.f. quote is generally preferred by
Italian importers since they are usually familiar with the Italian customs
charges and value-added taxes levied on the product at the time of
importation, but may not be acquainted with U.S. costs for trucking, ocean,
or air freight. Large Italian firms and department stores, however, may
prefer to buy on other terms when they arrange for the shipping and insuring
the goods. Quotations and invoicing are usually in terms of the currency of
selling country.

American quotations, usually stated in dollars and on a c.i.f. basis, are
completely acceptable to Italian buyers. The usual practice of American
firms selling to a new customer is to require cash against documents on the
first sale or two. After establishing credit, the importer will expect to
pay by 30-, 60-, or 90-day letter of credit. In all cases, the American
exporter will have to decide how to balance between making the sale with
liberal financing terms versus more secure payment terms but with less sales
potential. When first starting out, American firms may often find it
necessary to offer their best price and payment terms in order to land the
sale in the competitive international market. Later, prices may be adjusted
as sales and volume permit.

The Italian buyer may request a quote or shipment of goods under INCOTERMS.
This is a set of international rules defining the important commercial terms
and practices. By referencing INCOTERMS in contracts or invoices, both buyer
and seller will have a uniform understanding of their responsibilities in an
agreement. Copies of the 90-page publication Guide to INCOTERMS are
obtainable from ICC Publishing, 156 Fifth Avenue, New York, NY 10010, (212)
206-1150. Exporters can also obtain information from the Dun & Bradstreet

Exporters' Encyclopaedia.

Merchandise may be examined by the Italian importer before customs clearance
for the purpose of making an inventory. Goods cannot clear customs without
shipping documents and payment of any required customs duty, applicable
value-added taxes, and any excise taxes. These formalities must be
undertaken by the importer at the time of clearing customs. Import licenses,
if required, should be presented by the importer within the period for which
they were issued.

Temporary Imports
Material may temporarily be imported into Italy without payment of duties
and tax if such material is to be used in the production or manufacture of a
product that is to be exported. The importer gives security, usually in the
form of a guarantee from a bank or insurance company, for the amount of the
usual duties and taxes. Upon exportation of the finished product, the
guarantee is released or the deposit returned.

Temporary entry of goods intended to be reexported in the same condition is
permissible free of import duties and taxes upon approval of an application
by Italian Customs.

Samples without commercial value are admitted free of duty and taxes.
Samples with commercial value are also admitted duty and tax free, provided
that the following conditions are complied with:

(a) The samples are accompanied by a representative of the U.S. firm with a
statement, notarized by an Italian Consulate, identifying the commercial
traveler and attesting to the intention that the samples are being imported
into Italy for the purpose of being shown or demonstrated and they are to be
reexported in due course.

(b) A certificate of origin from a recognized chamber of commerce is
submitted to identify the source of the goods.

(c) A deposit or bond, in the amount of the applicable customs duties and
taxes, is made at the point of entry. This will be refunded when the goods
are reexported.

(d) A list (in duplicate) with a full description of each sample, including
weight and value, is submitted. It is helpful to have such a list in Italian.

U.S. traders should be aware of another and more simplified procedure in the
form of a carnet for the temporary importation of samples without posting
guarantees. See the "Carnets" section on page 25.

In practice, samples valued in excess of lira 1 million (or about $1,250)
are practically impossible to clear through Italian customs. In such cases,
it is advisable to engage the services of a local freight forwarder.

Goods in Transit
Goods may clear customs with an EC transit procedure that provides for the
issuance of a single transit document under which the goods may be easily
shipped across frontiers of the EC member states. These transit documents
are completed for the importer by a freight forwarder in Italy. The EC
transit document provides the basis for a single, comprehensive procedure
covering the goods within the Community. Since the single transit document
is an EC form, the European importer, customs house broker, freight

forwarder, or shipper must prepare the document at the point of entry.

Free Trade Zones
There are two free zones in Italy: one in Trieste and the other in Venice.
Goods of foreign origin may be brought into the free trade zones without the
payment of customs duties and taxes. The goods remain free of all such
charges while held in the zones or if subsequently transshipped or
reexported. The goods may be freely sold, manipulated, and processed.

Italy also has numerous general warehouses that are located throughout Italy
in all the port areas and cities. There are no limitations as to the type or
origin of merchandise that can be stored in free trade zones or bonded or
customs warehouses. The time limit for such storage is 5 years. Merchandise
deteriorated while in storage can be destroyed without payment of duty.

The advantage of a free trade zone or bonded warehouse to American firms is
having a European base of supply to assure customers prompt delivery and
service. Also being able to maintain inventory at low cost with a minimum of
customs paperwork is also a distinct advantage.

Inward and Outward Processing
Inward processing is the temporary importation of raw material or products
for additional manufacture or processing. Merchandise imported for
additional processing and eventual reexport out of the EC is eligible for
custom-free treatment.

The reexported goods may be partly or totally processed. The import duty and
taxes are levied only on those goods that are not reexported and are finally
sold in the EC.

To qualify for inward processing, an Italian (or EC) firm must satisfy
customs that it is necessary to use imported goods instead of EC goods;
state an intention to export products manufactured from the imported goods
(or equivalent goods available in the EC); and assure that, upon
reexportation, the conditions set forth in the authorization are satisfied,
the exported products are accounted for, and the entered goods are
identifiable and relate to specific importations.

In outward processing, a firm in Italy may export goods for further
manufacture or processing from the EC customs area and then reimport the
final product. Duties and taxes are levied only on the increased value added
by the expatriate manufacturing or processing when the goods are returned to
Italy and not to the total value of the product. Only firms located in Italy
or another EC country are eligible to take advantage of this option, and
they should first gain approval of the Customs authorities.

Samples and Advertising Materials
Italy participates in the International Convention to Facilitate the
Importation of Commercial Samples and Advertising Materials. Samples of
negligible value imported to promote sales are accorded duty-free and
tax-free treatment. Prior authorization is not required. To determine
whether the samples are of negligible value, their value is compared with a
commercial shipment of the same product. Granting of duty-free status may
require that the samples be rendered useless for future sale by marking,
perforating, cutting, or other means.

Imported samples of commercial value may be granted a temporary entry and
exemption from custom charges. However, a bond or cash deposit may be

required as security that the goods will be removed from the country. This
security is the duty and tax normally levied plus 10 percent. Samples may
remain in the country for up to 1 year. They are not permitted to be sold,
put to their normal use (except for demonstration purposes), or utilized in
any manner for remuneration. Goods imported as samples may be imported only
in quantities constituting a sample according to normal commercial usage.

Carnets
As a result of various customs agreements, simplified procedures are
available to U.S. business and professional people for the temporary
importation of commercial samples and professional equipment. A carnet is a
customs document that facilitates customs clearance for temporary imports of
samples or equipment. With the carnet, goods may be imported without the
payment of duty, tax, or additional security. The carnet also usually saves
time since formalities are all arranged before leaving the United States. A
carnet is usually valid for 1 year from the date of issuance and is issued
at moderate cost. A bond or cash deposit of 40 percent of the value of the
goods covered by the carnet is also required. This will be forfeited in the
event the products are not reexported and duties and taxes are not paid.

Carnets are sold in the United States by the U.S. Council for International
Business at the following locations: 1212 Avenue of the Americas, New York,
NY 10036, (212) 354-4480; 3345 Wilshire Boulevard, Los Angeles, CA 90010,
(213) 386-0767; and 1930 Thoreau Drive, #101, Schaumburg, IL 60173.

Advance Rulings from Italian Customs
Prior to signing a long-term contract or sending a shipment of considerable
value, it may be prudent for a U.S. exporter or the Italian importer to
first obtain an official ruling on the customs classification, duty rate,
and taxes that will be applied on the shippment. Such requests should be
sent to Dipartimennto della Dogana, Via vie delle Provincie 103, 00162 Rome.
The request should describe the product, the material it is made from, and
other details needed by customs authorities to classify the product
correctly. While customs will not provide a binding decision, the advance
ruling usually will be accepted if the imported goods are found to
correspond exactly to the full description provided when requsting the
ruling.

Value-Added Tax
The value-added tax, most frequently called by its acronym VAT, is charged
on the sale of goods and services within the country. In Italian this is
called l'imposta sul valore aggiunto (IVA). Unlike the customs duty, which
is the same for all EC member countries, the VAT rates are established by
the tax authorities of each country and differs from country to country. At
each stage of the manufacturing and distribution chain, the seller adds the
appropriate amount of VAT (tax on the amount of value that the seller added
to the product, plus the amount of VAT passed on to the seller by the
supplier) to the sales price. The tax is always quoted separately on the
invoice. In submitting the revenue to the government, each firm periodically
subtracts the VAT it paid when making purchases of goods and services from
the amount of VAT collected on sales. The balance is remitted to the
government. This process repeats itself at each stage until the product is
sold to the final consumer who bears the full burden of the tax. The box at
the right contains a summary of the VAT rates in Italy.

Value-Added Tax

Exempt Rate--Products exported from Italy are exempted from the value-added
tax.

Preferential Rate--4 percent rate applies mainly to such necessities of life
as basic foods, medicines, and transportation. Examples of such goods
include: fish (fresh or frozen), fresh milk and milk products, fruit,
vegetables, wheat, corn, rice, vegetable oil, margarine, fertilizers,
finished goods used in urbanization projects (such as water treatment,
trasportation, electrical generation, and construction), medical instruments
(orthopedic, dental, and optical), newspapers, magazines, and periodicals.

Reduced Rate--9 percent rate applies to foods that are more processed such
as coffee, cocoa, spices, malt, yogurt and fermented milk products,
hydrogentated vegetable oil, processed cereal products, frozen fruit, soups,
condiments, mineral water, beer, wine, wine vinegar, wood, gas and electricy
for domestic and industrial use, scientific instruments, primary and
semi-finished construction materials (cement, prefabricated materials, floor
coverings), restaurant service and hotel accommodations, and private
telephone service.

Standard Rate--19 percent rate is the general or standard rate and applies
to the majority of goods and services. Examples include such goods as beef
and pork (fresh or frozen), fruit juice, liquor, natural gas and petroleum
products, chemicals and plastics, metals, machinery and machine parts,
office machines, furniture.

Luxury Rate--38 percent rate is applied on luxury items such as perfumes,
jewelry, cameras, stereos, furs, sparking wines, automobiles with engines
larger than 2,000 cubic centimeters, and motorcycles with engines over 350
cubic centimeters.

For imports into Italy, the VAT is levied at the same rate as for domestic
products or transactions. The base on which the VAT is charged on imports is
the c.i.f. value of the goods at the point of entry, plus any duty, excise
taxes, levies, or other charges (excluding the VAT) collected by customs at
the time of importation. This total represents the transaction value of the
import when it clears customs. The Italian importer is liable for customs
duties, VAT, and any other charges at the time of clearing the goods through
customs. Exports from Italy are exempt from VAT since they are not consumed
in the country and will be subject to taxes imposed in the country of
destination. Temporary imports that are reexported are not subject to the
VAT. The importer may have to post a temporary bond for the amount of
customs duty and taxes as security until the goods are taken out of the
country.

The EC is seeking to harmonize the range of VAT rates among the 12 EC member
nations. The EC Council has adopted guidelines for converging the VAT rates
over an extended transitional period such as seeking to establish a minimum
VAT rate for most products, lifting border tax controls, and defining which
products will be allowed an exempted or zero VAT rate. Each country will
still retain the collection and enforcement authority that currently exists.

The VAT is applied on the c.i.f. value plus the duty charged on the product.
Important exempted services and items include the transfer of shares and
bank bonds, transfer of businesses and of land, commissions paid on

goods exported, the forwarding of goods abroad, property rental, banking and
financial transactions, as well as insurance. The VAT is applied on
domestically produced goods as well as imports. The difference is either
paid to the government, or, in the case of a balance in favor of the seller,

the amount can be carried forward and offset against future amounts payable.
The ultimate consumer bears the full burden of the tax. Any person, Italian
or foreigner, that is engaged in a commercial or financial transaction that
produces an income in Italy or invests in real estate, stock market, or
other such venture, must obtain a fiscal code (codice fiscale) registration
number for tax purposes.

Excise Taxes
Excise taxes (l'imposta sui consumi) are levied on a small number of
products such as soft drinks, wine, beer, spirits, tobacco, sugar, and
petroleum products. For imports, the excise tax is paid by the importer and
is in addition to any customs duty or VAT. The EC plans to harmonize excise
taxes and create the single internal market.

Shipping Documents
Documents required for exporting include the usual shipper's commercial
invoice and the bill of lading or air waybill, none of which require
consular legalization. For textiles and apparel, it is good practice to
provide a certificate of origin, available through most state chambers of
commerce. For other products, however, if substantive proof of U.S. origin
is provided through other accompanying documents as well as through
characteristic trademarks, a certificate of origin is not normally necessary.

Shipments to Italy require one copy each of the bill of lading (or air
waybill) and the commercial invoice for customs clearance. There are no
consular requirements, but certificates of origin may be required as set out
below.

U.S. Customs also requires two copies of the U.S. Shipper's Export
Declaration (U.S. Department of Commerce Form 7525V) for goods valued at
$1,500 or more. A declaration form must be completed for all shipments by
regular mail or parcel post valued at $500 or more. The form must include
the harmonized commodity number of the exported product as well as the
weight stated in metric units. When sending goods through the mail, the
exporter should inquire at the post office as to the proper documentation
needed for mail shipments. For additional information or assistance on
export documentation, readers should consult publications such as the
Exporters' Encyclopaedia, published by Dun's Marketing Services or contact a
local U.S. Department of Commerce International Trade Administration
district office.

Although no special format is prescribed for the commercial invoice, it is
advisable to include the following: date and place of shipment; name (firm's
name) and address of the seller and buyer; method of shipment; number,
markings of the packages, and their numerical order; description of the
goods using the usual commercial description according to kind, quality,
grade, and the weight (gross and net, in metric units), along with any
factors increasing or decreasing the value; agreed price of goods; unit
cost; total cost f.o.b. factory plus shipping; insurance charges; delivery
and payment terms; and the signature of a responsible official of the
shipper's firm. Bills of lading should bear the name of the party to be
notified. The consignee needs the original bill of lading to take possession
of the goods.

Certificates of origin are required for a small number of goods such as
textile products. The need for a certificate of origin should be ascertained
directly from the importer or from the appropriate customs authority. Letter
of credit terms may stipulate that a certificate of origin be provided.
Customs authorities accept certificates of origin issued by authorized local
U.S. chambers of commerce or boards of trade.

Marking and Labeling
There is no general requirement that imports be marked as to country of
origin. Under Italian legislation, the origin of imported merchandise is
established through documentation accompanying the shipments arriving in
Italy and not through marking of products or their containers. Certain
specified commodities, however, must be marked or labeled to show
composition, and name and location of manufacturer, in accordance with
various laws and regulations.

The following articles are subject to special marking or labeling
regulations: lime, cement and similar binding agents; pianos, automatic
pianos, harmonicas and similar instruments; clinical thermometers; ethical
medicines; cosmetics; packaged foods; distilled spirits; beer; wine;
vinegar; and feedstuffs.

Hallmarking of gold and silver articles is required before they can be
offered for sale. Only small tolerances are allowable for manufacturing
errors. The hallmarking may be done by a hallmarking office after
importation.

Imports of certain commodities, including numerous foodstuffs, are subject
to special regulations regarding the manner in which they must be labeled to
show manufacturer, composition, content (in metric units), and country of
origin. In view of the complexity of these regulations and changing
requirements, information should be requested from the importer prior to
shipment. When the services of an importer are not available, information
can be obtained directly from the appropriate Italian Government authority
listed at the end of this publication. For agricultural and food products,
the U.S. exporter should contact the U.S. Department of Agriculture for
marketing and labeling information and exporting assistance.

Import Licensing
With exception of a small group of largely agricultural items, practically
all goods originating in the United States and most other free-world
countries can be imported without import licenses and free of quantitative
restrictions. There are, however, monitoring measures applied to imports of
certain sensitive products. The most important of these measures is the
automatic import license for textiles. This license is granted to Italian
importers when they provide the requisite forms.

Various apparel and textile products, and controlled items such as arms and
munitions are the most frequently regulated items. Import licenses are
generally rapidly granted for goods of U.S. origin and delays are usually
from lack of proper documentation or information.

Licenses are not transferable. They may be used to cover several shipments
within the total quantity authorized. In general, the goods involved are
indicated on the license by the Harmonized System classification number and
the corresponding wording of the tariff position.

Technical Standards
The metric system is the key measurement system in international trade, with
the United States being the only major nation where this system is not in
full use. The 1988 Trade Act states that the metric system is the preferred
system for weights and measures. American firms can be at a serious
disadvantage in world markets since overseas buyers are reluctant to accept
nonstandard (nonmetric) products since replacement parts and tools are less
available and serious safety risks could result by mixing metric and
nonmetric parts.

As a member of the EC, Italy applies the product standards and certification
approval process developed by the European Community. Italy is required by
the Treaty of Rome to incorporate approved EC directives into its national
laws. There is frequently a long lag by the various EC members on obtaining
national implementation.

With the development of a single harmonized EC product standard, U.S.
exporters may find that it is usually much easier to comply with one EC-wide
standard rather than having to meet several individual national standards
when exporting to Europe.

There are numerous mandatory and voluntary standards in existence that
define products, processes, or procedures and embrace many fields. The texts
of these standards may be obtained directly from UNI, Ente Nazionale
Italiano di Unificazione, Piazza Diaz 2, 20123 Milan (Italian National
Bureau of Standards) or through the American National Standards Institute,
1430 Broadway, New York, NY 10018, (212) 354-3300.

European Community Certification
As part of the unification program to establish common standards for all 12
member countries, key product areas will be regulated by the Community.
Mandatory requirements to protect the health and safety of consumers, as
well as the environment are constantly being developed and implemented. To
indicate conformance to the mandatory EC requirements, a CE mark must be
placed on all regulated products by the manufacturer or a representative
before they can be sold on the EC market. The applicable product testing and
certification requirements for individual product categories are specified
in the various EC directives. The CE mark relates only to the mandatory
health, safety, and environmental requirements established by the EC; it
does not indicate conformity to European product standards. Thus, national
marks of conformity with product