The United Kingdom's economy is dependent on foreign trade. The government supports free and unrestricted trade and has championed international trade organizations such as the World Trade Organization and the EU. Because of its dependency on trade, the British have few restrictions on foreign trade and investment. Of the kingdom's 500 largest corporations, 60 are American. The United Kingdom's main trade partner is the EU. Some 58 percent of the kingdom's exports go to EU nations. Its main EU partners are Germany, which accounts for 12 percent of exports; France, with 12 percent; and the Netherlands with 8 percent. The United Kingdom's largest single market is the United States, which accounts for 13 percent of its exports. The United States also provides 14 percent of the kingdom's imports. As a combined group, the EU provides 53 percent of British imports. Germany provides 13 percent, France 9 percent, the Netherlands 7 percent, and Italy 5 percent. The United Kingdom has trade treaties with 90 different nations.
The strength of the British pound and the state of the economy has made the United Kingdom an attractive investment area for foreign investors. The kingdom is the world's second-largest destination for investment. About 30 percent of all foreign investment going into the EU is directed at the United Kingdom. The British also invest heavily in other nations. In 1998, the United Kingdom had US$120 billion invested abroad. The United States is the largest single investor in the United Kingdom and accounts for 44 percent of all foreign investment in the United Kingdom. In 1997, U.S. investment in the United Kingdom amounted to US$138.8 billion. The total U.S. investment in the United Kingdom is more than the total American investment in Germany, France, Italy, and the Netherlands combined. In overall terms, foreign investment accounted for 5 percent of GDP.
For several decades, the United Kingdom has had a trade deficit, as it has imported more goods and services than it has exported. In 1998, the trade deficit amounted to US$35 billion or 1.5 percent of GDP. However, because of the attractiveness of the kingdom to foreign investors, new investment capital continues to allow the British to fund this deficit because the new investment monies exceed the money the kingdom loses through its trade deficit.
Foreign companies provide 40 percent of British exports and they have a significant presence in the manufacturing sector. About 20 percent of manufacturing companies are foreign-owned and 16 percent of employment in the sector is tied to foreign firms. In 1998 there were 25,800 foreign companies in the United Kingdom. Among the major international companies in the United Kingdom are Dupont, with sales in 1998 of US$2.7 billion, the Swiss chemical company Ciba, with sales of US$2.3 billion, and Coca-Cola, with sales of US$2.1 billion.
In order to attract foreign businesses and foreign investment, the British government has adopted a variety of programs. For instance, the Parliament allows local and regional governments to establish enterprise zones. In these zones, companies receive exemptions from property taxes and reimbursement for costs involved in the construction of new factories or business locations. These inducements may be extended for up to 10 years. There are also programs that provide incentives for companies to locate in economically depressed urban areas that are known as "Assisted Areas." In 1998, the total value of these programs was US$315 million. There are 7 free trade zones in the United Kingdom (Birmingham, Humberside, Liverpool, Prestwick, Sheerness, Southampton, and Tilbury). These zones allow goods to be stored for shipment without tariffs or import duties.