The Spanish economy has undergone a transformation in the last decade, in the course of which it has emerged as a significant industrial power. This process has been associated, in part with EC membership since 1986, a result of which has been a reorientation of trade away from traditional trading partners, such as Latin America and towards the EC. In 1991, 67-2 per cent of Spanish exports of manufactures went to other EC countries, compared with 51-2 per cent in 1980. Spain has, too, been a favoured destination for foreign direct investment in recent years, facilitating the development of new industries. Spain, however, faces a number of challenges in the next few years. First, it has to contend with economic and monetary union (EMU). This will entail not only monet ary discipline to ensure that the Maastricht convergence criteria are met, but also continuing effort on structural policies to sustain competitiveness. Second, the persist ence of a rate of unemployment which has been the highest in the EC for several years, coupled with the social policy aim of encouraging a higher rate of female participation in the labour force means that employment creation will be a priority. Third, the need has been identified for Spanish industry to internationalise in order to underpin the economy's performance. A fourth challenge is to ensure a more balanced regional pattern of development. Much of the growth in the late-1980s was in the relatively more prosperous Madrid and Catalonia regions, as well as in the auton omous region of Valencia, all of which benefited dispro portionately from the inward investment boom. In contrast, some of the 'rustbelt' areas in the North have been adversely affected by the decline of traditional industries such as shipbuilding and steel-making, while the less-developed regions in the South and West con tinue to lag behind in their industrial development. For political as well as economic reasons, redressing the regional balance is vital. In meeting these aims, Spanish industry has a pivotal role to play both in supplying domestic demand and in securing foreign earnings. Before 1975 and the end of the Franco regime, Spain had successfully industrialised its economy, largely by concentrating on consumer goods manufactures and with quite significant protection. In the wake of the 1973/4 oil crisis, industrial growth fal tered, as can be seen from Chart 1, with the result that manufacturing production in 1984 was no higher than it had been a decade earlier. Renewed growth in output only occurred from 1984 onwards, considerably helped by a substantial labour cost advantage, but with different industries, notably motor vehicles, leading the way. However, as the OECD (1992: p. 78) notes, 'Six years of rapidly rising wages, coupled with the appreciation of the peseta, have considerably reduced the wide labour cost margin that Spain enjoyed in the past'.