structural reforms has been slow and uncertain. A number of sectors highly attractive to foreign investors have so far been held off the market, including telecommunications and the tobacco industry.

Monetary policy remains in the hands of the National Bank of Poland (NBP), which continues to focus on control of monetary aggregates to maintain economic stability and reduce inflation. The main challenge the NBP faced in 1994 was to restrain money-supply growth caused by the rapid build-up of foreign exchange re

serves.

Poland's main foreign economic policy goal remains membership in the European Union. Together with Hungary, Poland filed an application for membership in the EU in April, 1994. Poland's association agreement with the EU, signed in 1991, was finally ratified by the EU and came into force in 1994, although this was largely symbolic, since the trade provisions had been provisionally applied since 1992. Relations with the EU warmed considerably, but remained strained by the EU's reluc tance to speed integration of Poland or to open some of its most protected markets to Polish products. The Polish government continued to seek an end to anti-dumping actions by the EU, as well as improved market access for Polish food products, coal, steel, and textiles. Poland's imposition of a variable levy on a number of agricultural products has been hotly protested by the EU, although the levy seems to have had minimal impact on trade. It is uncertain whether this is because, as the Polish Ministry of Agriculture claims, it covered very little trade, or because the mechanism was designed in a way that made it highly vulnerable to fraud, or if the bulk of covered imports were always for processing and re-export, and subject to drawback of the levy.

Poland completed negotiation of a Uruguay Round tariff schedule and signed the Marrakesh Agreement in April, 1994. However, the United States and several other trading partners used the related process of Poland's re-accession to the GATT to continue negotiations seeking further concessions on a few items. The Polish government has indicated it will not seek ratification of the Marrakesh Agreement until GATT re-accession is completed, changing Poland's status from a non-market to market economy, and its schedule of concessions from quantitative import quotas to a bound tariff schedule.

A major component of Poland's economic recovery has been the sale of goods to non-residents visiting Poland. Estimates of this trade range as high as over $4 billion a year (about five percent of GDP). Because of the relatively low price of gasoline in Poland (about $1.75/gallon, versus $3.50/gallon in Germany), there is essentially no cost for Germans living up to 300 kilometers from Poland to come shopping in Poland. For the last three years, Germans have come to Poland by the millions to buy food, clothing, and gasoline. In 1994, it became increasingly evident that Russians were also engaging in this trade, although they were often importing as well as exporting, and while the Germans came looking for bargains, the Russians often were looking for imported luxury goods, such as designer fashions and household appliances. Receipts from this trade, recorded in the Polish balance of payments as short-term capital flows, are the largest source of the increases in Poland's foreign exchange reserves seen since mid-1993.

2. Exchange Rate Policies

The zloty has been internally convertible for all current transactions since January, 1990. This includes full repatriation of profits on foreign investments. Since October, 1991 the NBP has managed the exchange rate through a crawling peg mechanism. This devalues the zloty by small daily increments (currently totalling 1.5 percent per month) to offset domestic inflation and keep Polish exports competitive. Exporters have long felt that the rate of devaluation was too slow, although their pressures for faster devaluation have been weaker this year than in the preceding two years. The exchange rate is set against a basket of reserve currencies, currently the dollar (45 percent), the D-mark (35 percent), sterling (10 percent), and the French and Swiss francs (five percent each). Zloty rates against individual currencies fluctuate in accordance with changes in cross rates within the basket.

Capital transactions remain controlled. A license from the NBP is required for Poles to receive foreign credits, except for credits up to $1 million to be used to purchase goods or services abroad.

3. Structural Policies

Prices: Most subsidies and controls on the prices of consumer goods have been eliminated. Subsidies remain on a few items, including pesticides and fertilizers. Prices for fuel, public transportation, and rents for publicly owned housing (the bulk of the housing stock) are set administratively. Housing rents are set well below the cost of maintaining the buildings. There is an anti-monopoly office, responsible for

policing the competitive practices of Polish enterprises and keeping them from exploiting their monopoly positions on the domestic market.

Taxes: Although many administrative problems remain, Poland has been highly successful in introducing a modern tax system. The largest source of government revenue is the value-added tax introduced in 1993, and the second-largest is the personal income tax introduced in 1992. Customs duties remain a significant source of revenue, contributing about nine percent.

Regulatory Policies: Any person or firm registered as a business may engage in foreign trade. State-owned trading companies compete with private traders. Many of the state trading companies have been privatized, and one, Elektrim, is Poland's largest private company.

Few restrictions are placed on foreign trade, except on items in strategic areas. Import licenses are required only for the import of radioactive materials, munitions and military goods, internationally-controlled strategic items, fuel, cigarettes, and liquor. Imports of some high-proof spirits, cars over ten years old, and commercial vehicles and farm machinery over three years old are banned.

Export licenses are required for products in the following areas:

-petroleum products: fuels for engines other than aircraft; fuel for self-ignition engines; fuel oil;

-metals: non-ferrous scrap; lead, aluminum;

-soil products: nitrogenous fertilizers; peat and peat products; phosphatic fertilizers; potassic fertilizers;

-plastics: polyethylene; polypropelene; copolymer ethylene; propylene;

-polyvinyl chloride;

-synthetic rubber and synthetic fiber,

-chipboards; wood cellulose; waste paper;

-preserved and half-tanned hides;

-munitions;

-internationally controlled strategic goods.

The export of live geese and goose eggs is banned. The law does not distinguish between foreign and domestic investors for purposes of trade.

4. Debt Management Policies

In 1994 Poland concluded a debt-reduction deal with its London Club group of commercial banks. This reduced its debt to foreign commercial banks from $14.4 billion to $8 billion, and stretched out repayment to 2024. Poland had previously rescheduled its debt to the Paris Club group of Western official creditors. In 1994 the Paris Club executed the second (and last) tranche of its 50 percent reduction of Poland's official debt.

5. Significant Barriers to U.S. Exports

U.S. exports have been disadvantaged by Poland's association agreement with the EU because of the tariff preferences given to the EU by the trade provisions of that agreement. However, the damage was alleviated by a package of concessions implemented by the Polish government in 1993. Additional relief is provided in Poland's Uruguay Round tariff schedule and the tariff schedule still being negotiated for Poland's GATT re-accession.

Standards of testing, labelling, and certification in some cases have presented barriers to U.S. exports. In some cases they are more rigid and specific than equivalent regulations in Western countries. Existing regulations are being revised to reflect Poland's new open trade regime and to conform to EU standards, but periodically modifications are introduced which are quirky, hard to understand, and difficult to comply with. Standards enforcement remains in need of improvement. The Ministry of Health's Central Inspectorate of Sanitation (Sanepid) inspects and tests food and cosmetic imports to ensure they meet health standards. Sanepid has been overwhelmed by the increase in food imports since 1990, and much food enters the Polish market without inspection. U.S. firms have not encountered difficulties getting approval to sell pharmaceuticals in Poland, providing the products have been approved for sale in Western countries.

Service Barriers: Foreign banks are permitted to establish subsidiaries in Poland, either wholly-owned or in partnership with Polish investors. Out of a feeling that there are already too many small banks in Poland, the NBP has sought to pressure foreign banks to buy ailing Polish banks instead of opening new subsidiaries. While the law provides for foreign banks opening branches in Poland, the NBP dislikes the regulatory complications of this form of organization and is unlikely to license branches in the near future.

Foreign insurance firms are able to enter the Polish market. Foreign companies are prominent in the travel and tourism industry, but entry is regulated by the Ministry of Industry and Trade.

Investment Barriers: The present law on foreign investment aims at creating a level playing field for foreign investors, and eliminated most of the investment incentives previously granted. Requirements for incorporating foreign-owned firms are now the same as for Polish-owned firms. Foreigners are limited to investing via corporations, not partnerships or sole proprietorships.

One hundred percent foreign ownership is permitted. No registration of an investment with the government is required, nor is any screening applied, except in the following cases:

-Real Estate: Foreign acquisition of real estate, by purchase or long-term lease, or foreign acquisition of 49 percent or more of a Polish enterprise owning real estate, requires a permit from the Minister of the Interior. Foreigners may lease forests and agricultural land for up to 99 years, but may not buy it outright. Reports to parliament show that several thousand permits are applied for each year. While a majority are issued, a substantial number are refused.

-Strategic Industries: A permit from the Minister of Privatization is required for foreign investment in:

-operation of sea- or airports;

-real estate agency transactions; -defense industries;

-wholesale trade in consumer goods;

-performance of legal services.

A permit can only be denied when a proposed investment would threaten the economic interests of the state or state security.

Present law provides only limited incentives for foreign investment. An investor may apply to the Ministry of Finance for a tax holiday if his equity exceeds ECU 2 million and one of the following conditions is met:

-The company will operate in regions of high structural unemployment;

-The company will introduce new technologies;

-The company will export at least 20 percent of its output.

However, the Ministry of Finance takes the position that even if these conditions are met, granting of a tax holiday is at its discretion.

In addition to the tax holidays provided in the foreign investment law, the Polish government has used provisions of the customs law providing duty free entry for parts and components of goods to be assembled in Poland as an incentive for foreign investors. This has been especially significant in the automobile industry, where the government has sought partners for its many financially ailing car and truck factories. Beneficiaries of tariff rate quotas to import automobile, truck, or bus parts and components have included Fiat, Opel, VW-Skoda, Peugeot, and Volvo.

Poland is eligible for political risk investment insurance and credit guarantees from OPIC, and for EXIM Bank export credits and guarantees.

Government Procurement Practices: Improvement of government procurement practices is an important issue for the Polish government. It is preparing a new law governing procurement. Large procurements are already usually done by some sort of tender process, but in the absence of a law or regulations there are often questions about the procedures used. Poland has not signed the GATT Code on Government Procurement because of inconsistencies in its legislation. It may sign the code after adoption of the new legislation.

Customs Procedures: The Polish Customs Service has been a leading victim of economic reform. The rapid growth of imports over the last four years, as well as the proliferation of traders, has strained Customs' capabilities. Customs' facilities and personnel are overloaded by the volume of cargo they must process. The competence of personnel is not high. Communications between headquarters and field offices is poor, leading to inconsistent application of the rules. The greatest problems have occurred at road crossings on the German border, where officials are overwhelmed by the volume of traffic entering Poland, much of it in transit to the former Soviet Union. Poland signed the GATT Customs Valuation Code in 1989. While it has never been ratified, the substance has been incorporated into Polish customs law. 6. Export Subsidies Policies

Poland has signed the GATT Subsidies Code, but never ratified it. Present plans are to ratify the new code embodied in the Uruguay Round. Poland has eliminated its past practices of tax incentives for exporters, but it still offers some tax holidays to foreign investors who plan to export. A new law on restructuring the sugar refining industry has the potential for creating export subsidies for sugar, financed out of high domestic prices.

7. Protection of U.S. Intellectual Property

Intellectual property is an area of concern, particularly in copyright matters. However, the Polish government has made major strides in improving protection. The enactment of a new copyright law in February 1994 gave it a complete set of modern intellectual property laws. Full adherence to the 1971 Paris Act of the Berne Convention in July, 1994 was also an important step in guaranteeing protection to foreign authors. There is still a question whether the new copyright law protects the rights of foreign producers and performers of sound recordings. Ultimately, entry into force of the Uruguay Round TRIPS agreement will guarantee that protection, but in the meantime there is a question, which the Polish government could remove by reversing its position and signing the Geneva Convention on Phonograms.

8. Worker Rights

a. The Right of Association.-The Polish government has ratified Convention 87 of the International Labor Organization (ILO). Laws concerning employment, trade unions and collective bargaining were revised in early 1991. Currently, all workers, including the police and frontier guards, have the legal right to establish and join trade unions of their own choosing, the right to join labor federations and confederations, and the right to affiliate with international labor organizations. Independent labor leaders reported that these rights were largely observed in practice. Regarding the right to strike, the Trade Union Act of 1991 is less restrictive than the 1982 version passed soon after imposition of martial law, but still prescribes a lengthy process before a strike can be launched. When strictly observed, the law provides several opportunities for employers to challenge a pending strike, including the threat of legal action. An employer must start negotiations the moment a dispute begins. In August 1994, the government announced that this process would be shortened.

Under existing law, negotiations end with either an agreement or a protocol describing the differences between the parties. If negotiations fail, a mandatory mediation process ensues; the mediator is appointed jointly by the disputing parties or, absent agreement between them, the Ministry of Labor and Social Policy. If mediation fails, the trade union may launch a warning strike for a period of up to 2 hours or seek arbitration of the dispute. Both employers and employees have frequently questioned the impartiality of the mediators.

A full-fledged strike may not be launched until 14 days after the dispute is announced (strikes are prohibited entirely in the Office of State Protection, in units of the police, firefighters, military forces, prison services and frontier guards). If the strike is organized in accordance with the law, workers retain their right to social insurance benefits but not pay. If a strike is "organized contrary to the provisions of the law," workers may lose social benefits and organizers are liable for damages and may face civil charges and fines. Laws prohibiting retribution against strikers are not consistently enforced; the fines imposed as punishment are so minimal that employers can easily afford to pay them.

In September 1994, the government announced that legislation proposing important changes in existing laws governing trade unions, employers and the resolution of labor disputes would be sent to the Sejm before the end of the year. Senior officials proposed re-defining a "legal" strike to prohibit “occupation," hunger and "political" strikes as well as raising the threshold necessary for a successful strike vote to a minimum of 50 percent of all enterprise workers. The government also announced its intention to raise the number of workers necessary to form a trade union.

These and other proposals grew out of the government's "strategy for Poland," announced in June, 1994, which included a comprehensive attempt to adapt the many existing, and outdated, laws governing labor activity to Poland's emerging market economy. In August, the government sent a revised labor code to the Sejm under the "strategy" framework, in effect abandoning the landmark February 1993 "State Enterprise Pact," which had set forth a detailed framework for dealing with laborrelated issues and to which the unions, employers and government had agreed. In the interim, legal ambiguities continued, leading to some labor tensions.

b. The Right to Organize and Bargain Collectively.-Poland has ratified ILO Convention 98 on the right to organize and bargain collectively. The 1991 law on trade unions created a favorable environment to conduct trade union activity through provisions for time off with pay, as well as facilities and technical equipment in the enterprise, provided by the employer. In August, the government announced its intent to reduce some employer-provided, union-related costs in enterprises which have a large number of unions (some have as many as 50).

Notable weaknesses included weak sanctions for anti-union discriminiation. Polish law also lacked specific provisions to ensure that a union has continued rights of

representation when a state firm undergoes privatization, commercialization, bankruptcy, or sale. Labor leaders claimed that this ambiguity led to underrepresentation of unions in the large and growing private sector. There were also a number of confirmed cases where Solidarity activists were dismissed for labor activity permitted under Polish law, including organizing strikes.

Unions, management and workers' councils currently set wages in ad hoc negotiations at the enterprise level. Collective bargaining as a system of industrial relations is expected to encompass an ever larger percentage of the workforce. By fall 1994, both unions and employers were preparing themselves for such a relationship. During 1994, the government repeatedly stated its intention not to be drawn into labor disputes, as has been the tendency historically.

The government continued its ceiling on wages in state and private enterprises (except May-August when the Sejm and the President disputed the law) by means of a penalty tax, the so-called "neo-popiwek." In an attempt to link wages to increased productivity and reduce inflationary pressures in the state sector, the government charged a penalty to any firm (which does not produce for export) that increased its average wage in excess of a government-set "coefficient." Enforcement of the neo-popiwek effectively discouraged enterprise or sectoral-level collective bargaining on wages. Both Solidarity and OPZZ challenged the tax in the Polish constitutional court.

Current government policy aims to liberalize investment procedures for both domestic and foreign firms rather than promote special incentive programs. Special duty-free zones exist in or have been contemplated for some 5-20 locations throughout Poland but, with the exception of one zone in Poznan and one in Mielec (in south-eastern Poland), have not attracted much attention. Thus, traditional export processing zones that relax legal guarantees do not, at this time, comprise a threat to workers' rights to organize. However, collective bargaining either does not exist there or is in its early stages of development.

c. Prohibition of Forced or Compulsory Labor.-The Polish government has ratified Conventions 9 and 105 of the ILO on forced labor. Compulsory labor does not exist in Poland, although it is not prohibited by law. Drafts of the new constitution proposed by some political parties contained explicit prohibitions, but a new constitution is not expected to be approved until 1995.

d. Minimum Age for Employment of Children.-Poland has ratified ILO Convention 138 on child labor. The labor code forbids employment of persons under the age of 14. Persons aged 14-18 may be employed only if they have completed basic schooling and if the proposed employment constitutes vocational training and is not harmful. The age floor rises to 18 if a particular job might pose a health danger. The government enforces legal protection of minors, but its inability to monitor the growing private sector, which now accounts for some 60 percent of all Polish employment, leaves officials less certain the problem does not exist.

e. Acceptable Conditions of Work.-A national minimum wage is negotiated every 3 months on a tripartite basis by the government, employers and the trade unions. Minimum wages for state-owned enterprises were roughly $90 (ZL 2,050,000) per month at the October 1 exchange rate, which was insufficient to provide a worker and family a decent living. Minimum wage has the force of law, but a significant number of foreign guest workers received less than the minimum wage, especially in the construction amd agricultural sectors. The average gross monthly wage rose in 1994 to roughly $220. Despite several recent annual increases in GNP, however, real wages declined.

The Polish legal code defines minimum conditions for the protection of workers' health and safety. Enforcement is a growing problem because the state labor inspectorate is unable to monitor the increasing portion of Polish economic activity which is in private hands and where a growing percentage of accidents take place. In addition, there is a lack of clarity concerning which government or legislative body is responsible for enforcing the law. In 1993, 655 work-related deaths were reported, representing a slight upward trend over 1992. The government itself has noted that work conditions in Poland are poor and sanctions are minimal. Standards for exposure to chemicals, dust, and noise are routinely exceeded.

f. Workers Rights in Sectors of U.S. Investment.-As with the rest of the Polish private sector, it is impossible to comment authoritatively on workers' rights because of inadequate monitoring. Although there were labor-management disputes in firms with U.S. investment in 1994, there was no consistent pattern and none were protracted or serious.

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