BULGARIA many of the resulting autonomous firms has led to at least two potential major breaches of contract in 1991 against U.S. firms. While these cases were successfully resolved, one can expect a certain unpredictability in commercial dealings until privatization is well rooted. Of major interest to U.S. business will be forthcoming revisions to the tax structure, including introduction of a value-added tax in mid-1992 in place of the current turnover tax and plans to consolidate and lower some rates. Aside from the turnover tax, other major taxes currently applied include a general income tax and corporate profit tax. While average tax rates are relatively low according to the IMF, marginal tax rates are too high to stimulate the economy according to U.S. experts. In 1991 most of the tax burden fell on corporate profits, which created a significant drag on companies' ability to import capital goods and inputs. The government plans to offer new private firms substantial profit-tax relief for the first three years provided that they create jobs. There is no export tax, but a temporary 15 percent import surcharge on some products and a one-half percent customs tax. 4. Debt Management Policies 學 Bulgaria's former communist regime more than doubled the country's external debt from 1985 to 1990. With more than 10 billion dollars outstanding, the government declared a debt service moratorium in March 1990. Bulgaria services three small convertible currency bond issues. Of Bulgaria's current 12 billion dollar debt, more than 80 percent is owed to foreign commercial creditors; almost half of the commercial debt is trade financing. The cutoff of trade financing by Western banks in the wake of the moratorium remains the main barrier to imports from the U.S. and elsewhere. Debt service due in 1991 approximates 92 percent of exports. Debt to GDP ratio is 36.6 percent. Bulgaria rescheduled its official ("Paris Club") debt for one year in April 1991. Bulgaria thus has access as of late 1991 to a 20 million dollar U.S. Commodity Credit Corporation (GSM-102) line for import of agricultural commodities. The government is discussing with the IMF a three-year extended funding facility instead of its current one-year SDR 279 million standby arrangement. A three-year facility, beginning early in 1992, would permit a similar term restructuring of Paris Club debt. Bulgaria also has a structural adjustment agreement with the World Bank. The associated 250 million dollar loan, being used in part for restructuring of agriculture, is playing a key role in balance of payments support in the absence of regular commercial trade financing. Bulgaria's negotiations with its commercial creditors ("London Club"), led by Deutsche Bank, have stalled since mid-1990. The government has refused to accept sovereign responsibility for the debt until the London Club proposes acceptable terms. The government publicly stated that it does not seek any debt forgiveness. However, international financial institutions think any workable restructuring must include substantial forgiveness. Bulgaria owes U.S. BULGARIA commercial banks about 70 million dollars. The largest creditors are groups of German, Japanese, and Austrian banks, to whom Bulgaria owes more than one billion dollars each. 5. Significant Barriers to U.S. Exports Import licenses are required for a limited list of goods. The list includes radioactive elements, rare and precious metals and stones, ready pharmaceutical products, and pesticides. Armaments and military-production technology and components also figure on the list, but are not eligible for export from the U.S. since Bulgaria continues to be included on the list of prohibited destinations for exports of defense articles and services. The Bulgarian government has declared that it grants licenses within three days of application, without fees, and in a non-discriminatory manner. The U.S. embassy has no complaints on record from U.S. exporters that the import-license regime has affected U.S. exports. The Bulgarian government states that its system of standardization is in line with internationally accepted principles and practices. Imported goods must conform to minimal Bulgarian standards, but in testing and procedures imported goods are accorded treatment no less favorable than that for domestic products. Bulgaria accepts test results, certificates or marks of conformity issued by the relevant authorities of countries signatories to international and bilateral agreements to which Bulgaria is a party. All imports of goods of plant or animal origin are subject to veterinary and phytosanitary control, and relevant certificates should accompany such goods. The government envisages encouragement of foreign investment in unspecified high-tech sectors, agriculture and food processing. Foreign investment in these areas is currently exempt from profit taxes for five years. Profits of subsidiaries and joint ventures with foreign participation exceeding 49 percent and 100,000 U.S. dollars or its equivalent in other convertible currency are taxed at 30 percent rather than the normal 40 percent on profits. Under the June 1991 foreign investment law, Bulgaria grants national treatment unless otherwise provided for by law or international agreement. Foreign investors may hold up to 100 percent of an investment. However, only foreign investments over 50 thousand dollars qualify for protection under the new law. Foreigners may not own land, real estate, or natural resources. Foreign persons may freely repatriate earnings and other income from their investments at the market rate of exchange. Repatriation of capital gains is not clearly covered in the law. Foreign investments requiring government approval include those in banking and insurance, in so-far unspecified geographic regions, in so-far unspecified sectors when the foreign share leads to foreign control, in territorial seas and on the continental shelf, or in one of the seven free economic zones. BULGARIA export-performance requirements nor specific restrictions on hiring of expatriate personnel, the foreign investment law leaves room for such requirements to be applied. The law contains no provision for international arbitration in the event of expropriation, disinvestment, or compensation disputes. There is no legal requirement for the Bulgarian government to procure only local goods and services. Government procurement works mostly by competitively-bid international tenders. U.S. investors are finding, however, that neither the remaining state enterprises nor private firms are used to responding to competitive bidding to supply goods and services within Bulgaria to these investors. Moreover, in the case of purchase prices for grain, the government set an artifically low price for wheat in July 1991 and at the same time forbade wheat exports. The resulting market distortion and disincentive for local producers may in fact lead the government to seek a greater quantity of grain on world markets in 1992. Customs duties are paid ad valorem according to the tariff schedule. Imports from the United States are assessed at the most-favored-nation (MFN) rate. A temporary import tax of 15 percent is levied on most goods. A one-half percent customs clearance fee is assessed on all imports and exports. Bulgaria applies the Single Administrative Document used by European Community members. 6. Export Subsidies Policies The Bulgarian government does not directly subsidize exports. 7. Protection of U.S. Intellectual Property Property rights in general in Bulgaria were minimal under the former communist regime. Bulgarian inventors and others entitled to intellectual property rights were not entitled to more than a token one-time benefit from their work. The government appointed November 8, 1991 intends to pass an intellectual property rights law in line with Western European models. In accord with the April 22, 1991 U.S.-Bulgarian trade agreement, the Bulgarian government issued Decree No. 190 of September 27, 1991 granting temporary patent protection under certain conditions for U.S. patent holders in the fields of micobiology, pharmaceuticals, cosmetics, foodstuffs and flavors, and for products produced through genetic engineering. At least one U.S. pharmaceutical company has complained of potential patent infringement by a Bulgarian veterinary drug manufacturer. Large U.S. beverage companies have complained at misuse of their trademarks. They say that under current Bulgarian law, it is impossible to prosecute trademark violators. Post has no figures of estimated losses to U.S. firms. BULGARIA 8. Worker Rights a. Right of Association Under the existing Labor Code, workers cannot exercise the right of free association without permission. Article 49 of the 1991 Constitution, however, grants workers the right of association in syndical organizations and unions. In practice, therefore, the Government has allowed workers freely to associate, and intends to bring the Labor Code in line with the Constitution. Article 50 of the Constitution grants workers the right to strike in accordance with conditions determined by law. b. Right to Organize and Bargain Collectively During the first half of 1991, wages were set by the Trilateral Commission involving the government, employers and trade untions. Collective bargaining was to have been instituted in July, but as privatization and demonopolization of state enterprises had not progressed significantly, negotiating partners were not always clearly identifiable, and the Commission is still involved in wage agreements which are negotiated only at the national level and cover only price compensation. bulgaria's Labor Code, whcih at present does not address antiunion discrimination, is expected to be amended by the new Parliament. There is as yet no law on trade unions. Economic and social life is still ruled by decrees and not by laws. C. Prohibition of Forced or Compulsory Labor The new Constitution states that no one may be compelled to carry out labor. d. Minimum Age of Employment of Children According to the unamended labor code, the minimum age for employment of children is 18. School attendance is compulsory to age 16. Increasingly underage children are employed as street vendors. e. Acceptable Conditions of Work The Constitution states that workers have the right to healthy and secure conditions of work, but health and safety standards are often not met. The consititution also provides the right to social security, welfare and unemployment assistance. The law establishes a standard workweek of 42.5 hours. The trilateral commission sets the minimum wage, although much of the population fell below the minimum income in 1991 due to a drop in real wages. f. Rights in Sectors with U.S. Investment Overall U.S. investment is relatively small as of late 1991. Of the nine sectors covered in the Trade Act report, only the electric and electronic equipment sector has an active U.S. presence as of December 1991. Conditions are comparatively better in this sector than in others. |