ROMANIA commercial banking is still in the early stages of development. Monetary policies can be characterized as cautious to restrictive. Tools used by the government to control the money supply include an arbitrary ceiling on credits, adjustment of the discount rate, and the volume of bills. Subsidies have been reduced drastically, and only a handful of basic commodities remain subject to price controls. A stock market is expected to open sometime in 1992. As a result of a series of devaluations of the Romanian leu dating from February 1990, Western imports have become increasingly costly. While the monetary value of imports has risen, the volume of imports has declined. Under the dual exchange rate in effect at the end of October 1991, approximately 60 percent of imports were financed at the official exchange rate of Romanian lei (RL) 60 to United States dollar (US$1). This rate was used for such transactions as energy imports and capital repatriation. All other transactions were conducted at an inter-bank auction rate, which at the end of October 1991 was approximately RL 300 to US$1. An IMF standby arrangement calls for the creation of a unified exchange rate. Government authorities postponed a planned unification scheduled to go into effect September 27, 1991, when labor unrest forced the fall of the previous government. The present transition government made exchange rate unification one of its top priorities, and put it into effect on November 11. The initial united exchange rate was 180 lei to the dollar. The transition to a market economy has required new laws in virtually every field: commercial code, privatization, copyright, trademark, patent, banking, labor, foreign investment, tax and social security. Laws reforming most sectors have been drafted and many have been promulgated. Most important have been the two laws to privatize 6,000 state-owned enterprises. In the first stage, most state enterprises were reorganized into commercial firms with greater autonomy to make commercial decisions. In 1992 the government should start to offer these firms for sale to Romanian and foreign interests. The tax system is being overhauled as well. At present there is a tax on salaries, not income, and a profit tax. Several unique exemptions and incentives have been built into the laws. As a result, firms may be better off splitting into smaller subsidiary units to avoid the progressive, multi-bracketed profit tax. Individuals will be inclined to earn more non-salary income to avoid the progressive personal income tax. A value added tax system is to be introduced in 1992 or 1993. Customs duties have been simplified, and the rate reduced to a maximum of 30 percent. ROMANIA Several gaps exist in the legal framework for reform as Parliament also addresses a new constitution and political reform. Despite years of isolation under Communist rule, Romanian ministry staffs are knowledgeable about international standards and norms for laws. 4. Debt Management Policies In an effort to reduce foreign influence, Ceausescu directed the liquidation of all foreign debt via accelerated payments and forced exports. As a consequence, by April 1989, the country's debt was virtually zero. After December 1989, foreign borrowing was resumed and by the end of the third quarter of 1991 amounted to approximately $3.2 billion. Since May 1991, an IMF standby agreement has been in place designed to correct price distortions, ensure balance of payments viability, and stop the fall in GDP. The Fund pledged $500 million in Balance of Payments (BOP) assistance plus up to an additional $450 in contingency and compensatory assistance. Group of 24 (G-24) countries have pledged $727 million in balance of payments/stabilization support, a third of which had been disbursed at the end of the third quarter. The World Bank so far has approved loans totaling $330 million for emergency imports, technical assistance, and health care system support. Commercial lending to Romania has been small, and no instances of bank credit rescheduling are known to the Embassy. Roughly 80 percent of Romania's export earnings are used to finance energy imports. 5. Significant Barriers to U.S. Exports Traditionally defined trade and investment barriers are not a significant problem in Romania. Romania has no laws that directly prejudice foreign trade or business operations. However, the transitional nature of the reform process has created (or retained from the Ceausescu era) an environment not always conducive to foreign trade and investment. concerns include: Chief Difficulty in concluding contracts: Lack of experience in Western business methods, rapidly changing laws and a dearth of legal specialists to interpret their commercial implications, frequent shuffling of persons of authority in both government and industry hierarchies, and the slow demise of the old habit of smoothing the path through personal contacts have frustrated U.S. exporters and investors in concluding contracts. U.S. companies have frequently commented that Romanians require more extensive documentation preparatory to a joint venture than any other country in the region. Limited purchasing ability: Romania's hard currency reserves are nearly nil, undermining the country's ability to purchase needed goods and services. Countertrade, although no longer the virtual requirement for transactions as under the Ceausescu regime, still plays an important role in Romania's ROMANIA trade strategy. High cost of doing business: For a country with low living standards, the costs associated with setting up a foreign business operation are high. Office rentals, transportation costs, telecommunications bills, and the need to import most office supplies all make doing business in Romania a costly venture. According to a recent Swiss study, Bucharest will be one of the top ten most expensive European cities by the year 2000. Lack of support services: The modern tools of trade (telecommunications equipment, office equipment, computer hard and software) are still hard to obtain locally. Most equipment has to be imported and maintenance costs are exorbitant. Shortages of foodstuffs are frequent, energy supplies (gasoline, heating oil) are erratic, electric power fluctuations occur regularly, telephone services are overloaded, and medical care below Western standards. Only the most hardy U.S. firms to date have placed Americans in residence to manage their operations. Investment barriers in Romania are few. The foreign investment law passed in April 1991 allows up to 100 percent foreign ownership, and permits between 8 and 15 percent per annum conversion and repatriation of after-tax profits of the original investment value. The new exchange rate regime gives firms with 100 percent ownership the right to hold foreign current accounts. Joint ventures and domestic firms are required to have all deposits in lei. The percentage varies according to the type of investment, with such sectors as agriculture and food processing, energy and telecommunications receiving the highest return as a means of encouraging investment in these sectors. Government approval of a joint venture is required, but to date this has not impeded the formation of such ventures. The foreign investment law does prohibit foreign ownership of land. Foreigners are, however, entitled to lease property, and the Romanian partner of a joint venture may own land in the name of the venture. Since 1990, the Romanians have registered 6,228 commercial companies with foreign capital participation, but the total value of the foreign investment is comparatively small: $248.75 million. The overwhelming majority of the investments are small; less than 1 percent of the total number of companies comprise some 52 percent of the total capital investment. U.S. company investments run the gamut from multi-million dollars to 100 dollars, but both volume and value terms are increasing. U.S. investments currently top the list in value (about $35 million) and are ranked fourth in number. 6. Export Subsidies Policies The Romanian system does not provide outright export subsidies, but it does attempt to make exporting attractive to Romanian companies. In other words, there is no preferential financing for local exporters, no export promotion funds are ROMANIA disbursed by the government, and there is no targeting of benefits for small businesses. The new exchange rate regime has 100 percent export earning surrender requirements. In December 1990, the government passed a decree, effective January 1, 1991, providing for the total or partial refund of import duties for goods that are processed for export or are incorporated in exported products. Romania is not a signatory to the GATT Subsidies Code. 7. Protection of U.S. Intellectual Property During the Communist era the concept of property, private or industrial, was alien to official policy. Most laws reserved property rights to the state. Nevertheless, Romania was a member of the World Intellectual Property Organization (WIPO), and Romanian experts are knowledgeable about the Western concept of property. As part of the reform process, all laws relating to patents, trademarks and copyrights are being rewritten. The patent law has been promulgated, the trademark law was expected to be enacted by the end of 1991 and the copyright law is in draft. All laws have been modeled after international standards and norms and have been reviewed by international experts. It is expected that Romania will have a modern set of intellectual property laws in 1992. Due to the lack of legal protection and enforcement, some U.S. firms, especially computer software firms, have been reluctant to license products in Romania. Parliament enacted several laws in 1991 which revised Communist-era labor legislation and guarantee the right of workers to organize and join labor unions, and to engage in collective bargaining. Some unions complained that the legal requirement that complaints be submitted to government-sponsored conciliation prior to a strike interferes with their freedom of action. However, there appear to be no serious impediments to the right of labor unions to associate freely or to engage in strikes or other labor actions to press their demands. Law 54/1991 established the right of workers to organize and join unions, recognized the legal character of labor organizations, and imposed criminal penalties for interference with these rights. According to this law, labor unions are independent bodies, free from government or political party control, with the right to be consulted on labor issues. No worker can be forced to join or withdraw from a union, and union officials who resign from elected positions and return to the regular work force are accorded protection against employer retaliation. b. The Right to Organize and Bargain Collectively Law No. 13/1991 establishes the collective bargaining agreement as a legally recognized contract which is the basis for setting working conditions, wages, and other obligations ROMANIA of employers and workers. The right to bargain collectively is also enshrined in Article 38 of the Constitution. In addition to basic wage scales established through collective bargaining, workers and pensioners receive thrice-yearly increases indexed to prospective price increases as a result of Government Decision No. 579/1991 issued in September. The amount of the indexed increases is determined through government trade union negotiations. c. Prohibition of Forced or Compulsory Labor There is currently no law that prohibits forced or compulsory labor. Article 39 of the Constitution prohibits such labor, but excludes members of the military, convicts, and those working during national emergencies, from the definition of forced labor. d. Minimum Age for Employment of Children The Government claims to respect International Labor Organization (ILO) conventions concerning employment of children. According to Decree-Law 147 of May 11, 1990, the minimum age for employment is 16, although children as young as 14 or 15 may work with the consent of their parents or guardians and only "according to their physical development, aptitude, and knowledge. Working children under 16 have the right to continue their education, and employers are obliged to assist in this regard. e. Acceptable Conditions of Work Minimum wages vary and are set according to a complex scale by profession, taking into account experience and time on the job. Real incomes have declined as wages failed to keep pace with spiraling inflation despite indexation to prices. The legal workweek is 40 hours over 5 days with overtime paid for weekend work or work in excess of 40 hours. Paid holidays range from 15 to 24 days annually. Special benefits and allowances are mandated for workers engaged in particularly difficult of dangerous occupations. The Labor Code promises workers a safe working environment. However, the government lacks trained inspectors, and industry lacks financial resources to implement improvements in work place safety and occupational health. f. Rights in Sectors with U.S. Investment. Conditions do not differ from those in other sectors of the economy. Many Romanians hope that increased foreign investment will instill a greater sense of environmental concern and occupational health and safety in local industry. |