Okno: Policy Developments in EEur

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Central and East Europe: Recent Policy and Business Developments

Sampling of briefs from the East/West Letter

	Albania		Bulgaria		Croatia		Czech Republic		Hungary		Macedonia
	Poland		Romania		Slovakia		Slovenia		Yugoslavia		General CEE

Russian Policy Developments

Ukrainian Policy Developments

Policy Developments in other FSU countries

General Central Europe

September 1996: The members of the Central European Free Trade Association (CEFTA) decided in mid-September to lower trade barriers even further. The group -- the Czech Republic, Hungary, Poland, Slovakia, and Slovenia -- agreed to liberalize trade in industrial products and to reduce step-by-step Slovenian tariffs on agricultural goods. Negotiations to admit Romania and Bulgaria as members in CEFTA will start soon as agreed upon by the current members. Ukraine and Lithuania have also expressed interest in joining CEFTA.

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February 1996: The Albanian People’s Assembly on 15 February approved a law creating free trade zones in Albania to encourage foreign investment and the introduction of new technology. The zones will be created at main ports, international transit points, airports, and areas rich in mineral resources. The idea was first proposed by former president Ramiz Alia who envisaged Vlore, Shkore, and Kavaje as the first free trade zones. (from East/West Letter, March/April 1996)

Albania

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December 1996: Bulgaria is full member of WTO Bulgaria formally became a member of the World Trade Organization (WTO) as of 1 December 1996. As a full member, Bulgaria must reduce customs duties for certain goods and remove duties completely for others. Quotas were set for the duty-free import of some goods - such as beef, pork, and cheese - only for the month of December. Bulgaria hopes that accession in the WTO will open an opportunity to negotiate for accession to the Central European Free Trade Agreement. Bulgaria already has free trade agreements with the Czech Republic, Slovakia, and Slovenia; negotiations are underway with Poland and Romania.

September 1996: The Bulgarian parliament approved amendments to the foreign investment law which are meant to encourage foreign investment. These amendments liberalize foreign investment in the country and provide legal safeguards for investors. Among other changes, the amendments exempt non-cash contributions to joint ventures of at least 30% of the statutory capital from customs duties and VAT. This means that technology, patents, and the like may be imported duty-free. Amendments may be made soon to the constitution which would allow foreign investors to own land.

September 1996: Bulgaria was granted permanent most-favored-nation status by the United States at the end of September. Also, on 27 September, the U.S. and Bulgaria signed a bilateral agreement on cooperation in science and technology. The agreement envisages cooperation in basic science, environmental protection, medicine, health services, agriculture, engineering, transport, and standardization.

September 1996: On 2 September, the Bulgarian government approved privatization deals worth $42 million. These deals included: the purchase of a 76% stake in Sofia’s Sheraton hotel by the Daewoo Corporation of South Korea for $22.3 million; and the purchase of 55% of the shares in Eltos, Inc. - an electrical appliance manufacturer in Lovech in central Bulgaria - by Sparky Trading of Germany for DM 11.5 million, with the promise of investing DM 12 million over the next five years. Arrangements are also being made for the sale of a 51% stake in one of the biggest hotels in the Borovets ski resort, a 55% stake in the Chernomorsko Zlato cognac distillery, two hotels in the Black Sea resort of Golden Sands. Over 1,200 privatization deals were signed by the Privatization Agency in the first eight months of the year.

Bulgaria

[back to Bulgaria’s facts & figures page]

July 1996: The United States and Croatia agreed on a Bilateral Investment Treaty which will facilitate U.S. trade with Croatia and make Croatia more attractive for foreign investment. U.S. companies will receive the following benefits from the agreement: free transfer of foreign exchange for all payments pertaining to an investment; most-favored-nation treatment; and the right to hire upper management of the investor's choice. U.S. investors are also guaranteed access to international arbitration, compensation for expropriation, and exemption from performance requirements such as local equity, domestic employment, or export requirements.

July 1996: Starting 1 July, the Croatian government reduced or eliminated customs tariffs on raw materials and finished products that are not produced domestically. Meanwhile, duties on imported goods that are produced in Croatia were raised by up to 20%. Most import surcharges, quotas, and other non-tariff trade barriers were eliminated in compliance with World Trade Organization regulations.
Croatia also introduced quality inspections for certain agricultural imports including the following: fish, shellfish, frog, tortoise, and snail products; meat products; milk and milk products; coffee, coffee products and substitutes; egg products; fruit and vegetable products; mustard; spices; and cooking salt and brine salt. Importers must submit a request - including product specification and invoices - 24 hours in advance of reaching customs. A representative of the importer must attend the inspection and provide product samples.

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Czech Republic
February 1996: On 28 February, the Czech Central Bank expanded the koruna's exchange rate daily fluctuation band from plus or minus 0.5% to plus or minus 7.5%. The rate of the koruna is unlikely to fluctuate by as much as 7.5% on any given day since the CCB will intervene to support the value of the koruna when necessary. The expanded band is expected to help fight inflation by making it more risky for foreigners, attracted by high interest rates, to make short-term investments. Central Bank officials hope to discourage these investors and thereby help reduce the money supply and bring down inflation. (from East/West Letter, March/April 1996)

[back to Czech Republic’s facts & figures page]

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February 1998: IMF: Hungary no longer needs us The IMF ended its standby agreement with Hungary in mid-February, stating that the Hungarian economy was now strong enough that it no longer needed outside help. The $264 million credit line agreed to in 1996 was never actually drawn upon by Hungary, but instead helped the country obtain loans from other sources. An IMF representative predicted that the Hungarian economy could grow by as much as 5% this year, though inflation of almost 18% per year discourages domestic investment. The current account deficit amounted to only 2% of GDP in 1997; both exports and imports rose and direct foreign investment was up 26% over 1996, resulting in a considerable fall in foreign debt.
September 1996: Tenneco Energy, the U.S. company, has agreed to pay $25 million for a majority stake in the Hungarian power plant Energiaszolgaltato Kft. Transelektro, a Hungarian foreign trade firm, will obtain a minority stake. Tenneco has plans to invest a further $75 million to raise the capacity of Energiaszolgaltato's 50 MW power plant to 130 MW. A new company will be founded to operate the plant; Tranelektro will supply engineering and equipment.

September 1996: The Inter-Continental Corporation, the international hotel chain, won the tender from the Hungarian State Privatization and Holding Company (APV Rt.) to buy 95% of Forum Hotel for $49.4 million. The APV will take in a total of $101.8 for the Forum Hotel and the remaining 14 hotels in what was the HungarHotels chain. Inter-Continental plans to upgrade the four-star Forum Hotel to a five-star hotel for $11 million. Employees have the opportunity to purchase 5% of the shares of the hotel.

[back to Hungary’s facts & figures page]

Hungary

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Poland
November 1996: New tax rates for Poland The Polish parliament approved new personal and corporate tax rates at the end of November . The legislation lowers the corporate tax rate by 2% to 38% for 1997; plans call for the corporate tax to fall to 32% by 2000. The debate over new personal tax rates split the ruling coalition because the junior partner, the Peasants Party, wanted lower taxes for those in the lowest income bracket. Under the new scheme, the tax rates are 20% for Poles with annual incomes up to the equivalent of $7,500, 32% for those earning up to $15,000, and 44% for those earning more than $15,000 annually.
March 1996: On 15 March, the lower house of the Polish parliament passed a bill which would liberalize current legislation regulating the purchase of real estate by foreigners. If the new law passes the Senate, which is expected, foreign companies will no longer have to obtain a permit from the Ministry of Internal Affairs (MIA) to buy an apartment, house, or land - only plots of land in towns, not to exceed 0.4 hectares. Foreign individuals will still need permits to buy land or houses if they have not lived in Poland for five years (i.e. have not received residence cards). Foreigners will still need to obtain permits to buy majority stakes in trading companies that own real estate. However, the permitting procedures will supposedly be simplified: promises can be given that a foreigner will obtain a permit (this can be used when presenting bids) and the MIA only needs the consent of the defense and agriculture ministers and not all the ministers to issue a permit.
In addition, foreign companies that want to operate as a consumer-goods wholesaler or engage in license-free production of military equipment need no longer to obtain permission from the privatization minister. (from East/West Letter, March/April 1996)

January 1996: The finance minister, Grzegorz Kolodko, issued an ordinance effective 1 February which liberalizes foreign currency regulations further. Individuals now have the right to pass on to family members abroad gifts (up to 10,000 ECU), including allowances, dowries, and inheritance. Polish citizens also have the right to buy property abroad - property worth up to 50,000 ECU per person resident in Poland. Direct and portfolio investments (including treasury bonds issued by foreign governments and stock market bonds, neither of which may mature within one year) may also be made abroad of up to one million ECU. (from East/West Letter, December 1995/January 1996)

[back to Poland’s facts & figures page]

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September 1995: The new Romanian Law on Environmental Protection was passed by the Romanian parliament, making Romania one of the last East European countries to update its environmental legislation. The law replaces an environmental law of 1973 which was never fully enforced. It paves the way for the introduction of additional legislation addressing particular environmental issues and introduces the Environmental Fund, which will hold the fines and fees assessed from polluters and use these funds for environmental protection. (from East/West Letter, August/September 1995)

Romania

[back to Romania’s facts & figures page]

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November 1997: US Steel in production venture with Slovak firm US Steel is forming a joint venture with VSZ of Slovakia, one of the largest steel makers in central Europe, to produce and market steel for the packing industry. The project will be one of the biggest foreign investments in Slovakia and will be US Steel's first processing operation outside North America. The proposed venture's investments will increase VSZ's capacity for tinplated steel - for use mostly in cans for the food industry - from 140,000 tonnes a year to 340,000 tonnes. Additionally, VSZ is forming a joint venture with Tautaruukki of Finland to produce profiled steel roofing for the construction industry.
August 1996: The Slovak government may finally be speeding up the privatization process. In late August, the Slovak National Property Fund announced the sale of 41 large state-owned companies. The companies were sold to domestic entities which may be interested in creating joint ventures to obtain needed capital to upgrade their facilities or in selling their new acquisitions to foreign investors. Among the companies that were sold recently were many which are involved in wholesale and distribution of agricultural products. Also sold were chemical producers, transport companies, wholesalers of consumer goods, construction companies, and producers of various types of machinery and equipment.

Slovakia

[back to Slovakia’s facts & figures page]

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Okno Consulting, Ann Arbor, Michigan
[www.okno.com]

Last Updated 29 April 1998
copyright © 1996-98 Okno Group

	Czech Republic		February 1996: On 28 February, the Czech Central Bank expanded the koruna's exchange rate daily fluctuation band from plus or minus 0.5% to plus or minus 7.5%. The rate of the koruna is unlikely to fluctuate by as much as 7.5% on any given day since the CCB will intervene to support the value of the koruna when necessary. The expanded band is expected to help fight inflation by making it more risky for foreigners, attracted by high interest rates, to make short-term investments. Central Bank officials hope to discourage these investors and thereby help reduce the money supply and bring down inflation. (from East/West Letter, March/April 1996)
	[back to Czech Republic’s facts & figures page]
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			February 1998: IMF: Hungary no longer needs us The IMF ended its standby agreement with Hungary in mid-February, stating that the Hungarian economy was now strong enough that it no longer needed outside help. The $264 million credit line agreed to in 1996 was never actually drawn upon by Hungary, but instead helped the country obtain loans from other sources. An IMF representative predicted that the Hungarian economy could grow by as much as 5% this year, though inflation of almost 18% per year discourages domestic investment. The current account deficit amounted to only 2% of GDP in 1997; both exports and imports rose and direct foreign investment was up 26% over 1996, resulting in a considerable fall in foreign debt. September 1996: Tenneco Energy, the U.S. company, has agreed to pay $25 million for a majority stake in the Hungarian power plant Energiaszolgaltato Kft. Transelektro, a Hungarian foreign trade firm, will obtain a minority stake. Tenneco has plans to invest a further $75 million to raise the capacity of Energiaszolgaltato's 50 MW power plant to 130 MW. A new company will be founded to operate the plant; Tranelektro will supply engineering and equipment. September 1996: The Inter-Continental Corporation, the international hotel chain, won the tender from the Hungarian State Privatization and Holding Company (APV Rt.) to buy 95% of Forum Hotel for $49.4 million. The APV will take in a total of $101.8 for the Forum Hotel and the remaining 14 hotels in what was the HungarHotels chain. Inter-Continental plans to upgrade the four-star Forum Hotel to a five-star hotel for $11 million. Employees have the opportunity to purchase 5% of the shares of the hotel.
	[back to Hungary’s facts & figures page]
	Hungary
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Poland	November 1996: New tax rates for Poland The Polish parliament approved new personal and corporate tax rates at the end of November . The legislation lowers the corporate tax rate by 2% to 38% for 1997; plans call for the corporate tax to fall to 32% by 2000. The debate over new personal tax rates split the ruling coalition because the junior partner, the Peasants Party, wanted lower taxes for those in the lowest income bracket. Under the new scheme, the tax rates are 20% for Poles with annual incomes up to the equivalent of $7,500, 32% for those earning up to $15,000, and 44% for those earning more than $15,000 annually. March 1996: On 15 March, the lower house of the Polish parliament passed a bill which would liberalize current legislation regulating the purchase of real estate by foreigners. If the new law passes the Senate, which is expected, foreign companies will no longer have to obtain a permit from the Ministry of Internal Affairs (MIA) to buy an apartment, house, or land - only plots of land in towns, not to exceed 0.4 hectares. Foreign individuals will still need permits to buy land or houses if they have not lived in Poland for five years (i.e. have not received residence cards). Foreigners will still need to obtain permits to buy majority stakes in trading companies that own real estate. However, the permitting procedures will supposedly be simplified: promises can be given that a foreigner will obtain a permit (this can be used when presenting bids) and the MIA only needs the consent of the defense and agriculture ministers and not all the ministers to issue a permit. In addition, foreign companies that want to operate as a consumer-goods wholesaler or engage in license-free production of military equipment need no longer to obtain permission from the privatization minister. (from East/West Letter, March/April 1996) January 1996: The finance minister, Grzegorz Kolodko, issued an ordinance effective 1 February which liberalizes foreign currency regulations further. Individuals now have the right to pass on to family members abroad gifts (up to 10,000 ECU), including allowances, dowries, and inheritance. Polish citizens also have the right to buy property abroad - property worth up to 50,000 ECU per person resident in Poland. Direct and portfolio investments (including treasury bonds issued by foreign governments and stock market bonds, neither of which may mature within one year) may also be made abroad of up to one million ECU. (from East/West Letter, December 1995/January 1996)
[back to Poland’s facts & figures page]
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		September 1995: The new Romanian Law on Environmental Protection was passed by the Romanian parliament, making Romania one of the last East European countries to update its environmental legislation. The law replaces an environmental law of 1973 which was never fully enforced. It paves the way for the introduction of additional legislation addressing particular environmental issues and introduces the Environmental Fund, which will hold the fines and fees assessed from polluters and use these funds for environmental protection. (from East/West Letter, August/September 1995)
Romania
[back to Romania’s facts & figures page]
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		November 1997: US Steel in production venture with Slovak firm US Steel is forming a joint venture with VSZ of Slovakia, one of the largest steel makers in central Europe, to produce and market steel for the packing industry. The project will be one of the biggest foreign investments in Slovakia and will be US Steel's first processing operation outside North America. The proposed venture's investments will increase VSZ's capacity for tinplated steel - for use mostly in cans for the food industry - from 140,000 tonnes a year to 340,000 tonnes. Additionally, VSZ is forming a joint venture with Tautaruukki of Finland to produce profiled steel roofing for the construction industry. August 1996: The Slovak government may finally be speeding up the privatization process. In late August, the Slovak National Property Fund announced the sale of 41 large state-owned companies. The companies were sold to domestic entities which may be interested in creating joint ventures to obtain needed capital to upgrade their facilities or in selling their new acquisitions to foreign investors. Among the companies that were sold recently were many which are involved in wholesale and distribution of agricultural products. Also sold were chemical producers, transport companies, wholesalers of consumer goods, construction companies, and producers of various types of machinery and equipment.
Slovakia
[back to Slovakia’s facts & figures page]
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Okno Consulting, Ann Arbor, Michigan [www.okno.com] Last Updated 29 April 1998 copyright © 1996-98 Okno Group