Business in Romania blog: Doing business in Romania and business issues

Tuesday, September 21, 2004

BUCHAREST -- Romania is so impatient to join the European Union that
the EU's blue flag already is seen throughout the capital and inside
the imposing Senate building, the site where thousands of protesters
helped overthrow Nicolae Ceaucescu's communist dictatorship in 1989.

No less eager are big multinationals such as Microsoft Corp. and
Siemens AG. They join other foreign investors in watching for the
European Commission to decide on Oct. 6 whether Romania's overhauls
suffice to finish entry negotiations by the end of this year, allowing
Romania to join the EU along with Bulgaria in 2007.

The outcome is still uncertain: Unlike Bulgaria, which has speeded
through required reforms, Romania risks being left behind unless it
satisfies EU demands to better fight corruption, overhaul its
judiciary, improve its business environment and respect press freedom
and human rights.

The reformist party of Adrian Nastase, Romania's prime minister, could
find it harder to win the November general election if the EU
negotiations stall. This could present a new risk for the thousands of
foreign companies that have invested a total of nearly $10 billion in
the country during the past six years.

Most foreign direct investments have flowed into Romania in the hope
that it would be next in line for EU membership. Another draw is its
pool of talented workers and monthly wages of only about $200 -- about
a quarter of an EU average already sharply reduced by earlier EU
entrants from Eastern Europe.

Romanian officials publicly are optimistic. Viorel Ardeleanu, a
Brussels-based Romanian diplomat working for Romania's EU entry, sees
the challenges. "But we're confident we'll get there," he said.

Yet recent warnings from EU headquarters in Brussels have rattled even
the most ardent optimists. The EU is suffering from expansion fatigue
as it struggles to come to terms with the recent increase in
membership to 25 countries from 15.

Jean-Christophe Filori, spokesman for EU Enlargement Commissioner
Gunter Verheugen, said: "The EU is exhausted after the last big
enlargement in May. In the case of Romania, there are still big
challenges in the areas of corruption, governance and the rules of law."

EU and Romanian officials alike say graft and corruption are the
biggest challenges the country must overcome.

Last year, the government investigated nearly 1,100 teachers, doctors
and others for taking bribes in return for such things as issuing fake
exam results and distributing medicine, according to the Romanian
government.

To crack down on corruption among high government officials, the
government two years ago created an anti-corruption prosecutor's
office. Since then, four government ministers, four state secretaries,
seven judges and prosecutors, 23 court bailiffs, 10 mayors, 18 customs
officials, three generals and 167 police officers have come under
criminal investigation.

Some foreign companies complain that the country suffers from vestiges
of the communist era's old command economy.

When Romania joined the North Atlantic Treaty Organization in April,
Bucharest announced abruptly that the occasion would be marked with a
state holiday. U.S. contract manufacturing firm Solectron Corp., which
operates its factory seven days a week, said it was forced to pay its
workers double time, or lose hundreds of thousands of dollars if the
factory was left idle. It was fined Euro 1,200 ($1,460) by local
authorities for ignoring the holiday.

"The people running this country still behave like the old communist
regime," said Liana Brasaveanu, Solectron head of human resources in
Romania.

Romania has been praised for introducing a unified tax code for
foreign and Romanian companies and for phasing out tax amnesties for
Romanian companies.

But foreign investors still believe they are under tighter tax
scrutiny to make up for tax relief given to Romanian companies.
Gilbert Wood, an American who is president of the Foreign Investors
Council in Bucharest and has dozens of foreign companies as clients,
said that "tax harassment" of Western firms is common.

Meanwhile, not everyone here is convinced that EU membership is that
desirable, and some Romanians grumble about feeling Brussels' heavy
regulatory hand even before entry into the EU.

Varujan Pambuccian, a member of the Romanian parliament, who has been
a key architect of the country's information-technology policy said:
"We already have lived under a dictatorship in this country -- and
joining the EU will just mean replacing one totalitarian regime with
another."

Write to Dan Bilefsky at dan.bilefsky@wsj.com

Posted by Mihai : 9/21/2004 01:34:00 pm

WSJ on Romania & joining EU

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