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TITLE:  ROMANIA ECONOMIC POLICY AND TRADE PRACTICES
DATE:  FEBRUARY 1994
AUTHOR:  U.S. DEPARTMENT OF STATE

                             ROMANIA

                     Key Economic Indicators
        (Billions of Romanian lei unless otherwise noted)


                                  1991      1992      1993 /1
Income, Production,
 and Employment

Real GDP (1985 prices) /2            632       531       520
Real GDP Growth (pct.)             -13.7     -15.4      -2.1
GDP (current prices) /2            2,110     5,982    17,739
By Sector:
  Agriculture                        385     1,130     3,351
  Manufacturing                      920     2,674     7,929
  Construction                       105       261       774
  Financial Services                  49       312       924
  Trade                              179       790     2,343
  Transport and
   Telecommunications                 96       383     1,134
  Research and
   Data Processing                    66       105       311
  Social and Cultural Services       123       271       802
  Communal Services                   71       151       448
  Administration and Defense          79       195       579
Net Exports of Goods and
 Services (mill. US$)             -1,184    -1,463    -1,296
Real Per Capita GDP
 (current US$, World Bank est.)     1,208     1,370     n/a
Labor Force (000's)                10,840    10,919   10,458
Unemployment Rate (pct.)            3.4       8.4       9.5


Money and Prices
 (annual percent growth unless noted)

Money Supply (M2, bill. lei)       1,025     1,856     3,625
Base Interest Rate /3              12        52        80
Personal Saving Rate               10        40        70
Retail Inflation                  223       210       250
Industrial Wholesale Inflation    584       417       205
Consumer Price Index              266       200       248
Exchange Rate ($/lei)
  Official (avg.)                  60       325       761
  Inter-bank Auction (avg.)       198       325       761
  Private Exchange House (avg.)   270       410       853

                                  1991      1992      1993 /1

Balance of Payments and Trade
 (millions of U.S. dollars unless noted)

Total Exports (FOB) /4
  Ruble Zone (mill. ruble)           829        89        12
  Hard Currency                    3,520     4,286     4,280
   of which to U.S.                  121        84        39
Total Imports CIF /4
  Ruble Zone (mill. ruble)           575       147        10
  Hard Currency                    5,146     5,886     5,874
   of which from U.S.                184       223       202
Trade Balance /4
  Total Ruble Zone (mill. ruble)     254       -58        -2
  Total Hard Currency             -1,626    -1,601    -1,594
   Balance with U.S.                 -63      -139      -163
Aid from U.S.                         16        20        21
Aid from Other Countries             126       156       180
External Public Debt               2,344     4,621     5,245
Debt Service Payments (paid)          30       186       369
Gold and FOREX Reserves (net)        270       -55       -68



Notes:

1/  1993 Figures are estimates based on monthly data available
    in October 1993.
2/  GDP at factor cost.
3/  Figures are average annual nominal interest rates offered
    by financial institutions.
4/  Merchandise trade.



1.  General Policy Framework

    With a population of 23 million, a highly educated work
force, and substantial exploitable natural wealth, Romania
offers a potentially lucrative market for U.S. trade and
investment.  For the near term, however, Romania's purchasing
power will remain constrained by such factors as the disruptive
effects of economic reform, the impact of worldwide recession,
the scarcity of hard currency, and relatively weak domestic
economic performance.  Romania is one of the poorest countries
in Europe, and its economy has been declining over most of the
post-December 1989 period.  Since mid-1993, there have been
signs that the decline has been arrested.  However, growth is
expected to be uneven into 1994, and the possibility of
occasional setbacks cannot be excluded.  Much will depend on
export performance, the inflow of development assistance from
international financial institutions, and the level of direct
foreign investment.

    Although state ownership of most means of production
continues four years after the overthrow of communism, Romania
is committed to creating a market economy.  Steady (if slow)
progress has been made toward that end.  Eighty percent of the
country's arable land has been returned to private farmers
(although actual land titling has lagged behind), and a 
30 percent nominal ownership stake in some 6,000 industrial
enterprises has been transferred to all adult citizens via the
distribution of shares in each of five private ownership
funds.  Ambitious plans exist for the privatization of these
6,000 state-owned firms, although fewer than 300 had been
privatized by the end of October 1993.  Greater progress has
been made in auctioning off stand-alone "assets" of larger
enterprises.

    Progress has been more visible in the non-state sector
which now is believed to contribute 15 to 25 percent of GDP. 
Some 275,000 private commercial businesses (25,000 involving
foreign capital) and 213,000 sole proprietorships and family
businesses have been formed since mid 1990.  These are
concentrated in the services sector and, in the case of the
commercial businesses, typically employ fewer than 10 persons.

    The reintegration of Romania into world markets is a
central feature of Romanian foreign economic policy.  Romania
now is an associate member of the European Union (EU) and of
the European Free Trade Association (EFTA).  However, special
emphasis has been placed on shoring up bilateral economic
relations with the United States.  As a result of the
restoration of Most-Favored-Nation (MFN) tariff status with the
United States in November 1993, the signing of a Bilateral
Investment Treaty, and the return to Romania of the U.S.
Export-Import Bank and Overseas Private Investment Corporation
(OPIC) in 1992, prospects for expanded bilateral trade and
investment have improved markedly.

    Subsidies to industry, the high cost of energy imports, and
increasing demands for social programs to mitigate the pain
associated with restructuring the economy have made it
difficult for the government to hold the budget deficit within
the target of 5 percent of GDP, a central element in
discussions with the IMF on a 1993 Standby Agreement.  The
deficit target for 1994 is 4 percent of GDP.  An 18 percent
value added tax (introduced in July 1993) and a salary tax
presently provide 48 percent of central government revenues. 
The government plans to rely increasingly on securities
issuance to cover the deficit.  Monetary policy is driven by
commitments accepted in return for assistance from the IMF and
World Bank and can be characterized as cautious to
restrictive.  Tools used by the central bank to control the
money supply include a ceiling on credits, adjustment of the
discount rate (via the inter-bank auction), and the volume of
treasury bills.


2.  Exchange Rate Policies

    Since November 1991, the National Bank of Romania (the
central bank) has sought, with varying degrees of success, to
institute a system of limited internal convertibility.  Under
the present regime, there is a unitary rate (pegged to the U.S.
dollar), which is determined via a closed daily inter-bank
"auction".  While the rate currently could not be classified as
a clearing rate, authorities have indicated to IMF officials
that the exchange regime will be fully liberalized in early
1994.  In the interim, efforts will be made to introduce
greater transparency into the system.

    Juridical persons are required to carry out all exchange
transactions through the commercial banking system.  The law
allows for capital transfers; however, in practice, the supply
of hard currency is scarcely adequate to cover essential
current account transactions.  During some periods in 1991 and
1992, exporters were required to exchange all or a portion of
their hard currency earnings for local currency.  However, this
practice was abandoned in May 1992, and government officials
repeatedly have stated that it will not be reimposed.  Physical
persons may conduct exchange transactions through private
exchange houses, legalized in 1991.  However, restrictions
exist on the size and intended purpose of such transactions.


3.  Structural Policies

    Economic reform has required new laws in virtually every
field: commerce, privatization, copyright, trademark, patent,
banking, labor, foreign investment, environment, taxation, and
social security.  Laws reforming most sectors have been
promulgated already or exist in draft status.  Romania opened
negotiations for a new protocol of accession to the General
Agreement on Tariffs and Trade (GATT) in 1992.  Where relevant,
the government has sought to accommodate the obligations of
GATT membership in drafting new trade and tax laws.  Several
gaps remain in the legal framework for reform.  Chief among
these are a modern bankruptcy code, a competition law,
legislation on ownership of properties nationalized during the
communist era, and clarification of the real property ownership
rights of foreign juridical persons.  A modern copyright law,
developed in close consultation with Western experts, was
introduced into Parliament in November 1993, and passage was
expected by year's end.

    Pricing and tax policies generally are favorable to trade. 
Except for some pharmaceuticals, some forms of public
transportation, and residential heat and energy, consumer price
subsidies were eliminated in May 1993.  Likewise, few prices
remain subject to government control.  Romania's Foreign
Investment Law (April 1991) provides incentives for foreign
investment, and a U.S.-Romania Bilateral Investment Treaty
(effective January 1, 1994) provides protection for U.S.
investments.

    As noted above, the major sources of central government
revenue are the value added tax, a tax on salaries (not
income), and a profits tax.  As a result of several unique
exemptions and incentives, firms may be better off splitting
into smaller subsidiary units to minimize the burden of the
progressive, multi-bracketed profits tax.  Individuals may fare
better by earning more non-salary income to reduce their
liability under the progressive personal income tax.  Customs
duties range from two percent to 100 percent; the weighted
average is 30 percent.  A 30 percent surcharge is applied to
luxury imports (i.e., tobacco, alcohol, cosmetics, automobiles,
and consumer electronics with the exception of color television
receivers).  Adjustments to the structure of the tariff
schedule will be required to bring Romania into harmony with
the European Union.  As a result, differential rates will favor
imports from the EU.  However, Romanian officials contend that
tariffs are low to nonexistent in areas in which U.S. suppliers
already enjoy a competitive advantage, such as high-technology
products and agricultural raw materials.


4.  Debt Management Policies

    In an effort to reduce foreign influence, during the
1980's, former dictator Nicolae 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 1993 loan commitments
totaled approximately $5.2 billion.  Disbursements amounted to
$3.2 billion.

    Romania signed a Standby Agreement with the IMF in May
1991, which provided for $500 million in balance of payments
assistance plus up to an additional $400 million in contingency
and compensatory assistance.  This program was terminated in
February 1992 by mutual agreement when, as a result of the
build-up of debt among state-owned enterprises (essentially,
soft supplier credits), it became evident that Romania would be
unable to meet the target on monetary growth.  Another Standby
Agreement was negotiated in May 1992, providing for assistance
totaling $440 million.  This program also was terminated by
mutual agreement before the final tranche of assistance had
been drawn.  Negotiations for a third program began in March
1993 and still were in progress at the end of November 1993. 
Assuming successful conclusion of the negotiations,
implementation of the third standby would likely begin in the
spring of 1994.

    Since July 1991, the World Bank has approved loans totaling
$950 million, including a $400 million Structural Adjustment
Loan.  Since December 1989, the Group of 24 (G-24) countries
have pledged $4.5 billion in loans (17 percent of the total)
and grants for development assistance.  Of this amount, $750
million has been for balance of payments support. 
Disbursements did not begin until 1992.  Support levels have
continued to increase, but at a declining rate of growth.

    Seventy-two percent of the official (i.e., noncommercial)
loans to Romania since December 1989 were contracted directly
by the state.  The remaining 28 percent are guaranteed by the
state.  Commercial lending to Romania has been small, and no
instances of bank credit rescheduling are known to the
Embassy.  Roughly half of Romania's export earnings in 1993
were used to finance current energy imports.  Debt service
amounted to 8.6 percent of exports and 1.7 percent of GDP in
1993.  The debt service burden will increase in 1994 as
payments come due on Romania's first IMF Standby Agreement.


5.  Significant Barriers to U.S. Exports

    Traditionally defined trade and investment barriers are not
a significant problem in Romania.  There are no known laws that
directly prejudice foreign trade or business operations,
although the Embassy has been made aware of one incident in 
which procurement regulations apparently were intentionally
drafted in such a manner as to effectively exclude a major U.S.
pharmaceuticals company from the market for one product line. 
The government generally makes a good faith effort to assist,
where appropriate, in the resolution of occasional trade
disputes involving U.S. and Romanian firms.  However, the
process tends to drag on, as illustrated by the experience of
one U.S. firm which so far has failed in two years to resolve a
payment dispute in which the government concedes the U.S. firm
appears to be in the right.

    More commonly, impediments to bilateral trade and
investment arise from cultural differences or the transitional
nature of the reform process, or are rooted in attitudes and
practices carried over from the days when Romania operated as a
centrally planned economy.  Chief concerns include:

    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 custom
of smoothing the path through personal contacts -- or offer of
gratuities -- have frustrated U.S. exporters and investors in
concluding contracts.  U.S. companies have commented frequently
that Romania requires extensive documentation for the creation
of a joint venture.

    Limited purchasing ability:  Romania's hard currency
reserves are near nil, undermining the country's ability to
purchase needed goods and services.  Countertrade, although no
longer the virtual requirement for transactions it was under
the Ceausescu regime, still plays an important role in
Romania's trade strategy.

    High cost of doing business:  For a country with relatively
low living standards, the costs associated with setting up a
foreign business operation are unexpectedly 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 Swiss study,
Bucharest will be one of the ten most expensive European cities
by the year 2000.

    Lack of support services:  Measurable improvements have
been made over the past two years in the availability of
telecommunications equipment, office equipment, and computer
hardware and software.  However, the provision of more mundane
goods, including foodstuffs, tends to be irregular, and western
concepts of service are not yet fully rooted.  Most equipment
has to be imported, and maintenance costs are high.  Many
traders and investors report that the absence of a modern
banking system impedes the conduct of business, and many
express concern that medical care available to the expatriate
business community is below western standards.

    Investment barriers in Romania are few.  The foreign
investment law allows up to 100 percent foreign ownership of an
investment project (excluding land), and there are no legal
restrictions on the repatriation of profits and equity
capital.  Government approval of a joint venture is required,
but to date this has not impeded the formation of such
ventures.  Although Romania lacks a one stop investment
service, assistance in matching potential foreign investors
with Romanian partners is provided by the Romanian Development
Agency.

    The Romanian constitution prohibits foreign ownership of
land.  However, the government has sought (so far
unsuccessfully) an amendment allowing foreign investors to own
land purchased for investment projects.  Some observers have
argued that since joint ventures are, by law, registered as
"Romanian" companies, and since no property ownership
restrictions apply to "Romanian" firms, the prohibition on
foreign ownership may be moot so far as joint ventures are
concerned.  This interpretation has not been tested in a court
of law.  In any event, foreigners are entitled to lease
property, and the Romanian partner of a joint venture may own
land in the name of the venture.

    Since 1990, Romania has registered 24,849 commercial
companies with foreign capital participation, but the total
value of the foreign investment is comparatively small -- $1.3
billion.  The overwhelming majority of the investments are
small-scale; 99.7 percent of the foreign investors together
account for only 30 percent of the total capital investment. 
U.S. company investments run the gamut from multi-million
dollars to a few hundred dollars, but are increasing in both
volume and value terms.  As of October 1993, U.S. investments
ranked third (after Italy and France) in value terms (about $75
million), while in number of joint ventures (1,401), the United
States ranked sixth.  The largest U.S. investors are Coca-Cola,
Amoco, Colgate-Palmolive, Pepsi, and MBH Furniture Industries.


6.  Export Subsidies Policies

    The Romanian system does not provide outright export
subsidies but does attempt to make exporting attractive to
Romanian companies.  For example, in December 1991, the
government passed a decree, effective January 1, 1992,
providing for the total or partial refund of import duties for
goods that are processed for export or are incorporated in
exported products.  There is no preferential financing for
local exporters, no export promotion funds are disbursed by the
government, and there is no targeting of benefits for small
businesses.

    Generally, there is no licensing requirement for exports,
but Romania does prohibit or control the export of certain
strategic goods and technologies.  For example, on occasion the
government has banned the export of various foodstuffs due to
domestic shortages.  Export controls on imported or
indigenously produced goods of proliferation concern also exist.

    Romania is not a signatory to the GATT subsidies code or
government procurement code, but has indicated its intention to
subscribe to both codes.
7.  Protection of U.S. Intellectual Property

    During the communist era, property rights were reserved 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 have been, or are being, rewritten. 
The Patent Law has been promulgated.  The Trademark Law and the
Copyright Law are in draft and expected to be enacted in 1993. 
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 place in 1994.

    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.  Pirated copies of
audio and video cassette recordings are openly marketed.  Many
are apparently locally produced, but most appear to be
imported.  The Embassy is not aware of pirated goods being
produced in Romania for export.


8.  Worker Rights

    a.   Right of Association

    Current labor legislation guarantees the right of workers
to organize and join labor unions and to engage in collective
bargaining.  The right to strike is specifically guaranteed,
although some courts have increasingly ruled against striking
unions.  The primary exceptions are employees in certain
critical industries involving the public interest, such as
defense, health care, transportation, and telecommunications,
where there are restrictions on the right to strike.

    In addition to dissatisfaction with recent court rulings on
strikes, some unions continue to complain that legislative
requirements calling for submission of grievances to
government-sponsored conciliation efforts prior to a strike
interfere with their freedom of action.  An International Labor
Organization (ILO) Committee of Experts also registered concern
in a 1992 report that current laws fall short of ILO Convention
standards in several areas, including the free election of
union representatives, binding arbitration, and financial
liability of strike organizers.  The Romanian government has
not yet acted on the ILO recommendations.

    Current legislation stipulates that 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.  In practice, the government does not seem to
exert any influence over labor union activities.

    The overwhelming majority of Romania's approximately 11
million working people are members of about 18 nationwide trade
union confederations and smaller independent trade unions.  The
largest is the National Confederation of Free Trade
Unions-Fratia (CNSLR-Fratia).  Virtually all unions concentrate
on economic issues to protect their members' standard of
living, which is declining amid steep increases in consumer
prices and continued uncertainty caused by the transition to a
market economy.  In 1993, several smaller confederations merged
into larger organizations, increasing their clout and economic
vitality.

    The government does not impede the right of labor unions to
affiliate internationally, and representatives of foreign and
international organizations freely visit and advise Romanian
trade unionists.  Two major confederations, ALFA Cartel and
Fratia, are affiliated with the World Confederation of Labor
(WCL) and the International Confederation of Free Trade Unions
(ICFTU), respectively.  Following CNSLR'S merger with Fratia in
June, the former sought affiliation with ICFTU.

    At its 80th  session in Geneva in June, the ILO received a
report from its Committee of Experts concerning Romanian
compliance with ILO conventions.  Although the Committee
generally was satisfied with Romanian compliance, it
underscored the need to increase measures to ensure a
discrimination-free work place for the country's ethnic
minorities, particularly for gypsies, and sought additional
information on the status of women in the work place.

    b.   Right to Organize and Bargain Collectively

    Current legislation permits workers to organize into unions
and to bargain collectively.  However, the absence of effective
employer groups, because of continued state control over most
industrial resources, complicates collective bargaining efforts.

    c.   Prohibition of Forced or Compulsory Labor

    There is no statutory law prohibiting forced or compulsory
labor.  The constitution prohibits such labor, but excludes
members of the military, convicts, and those working during
declared national emergencies from the definition of forced
labor.  There were no reports of individuals engaged in forced
or compulsory labor in 1993.

    d.   Minimum Age for Employment of Children

    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.  The Ministry of Labor and Social
Protection (MOLSP) has the authority to impose fines and close
sections of factories to enforce compliance with the law.  No
violations of this policy were documented by the media or the
Ministry in 1993, and child labor did not appear to be a
problem.

    e.   Acceptable Conditions of Work

    Most wage scales are established through collective
bargaining.  Minimum wage rates are generally observed and
enforced, although employers' financial difficulties often 
result in nonpayment of wages or postponement of payment.

    The labor code provides for a work week of 40 hours or five
days, with overtime to be paid for weekend or holiday work or
work in excess of 40 hours.  Paid holidays range from 15 to 24
days annually depending mainly on the employee's length of
service.  Employers are required by law to pay additional
benefits and allowances to workers engaged in particularly
dangerous or difficult occupations.

    Draft legislation regarding occupational health and safety
is pending in parliament.  The MOLSP has established safety
standards for most industries and is responsible for enforcing
them.  Enforcement is not good, however.  The MOLSP lacks
sufficient, trained personnel for inspection and enforcement,
and employers generally ignore their recommendations.  Some
labor organizations have pressed for healthier, safer working
conditions on behalf of their members.  In general, however,
workers are not committed to occupational safety and health and
appear to value increased pay over a safe and healthful work
environment.  Neither the government nor industry, which
remains mostly state-owned, has the resources necessary to
achieve significant improvements in health and safety
conditions in the work place.

    f.  Rights in Sectors with U.S. Investment

    The Embassy has no information to suggest that conditions
differ in goods-producing sectors in which U.S. capital is
invested with respect to application of the five worker rights
discussed in a through e above.



         Extent of U.S. Investment in Selected Industries

              U.S. Direct Investment Position Abroad
                on an Historical Cost Basis - 1992
                    (millions of U.S. dollars)

Category                                    Amount

Petroleum                                                 0
Total Manufacturing                                       D
    Food & Kindred Products                     D
    Chemicals and Allied Products               D
    Metals, Primary & Fabricated                0
    Machinery, except Electrical                0
    Electric & Electronic Equipment             0
    Transportation Equipment                    0
    Other Manufacturing                         0
Wholesale Trade                                           0
Banking                                                   D
Finance and Insurance                                     0
Services                                                  0
Other Industries                                          0

TOTAL ALL INDUSTRIES                                     19


(D)-Suppressed to avoid disclosing data of individual companies

Source:  U.S. Department of Commerce, Bureau of Economic
Analysis.

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