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July 2002
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7. INVESTMENT CLIMATE STATEMENT

A. Openness to Foreign Investment

Encouraging Investment

Romania is actively seeking to encourage foreign direct investment. Nonetheless, despite Romania's marketplace of 22 million consumers, a well-educated workforce, and abundant natural resources, investment remains far below its potential. To date, favored areas for American investment include IT and telecommunications, biotechnology, manufacturing, and consumer products. To spur investment further, the government recently created an Agency for Foreign Investment.

Romania is gradually moving to strengthen tax administration, enhance transparency and create legal means to resolve contract disputes expeditiously. In spite of progress, a rapidly changing legal framework continues to undermine investor confidence. A large number of pieces of legislation are currently under consideration by the government, and we expect further fiscal and non-fiscal legislation in the near future. Prospective U.S. investors should consult appropriate legal counsel to receive up-to-date legal information.

Successful U.S. companies tend to share a common approach to investing in Romania. These companies establish a local presence to familiarize themselves with the local business climate. Using this expertise, firms launch the longer-term strategies and commitments necessary for building lasting partnerships with the Government of Romania (GOR), local government authorities, labor unions, and local partners. These partnerships can alleviate potential resistance to foreign investment that remains in some quarters, including nationalist political party representatives, some workers fearful of losing their jobs, and some managers of state-owned enterprises.

Investments that involve the GOR ministries are generally more complicated than greenfield investments or joint ventures with private Romanian companies. Large deals involving the government of Romania -- particularly privatizations of key state-owned enterprises -- frequently become stymied by vested political and economic interests and bogged down by inaction within and lack of coordination among governmental ministries. Investors have encountered greater success with less complex deals involving small to medium-sized private and state enterprises.

EU Accession

Like other countries in the region, Romania has worked to create a legal framework consistent with a market economy and investment promotion. It is moving ahead with EU-compatible legislation in its quest to join the European Union. As of the end of May 2002, Romania has opened 24 of the 31 negotiating chapters with the EU, and has provisionally closed 12 chapters. Romania intends to speed up negotiations with the EU in 2002, with a goal of making sufficient progress in 2002 to receive an updated roadmap and a provisional date for EU membership at the Copenhagen Summit in the fall of 2002.

Legal Framework

The legal framework for foreign investment in Romania is provided by the following laws:

This body of legislation provides national treatment for foreign investors; guarantees them free access to domestic markets, and allows foreign investors to participate in privatizations. There is no limit on foreign participation in commercial companies. Foreign investors are entitled to establish wholly foreign-owned enterprises in Romania (although joint ventures are more typical) and to convert and repatriate 100 percent of after-tax profits. Foreign firms are allowed to participate in the management and administration of the investment, as well as to assign their contractual obligations and their rights to other Romanian or foreign investors.

Foreign investors may engage in business activities in Romania in any of the following ways:

Foreign investor participation can take the form of: foreign capital, equipment, means of transport, spare parts and other goods, services, intellectual property rights, technical know-how and management expertise, or proceeds and profits from other businesses carried out in Romania. Foreign investment must comply with environmental protection, national security, defense interests, public order, and public health regulations.

Privatization

The 2002 law on privatization establishes a special pre-privatization management team to restructure the company and facilitate privatization. Under current law, the government body that has authority over a state-owned company (the Privatization Authority, an economic ministry, or the local administration) also has the authority to privatize it. The government authority can hire an agent to handle the project from restructuring to final privatization. Sales of shares may take one of the following forms: public offering on the Bucharest Stock Exchange or RASDAQ, negotiation, auction, depository receipts issued by investment banks on the international capital markets (GDR, ADR, EDR) or a combination of these methods. Public institutions may, at their discretion, agree to accept payment over time for shares being sold through negotiation or auction. The law also stipulates that the Ministry of Finance must issue a certificate listing all debts of an enterprise upon request and that the company will not be liable for any debts not listed in this certificate.

Buyers of state-owned companies often must negotiate requirements and restrictions concerning the company's focus, turnover, and social protections in the form of limited layoffs or funding for retraining programs. Prospective investors are advised to make a thorough due diligence review before any acquisition.

Property and Contractual Rights

Property and contractual rights are recognized, but enforcement through Romanian courts is difficult. Foreign companies engaged in trade or investment in Romania often express concern regarding the international commercial experience of Romanian courts. Judges generally have little experience in the functioning of a market economy, international business methods, or the application of new Romanian commercial law.

B. Conversion and Transfer Policies

Romanian legislation does not restrict the conversion or transference of funds associated with direct investment. All profits made by foreign investors in Romania may be converted into hard currency and transferred abroad at the market exchange rate after payment of taxes.

Proceeds from the sale of shares, bonds, or other securities, as well as from the conclusion of an investment, can also be repatriated. There is no limitation on the inflow or outflow of funds for remittances of profits, debt service, capital gains, returns on intellectual property or imported inputs.

In February 1998, the Romanian government implemented new regulations that liberalized foreign exchange markets. However, procedural delays in processing capital outflows remain, mostly caused by the lack of a domestic electronic inter-bank settlement system. Delays longer than sixty days are not uncommon. The implementation of a domestic inter-bank electronic system is planned for 2003-2004. Only short-term debt service is subject to approval by the Central Bank. Medium and long-term debt service is subject to Central Bank notification. These steps have been taken to prevent inflows of "hot money" from abroad, but will be removed once capital account liberalization advances. According to Romania's agreements with the European Union and international financial organizations, Romania will gradually implement the liberalization of the capital account by 2004.

C. Expropriation and Compensation

The law on direct investment includes a guarantee against nationalization and expropriation or other equivalent actions. The law allows investors to select the court or arbitration body of their choice to settle potential litigation. Since 1989, there has been one American expropriation claim arising from a controversial privatization deal. Many cases involving property nationalized during the communist era remain unresolved.

Investors should be aware, when purchasing land or a former state-owned company, that in cases where former owners win title to an asset in the asset-base of a company that has been privatized, the asset may be restituted in kind to the former owner and the company compensated by the public institution that privatized it. If restitution is not possible in kind, the public institution will compensate the former owners. In either case, either the owner or former owner run the risk of less than fair market value compensation. Again, prospective investors should conduct a careful due diligence review encompassing potential restitution claims.

D. Dispute Settlement

Arbitration

Romania recognizes the importance of arbitration in the settlement of commercial disputes. Many agreements involving international companies and Romanian counterparts provide for the resolution of disputes through third-party arbitration. Romania is a signatory to the New York Convention of 1958 regarding the recognition and execution of foreign arbitration awards. Romania is also a party to the European convention on international commercial arbitration concluded in Geneva in 1961 and a member of the International Center for the Settlement of Investment Disputes (ICSID).

Romanian law and practice recognizes applications to other internationally renowned arbitration institutions, such as the ICC Paris Court of Arbitration or the Vienna United Nations Commission on International Trade Law (UNCITRAL). Romania also has an International Commerce Arbitration Court administered by the Chamber of Commerce and Industry of Romania (the "Arbitration Court"). Arbitration awards are enforceable through Romanian courts under circumstances similar to those in western countries.

Bankruptcy

Romania's bankruptcy law contains provisions for liquidation and reorganization that are generally consistent with western legal standards. These laws usually emphasize enterprise restructuring and job preservation. Legal education and the training of existing judges and lawyers lags behind law-making; this often makes it difficult to bring bankruptcy cases to court with consistent outcomes. To deal with this problem and mitigate the time and financial costs of bankruptcies, Law No. 99/1999 provides for administrative liquidation as an alternative to bankruptcy. Thus, the company and its creditors no longer have to go through a lengthy and costly judicial process. However, at least one investor has complained that the administrative liquidation process was used unilaterally by the GOR, to the investor's disadvantage. Investors have also complained that the liquidators lack the competence and incentive to expedite the liquidation proceedings.

E. Performance Requirements/Incentives

Incentives

There are no performance requirements imposed as a condition for establishing, maintaining or expanding an investment. Since 1991, Romania's legislation has seesawed between granting, amending and suspending investment incentives, while creating or ending special treatment for FDI. The availability of incentives is dependent on the economic situation, and the government has at times suspended incentives in order to tighten fiscal policy. Investors are encouraged to verify the current status of investment incentives.

In April 2002, the government terminated all tax incentives previously available under the law on foreign direct investments, many of which were due to expire. In June 2002, it also terminated the VAT-related tax incentives previously available. As a general rule, new fiscal regulations do not grandfather past incentives. However, the fiscal changes in 2002 grandfathered some ongoing contracts and investments. Often there is no grace period between passage and implementation of new financial regulations.

Currently, customs and tax incentives are available for investors in six free trade zones and thirty-six economically disadvantaged regions of the country. Under the new corporate income tax law, a 5% tax rate for three years is applicable to operations in free trade zones. Investments in excess of $1 million are eligible for tax incentives including: customs duty exemption for imported equipment and software, deferred payment of VAT, twenty percent of capital goods purchases are tax deductible, and accelerated depreciation. An ordinance passed in 2000 makes it possible for importers and exporters to receive an on-site customs clearance.

To reduce initial startup costs, a system of industrial parks and technological parks is being created. Tax incentives are available under the law solely for the industrial park operator, while companies that establish themselves in the park benefit from access to utility hookups and infrastructure, and eventual local tax rebates.

Tax System

Since 1999, Romania has revised its tax system to bring it closer to EU models and more in line with the recommendations of the World Bank and IMF. Currently, Romania has a 25% corporate income tax and a 19% value added tax (VAT). Payroll-related contributions total 51%. Romania has a graduated personal income tax ranging from 18% to 40%.

VAT

A new law on value added tax (VAT) was passed on June 1, 2002 (taking effect the same day). The new law terminates the VAT exemptions available under previous legislation, and institutes uniform VAT treatment for private SMEs and investments in excess of $1 million. For investors in free trade zones and disadvantaged zones, the new rules replace VAT exemption with deferred VAT payment. The VAT exemption for custom-duty exempted imports is removed. For the first time, VAT is payable on construction and tourism. The law preserves the VAT exemption for exported goods, and removes the condition that proceeds be cashed at a Romanian bank.

Tariff Preferences

Like many other Central and Eastern European countries, Romania provides tariff preferences for EU goods under its association agreement with the EU.

F. Right to Private Ownership; Establishing Firms

The Romanian constitution, adopted in December 1991, guarantees the right to ownership of private property. Mineral, air rights, and similar rights are excluded from private ownership.

Foreign investors involved with commercial companies having any foreign capital may acquire land or property necessary for fulfilling or developing the company's corporate goals. If the company is dissolved or liquidated, the land must be sold within one year of the company's closure and may be sold only to a buyer(s) with the legal right to purchase such assets. Foreign investors cannot purchase agricultural land at this time. Under Law 268/2001, investors can purchase shares in agricultural companies that can lease land in the public domain from the State Land Agency.

G. Protection of Property Rights

Law No. 190/1999 on mortgage loans for real estate investments simplifies mortgage loan requirements, allowing a debtor's receivables to be used as a guarantee, and specifically addresses the protection of both borrowers and creditors, in an effort to minimize risk to the lender.

Intellectual Property Rights

Romania is a signatory to international conventions concerning intellectual property rights, including TRIPS, and has enacted legislation protecting patents, trademarks, and copyrights. Romania signed the Internet Convention to protect on-line authorship. While the legal framework is generally good, enforcement remains weak. Romania has passed border IPR control enforcement provisions as required under the WTO. As result of persistent problems in the enforcement of intellectual property rights, the U.S. Trade Representative (USTR) placed Romania on its Special 301 Watch List for 2002.

Patents

Romania is a party to the Paris Convention for the protection of industrial property and subscribes to all of its amendments. Foreign investors are therefore entitled to the same treatment as Romanian citizens. A modern Patent Law (No. 64/91) broadens and clarifies the basis on which a patent is granted. Several other laws (No. 129/92, on the protection of industrial drawings and designs; No. 16/95, on the protection of integrated circuit designs, etc.) have helped bring Romanian patent legislation up to international standards. Patents are valid for 20 years. A patent application can be contested for six months. Legislation providing for transitory ("pipeline") patent protection was enacted in early 1998. Romanian law does not fully protect data exclusivity. This has mostly affected pharmaceutical companies.

Trademarks

In 1998 Romania passed a new law on trademarks which is generally consistent with international standards. Romania is a signatory to the Madrid Agreement relating to the international registration of trademarks. Trademark registrations are valid for 10 years from the date of application, and renewable for similar periods. The first applicant is entitled to registration of the trademark. A trademark can be contested for six months.

Copyrights

Romania is a member of the Bern Convention on Copyrights. Its 1996 law on protection of copyrights and neighboring rights is among the most modern in this field. It is consistent with EU provisions and incorporates many suggestions made by U.S. experts. The Romanian parliament ratified the latest versions of the Bern and Rome conventions. The Romanian Office for Copyright protection (ORDA) was established in 1997, and oversees copyright enforcement. However, copyright law enforcement remains a low priority for Romanian prosecutors, judges, police officers, customs officers, financial guard, and ORDA inspectors due to a lack of resources and expertise. Software and media piracy continues to be a serious problem.

Semiconductor Chip Layout Design

Law No. 16/1995 protects semiconductor chip layout design. In order to benefit from this law, the designs must be registered per GOR decision no. 535/1996 with the Romanian Trademark Office.

H. Transparency of the Regulatory System

Cumbersome and non-transparent bureaucratic procedures are a major problem in Romania. Foreign investors point to the excessive time it takes to secure necessary zoning permits, property titles, licenses, and utility hook-ups. Furthermore, regulations change frequently, sometimes literally overnight, often without advance notice. These changes, which can significantly add to the costs of doing business, make it difficult for investors to develop effective business plans.

Lack of consultation with the NGO and business community in the past has resulted in a less friendly investment climate than might otherwise be possible. A recent report by Amnesty International criticizes parliamentary procedures, particularly closed committee meeting that restricts the ability of civil society and legitimate business to participate in and influence new legislation.

Recognizing the need for more effective communication with foreign investors and with Romanian private businesses regarding changes in the regulatory framework, in April 2002 the GOR passed a decision instituting a preliminary consultation procedure for writing business-related legislation. It is too early to comment on how the new law will affect the development of legislation.

Many foreign investors feel they are unfairly targeted by Romanian tax authorities for audits and reviews and that Romanian authorities view them as "cash cows" that can be milked to fill government coffers. Unlike most Romanian companies, foreign investors generally have good financial records, making investigation easier. Foreign investors also tend to be more conscious of the need to remain in compliance with local laws and regulations.

The presence of large state-owned and government-subsidized enterprises in the economy is a major impediment to the efficient mobilization and allocation of investment capital. An EU-inspired law on state aid implemented in January 2000 regulates state aid of any form (direct state subsidies, debt rescheduling schemes, or discount prices). However, implementation of the law has been slow and preferential debt rescheduling by the Ministry of Finance and Ministry of Labor has continued, sometimes resulting in major market distortions. Furthermore, state-aid schemes continue to be non-transparent.

I. Efficient Capital Market and Portfolio Investment

Capital Markets

Romania seeks to develop efficient capital markets. Ordinance No. 18/93 and Government Decision No. 552/92 established a National Securities Commission (CNVM) charged with regulating the securities market in order to protect investors. The process principally provides for: registration and licensing of brokers and financial intermediaries, filing and approval of prospectuses, and approval of market mechanisms.

Despite the presence of two stock exchanges, Romanian capital markets have developed more slowly than might be expected. This has been due in part to macro-economic and legislative instability, insufficient privatization, lack of performance and liquidity of most companies listed, high inflation, non-transparent privatization processes, and frequently poor corporate governance. In 2002, the GOR issued several ordinances designed to increase liquidity and transparency, and eventually encourage and facilitate portfolio investment. The GOR also granted additional power to the National Securities Commission (CNVM). Securities Collective Placement Organizations that were subjects of other GOR Ordinances are now allowed to invest locally and internationally in foreign currency-denominated instruments.

Romania officially re-opened the Bucharest Stock Exchange (BSE) on June 22, 1995. On November 20, 1995, the stock exchange made its first transactions after a hiatus of 50 years. The BSE operates a two-tier system that lists a total of 125 companies, with 26 companies in the first tier. The official index, BET, is based on a basket of the 10 most active stocks listed on the first tier. The BSE has a home page at http://www.bse.ccir.ro.

In September 1996, RASDAQ, an over-the-counter stock market, was inaugurated. It is supported by several independent registries and is a depository for Romanian securities. Around 5000 companies are listed on the RASDAQ, although only 200 companies are actively traded on an average day. RASDAQ has a home page at http://www.rasd.ro.

Tight competition has brought trading fees down, but the lack of liquidity among listed companies makes it difficult to place large purchase orders. This, in conjunction with non-transparent disclosures and the lack of annual audit reports, tends to discourage large institutional investors. Country funds, hedge funds, and venture capital funds continue to participate actively in the capital markets.

The Romanian government has responded to complaints by U.S. investment funds regarding the abuse of minority shareholder rights by including some protections in a 2002 GOR ordinance on securities, financial investments and regulated markets. The new reforms allow shareholders owning more than 10% of a stock to request a general shareholders meeting. Dividend payments must now remain in effect six months after the announcement. An extraordinary shareholders' meeting must approve purchase or sale/rent/lease of fixed assets worth over 20% of the company's total assets. Additional shareholders rights are still being debated.

Banking Sector

Romania's largest bank, the state-owned Romanian Commercial Bank, with assets totaling $3,087.5 million (33.4% of Romania's banking system total assets), is expected to be privatized in late 2002 or early 2003. Once this is achieved, 90% of Romanian banking assets will be in private banks, and 70% of Romanian banks will be foreign owned. The second largest bank in Romania is the Romanian Bank for Development - Societe Generale, with $1,615.3 million in assets (17.5%). The next largest banks are the National Savings House (CEC) with assets amounting to $958.1 million, ING Barings - $554.0 million and BancPost - $514.4 million. The banking sector is becoming increasingly profitable and liquid, as banking oversight improves. Standard and expectation have increased as more foreign banks enter the market, and as confidence grows in the Romanian economy.

Removing non-performing assets from the banking sector has cost Romania $2.2 billion. Non-performing (sub-standard, doubtful and bad) loans now represent only 2.7% of outstanding loans.

The GOR has actively encouraged foreign investments in the banking sector, and there are no restrictions on mergers and acquisitions. Few potential hostile take-over attempts have been reported in Romania. As a result, Romanian law has not focused on limiting potential mergers or acquisitions. There are no Romanian laws prohibiting or restricting private firms' free association with foreign investments.

J. Political Violence

There have been no incidents in Romania involving politically motivated damage to foreign investments (projects and/or installations). Major civil disturbances are unlikely to occur in Romania in the near future.

K. Corruption

According to Transparency International, Romania is included in the third tier of countries in the world considered the most corrupt. U.S. firms have complained of government corruption in Romania. The customs service, municipal zoning offices, local financial authorities, and other bodies are affected to some degree by this problem. In some cases, demands for payoffs by mid- to low-level officials can reach the point of harassment.

Romanian law and regulations contain provisions intended to prevent corruption, but enforcement is generally weak. Corruption is currently punishable under a variety of statutes in the penal code. A money laundering law was passed in February 1999 and an anti-corruption law was passed in May 2000. Prison sentences are sometimes imposed for white collar crimes, but powerful and influential individuals often evade prosecution.

Romania is preparing to accede to the OECD convention on combating bribery, but is not yet a signatory. Bribery is punishable by fine or imprisonment, but not both. Fines permitted under the existing penal code are too low to effectively deter bribery. There is no deduction for bribery in the tax code.

Romania is a member country of the Southeast European Cooperation Initiative (SECI), and it has signed and ratified the Agreement on Cooperation to Prevent and Combat Transborder Crime of May 1999. Bucharest hosts the SECI Regional Center for Combating Corruption and Organized Crime, and Romania is one of the three members of the Joint Cooperation Committee.

To reduce corrupt practices in public procurements, in March 2002 a web-based e-procurement pilot system was implemented and is available at www.e-licitatie.ro. The system is transparent, the list of ongoing auctions and closed auctions, with the name of the adjudicators and the closing prices being available to the public. The increasing number of companies registered in the system (up six times within one month) shows the increased confidence of economic players. While likely to reduce bureaucracy and exposure to corrupt practices, the system does not take the human element completely out of the decision making process, as the bids for complex supplies and projects are to be judged by appraisal committees.

With U.S. help, the Romanian government is establishing an office staffed by prosecutors and police to combat corruption. The previous government attempted to tackle the problem by pursuing a "law enforcement" focus on individual cases of corruption, rather than the overarching societal problem of corruption. This is especially problematic since there is a widespread belief that the police and judiciary are corrupt. In order to be effective, the current government must take a holistic approach and battle corruption as a societal problem.

Court System

The judicial system in Romania suffers from corruption and inefficiencies. Companies complain that commercial disputes take too long to resolve through the court system and that court orders often are not enforced. The vast majority of bribes are said to be paid to attorneys, who act as intermediaries, rather than directly to a judge or clerk. The most common reason for paying a bribe is to speed up the trial or to assure a particular person is assigned to the case.

Cyber Crime

Romania has one of the highest occurrences of internet credit card fraud. The problem, which became notable in the fall of 1998, has escalated to a steady stream of complaints, some of which involve U.S. companies being defrauded for millions of dollars. The most common problems result from the use of stolen credit card numbers for the purchase of goods on-line. An e-commerce law
that defines and punishes cyber crime was passed in June 2002 and came in force in early July 2002. The law includes criminal sanctions for falsifying cyber-pay instruments, holding hardware in order to falsify cyber-pay instruments, falsifying the declarations for issuing or using cyber-pay instruments, carrying out fraudulent financial transactions, accepting fraudulent financial transactions, or performing unlicensed cyber transactions.

Romanian hackers also have gained notoriety for hacking into U.S. companies' servers and stealing proprietary information, including customer credit card data. There have been cases where Romanian hackers have offered to sell the U.S. company the means by which they hacked the company's server. On other occasions the hackers have threatened to release the sensitive data or the means to hack the system unless a specific amount of money is paid.

L. Bilateral Investment Agreements

The U.S.-Romanian Treaty on the reciprocal encouragement and protection of investment (signed May 1992, ratified by the U.S. in 1994) guarantees national treatment for U.S. and Romanian investors. It provides a workable dispute resolution mechanism, liberal capital transfer, prompt and adequate compensation in the event of an expropriation, and avoidance of trade-distorting performance requirements.

Romania has concluded bilateral investment protection agreements or treaties with the following countries: Albania, Algeria, Argentina, Armenia, Australia, Austria, Bangladesh, Belarus, Belgium + Luxembourg, Bolivia, Bulgaria, Cameroon, Canada, Chile, China, Croatia, Cuba, Czech Republic, Cyprus, Denmark, Egypt, Finland, France, Gabon, Germany, Ghana, Greece, Hungary, Indonesia, Israel, Italy, Jordan, Kazakhstan, Kuwait, Lebanon, Lithuania, Malaysia, Moldova, Mauritania, Mongolia, Morocco, Nigeria, Norway, Netherlands, Pakistan, Paraguay, Peru, Philippines, Poland, Portugal, Qatar, Russia, Senegal, Singapore, Slovakia, Slovenia, South Korea, Spain, Sri Lanka, Sudan, Switzerland, Tunisia, Turkey, Turkmenistan, Ukraine, United Kingdom, USA, Uruguay, Uzbekistan, Yugoslavia.

M. OPIC and Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC) began operation in Romania in late 1992, following the signing of an investment incentive agreement in June 1992.

Romania has been a member of the Multilateral Investment Guarantee Agency (MIGA) since 1992.

N. Labor

Romania offers a large skilled labor force at comparatively low wage rates in most sectors. The university system graduates a high percentage of technically competent professionals. Romanian craftsmen, engineers and software designers have won kudos for quality work from foreign managers. With appropriate on-the-job training, local labor performs well with new technologies and more exacting quality requirements. However, there continues to be a shortage of western-trained managers.

Since the revolution of December 1989, labor-management relations have occasionally been tense as a result of economic restructuring efforts and personnel layoffs. Unemployment is officially 10 percent of the country's active labor-force. Trade unions are vocal defenders of their prerogatives. The government adheres to the ILO convention protecting worker rights.

Many Romanian state enterprises maintain that the first priority for an enterprise is to preserve jobs rather than turn a profit. Individual dismissals for poor performance must be carefully documented and are subject to legal challenge by the affected employee. Some foreign investors run into labor problems when they try to trim staff in loss-making product lines.

Steep salary taxes may also generate problems. A new law on global income tax, passed in August 1999 and effective as of January 2000, includes non-cash benefits in the basis for calculating the salary tax. Romania currently levies a maximum tax rate of 40 percent on gross salaries above $250 per month. Starting in 2002, software developers are exempt from the salary tax.

Current law makes it very costly to locate expatriate staff in Romania. Foreign companies often resort to expensive staff rotations, special consulting contracts, and non-cash benefits. As a rule, work permits are issued for a period of six months for a fee of $200, and may be renewed for subsequent six-month periods at $100 per renewal.

O. Free Trade Zones

Free Trade Zones (FTZs) operate under Law No. 84/1992. General provisions include unrestricted entry and re-export of goods, and an exemption from customs duties. The exemptions from the profit tax will likely be eliminated in the future. The law further permits the leasing or transfer of buildings or lands for terms of up to 50 years to corporations or natural persons, Romanian and non-Romanian.

Currently, there are six FTZs: Sulina (located at the mouth of the Danube); Constanta-Sud Agigea (located close to the port of Constanta, at the entrance to the Black Sea-Danube Canal); Galati (located about 100 km from the Danube mouth); Braila (located 30 km up the Danube from Galati); Curtici-Arad (located about 30 km from the border with Hungary); and Giurgiu (located on the Danube, 60 km south of Bucharest)

The Administrator of each FTZ is responsible for all activities performed within the zone. FTZs are under the authority of the Ministry of Public Works, Transportation and Housing.

P. Foreign Direct Investment Statistics

Despite some substantial gains in recent years, direct investment flows into Romania have remained relatively low compared to other countries in the region. According to data provided by the Romanian Trade Registry, cumulative foreign direct investment for the period between 1990-2001 totaled $7.842 billion, of which $1.663 billion represents 2001 inflows. Because Romanian capital exports have largely been prohibited, as of 2001, Romanian investments abroad total only $17 million. The most significant privatization deals of 2001 were the SIDEX Galati Steel Works purchase by Anglo-Indian LNM ISPAT, and the Agricultural Bank by Austria's Raiffeisen Bank and the Romanian-American Enterprise Fund.

At the end of 2001, foreign direct investment (FDI) increased to the equivalent of 19.6% of 2001 GDP. 2001 FDI inflows represented 4.3% of GDP.

Preferred areas for foreign investment includ:

Officially, the value of U.S. direct investment in Romania at the end of March 2002 amounted to $688.7 million. The US was the third-ranked direct investor after the Netherlands ($1,170.5 million) and Germany ($823.8 million). U.S. foreign direct investment represents 8.7% of the total foreign direct investments in Romania. However, this official number does not include offshore firms using U.S. capital that are registered in other countries, such as Cyprus. U.S. direct investment has been in the IT, telecommunications, banking, insurance, manufacturing, and consumer product sectors. Significant U.S. direct investors include:

In addition to these companies, the European Bank for Reconstruction and Development (EBRD) remains the single largest investor (debt plus equity) in Romania with some $2.0 billion invested. The U.S. is a 10 percent shareholder in the EBRD.

Romania's biggest investors are: