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DE RUEHBM #0024/01 0141309
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P 141309Z JAN 09
FM AMEMBASSY BUCHAREST
TO RUEHC/SECSTATE WASHDC PRIORITY 9099
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUCPCIM/CIM NTDB WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 11 BUCHAREST 000024 
 
STATE FOR EUR/CE ASCHIEBE, EB/IFD/OIA JHATCHER AND GHICKS 
STATE PLEASE PASS TO USTR 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB KTDB PGOV OPIC USTR RO
SUBJECT: ROMANIA: INVESTMENT CLIMATE STATEMENT, 2009 
 
REF: 08 STATE 123907 
 
¶1.  Following is Embassy Bucharest's submission for the 2009 
Investment Climate Statement. 
 
¶A. OPENNESS TO FOREIGN INVESTMENT 
 
ENCOURAGING INVESTMENT 
 
Romania actively seeks direct foreign investment.  The Agency for 
Foreign Investment (ARIS), created in 2004, is designed to advertise 
the country as a good investment destination and to improve aspects 
of the business climate.  Romania's marketplace of 21.6 million 
consumers, a well-educated workforce, geographic location, and 
abundant natural resources make it an increasingly attractive 
destination for investment.  To date, favored areas for American 
investment include IT and telecommunications, services, 
manufacturing, and consumer products. 
 
Romania has taken steps to strengthen tax administration, enhance 
transparency, and create legal means to resolve contract disputes 
expeditiously.  Mergers and acquisitions are subject to review by 
the Competition Council. Romania's accession to the European Union 
on January 1, 2007 has helped solidify institutional reform. 
However, judicial and legislative unpredictability continues to 
affect the investment climate.  Prospective U.S. investors should 
exercise careful due diligence, including consultation with 
competent legal counsel, when considering any investment. 
 
U.S. companies establish a local presence in the Romanian market in 
several forms. Many form distribution agreements with a local 
Romanian firm who brings experience, expertise and access to the 
partnership.  Other firms cover Romania from a distributor or sales 
representative in the region.  Still other American companies choose 
Romania as a base of manufacturing or distribution and establish a 
subsidiary. The choice of strategy depends on the industry, the 
nature of the customer (government buyer or retail trade), and the 
business case.  Companies that rely on regular access to the 
Government of Romania, or have a significant service component, 
generally seek to establish a subsidiary, sometimes through 
acquisitions. 
 
Investments that involve the public authorities (central government 
ministries, county governments, and city administrations) are 
generally more complicated than investments or joint ventures with 
private Romanian companies.  Large deals involving the government - 
particularly public-private partnerships and privatizations of key 
state-owned enterprises - can become stymied by vested political and 
economic interests or bogged down due to a lack of coordination 
among governmental ministries.  Investors have generally encountered 
greater success with less complex deals involving small- to 
medium-sized private and state enterprises. 
 
EU ACCESSION 
 
Romania became a member of the European Union on January 1, 2007. 
The country has worked assiduously to create a legal framework 
consistent with a market economy and investment promotion, and has 
largely concluded its efforts to enact EU-compatible legislation. 
At the same time, implementation of these regulations sometimes 
lags.  The U.S. Department of Commerce recognized Romania as a 
market economy for anti-dumping investigation purposes beginning in 
March 2003. 
 
LEGAL FRAMEWORK 
 
Romania's legal framework for foreign investment is encompassed 
within a substantial body of law, largely enacted in the late 1990s 
and subject to frequent revision since.  Investors are strongly 
encouraged to engage local counsel to navigate through the various 
laws, decrees, and regulations. 
 
This body of legislation and regulation provides national treatment 
for foreign investors, guarantees free access to domestic markets, 
and allows foreign investors to participate in privatizations. 
There is no limit on foreign participation in commercial 
enterprises.  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 rights to other Romanian or foreign 
investors. 
 
Foreign investors may engage in business activities in Romania by 
any of the following methods: 
 
 
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-- Setting up new commercial companies, subsidiaries or branches, 
either wholly owned or in partnership with Romanian natural or legal 
persons; 
-- Participating in the increase of capital of an existing company 
or the acquisition of shares, bonds, or other securities of such 
companies; 
-- Acquiring concessions, leases or agreements to manage economic 
activities, public services, or the production of subsidiaries 
belonging to commercial companies or state-owned public 
corporations; 
-- Acquiring ownership rights over non-residential real estate 
improvements, including land, via establishment of a Romanian 
company; 
-- Acquiring industrial or other intellectual property rights; 
-- Concluding exploration and production-sharing agreements related 
to the development of natural resources. 
 
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, public order, 
and public health interests and regulations. 
 
There have been few hostile take-over attempts reported in Romania, 
and 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 investors. 
 
 
PRIVATIZATION 
 
The State Asset Resolution Authority (AVAS) is charged with 
privatizing state-owned industrial and energy assets and managing 
these assets in the interim period before a privatization is 
finalized.  The law on privatization permits the responsible 
authority to hire an agent to handle the entire privatization 
process, though ultimate decision-making authority remains with the 
government. 
 
Major energy sector privatization was largely stalled in 2008, 
although the state-owned hydro power producer, Hidroelectrica, is 
making progress in selling off micro hydropower plants.  The company 
sold 33 micro hydro power plants, worth 39 million Euros, to foreign 
and Romanian investors in 2008. 
 
Prospective investors are strongly advised to conduct thorough due 
diligence before any acquisition, particularly of state-owned 
assets.  Some firms have found it advantageous to purchase 
industrial assets through AVAS' budget arrears recovery process 
rather than through direct privatization.  When utilized, this 
method may avoid assuming historical debt or encumbering labor 
agreements.  As a member of the European Union, Romania is required 
to notify the European Commission's General Directorate for 
Competition regarding significant privatizations and related state 
aid.  Prospective investors should ascertain whether such an 
obligation exists, and ensure compliance by relevant government 
entities.  GOR failure to notify the European Commission properly 
has resulted in delays and complications in some past 
privatizations.  Some investors have also experienced problems due 
to the occasional failure of GOR entities to fully honor contractual 
obligations following conclusion of privatization agreements. 
 
Romanian law allows for the inclusion of confidential clauses in 
privatization and public-private partnership contracts to protect 
business proprietary and other information.  However, in certain 
high-profile privatizations, Parliamentary action has compelled the 
opening up of such provisions. 
 
PROPERTY AND CONTRACTURAL RIGHTS 
 
Property and contractual rights are recognized, but enforcement 
through the judicial process can be difficult, costly, and lengthy. 
Foreign companies engaged in trade or investment in Romania often 
express concern regarding Romanian courts' lack of expertise in 
commercial issues.  Judges generally have little experience in the 
functioning of a market economy, international business methods, 
intellectual property rights, or the application of Romanian 
commercial and competition laws.  Even when court judgments are 
favorable, enforcement of judgments is inconsistent and can require 
further lengthy appeals. 
 
¶B. CONVERSION AND TRANSFER POLICIES 
 
Romanian legislation does not restrict the conversion or transfer of 
funds associated with direct investment.  All profits made by 
 
BUCHAREST 00000024  003 OF 011 
 
 
foreign investors in Romania may be converted into another currency 
and transferred abroad at the market exchange rate after payment of 
taxes. 
 
Romania's national currency, the Leu, is freely convertible on 
current-account transactions, in accordance with the International 
Monetary Fund's (IMF) Article VII.  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 1997, the Romanian government implemented new regulations that 
liberalized foreign exchange markets.  The inter-bank electronic 
settlement system became fully operational in 2006, eliminating past 
procedural delays in processing capital outflows.  Commission fees 
for real-time electronic banking settlements have gradually been 
reduced. 
 
Capital inflows are free from restraint.  Previous restrictions on 
the opening of Leu deposits by non-residents have been lifted. 
Romania concluded capital account liberalization in September 2006 
with the decision to permit non-residents and residents abroad to 
purchase derivatives, treasury bills and other monetary 
instruments. 
 
¶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.  Five cases against 
Romania are pending with the International Center for Settlement of 
Investment Disputes (ICSID).  Several cases involving property 
nationalized during the communist era also remain unresolved. 
 
¶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 is a member of the International 
Center for the Settlement of Investment Disputes (ICSID). 
 
Romanian law and practice recognize applications to other 
internationally-known arbitration institutions, such as the ICC 
Paris Court of Arbitration and 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.  Arbitration awards are 
enforceable through Romanian courts under circumstances similar to 
those in other Western countries, although legal proceedings can be 
protracted. 
 
MEDIATION: 
 
Mediation as a tool to resolve disputes is becoming more common in 
Romania.  Mediation became a legal profession in 2006 when the 
Romanian Parliament passed legislation recognizing it and 
establishing a certifying body, The Mediation Council, to set 
standards and practices.  The professional association, The Union of 
Mediation Centers in Romanian, is the umbrella organization for 
mediators throughout the county.  There are recognized mediation 
centers in every county capital where court-sanctioned and private 
mediation is available. 
 
There is no court-ordered mediation but judges can encourage 
litigants to use mediation to resolve their cases.  If litigants opt 
for mediation, upon completion of the mediation process, they must 
present their proposed resolution to the judge who must approve the 
agreement. 
 
The Union of Mediation Centers is a member of the European Mediation 
Network Initiative and is recognized by the European Union and other 
regional bodies. 
 
BANKRUPTCY 
 
Romania's bankruptcy law contains provisions for liquidation and 
reorganization that are generally consistent with Western legal 
 
BUCHAREST 00000024  004 OF 011 
 
 
standards.  These laws usually emphasize enterprise restructuring 
and job preservation.  Legal and economic education and the training 
of judges and lawyers lag behind law-making, which often results in 
inconsistent outcomes.  To mitigate the time and financial costs of 
bankruptcies, Romanian legislation provides for administrative 
liquidation as an alternative to bankruptcy.  However, investors and 
creditors have complained that the liquidators sometimes lack the 
incentive to expedite liquidation proceedings, and that, in some 
cases, their decisions have served vested outside interests.  Both 
state-owned and private companies tend to opt for judicial 
reorganization to avoid bankruptcy. 
 
¶E. PERFORMANCE REQUIREMENTS/INCENTIVES 
 
INCENTIVES 
 
Currently, customs and tax incentives are available for investors in 
six free trade zones and 36 regions of the country designated as 
economically disadvantaged.  State aid is available for investments 
in free trade zones under EU regional development assistance rules. 
Large companies may receive aid equivalent to up to 50 percent of 
their eligible costs (limited to 40 percent in Bucharest and 
surrounding Ilfov county), while small- and medium-sized enterprises 
(SMEs) may receive assistance with up to 65 percent of their 
eligible costs.  Prospective investors are advised to investigate 
thoroughly the current status of fiscal incentives. 
 
In 2007 Romania adopted European Union regulations on regional 
investment aid and instituted state aid schemes for large 
investments.  To benefit from state aid under these schemes, the 
applicant must secure financing for at least 25 percent of the 
eligible costs, either through its own resources or by external 
financing, in a form which is free of any public support.  The 
applicant must document this financing in strict accordance with 
Ministry of Finance guidelines.  In practice, unfortunately, GOR 
budget constraints and a less than fully transparent application 
process have limited access to these forms of state aid. 
 
To reduce initial startup costs, a system of industrial parks and 
technological parks is being created.  Tax incentives are available 
under the law for the industrial park operator, while companies that 
establish themselves in the park benefit from access to utility 
hookups and infrastructure, and to potential local tax rebates under 
regional development aid schemes.  According to the Agency for 
Foreign Investment, there were 54 industrial parks throughout 
Romania as of December 2008. 
 
As a member of the European Union, Romania must receive European 
Commission approval for any state aid it grants which is not covered 
by the EU's block exemption regulations.  The Romanian Competition 
Council acts as a clearinghouse for the exchange of information 
between the Romanian authorities and the European Commission. 
Specifically, the Council screens the state aid notifications and 
provides an initial opinion to the state aid grantor as to whether 
the request is consistent with EU directives, allowing for an 
opportunity to revise or withdraw a request before it is submitted 
to the Commission.   Even after submission, the Council retains 
jurisdiction over competition and antitrust matters.  The failure of 
state aid grantors to notify the Commission properly on aid 
associated with privatizations has resulted in the Commission 
launching formal investigations into several privatizations. 
Investors should ensure that government entities with which they 
work fully understand and fulfill their duty to notify competition 
authorities.  Investors may wish to consult with EU and Romanian 
competition authorities in advance to ensure a proper understanding 
of notification requirements. 
 
TAX SYSTEM 
 
Since 1999, Romania has revised its tax system to bring it closer 
both to EU models and to the recommendations of the World Bank and 
IMF.  In 2004, Romania adopted a flat tax of 16 percent on personal 
income and corporate profits, and simplified the tax code.  The 
government has also reformed the tax code to encourage economic 
growth and foreign investment.  It reduced employers' payroll taxes 
by two percent in 2007 and by an additional six percent in three 
stages in 2008.  However, even after these cuts, Romania's aggregate 
39.85 percent payroll tax (at the end of 2008) remains a burden, 
leading some parties to support efforts to reduce it by an 
additional two percent in 2009.  Romania has a 19 percent value 
added tax (VAT).  Investors should be aware that, due to budget 
constraints, the GOR has occasionally withheld VAT reimbursements 
due to foreign companies for extended periods.  The country is fully 
integrated into EU customs and excise tax systems, and is scheduled 
to be fully integrated into EU VAT transfer systems by 2009.  The 
new coalition government, which took office in late December 2008, 
has announced that it will keep the flat tax unchanged. 
 
BUCHAREST 00000024  005 OF 011 
 
 
 
TARIFF PREFERENCES 
 
Upon EU accession, Romania implemented the EU Common Customs Tariff, 
the Generalized Preference Scheme, EU commercial safeguards, 
preference agreements and cooperation agreements concluded by the EU 
with third countries, as well as other EU commercial commitments 
vis-`-vis the WTO. 
 
¶F. RIGHT TO PRIVATE OWNERSHIP; ESTABLISHING FIRMS 
 
The Romanian Constitution, adopted in December 1991 and revised in 
2003, guarantees the right to ownership of private property. 
Mineral and air rights, and similar rights are excluded from private 
ownership.  Under the revised Constitution, foreign citizens can 
gain land ownership through inheritance.  With EU accession, 
citizens of EU member states can now own land in Romania subject to 
reciprocity in their home country. 
 
Companies having 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 only be 
legally sold to a buyer(s) with the legal right to purchase such 
assets.  For a transition period of seven years after Romania's 
accession to the EU, foreign investors cannot purchase agricultural 
land or forests and forestry land (except for farmers acting as 
commercial entities).  Investors can purchase shares in agricultural 
companies that can lease land in the public domain from the State 
Land Agency. 
 
¶G. PROTECTION OF PRIVATE PROPERTY RIGHTS 
 
MORTGAGES 
 
In early 2006, the Parliament passed a legislative package that 
regulates the establishment of specialized mortgage banks, including 
the possibility of transforming existing non-banking mortgage credit 
institutions into specialized mortgage banks.  The law also makes 
possible a secondary mortgage market by regulating mortgage bond 
issuance mechanisms.  Currently, mortgage lending is offered by 
commercial banks, specialized mortgage banks, and non-bank mortgage 
credit institutions.  With the 2006 privatization of the Romanian 
Commercial Bank (BCR), Romania's mortgage market is almost entirely 
private (the state-owned National Savings Bank, or CEC, also offers 
mortgage loans).  The primary market demonstrated robust growth 
until the third quarter of 2008, when credit tightened in response 
to the international financial crisis and the implementation of much 
stricter national regulations on borrower qualifications.  Standard 
bank loans currently charge interest of around 15 percent APY on Leu 
loans for an initial fixed term (of one, two, or five years), 
followed by a variable interest rate for the life of the loan. 
Variable rates are typically pegged to the six-month ROBOR (Romanian 
inter-bank) rate (currently around 16.3 percent) plus a fixed 
spread.  Euro-denominated loans currently offer interest rates of 
approximately seven percent APY for the first two years, with 
subsequent variable rates linked to the six-month EURIBOR (European 
inter-bank) rate.  Due to the financial crisis, however, many banks 
have restricted euro-denominated lending. 
 
INTELLECTUAL PROPERTY RIGHTS 
 
Romania is a signatory to international conventions concerning 
intellectual property rights (IPR), including TRIPS, and has enacted 
legislation protecting patents, trademarks, and copyrights.  Romania 
signed the Internet Convention to protect online authorship.  While 
the IPR legal framework is generally good, enforcement in some areas 
remains weak and ineffectual.  The flagrant trade of retail pirated 
goods has largely been eliminated, but personal use of pirated 
products and software remains high.  The recording, video, and 
software industries have expressed concerns over increasing levels 
of Internet-based piracy of electronic media.  Romania has passed 
border IPR control enforcement provisions as required under the WTO, 
yet judicial enforcement is lax. 
 
PATENTS 
 
Romania is a party to the Paris Convention for the protection of 
industrial property and subscribes to all of its amendments. 
Romanian patent legislation generally meets international standards, 
with foreign investors accorded equal treatment with Romanian 
citizens under the law.  Patents are valid for 20 years.  Romania 
has been a member of the European Patent Protection Convention since 
¶2002. 
 
TRADEMARKS 
 
 
BUCHAREST 00000024  006 OF 011 
 
 
In 1998, Romania passed a law on trademarks and geographic 
indicators which is generally consistent with international 
standards.  Areas that require improvement are in administrative 
procedures and sanctions.  Romania is a signatory to the Madrid 
Agreement relating to the international registration of trademarks 
and the Geneva Treaty on Trademarks.  Trademark registrations are 
valid for ten years from the date of application and renewable for 
similar periods. In 2007, Romania ratified the Singapore Treaty on 
trademarks registration. 
 
COPYRIGHTS 
 
Romania is a member of the Bern Convention on Copyrights.  Its 1996 
law on the protection of copyrights and neighboring rights is among 
the most modern in this field.  The Romanian Parliament ratified the 
latest versions of the Bern and Rome conventions.  The Romanian 
Copyright Office (ORDA) was established in 1997 and ostensibly 
oversees copyright enforcement.  However, copyright law enforcement 
is often a low priority for Romanian prosecutors and judges.  Some 
magistrates still tend to view copyright piracy as a "victimless 
crime," particularly if affected copyright holders are not Romanian 
citizens.  This attitude, coupled with a lack of resources, has 
resulted in weak enforcement of copyright law.  Copyright 
infringement in software, music, and video is prevalent throughout 
Romania.  Although they have declined over the past few years, 
piracy rates remained high over the last year largely due to 
widespread cyber-piracy.  The latest industry estimates of piracy 
rates by sector are: 68 percent of business software, 89 percent of 
entertainment software, 65 percent of music, and 55 percent of 
video. 
 
SEMICONDUCTOR CHIP LAYOUT DESIGN 
 
Romanian law protects semiconductor chip layout design.  In order to 
benefit, designs must be registered with the Romanian Trademark 
Office.  Romania is a signatory to the Washington Treaty. 
 
¶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, environmental 
approvals, property titles, licenses, and utility hook-ups.  Romania 
enacted a "Silent Approval" Law in 2003 to reduce bureaucratic 
delays, but it has yet to be universally enforced or recognized. 
Furthermore, regulations change frequently, often without advance 
notice, and are often vaguely worded and poorly explained.  These 
changes, which can significantly add to the costs of doing business, 
can complicate investors' business plans. 
 
Romanian law requires consultations and a 30-day comment period on 
legislation affecting the business environment (the Sunshine Law). 
However, not all ministries adhere to this requirement. 
 
State aid legislation and EU state aid regulations (directly 
applicable to Romania after January 1, 2007) aim to limit state aid 
in any form, such as direct state subsidies, debt rescheduling 
schemes, debt for equity swaps, or discounted land prices.  As noted 
above, the European Commission must be notified of and approve state 
aid granted by Romania above a certain monetary threshold that does 
not correspond to pre-approved categories of aid. 
 
¶I. EFFICIENT CAPITAL MARKET AND PORTFOLIO INVESTMENT 
 
CAPITAL MARKETS 
 
Romania seeks to develop efficient capital markets.  The National 
Securities Commission (CNVM) is charged with regulating the 
securities market in order to protect investors.  The process 
provides for the registration and licensing of brokers and financial 
intermediaries, filing and approval of prospectuses, and approval of 
market mechanisms. 
 
On November 20, 1995, the Bucharest Stock Exchange (BVB) conducted 
its first transactions after a hiatus of 50 years.  The BVB operates 
a three-tier system that, at present, lists a total of 67 companies, 
with 20 companies in the highest tier.  The official index, BET, is 
based on a basket of the 10 most active stocks listed on the first 
tier.  The BVB also has a RASDAQ (OTC) market segment that currently 
lists 1,763 different stocks.  The BVB additionally allows trades in 
corporate, municipal bonds, and international bonds.  Beginning in 
2007, the BVB opened derivatives trading. 
 
Despite lower trading fees and a diversified securities listing, the 
situation on the international capital and financial markets has 
adversely affected the Romanian capital market.  Country funds, 
hedge funds and venture capital funds continue to participate in the 
 
BUCHAREST 00000024  007 OF 011 
 
 
capital markets, yet on a decreasing scale. 
 
Minority shareholders have the right to participate in any capital 
increase.  The Romanian capital market regulation is now 
EU-consistent, with accounting regulations reflecting EC Directives 
IV and VII. 
 
BANKING SECTOR 
 
In 2006, the GOR concluded the privatization of Romania's largest 
bank, Romanian Commercial Bank (BCR), to Erste Bank of Austria. 
After BCR, of the 42 banks and credit cooperative unions operating 
in Romania, the French-owned Romanian Bank for Development 
(BRD-Societe Generale) is the second largest bank with 15 percent 
market share, followed by Austrian-owned Volksbank (6.31 percent) 
and Raiffeisen Bank (6.11 percent).  Other large banks include the 
domestically-owned Banca Transilvania (5.54 percent) and Italian 
UniCredit Tiriac (5.4 percent). 
 
According to the Romanian Central Bank, overdue and legally disputed 
loans now amount to 0.24% of total attracted and borrowed sources, 
this accounts for 0.22 percent of total banking assets and 2.36 
percent of the banks' own capital. 
 
The GOR actively encourages foreign investment in the banking 
sector, and there are no restrictions on mergers and acquisitions. 
The only remaining state-owned bank is the National Savings Bank 
(CEC), with a market share of 4.39 percent. 
 
While Romania's Central Bank must approve the operation of all new 
non-EU banking entities in the country, those banks and non-banking 
financial institutions with existing operating approval in other EU 
countries need merely notify the Central Bank of plans to provide 
local services. 
 
¶J. POLITICAL VIOLENCE 
 
There have been no reported incidents in Romania involving 
politically motivated damage to foreign investments (projects and/or 
installations).  Major civil disturbances are not expected to occur 
in Romania in the near future. 
 
¶K. CORRUPTION 
 
Despite some improvements, corruption remains a serious problem. 
Romania and Bulgaria had the lowest rankings among EU member states 
in Transparency International's (TI) 2008 Corruption Perception 
Index.  TI's 2007 report on judicial corruption pointed to poor 
judicial decision making and weak ethical values. 
 
U.S. investors have complained of government and business corruption 
in Romania, with the customs service, municipal zoning offices and 
local financial authorities most frequently named.  In some cases, 
demands for payoffs by low- to mid-level officials 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. 
Prison sentences are sometimes imposed, but powerful and influential 
individuals have often evaded prosecution or conviction.  Under 
pressure from the European Union, the Government of Romania is 
attempting to prosecute several high-level political officials from 
previous governments, including a former Prime Minister. 
 
The government announced a National Anti-Corruption Plan and passed 
an anti-corruption law in April 2003.  The plan contains an 
impressive list of measures and commitments that constitute key 
benchmarks for judging the government's commitment to combat 
corruption.  A national strategy to combat corruption in local 
public administration was adopted in June 2008.  However, the 
implementation of these measures and commitments has lagged. 
 
A money laundering law was passed in February 1999 and a new 
criminal code came into effect in 2003.  With U.S. help, the 
Romanian government established a new institution in September 2002 
- the National Anti-Corruption Prosecutors' Office (DNA) - staffed 
by prosecutors and police to combat corruption.  In the first half 
of 2008, Romania also established the National Integrity Agency, 
which is designed to monitor financial asset flows, limit conflicts 
of interest, and sanction unjustified increases in the personal 
assets of politicians and public sector employees. 
 
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 Trans-border Crime of May 1999. 
Bucharest hosts the SECI Regional Center for Combating Corruption 
 
BUCHAREST 00000024  008 OF 011 
 
 
and Organized Crime, and Romania is one of the three members of the 
Joint Cooperation Committee. 
 
In March 2002, to reduce corrupt practices in public procurement, 
the GOR inaugurated a web-based e-procurement system which can be 
accessed at http://www.e-licitatie.ro/.  Initiated with seed money 
from USAID, the system is a transparent listing of ongoing auctions 
and closed auctions, with the name of the winners and the closing 
prices made available to the public.  The use of "e-licitatie" has 
increased government efficiency, reduced government vulnerability to 
corruption, and improved fiscal responsibility in government 
procurement.  E-procurement has increased from 159 government 
clients and 600 suppliers in its initial months to 11,130 state 
entities and 12,885 suppliers.  Initially used solely for basic, 
standard products, the program is also now applied to more complex 
projects. 
 
The public procurement legislation, passed in 2006 and repeatedly 
amended since, establishes ex-ante controls on public procurement 
processes, stricter rules on eligible participants, and an appeals 
mechanism for complaints against the process.  The National Agency 
for Public Procurement has general oversight over procurements and 
can draft legislation, but procurement decisions remain with the 
procuring entities. 
 
COURT SYSTEM 
 
The Romanian judicial system suffers from corruption, inefficiency, 
lack of expertise, and excessive workloads.  Divergent and often 
contradictory rulings are not uncommon, complicating normal 
commercial activities.  Companies routinely complain that commercial 
disputes take too long to resolve through the court system and, once 
a verdict is reached, court orders may not be enforced.  Errors in 
court procedures, whether peripheral to the outcome or not, may 
result in complete retrials, further delaying verdicts.  Courts are 
overburdened and the number of magistrates and judges is too small. 
Litigants in virtually all cases have a right to two appeals, 
contributing to clogs in court dockets throughout the system and 
lengthy delays.  Final judgments are not binding until all appeals 
are exhausted.  Clerks, attorneys and judges reportedly remain 
susceptible to bribes or other "extra-judicial" payments, most 
commonly to "speed up" litigation, to assure a particular judge is 
assigned to a case, or to create intentional procedural errors 
leading to retrial. 
 
CYBER CRIME 
 
Romania has one of the world's highest occurrences of internet 
fraud.  The problem is illustrated by a growing stream of 
complaints, some of which involve U.S. companies and their customers 
being defrauded of millions of dollars.  The most common problems 
result from the use of stolen credit card numbers for the purchase 
of goods online, fraudulent use of on-line auction platforms such as 
eBay, as well as sophisticated phishing schemes to defraud customers 
of legitimate e-commerce companies. 
 
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 means by which they hacked the 
company's server back to the victimized U.S. company.  On other 
occasions, hackers have attempted blackmail by threatening to 
release sensitive data or the means to hack the system unless a 
specific amount of money is paid. 
 
An e-commerce law that defines and punishes cyber crime came into 
force in July 2002.  Law enforcement efforts are still not 
commensurate with the scale of the problem, but enforcement 
activities have notably increased, thanks in part to substantial 
assistance U.S. law enforcement agencies have provided to the 
Romanian authorities.  Several recent investigations into cyber 
crime, and successful arrests by Romanian authorities, may serve as 
a deterrent to new cyber criminals. 
 
¶L. BILATERAL INVESTMENT AGREEMENTS 
 
The U.S.-Romanian Bilateral Investment Treaty (BIT) 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 dispute resolution 
mechanism, liberal capital transfer, prompt and adequate 
compensation in the event of an expropriation, and the avoidance of 
trade-distorting performance requirements.  The U.S. government 
negotiated an agreement with the EU and eight accession countries, 
including Romania, to cover any possible inconsistencies between the 
pre-existing BITs and the countries' future EU obligations.  This 
revised BIT was ratified by the U.S. Senate and Romanian Parliament 
 
BUCHAREST 00000024  009 OF 011 
 
 
in 2004, and went into effect on February 9, 2007.  Other bilateral 
trade agreements with third countries were terminated upon Romania's 
EU accession. 
 
¶M. OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
 
The Overseas Private Investment Corporation (OPIC) began operations 
in Romania in late 1992, following the signing of an investment 
incentive agreement in June 1992, and continues to actively finance 
projects in Romania.  Romania has been a member of the Multilateral 
Investment Guarantee Agency (MIGA) since 1992. 
 
¶N. LABOR 
 
Romania has traditionally offered a large, skilled labor force at 
comparatively low wage rates in most sectors, although the labor 
pool is tightening.  The university system is generally regarded as 
good, particularly in technical fields, though foreign and Romanian 
business leaders have urged reform of outdated higher education 
curricula to better meet the needs of a modern, innovation-driven 
market. 
 
The quality of work of Romanian craftsmen, engineers, and software 
designers is well regarded by foreign managers.  With appropriate 
on-the-job training, local labor performs well with new technologies 
and more exacting quality requirements.  However, labor shortages 
have appeared in certain sectors, resulting in strong upward 
pressure on wages.  Before the onset of the global economic 
downturn, analysts estimated that as many as 600,000 additional 
skilled workers would be needed in the construction industry alone. 
Outward labor migration and the number of students graduating 
without the practical skills needed in the modern workplace are 
considered the main causes for this trend. However, slowing growth 
and recession in western European countries is expected to alleviate 
domestic labor market shortages somewhat as some Romanian workers 
return from abroad. 
 
Since the revolution of December 1989, labor-management relations 
have occasionally been tense as a result of economic restructuring 
efforts and personnel layoffs.  In September 2008, unemployment 
officially stood at 3.9 percent, down from 4.0 percent at the end of 
¶2007.  Trade unions, much better organized than employers' 
associations, are vocal defenders of their prerogatives.  The 
national minimum wage was recently set at RON 540 per month (about 
USD $180) after extensive negotiations between unions, employers 
associations, and government representatives.  This is scheduled to 
increase to RON 600 (about USD $200) on January 1, 2009, provided 
certain favorable economic targets are reached.  The government 
adheres to the ILO convention protecting worker rights. 
 
According to Eurostat, Romania's minimum wage (as adjusted for 
purchasing power parity) of 232 points is among the lowest of all 
the 27 EU states, placing the country in the next to last place, 
ahead of Bulgaria. However, also according to Eurostat, Romania 
registered the biggest growth of the minimum salary in real terms, 
of 12.2 percent, from 2000-2008. 
 
Employers considered the Labor Code passed in 2003 to be overly 
rigid for a market economy, as it made it harder for employers to 
dismiss employees for poor performance.  In June 2005, the GOR 
approved several amendments to the Code which foreign investors 
consider to be an improvement, although it still tilts in favor of 
trade unions and retains provisions restricting labor flexibility. 
 
Payroll taxes remain steep despite recently enacted reductions.  As 
a result, an estimated 25-30 percent of the labor force works in the 
"underground economy" as "independent contractors" where their 
salaries are neither recorded nor taxed.  Even for registered 
workers, under-reporting of actual salaries is common. 
 
Current law makes it very costly to locate non-EU citizen expatriate 
staff in Romania.  Foreign companies often resort to expensive staff 
rotations, special consulting contracts, and non-cash benefits. 
Work permits are now issued for a maximum one-year period (except 
for seasonal work) for a fee of 200 euros (payable in the RON 
equivalent at the daily exchange rate).  These permits are 
automatically renewable with a valid individual work contract. 
Starting in 2008, 14 county offices of the Romanian Immigration 
Authority will be authorized to issue work permits for foreign 
citizens in an attempt to decentralize this activity.  After January 
1, 2007, foreigners from EU countries that did not impose 
restrictions on Romanian citizens can work in Romania without work 
permits.  Although several companies began importing workers, mainly 
from Turkey, China, India, Pakistan or Moldova, most Romanian 
businesses are still reluctant to bring in large numbers of foreign 
workers.  The Government plans to raise the number of annual work 
permits allowed from 10,000 to 15,000. 
 
BUCHAREST 00000024  010 OF 011 
 
 
 
¶O. FREE TRADE ZONES 
 
Free Trade Zones (FTZs) received legal authority in Romania in 1992. 
 General provisions include unrestricted entry and re-export of 
goods and an exemption from customs duties.  The law further permits 
the leasing or transfer of buildings or lands for terms of up to 50 
years to corporations or natural persons, regardless of nationality. 
 Currently there are six FTZs, primarily located on the Danube River 
or close to the Black Sea: Sulina, Constanta-Sud Agigea, Galati, 
Braila, Curtici-Arad, and Giurgiu. 
 
The Administrator of each FTZ is responsible for all commercial 
activities performed within the zone.  FTZs are under the authority 
of the Ministry of Transportation. 
 
¶P. FOREIGN DIRECT INVESTMENT STATISTICS 
 
Romania has been an attractive destination for foreign direct 
investment (FDI), and is currently the number one destination in 
Southeastern Europe.  However, Romania did not become a significant 
target of FDI until the start of this decade, due to earlier delays 
in economic reforms. According to data provided by the Romanian 
Trade Registry, the cumulative net stock of FDI for the period from 
January 1990 through September 2008 totaled $28.36 billion, 
representing 18.9 percent of GDP.  FDI in 2007 amounted to $3.3 
billion (2.0 percent of GDP).  Since Romanian capital exports were 
largely prohibited prior to capital account liberalization in 2006, 
the total January-June 2008 Romanian direct investments abroad were 
$841.5 million. 
 
Major sectors for foreign investment include: 
-- Automobile and automotive components (Renault, Daimler Benz, 
Ford, Siemens, Continental, Alcoa, Delphi Packard, Johnson Controls, 
Honeywell Garrett, Michelin, Pirelli); 
-- Banking and finance (Citibank, Societe Generale, AIG, ING, 
Generali, Volksbank, Raiffeisen, Erste Bank, Unicredit, National 
Bank of Greece, Royal Bank of Scotland, Intesa Sanpaolo, Millenium 
Bank, GE Money); 
-- Information Technology (Hewlett Packard, Microsoft, Oracle, Cisco 
Systems, IBM) 
-- Telecommunications (France Telecom, OTE, Telesystem International 
Wireless Services, Airtouch-Vodafone); 
-- Hotels (Hilton, Marriott, Best Western, Howard Johnson, Sofitel, 
Crowne Plaza, Accor, Ramada, Radisson); 
-- Manufacturing (Timken, General Electric, LNM, Marco, Flextronics, 
Holcim, Lafarge, Heidelberg); 
-- Consumer products (Procter and Gamble, Unilever, Henkel, 
Coca-Cola, Parmalat, Danone); 
-- Retail chains (Metro, Delhaize, Carrefour, Cora, Billa, Selgros, 
Auchan, Kaufland). 
 
Officially, the value of U.S. direct investment in Romania as of 
September 2008 was $1,055.8 million.  The U.S. is the seventh-ranked 
foreign investor nation after the Netherlands, Austria, Germany, 
France, Italy, and Cyprus.  U.S.-source FDI represented 3.7 percent 
of Romania's total.  However, official statistics do not fully 
account for the tendency of U.S. firms to invest through foreign, 
especially European-based, subsidiaries, meaning the actual amount 
is higher.  Romanian statistics also over-emphasize physical 
capital-intensive investments, such as brownfield investments, while 
de-emphasizing the impact of foreign investment in services and 
technology.  American investment has mainly been in the 
telecommunications, mechanized agricultural, and consumer product 
sectors.  Significant U.S. direct investors (including investments 
made through branches or representative offices) include: 
 
- Advent Central and Eastern Europe - investment fund 
- AIG - general insurance 
- AIG Life - life insurance 
- AIG New Europe Fund - investment fund 
- Alcoa - automotive, aluminum processing 
- Bunge - food 
- Citibank - banking 
- Coca-Cola - beverage, food 
- Cooper Cameron - gas field equipment manufacturer 
- Delphi Packard - automotive 
- General Electric - aircraft components 
- GE Money - non-banking financial services 
- Hewlett Packard - IT&C equipment, services 
- Hoeganess - iron powder for automotive 
- Honeywell Garrett - automotive 
- IBM - IT equipment 
- Johnson Controls - automotive 
- Kodak - film processing 
- McDonald's - food 
- Microsoft - software services 
 
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- New Century Holding - investment fund 
- Office Depot - office and business supplies 
- Oracle - IT services, consulting 
- Philip Morris - tobacco products 
- Procter and Gamble - consumer products 
- Qualcomm - telecommunications 
- Sigma Bleyzer - investment fund 
- Flextronics - contract manufacturing (ICT) 
- Timken - industrial bearings 
- UPC - cable television operator 
- Visa - financial services 
- Washington International Group - engineering 
 
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 - $5.1 billion invested.  The U.S. 
is a 10 percent shareholder in the EBRD. 
 
Romania's biggest investors are: 
 
- Holland - $6.08 billion (21.5 percent of total FDI): ICT, banking, 
insurance, consumer products, food; 
- Austria - $3.82 billion (13.5 percent): banking, insurance, 
construction materials, etc. 
- Germany - $3.26 billion (11.5 percent): insurance, food, machine 
construction, chemicals, cement, banking; 
- France - $2.60 billion (9.2 percent): food, ICT, automotive, 
manufacturing, cement, agriculture, banking, hypermarkets; 
- Italy - $1.38 billion (4.9 percent): footwear, textiles, food, 
banking, insurance; 
- Cyprus - $1.32 billion (4.7 percent): banking, retail, services; 
- U.S. - $ $1.05 billion(3.7 percent): ICT, automotive, banking, 
insurance, hospitality, manufacturing, consumer products. 
 
Web Resources 
 
Romanian Government 
http://www.guv.ro 
 
Romanian Agency for Foreign Investments 
http://www.arisinvest.ro 
 
The Authority for State Assets Recovery 
http://www.avas.gov.ro/ 
 
Ministry of Public Finance 
http://www.mfinante.ro 
 
Ministry of Economy 
http://www.minind.ro 
 
International Centre for Settlement of Investment Disputes 
http://www.worldbank.org/icsid 
 
Romanian Copyright Office 
http://www.orda.ro 
 
Ministry of Communications and Information Technology 
http://www.mcti.ro 
 
National Securities Commission 
http://www.cnvmr.ro 
 
Bucharest Stock Exchange 
http://www.bvb.ro 
 
National Bank of Romania 
http://www.bnro.ro 
 
National Anti-Corruption Prosecutors' Office 
http://www.pna.ro 
 
Romanian Government's Web-Based e-Procurement System 
http://www.e-licitatie.ro 
 
Overseas Private Investment Corporation 
http://www.opic.gov 
 
Ministry of Labor, Social Solidarity and Family 
http://www.mmuncii.ro 
 
GUTHRIE-CORN