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$Unique_ID{bob00454}
$Pretitle{}
$Title{Romania
Chapter 7.    Conducting Business}
$Subtitle{}
$Author{Donald E. deKieffer}
$Affiliation{Embassy of Romania, Washington DC}
$Subject{foreign
romanian
romania
trade
business
goods
western
economic
system
government}
$Date{1990}
$Log{}
Title:       Romania
Book:        Doing Business with the New Romania
Author:      Donald E. deKieffer
Affiliation: Embassy of Romania, Washington DC
Date:        1990

Chapter 7.    Conducting Business

GOVERNMENT ECONOMIC STRUCTURE

     For fifty years, Romania has had a highly-centralized economy. The
government was deeply involved in all aspects of commerce, and a foreign firm
desiring to do business simply had to become more or less a government
contractor. This has changed. Even government agencies are now at pains to
tell a foreign business executive that it is no longer necessary to discuss
matters with a majority of the Ministries, industrial centrals, foreign trade
organizations or the plethora of other institutions which flourished under the
Communists. In fact, most of the major Ministries emphasize the new policy of
encouraging foreign firms to contact local producers directly to arrange
deals.

     Nevertheless, old ways die hard, especially when Romanian "companies"
have so little experience in negotiating contracts or even dealing with
foreigners. Further, many parts of the old system still exist-in technical
"competition" with the "producers." It was these agencies which traditionally
fulfilled the government's economic and trade programs by arranging for the
sale and purchase of goods from abroad. It is therefore important at least to
be aware of these entities. In certain circumstances, it may be wise to
contact these groups, if for no other purpose than to locate the "producers."

     As of late 1990, there was still no comprehensive list of independent
trading companies available in the country, and no index of producers. Various
entities are trying to establish themselves as sources for such information,
but a directory of private sector firms may not be available from the Chamber
of Commerce and Industry until mid-1991 at the earliest.

     Listed below are institutions which still perform important functions in
the operation of the Romanian foreign trade regime. Many of them will continue
to operate with a diminished role for many years to come.

Ministry of Foreign Trade

     The Ministry of Foreign Trade (MFT), formerly known as the Ministry of
Foreign Trade and Economic Cooperation, is still responsible for coordinating
and administering the foreign trade program of the government. In former
years, it was responsible for implementing the Communist Party's international
economic program. Today, it is working toward becoming a "trade policy" agency
similar to the United States Trade Representative in the United States, or
MITI in Japan.

     In addition to its policy role, the MFT also issues licenses which are
still required for all products entering or leaving the country. Since the
revolution, the MFT has seen cause to deny no licenses, but the process still
retains much of its bureaucratic antecedent. Applications must contain the
name and address of the importer and exporter, a description of the nature of
the goods, the value of the transaction (and whether it is denominated in
local currency or hard currency), the approximate time of the export or
import, the port of embarkation, a certificate from a bank known to the MFT
certifying to the financial particulars of the transaction, and a statement
concerning the financial condition of the parties. The MFT has made it clear
that these requirements can change, and that the Romanian partner in any
transaction will be responsible for making sure that all requirements extant
at the time of the transaction are met. The same requirements are applicable
for joint ventures in Romania.

     The MFT is also responsible for Customs regulations. Although Romania is
a member of the Customs Coordination Council in Brussels and a signatory to
the Harmonized System of tariff nomenclature, the country has been slow in
implementing a comprehensive tariff schedule. This is understandable since
tariffs under the old system were largely irrelevant. Since the State was
the only importer, collection of duties (essentially from itself) was not a
high priority. Until at least 1992, it would be prudent for any prospective
exporter of goods to Romania to check with the MFT on the applicable duty
rate, and secure a letter from them concerning the ad valorem rate. These
decisions are likely to be made on an ad hoc basis for the next several years.
Adoption of a comprehensive tariff system-including the possibility of
protective tariffs for some industries-is under review, but is a laborious
process. In the meantime, the MFT has made it clear that it will issue
"interim" advice upon request.

Technical-Production Ministries

     Under the Communists, government Ministries were directly responsible for
implementing the party's economic policies. They were similar to Western-style
conglomerates or holding companies, with direct control over the production
and delivery of products under their jurisdiction. The Ministries maintained
both production units (industrial centrals) and research institutes, as well
as foreign trade organizations (FTOs) which served as the equivalent of an
import-export department in a Western firm.

     One of the most fundamental changes brought about by the December, 1989
revolution was the dismantling of the authority of the Ministries to control
the economy. While their production units, institutes and FTOs are still in
existence, the Ministries themselves have lost their exclusive authority to
determine what will be produced and by whom. This transition has caused more
than a little uncertainty. The Ministry of the National Economy now has a
special division charged with "privatizing" many of the operating divisions
of the other Ministries over a period of years. In the meantime, however, the
Ministries act as at least caretakers for the production units and FTOs under
their jurisdiction, and should not be totally ignored. In fact, many of the
Ministries (especially those involved with agricultural production, food
processing, telecommunications and tourism) are actively seeking foreign
partners for various projects themselves.

Industrial Centrals

     As noted above, Industrial Centrals (ICs) were the production units for
the specialized Ministries under the old system. Most of these still exist
under the nominal authority of their old Ministries, but are now at least
partially independent. Contact the Romanian Chamber of Commerce and Industry
for a current list of ICs. Under the  post-revolutionary reforms, they are
permitted to deal directly with foreign investors, purchasers and sellers. By
1993, many of these will be entirely privatized, but some may remain under
state control (especially in heavy industry where operating losses make
"free-standing" corporations impossible).

     One of the major efforts of the new government is to encourage foreign
investors to establish joint ventures with the "industrial centrals" to speed
the process of privatization and to provide necessary technology to these
enterprises. There are literally hundreds of these ICs, most now in total
control of the disposition of their assets. Among the advantages of doing
business with or through an IC are:

     - The government is actively encouraging the sale or privatization of
these enterprises, and terms can be extremely attractive;

     - The ICs have buildings, equipment and trained work force extant. This
can save considerable hassle for an investor wending his way through the
transitional rules of acquiring property, negotiating labor contracts, etc.;

     - Most ICs are familiar with making products to the specification of
others. Few of them design their own goods, and do not have the "Not Invented
Here" syndrome common in the West where companies prefer to do things "My
Way."

     ICS can be identified either through reference to the appropriate
Ministry, or, increasingly through the Romanian Chamber of Commerce and
Industry, which maintains an interim list of ICs available for direct
consultation.

Foreign Trade Organizations

     FTOs performed very specific functions under the old regime. They were
responsible for negotiating and implementing the import and export policies
of the government. It is likely these groups will cease to exist by 1995 as
their functions are replaced by independent producers and trading companies.
Contact the Romanian Chamber of Commerce and Industry for a descriptive list
of currently operating FTOs. Already, more than 400 private trading companies
have been formed under the auspices of the new economic dispensation.

Research and Design Institutes

     Research and design was centrally planned and controlled through the
National Council of Science and Technology during the Communist era. Actual
research and design was carried out by R&D institutes which were subordinate
to the technical/production Ministries.

     The new economic program of the Romanian government seeks to decentralize
research, and it is likely that private concerns will supplant the Research
and Design Institutes over the next several years. Nevertheless, these
institutions are still extant, and have ongoing responsibilities.

Factories and Other Entities

     Producing enterprises and factories can now act as principals in foreign
trade transactions and are open to direct contact with foreign firms.

     The transition from a centrally-planned economy to a market system,
however, will not be easy for this sector. Few enterprises were even allowed
to deal with foreigners under the prior regime (contracts were negotiated by
FTOs), and these groups have little experience with complex contracts.

Chamber of Commerce and Industry (CCI)

     The Chamber of Commerce and Industry is a non-governmental entity made up
of more than 700 member organizations. It includes most of Romania's foreign
trade entities and related economic and industrial organizations. The Chamber
is now in the process of "decentralization" and local "chapters" are being
formed in major cities.

     The Chamber provides information about Romania's economy, foreign trade
system, and foreign trade laws and regulations. In addition, it promotes
Romanian products abroad, arranges contacts between foreign producers and
Romanian foreign trade entities, and offers a wide range of services and
facilities designed to assist foreign businessmen. Its Foreign Relations
Department handles inquiries from abroad and its Arbitration Commission
assists in resolving disputes arising from foreign trade transactions.

Center For Economic Information And Documentation (CIDE)

     CIDE was created immediately after the December revolution to support
Romania's transition to a market economy. The Center offers assistance in
setting up and consolidating new enterprises in Romania, both with local and
foreign capital. In particular, CIDE offers:

     - business contacts;

     - appointments with Romanian partners;

     - legal assistance;

     - advertising and publicity;

     - daily quotations for commodities;

     - daily exchange rates for most currencies;

     - international trade statistics.

     Charges for services are negotiable.

     For further information contact the Center at B-dul Republicii nr. 12,
Sector 3, cod 70348, Bucharest, Romania; telephone 50.60.02; telex 11429 inemo
r.

Goods Control Organization (ROMCONTROL)

     The quality and quantity control of import and export goods is undertaken
by ROMCONTROL, or the Goods Control Organization. Upon request, this agency,
which is part of the Chamber of Commerce and Industry, carries out a wide
range of inspection operations: quality control at all stages of production;
technical surveys; sampling; laboratory analysis and testing; quantity
inspection; packing; marking; expediting production and transit of goods;
draft and bunker surveys; control of means of transport; tallying; etc. For
each of its operations, ROMCONTROL issues control certificates.

     Inspections comply with the customer's instructions and are based on
international standards. They are available in a variety of areas, including
electrical engineering, mechanics, electronics, metallurgy, chemistry, light
industry, furniture and foodstuffs.

     ROMCONTROL services may be secured by permanent contracts or by special
control orders submitted by phone, fax, mail, cable or telex. Generally,
finished goods are presented for control but, upon request, control and
testing may be performed at any stage of production. ROMCONTROL serves as an
"independent" testing facility performing services much like Underwriters
Laboratories in the United States. In short, ROMCONTROL, through its technical
staff and library, acts as an agent for purchasers to assure the quality,
packaging, servicing and shipping of any goods ordered from Romania. Its
certificates may be submitted to financial institutions as a precondition for
the payment of letters of credit as per contracts between Romanian and foreign
companies. For further information, contact ROMCONTROL, 22, Blvd. Nicolae
Balcescu, Sector 1, Bucharest, Romania; telephone 13.06.79, telex 11876 OCEME.

State Insurance Administration (ADAS)

     ADAS is the State Insurance Administration which insures export and
import shipments. ADAS also insures the motor vehicles of foreign tourists and
acts as an agent for foreign insurance companies. The new economic system of
Romania will also permit foreign insurers to offer policies in Romania. ADAS
is in the process of privatization.

National Travel Office (ONT-CARPATI)

     ONT-CARPATI, the National Travel Office, organizes tourist activities and
services in Romania and abroad and plans the promotion and development of
tourism in Romania. ONT also handles the rental of office space and living
accommodations for foreign businessmen.

Foreign Trade Publicity Agency (PUBLICOM)

PUBLICOM is a specialized publicity and advertising agency. Its main objective
is to publicize Romanian exports through radio and television services, media
advertising, outdoor and indoor advertising, displays of Romanian products and
symposia.

     PUBLICOM can also provide services to foreign companies doing business in
Romania through its contacts with over 150 magazines and daily newspapers.
PUBLICOM faces increasing competition from the private sector in the coming
years, but can still provide necessary services.

Department for Press and Information

     The Department edits periodicals and numerous economic and commercial
publications designed to keep foreign markets informed about Romanian economic
achievements, Romanian foreign trade regulations, and the availability of
Romanian products.

     The Department also publishes a number of periodicals designed for
foreign markets. These include both product-oriented magazines such as
Foresta, the Romanian Journal of Chemistry and Romanian Engineering, as well
as informational booklets dealing with Romania's economic foreign policy,
foreign trade regulation and economic units (see Bibliography).

COMTURIST

     COMTURIST is the agency providing foreign visitors (and, increasingly,
Romanian citizens) with hard currency goods that are generally unavailable for
sale in lei. The main units of the COMTURIST network are found in the larger
hotels of Bucharest and Brasov along the Black Sea coast and in other major
tourist areas.

     COMTURIST also has over 300 shops where goods are sold to local residents
for hard currency. In its network of shops, COMTURIST offers Western-and
Romanian-made goods such as textiles, handicrafts, ceramics, crystal,
cosmetics, cigarettes, imported clothing, furs, carpets, electrical household
appliances and electronic apparatus, automobiles and liquor.

     COMTURIST deals directly with Western vendors of consumer products, and
is open to negotiations with any foreign manufacturer.

NEGOTIATING AND PRICING

     Contacts between overseas firms and Romanian entities may be initiated by
either side. Foreign entrepreneurs may take the initiative by:

     - Contacting the Romanian Embassies or Trade Offices, or the Romanian
Chamber of Commerce and Industry. While these entities do not take part in
commercial negotiations or sign contracts, they are important sources of
information and can be useful in initiating contact between Romanian trade
entities and foreign firms;

     - Writing or telexing directly the appropriate Romanian entity;

     - Sending company representatives to Romania to meet with appropriate
individuals;

     - Participating in Romanian trade fairs and other trade promotion events
in Romania;

     - Arranging to meet with Romanian entrepreneurs who visit abroad.
Information about such visits can sometimes be obtained from the Romanian
Embassies and Trade Offices.

Negotiating

     Certain factors should be kept in mind in early negotiations, especially
by firms new to the market. The process leading to a signed contract is
essentially the same whether a foreign company is negotiating a major or small
project in Romania.

     Only written contracts are valid in Romania; therefore, Romanian
negotiators place heavy emphasis upon extensive discussions of contract
details.

     It should be kept in mind that in prior years, only the FTOs had the
responsibility (and the right) to negotiate contracts with foreigners. The
"producers" (Industrial Centrals) were often represented at negotiations, but
took little part in them. Further, the Ministries involved had veto power over
any negotiation. This made contracts extremely tedious to negotiate.

     The new government has now permitted any group to negotiate contracts
with foreigners. This "freedom," however, is largely untested. Few Romanians
have experience with international commercial negotiations, so Western
business executives are often dealing with ingenues across the table.
While the Romanian parties may be enthusiastic, and may want to "do a deal,"
their lack of sophistication can be frustrating.

     This is not to suggest that the Romanian parties are naive or incapable
of driving a hard bargain. Romanians have been trading for thousands of years.
Nevertheless, complex commercial contracts are simply unfamiliar to most
representatives of Romanian production facilities.

This problem is exacerbated by the lack of a comprehensive Commercial Code,
Tax Code or Customs regulations. In prior years, the Communists had developed
an elaborate "Socialist" commercial system which has now been scrapped. The
adoption of Western-style commercial laws is a high priority for the new
government, but will take several years for full implementation. In the
meantime, many contracts are being drafted using a Civil Law approach,
especially the French Commercial Code. This system is at least remotely
familiar to Romanians in that it was widely copied in the country prior to
World War I. Western European business executives, in particular, have found
that reliance on French legal principles is useful in crafting their
commercial documents in Romania. Business executives should be cautious in
using this approach exclusively, however, as new legislation is being drafted
and adopted on an almost daily basis. It is unlikely that Romania will depart
radically from the "traditional" civil commercial codes of Western Europe.

Legal Counsel

     Another problem facing Western negotiators is the absence of
independent legal counsel in Romania. In prior years, lawyers were assigned
to "Law Firms" by the state. All attorneys were effectively government
employees. Romania maintained a myth of "independence" of these counsel by
contrasting them with lawyers who worked directly for Foreign Trade
Organizations. As a matter of practice, lawyers were mere technicians of the
law, not advocates for their (foreign) clients. Although the new government
has made many changes, the old system of attorneys working for state-run firms
is still in place. While attorneys are able to offer
independent advice on their own time, Romania has not yet encouraged the
formation of truly independent law firms as has occurred in Czechoslovakia,
for example. Despite this, it is important for a foreign business executive
to consult counsel in Romania-if for no other reason than to stay current with
the rapidly-changing legal structure of the country.

     Business executives are strongly advised to consult experienced Western
counsel as well to assist in drafting documents which will hold up in courts
other than Romania. Often, contracts can be drafted in such a way as to imply
that performance takes place outside Romania, or is guaranteed by independent
entities. This can be tricky, but there are qualified counsel available both
in Western Europe and the United States who have considerable experience in
such niceties.

Financial Considerations

     One of the biggest problems in negotiating a commercial contract with
Romania is the nascent state of the country's financial system. Although it
has now shaken off the rigidly statist role it had in the past, the banking
system of Romania is inadequate to support many sophisticated financial
transactions. Merchant banking is unknown, and investment banking (in the
Western sense of the term) was unheard of until recently. Even Lines of
Commercial Credit are a relatively new phenomenon-especially when extended
to actual manufacturing entities.

     Fortunately, there are some foreign banks in Romania which can assist
business executives in these matters. The bad news is that banking laws have
not yet been sufficiently modified to allow these institutions to provide the
level of service common in the West. It is strongly advised that before
entering negotiations with any Romanian entity, a Western business executive
meet with the representatives of the foreign financial institutions to
determine how best to structure payment terms. As the laws are changing so
rapidly in Romania, it is likely the country's banking services-particularly
those permitted to be offered by foreign banks-will increase substantially.

Pricing

     Pricing can be one of the trickiest parts of negotiating a commercial
contract with Romania. The currency is "soft," and is likely to remain so for
several years. Foreigners are, however, allowed to purchase Romanian products
for lei, and export them for hard currency. This is a radical departure from
the prior system in which all exports had to be purchased directly with hard
currency. There are any number of other mechanisms which can be used to
convert profits made in Romania into hard currency, but all of them, like the
above example, imply costs not usually found in the West. Negotiators should
carefully compute these costs when setting prices in a contract.

Negotiating Language

     Romanians rarely expect foreign business executives to conduct
negotiations in their language, and will often provide their own interpreters.
Some Western business executives, however, have found it a better procedure
to hire their own interpreters who are more familiar with technical terms.
Many Romanians are more familiar with Italian or French than English, and are
comfortable negotiating in either of those languages. English is, however,
more and more common in Romanian firms.

STATISTICAL INFORMATION

     For an American businessman who is used to having market research data
and information instantly available, Romania can be frustrating. Consumer
marketing studies are virtually non-existent and even such ordinarily
straightforward matters as production statistics are sometimes difficult to
obtain.

     Official Romanian statistics, for example, are often expressed in terms
of growth rates rather than in real numbers. One must recalculate each year
from a base, if known. Official Romanian statistical tables are, however,
readily available from the National Commission of Statistics.

     While these statistics are generally accurate, one should exercise
extreme care in analyzing them. Definitions used for different categories
are sometimes not specified and bases for comparison will change from year to
year, being expressed, for example, in either foreign currency or lei.

     Foreign embassies in Bucharest usually have experience in interpreting
the difference between Western and Romanian statistical methods, and can be of
real assistance to businessmen in decoding numbers.

     The new National Commission of Statistics was established in 1990 to
address the serious problems created during the Ceausescu era. There was a
tendency over the past 20 years for the Romanian authorities to use "creative
accounting" to disguise poor performance in various economic sectors.
According to most Western sources, the Commission's new statistics are
generally accurate, but it will take some time to correct the error of
previous years. Statistics used in this book come from a variety of sources,
which are cited whenever possible.

MARKETING

     To speak of "Romanian marketing" is to coin a contradiction in terms. As
a state-controlled economy for 40 years, where consumer goods were generally
produced and sold by a state monopoly, marketing in the accepted Western
sense was superfluous. Commercial messages in the Romanian media are rare by
Western standards. Further, there are few commercial billboards, signs, or
other advertising media. Nevertheless, Western goods are widely known and
some have even made significant inroads among Romanian consumers.

     While lack of marketing skills may not be particularly important within
Romania, given their economic system, a foreign businessman needs to take
special care when marketing Romanian-made goods abroad. Romanian packaging and
labeling are usually unsuitable for Western markets. Extreme care should be
exercised, for example, in insuring accurate translations of operating
instructions. The Romanians are fond of hyperbole and although many speak
English fluently, their use of the language sometimes leads to questionable
conclusions.

Fairs

     One of the best ways to improve business contacts and promote sales in
Romania is participation in specialized exhibitions, trade fairs and trade
seminars.

     The most important event is the Bucharest International Fair, held twice
a year, in spring (consumer goods) and autumn (technical goods). In addition,
Romania sponsors numerous industrial exhibitions each year. Firms interested
in more information or in participating in one of these shows should contact
PUBLICOM, 22 N. Balcescu Boulevard, Bucharest; TELEX: 11374.

     A foreign company desiring to participate in Romanian fairs and
exhibitions should also contact ROMEXPO, TELEX: 11108 TIBR. This organization
stages many of the international fairs and exhibitions in Romania. It also
organizes Romania's official participation in international fairs and
exhibitions abroad.

VENALITY

     One of the best indicia of whether it is appropriate for Western
businessmen to invest in any country is the "venality quotient". Regardless
of how a country describes itself (capitalist, socialist,
scientific-socialist, Communist, etc.), it is impossible for a
Western-oriented enterprise to return a reasonable profit if there is
widespread corruption.

     If, for example, bribes are anticipated at every stage of the negotiation
process and are a common method of doing business, it becomes difficult to
accurately estimate the ROI since bribe "costs" are difficult to estimate.
Although the system of "gratuities" is rather common in Romania, the
governmental structure is largely free of high-level corruption.

     "Grease" payments in the form of a carton of cigarettes or a bottle of
whiskey are common; large-scale bid-rigging through payoffs to government
officials is rare.

     While companies may argue they have been denied advantages because of
their failure to engage in underhanded practices, the more likely explanation
in Romania is that the bureaucratic wheels turn slowly and that it is this
factor, rather than a lack of engaging is shady dealings on the part of the
foreign firm, which is the cause.

     Romania's slow economic progress in the past was caused less by the
corruption of its officials than by the complex system of authorizing and
regulating business activities.

     It remains to be seen how the new government officials will react to the
temptations of a capitalist system. For now, most ranking Romanian officials
are extremely puritanical. Even the mere mention of a bribe can be
counter-productive. Don't do it.