Rjea Vol4 No4 Dec2004

Romanian Journal of European Affairs is published by the European Institute of Romania

7-9, Regina Elisabeta Blvd., Bucharest, Code 030016, Romania

Tel: (+4021) 314 26 96, 314 26 97,

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E-mail: [email protected], http://www.ier.ro

RomanianJournalof European AffairsVol. 4, No. 4, December 2004

EUROPEAN INSTITUTE OF ROMANIA

DirectorNicolae Idu

Editor-in-ChiefOana Mocanu

Associate EditorsIrina RâmniceanuGilda Truic`

Editorial Board

Farhad Analoui - Professor in International Development and Human Resource Management, theCentre for International Development, University of Bradford, UK

Daniel Dìanu - Professor, Academy of Economic Studies, Bucharest, former Minister of Finance

Eugen Dijm`rescu – Vice Governor of the National Bank of Romania

Nicolae Idu - Director General of the European Institute of Romania

Andras Inotai - Professor, Director of the Institute for World Economics, Budapest

Mugur Is`rescu - Governor of the National Bank of Romania

Alan Mayhew – Jean Monnet Professor, Sussex European Institute

Costea Munteanu - Professor, Academy of Economic Studies, Bucharest

Jacques Pelkmans - Jan Tinbergen Chair, Director of the Department of European EconomicStudies, College of Europe - Bruges

Andrei Ple[u - Rector of New Europe College, Bucharest, former Minister of Foreign Affairs, formerMinister of Culture

Cristian Popa - Vice Governor of the National Bank of Romania

Tudorel Postolache - Member of the Romanian Academy, Ambassador of Romania to the GrandDuchy of Luxembourg

Helen Wallace - Professor, Director of the Robert Schuman Centre for Advanced Studies,European University Institute, Florence

CCOONNTTEENNTTSS

FOREWORD

ACCESSION IS, ABOVE ALL, ABOUT BENEFITSJacques Pelkmans 5

THE MIGRATION PHENOMENON FROM THE PERSPECTIVE OF ROMANIA’S ACCESSION TO THE EUROPEAN UNION 15Daniela-Lumini]a Constantin, Valentina Vasile, Diana Preda, Lumini]a Nicolescu

A PERSPECTIVE ON INSOLVENCY PROCEDURES IN THE ROMANIAN ECONOMY 37Daniel Dìanu, Drago[ P\slaru, Liviu Voinea

STATE AID TO THE ROMANIAN STEEL AND COAL SECTORS:ISSUES RELATED TO ACCESSION 59Isabela Atanasiu, Gheorghe Oprescu

EVALUATING COSTS AND BENEFITS OF ROMANIA’S INTEGRATION INTO THE EUROPEAN UNION 81Constantin Ciupagea, Dorin Jula, Laura Marina[, Geomina }urlea, Manuela Unguru, Radu Gheorghiu

FFOORREEWWOORRDD

In the context of Romania’s preparation for accession to the European Union, an important partof the research coordinated by the European Institute of Romania is dedicated to the impactassessment studies. The aim of these studies is to support the decision-making process in Romaniain the context of our country’s integration in the European Union, to provide the public sector withan objective assessment of the impact of adopting and implementing Community rules, regulationsand policies.

Since 2001 the European Institute of Romania has launched almost 40 impact studies, whichtackled different policy areas, such as: the monetary and banking sector, the agricultural issues,state aids and preparation for the structural funds, migration phenomenon, security and defencepolicy, legislative and institutional issues, all related to the concrete steps of Romania’s preparationto become full member of the EU. The studies go beyond the academic approach, providingthorough policy recommendations for the decision-makers.

Closing the negotiations for accession at the end of 2004 represents only a stage in an ongoingprocess of European integration. In the context of accession to the European Union, a substantialamount of work remains to be done. In most cases, the studies resulted from these research projectsneed to be complemented by further analysis and debates, if detailed policies are to be formulated.The European Institute of Romania intends to involve itself also in this exercise of furtherconsolidating the policy support.

In this issue of the Romanian Journal of European Affairs, we have the pleasure to present to ourreaders some reflections from several authors of the pre-accession impact studies, on some specificareas, such as: the migration phenomenon, the insolvency issue, the state aids and the evaluationof the costs and benefits of Romania’s accession to the European Union. We also benefit from theexperience and contribution of Professor Jacques Pelkmans, who agreed to offer us an objectiveinsight into the overall benefits of accession to the European Union.

The editor takes this opportunity to thank the authors for their contribution and expresses thehope that the articles in this issue will constitute an interesting and useful documentation for ourreaders (all the impact studies can be found on the website of the European Institute of Romania,at the address "http://www.ier.ro").

The Editor

11.. TThhee iimmppoorrttaannccee ooff EEUU iimmppaacctt ssttuuddiieess

Romania has made great progress in gettingready for membership of the European Union. TheEuropean Commission has recognized this in itsOctober 2004 Regular Report on Romania. Thecountry’s strategy with respect to Europeanintegration is, of course, to an important extentpolitically determined. Nevertheless, the mainfocus is bound to be on economic integration. As Ihave noted on a number of occasions1), theprocesses of pre-accession and early years of EUmembership are tantamount to very deep, longterm reform programmes which in ordinarycircumstances no country with three or foursuccessive governments could bring offconsistently and with such speed and depth, evenless so when coming out of ‘transition’ with itssocial shocks and transformations. For Romaniathis is no different than in the cases of other recentor present candidate countries. Nevertheless, themarket processes and adjustments bringing aboutthese very long run benefits of sustained “catch-upgrowth” over several decades are to some degree

dependent on context, economic structures at theoutset and local endowments that differ fromcountry to country. Moreover, national governmentpolicies, regulations and consistency do matter agreat deal, even if the EU ‘s systemic influencebecomes more and more intrusive in all kinds ofmarkets. Thus, the credibility and quality ofnational public administrations and the design ofpolicies at the national level remain an importantfactor for the nature and speed of catch-up growth.

Therefore, it is crucial that the country at large,and the decision makers first of all, dispose ofprofound and analytically respectable ‘impactstudies’ on horizontal and sectoral subjects. Suchstudies should aim to clarify analytically what theacquis implies for sectors or broader themes andattempt to build models or scenario’s helping us tounderstand the nature and magnitudes of shortterm and longer term effects of adjusting to theacquis or indeed exploiting its opportunities to thefull. The considerable room for national policymaking that exists under the acquis, dependentfrom case to case of course, can be used bestwhen a good insight exists in the expected impactsof alternative policy scenario’s for the short and

ROMANIAN JOURNAL OF EUROPEAN AFFAIRS VOL. 4 NO. 4, 2004

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AACCCCEESSSSIIOONN IISS,, AABBOOVVEE AALLLL,, AABBOOUUTT BBEENNEEFFIITTSS

JJaaccqquueess PPeellkkmmaannss**))

*)Revised version of an address at the Conference “The Impact of Romania’s Accession to the European Union”, launching the Pre-Accession

Impact Studies II, Bucharest, 7 & 8 October 2004, organized by the European Institute of Romania. Jacques Pelkmans is Jan Tinbergen Chairand Director of the Economic Studies Department at the College of Europe in Bruges, and WRR Council member in The Hague.1) Pelkmans, 2001; Pelkmans, 2002; Pelkmans & Casey, 2003.

AAbbssttrraacctt.. Accession is about prosperity and, in this context, all candidate countries shouldbe confident in their opportunities in the process of becoming full members of the EuropeanUnion. It is crucial that decision makers of such countries dispose of profound andanalytically respectable ‘impact studies’ on horizontal and sectoral subjects. Such studiesshould aim to clarify analytically what the acquis implies for sectors or broader themes andattempt to build models or scenarios helping to understand the nature and magnitude of shortterm and longer term effects of adjusting to the acquis or indeed exploiting its opportunitiesto the full.

JACQUES PELKMANS

6

the long run, under the accepted constraint ofthe acquis in the relevant area. In such impactstudies one may introduce, as well, lessons fromother ‘new’ Member States, whether negative orpositive. Impact studies and debates on them havethe further advantage that information andknowledge spreads throughout the country,facilitating higher quality debates while helping todebunk simplistic and often instinctivepopularism.

Like in many accession countries (andsometimes old Member States), the public debateis often superficial, if not twisted by veryincomplete or biased information. It is also routineto observe, in a number of countries of CentralEurope, a curious combination of a blindconfidence in the heavenly ‘goodies’ which willfall like ‘manna from heaven’ once EUmembership is accomplished, and a deepergrassroot sense of scepticism that the EU is therefor the elite, or for big business but not for theordinary people in the street, desperately seekinga better life, more certainty, a better workingmarket economy and properly workinginstitutions. Impact studies and the day-to-daypainstaking progress of pre-accession will makeclear that, of course, the EU does not bringheavenly goodies (but if you are very poor andobserve the prosperity in the western part of theUnion, this is perhaps what you might be led tobelieve) and, of course, the EU does not deservethe cynicism so rampant in Central Europe, moreoften than not borne out of frustration with theirown politicians and hence projected onto the‘imported ‘democracy and acquis of the EU whichleaders advocate in speeches.

Impact studies are part and parcel of thecomplex processes that pre-accession bringsabout. The EU is no joke. One has to be well-

prepared and not merely transpose the acquisbut truly “own” it in domestic rules,enforcement, market conduct andaccompanying domestic policies or additionalliberalisation. Only then will the acquisengender its longer run effect of acceleratingand propelling catch-up growth, via marketdynamics, better policies and institutions, and,more generally, the imposition of the rule of lawfor the economy. This overall, intricate processbased on credible implementation and well-working markets and rules is the main gatewayfor the ordinary people in the streets of Romaniato reap the long run benefits of Europeaneconomic integration. The scepticism aboutone’s own politicians may or may not bejustified, and the credibility of their policiesdoes matter (as noted above), but it is equallyimportant for Romanians to realize that the EUmechanisms to discipline and stimulateRomanian policies and good rule making and, tosome extent even institutions and public sectorreform, are very deep, and multitudinous. TheUnion does not accept fake responses and tooeasy rebuttals. Once a country is inside theUnion, a government can even be disciplined bybusiness or individuals in local court cases, andin some cases with damage compensation, too.Before that happens, a series of informal andformal monitoring and disciplinary mechanismscan be and are used, dependent on sectors orissues. The upshot of all this is perhapsinsufficiently explained in Romania: yourcompliance, voluntary or eventually enforced,is, in general and ignoring a few exceptions,highly beneficial for the Romanian economy asa whole. Indeed, it is very largely the Romaniansthemselves who harvest the long-run benefits oftheir EU membership.

22.. AAcccceessssiioonn iiss llaarrggeellyy aabboouutt ddoommeessttiiccbbeenneeffiittss

European integration is far more ‘domestic’than is often realized. It is worthwhile to elaborateon this point with the help of the Impact Studiespublished today by the European Institute ofRomania.

For perhaps as many as ten out of the twelveImpact Studies2) , a striking feature of the studies isthe emphasis on and elaborate treatment ofdomestic aspects. And rightly so. Europeanintegration is not solely, indeed not even primarilyanymore, about the peculiarities of foreign trade.Romania may be out of transition, what pre-accession and EU membership prompt the countryto do is to assume the full consequences oforganizing itself as an advanced market economy,with social and democratic institutions. The Unionhas a very large number of processes and channelsof influence that put these matters forward, inways and with a vigour and consistency, Romaniacould hardly be expected to bring off, with duerespect to the government and its citizens. TheUnion does that via public and private lawenforcement, via market incentives (especially,liberalisation), pro-competitive prohibitions toMember States, pro-competitive policies at EU andnational level, via subsidies, via free external tradein industry and (too high) protection in agriculture(but, at least, with powerful productivityincentives), via direct laws, via coordination, softand hard. However, this is not the only set ofmechanisms. Another series of mechanisms couldpresumably be characterized as an ‘undercurrent’of European integration, yet a highly influentialone. The EU also stands for the ways theircountries live, their civil societies work (and

interact with other ones in the ‘Brussels circuit’),for the press and its effectiveness and factualindependence, the NGOs, the routinecomparisons between Member States – literally,every day on almost every imaginable topic - ,their policies, successes and failures, as well aspolitical and ethical standards. This invisible yetreal aspect of European integration need not beregarded as a threat to one’s identity. Quite thecontrary, the EU is not Brussels and the ‘Brussels’circuit must always include all its tentacles innational capitals, and perhaps beyond! The Unionconsists of its Member States and its citizens, itsbusinesses, the national (and not only the EU)institutions, formal and informal. The MemberStates and the many cultures they harbour arediverse in size, style, history, language, traditions,mentality, and nevertheless their unspoken, hard-to-define degree of commonness would appear togradually augment over time. Diversity in theUnion is fascinating as well as enjoyable, and itcan constitute a source of strength, unique identityand, sometimes, competitiveness based onspecific qualities. However, not all and everythinga country has been doing or avoiding isautomatically to be protected or maintained, andnot all of it is benign or productive. Europeanintegration tends to intensify learning processesamongst the peoples, opinion leaders and policy-makers of its constituent members. The do’s anddon’t’s of countries get gradually exposed, viabusiness contacts, exchanges, cooperation and innumerous other modes as well as in the Counciland the European Parliament when it comes toharmonisation or liberalisation.

Ordinary Romanians, pre-occupied with day-to-day ‘trivial’ issues which matter most to them,may not easily be convinced of the innumerable

ACCESSION IS, ABOVE ALL, ABOUT BENEFITS

7

2) With the exceptions of the foreign policy study, and the compatibility with the EU acquis study.

influences of European integration, especially notif the promises are further into the future andblended with many domestic processes, some ofwhich are painful in the short run. The tale of deepand wide benefits will not be easy tocommunicate for leaders, academics andjournalists. Yet, the Impact Studies entail acommon message about European integration thatis too rarely conveyed: the ‘goodies’ of EUmembership are mostly to be found in countless“domestic” areas that are less recognizably “EU”.Romanian pensions, bankruptcy practices, wastelandfill practices, open-ended fiscal arrears andexplicit state aids for non-viable companies, thewidespread presence of zero-productivityagriculture, financial control systems, (properlyfunctioning) regional institutions capable ofdeveloping sensible development plans andhandling the large money flows correctly, aCentral bank which cannot be at the mercy ofvote-hungry politicians with a very short timehorizon and taking refuge in ‘inflation targeting’,can all be seen as domestic issues Romania has totackle anyway ! But these are exactly the verysubjects of the Impact Studies. Indeed, the fact thatthe EU does a number of things in common, viasoft and hard procedures, does not make youraccession tasks less domestic, not less urgent, notless involving. What the EU does is (a) pre-emptdisparate solutions if these would cause barriers inthe internal market, or (b) seek the ‘best-practice’solutions in view of overall growth, or high socialstandards in Europe, or, for the sake of the euro asan invaluable asset. This does not change the factthat the overwhelming part of Europeanintegration remains domestic. The Romanianshave to do it and, for the most part, the Romanianswill reap the benefits from it. That is why the EUbegins and ends at home, and why Brussels serves

merely as a mid-way station with a relatively shortstop. And this is how it should be. Of course, onecannot turn the proposition around: there are alsomany domestic issues that never reach Brusselsbecause of subsidiarity, and that, too, is how itshould be. But for those connected to Brussels, thetrue meaning lies largely at home.

33.. TThhee ccoossttss aanndd bbeenneeffiittss aanndd tthheeiirrpprrooppeerr ppllaaccee

Impact studies should aim to incorporatebenefit/cost analysis, not only for a fullerunderstanding for all involved but also for theappropriate sequencing of the measures to be takenover time. But it has to be realized that benefit/costanalysis is much better fitted for specific, well-identified measures or (say) single directives than forlarge subject areas, with a range of requirementsunder the acquis and a long time horizon. It is evenless appropriate to apply benefit/cost analysis, inthe strict sense, to the overall benefits and costs ofEU membership at large. Impact studies are oftenbased on terms-of-reference that ask exactly that.The advantage of imposing this on the researchers isthat, even if the analysis is incomplete or shows themanifold problems of undertaking such an exercise,it may nevertheless help policy makers to graspmuch better the implications and hidden questionsof the implicit reforms or implied economicadjustments. In rigorous research, however, theproblems will inevitably come to the fore and startdominating the exercise. One likely result is that thecosts tend to attract more attention and analyticalcoverage than the sometimes elusive or (more) longrun benefits. Indeed, some benefits areunpredictable (although one might speculate fromexperiences of other Member States) or become

JACQUES PELKMANS

8

apparent only from the later ingenuity of marketplayers over time.

I do not suggest that the costs should not beidentified and studied. Of course, they ought to. Butcosts must be given their proper place! And that is notwhat normally happens. Also, in the Impact Studiespublished today, one discerns a tendency toemphasize the costs while underrating or ignoringsome of the manifold benefits. This is not justregrettable. Its effect may be magnified in thesubsequent policy process that displays an unfortunatepropensity to focus more on the costs than on thebenefits anyway. Let me explain this briefly.

There is too much talk about costs of (pre)-accession, either without the benefits, or withoutenough emphasis on benefits or without thepriority of benefits. For politicians or theRomanian negotiators, extra difficulties arecreated once costs rather than benefits arearticulated in impact studies or other analyticalwork. In the everyday political economy, thoseconcerned with costs already have the upperhandfor at least five reasons (often, not in the overallpublic interest of Romania!):

’ the loudest lobbies always scream about

the costs to them;

’ costs are usually identifiable more easily

than benefits;

’ costs are usually immediate (hence,

politically sensitive) and benefits spreadover the future;

’ costs are articulated not only by lobbies

but by general fears; such perceived costshave to be confronted with serious impactstudies about identifiable costs,juxtaposed by careful and detailed

expositions of the benefits;

’beneficiaries never demonstrate in the

streets and few spokesmen appear on the TVnews on behalf of the benefits; decision-makers rarely meet the lobbyists for the‘benefits’ unless the latter are very specific.

We know from theories of collective choicethat beneficiaries often tend to be very large,diffuse parts of society who cannot organiseeffectively for the benefits.

That is why – in the overall public interest ofRomania - politicians and negotiators have to behelped by benefit studies, with due but limitedattention for the (often temporary) costs.

44.. TThhee iimmpprreessssiivvee eeccoonnoommiicc bbeenneeffiittss ooff aacccceessssiioonn

The benefits of EU integration are many, andthey are impressive. Unfortunately, more oftenthan not, the benefits are claimed in highly generalterms, with the specific costs arising up-front. Letme remind you of how rich and long the menu ofeconomic benefits of accession is, without havingany illusion of being anywhere near complete.

i. Benefits are both economic and non-economic.

ii. The economic benefits, in turn, arenumerous, and it is by no means sufficientto present the EU as yielding only marginalstatic welfare benefits in a simple, partialequilibrium in a microeconomic graph. Igladly refer to Impact Study n° 12.

iii. Indeed, the analytical hurdles forappropriate benefit analysis of EU pre-accession and membership are trulyenormous. If politicians want a singlefigure for the 8 o’clock news, please be


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JACQUES PELKMANS

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responsible and disappoint them; a singlefigure can never represent the nature,diversity, different time frames and qualityaspects of European integration, and even(narrow) model results cannot beunderstood by means of single figures.

iv. The economic benefits of EU accession arenumerous and many of them can becumulative. Static benefits (trade creationover trade diversion, economies of scale;X-efficiency gains, so important for Romania);dynamic, pro-competitive effects (variety &competition; combining optimal firm size,competition in the Internal Market and itsdeepening), other dynamic effects (R&Dcompetition, investment; mergers andacquisitions and their synergy effects and themenace effect to management); inducedpolicy effects (no or less state aids; less shelterin services and public utilities; free foreigndirect investment and capital flows; commonintellectual property rights over more than 25countries, etc.. ) and free external industrialtrade (hence, exposure to world quality andprice effects, to innovation elsewhere, to thechallenge of meeting world standards foryour own exports, etc..).

v. One should also focus on EU regulationwhich in and by itself induces beneficialimpacts, benefits which precede the emphasison costs. Regulation must imply ranking thebenefits first, why otherwise do it??

So, EU environmental rules are often costly, butfor a good reason. NOT having them has hidden,undisclosed costs – either as immediate externalitiesor costs to future generations - and that is exactlywhy an open, democratic society does not want toforego environmental laws! Such a responsible, free

society should set a standard, based on cost/benefitimpact assessment, and then pass the law.

In so doing, the benefits ought to be explicit,the regulation is “owned” by society, and justifiedby democratic legitimacy, and hence the benefitswill be dear to us.

vi. Many other forms of harmonisation or jointEU regulation have to be judged on thebasis of their benefits first. If benefits aretrivial or absent, there is regulatory failureand we should do away with theregulation. EU regulation is often justifiedby substantial benefits in overcoming costlymarket failure, although the means ofpursuing the objectives are not alwaysleast-cost (e.g. the so-called ‘old’approach). Nowadays, there is much moreEU attention for cost minimisation, withouttouching the benefits! So, health & safetyrules (20 % of the acquis, if not more),consumer protection rules, rulesovercoming asymmetry of information inservices markets, are only there becausethey have two types of benefits

’ the economic and non-economic

benefits of overcoming market failuresand other undesirable consequencesof free markets

’ the joint benefit of doing it together so

that no barriers emerge in the InternalMarket, or, so that existing barriers,caused by such laws, disappear.

As the work of the old 1988 Cecchini report3),the more recent 1996/1997 Monti reports4), andmany specialised papers show, it is not easy todemonstrate and quantify such benefits, with

3) See, especially, European Economy, 1988, n° 35, The Economics of EC-1992, and Cecchini, 1988.4) See, especially, European Economy, 1996, December, on The Single Market Review, and Monti, 1996.

reasonable degrees of certainty. Still, these benefitsought to be considered, and presented as preciselyas possible. Furthermore, the recent emphasis onregulatory impact assessment is a forcefulrecognition that EU regulation is about (net)benefits to the European Society5).

vii. Yet, other benefits exist, most prominentlyin the macro-economic field. If you wish toappreciate such benefits, just remember themonetary ‘mess’ in the 1970’s/ first half ofthe 1980s in the EU, and the high costs ofexchange rate crises, much too highinterest rates, protectionist and highlyrestrictive measures by authorities toprotect their currencies (with barriers in theInternal Market), etc…

And consider what the EU has achieved today.All EU-15 countries have price stability, and theeurozone does not even remember what anexchange rate crisis is! Nevertheless, 30 years agothe recent fall of the US dollar would haveprompted one or more exchange rate crises in theUnion! The only thing that now makes headlines isthe Stability and Growth Pact, but it is easy toshow that, in fact, the Pact’s objective is not underthreat at all. The Pact’s ultimate objective is toavoid undue political pressures on the ECB toloosen monetary policy. Such pressures mightarise from high stocks of debt and the relatedheavy burden on annual budgets. Also, debt, oncevery high, may prompt negative spill-overs amongeuro countries. Both issues are simply not at stakein the debate on the Pact. Thus, the quarrelling isnot essential to the mission, perhaps it is part andparcel of the ‘politics of fiscal discipline’, whetherdomestic or European. Note that the financialmarkets do not react to the quarrelling at all!

viii. Would that end the long list of identified

benefits? By no means! There are also,what I want to call, the neglected benefits.

I shall provide three examples. First, pre-accession creates a preoccupation with theregulatory and institutional acquis, because theCommission’s Regular Report is about the scoresin these areas. However, this tends to cause aneglect of benefits from the invisible acquis,namely, free movement and establishment. Thiscreates the opportunities, but equally thecompetitive exposure! Free movement &establishment is the driver of European economicintegration, NOT the regulatory acquis. A relatedexample consists in the almost complete absencein Central Europe of a discussion on the benefits of‘mutual recognition’! (see Pelkmans, 2002b)

A third example consists in the best practicesand ‘peer review’ in the Lisbon process. Weak,yes, but working gradually via exposure of therankings in domestic politics.

Mutual Recognition does not have a place inthe famous 1995 White Paper on the internalmarket acquis for pre-accession (except a fewlines in Ch. 11). This is a serious omission by theCommission. Consider briefly the ingenuity ofmutual recognition:

• it does keep regulatory objectives;• combined with free movement;• but without EU directives.Mutual Recognition is proving difficult for the

new Member States and, for the old ones, it proveshard in services.

There are still enormous economic benefits tobe reaped here!

ix. Finally, there are benefits-to-come. Eventoday, some dossiers are stuck, but sooner orlater the EU will overcome the resistance ofsome in the Council. One painful example


11

5) See EPC, 2001; European Commission, 2002; Pelkmans, Labory & Majone, 2000 ; Pelkmans, 2003; Radaelli, 2003.

consists in the EU patent, its absence beingvery costly for Europe, both in terms oftransaction costs and in terms of adiscouragement of innovation. Anothercumbersome issue concerns the removal ofobstacles to free intra EU labour migration!As Romanians you will think of thetemporary bans or quotas for new MemberStates’ workers but that is not what I refer to.I rather refer to obstacles such as cross-borderportability of pensions, double tax problems,eligibility of health services, housing issues,diploma recognition, etc… A greaterexposure of national labour markets to intra-EU competition of other EU-workers (butbased on minimum regulatory standards)would be highly beneficial for the economyas a whole.

55.. AA ffiinnaall nnoottee oonn EEUU ttrraannssffeerrss aass aa‘‘bbeenneeffiitt’’

In Romania the Regional and Structural Fundsare always placed on top of the benefit list! InStudy n° 12, no less than 2,5 % growth every yearis attributed to it. This would be higher than anycohesion country has experienced thus far. Icontend, however, that you should not equate the

Funds with European integration for you!

I have tried to clarify why! It is the deep quality

improvement of the Romanian market economy,

with regulatory benefits, with macro stability, and

political and legal trust, that engenders the

benefits of EU integration. That is what it is all

about!

On top of that, of course, there are the Funds,

and they can help. I presume Romania is

conscious of the tough requirements before such

transfers work institutionally. But what is usually

forgotten or ignored is that transfers also require

‘deep’ economic integration before their growth

potential can be tapped. So the Romanian

‘domestic’ EU agenda is critical for the Funds to

prompt the growth you hope for. Without good EU

homework, the Funds are a complete waste.

Ireland shows this in the extreme. But even

Greece does! Greek growth never took off despite

huge funding from Brussels, until it changed

domestically (around the mid-1990s) and Brussels

became insistent on compliance. Look at Greece

today, with growth rates for eight years

consistently in 3%-5% range.

The EU is there for you to harvest a lot of

benefits for decades to come. Thus, you gain, first

of all at home, and this does imply some temporary

pain. View it in this order, it is that plain.

JACQUES PELKMANS

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RReeffeerreenncceess

Cecchini P., 1988, The European Challenge, 1992, Aldershot (Wildwood Haus)

European Commission, 2002, Communication on Impact Assessment, COM (2002) 276 of 5 June2002

EPC, 2001, Regulatory Impact Assessment : improving the quality of EU regulatory activity, Brussels

Monti M., 1996, The single market and tomorrow’s Europe, Kogan Page, London

Pelkmans J., 2001, The crucial terms of enlargement, Romanian Journal of European Affairs, Vol. 1,no. 1 (December)

Pelkmans J., 2002, Economic implications of enlargement, BEEP Briefing N° 1 (Bruges, College ofEurope) http://www.coleurop.be/content/studyprogrammes/eco/publications/BEEPs/BEEP1.pdf

Pelkmans J., 2002b, Mutual recognition in goods and services, an economic perspective, BEEPBriefing n° 2 (Bruges, College of Europe)

http://www.coleurop.be/content/studyprogrammes/eco/publications/BEEPs/BEEP2.pdf

Pelkmans, J., 2003, Better internal market regulation, Intereconomics, Vol. 38, no. 2 (March/April)

Pelkmans J. & Casey J., 2003, External economic implications of enlargement, Intereconomics, Vol.38, no. 4 (July/August)

Pelkmans J., Labory S. & Majone G., 2000, Better regulatory quality : assessing current initiatives andnew proposals, in : G.Galli & J. Pelkmans, ed. S , Regulatory reform and competitiveness in Europe, Vol.1 ( horizontal issues), Cheltenham , E. Elgar

Radaelli C., 2003, Impact assessment in the EU : innovations, quality and good regulatorygovernance, paper for the conference on RIAs, 3 December 2003, Brussels ( European Commission)


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11..IInnttrroodduuccttiioonn

Within population flows, the labour forcemovement increased both in number and intensity.

Globalising and internationalising marketsgenerates new migration attitudes, an increasedfluidity of the regional movements, in whichtemporary migration phenomena have got aspecial importance. Tomorrow’s Europe cannot becreated unless an agreement regardinginternational migration is established, unless acommon migration policy is elaborated. Theawareness regarding real migration flows, theircharacteristics and dynamics allows defining andregulating the stability in the economical andsocial field. Migration can no longer beconsidered an instantaneous, unpredictablephenomenon, as population movements have gotmultiple, historic, behaviour, economical andsocial aspects.

Emigration is no longer important by the freedom

to live and work in a different area; it represents just

a variant/option for permanently/temporarily

changing the residence. Furthermore, working

abroad can or cannot imply the travelling to the

working place. E-work can be appreciated as a form

of migration on the purpose of working.

In future, migration will become a more and

more appreciated source of compensating for the

labour force deficit in the developed countries.

The EU members, already affected by

demographical ageing and who are focused on

attracting young well trained and competitive

labour force, will be able to diminish the effects of

the demographical ageing that tend to become

dramatic, and to defuse a possible social bomb

(Denuve, 2002, Leger, 2002), (Fricken, Primon,

Marchal, 2003).

Migration is increasingly associated to

economical advantages/disadvantages. Each of


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TTHHEE MMIIGGRRAATTIIOONN PPHHEENNOOMMEENNOONN FFRROOMM TTHHEE PPEERRSSPPEECCTTIIVVEE OOFFRROOMMAANNIIAA’’SS AACCCCEESSSSIIOONN TTOO TTHHEE EEUURROOPPEEAANN UUNNIIOONN

DDaanniieellaa--LLuummiinnii]]aa CCoonnssttaannttiinn,, VVaalleennttiinnaa VVaassiillee,, DDiiaannaa PPrreeddaa,, LLuummiinnii]]aa NNiiccoolleessccuu**))

**)) Daniela-Lumini]a Constantin, PhD, is Professor of Regional Economics at the Academy of Economic Studies of Bucharest and President ofthe Romanian Regional Science Association.Valentina Vasile, PhD, is Senior Researcher I and Executive Director at the Institute of National Economy.Diana Preda, PhD, is Senior Researcher II at the Institute of National EconomyLumini]a Nicolescu, PhD from the Canterbury Business School, University of Kent, UK, is Associate Professor at the Academy of EconomicStudies of Bucharest

AAbbssttrraacctt.. This work represents a brief version of the research devoted to the migrationphenomenon in the context of Romania’s accession to the European Union, as Study no. 5,included in the PAIS II project.

The complexity of such issue has necessarily induced an inter-disciplinary approach thatmainly includes an institutional-legislative dimension, a sociological dimension and aneconomic-statistical dimension, the last one representing the paper’s distinctive note, since itparticularly contributes to the identification of the possible and necessary objectives ofmigration policies, based on the present and future realities.

DANIELA-LUMINI}A CONSTANTIN, VALENTINA VASILE, DIANA PREDA, LUMINI}A NICOLESCU

16

those who are affected by migration flows willrecord benefits as well as losses, their dimensionsand intensities depending on the quality of theincoming/outgoing flows.

Nonexclusively, the aspects that have alreadybeen mentioned change the perspective onmigration. It becomes an instrument of economicand social policy out of a random andobjectionable phenomenon. This implies a differentattitude towards the east-west and south-northmigration flows: on the one hand, an opennesspolicy for the east-west migration in order to makeup the deficit in low-skilled workforce, on the otherhand increasing temporary/permanent brain drainin order to facilitate progress by means of hightechnology, that is high-skilled workforce.

As far as the first category is concerned,according to the dimensions of the deficit certainquantitative barriers will exist, as contingent flowsby qualification and profession.

As for the second category, the competitionbetween the recipient states will increase, forattracting staff in order to cover the highcompetence deficit, which represents a conditionfor the furtherance of the development of EUmember-countries, and not only for them. Butthese flows will be limited on long and mediumterm, on the one hand because of the increaseddemographical ageing processes in east- Europeancountries and on the other hand because of thelabour force deficit increase in the countries oforigin. In spite of all these economic gaps, theincome differences between nations, between thedifferent occupational categories will maintaintheir character of powerful motivation of themigration processes.

In the outlined context, this paperconcentrates on the key issues of migrationphenomenon in the perspective of Romania’s

accession to the European Union, namelylegislative–institutional framework, the social-cultural dimension and behavioural challenges,the existing and predictable quantitative andqualitative features of immigration and emigrationas well as the policies required for migrationmanagement.

22.. LLeeggiissllaattiivvee –– iinnssttiittuuttiioonnaall ffrraammeewwoorrkkrreeggaarrddiinngg mmiiggrraattiioonn

Legislation regarding the migration phenomenaat the level of the EU. The legislation influencing themigration phenomena in the EU is tackled inChapter 2 Freedom of Movement of Persons andChapter 24 Cooperation in the field of Justice andInternal Affairs. Within the two chapters, the types oflegislation that influences the migratory phenomenain Europe are related to laws in three major fields:

a. legislation regarding migration (directinfluence on migration)

b. legislation regarding the labour market(direct and indirect influence on migration)

c. legislation regarding mutual recognition ofdegrees and qualifications (indirect influence onmigration).

aa.. LLeeggiissllaattiioonn rreeggaarrddiinngg mmiiggrraattiioonn iinn EEUU

For a long period of time, the right to enter andlive on the territory of an EU Member State wasgoverned by national laws drawn up by eachMember State. One could enter and live on theterritory of a state based on an entry visa and aresidence visa, which were granted by each state.Only in 1999, EU Member States decided theformulation of a common policy regardingmigration and asylum to become effective by 2004

the latest. The common policy regardingmigration includes aspects such as: free movementof persons, external border control and thegranting of visas, asylum, immigration and theprotection of third party nationalities’ rights andlegal cooperation on civil matters. The commonpolicy in the field of migration and asylum has inview the adoption of a joint position of the EUmember states, towards the applications forasylum coming from persons from third partycountries, as well as the control of illegal humantrafficking.

bb.. LLeeggiissllaattiioonn rreeggaarrddiinngg tthhee llaabboouurrmmaarrkkeett iinn tthhee EEUU

The legislation and the regulations in the fieldof the labour force interest us in the contest ofmigration in terms of two aspects: first being thatof recruiting labour force from outside EU andsecond being the manner in which the legislationregarding the labour force in the EU may influenceeast-west migratory flows once the applicantcountries in Central and East Europe become EUmembers.

The recruitment of labour from outside EUcountries’ border and outside the EU is themanner through which the European deficit inlabour force may be covered where there is suchdeficit. In this sense there are regulations that haveconsidered the recruitment of labour force fromoutside the EU, which encourages replacementmigration1). Replacement migration in the EUfocuses on two major categories of personnel: onthe one hand – highly qualified personnel whichare deficient in the EU countries and on the otherhand the unskilled workers which are required forthe replacement of the local labour force, that do

not want to perform any such works (in agriculturefor example). The replacement migration throughrecruitment from outside the EU is not regulated atthe level of the European Union, each memberapplying its own policy.

The freedom of movement and equaltreatment by banning any restrictions regardinglabour force for Member States citizens that mayapply to Central and Eastern Europe states afterjoining to the EU, generate fear from the existingMember States of massive migration flows oflabour force traveling from east to the west,seeking better salaries and better workingconditions. This is why, separate agreements arenegotiated regarding the movement of theworkforce after joining to the EU with each of theapplicant countries, requesting a certain period oftransition for the liberalization of the work forcemovement. The transition period will generallyrange from 2 to 5 years and by no means can itexceed 7 years.

cc.. LLeeggiissllaattiioonn rreeggaarrddiinngg mmuuttuuaallrreeccooggnniittiioonn ooff ddeeggrreeeess aannddqquuaalliiffiiccaattiioonnss

Ensuring the free movement of persons andworkers requires the recognition of the degreesand professional qualifications. The mostimportant regulations in this sense, at the level ofthe EU, are a group of directives creating thepremises a General System for the Recognition ofDegrees and Qualifications and another group ofdirectives regulating the recognition ofqualifications of various professions2).

It is being considered a new directive (a fifthdirective) intended to remain the single directive,which would simplify the acquis established in the

THE MIGRATION PHENOMENON FROM THE PERSPECTIVE OF ROMANIA’S ACCESSION TO THE EUROPEAN UNION

17

1) Replacement migration refer to migration based on work force recruitment from outside the European Union for qualifications that aredeficient within the Union and for jobs and qualifications that are not sought by the local people.2) Among those the main are: Directive 89/48/CEE, Directive 92/51/CEE, Directive 1999/42/CE and Directive 2001/19/CE.

previous directives. It is being considered theapplication of the principle of automaticrecognition of degrees and degrees’ recognitionbased on coordination of minimum trainingconditions. In order to facilitate degreerecognition processes two information networkshave been set up at the level of the EU, namely:ENIC (European Network of Information Center)and NARIC (National Academic RecognitionInformation Centers).

Legislation regarding migration in Romania.Harmonization with the European acquiscommunautaire. The first initiatives for thecreation of a new legislative framework in the fieldof migration took place in Romania at thebeginning of the 1990’s. Subsequently, withRomania’s application for joining to the EuropeanUnion, this activity has intensified so that, in thepast three years, there have been adopted manylaws and normative acts intended to ensure theadoption of the acquis communautaire. For mostdirectives within the two negotiation chapters thatinclude legislation influencing migration (chapter2 and chapter 24), Romania has started adoptingthe corresponding legislation.

Remarkable progress has been made by theRomanian legislation regarding the regime offoreign persons in Romania, the regime of therefugees and their social protection and theprevention and combating of human trafficking.On the labour force market there has beenregulated the granting of work permits. Thus,according to the principle of free movement ofpersons, EU citizens and members of the theirfamilies may work on Romania’s territory withoutrequiring to obtain the work permit, unlike other

categories of foreign citizens. There are some aspects, where the Romanian

progress was smaller: it is believed that there stillexists a discrimination between EU and Romaniancitizens owing to the fact that Romanians aregiven priority when being employed. Also as far asmutual recognition of professional qualification,Romania’s preparations are thought to be at anearly stage.

Box no. 1 presents the main legislationregarding migration from Romania.

Progress was also reported with chapter 24. Thisway, immediately after the issuance of the 2003Country Report, the National Office for Refugees hasissued and submitted a draft amendment for theGovernment Ordinance no. 102/2000, eliminatingall inconsistencies between domestic legislation andthe documents included in the acquis in force todate and the continuation of the monitoring andanalysis of the evolution of the acquis for thepreparation of draft laws and their initiation on time.In addition to such measures, G.O. no.102/2001was also amended through Government Ordinance43/2004, updating the definitions of the forms ofprotection, eliminating differences in the treatmentof the refugees and those receiving temporaryprotection, confers the National Office for Refugeesthe capacity to take part in trials regarding asylumapplications, and well as other aspects.

As far as the achievement of the objectivesrelated to the European Union accession isconcerned, all requirements for closingnegotiations on Chapter 24 have been met, exceptfor aspects related to the implementation ofDublin mechanisms and the EURODAC system inRomania3).


18

3) The Dublin mechanisms refers to a set of norms based on which it is appointed the member state responsible for processing asylumapplication in the situation where a person has transited more than one member states and has submitted an asylum application. Generallythe state where that foreign persons has entered the European space is responsible. For such purposes, there have been established anEuropean database with fingerprints of all persons that have illegally entered, are illegally staying or apply for asylum in the member states –EURODAC. This database prevents the submission of several asylum applications successively or concomitantly in many member states. Inthis situation, the respective person, being also identified based on the Dublin mechanism, is returned to the member state that haveimplemented for the first time the fingerprint of the respective foreign person.

Institutions involved in the management ofmigration in Romania. Various institutions can beinvolved in the monitoring and performance of themigratory phenomena, playing different roles. Takingthem into account within the framework ofinternational migration reveals that they carry out

their activity at different levels, as show in table no. 1.For instance, at supra-national level, among

state institutions involved in performing andmonitoring migration there is the European Union,and among voluntary ones there is theInternational Organization for Migration.


19

Table nr. 1. Institutional actors involved in international migration

O = origin; D= destination

Level/Type of

institution

State authorities Private companies Voluntary

organizations

Informal transport

and mediation

networks

Supra-national European Union Corporations

(headhunting,

legal, transport)

International

organizations

(IOM,

ILO,UNCHR*)

Transnational

communities

National Governments

(O/D)

Mediation

companies (O/D)

Voluntary

organizations (D)

Migrants’

associations (D)

Local Local authorities,

governmental

agencies

Mediation

companies (O)

Voluntary

organizations (D)

Migrants’

associations (D)

Source: L`z`roiu S. (2002) „Migra]ia circulatorie a for]ei de munc` din România. Consecin]e asupraintegr`rii europene” – “Circulatory Migration of the Labour Force in Romania. Consequences on the EuropeanIntegration”, www.osf.ro

* IOM = The International Organization for Migration; ILO = International Labour Organization; UNCHR= United Nation High Commissioner for Human Rights

At national level, in Romania, the maingovernmental institutions involved in the migratoryprocesses are the Ministry of Administration andInterior, the Ministry of Labour, Social Solidarityand Family, the Ministry of Foreign Affairs and theMinistry of Education and Research. The mainmigratory policies in Romania are implementedthrough many agencies within or independent ofthe above mentioned ministries, agencies whoseactivity is difficult to coordinate. For instance, theemigration and immigration phenomena are dealtwith by different institutions, an in case that thesame institution is handling both aspects of themigratory phenomenon, they are undertaken bydifferent, specialized departments.

There are also a number of non-governmentalinstitutions involved in running or gatheringinformation on migration, such as: privatecompanies mediating labour contracts abroad, thelocal office of the International Organization forMigration in Romania, the representative office ofthe United Nation High Commissioner for Refugeesin Romania, the Foundation of the RomanianNational Council for Refugees, the RomanianForum for Refugees and Migrants, and others.

It has been noted that a large part of suchinstitutions carry out their activity helping refugeesand immigrants in Romania. An explanationwould be that measures taken by the Romanianstate have been considered insufficient in his fielddue to financial difficulties on one hand (Romaniais itself going through a developing period) andbecause there is still a large difference betweenthe legal provisions and what is in fact achieved bythe Romanian state (IOM, Migration Trends,2003). On the other hand, the low number ofimmigrants targeting Romania (around 200persons per year) makes it difficult to test thelegislation in the field at a large scale.

33..TThhee ssoocciiaall--ccuullttuurraall ddiimmeennssiioonn ooff tthheeccuurrrreenntt mmiiggrraattiioonn pphheennoommeennoonn iinnRRoommaanniiaa

The international experience in migrationadministration and monitoring demonstrates theclose relationship between the legislative-institutional dimension and the social-cultural one.The elaboration and adoption of laws, the creationof institutions, the development of correspondingstrategies and policies represent major componentsof this process, but their success cannot beseparated from the manner in which the involvedactors–governmental institutions, non-governmental organizations, mass-media,communities, individuals – respond to the so-called“behavioural challenges”, related to participation,communication, mentalities and attitudes.

The migrant’s profile. Considering themigration a social phenomenon that directly affectsa significant part of the population and has compleximplications on the entire society, it is vital to knowand to emphasize the migrant’s profile – the profileof the emigrant from Romania and of the immigrantto our country. That will enable an accuratedevelopment of the measures related to theadministration of migration phenomenon and of thesupport provided to the migrants.

Within the dominant national tendency –namely labour migration, the most representativecategory is currently represented (according to aCURS survey from June 2003) by young men (18-35 years old), with an average education level, asskilled workers from the big cities of Romania andBucharest, its capital.

The villages’ migration potential should not beignored either; relating to this issue DumitruSandu has suggested the metaphor of the“hydrographical network” (“community representsthe spring of migration) and the transition from the


20

factorial approaches to the structural andtypological ones, that makes possible to identifytypes of villages based on the dominant culturalprofile and the experience regarding theinternational circulatory migration (Sandu, 2004).

Various studies have also stated a series ofhypotheses regarding the selective migration flows,according to which the minority ethnical or religiousgroups show a higher mobility level than the one ofthe majority Orthodox Romanian population(Sandu, 2000, Diminescu, L`z`roiu, 2002).

Even if at present Romania distinguishes onthe background of international migration as anemigration country, with a labour market lessattractive to the immigrants, being moreinteresting in terms of transit possibilities to thedeveloped countries (briefly, «More ‘Out’ than ‘In’at the Crossroads Between Europe and Balkans»,according to the suggestive title of an IOM countryreport from the autumn of 2003), is expected thatthe attractiveness of Romania will increase due tothe EU integration perspective and thus Romaniawill become even an immigration country.

Up to now, the immigrant’s dominant profile – arefugee, an asylum seeker, an immigrant for labour,study or business purposes – is based on men’spreponderance (as it happens with the asylumseekers who have proven to be especially youngmen, aged between 21-30 years). Yet, when the totalnumber of immigrants is taken into account, thegender-based structure is quite well balanced.

Aspects regarding the integration within thehost country society. The migrant’s dominantprofile – an emigrant/immigrant from/in Romania– involves a series of specific aspects regarding theintegration within the host country society.

In general terms, for an immigrant the integrationconsists in the knowledge of the language spoken inthe host country (reading, writing skills), the access to

the educational system and to the labour marketwithin the respective country, the opportunity ofincreasing professional mobility by attending to ahigher level of education and professionalqualification, equity in front of the law, cultural andreligious freedom, the respect towards the laws andthe traditions of the country he/she lives in. At thesame time, for the host society the integration of themigrants supposes tolerance and openness, theconsent of welcoming the immigrants, theunderstanding of the advantages and challenges of amulticultural society, providing an unrestrictedaccess to information related to the advantages ofintegration, tolerance and intercultural dialog,respecting and understanding the status, traditionand culture of the immigrants, as well as the respecttowards the immigrants’ rights (IOM, 2003a).

As far as the particular case of Romania isconcerned, given the lack of previous expertise inthis field, the still low number of immigrants andrefugees and the limited financial resources, it hasbeen noticed that the services and the assistancefor integration are not fully satisfactory, despite thediligence within the last years for the alignment tothe international standards.

A special issue envisages the vulnerablegroups, especially the non-accompanied minors,for whom a reconsideration of the interviewingprocedures and an adequate training of the civilservants are necessary, since malpractice couldhave major traumatic effects.

Besides the integration of the immigrants, amultiple faced challenge for the Romanian societyis represented by the reintegration of theRomanians who return to their home country afteran external migration experience. It focuses oncertain specific categories, such as the Romanianstudents and graduates from foreign universities,the Rroma people, the victims of trafficking in


21

human beings, the unaccompanied Romanianminors, the repatriated people, etc.

On the whole, the issues related to thereintegration of the Romanians who come back totheir home country vary according to theeducational level, their qualification, family status,duration of their stay abroad etc., complex socialand psychological aid oriented programmes beingnecessary, so that re-emigration be not the solesolution to such people (L`z`roiu, 2002).

Finally, besides the integration/ reintegrationon its territory, Romania must also care for certainaspects related to the integration of Romanianemigrants within the host countries. In this contextthe role of Romanian authorities should consist inthe contribution to promoting and increasing of anaccurate, objective image on the entire RomanianDiaspora, that may represent a valuable share tothe enrichment of the scientific and culturalpatrimony of the host countries, as well as inpreserving the connection between the Diasporaand the mother- country. A special aspect refers tothe support that the Romanian state must grant andthat it actually grants to the large Romanian groupsliving outside the country’s borders due tohistorical reasons (in the Republic of Moldova, aswell as in Ukraine, Hungary, Bulgaria, Yugoslavia)who need, besides the support for the preservationof their cultural identity, support at internationallevel, regarding the recognition of their rightswithin the respective countries.

The public opinion and mass-media. TheRomanian public opinion perceives the migrationphenomenon mainly as labour migration. A largenumber of people believe that migrants earnmoney from a paid job and only a small part of thepublic opinion think that they obtain money fromtheft and begging. Yet, the results of the opinionpolls mentioned in this study reveal a wrong

perception – in some points - of the negativeaspects that accompany the Romanians’ externalmigration, which proves that the public opinionfinds it difficult to distinguish between certainobjective hardships related to the travel within theSchengen space and the violation of the law,between the groups performing illegal activitiesand the affiliation to a social, ethnic or religiousminority, which leads to the creation ofstereotypes, to attitudes that feed delinquency,intolerance and xenophobia. This perceptioncould be set right by means of joint, coherentefforts of mass media, public administration andcivil society.

Up to present, one cannot say that mass-mediahas brought its necessary contribution to theaccurate rendering of external migrationphenomenon, with all its aspects and to thecreation of an adequate social behaviour withrespect to both migration itself and theintegration/ reintegration process. It has beenremarked that migration is not systematicallyrendered and assessed, in its entire complexity, theemphasis being put on the narration of certainnegative, sensational facts and less on theorientation of the migrants within an universe thatmakes them face numerous risk and uncertaintycomponents, on the prevention and combatingdelinquency, clandestine travelling and corruptionrelated to visa granting. To a considerable extent,the partial and sometimes wrong coverage of themigration phenomenon by mass media is theresult of the shortage of specialized journalists inthis field; therefore is highly recommended theorganization of training courses with respect to theinvestigation and assessment of migration.

Our study appreciates and supports theproposals converged in various documentsregarding migration (especially the IOM’s) with


22

reference to the introduction in the academiccurricula of subjects specialized on the study ofthe migration phenomena (labour economics, law,medicine, health policy, sociology, educationsciences, etc.), as well as the creation of a nationalmigration research center (to be set up by theRomanian Government in partnership with IOM,UNCHR and other international organizations), ofsome faculties or departments of inter-disciplinarystudies on migration, so as to build up thenecessary expertise in public policies, socialassistance, human resources and migrationmanagement.

44.. BBrriieeff gglloobbaall qquuaannttiittaattiivveecchhaarraacctteerriizzaattiioonn

At worldwide level, one out of 35 persons is amigrating person (IOM, 2003a), while the annualflows comprise 5-10 million persons.

In Romania, the ratios are a lot lower, yetdifficult to estimate on their whole (there are partialstatistical data). If we take into account only theeffective amount of coming ins /immigrants- goingouts/emigrants (the final migration), during 1991-2003, it has reached the amount of almost 25thousand persons on a yearly basis.

Total emigration rate (per 1000 inhabitants)decreased from almost 2 migrants/ 1000 inhabitantsto almost 1 in 1999 and to 0.64 within the lastconsidered year. One has noticed two stages ofsignificant cut down: the first one during 1991-1993,when the migration have focused on the return to thenative areas (Germans, Hungarians, Jewish); thesecond one between 2000 and 2003 (and beyond)when the final migration has lost of its importance,since the temporary migration has been favoured (thisperiod also corresponds to the deregulation of theRomanians travelling within the Schengen territory).

The migration’s contribution to the totalpopulation dynamics and to the Romanian labourpotential can be highlighted by a comparative andcombined analysis of the natural increase and ofthe migration increase.

According to the available data, during 1991-2002, 2.87 million children were born, while 3.2million persons died. The diminishing of the totalpopulation amount by almost 330 thousandindividuals was amplified by the migration flowsthat were negative throughout the entire period. Theannual evolutions are negative and decreasing, interms of migration increase, while they seem to beoscillating and far more significant as far as thenatural increase is concerned.

The population’s spatial mobility, as a factor forthe adjustment of the labour market demand and forthe rebalancing of the labour market on theterritorial level has been rated as being a low one.Romania’s population (out of tradition- inertia basedreasons, but also out of financial reasons) wouldrather commute and/or favour the temporarycirculatory migration, than transfer/changing itsdomicile/residence.

Within the country’s territory there were almost6.7 million persons who have changed theresidence at least once in their life, while during1992-2003 there were almost 252 thousandpersons who have emigrated abroad. The annualflows were decreasing (almost 10 thousand personson a yearly basis). The external balance (emigrants -immigrants), throughout the period, is a negativeone, that is 180 thousand persons. The onlyexception is the year 2001, when the number ofimmigrants exceeded by 429 persons the number ofemigrants (10350 as compared to 9921).

Thus, from the emigration viewpoint, the lossof population of less than 10 thousand persons ona yearly basis, even if it has not been


23

“compensated” by the immigration does notrepresent a significant quantitative factorinfluencing the dimensions of the national labourmarket. On the other hand, the pressure inducedby such amount of emigrants on the receivingcountries (and implicitly on their labour markets)is rather low, engendering long-term positiveeffects.

The comparative analysis of the natural and ofthe migrating increase (final migration) allows usto draw up the following remarks:

- The total population is reduced especially dueto the negative dynamics of the naturalincrease, rather than to the migration increase;

- The losses accumulated on the whole perioddo not exceed 3% of Romania’s population,recorded at the latest census;

- From the qualitative point of view, the negativemigration increase is more “expensive” to thesociety than the natural one, since theinvestment in the human capital (by educationetc.) enforced until the emigration time and thependant labour potential are cost free transferredto the destination country, thus adjusting on along term the growth of the national economyand sustainable human development.

55.. IImmmmiiggrraattiioonn ppeerrssppeeccttiivveess iinnRRoommaanniiaa

For the time being, Romania is not confrontedwith major problems as far as immigrants, refugeesand the people of foreign citizenship areconcerned. This assertion is valid both incomparison to the developed countries, whichhave been and will always be the main destinationof such migratory flows, but even in comparisonwith other countries that have been subject tosimilar transition processes and that have similargeo-political positions.

Unlike repatriation, that constituted the maincomponent of the permanent legal immigration,the main motivation of illegal immigration is theintention of transit, having as destination one ofthe developed countries in Western Europe. Butthere are enough reasons to conclude that it willno longer be possible to consider the problem ofRomania-heading immigration as a collateral,unimportant one:

- Romania’s accession to the European Unionwill end up, sooner or later, in lowering the stillimportant gap against the developed economies,as far as living standard is concerned; butautomatically the difference from the lessdeveloped countries will increase, so that thisfundamental type of “push factor”, that up untilnow has proved to be an inhibitor factor, willdefinitely squeeze action;

- even in the current conditions, in recentyears, only the legal part of the immigration hasalmost managed to equalize or to exceed (in2001) the one of the emigration (also legal);

- the information offered by the Ministry ofAdministration and Interior leads to theconclusion that, in the absence of an adequateborder security, the number of the permanentand/or transitory immigrants in Romania wouldhave been much larger than the one actuallyregistered (up to 7-8 times bigger, taking intoaccount the number of persons returned from thefrontier, cross passing illegally etc.);

- Romania will have to assume the role ofeastern frontier of the European Union; it is well-known the fact that, at the world-wide level, atleast from the demographical point of view, butalso considering the economic distress, Asia isconsidered the major migratory reservoir of the21st century, and we are connected to thiscontinent by a green frontier, relatively easy to


24


25

penetrate, where flexible routes of legal/illegalmigration, able to adapt to the changingenvironment, have already been established.

After the accession, an essential issue willbecome the way in which the community levelmigration policy will be synchronized. Forexample, the 1990 Dublin Convention, completedby the Council Regulation no. 343/2003,establishes the criteria and the mechanism ofestablishing the „responsible state” regarding thesolving of the asylum applications handed in bythe citizens of some third countries.

In conformity with these, when is proved thatan asylum seeker has illegally passed the frontierto enter on the EU territory, the „responsible state”for solving his or hers application is the one onwhose territory the trespassing took place4), even ifthe asylum application is handed in to anothermember state. In this situation, the applicant is inthe care of the responsible state, which is obligedto receive him once more and to grant him thenecessary assistance and solve the case.

From this point of view, the main goal of theimmigration policy has to be, in addition tostrengthening border security, also to best adaptpolicy regulations in this field, both the internalones (restrictive conditions for granting visas,bilateral and international agreements with themain source countries etc.), and the EU-level ones(harmonising EU migration policy, the negotiatingcertain special conditions for border countries,such as Romania, sharing the financial and logisticeffort in providing security of the borders andsolving of the asylum applications, the commonadministration of the refugees’ problem etc.), inorder not to come to the situation in whichRomania, as a border state, should be forced to

provide by itself a great part of the illegalimmigrants afflux who try to enter the EU territory.

At present, it is appreciated that the worldwideflow of migrants varies between 5-10 millionpersons annually, including both the legal and theillegal parts of the migration. Only a part from thenumber of this flow has as destination thedeveloped countries. In 1965, their share was of36.5%, in 1990 of 43.4% and in 2000 40%. If weconsider that these characteristics will remain thesame in the future, the result is that the developedcountries of the world can expect to receivefurther on a significant number of immigrants,comprised between 1.8-4 million of personsannually (we excluded from our calculations theshare registered in 1990, because subsequentlysignificant modifications took place in themigration regulations in the majority of thereceiving countries, especially in EU, whichstrongly influenced both the illegal and especiallythe legal part of immigration).

Not all emigrants will go towards the EuropeanUnion. To assess, even approximately, what theirnumber will be, we can use two reference points:

- on one hand, as a limit that can beconsidered maximum, a share of 50% in theframework of the developed countries (taking intoconsideration that, in the total of the arrivals offoreigners in OCDE countries, EU25’ share was45.8% in the period 1990-1994, 39.9% in theperiod 1995-1999, respectively 43% in 2000);

- on the other hand, as a minimum limit, thecurrent share of Europe in the world-wide stock ofmigrants, which in 2000 was of 32.1%.

By combining the previous assumptions, therewould result an annual afflux of immigrants (legaland illegal) in the European Union of 0.6-2 million

4) In Germany, for example, in a period when this country provided also the role of external border for EU, the number of those apprehendedwhen crossing illegally the frontier varied between 54,298 persons in 1993, 27,024 persons in 1996, respectively 40,201 persons in 1998.

persons, numbers that do not contradict thedifferent national and/or international estimates inthis field.

We hereunder presume that, during the nextyears, these Charts will not be significantlymodified. Concomitantly to Romania’s join to theEuropean Union, a part of those who choose thisdestination will cross our country’s border in orderto enter EU. If, as the legal part of immigrants isconcerned, it is most likely that the overwhelmingmajority should choose one of the economicallydeveloped member countries, the illegal part willautomatically came under our country’responsibility. It is extremely difficult to estimatewhich will be the share or the total number ofthese persons, if we take into discussion either thelegal immigrants, or the illegal ones. That isexactly why, for taking every possible precautionmeasures, we have resorted to three variants:

• the first one takes into account that theeconomic development gap between Romaniaand other member countries will still continue toexist even many years after enlargement, whichleads to the idea that the EU immigrants’preference to settle down in our country will beextremely low: 1%; that is why we can considerthat as a minimum variant;

• the second one resorts to the demographicalcriterion, presuming that the newcomers areuniformly distributed between the membercountries, correspondently to the share of eachone in the total population of EU; according to thisreasoning (in fact enough simplistic and easy tocontradict), Romania should house approximately4.4% of the EU immigrants;

• the third variant gives a greater importanceto the illegal immigration and to the position thatRomania has within a widened Union, namely theone of external border; the fact that the terrestrial

border is easier to be crossed is also taken intoaccount; furthermore, in comparison with othercountries from the eastern extremity (the Balticcountries), Romania is closer to the central core ofthe richer member countries; for obtaining amaximum limit of the possible evaluations, evenwith the risk of being accused of “catastrophic”exaggerations, we shall also resort to this variant,considering that 10% of the immigrants will enterEU by crossing Romania’s border.

A wide range of possibilities (no less than 24variants) result from grouping the last threeassumptions with the previous evaluationsregarding the annual Charts of EU immigration.The lower limit, resulted under the mostrestrictive/non stimulating terms/factors ofimmigration, reaches an annual number ofimmigrants of 5.9 thousand persons, a bit less thanthe actual reports of the year 2002. But the upperlimit of 200,000 persons annually (obtained, weemphasise once more, on the grounds of someextremely permissive assumptions and leavingaside the other limitative factors) exceeds to alarge extent the amount that Romania is preparedto and/or accustomed to administrate in themigration field.

From the total of 24 variants, 21 exceed theannual amount of 10,000 persons, and 17 presentvalues bigger than 20,000. In five cases, theannual immigration in Romania exceeds 100,000persons and in 12 situations it comprises between20,000-100,000 persons. The average of all 24variants is of 60.5 thousand immigrants per year.

Even if Romania will absorb only 1% of thetotal EU-heading immigration, it is still possible tobe forced to deal with an afflux of persons muchbigger than the one we have been confronted withuntil now: triple, by comparison with the year2002, respectively double, by comparison with


26


27

the years 2000 or 2001. The variants that may becharacterised as moderate forecast a yearlycontingent of immigrants amounting to a numberof 25,000-60,000 persons. Considering that theimmigrants’ flow will change not only in numberbut also in its structure, showing, unlike the lastdecade, an increased share of asylum applicants,if all of the latter ones were granted the nonreimbursable aid provided by Ordinance102/2000, the financial effort of the Romanianstate (having in view the current level of thenational minimum wage) would amount to EUR10.5 – 37.8 million annually.

Romania will have to put in force a compleximmigration management system, providing,inclusively or totally from its own funds, meansof accommodation and of subsistence, social andeconomical integration services etc. Only thefinancial effort that is implied by the interimhousing of the refugees and of the asylumapplicants until their claims are solved – thatrepresents just a small part of the total expensesoccasioned by the administration of this process– can reach significant5) values. This kind ofsituation must be prepared in advance, especiallybecause, unlike emigration, where losses/returnsare measured mainly in terms of comparativecosts (which would be the gain/loss of thecountry following permanent/temporaryemigration, how much the state looses in terms ofreturns in human capital investment etc.),immigration implies foremost financial costs thatare immediate, concrete, that can not bereprieved6).

66.. MMaaiinn tteennddeenncciieess aanndd iimmpplliiccaattiioonnssooff eemmiiggrraattiioonn

Emigration during the transition period had anoscillating evolution with a tendency ofprogressively reducing the total numbers. Thegeneral tendency was that of converting frommigration on ethnic reasons with certain originand destination concentration centres, to a moremotivationally diverse migration, of a largerdistribution on territory, associated with thedestination preferences changing as well.

Thus, from the emigration viewpoint, the lossof population of less than 10 thousand persons ona yearly basis, even if it has not been“compensated” by the immigration does notrepresent a significant quantitative factorinfluencing the dimensions of the national labourmarket. On the other hand, the pressure inducedby emigrants on the receiving countries (labourmarkets) is rather low, engendering long-termpositive effects. The number of emigrants isdecreasing, while the number of immigrants isincreasing. Total emigration rate (per 1000inhabitants) decreased from almost 2 migrants/1000 inhabitants at the beginning of transition toalmost 1 in 1999 and to 0.64 in2003. After 2000the final migration has lost of its importance, sincethe temporary migration has been favoured(deregulation of the Romanians travelling withinthe Schengen territory). Romania’s population (outof tradition- inertia based reasons, but also out offinancial reasons) would rather commute and/orfavour the temporary circulatory migration, than

5) In Greece for example, in one of the housing centres, the daily cost that reverts to an assisted person was in 1999 of approximately 9 EUR;considering that nowadays the minimum salary in Romania is not bigger than 2.9 EUR for a normal working day, it became obvious that ourcountry will not afford to allot to these objectives – only through its own effort – comparable founds, especially in the conditions of a growingimmigration.6) Also as an example, in 1999, Finland spent for 3106 asylum seekers and refugees more than 33 millions EUR, meaning almost 10,000 EURannually per one assisted person. At a unitary cost even ten times lower, in Romania would also result total amounts that cannot be neglected,by comparison with the national budget possibilities. If only 10% of the immigrants estimated on our calculation entered in the category ofthose who claim for assistance, the expenses could come to 0.6-20 millions EUR, the medium variant having a correspondent sum of 6millions EUR annually.

transfer/changing its domicile/residence. A hierarchy of the counties of departure

according to the number of the emigrated personsduring 2002 allows us to make the followingremarks:

• Bucharest is the main source of emigration:17.3% from the total emigrants,

• Bra[ov, Timi[, Cluj and Mure[ haveprovided, each of them, approximately 6 %of the total emigration, Suceava , Sibiu,Bihor 4% each and Neam], Satu Mare andArad approximately 3 %, the rest of thecounties having lower contributions.

• From the total number of emigrants, the Jewsrepresented 0.3%, the Germans 0.8% andthe Hungarians almost 6%. The departureareas of the ethnic population are:Bucharest, Cluj, Ia[i and Boto[ani for Jews;Cluj, Timi[, Arad, Bra[ov and Sibiu forGermans; Cluj, Mure[ and Harghita forHungarians.

• There is no direct and intense connectionbetween the number of emigrants and theunemployment rate. For example, in 2003comparatively to the previous year the firstfive counties with a ratio of emigrants of over5% of the total recorded a decrease in theunemployment rate (Bucharest, Timi[, Cluj,Sibiu, Bra[ov). Out of the emigrants of 2003,41.65% departed from these areas, and thenumber of the unemployed at the end of theyear accounted for 14.65% from the total.

The favoured destinations have changed too.During the first years the most important flowsheaded for Germany (about half of them),Hungary and Austria (approximately 10%),whereas in 2002-2003 the preferred destinationswere USA, Italy, Germany and Canada, with

approximately 15-18% eachDuring 2002-2003, most of the Romanian

citizens who emigrated in the EU area establishedtheir domicile in Italy (4233 persons) andGermany (3646). Less than 1000 peopleemigrated to Austria and France and a little over100 people emigrated to Greece and Sweden.(I.A.M., 2004).

A reorientation of the flows can be noticed onlarge geographical areas, from Western Europe(EU area) at the beginning of the 90s to NorthernAmerica. In 1990-1995 over 60% of the emigrantschoose as their destination a EU member state andonly 15-17% of them left for America. Startingwith 1996 the ratio of those who headed forEurope progressively reduced and the flowtowards America grows significantly, the tendencybeing that of equalizing ratios. Approximately40% still prefer the EU areas and almost 35% headfor Canada and USA.

Quality features of the emigrant population.According to age groups, those who tend to leaveare the people with the biggest opportunities ofprofessional affirmation:

- A significant and increasing ratio of the 26-40 year old emigrants, (51% in 2003),already trained persons, with the highestworking and innovation potential, who arethe most adaptable and the most mobile.

- graduates or attending their last school year ,with certain perspectives and labour andcreative potential (13.4% in 2003).

- 11% of the emigrants are between 41 and 50years old and that they represent an activelabour force, whose productive potential canbe still used.

While in the case of Romania emigrantsrepresent a net loss, as a proof of the still reducedcapacity of the economy and of the society to


28

generate proper labour and remunerationopportunities, they are for the destinationcountries labour force that can accomplish highperformances, a competitive labour force for theperiods to come.

From the professional groups related to whichstatistic data exists, especially after 1995 the groupof engineers and architects is registering increasingvalues, (12-13% in 2003), teachers andeconomists, (3-5%), technicians, doctors, chemists(2-3%). Compared to the 1995-1999 period, theratio of the emigrant artists has been reduced tohalf (0.5-0.6% in 2002-2003).

The fact that emigration at the present momentis more influenced by criteria of professionalaffirmation and more advantageous incomes, thatthe brain drain phenomena are valid for the flowswith increased research potential countries hasbeen confirmed by the most recent evolutions.Thus, at the level of 2002, most emigrants thatwent to Canada and USA were universitygraduates and the preponderant age group wasthat of 30-34 years old. Regarding the people wholeft for Germany, although they were mostlysecondary- school graduates, their age varied onaverage between 25-29 years old, fact that can becategorized as emigration with the aim ofaccomplishing school education and/or with theaim of employment in high qualification domains(computer science etc), in which case youngerages can be noticed.

Migration for work has got a temporarycharacter, its duration varying within large limits(from a few weeks/months to a few years) and itdoes not imply the permanent change ofresidence.

Those who are part of the legal and/orcontingent migration movement are usually part ofthree big labour force categories:

a) highly qualified labour force withcompetences validated in top domains ofscience and technology, as well as in certainservices, like education and health.

b) labour force with a medium level ofqualification and specialisation, as:

- constructors - labour force categorywith a long tradition in workingabroad, highly appreciated on westernlabour markets (Germany, Israel);

- the para-medical personnel (nurses),(Italy, USA, Canada, Switzerland etc);

- personnel in hotel and restaurantindustry;

c) unqualified or semi-qualified labour forcefor agricultural activities (during harvestingperiods), in sanitation, constructions, etc.(Spain, Portugal, Greece).

In the relation with the EU member states, thenumber of persons for which labour contracts areintermediated and the domains are different fromone year to another depending on the demand onthe labour market from the destination country.The labour contracts by gender are also variabledepending on the activity domain and respectivelyon the requested professions.

In 2003, 43,189 persons were placed forlabour abroad on the basis of bilateral agreements,recording a significant increase in comparisonwith 2002 (Germany, Spain, Switzerland,Hungary, Luxembourg, e.g. in agriculture,constructions, hotels, restaurants and tourism, themedical and social assistance -nurses andassistants for the elderly).

Young persons are preferred, with goodworking capacity, motivated by the income theycan earn, more easily adaptable to new culturalpatterns, civilization standards etc. Therefore,almost half of the persons who have worked/work


29

in Germany in the last two years are included inthe age group 26 – 35, less than a forth the personsfrom the ages group of up to 25 years and between36 – 45 years and merely 7% - 8% are more than45 years old. In Spain and Switzerland youngerpersons are by far more numerous, of agesbetween 26 – 35.

There is also a very powerful migratingmovement for uncontrolled labour, both in thecountry of origin (Romania) and in the destinationcountry. An important part of these people worktemporarily, for unspecified periods of time, moreoften without legal documents, on the black labourmarket of the destination country. The working andliving conditions granted and accepted are not thebest, they are by far inferior to those granted to thelocal labour force. Firms accept this method ofemployment because of the reduced labour costswhile the contribution of these employees to theincrease of competitiveness within the firm is asignificant one.

The accentuated annual variability does notallow a correct estimation of the outgoing flowsfor working purposes. Because of the incertitudeof a labour agreement abroad, those who want towork there choose an alternative solution: theyeither seeking for jobs on the labour market inRomania until contract possibilities occur, or theytry to find a job abroad by their own (even bygoing to the destination country or remainingthere after the expiration of the previouscontracts). As a tendency during the last years, amore reduced annual oscillation and a relativestabilization of the labour force contingent wereregistered, at approximately 20-27 thousandspersons per year.

As far as the tendency of temporary migrationis concerned the following remarks are necessary:

- especially in the last years, in most of the

cases, as a rule, the Romanian supply ofhuman capital exceeds the demand of theforeign employers, the pre-selection, theselection and the employment becomingmore and more severe and evendiscriminatory;

- the demand of activities that require labourforce with medium qualification ispredominant, or even labour force with lowerqualification/ semi-qualification, but withgreat working power, generally young peopleand workers who are no older than 40.

The liberties granted to the labour force after1990, the intensification of regulating the labourabroad activity through bilateral agreement did notgenerate massive movements from the Romanianlabour market to the labour market of the EUcountries. Contrary to the warning and the fear ofmany of the authorities from EU countries or even ofRomania, “the exodus, the explosion” of the labourmigration did not take place and such an amplitudeof the phenomenon cannot be expected. TheRomanian specialists assess that even if the laboursupply abroad is relatively high, from thequantitative and qualitative point of view, thecontracts that will be concluded depend on thesituation of the labour markets from the destinationcountries and not on the desire of the Romanianworkers. An increase of the number of the Romanianworkers who work abroad after accession isexpected, but only to the extent to which themember states will promote a policy of openness.

Remmitances – a form of partial “recovery”of the possible losses caused by outgoingmigration. The analysis of the money transferbalance, respectively of the ratio ingoing/outgoingamounts, has led to following remarks:

- In the case of the incomes from work –additional contracts monitored by the


30

authorized institutions-, the ingoing flows,respectively the transferred sums fromabroad in Romania are prevalent. These aresuperior to those of outgoing, the biggestdifference being registered in 2002 when146 mil. $ USA went in and only 6 mil wentout by this way.

- In the case of other money transfers – that weconsider that comprise in the most partRomanian residents’ incomes from workingabroad-, the balance is also positive, and theratio ingoing/outgoing is 5-6 times lower,respectively in 2002, 1228 mil. $ USA incomparison with 227 mil., and in 2003,1419 mil. exits in contrast with 240 mil.

- The ratio between the ingoing flows frommoney transfers and those from work is flatlyin the favour of the first category. But theauthors consider that in reality, the moneyflows from work directed towards thebeneficiaries from Romania, via the bankingsystem or especially outside of it, are clearlysuperior to other incomes categories – fromdonations, inheritances, etc.

In conclusion, the ingoing currency amountsby remittances have seriously increased in the lastyears. The transfers from private sources arepredominant. After 1999, the incomes transfersfrom work are maintained to a reduced value,partially because of the fiscal policy, especiallyglobal income taxation.

Even in the conditions in which, throughremittances, the current losses resulted fromworking abroad would be monetarily recovered,the balance of these labour relations would be onmedium and long term negative for the country oforigin owing to the following reasons:

- the investment in human capital made by theinitial educational system and, eventually by

the subsequent one (CVT) in the workingprocess is (partially) lost;

- the competitive advantages to export is morereduced both as higher costs (lessproductivity of the remained one) and as theincorporated technical progress(inventiveness etc.) that is relatively morereduced.

Recent estimates appreciate the remittancesaround 1.5 –2 thousand millions Euro annually.The illegal transfers are comparable with the legalones. The development potential of these sourcesis huge, and provided the necessary instrumentsfor the stimulation of the banking system fortransfer, for long term disposals and/or forproductive investments will be made, importantpositive consequences for the national economycan arise: the monetary flow increasing, thepayment balance improvement and the currencyreserve rising, the money cost and the interest rateare reducing, the life standard of theconsumers/households and implicitly the internaldemand or goods and services increasing.

77.. CCoonncclluuddiinngg rreemmaarrkkss

Migration represents an ever more importantelement of the contemporary society, a factorstimulating market globalization and aninstrument for adjusting balances onregional/local labour market. Labour migration(associated or not with territorial mobility) nowrepresents the most dynamic form of movement ofpersons (active potential).

Apart from the economic, social, demographicimplications, migration phenomenon in theperspective of Romania’s accession to the EUbrings about specific requirements regarding theestablishment of a new legal and institutional


31

framework for migration management. Our studyhas demonstrated that as migration mechanismsRomania - EU change, legislation gets rapidly inline with the acquis communautaire, whereas itsimplementation via involved institutions is slower,but progressive.

An important progress has been recorded after2000 in legislation regarding the foreigners’regime in Romania, the status and the regime ofrefugees, preventing and combating the traffickingin human being, work permits, whereas lowerprogress occurred in the legislation envisaging themutual recognition of degrees and qualifications,discrimination of EU citizens as compared theRomanians in getting a job in Romania by givingpriority to the Romanian citizens.

The elaboration and adoption of laws, thecreation of institutions, the development ofcorresponding strategies and policies representmajor components of this process, but theirsuccess cannot be separated from the manner inwhich the involved actors –governmentalinstitutions, non-governmental organizations,mass-media, communities, individuals – respondto the so-called “behavioural challenges”, relatedto participation, communication, mentalities andattitudes. Relating to this issue, the accurateunderstanding of the social-cultural dimensionand of its implications on the migrationmanagement policies implies the reference to themultiple sides of this phenomenon, so as toprovide answers to a series of key questions, suchas: which is the migrant’s profile, how are themigration flows – emigration, immigration –perceived in Romania and in the destination/origin country, how is the integration of migrantscarried on, what is the attitude towards the returnoriented migration, especially in the case ofcertain special categories, etc.

In another register, a global quantitativecharacterization shows that the annual evolutionsare negative and decreasing in terms of migrationincrease, while they seem to be oscillating and farmore significant as far as the natural increase isconcerned. In general terms migration increaseaccentuates the population decrease, leading todemographic ageing. Natural decrease – ofapprox. 330 thousand people in 1991 – 2002 wasamplified by the negative migration flows(emigrants – immigrants = approx. 180 thousandpeople in the same period).

As regards the two distinct components –emigration and immigration, they have recordedspecific changes, both in quantitative andqualitative terms.

Thus, unlike emigration, which, despiterestrictions by means of political constraint, hadmanifested during the previous regime as well, forthe first time we can talk about immigration inRomania after 1990. If, in the case of legalpermanent migration, the main componentconsisted in repatriations, the major reason of illegalimmigration remains that of transit, heading for oneof the developed countries of Western Europe.

In the last decade, Romania has become amuch more interesting destination (for businesspurposes, studies, and other reasons) for foreigncitizens, and Romania’s features as immigrationcountry are more and more clearly defined.

In the future, and especially after the accessiondate, the level and dynamics of immigration inRomania will depend on domestic factors to amuch lower extent (the national migrationregulatory framework, state policy in the field, theevolution of the Romanian economy andRomanian society on the whole etc.), whileexternal factors will have a significant role. Inother words, immigration in Romania can be


32

estimated and explained only if we areconsidering the regional migratory phenomena, atEU level, Europe as a whole and even at theworldwide level.

Under the new circumstances Romania willhave to put in force a complex immigrationmanagement system, providing, inclusively ortotally from its own funds, means of accommodationand of subsistence, social and economicalintegration services etc. This kind of situation mustbe prepared in advance, especially because, unlikeemigration, where losses/returns are measuredmainly in terms of comparative costs, immigrationimplies foremost financial costs that are immediate,concrete that cannot be reprieved.

Emigration during the transition period had anoscillating evolution with a tendency ofprogressively reducing the total number. Thereasons for migration were different, as well as theterritorial distribution of the main flows. Thegeneral tendency was that of converting frommigration on ethnic reasons with certain originand destination concentration centres, to a moremotivationally diverse migration, of a largerdistribution on territory, associated with thedestination preferences changing as well.

The assessment of the perspectives in theevolution of population flows from Romanian

heading for the EU is differentiated according tothe period we are referring to, that is the pre-accession period, the post-accession but controlperiod (maximum 7 years) and the free movementof the labour force, after 2014.

An increase in the number of the Romanianworkers who work abroad after accession isexpected, but only to the extent to which themember states will promote a policy of openness(bilateral agreements for 5-7 years for workabroad). Special attention will have to be paid tothe social protection of Romanian labour forceworking abroad accompanied by a decreasingdimension of illegal labour migration.

For external migration from Romania torepresent a stimulating factor of the nationaleconomy development is necessary for thepolicies in the field to find an area of balancebetween the employment on the national marketand labour migration taking into account thecosts, the benefits and the risks, as well as nationaland EU interests.

In a wider context, the idea that, “based oncareful thinking and proper management, thenational migration policy may become a majorcatalyst, able to enhance a new economicprosperity in Romania” (IOM, 2004) has got animportant support.


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IInnttrroodduuccttiioonn

The methodology of this article is tailored tocover an analysis of the bankruptcy legislation, atboth the national and the international level. Inaddition to the interpretation of legal texts, thisstudy also provides an economic perspective onbankruptcy and insolvency, based on acomparative analysis of the bankruptcy proceduresat regional and international levels.

The article has three sections. The first sectionanalyses the economic implications of bankruptcy,explaining the economic rationale for thisprocedure, describing how to increase itseffectiveness, and evaluating the potential impactof bankruptcy.

The second section draws upon theexperience of transition countries in a few keyaspects related to the field of insolvency.

The third section is focused on the case ofRomania. Apart from discussing the legal aspects,which give the juridical and procedural framework,the emphasis is placed on the state’s role andinvolvement in the bankruptcy procedure, and onthe consequences this state policy has on themarket exit process. A particular attention is beingpaid to the EU harmonized provisions.

Last but not least, the forth and final sectionwill summarize the main ideas and draft a fewpossible recommendations for improving thebankruptcy institution in Romania.


37

AA PPEERRSSPPEECCTTIIVVEE OONN IINNSSOOLLVVEENNCCYY PPRROOCCEEDDUURREESSIINN TTHHEE RROOMMAANNIIAANN EECCOONNOOMMYY1)

DDaanniieell DD`̀iiaannuu,, DDrraaggoo[[ PPîîssllaarruu,, LLiivviiuu VVooiinneeaa**

11))This article is based on the Study “Features of bankruptcy in the Romanian economy”, commissioned by the European Institute of Romaniaas part of the Pre-accession Impact Studies programme - PAIS II.22)) According to the accession criteria set in Copenhagen, in 1993* Daniel Dìanu is Professor of Economics, President of the Romanian Economic Society (SOREC). Drago[ Pîslaru is Assistant Professor,Faculty of International Business and Economics, Academy of Economic Studies Bucharest; MSc. from London School of Economics andcurrently PhD student at the Academy of Economic Studies Bucharest. He is Executive Director of the Group of Applied Economics (GEA)and Vice-president of the Romanian Economic Society (SOREC). Liviu Voinea is PhD, Senior Lecturer, National School for Political and Administrative Studies (SNSPA); MBA from Stockholm University andPhD from the Academy of Economic Studies Bucharest. He is Research Director at the Group of Applied Economics (GEA) and member ofthe European Association for Comparative Economic Studies (EACES) and European International Business Academy (EIBA).

AAbbssttrraacctt.. In the process of EU integration, the key criterion22)) Romania has to meet is theeconomic one, which presupposes a functioning market economy. Even though the conceptof functioning market economy is rather ambiguous and judgmental, there is a wideconsensus that market exit constitutes one of the main characteristics of a market economy,in the sense that there should not be any legal, administrative, and political or other type ofbarriers to market exit for the loss-making companies. The market exit process is mainlydefined by the institution of bankruptcy, which plays an important role in the reallocation ofresources and the improving of the business environment. Starting from the perspective ofRomania becoming an EU member, and from the need to develop a healthy domesticeconomy, this study makes an attempt to evaluate bankruptcy procedures. It tries to explainthe current situation and to suggest possible developments that may contribute to upgradingthe competitiveness and the functionality of the Romanian economy.

DANIEL D~IANU, DRAGO{ PÎSLARU, LIVIU VOINEA

38

II.. TTHHEE EECCOONNOOMMIICC IIMMPPLLIICCAATTIIOONNSSOOFF BBAANNKKRRUUPPTTCCYY

PPrriinncciipplleess aanndd ggooaallss

The concept of bankruptcy has been studied bycommercial law specialists and by economists withincreasing interest for the last two decades. Thisanalytical effort resulted in a considerable amountof works, theoretical and empirical, devoted to theefficacy of bankruptcy procedures and to thereform process in the area of insolvency. Despite avast number of works and approaches in therelevant literature, there are premises for reachinga consensus regarding the goals of bankruptcy andthe most important characteristics of an effectivebankruptcy procedure. Yet, there is no single,harmonized system, to be recommended as „bestpractice” for any country.

It has to be emphasized, from the verybeginning, that the reform of the bankruptcyprocedure should not be regarded separately, but inthe larger context of other juridical and institutionalreforms, such as educating the judges, improving thecorporate governance, consolidating the bankingand financial sector, observing laws in general.

Regarding bankruptcy, the first question thatneeds to be asked is why we need toinstitutionalise such a complex procedure. Theeconomic agents end up indebted for variousreasons. Maybe the most important reason is thecapacity to obtain financial resources in thepresent by anticipating their future revenues. If theanticipation process is misjudged, or fromwhatever other causes, one may reach thesituation of incapacity of payment – in otherwords, insolvency. The latter must be distinguishedfrom the liquidity crisis, which regards only thetemporary shortage of the means of payment. The

bankruptcy legislation is mainly built to addressthe problems generated by insolvency.

In the absence of a bankruptcy procedure, thecreditor has two alternatives (Hart, 2003). He canforcefully execute the assets used as collateral, inthe case of a guaranteed loan; and he can ask incourt to sell the debtor’s assets, in the case of a loanwithout guarantees. The second option to collectdebts is nevertheless ineffective when there aremore creditors and when the debtor’s assets do notcover his liabilities. Under such circumstances, thecreditors would compete one against another tohave the debts repaid. Such a race betweencreditors may however lead to the partition of thedebtor’s assets, which at its turn may result in adrastic decrease of the aggregated, functional valueof assets, having a negative effect on other creditors’chances to get their money back.

Therefore, it is in the collective interest of creditorsthat the debtor’s assets are executed in a regulated andeffective way, through a bankruptcy procedure.

Shall the necessity of a bankruptcy procedure donot need to be further demonstrated, it is still not easyto establish the fundamentals of such a regulation.Stiglitz holds that there is no national legislation ofbankruptcy that would be clearly the best solution forall interested parties in a society, which means thereis no Pareto-optimal3) bankruptcy legislation. Still, itcan be agreed that there is always legislation betterthan the other existing alternatives, under the givencircumstances, from the viewpoint of a nationaleconomy. Different bankruptcy legislations imposedifferent informational costs and risks’ allocations,part of which might prove ineffective.

Although the bankruptcy regime is notuniversal, and neither is the respective legislation,the goals of bankruptcy are nevertheless generallyaccepted worldwide. The World Bank, within its

33)) A Pareto optimum describes the situation in which the resource allocation at the level of the entire society is undertaken in such a mannerthat no other alternative resource allocation could give someone a welfare gain without producing a welfare loss to someone else.

initiatives to develop an international cooperationin the area of insolvency, and to set a series ofgeneral principles and recommendations, suggeststhree fundamental goals attributed to bankruptcy(World Bank, 2004).

The first goal is the maximization of the totalvalue distributed to creditors, shareholders,employees, and to the other interested parties. Therespective firms can be reorganized, sold orliquidated – whatever maximizes the total value.

The second goal is the rehabilitation of theviable businesses and the closure of the non-viableones. The bankruptcy legislation should be neithertoo harsh on companies that may have a future, nortoo gentle with companies that only have a past.

The third goal is the prioritisation of creditors’claims in a simple, predictable way: securedcreditors must be paid first. In this manner, theinstitution of credit is consolidated and the costs ofcrediting are significantly diminished.

PPrreemmiisseess ffoorr tthhee eeffffeeccttiivveenneessss ooff aanniinnssoollvveennccyy rreeggiimmee

The implementation of the bankruptcylegislation requires strong, independentinstitutions, able to resist political interventions.Another prerequisite would be a proper andfunctional legislation on debt collection, bankingprudential rules and tax laws In particular, aneffective debt-collection system maximizesbankruptcy’s effectiveness. Otherwise, nolegislation on bankruptcy will manage, actingindependently, to solve out the problems in aneconomy where the culture of non-paymentprevails. Therefore, the bankruptcy legislation ismerely a part of the transition to a functionalmarket economy, and it cannot act effectivelywithout strong institutions and a harmonizedlegislative framework.

Bankruptcy implementation does not dependon strong institutions and related legislation alone.Another determinant factor is the economicphilosophy chosen by governments. The Asiancountries implemented an active industrial policy,which meant significant state aid and resistance toclosing down large enterprises. This policy wassupported by import substitution and a morepermissive competition policy that sheltereddomestic firms. Even at the heart of Europe thereare countries with a history of massive state aids.France is an example, among the well-knowncases of state aid being Renault (automotiveindustry), Thomson (defence), Bull (IT), and morerecently Alsthom. Italy is another example;Parmalat is just a case from a more extensive listincluding corporations like FIAT, which weresupported in times of financial distress.

SSyysstteemmiicc bbaannkkrruuppttccyy

The bankruptcy legislation, aiming atregulating individual cases, cannot act efficientlywhen a large part of the economy faces majorfinancial distress. Hence, a distinction has to bemade (Stiglitz, 2003) between the individualbankruptcy and the systemic bankruptcy.

When a single company goes bankrupt, thatcompany has probably made a mistake that othercompanies have not (e.g. bad management, toolarge debts). When many companies fail to paytheir debts, the wrongdoing is not individualanymore, but it pertains to the system. Many wellmanaged companies in the advanced economieswould probably go bankrupt the next day after theinterest rate reaches the levels at which it has beenin many emergent economies for the last decade(and it still is in some cases, Romania included).

Furthermore, when there is systemic financialdistress, ascertaining the net worth of a firm, or

A PERSPECTIVE ON INSOLVENCY PROCEDURES IN THE ROMANIAN ECONOMY

39

indeed valuing many of the financial claims,becomes difficult. This is because many of theassets of a corporation may be claims on otherfirms that are themselves bankrupt.

Maybe the most important aspect of thesystemic bankruptcy refers to its macroeconomicconsequences: mass unemployment, shortage offinancial flows in the banking system, an entirevicious circle including production cuts and, in theend, slowing down the economic growth or, if it isthe case, deepening the economic recession. Theefficiency of the judicial system, and hence that ofthe designated administrators for bankrupt firms, isalso low when a systemic bankruptcy occurs.

Within systemic bankruptcy, and theenvironments encouraging systemic bankruptcy,loss-making state enterprises play a major role, inparticular in those economies where the state stillholds a large share of total assets. The bankruptcyof state enterprises in transition economies has aseries of macroeconomic implications moreserious than a simple case of insolvency; Johnson(1999) details some of them.

If the state is the owner, the debtor, and thecreditor at the same time, then the normalincentives and trade-off solutions are distorted.When the state uses debt forgiveness to avoid theliquidation of his assets, the financial system runsan additional risk, and the banks and other creditinstitutions implement additional prudentialmeasures leading to higher credit costs. A secondmacroeconomic implication is the potential moralhazard. A debt forgiveness policy may stimulateother debtors, state and private alike, not to paytheir commercial or fiscal debts. However, withoutdebt forgiveness, the enterprises facing financialdistress usually continue to make losses.

Another macroeconomic implication is theunemployment – we mentioned earlier that

bankruptcy affects third parties. When stateenterprises are at stake, the employees often have abetter negotiation position and they can slow downthe needed restructuring. On the other hand, evenif the restructuring goes along with job cuts, theproblem of labour market absorption appears. Inmany transition and emerging economies theabsorption capacity is reduced, especially becauseworking for years in loss making firms and indownsizing sectors, the new unemployed are lessqualified for the booming sectors. Theseredundancies put further budgetary pressures.

In theory, bankruptcy, as a market exitmechanism, frees resources that are thentransferred to more productive uses. In the realityof economies facing systemic bankruptcy, marketsmay not be capable to absorb new resources. Thenet effect is that either the assets lose value in theliquidation process or while waiting for a potentialbuyer to pay their nominal value, or the assets aresold for only a fraction of their nominal value. Oneof the bankruptcy’s goals, that of maximizing thetotal distributed value, can no longer be attainedin the case of systemic bankruptcy.

The systemic bankruptcy concept has beendeveloped around the big financial crises, andparticular attention has been paid to it after the1997-1998 Asian crisis. Nevertheless, that Asiancrisis was rather a liquidity crisis, than a systemicone. An argument in this direction is that most ofthe countries affected recovered very fast. Thesystemic bankruptcy concept is better fit todescribe the situation of the Central and EasternEuropean transition economies that startedeconomic transformations with an inherited“structural strain” (Daianu, 1996) which was adeterminant and negative factor influencingsystemic bankruptcy.

In Romania, the systemic crisis was combined


40

with a liquidity crisis (the latter had a number ofepisodes, among which 1991 and 1999). Thissituation has not yet been fully reversed. Almosthalf of the total assets in the economy are still stateowned, and they continue to accumulate debts.Moreover, one can find in the Romanian economymost of the set of specific elements (Johnson,1999), which undermine the efficient redressing ofthe state enterprises’ financial difficulties intransition economies, namely:

- political involvement and conflict ofinterests;

- weak financial systems; after the bankingsector crisis in 1998-1999, the National Bankintroduced proper prudentially measures,but their effectiveness is yet to be proven;

- the domestic capital market is underdeveloped;the level of financial intermediation is very low(non-governmental credits represented about14% of GDP in 2003), the Stock Exchangecapitalization is very low (about 7% of GDP in2003), the spread between the active and thepassive interest rates is still too large (more than10 percentage points);

- corporate governance is thin; a non-compulsory regulation introduced by theStock Exchange and a Governmentordinance mentioning some corporategovernance principles for state enterprisesand regies autonomes are still too little andrather too late;

- the business environment does not providefor enough competition and someentrepreneurs may find it hostile. State aidsare widespread, and in some sectors the firstcomers (by privatisation deals) got marketpower inducements that allowed them tobehave detrimental to the final consumers.Moreover, the quasi-fiscal arrears, another

widespread practice, are in fact a way to takerents from the state.

- the legislative framework has witnessedfrequent changes and it has not been yet fullyimplemented.

IIII.. TTRRAANNSSIITTIIOONN CCOOUUNNTTRRIIEESS’’EEXXPPEERRIIEENNCCEE IINN TTHHEE FFIIEELLDD OOFFIINNSSOOLLVVEENNCCYY

An important feature of the market system isthe dynamic selection mechanism by which newproducts and process are replacing the old ones.Some entrepreneurs and some firms cannot facethe competitive pressure and they leave themarket, allowing for a more efficient resourcereallocation. The Schumpeterian concept of“creative destruction” integrates this dynamism.The establishment of new systems in the transitioneconomies has enhanced the selection process,which got a higher importance than in the moremature economies.

The main goal of the bankruptcy law (or of theinsolvency procedures) is to regulate the selectionprocess.

In the transition economies, the insolvencyprocess is linked to other two fundamentalprocesses: restructuring and privatisation.Restructuring requires the change of the formerstate owned enterprises to market-oriented firms,by changing the passive administrative unitbehaviour into independent economic agents,capable to make their own decisions with the aimof profit maximizing.

On the other hand, the privatisation process(which is also of paramount importance for thesystemic transformation) emphasized the dilemmaof indebted companies that could not beprivatised. The bankruptcy law provided a solution


41

for the problems of arrears and insolvency; it alsofastened the privatisation of bankrupt companies(e.g., special liquidation procedure).

Apart from those already said, the bankruptcylaw plays an important role for the process oftransformation itself: it gives credibility to changes,telling companies that they must face thecompetition alone, in order to survive on the market.

Although the governments in most transitioneconomies have adopted modern bankruptcy laws,they were not coherent in the implementation ofthe basic insolvency procedure. After more than adecade of experience, many of these countries havenot yet came to terms with the fact that not allformer state companies can survive in a marketeconomy, either because the demand suffereddramatic changes, or because their innerinefficiency. Instead of allowing these largeenterprises to go bankrupt, and hence to provide forthe transfer of assets to more efficient owners, thegovernments in some transition economiesexcluded these companies from the normalbankruptcy procedure and wasted financialresources (which were insufficient anyway) forinefficient subsidies. In many cases, the real motifsof such a policy were rather of a political, than of aneconomic nature.

The recurrent debt forgiveness and the non-implementation of the bankruptcy law duringprivatisation are examples of such behaviour. Insome countries, the so-called “strategic

enterprises” were moved under the authority of arestructuring agency supporting their financialrecovery. They were ruled out from insolvencyprocedures and were not included in theprivatisation program. The results were oftennegative: the state subsidies were used forprolonging their inescapable bankruptcy.

The lesson of the more advanced transitioneconomies and the experience of the laggards, is thatthe insolvency process must be the same for all firms,in order to: (a) signal government’s commitment tosystemic transformation; (b) determine companies’managers to change their attitude and to engage inmassive restructuring; (c) fasten the reallocation ofresources from the insolvable firms from old sectorsto the new firms in the new sectors.

The table below presents the range of theinsolvency procedures in some selected transitioneconomies (Germany is included for its Easternlands). They indicate that, while none of thesecountries has solved the problem of customers’insolvency, in some countries the state hasreassumed additional powers and it has imposed avariety of exceptions and extra-procedural measures.Addressing insolvency is a private law issue and allfirms should be treated equally, at least in principle.

Next, we will present a comparative analysis ofthe legal and administrative framework regardingthe insolvency in the transition countries, startingwith several essential benchmarks of the market exitprocess.


42

TThhee ccoommmmeenncceemmeenntt ooff iinnssoollvveennccyypprroocceeeeddiinnggss

The first essential benchmarks of insolvency

proceedings are given by the definitions of trigger

mechanisms through which the insolvency is

opened, as well as by ascertaining the

responsibilities for declaring the insolvency status.

The criteria for opening the insolvency

proceedings must be clear, objective and easily to be

verified. In transition countries, three such criteria are

used: the lack of liquidities criterion, the over-debtcriterion and the imminent insolvency criterion.

The first criterion, the incapacity of paying thereal, liquid and due debts is the most frequent.Normally, a combination of several criteria is usedas trigger mechanisms.

The over-debt criterion is based onanalysing the balance sheet, the documentreflecting the financial situation of a company.Theoretically, the balance sheet analysis shouldoffer a better perspective over the existence of


43

Table 1: The enforcement of the insolvency procedures in selected transition economies

Country Individuals Legal persons:

exemptions and special rules

Bulgaria Commercial agents

only

Some sectors have preferential rules (non-

commercial juridical persons)

Croatia Commercial agents

only

Juridical persons in the military and defence sector

are exempted only on approval from the Defence

Ministry; farmers and private pension funds are

exempted

Czech

Republic

Commercial agents

only

Political parties are exempted during the electoral

campaigns; farmers are exempted between April and

September

Germany Consumers’

insolvency/ minor

procedures

None

Hungary Private pension funds are exempted

Poland Commercial agents

only; other

entrepreneurs, non-

registered, especially

farmers, are excluded

Following are exempted: sickness funds; institutions

and organizations created by Parliament laws; a

number of six state enterprises

Slovakia Commercial agents

only

Farmers are exempted from April to September;

“strategic” suppliers are also exemptedSource: Balcerowicz et al., 2003

Table 2. Criteria for opening the insolvency proceedings

Country Lack of liquidity Over-debt Imminent insolvency

Bulgaria � � -

Czech Republic � � �

Hungary � - -

Poland � � -

Slovakia � � -

Romania � - �

Source: Balcerowicz et al., 2003

�

�

�

�

�

�

� �

�

�

�

�


44

an insolvency situation than the default, maybeaccidentally, of payments. This mechanism issuccessfully used in Germany for opening theproceedings. However, in the transitioncountries, and not only in their case, a majorproblem remains the evaluation of the assets.The evaluation process is difficult because ofthe differences between the accounting valueand the market value of the assets.

The imminent insolvency criterion appearedrecently in legislation dealing with insolvency.This criterion encourages the debtor, more exactlythe manager of the debtor, to take measuresbefore reaching the default of payments.Therefore, the chances of saving the enterpriseand of re-enter the market are considerably arebigger compared to a company which already hasthe insolvency status.

LLiiqquuiiddaattiioonn vvss.. rreeoorrggaanniissaattiioonn

Following the opening of the insolvencyproceedings, accepted by the Court, the debtorhas two main options – liquidation or judicialreorganisation. In general, both the debtor andthe creditors state their option, but the finaldecision is given by the Court. Eitherliquidation or reorganisation, the debtor’scredits are suspended for ensuring a fairtreatment for all creditors, classified by thepriority of their credits (in the case ofliquidation) or for preparing a successfulreorganisation plan (in the case ofreorganisation).

The developed countries and the internationalinstitutions4) suggest that the reorganisation shouldbe preferable, as the revitalisation of debtor firmswould lead to achieving better results for thecreditors and for the economy. Even if the

liquidations are a faster process, it can besometimes premature.

For transition countries, reorganisation can bea better solution as the financial difficulties of thedebtors may be due to the external businessenvironment and not to the internal managementof the company. The important volume of inter-enterprises systemic arrears5) makes the viableenterprises to be in default of payments becauseof the clients who, at their turn, did not paid thetheir debts.

On the other hand, in transition countries onecan observe the distort effects of the emphasis puton the reorganisation. The reorganisation can bean excuse for prolonging an incompetentmanagement or the life of inefficient enterprise(especially in the case of own-state enterprises).

Another essential element of thereorganisation proceedings is the decision tochange or not the management of the debtorenterprise. On the one hand, if kept in charge, themanagers have the advantage of knowing theenterprise, from inside, better than an out-comer.Moreover, maintaining the managementencourages the managers’ preventive behaviour,co-interested in the success of the reorganisationprocess. Poland and Hungary chose such amodality, inspired by the USA model.

On the other hand, the experiencedemonstrates that the managers of debtorenterprises have the tendency to opt for desperatemeasures, often affecting the debtors. This is thereason for which in the Czech Republic, as well asin Germany and other developed Europeancountries, accepting the insolvency statusautomatically leads to replacing the managers withoutside experts – liquidators or administrators.

44)) e.g. IMF, the World Bank or the European Commission;55)) mostly public, but also private;

AAllllooccaattiioonn ooff aasssseettss aass aa rreessuulltt ooff tthheeiinnssoollvveennccyy ssttaattuuss

If the reorganisation is not possible – the planproposed is rejected by the creditors or the solutionsfor saving the enterprise are unrealistically – theinsolvency process leads to liquidation. An efficientliquidation process has to accelerate the allocation ofthe assets, but also to find the best way to value theexisting assets. One of the most important aspects ofliquidation is the payment of debts, on prioritycriteria. For example, the real creditors or the securedcreditors have priority compared to other categoriesof creditors. Prioritisation of the secured credits isbased on the idea that the guarantees subscribedhave exactly the role to facilitate collecting the debts,as well as to encouraging the credits.

In transition countries, the privileges forsecured creditors are not similar to those fromdeveloped countries. For example, in Poland andHungary, the privileges are not strictly respected.In both countries, the state’s credits are privilegedeven if they are not secured. The main problem inrespecting the secured credits is related to the factthat, by paying them, the enterprise can lose thekey assets. Therefore, the option for reorganisationis negatively affected.

In transition countries, the state has still animportant word to say concerning therecuperation of budgetary arrears, passing out allthe other secured credits.

IInnssoollvveennccyy iinnssttiittuuttiioonnaall ffrraammeewwoorrkk iinnttrraannssiittiioonn ccoouunnttrriieess

Insolvency proceedings cannot be efficientwithout market economy institutions. Forexample, the legal system has to functionexcellent so that the insolvency declarations couldbe justly processed in due time.

The involvement of Courts in the insolvencyprocess brings all the legal problems in transitioncountries. Important barriers are still persisting invarious juridical systems from Central and South-Eastern European countries.

In the Czech Republic, some experts state thatthe more important implication of Courts slowsdown the insolvency proceedings. The judicialsystems still face problems linked to theiradministrative capacity. Observing the lack ofspecialised personnel and the lack of minimaltechnical equipment, one can assert that theCourts from transition countries are overwhelmedand cumbersome.

One of the possible solutions is to involve morethird-party neutral bodies, to deal with the proceduraldetails. The first body is formed of insolvency experts,who can facilitate the Courts’ obligations.

IIIIII.. RROOMMAANNIIAA:: WWHHEERREE DDOO WWEESSTTAANNDD??

TThhee rreegguullaattoorryy ffrraammeewwoorrkk ooffbbaannkkrruuppttccyy

Romanian legislation regarding bankruptcyhas suffered many substantial changes after 1989.Presently the regulatory framework is provided byLaw No. 64/1995 regarding the proceedings ofjudicial reorganization and bankruptcy, with thesubsequent additions and modifications, of whichthe most important are: Law No. 99/1999, LawNo. 82/2003 for the approval of GO 38/2002 andLaw No. 149/2004.

In fact, the last main regulatory modification ishas been enacted recently: the Law No. 149/2004is in force since May 12th 20046). This law hasbeen anticipated for quite a while, as it is the resultof the approved law draft (PL 322/2003), which


45

66)) Published in the National Gazette of Romania No 424 May 12th 2004

was forwarded to the Chamber of Deputies by theMinistry of Justice in 2003.

The debates concerning bankruptcy arerelated to several EU accession negotiationschapters, such as Free movement of services,Competition Policy and Enterprises Law.

Consequently, if we want a dynamic view ofthe legislative development regarding insolvencyand bankruptcy in Romania it would be useful ifwe refer to three legislative reforms:

- the legal framework until 2002, provided bythe old version of Law No. 64/1995,consolidated and republished in 1999 afterthe approval of Law No. 99/1999;

- the legal framework during 2002-2004,which contains the modifications introducedin 2002/2003 by GO 38/2002 (approved byLaw No. 82/2003);

- the current legal framework defined by themodifications introduced by Law No.149/2004.

The methodology for the analysis of thelegislation regarding bankruptcy is not concordant,but there are similar research fields amonginsolvency law experts, similarities that producedimportant foundations on which the investigationof the efficiency of a certain legal framework canbe based. In the following we will refer, in a moreor less random order, to the key aspects ofbankruptcy legislation, but this time by way ofdirect explanation of legislation in Romania.

IInnssoollvveennccyy,, bbaannkkrruuppttccyy aanndd tthhee rroollee oofftthhee ssttaattee

The first question that arises when we analysethe bankruptcy legislation in Romania isundoubtedly connected to identifying the purposeof this type of legislation from the point of view ofpublic policies. The European Bank for

Reconstruction and Development (BERD 2003)recognized three possible instruments forbankruptcy legislation.

1. The policy of the new beginning – whichallows the honest but bankrupt entrepreneur torestore his business, by cutting back his liabilitiesdue to the misfortunes encountered by hisprevious affairs

2. The policy of equity – which promotes theeven distribution of the bankrupt debtor’spossessions among creditors.

3. The rescuing policy– which disposes therestructure and rehabilitation of an enterprise inorder to preserve the employment, reimbursescreditors, bring profit and produce value.

Although Romanian legislation secures the dejure framework for the fulfilment of these threeeconomic policies purposes, the previousexperience shows that the practice of bankruptcyin Romania has been focused more towards therescuing policy, concerning particularly the fate ofrecently insolvent state enterprises.

This focus proved to be rathercounterproductive, as it implied an unequaltreatment of firms. As a result, public firms wereprotected by special laws, thus becoming immuneto regular market exit regulations.

A key point that in this analysis of insolvencyand bankruptcy in Romania is the investigation ofthe State’s behaviour as a shareholder and/orcreditor. In a transition economy, such as theRomanian economy, the state partnerships andliabilities are mostly related to the privatisationprocess and the restructuring of public enterprises,as we already noticed in the analysis on thetransition countries.

On one hand, there is a number of enterprisesthat are non-competitive, that cannot be privatisedand constantly produce losses as they are kept


46

floating by state support. The political decision tokeep some enterprises in public hands, because oftheir strategic importance or in the hope of afuture restructuring and privatisation deal hasdirect consequences on the avoidance of initiatingproceedings of insolvency.

On the other hand, the enterprises that havebeen privatised sometimes encounter difficulties,generating post privatisation pressures so they stillreceive support or even be bought back by thestate. In all these situations the enterprises registerimportant debts to the state, debts that at amacroeconomic level are translated intosignificant arrears.

The avoidance of bankruptcy through theartificial preservation of enterprises in the businessenvironment is the result of the weak budgetaryconstraint policy that has contributed to theoverall lack of fiscal discipline in Romania.Besides the negative consequences on thebusiness environment, proved by disloyalcompetition between the honest entrepreneursthat pay their debts and those that create arrears,there are negative consequences at themacroeconomic level too, particularly regardingthe budgetary deficit, the fiscal collection processand external deficits.

The ambivalence of the state’s policy as acreditor is puzzling. The State either plays the partof the benevolent parent, accepting the errors andthe lack of competitiveness of some enterprisesand overlooking their debts or suddenly flexing itsmuscles in order to prove that the state’s objectivescome first by emphasizing the importance ofimmediate return of public debts.

Unfortunately, this Ianus Bifrons type of policy,in other words the one where the state changes itsappearance according to political and socialcircumstances or as a result of external

institutional pressure, entails negativeconsequences that transform the state in a specialmarket player that does not obey common law.

In other words, it is enough for the State todecide that an enterprise must not go bankrupt inorder for this enterprise to be rescued without anyeconomic motivations and without a transparentproceeding that might be applied to other similarfuture events. We deal here with a discretionalselection, meaning that the choice of savingenterprises is made on an individual basis anddoes not follow any distinct objectives of aneconomic policy.

Just the same, at the other end, when the stateis the creditor, the law that applies is anexceptional one. The Romanian bankruptcylegislation does not differentiate betweenparticular creditors and the state as a creditor.Bankruptcy is a common proceeding with a syndicjudge acting as an arbiter and seeking toreimburse creditors according to their liabilities.But, if the State is one of the creditors, it creates anexceptional position for itself, defending itselffrom the other creditors using the two agenciesAPAPS and AVAB recently united as AVAS tocreate regulations that go beyond the judicialframework settled by The Ministry of Justice.

BBaannkkrruuppttccyy iinniittiiaattiioonn

In Romania, the criteria for opening theinsolvency proceedings are the lack of liquiditiesand the imminent insolvency, allowing both thecreditors and the debtor to take the initiative.

In the first case, the creditors may start theprocedure by filling in a petition in one of thefollowing situations:

- creditors have not been paid for at least30 days;

- the commercial agent’s debts that arise


47


48

from work or civil actions are larger thensix national average wages as determinedby law;

- the commercial agent’s debts that arise fromcommercial activities exceed 3000 euros7).

As regards the imminent insolvency, this criterionwas introduced in 20028) and it is found in the Art 25,Paragraph 29), stipulating that a debtor threatened byinsolvency may open the procedure, in conformitywith the law. The formulation is vague and it does notobjectively define the notion of “threaten”. Although,the amendments adopted in 200410) bring some lightthrough the Paragraph 4 of the same article,stipulating that the “premature introduction and inbad-will by the debtor of a request to open theproceeding brings along the debtor’s patrimonialresponsibility […] for the caused prejudices”. Thisway the potential abuses are limited.

It is worth mentioning that until 2004,Romanian legislation stipulated the patrimonialresponsibilities of managers in the case of declaring“too late”11) the insolvency status. It is bizarre that byamending the law in 2004, this provisiondisappears, although the obligation of declaring theinsolvency status, with 30 days before, still exists.Obviously, it is a lack of the present legislation,reducing the incentive of applying the law.

It is important to mention that Romanianlegislation does not contain legal premises for theautomatic initiation of bankruptcy, similar to otherEuropean countries that had or still have suchstipulations. In Romania the proceeding beginsonly on the premises of a petition forwarded bythe debtor or creditors. As a result, there is no

over-debt criterion to act as a trigger.As we have explored earlier, several transition

countries have decided to add this criterion as anadditional instrument enabling the opening of thebankruptcy procedure.

LLiiqquuiiddaattiioonn vvss.. RReeoorrggaanniizzaattiioonn

Another part of the analysis of the legalframework regarding insolvency and bankruptcy isthe choice between liquidation and judicialreorganization. As we earlier anticipated, thischoice may be founded on different economicpolicy priorities. In conclusion, it is important toachieve a balance between protecting creditors’interests and supporting the reorganization,favourable to employees.

The European and international trend is tomodify the bankruptcy legislation towardsencouraging the judicial reorganization process12).In Romania, proposals seem to be oriented exactlythe opposite way, encouraging the creditors. Theexplanation of these proceedings is based on ourcountry’s previous experience, which shows thatthe practice of judicial reorganization has notbeen a success solution in many cases. On thecontrary it transformed itself in a very strongbarrier to market exit, with negative implicationson both creditors and structural reforms.

According to the last regulatory changesintroduced by Law No. 149/2004, the maximumperiod for carrying out the judicial reorganization,in the event of its approval, has been shortenedfrom three to only two years. At the same time, agreater control is secured over the liquidators and

77)) The minimum amount of commercial debts that can get the bankruptcy proceeding started has been recently reduced by Law no 149/2004from Euro 5000 to Euro 3000. This is a welcomed change, in the sense that it will impose either a greater severity in the payment ofobligations, either it will lead to the more rapid market exit for agents that cannot pay their debts; 88)) GO 38/2002;99)) Law 64/1995 amended and republished after adopting the Law 149/2004;1100)) Law 149/2004;1111)) According to Art. 25, paragraph 41122)) One of the reasons behind this world-wide reorientation is the fact that through reorganizations certain intangible assets, that in the caseof bankruptcy would have disappeared, can be kept (Hart, 2003)

administrators in order to avoid abuses anduneconomic behaviour.

Beyond current or future proceduralregulations, it is important to emphasize the factthat through liquidation, non-competitivecommercial agents that due to business cycles orto their own managerial deficiencies are not ableto perform a lucrative activity are removed fromthe market. Liquidation plays a role in theimprovement of the market economy and thesmoothing of commerce, something that for theRomanian economy’s present stage and also inview of European integration is not onlynecessary, but indispensable for a gooddevelopment of its market economy. In thesecircumstances the role liquidation plays must beproperly understood and must be separated fromany negative connotations that our society mighthave imposed on it.

In the context of Romania’s likely EUaccession (2007), we can appreciate that thetendency to prefer liquidations, in the detrimentof judiciary reorganization, could prove to be amere transitory phenomenon. The trend couldreverse when the legal system will be moreefficient, administrators and syndic judges morecompetent, the institutions authorized tointervene stronger – in order to re-establish thetrust in the proceeding of judicial reorganization.More so, it is not stated that the reorganizationhas to be enacted at all costs, it must not allow therescue of untenable companies – and in Romaniathere still is a large number of such companies.

In addition, Romania is in the process of adaptingto the UE procedural standards (ECRegulation1346/2000), and, as the legislative reformat the community level progresses, if it will take place,it will probably try to adapt to the new practices inadjacent fields, for example, corporate auditing.

IInnssoollvveennccyy iinnssttiittuuttiioonnaall ffrraammeewwoorrkk

We should remark that Romanian insolvencyexperts established a professional organisation(UNPRL) playing a role in a new profession self-regulation – reorganisation and liquidation expert.

Even if the activity of reorganisation andliquidation experts is only at its beginnings inRomania, it is not unlikely for liquidators to have amore and more important role in the insolvencyproceedings, going that far to be able to predict thedifficult situations of enterprises and to haveprerogatives in the anticipated commencement ofthe insolvency procedure.

IInnssoollvveennccyy,, bbaannkkrruuppttccyy aanndd ssttaattee--aaiiddppoolliiccyy

An important aspect of our case on bankruptcyin Romania is the situation of public enterprises thatprove to be non-competitive and become insolvent.In various such situations, the government hasintervened through state support schemes in orderto keep those companies on the market.

In general, we can easily notice that the state-aid volume is very high in Romania, (up to 6% ofGDP (2001)). Moreover, it seems to rise in bothabsolute and relative numbers, in other words itevolves in the exact opposite direction to theEuropean integration process.

Regarding the nature of state support, it seemsthat the portion of income concessions, such asdeductions and discounts has substantially increased.Indirectly this shows a chronic incapacity of paymentof long overdue debts. In a functional marketeconomy these companies would already faceliquidation proceedings. On the Romanian market,though, they persist despite the macroeconomicconsequences: contribution to budget and currentaccount deficit, hidden unemployment, negativeexample and unlawful competition.


49

The rescue and restructuring state-aidmeasures are accepted in the EU only in a fewvery specific situations, and only as an exception(not as a rule). In Romania, the most disregardedrule is probably the one referring to the singleoccurrence of state-aid: far from being grantedonly once, there are numerous cases in which thestate-aid has been recurring – for example, failedprivatisations, in which facilities like cancellationof debts and debt-for-share swaps were offered atthe beginning of the privatisation process, the statefinding itself anew as a majority shareholder (themost recent case is Rafo One[ti); or granted on aregular basis – as it is with the perpetually loss-making public companies.

But the rescue-restructuring aid is not the onlyfield in which Romanian practices are out of linewith the EU norm. Table 3 reflects otherdiscrepancies.

Romania’s situation, although unsatisfying, isnot unique; other transition countries, such asPoland for instance, are faced with similarproblems. In the context of the approaching finalnegotiation with the EU, the following realizationsare of great concern:

- state-aid, instead of being a decreasingphenomenon, is increasing13). Although itshould be mentioned that here we are

considering both direct support (budgetarysubventions) as well as indirect assistance(rescheduled debts, etc).

- as part of state-aid, the relative weight forrescue and restructuring is increasing, ratherthan decreasing. This situation is indicative ofa possible mass-bankruptcy phenomenon inseveral sectors. From here derives the fear ofmany companies of the rigorousimplementation of competition policy;

- as part of state-aid, the relative weight ofpenalties exemptions and reductions isincreasing, showing a generalized inability topay the long-overdue debts (premise ofbankruptcy);

- as part of state-aid, the pro-active ones,encouraged by the EU – such as aid forresearch and development, and careertraining, are quite neglected in Romania.

These trends need to be reversed in a shorttime-span and, as this reversal takes place, moreand more companies, particularly public ones thatdo not restructure, are threatened by bankruptcy.

Even the EU finds itself in a situation in whichit is rethinking state-aid. Simultaneously with theexpiration of the CECA agreement, in 2002, therescue and restructuring aid for the metallurgicindustry became illegal. More so, at the end of


50

Table 3: State-aid characteristics, comparison between Romania and the EU

Romania EU 15

% of GDP, yearly average 1998-2001 4.5 1

Trend 1998-2001, total aid Increasing Decreasing

Trend 1998-2001, aid for

manufacturing, absolute

volume/number of employees

Increasing Decreasing

Priority objectives

(excl. agriculture)

Sectoral Horizontal

As part of horizontal objectives,

greatest weight represented by:

Saving-restructuring SMEs and research

and development

1133)) Although estimation techniques may seem doubtful, because both historic and present liabilities are being weighed.

2003, when the current regulations expire, the EUwill reform the state-aid policy in an even morerestrictive direction, aiming to provide, at aEuropean level, a single definition of a company indifficulties, and how the efficiency of thecompensatory measures can be evaluated; on theother hand, companies that are part of a groupmay become eligible for state-aid.

We have to mention that although theCommission argues in favour of state-aid reform,there are Member States that practice activeindustrial policies; either for saving variouscompanies that are considered to be of strategicimportance (Bull, Alsthom in France; or banks inGermany), either to promote ‘nationalcompanies’, seen as examples of excellence in theprocess of economic development (Nokia, inFinland). In these situations, sometimes theCommission becomes more lenient, avoidingconflicts with Member States, particularly with themore developed ones (France, Italy, Sweden,Finland etc).

This double standard is observed even in therough treatment applied by the Commission in therelationship with the new member states. Forexample, on May 19th 2004, less than a monthafter the accession of Poland, the EuropeanCommission has decided to investigate whether ornot the state-aid for the restructuring of the steel-plant company Huta Czestochowa SA has violatedEU regulations. It is the first such investigation inany of ten new member states. The Commissionbelieves that the liquidation of the company wasavoided by convincing the creditors to accept arestructuring plan (until 2006) and by cancellingsome of the debts.

The same stringent conditions will be appliedin Romania, and there will be serious problems inthis field if Romania does not accelerate the

reform of the manner in which the state supportseconomic development. In particular, this reformis related to the implementation of the regulationsregarding insolvency and bankruptcy, to theformulation of the clearest possible criteria fordirect state-aid (budgetary subventions) as well asfor the cases in which the state can allow thepostponement of budgetary obligations.

HHaarrmmoonniissaattiioonn ooff RRoommaanniiaannlleeggiissllaattiioonn wwiitthh EECC RReegguullaattiioonnrreeggaarrddiinngg iinnssoollvveennccyy

The main benchmark at the European Unionlevel for bankruptcy area is given by CouncilRegulation (EC) 1346/2000 of 29 May 2000concerning insolvency proceedings. TheRegulation is already applicable to all MemberStates, being in force since 31 May 2002.

Seeing that entrepreneurial activities havemore and more cross-border components, theEuropean Union had to regulate, at Communitylevel, more and more aspects related to businessenvironment. As the market-exit proceeding canaffect the Internal Market, it was necessary toadopt a Community act in order to coordinatelegal provisions related to assets of insolventdebtors. It is also obvious the fact that, if the assetsmanagement would be different among MemberStates, it will lead to transfers among EU countries,infringing the principles of common market.

The above mentioned EC Regulation is theoutcome of over 40 years of analysis and practiceand by its 47 articles enforces the internationaljurisdiction of a court from one Member State,aiming at opening the insolvency procedure,automatic recognition of proceeding in the otherMember State, as well as at cross-borderacknowledgement of “liquidator” rights.

The main objective of the EC Regulation


51

regarding insolvency is to be contained by aCommunity law measure, generally applicable,biding for all debtors, whether the debtor is anatural person or a legal person, a trader or anindividual. As an exception, the insolvencyRegulation does not apply in the case of financialinstitutions14) (Wessels, 2003).

The Regulation establishes the juridicalframework regarding the law that should beapplied, replacing the common provisions ofprivate international law.

The EC Regulation regarding insolvencyproceedings is an important step ahead inestablishing a juridical framework in order tofacilitate interactions and harmonisation ofdifferent systems of insolvency in the EU. Giventhe diversity of bankruptcy legislations it is clearthat their harmonisation at Community level forcreating a unique bankruptcy proceeding wouldbe totally unpractical.

The aim of the Regulation is to replace thevarious bilateral agreements of mutual recognitionof bankruptcy proceedings, and not to standardizea type of proceeding.

But the Regulation has also some weak points.Despite the fact that the Regulation is bindingeffect, being directly and unconditionallyapplicable to Member States, most of them have toamend the internal law of insolvency in order toimplement the provisions of the Regulation. Theneed for these amendments denotes that wecannot yet discuss of a total and veritableharmonisation in the insolvency area atCommunity level. Member States do not showmuch interest to bring into line their insolvencylegislations, following their own policy in the field.

Furthermore, the territorial limit of Regulationapplicability – only at Community level – it is animportant shortcoming, especially in the context ofbusiness globalisation. Therefore, a globalregulation for cross-border insolvency is desirable.Six years ago, a world standard was developed incross-border cooperation field, called UNCITRALLaw Model for cross-border insolvency. Even if theLaw Model does not have a binding character, ithas as main objective to stimulate theharmonisation process of national insolvency laws.

The implementation of UNCITRAL Law Modelis supported by international institutions, such asthe World Bank, the IMF or the Asian Bank forDevelopment. The solutions provided by theUNCITRAL Model seem to be optimal for thepresent circumstances. According to Art. 3 of theLaw Model, the international obligations of thestates adopting this law are respected, whichmeans that the provisions of the EC Regulation arestill applicable, while the juridical frameworkproposed by UNCITRAL would regulate thesystem of relations between the EU Member Statesand third countries.

The Romanian legislation was mostlyharmonized with the provision of EC Regulation no.1346/2000, by adopting Law no. 637/2002 regardingthe international law practices in the insolvency areaand by the recently adopted Law no. 149/2004regarding judicial restructuring and bankruptcy.

Law no. 637/2002 defines the applicable lawin international civil law relations for insolvency,proceedings to be followed in such cases, as wellas cooperation proceedings between Romanianauthorities and the international one in order tosolve international and European insolvency cases.


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1144)) Insolvency proceedings for insurance companies are stipulated by Parliament and Council Directive 17/200 (OJ L 110, 20/04/2001), andfor credit institutions regulations are given by Parliament and Council Directive 24/2001 (OJ L 125, 05/05/2001). Unlike the regulations, thedirectives should pass through a legislative implementation in each Member State of the EU. The deadlines for implementing these Directiveswere 20 April 2003 for insurance companies and 5 May 2004 for credit institutions.

RReeccoommmmeennddaattiioonnss ooff ggoooodd pprraaccttiiccee iinnEEuurrooppeeaann iinnssoollvveennccyy ffiieelldd

In March 2000, Lisbon European Councilestablished as strategic objective for EuropeanUnion to become until 2010 “the mostcompetitive and dynamic knowledge-basedeconomy in the world”. In this context, theEuropean Commission was given the mandate toinitiate an open cooperation for helping theMember States develop their own economicpolicies. The methodology of the cooperationprocess establishes a series of recommendations atEuropean level, in order to reach specificobjectives within the deadlines, recommendationsto be transposed in regional and national lawscustomized to local conditions.

Thus, at the Feira European Council, in June2000, the Charter of Small Enterprises wasadopted. It emphasis the importance of market-exit process for economic competitiveness and itconsiders necessary an evaluation of nationalbankruptcy legislations for underlining the goodpractices, as model to be followed.

Enterprises Directorate – General from theEuropean Commission created a methodologyknown as the “best procedure”, based oncoordination process mentioned above. The proposedmethodology consists in analysing the elementsidentified as essential for reaching the objectives ofLisbon Agenda and in defining the benchmarks&performance indicators, actual status and operationaltargets for improving the present situation.

In this context, in 2002, in the field ofinsolvency and bankruptcy was launched a projectnamed “Restructuring, Bankruptcy and a FreshStart”, aiming to evaluate the way to be followedfor optimising the market-exit proceedings at

European level.The project was finalised in September 2003

and it resulted in a series of recommendation andobservations. They are not binding but they couldbe considered part of the so-called soft acquis,meaning that the recommendations should not beignored in order to reach the common goals of theacquis itself15).

Mainly, the recommendations mentionedabove aim four broad action lines:

1. Early warning; 2. Legal system;3. Chance for a new beginning;4. Social attitude.Regarding the early warning, the main

recommendation made by the experts reunitedunder the aegis of Enterprise Directorate – Generalof the European Commission was to createmechanisms or institutions to counsel entrepreneurs,for early prevent the bankruptcy. At the same time, itis very important to have transparent information onalternatives to be followed in financial crises.

The recommendations regarding the legalsystem aims to streamline and speed up theinsolvency proceeding, so that the entrepreneursnot to be discouraged by the idea of bankruptcy.Obviously, in possible, a grater stress should beput on judicial restructuring which would save thefirms temporarily found in difficulty.

Also, the recommendations highlight theimportance of giving a new chance to thoseentrepreneurs which gone bankrupted due to ageneral unfavourable context and not to intentionalprejudices. As a result, it is recommended toeliminate any barriers which can lead todiscrimination between entrepreneurs gonebankrupt in their trial to start a new business. A studyasked by the European Commission and done by


53

1155)) Romania has signed at Maribor the European Charter for Small Enterprises and it is interested in preparing in advance for the Lisbon Agenda,in the view of becoming a Member State in 2007


54

Boston Consulting Group shows that theentrepreneurs with a bad experience in terms ofbankruptcy have more success in second businessthan the entrepreneurs having their first business.

Last, but not least, the recommendationssustained by the European Commission illustratesthe necessity of eliminating the social stigmarelated to bankruptcy. Therefore, the market-exitthrough bankruptcy should be regarded as anormal step in the life of any economic agent,being a good act for the market and for theeconomy, as it makes available resources that re-enters in a short time in the economic cycle andthey could be used in a more efficient way.

For each of these action lines, specificmeasures are proposed. They are, more or less,defined in concrete terms, but they are sustainedby examples of good practice from the EUMember States.

For Romania, the study coordinated by theEuropean Commission suggests that there shouldbe taken action in the following domains:

i. Entrepreneurs information regarding thebankruptcy proceeding and its implications, as well asthe access to counselling, in acceptable conditions,for financial difficulties and ways to be followed;

ii. Transparency of accountability informationand of financial data that would allow signallingthe financial health of firms;

iii. Through available trainings, to promote thenew beginning for entrepreneurs gone bankrupt, tochange the negative mentalities at the address ofeconomic agents involved bankruptcy processes;

iv. In the final decision of the syndic judge, itshould be mentioned the “pardonable behaviour”of entrepreneurs bankrupted due to externalcauses, and not due to their detrimental behaviour.

IIVV.. MMAAIINN IIDDEEAASS AANNDDRREECCOOMMMMEENNDDAATTIIOONNSS

The analysis of bankruptcy institutionsupposes, on one hand, the evaluation of legal andprocedural framework of insolvency regulationsand, on the other hand, the investigation ofimplementation process’s efficiency of theproceeding thus enforced. Concerning the legalframework, one can observe that there is not auniversal bankruptcy code, a unique lawapplicable at worldwide level. National lawsregarding bankruptcy are still, in a large measure,an adaptation of each country’s specificities. Yet,there are basic principles16) in mostly all legislationsregarding the insolvency proceeding which arebased on the logic, the basic aims of bankruptcy.Moreover, several good practices in the field areaccepted for their role in reaching more easily theaims of the bankruptcy proceeding.

In the last few years, insolvency legislations, atinternational level, were constantly renewed,changes being caused by two important factors:pressure of legislation harmonisation andadjustment at national specificity. The harmonisationtrend in the insolvency field is the result ofinstitutional cooperation at regional andinternational level, as well as the result of informalpressures from partner countries. In the last years, aseries of international institutions (IMF, World Bank,UNCITRAL17), European Commission etc.) drawn uprecommendations, conventions, consultancymechanisms or other cooperation agreements, inorder to establish common practices for bankruptcyproceeding. These institutional mechanisms aimedthe bankruptcy field in a direct way, as well asindirectly through regulations and linked

1166)) The “golden” principle is that structurally non-viable firms must exit the market. Another principle is the existence for all competitors ofequal (symmetric) conditions;1177)) UNCITRAL – United Nation Commission on International Trade Law;

agreements in fields such as competition policy.The most advanced exercise of harmonisation

has been achieved in the field of cross-bordercooperation on insolvency problems. For thisspecific case, at European Union and internationallevel, compulsory and, respectively, voluntaryregulations, have strengthened the internationalcooperation regarding the bankruptcy.

In transition economies, the insolvencyproceeding is linked to two fundamental processes:reorganisation and privatisation. The reorganisationpresupposes the change of former state enterprises intomarket-oriented firms, capable to take their owndecisions to maximise the profit and to takeresponsibilities for their management decisions. If theenterprises are taken out from the protector shield ofthe state, their capacity to take radical measures forreorganisation in order to survive on the market ismore reduced. It is the same for the privatisationprocess, where the firms must prepare for the marketcompetition, and not to wait for the investor tomiraculously fix the disastrous result of several years ofinefficiency. Romanian legislation regardingbankruptcy is harmonised with the acquiscommunautaire in the field of cross-border insolvency.Moreover, the legislation in force is in accordance withUNICTRAL recommendations, which have not only aregional perspective, but also a universal one of cross-border cooperation in the insolvency area.

Concerning the general legal framework ofinsolvency proceeding in Romania, it mostlyrespects the regional and international guidelinesand principles. Through the new adoptedregulations, Romanian insolvency legislationcorrects a series of uncertain or inefficient features.

The present trend to relatively favour liquidationagainst judiciary reorganisation may be consideredas one of the few elements of divergence with theinternational trend, but this could be only a

transitory stage. This option can be reversed whenthe juridical system would become more efficient,the administrators and syndic judges would becomemore skilled, institutions able to intervene wouldbecome stronger – in order to ensure the trust in thejudicial reorganisation proceeding. At the sametime, the reorganisation should not be doneregardless its cost. It must not permit to safeguard thefirms without any chance to become competitive.

Concerning the implementation of regulationsregarding the insolvency, Romania’s track record israther poor. The failures in the implementing processcould be explained by a series of hindering factors.

The judicial system is not fully consolidated,obstacles hindering the fluidisation of juridicalproceeding. These obstacles are related to humanand material resources within the system, as wellas to general mentality regarding the state of law.Moreover, the expertise in commercial area isrelatively small. Related legislation in commercialarea is sometime ambiguous, leaving ways openedfor interpreting the law, which corrupt, proceduraland juridical, the decisions taken.

State involvement has reduced the applicationarea of the general insolvency law only to the privatesector. The public sector received a character ofexception, being separately regulated for avoidingmass bankruptcy and the potential negativeconsequences at economic and social level.

Avoiding the bankruptcy of firms throughartificial support from the state is the result of a softbudgetary constraint policy, supporting the lack offiscal discipline in Romania. Apart from negativeconsequences on business environment brought byunfair competition between truthful taxpayers andthose creating arrears, there are negativeconsequences at macroeconomic level especiallyregarding the budgetary deficit, the process of fiscalcollection and external deficits.


55


56

State-aid policy is affecting, in a direct way, theinsolvency and bankruptcy field. In Romania, in thetotal amount of state aid, the aids for safeguard –reorganisation were growing in the last years,instead of decreasing. This observation shows thatwe are facing, in reality, with a frequent insolvencyin important areas of public sector, and even ofrecently privatised enterprises. Thus, the risk of massbankruptcy in some sectors of the economy is stillpresent. The amount of aids for erasing, reducingand re-phasing the debts and penalties is growing,which demonstrate an aggravation of paymentincapacity for long outstanding debts. Moreover,passing from direct subsidies to support throughexemptions and re-phasing, leads to a reducedtransparency and to the fact that the state cannotplan in advance the amount of state aid18). This factis in obvious contradiction with the acquiscommunautaire. The state aid should be redirectedfrom the category of safeguard measures to theareas of measures encouraged by the EuropeanUnion, such as the research and development,vocational training etc., fields which are in thepresent time neglected in Romania.

After the recent efforts to improve legislationregarding insolvency, in the case of Romania,defining the insolvency legal system (legalprovisions, priorities, characteristics) is lessimportant than the effort required forimplementing the system.

The field of bankruptcy should not be regardedstricto sensus, only from the point of view of legalproceeding. Measures for improving the market-exit process should be taken in others domainstoo, such as financial and banking sector,competition, entrepreneurs and public opinioneducation, respect for the law etc.

Bankruptcy policy in Romania should take intoaccount the EU’ recommendations for informing

entrepreneurs concerning bankruptcy proceedings,for ensuring a counselling framework regarding thesituations of financial difficulty and ways to follow,for creating of a more transparent frameworkregarding accounts information and financial data,allowing warning alarms about financial health ofenterprises, for promoting a new start for bankruptedentrepreneurs, as well as for changing the negativementality at the address of firms which becameinsolvent only for conjuncture reasons.

State aid policy should be re-thought, in ordernot to prolong the existence of firms not able toface the market competition pressure and havingno chance of recovering.

On the other hand, we cannot apply adliteram, in all cases, the community rules in thefield of competition; it is not the case to be “morecatholic than the Pope” when we deal with socialand economic exceptionally situations. Theimportant thing is that the state aid for safeguard –reorganisation to really become the exceptionwhich confirms the rule and not an instrumentused for postpone unpopular decisions.

Strengthening the judicial sector is necessary,through an appropriate endowment and throughjudges’ education, specialised in bankruptcy field,within the framework of the new commercialcourts, stipulated in the law project regarding thejudicial reorganisation.

Creation of a veritable guild of professionals inliquidation and reorganisation is another importantpriority, in order to relieve the judicial sector of additionalburdens related to bankruptcy proceeding. Liquidationand reorganisation expert must focus the necessaryeconomic and judicial expertise in order to find efficientsolutions for insolvency situations.

1188)) Because the state cannot foresee the exact level of future arrears.

RReeffeerreenncceess::

1. The Authority for Privatisation and Management of State Ownership – APAPS (2002), ActivityReport for 01.01.2001-10.11.2002, Bucharest

2. APAPS (2003), Press Release – Voluntary Liquidation, judicial reorganization and bankruptcy,Press Conference – 14 December 2003

3. APAPS (2004), Finalizing the large privatizations – Final Report 2001 – April 2004, Bucharest4. Balcerowicz E., Hashi I., Lowitzsch J., Szanyi M. (2003), The development of insolvency

procedures in transition economies: a comparative analysis, CASE, Warsaw 5. European Bank for Reconstruction and Development (2003), Law in Transition – Focus on

Insolvency Law, London6. European Bank for Reconstruction and Development (2003), Report on the results of the

assessment of the insolvency laws of countries in transition, London7. World Bank (2004), Doing Business in 2004: Understanding Regulation, Washington8. Claessens, Stijn and Leora Klapper (2002), Bankruptcy around the World. Explanations of its

Relative Use, World Bank, Policy Research Working Paper 28659. European Commission (2003), Best Project on Restructuring, Bankruptcy and a Fresh Start. Final

Report of the Expert Group, Brussels10. European Commission (2004) State Aid Scoreboard, Brussels11. Dìanu, Daniel (1996), Transformarea ca proces real, Ed. IRLI, (2000), 2nd edition12. Delaney, Sarah (2004), Parmalat Spurs Call for Reform in Business, The Washington Post, 20

January 13. International Monetary Fund (1999), Orderly and effective insolvency procedures, Legal

Department, Washington14. Hart, Oliver (1999), Different approaches to bankruptcy, World Bank, Washington15. Johnson, Gordon (1999), State-Owned Enterprise Insolvency: Treatment of Financial Distress,

draft published within the World Bank’s programme „Global Insolvency” 16. Krugman, Paul (2004), Enron and the System, The New York Times, 9 January17. La Porta, Rafael, E Lopez-de-Silanes, A. Shleifer, and R. W. Vishny (1997), Legal18. Determinants of External Finance, Journal of Finance 52(7): 1131-5019. Competition Office (2003), Raport privind ajutoarele de stat acordate de România în perioada

1999-2001, Bucharest20. OCDE (2001) Regulatory Reform in Spain, Paris21. Pîslaru, Drago[ (2003), Suportul juridic [i administrativ al mediului de afaceri din România, ed.

SNSPA, Bucharest22. Sowa, Marcin (2003), State aid and government policy in Poland, 1994-2002, CASE23. Stiglitz, Joseph (2003), Bankruptcy Laws: Basic Economic Principles, in volume „Resolution of

Financial Distress: An International Perspective on the Design of Bankruptcy Laws”, (ed.: Stijn Claessens,Simeon Djankov), Washington

24. Velasco, Roberto (2000), La Descentralizacion de la Politica Industrial Espanola, 1980-2000,


57

Economia Industrial no 335-33625. Voinea, Liviu (2003), FDI and Technology Transfer in EU Accession Economies. Evidence from

the Romanian Manufacturing Sector, paper sustained at EIBA Conference, „MNCs as a KnowingOrganization”, Copenhagen

26. Westbrook, Jay (2003), Systemic Corporate Distress: A Legal Perspective, in volume „Resolutionof Financial Distress: An International Perspective on the Design of Bankruptcy Laws”, (ed.: StijnClaessens, Simeon Djankov), Washington

27. Wood, Philip (1999), Insolvency Law and the legal framework, World Bank, Washington

LLeeggiissllaattiioonn::

• Law 64/1995 regarding judicial reorganisation and bankruptcy procedure, republished in 1999;• Law 82/2003 approving GO 32/2002 amending Law 64/1995;• Law 149/2004 modifying and complementing Law 64/1995 regarding judicial reorganisation and

bankruptcy procedure and other legal acts with impact on this procedure;• Law 637/2002 regarding international law relation in insolvency area;• Council Regulation (EC) 1346/2000 of 29 May 2000 concerning insolvency procedures.


58

IInnttrroodduuccttiioonn

At the time of writing this article, a Romanianteam of negotiators is preparing to fly to Brusselsfor a new round on the Competition Chapter. This,together with Justice and Home Affairs, are the tworemaining open negotiation chapters, whichRomania hopes to conclude very soon so as to beable to sign the Accession Treaty in Spring 2005.The pending issues under the Competition Chapterare related to state aid. One is that Romania stillcannot prove a “credible enforcement record” inthe field of state aid - while this is one of theessential criteria for closing negotiations oncompetition, along with the adoption in full intonational legislation of the state aid acquis and theestablishment of an adequate administrativecapacity for implementing it. The other is state aidfor the restructuring of the Romanian steel industry.

State aid control is therefore one of the hotissues of the moment in Romanian political,institutional and business circles, as well as for thepress. It remains, however, one of the areas of EClaw that is least known and understood by thepublic. One of the purposes of this article is offeran accessible guidance to the non-specialistreader as to the main elements of the state aidacquis. The other is to inform those directlyinterested (academics, but also institutionsinvolved in the granting of state aid and thebusiness community) about what lies ahead in theaccession process in terms of state aid regulation –based on the precedent of the countries thatjoined the EU in the 2004 enlargement – and onthe current state of affairs in Romania in thedomain of state aid control, with a particular viewto the situation of the steel and coal sectors.


59

SSTTAATTEE AAIIDD TTOO TTHHEE RROOMMAANNIIAANN SSTTEEEELL AANNDD CCOOAALL SSEECCTTOORRSS:: IISSSSUUEESSRREELLAATTEEDD TTOO AACCCCEESSSSIIOONN**

IIssaabbeellaa AAttaannaassiiuu,, GGhheeoorrgghhee OOpprreessccuu****

* This article draws on a study carried out in the context of the Pre-Accession Impact Studies II program of the European Institute in Romania.See Gheorghe Oprescu, Isabela Atanasiu, Mariana Papatulica and Petre Prisecaru (2004): State Aid Control in the Sensitive Sectors – Coal,Steel, Shipbuilding, Motor Vehicles (English and Romanian versions available at http://www.ier.ro). ** Isabela Atanasiu is post-doctoral research fellow at the Robert Schuman Centre for Advanced Studies of the European University Institute– Florence, Italy (e-mail: [email protected]). Gheorghe Oprescu is professor of economics and director of the Department ofManagement at the Polytechnic University of Bucharest (e-mail: [email protected], [email protected]).

AAbbssttrraacctt.. This article aims to offer to the non-specialist reader a concise introduction to themain elements of the state aid acquis, and inform on what lies ahead of Romania in theaccession process in relation to state aid control, based on the precedent of the 2004enlargement. It also discusses the current state of affairs in Romania in the domain of state aidcontrol, with a particular view to the situation of the steel and coal sectors. Section I coversthe legal concept of state aid, the substantive rules applicable to state aid – the general banand exemptions from it, the Commission’s control and monitoring powers, and the regimecurrently applicable to coal and steel aid. Section II relates the experience of the countries thatjoined the EU in May 2004 in the negotiation of state aid issued under the CompetitionChapter, discusses the notion of “existing aid” (i.e. state aid given in the candidate countriesprevious to accession but which continues to produce effects after accession) in the contextof enlargement, and overviews the agreed transitional arrangements. Section III turns to thelegislative and institutional context for the control of state aid in Romania, and to topicalissues related to state aid in the context of the negotiations on the Competition Chapter.

ISABELA ATANASIU, GHEORGHE OPRESCU

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The article is structured as follows: Section I isan introduction to the EC state aid control system,covering the following aspects: the elementsdefining the concept of state aid; the structure ofthe substantive law applicable to state aid – thegeneral ban and exemptions from it; and theprocedures according to which the Commissionreviews and monitors state aid granted in the EU.In addition, this section overviews the regimecurrently applicable in the EU to steel and coalaid. Section II relates the experience of thecountries that joined the EU in May 2004 in thenegotiation of the Competition Chapter - state aidissues in particular, and explains the mechanismadopted for the review of “existing aid”, i.e. aidgiven in the candidate countries previous toaccession but which continued to produce effectsafter accession. Section III briefly describes thelegislative and institutional context for the controlof state aid in Romania, and includes somecomments on the remaining topical issues relatedto state aid in the context of the negotiations onthe Competition Chapter. Section IV concludes bysummarising the main findings.

II.. TTHHEE SSTTAATTEE AAIIDD AACCQQUUIISS

GGeenneerraall nnoottiioonnss

11..11.. DDeeffiinniittiioonn ooff ssttaattee aaiidd

The EC notion of state aid goes beyond what iscommonly referred to as “industrial subsidies”, tocover a variety of state measures and transactionsthat confer support to industrial or service firms inso far as having anticompetitive consequences.Aid measures are singled out according to their

effects, rather than objectives, form or content.This effects-based approach in the application ofEC state aid rules allows the EuropeanCommission to exert control over a wide spectrumof anticompetitive measures undertaken in theMember States, ranging from economic regulationto transactions between the state and individualfirms. This approach is at the same time somewhatchallenging for those directly involved in the aidoperation - aid donors and beneficiaries, for agood understanding of the EC notion of state aid isrequired in order to determine whether a supportinitiative falls under the scope of EC state aid rules,especially when support is indirect. In Romania,similar to the case of other transition economiesthat have recently joined the EU, indirect aidinstruments are often preferred over the ‘classical’direct subsidies, due to the existent budgetaryrestraints. Therefore, a good understanding of theconditions under which indirect support measuresmay be qualified as involving state aid isfurthermore important.

What follows is not an exhaustive discussion of thelegal definition of state aid,1) but a concise introductionto the subject for the readers of this publication who areless familiar with EC competition law.

The Treaty itself does not offer a straightforwarddefinition of state aid. Article 87(1) EC prohibits“any aid granted by a Member State or through stateresources in any form whatsoever which distorts orthreatens to distort competition by favouring certainundertakings or the production of certain goods […]in so far as affecting trade between the MemberStates […].” (emphasis added) The EuropeanCommission and EC courts have interpreted thisprovision to indicate four cumulative conditions

11)) For a more detailed discussion on the legal definition of state aid, see e.g. Carl Baudenbacher (1999): A Brief Guide to European State AidLaw, London: Kluwer Law International; Malcolm Ross (2000): “State aids and national courts: definitions and other problems”, CommonMarket Law Review vol. 37, pp. 401-423; European Commission (2003): Vademecum – Community Rules on State Aid (available athttp://europa.eu.int/comm/competition/state_aid/others/Vademecum/Vademecumen2003_en.pdf); for a discussion on the legal definition ofstate aid and the soft budget phenomena arising in transition economies, see Isabela Atanasiu (2001): “State Aid in Central and EasternEurope”, World Competition vol. 24, no. 2, pp. 257-283.

STATE AID TO THE ROMANIAN STEEL AND COAL SECTORS: ISSUES RELATED TO ACCESSION

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22)) See in this sense Joint Cases C-72/91 and 73/91 Sloman Neptun -1993- ECR I_887, Joined Cases C-52/97 and C-54/97 Viscido -1998-, CaseC-379/98 PreussenElektra -2000- ECR I-2099. 33)) Case C-256/97 Déménagements Manutention Transport SA (DMT) -1999- ECR I-3913.44)) See supra note no. 3.55)) See Case 30/59 De Gezamenlijke Steenkolenmijnen in Limburg v. High Authority [1961] ECR 19.66)) For a detailed analysis of the MEIP, see e.g. Giuseppe Abbamonte (1996): “Market Economy Investor Principle: A Legal Analysis of anEconomic Problem”, European Competition Law Review no. 4, pp. 259-268; for recent developments of the jurisprudence in this area, seeMarc Hansen, Anne van Ysendyck, Susanne Zühlke (2004): “The Coming of Age of EC State Aid Law: A Review of the PrincipalDevelopments in 2002 and 2003”, European Competition Law Review no. 4, pp. 202-233, discussing inter alia the recent Altmark judgment– Case C-280/00 Altmark Trans GmbH et al. v. Nahverkehrsgesellshchaft Altmark GmbH, judgment of 24 July 2003 (not yet reported) – onwhether the compensation paid for performing public service obligations contains state aid. 77)) Case C-305/89 Italy v. Commission (Alfa Romeo) -1991- ECR I-1603; Case C-303/88 Italy v. Commission (ENI-Lanerossi) -1991- ECR I-1433.88)) See supra note no. 3.

under which a state measure or a transactioninvolving the state is qualified to involve state aid.These are as follows:

• transfer of state resources;• the conferring of an economic advantage to

the beneficiary firm(s);• selectivity of the measure; and• cross-border distorting effects. Transfer of state resources. Article 87(1) EC

stipulates that state aid can be granted “by the state orthrough public resources”. This formulation wasinterpreted to have two implications. First, the notion ofstate aid covers both support measures directlyimplemented by public bodies (government, regionaland local administrations) as well as thoseimplemented by private bodies acting on behalf of thestate (e.g., a commercial bank offering subsidised loansor loans based on state guarantees, or managing a state-funded SME aid scheme).2) Second, the notion of stateaid covers not only measures involving a directexpenditure from the state’s coffers (e.g., directsubsidies or subsidised loans), but also measuresimplying a loss of revenue for the state (e.g. waivers orpostponed payment of public debts, the reduction orpostponement of tax and social security contributionpayments). For example, in DTM,3) a case involvingpostponement for 8 years of the social securitypayments due by a firm in difficulty (DMT) to theBelgian institution responsible for collecting suchpayments (the ONSS), the European Court of Justice(ECJ) decided that, as long as social securitycontributions are imposed by law and administered bythe ONSS on its basis, such contributions must be

qualified as state resources. In PreussenElektra,4)

instead, the ECJ established that the German lawobliging electricity suppliers to purchase German-produced electricity from alternative resources at a pre-established minimum price did not involve state aid,because it did not imply any transfer of state resources.

Economic advantage. ECJ jurisprudence hasestablished from the early years of application of theTreaty of Rome that the notion of state aid comprises“any support measure, whatever its form, that has as aneffect the reduction of the expenses normally borne byundertakings, even if it is not a subsidy, but it has thesame nature and effects” (emphasis added).5) Thiscondition is more problematic to verify in the case ofindirect support measures, where it is more difficult toidentify and measure the effect of reducing theexpenses normally borne by a firm. The EuropeanCommission has developed an analytical tool for thispurpose, known as “the market economy investorprinciple” (MEIP), which consists of comparing thebehaviour of the body implementing the supportmeasure with that of a private investor acting in similarcircumstances.6) Although the MEIP instrument appearsto be quite straightforward, in practice it is often difficultto identify the appropriate comparison benchmark. InAlfa-Romeo and ENI-Lanerossi,7) the ECJ establishedthat, whenever a public institution implements asupport measure in the context of a wider economicpolicy strategy, this behaviour must be measuredagainst that of a holding company seeking to increaseits profits in the medium to long-term, rather than thatof a company seeking short-term profit. In DMT,8) the


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Court established that the tolerance shown by theBelgian ONSS towards DMT should be compared tothat of a private creditor, who may also decide topostpone payments from debtors in financial difficultyfor the purpose of allowing them to recover, and thuseventually pay their debts. In Seleco,9) the ECJaddressed the question of whether the acquirer of assetsis liable for the recovery of illegal aid that was grantedto the seller prior to the acquisition (a question of highrelevance in privatisation contexts). The Selecojudgment establishes that, if the acquirer has paid amarket price for its acquisition, it has not receivedthrough the transaction any economic advantage thatcould be considered as state aid, and thus it cannot beconsidered liable for the repayment of the illegal aidpreviously granted to the seller.

Selectivity. Article 87(1) EC is applicable tosupport measures that “favour certainundertakings or the production of certain goods”,or in other words, are selective. The selectivitycriterion entails a distinction between supportmeasures of a general character, which areavailable on the same conditions to all firms,irrespective of the economic sector in which theyoperate or their location within the samejurisdiction, and those that confer an advantageonly to certain firms or sectors of activity, andwhose distorting potential is presumably higher.10)

Examples of support measures found to beselective are Maribel bis/ter11) – a Belgian lawreducing the rate of social security contributionsfor manual workers, which favoured manuallabour-intensive sectors with respect to others –

and CETM12) - a Spanish law whereby the statesubsidised loans for the purchase industrialvehicles by physical persons, SMEs, publicinstitutions and public transportation companies.Admittedly to this date the selectivity condition isnot defined very precisely in EC law andjurisprudence. The Commission and the EC courtsseem to apply a presumption of selectivity to allmeasures that do not have a straightforwardgeneral character, thus passing the burden ofproving the contrary to the Member State wherethe measure was initiated.13) Moreover, supportmeasures that apparently have a general characterwill nevertheless be qualified as selective if theinstitutions/bodies empowered to implement themenjoy a certain degree of discretion in theirapplication. In Ecotrade14) and Piaggio15) an Italianlaw establishing a procedure for passing largefirms in difficulty under the administration of theMinistry of Industry in view of their restructuringwas found to be selective because: i) the criteriafor selecting the firms to benefit from thisprocedure were discretionary; ii) the Ministry ofIndustry was given discretion to decide which ofthe selected firms could continue their activity. InDMT,16) the Belgian ONSS was in the position todecide in a discretionary way whether and for howlong the payment of social security contributionscould be postponed for its debtors.

Some specific issues arise in the application ofthe selectivity test to taxation measures. In aNotice on fiscal aid17) the Commission indicatedthat some tax measures normally qualifying as

99)) Joined Cases C-328/99 and C-399/00 Italian Republic and SIM 2 Multimedia SpA v. Commission (Seleco) -2003- ECR I-4035.1100)) See e.g. Case C-241/94 France v. Commission -1996- ECR I-4551; Case C-200/97 Ecotrade -1998- ECR I-7907; Case C-75/97 Belgium v.Commission -1999- EC I-3671.1111)) Case C-75/97 Maribel bis/ter -1999- ECR I-3671.1122)) Case T-55/99 CETM -2000- ECR II-3207.1133)) See Malcolm Ross (2000), as cited in supra note no. l, at p. 406. 1144)) See supra note no. 10.1155)) Case C-295/97 Piaggio -1999- ECR I-3735.1166)) See supra note no. 3.1177)) Commission Notice on the application of state aid rules to measures relating to direct business taxation, OJ C 348 of 10.12.1998.

selective might nevertheless be considered not toinvolve state aid if the selectivity element is“justified by the nature of the [general taxation]system”. The distinction between selective taxschemes and those where selectivity is justified inthe general context of the taxation systemapplicable in a given jurisdiction is not very clear.More straightforward is, however, that taxationfacilities which are available to all firms,irrespective of sector or location, and on the sameterms, and where the fiscal authorities do notenjoy discretion in implementation, qualify ashaving a general character and therefore falloutside the scope of EC state aid rules.

Cross-border distortion of competition. Article87(1) EC applies only to support measures that distortcompetition on a cross-border dimension. TheCommission presumes that this condition is metwhenever the aided firm operates on a market wherethere is intra-community trade.18) Moreover, even if theaided firm is not engaged in exporting, aid is assumedto help maintain or increase domestic production,with the consequence of limiting the possibilities ofproducers from other Member States to export on thatmarket.19) In other words, there appears to be an almostautomatic assumption that aid to firms operating on amarket where there is intra-community trade will harmcompetition, with the exception of de minimis aid (i.e.cases where total aid received over a period of threeyears by one beneficiary, irrespective of form andobjective, does not exceed 100,000 euro20)).

11..22.. SSuubbssttaannttiivvee rruulleess:: eexxeemmppttiioonnssffrroomm tthhee bbaann

Article 87 EC establishes a general ban onsupport measures that qualify as involving stateaid according to the above-mentioned criteria, but

also lays down exemptions from it. Theexemptions from this ban mentioned in Article87(2) EC – including social aid, aid granteddirectly to consumers, aid granted to compensatedamages resulting from natural disasters and otherexceptional occurrences – are automatic, whereasthose listed in Article 87(3) EC are applied by theCommission, following an evaluation of theobjectives and effects of aid. In particular, theCommission is empowered to approve:

• “aid to promote the economic developmentof certain areas where the standards of livingare very low or unemployment is very high”(Article 87(3)(a) EC); and

• “aid to facilitate the development of certaineconomic activities or certain economicareas, where such aid does not adverselyaffect trading conditions contrary to thecommon interest” (Article 87(3)(c) EC).

The Commission has the discretion to assesswhether the conditions for granting the above-mentioned exemptions are met. In order to renderthe enforcement policy more transparent and providelegal certainty, the Commission issues policy-guidance documents (regulations, communications,notices, frameworks, guidelines and letters addressedto the Member States) explaining the criteriaaccording to which different categories of aid may beapproved. What follows is a brief description of howthe above-mentioned exemptions are applied todifferent categories of aid.

Taking into account the policy objectivespursued and the economic situation of thebeneficiary firms, we can distinguish two broadcategories of aid measures: those aiming at therecovery of inefficient firms, and those aiming tostimulate some sort of investment by profitable


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1188)) See the Commission’s Vademecum (2003), as cited in supra note no. 1, at. Pp. 3-4. 1199)) See e.g. Joined Cases C-278/92 and C-280/92 Spain v. Commission -1994 - ECR I-1403, para. 40.2200)) See Commission Regulation (EC) No 69/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC Treaty to de minimisaid, OJ L 10 of 13.1.2001.


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firms – for example, to attract initial investmentinto a certain region, or stimulate firms toundertake investment projects that are desirablefrom a social point of view (R&D, environmentalprotection, employment, training, etc.). In short,the above-mentioned exemptions apply to thevarious categories of aid as follows.

Article 87(3)(a) EC is mainly the ground forapproving regional aid, namely aid measuresaimed to attract/stimulate initial investment in thepoorest regions of the Community, where GDP percapita (PPS) is below 75% of the EU average. Themethodology for selecting the regions enjoying“assisted area” status under this paragraph, as wellas the conditions for approval of investment aid insuch regions, are laid down in the so-calledRegional Aid Guidelines.21) In addition, theCommission takes a more lenient approachtowards aid for the recovery of inefficient firmsthat operate in the regions enjoying “assisted area”status under this paragraph. For example, aidaiming at the rescue or restructuring of firmsoperating in such regions is approved under lessstrict conditions regarding the reduction of excessproduction capacities. Moreover, operating aid (oraid reducing the current expenses of firms without

being related to the carrying out of a restructuringprogramme) is exceptionally allowed in suchregions, although otherwise forbidden throughoutthe EU, on condition that it be granted on atemporary basis and gradually reduced. 22) Finally,aid for other types of investment (e.g. R&D,environmental protection, SMEs, employment,training, etc.)23) in such regions is subject to lessstrict limitations in terms of total amount allowed.

Article 87(3)(c) EC is the ground for approving:aid for initial investment granted in regionsenjoying “assisted area” status under thisparagraph – as a general rule, regions affected byindustrial decline, and those where the standardsof living are lower by comparison to other regionswithin the same Member State;24) rescue andrestructuring aid granted to firms in difficulty,irrespective of their location;25) and aid to othertypes of investment (R&D, environmentalprotection, employment, training, etc.).26)

11..33.. CCoonnttrrooll aanndd mmoonniittoorriinnggpprroocceedduurreess

Article 88 EC establishes a system of ex antecontrol and ex post monitoring by the Commissionof aid measures initiated by the Member States. In

21) See Commission Guidelines on National Regional Aid, OJ C 74 of 10.3.1998. The current Guidelines are up for revision towards the endof 2005. 22) See Point 4.15 of the 1998 Regional Aid Guidelines, as cited at supra note no. 21. See also cases T-459/93 Siemens v. Commission -1995-ECR II-1675, T-214/95 Vlaams Gewest v. Commission -1998- ECR II-717, and T-55/99 CETM -2000- ECR II-3207, establishing that aid coveringmodernization costs which must be undertaking periodically by a firm because of the very nature of its activity qualifies as operating aid. 23) For the rules applicable to R&D aid, see Community Framework for state aid for research and development, OJ C 45, 17.02.1996, andCommission Communication amending the Community Framework for state aid for research and development, OJ C 48, 13.2.1998. Forenvironmental aid, see Community Guidelines on state aid for environmental protection, OJ C 37, 3.2.2001. For employment aid, seeCommission Regulation (EC) No 2204/2002 of 5 December 2002 on the application of Articles 87 and 88 of the EC Treaty to state aid foremployment, OJ L 337, 13.12.2002, and successive amendments. For training aid, see Commission Regulation (EC) No 68/2001 of 12 January2001 on the application of Articles 87 and 88 of the EC Treaty to training aid, OJ L 10, 13.1.2001 and successive amendments. For aid toSMEs, see Commission Regulation (EC) No 70/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC Treaty to state aidto small and medium-sized enterprises, OJ L 10, 13.1.2001 and successive amendments. 24) See Regional Aid Guidelines, as cited at supra note no. 21. For a detailed discussion on the methodology for selecting the “assisted areas”currently covered by this paragraph, see also Fiona Wishlade (1998): “Competition Policy or Cohesion Policy by the Back Door? TheCommission Guidelines on National Regional Aid”, European Competition Law Review no. 6, pp. 346 et seq.. 25) See Community Guidelines on state aid for rescuing and restructuring firms in difficulty, OJ C 244 of 1.10.2004. For a discussion of theelements of novelty in this recent version of the Guidelines on aid to firms in difficulty, see Hansen, van Ysendyck and Zühlke (2004), ascited in supra note no. 6.26) See supra note no. 23.

particular, paragraph (3) of this Article obliges theMember States to:

• notify to the Commission, for control andapproval, any plan to introduce aid measuresor modify aid measures that were alreadyapproved (the notification obligation); and

• not to implement such measure until theCommission pronounces a decision ontheir compatibility with the Treaty (thestand-still clause).

The detailed procedures according to whichthe Commission exercises its control andmonitoring attributions with respect to state aidwere codified within a Council Regulation, adoptedin March 1999.27) The Regulation lays down distinctprocedures applicable to four categories of aidmeasures: “new (notified) aid”, “unlawful aid”,“misuse of aid” and “existing aid”.28) In what followswe summarise the procedures applicable to each.

New aid. Articles 2 and 3 of the ProceduralRegulation confirm the notification obligation andthe stand-still clause applicable to “plans to grantnew aid” as resulting from Article 88 EC. Thenotification obligation applies in principle only tosupport measures that clearly involve an elementof state aid according to the four criteriacommented above. However, in case ofuncertainty as to whether a given support measureinvolves state aid, the Member States are welladvised to notify it to the Commission forassessment. This will spare them the consequencesof a possible future qualification of the measure inquestion as involving “unlawful aid” – which, aswe will show below, has important practicalconsequences, since the Commission has the

authority to order the retroactive full recovery ofunlawful aid.29) Following notification of plans togrant new aid, the Commission opens apreliminary examination procedure (Article 4 ofthe Procedural Regulation), to be concludedwithin two months from the receipt of thecomplete notification form. At this stage theCommission may decide either to declare thenotified measure as compatible with the Treaty(under one of the exemption provisionscommented above) or open a formal investigationprocedure (Article 6) if there are doubts as to thecompatibility of aid with the Treaty. The formalinvestigation procedure shall be concludedwhenever possible in maximum 18 months(Article 7(6)), and may result in a “positivedecision” (declaring aid compatible with theTreaty), or a “conditional decision” (approving aidsubject to certain conditions, implying that for thefuture the Commission would monitor compliancewith these conditions), or a “negative decision”(prohibiting the measure in question).

Unlawful aid. Article 1(f) of the ProceduralRegulation defines “unlawful aid” as aid that hasbeen put to effect in breach of the notificationobligation and stand-still clause. The proceduresapplicable to unlawful aid are similar to thoseapplicable to new aid, but include some additionalinstruments, some having provisional effects lastingfor the duration of the investigation procedure,others concerning the recovery of unlawful aid fromthe beneficiary. Thus, during the investigationprocedure the Commission may adopt suspensioninjunctions, ordering the provisional suspension ofthe measure under inquiry (Article 11(1)), as well as


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27) Council Regulation (EC No 659/1999 of 22 march 1999 laying down detailed rules for the application of Article 93 of the EC Treaty, OJ

L 83 of 27.3.1999.28) For a detailed discussion of the Procedural Regulation, see Adinda Sinnaeve (1999): “State aid procedures: the reform project”, in Bilal

Sanoussi and Phedon Nicolaides, eds., Understanding State Aid Policy in the European Community: Perspectives on Rules and Practice,Maastricht: European Institute of Public Administration, pp. 209-230. 29) See Adinda Sinnaeve (1999), as cited at supra note no. 28, in particular pp. 216-217.


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provisional recovery injunctions (Article 11(2)),ordering the provisional recovery of aid already paidon the basis of the investigated measure. Provisionalrecovery injunctions may be adopted only if threecumulative conditions are met: there are no doubtsabout the aid character of the measure concerned,there is an urgency to act, and there is a serious riskof substantial and irreparable damage to acompetitor of the aid beneficiary. Non-complianceby the Member States with such interim injunctionsconstitutes an infringement of the obligationsassumed under the Treaty. Finally, when theinvestigation procedure concludes with a negativedecision by the Commission (establishing that themeasure involves aid incompatible with the Treaty)the Commission can order the retroactive recoveryof aid already granted on its basis, including interestson the aid at an appropriate rate fixed by theCommission (Article 14). The Member States areobliged to put to effect the recovery decision withoutdelay, according to procedures available undernational law, provided they allow the immediateand effective recovery (Article 14(3)). In practice,however, the recovery of unlawful aid is oftendelayed by the beneficiaries through initiatingproceedings under national law against the MemberState that have the effect of suspending the carryingout of the Commission’s recovery order. Last but notleast, it is worth mentioning that the Commissioncannot ask recovery after more than 10 years sincethe award of unlawful aid (article 15). Aid withregard to which the limitation period of 10 years hasexpired shall be qualified as “existing aid”, with thepractical consequences explained below.

Misuse of aid. Article 1(g) of the ProceduralRegulation defines this category as aid used by the

beneficiary in contravention of the approvalconditions established in the Commission’sdecision. The main practical differences between“misuse of aid” and “unlawful aid” is that, in thecase of the former category, during theexamination of the aid measure the Commissioncannot order the provisional recovery of aid, andthe stand-still clause does not apply.

Existing aid. Article 1(b) of the ProceduralRegulation defines this concept as covering, interalia, aid that was put to effect before, and is stillapplicable after, the accession of Austria, Finlandand Sweden to the EU,30) and aid that at the timewhen the measure was put into effect did notqualify as involving aid according to the EClegislation in place at the time, but whichsubsequently became state aid according to theevolution of the common market and EC state aidregulation (an example in this sense is that of fiscalaid measures implemented in certain MemberStates before the adoption of a tighter disciplineon this aid category in 1998). The essentialdifference between “existing aid” and “new aid” isthat the Commission can alter the former categoryonly for the future, meaning that aid amountsdisbursed in the past under existing aid measuresare protected from retroactive recovery.31)

22.. TThhee aaccqquuiiss ffoorr tthhee ““sseennssiittiivvee sseeccttoorrss””::tthhee ccaassee ooff sstteeeell aanndd ccooaall

Due to the strategic importance of the steeland coal sectors in the European economy, stateaid granted to (parts of) these sectors were subjectto specific, tighter rules than those applicable toother economic sectors under the EC Treaty.Article 4 of the ECSC Treaty prohibited state aid to

30) This provision (Article 1(b)(i) of the Procedural Regulation) was amended following the May 2004 enlargement to include, by the same

token, aid put to effect before, and still applicable after, the entry into force of the Accession Treaty in the 10 new Member States, withoutprejudice to Annex IV, point 3 and the Appendix to the said Annex to the Accession Treaty. 31) See Georg Roebling (2003): “Existing Aid and Enlargement”, Competition Policy Newsletter no. 1, pp. 33-37.

steel and coal in any form whatsoever, yet Article95 of the same Treaty was often used by theCommission and Council to exempt aid granted inthe context of restructuring. As a matter ofprinciple, following the expiry of the ECSC Treatyon 23 July 2002, the steel and coal sectors becamesubject to the general state aid regime (Articles 87-89 EC and the secondary legislation developed intheir application). Nevertheless, at present thesesectors continue to be subject to more restrictiveaid regimes, whose main elements aresummarised in what follows.

Steel. The European steel industry traditionallyconcentrated in few regions, with the localpopulation predominantly employed in activitiesrelated to steel production. The structural crisisthat affected the sector during the 1970s and1980s brought about a real subsidy war betweenthe Member States, who sought to support therestructuring of their own steel industry whilemitigating the ample social and economicconsequences of restructuring at regional level. Tokeep under control subsidy levels and coordinaterestructuring efforts, the Commissionimplemented a series of successive State AidCodes, whose common defining element wasconditioning the approval of aid on the reductionof excessive production capacities.32) The last SteelAid Code, 33) covering the period from 1996 to theexpiry of the ECSC Treaty, further narrowed therange of support measures allowed in this sector toR&D, environmental and closure aid. Afterevaluating the condition of the European steel

sector in the late 1990s, the Commissionconcluded that it was necessary to maintain astricter state aid discipline even after the expiry ofthe ECSC Treaty, so as to safeguard the outcome ofprevious restructuring efforts.34) In March 2002 theCommission published a Communication on aidto steel firms in difficulty (applicable until the endof 2009),35) which prohibits rescue andrestructuring aid in whatever form to this sector.The same Communication confirms theprohibition of aid for large initial investmentprojects undertaken in this sector (i.e. projectswhose total cost exceeds 50 million euro, orwhere the amount of aid proposed exceeds 5million euro) as already established in the contextof the regime for regional aid to large investmentprojects.36) This prohibition also applies to aid forlarge initial investment projects undertaken bySMEs, as defined by Article 6 of the CommissionRegulation on aid to SMEs (i.e., cases where thetotal cost of the investment project exceeds 25million euro or the total amount of aid awardedexceeds 15 million euro).37)

Turning to the aid categories that are allowedfor the steel sector, the 2002 Communication liststypes of closure aid that may be granted and theconditions for their approval. These include:compensations for early retirement and forworkers losing their jobs (if granted for the firsttime to each beneficiary, and up to 50% of thetotal compensation awarded), and aid tocompensate the costs of closing production plants(for companies registered and regularly producing


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32) For a historic overview of the EC Steel Aid Codes and their application, see e.g. Alexander Schaub (1997): “State Aid in the ECSC SteelSector”, Competition Policy Newsletter no. 2.33) Decision No. 2496/96/ECSC of 18 December 19996 establishing Community rules for state aid to the steel industry, OJ L 338 of 18.12.1996.34) Communication form the Commission to the Council, the European Parliament and the ESCS Consultative Committee (1999): The State ofCompetitiveness of the Steel Industry in the EU, COM(1999) 453 final. 35) European Commission (2002): Communication on Rescue and Restructuring Aid and Closure Aid for the Steel Sector, OJ C 70 of 19.3.2002.36) See European Commission (2002): Multisectoral framework on regional aid to large investment projects, OJ C 70 of 19.3.2002 (amendedversion of the 1998 text).37) See supra note no. 23.


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before January 2002, and if this type of aid isgranted for the first time; when the firm to beclosed is owned or controlled by another steel firmremaining in business, the beneficiary must belegally separated from the owned at least 6 monthsbefore the award of aid, and its financial situationwill be checked by independent experts appointedby the Commission). In addition to closure aid,steel firms are also allowed to receive regional aidfor reduced investment projects undertaken bySMEs (only when the beneficiary SMEs are locatedin a region enjoying “assisted area” status underArticle 87(3)(a) or (c) EC; aid must not exceed15%, respectively 7.5% of the overall cost ofinvestment),38) and aid for other types ofinvestment (R&D, environmental protection,employment, training).39)

Coal. Starting with the 1960, coal extracted inthe EC Member States ceased to be competitivewith coal imports from third countries. Similar towhat occurred in the steel sector, for the past fourdecades the European coal industry hasundergone a long and painful restructuringprocess. The Member States subsidised the re-dimensioning of production and implementedprograms (often co-financed by the EC) offeringfinancial compensations, re-training, re-locationschemes for the redundant miners. At present, afterfour decades of restructuring, only four of the EU-15 countries are still producing hard coal - the UK,Germany, France and Spain – and only the UKextraction units are relatively efficient, whileextraction in the other locations continues to besubsidised.40) Following the expiry of the ECSCTreaty the Council adopted a Regulation on state

aid for the coal industry.41) The Regulation takesinto account that, on the one hand, therestructuring and re-dimensioning of the hard coalproduction in the EU needs to continue (and besupported by the state) beyond the expiry of theECSC Treaty, and on the other hand, the EU isbecoming ever more dependent on imports fromthird countries of primary energy resources, thus itbeing necessary to maintain a minimum level ofdomestic coal production as part of the strategy toensure security of energy resources. Thus, theRegulation allows the granting of certaincategories of aid for hard coal extraction that aimat one of the following two broad objectives:maintaining a minimum strategic level of domestichard coal production, and alleviating the socialand economic consequences of closing thesurplus extraction units. In particular, theRegulation allows the following categories of aid:

• Operating aid covering the losses ofextraction units about to be completely closed bythe end of 2007 (Article 4). This provision coversextraction units that were notified to theCommission by end of December 2002, and forwhich the Member States presented a plan for totalclosing of production by the end of 2007. Aidshould not lead to a decrease of prices for hardcoal extracted in the EU under the price levels ofequivalent imports from third countries.

• Aid for maintaining a minimum level ofdomestic hard coal extraction (Article 5). Weunderline that this provision envisages the grantingof either investment aid or operating aid to eachspecific beneficiary. Investment aid may be grantedup to the end of the year 2010, to firms that have

38) See Regulation 70/2002 on state aid for SMEs, as cited at supra note no. 23. It is important to note that aid for initial investment satisfying

the criteria in this Regulation does not need to be notified for approval. 39) For the exact conditions for the approval of each of these types of aid, see the policy documents cited in supra note no. 23.40) Report from the Commission on the application of Community rules for state aid to the coal industry, COM (2002) 176 final.41) Council Regulation No. 1407/2002 of 23 July 2002 on state aid to the coal industry, OJ L 205 of 2.8.2002.

not received similar aid in the past, and in supportof an investment plan of demonstrable viability.The maximum amount of aid in this categorygranted to each beneficiary cannot exceed 30% ofthe total cost of the supported investment plan.Operating aid, instead, may be approved for firmsincluded in the national strategic plan formaintaining a minimum level of domestic coalextraction (presented to the Commission before theend of 2002). Aid should not lower the prices of thedomestic coal under the level of equivalent importsfrom third countries.

• Aid covering debts stemming from theimplementation of a restructuring/ rationalizationplan, such as the expenses related to the ecologicalrehabilitation of former extraction fields.

• R&D, environmental protection and trainingaid, under the conditions laid down in thecorresponding EC regulation.42)

IIII.. TTHHEE PPRREECCEEDDEENNTT OOFF TTHHEE 22000044EENNLLAARRGGEEMMEENNTT

AAcccceessssiioonn nneeggoottiiaattiioonnss

The European Council held in 1993 inCopenhagen established a series of political andeconomic criteria for the accession of the Centraland Eastern European countries to the EU. Theeconomic criteria implied that the candidatecountries demonstrate the existence of a functionalmarket economy and the capacity to withstandcompetitive pressures within the internal market. Inthe context of accession negotiations on the so-called Competition Chapter, these economiccriteria were translated into three conditions to befulfilled by the candidate countries: adopting thecompetition acquis in full into their nationallegislation prior to accession; establishing national

authorities empowered to implement thislegislation and endowing them with the adequateadministrative resources necessary for this task; andestablishing a credible enforcement record withrespect to state aid. While all 10 countries invited tojoin the EU in May 2004 succeeded relatively earlyto comply with the first two conditions, thedevelopment of a credible enforcement record inthe field of state aid was slower. 43) Some of the 10candidate countries started a proper enforcementactivity with respect to state aid after the year 2001.By the end of the year 2002, however, it wasconcluded that all three conditions weresatisfactorily complied with.

In the context of negotiations on the CompetitionChapter, two categories of aid measures used in thecandidate countries revealed to be moreproblematic: fiscal aid (in particular tax incentives toattract FDI and the establishment of so-called “freezones”, tax waivers and deferrals for companies indifficulty) and aid to firms in difficulty from thesensitive sectors, steel and coal in particular.

With respect to fiscal aid, the Commission agreedwith the candidate countries some arrangementsmeant to bring such measures in line with the acquiswithin a reasonable time period. For example:Hungary agreed to phase out incompatible fiscal aidto SMEs by end 2011, for off-shore companies by end2005, and incompatible aid granted by localauthorities by end 2007; Poland accepted to phaseout incompatible fiscal aid for small firms by end2011 and for medium-sized firms by end 2010, andto modify incompatible fiscal incentives for largeinvestment projects according to the criteria forapproval of regional aid in the EU; Slovakia undertookto discontinue fiscal aid to a beneficiary in the motorvehicles sector by end 2008 and to another


69

42) See supra note no. 23.43) See Janne Känkänen (2003): “Accession Negotiations Brought to Successful End”, Competition Policy Newsletter no. 1, pp. 24-28.

beneficiary in the steel sector by end 2009 (or whenaid reached a pre-determined total amount).

As to aid for the sensitive sectors, steel inparticular, the EU agreed in exceptionalcircumstances to authorise, in the context ofspecial transitional arrangements, the granting ofrestructuring aid as a “last opportunity” forrestoring the viability of these firms (thereby as anexception from the “one time, last time” ruleotherwise applicable to restructuring aid in theEU), conditional upon the achievement of acertain level of productivity at the end of therestructuring process and the carrying out of a pre-determined reduction of excess productioncapacities. Transitional arrangements for therestructuring of the steel industry were concludedwith three candidate countries: the CzechRepublic and Poland (in both cases, restructuringto be completed by end 2006), and Slovakia(where fiscal aid to one particular beneficiary shallbe discontinued by end 2009). In the cases ofPoland and the Czech Republic, the transitionalarrangements regarding aid to the steel sectorestablish a maximum amount of aid to be grantedto each beneficiary, the aid being approvedconditional upon the fulfilment of certainobligations regarding levels of productivity to beattained following restructuring and the reductionof excess production capacities. Compliance withthese conditions is monitored by the Commissionon a regular basis. In the case of the CzechRepublic, for example, the maximum amount ofaid approved for the steel sector was of 413million euro, to be paid over the period 1997-2003, while a productivity comparable to that ofsteel firms in the EU should be achieved by2006.44)

PPrree--aacccceessssiioonn aaiidd ccoonnttiinnuuiinngg bbeeyyoonnddaacccceessssiioonn

Equally important during the negotiations onthe Competition Chapter was to agree onprocedures for the screening of aid granted duringthe pre-accession period which would continue tobe implemented and produce effects followingaccession.45) In the case of the 1994 enlargement(involving Austria, Finland and Sweden), theAccession Treaty stipulated that all aid measuresapproved by the EFTA Surveillance Authority (ESA)before accession would be treated as “existingaid” following accession. As we mentioned above,this qualification has important practicalconsequences, because aid disbursed in the pastunder an existent aid measure is protected fromrecovery – the Commission can alter it only for thefuture. The model of the 1994 enlargement couldnot be transposed ad literam to the case of the2004 enlargement: ESA, as a supra-nationalauthority modelled on the Commissionimplementing Community substantive law,represented a guarantee in so far as the“objectivity” of its decisions on aid, whereas thecontrol of state aid granted in the candidatecountries during the pre-accession period wasexercised by a national authority operating undercertain domestic political and legislativeconstraints. To keep under control the process ofapproving during the pre-accession period aidmeasures continuing to be implemented afteraccession, or having effects after the same date,the Commission proposed a two-tier reviewsystem. This system recognised the authority of thenational authorities responsible for state aid as afirst instance of review, but added a second(lighter) layer of review by the Commission itself,


70

44) See infra note no. 46.45) See Georg Goebling (2003), as cited in supra note no. 31.

aiming essentially at identifying unlawful pre-accession aid that had escaped review by thenational authorities (and therefore not implying afully-fledged assessment of each aid measure).

According to this system, aid measures putinto effect during the pre-accession period andcontinued after accession would qualify as“existing aid” only if having passed the two-tierreview. It is important to note that the two-tierreview system was applied also to aid measuresthat, if awarded within the EU itself, would nothave needed to be notified for approval, as beingcovered by block exemption regulations(applicable under specific conditions to aid forSMEs, employment and training aid).46) If, bycontrast, a new Member State wished to continuean aid measure that was approved by its nationalauthority before accession, but in relation towhich the Commission had expressed doubts onthe compatibility with the acquis, upon accessionit had to notify the measure to the Commission forreview as “new aid”. In practical terms, this meantthat, following notification, the new Member Statewould have to discontinue the application of theaid measure in question until the Commissionpronounced a decision. Breach of this standstillobligation would result in the qualification of themeasure as “unlawful aid”, with the consequencesthereof deriving regarding the retroactive recoveryof payments already made.

The two-tier review system did not apply to thefollowing categories of aid measures:

• aid covered by transitional arrangements(including steel aid);

• aid put into effect in the candidate countriesbefore 10 December 1994 – which uponaccession was to be treated as “existing aid”

per se; and• aid to the agriculture and transport sectors,

which are subject to separate regimes.Pre-accession aid measures that passed the two-

tier test mentioned above were included in a listattached to the Accession Treaty. Since aid measuresproposed to be implemented in the candidatecountries during the period between the finalisation ofthe Accession Treaty and the actual date of accessioncould no longer be included on such a list, a distinctinterim procedure was set up for this period.

Under the interim procedure, the candidatecountries were requested to notify to theCommission for review any plans to introduce newaid measures. Such notifications were to besupplemented with a list of all existing aid measuresalready approved by the national state aid authority.If the Commission did not raise any objections withregard to a notified measure within 3 months fromthe receipt of a complete notification (i.e. anotification containing all the informationnecessary for the assessment of the case), the aid inquestion was to be considered as approved. If,instead, the Commission decided to raiseobjections, this triggered a formal investigationunder the Procedural Regulation, investigation thatwould be suspended until accession.

In 2002 the Commission approved some 222aid measures under the two-tier review system,which are listed as existing aid in an Annex to theAccession Treaty.47) Other 278 existing aidmeasures were approved by the Commissionunder the interim procedure until September2004. By the same date, 106 other aid measureswere still under assessment – the majority ofwhich were proposed by the Czech Republic andPoland. A significant number of aid measures were


71

46) See European Commission (2004): State Aid Scoreboard – autumn 2004 update, COM(2004) 750 final. For the block exemption

regulations, see supra note no. 23.47) See European Commission (2004): State Aid Scoreboard – autumn 2004 update, COM(2004) 750 final.


72

submitted for review under the interim procedure,right to the date of accession. Around 78% of theoverall aid expenditure in the new Member Statesduring the period 2002-2003 was earmarked forparticular sectors – for example, 56% of the aidexpenditure in Poland was directed towards therestructuring of the coal industry, and 35% of theaid expenditure in Slovakia was related to therestructuring of the steel industry.

IIIIII.. TTHHEE SSIITTUUAATTIIOONN IINN RROOMMAANNIIAA

LLeeggaall aanndd iinnssttiittuuttiioonnaall ffrraammeewwoorrkk

Likewise to the countries that joined the EU inMay 2004, Romania had previously concluded anAssociation Agreement with the EU, in the contextof which it undertook to apply the acquiscommunautaire on state aid in full.48) TheAssociation Agreement foresaw two exceptions inthis respect. One was that, for the first five years ofimplementation of the Agreement, Romania’sentire territory would be treated for the purposesof state aid control in the same (more lenient) wayas the European regions enjoying “assisted area”status under Article 87(3)(a) EC - with the practicalconsequences mentioned in Section I above. Thisstatus was eventually prolonged until the end of2005.49) The second concerned aid to the steelindustry. Article 9(4) of Protocol 2 annexed to theAssociation Agreement made possible theapproval of rescue and restructuring aid for thesteel sector for a period of 5 years from the entryinto force of the Agreement, as long as thefollowing conditions were observed:

• aid should be given in relation to a feasible

restructuring plan, restoring the economicviability of the beneficiary;

• the amount of aid given should be limited towhat is strictly necessary in order to restorethe beneficiary’s viability;

• the support to any given beneficiary shouldbe progressively reduced; and

• the aided restructuring plan should includemeasures of rationalization and reduction ofexcessive production capacities.

The above-mentioned five-year period wasprolonged until the end of 2005 through thesigning of an additional Protocol to theAssociation Agreement (as Protocol 2 did notcontain a clause envisaging the possibility ofprolongation). This new Protocol takes over thealready-mentioned criteria for the approval of aidfor the restructuring of Romanian steel firms, andintroduces a two-tier review system: aid measureswould have to be approved by the RomanianCompetition Council and the Commission, andboth institutions will also monitor theimplementation of the aided restructuring plan.We need to underline that the expiry of thisProtocol at the end of 2005 places Romania in adifferent situation from that of other steel-producing countries which joined the EU in May2004 (i.e. Poland, the Czech Republic, Slovakia)in the sense that the latter were covered by asimilar Protocol on steel aid up to the date of theiraccession. At the time of writing it is difficult tospeculate upon the regime that will eventually beagreed for the period comprised between the endof 2005 and the date of accession. However, in theabsence of another prolongation running up to the

48) Agreement establishing an association between the European Economic Communities and their member States, of the one part, and Romania,of the other part, OJ L 357 of 31.12.1994. For state aid control, see in particular Article 64 of the Agreement.49) See Decision No 2/2000 of the Association Council of 17 July 2000 extending by five years the period within which any public aid granted byRomania will be assessed taking into account the fact that Romania is to be treated as an area identical to those areas of the Community describedin Article 87(3)(a) of the Treaty establishing the European Community, OJ L 230 of 12.9.2000.


73

date of accession, Romania will not be allowed togrant rescue and restructuring aid to steel firmsafter the end of 2005. Moreover, even if theProtocol were to be prolonged until the date ofaccession, Romania would still probably not beallowed to continue payments of aid in thiscategory after the date of accession, unlessnegotiations on this subject resulted in atransitional arrangement of the kind that wasconcluded with Slovakia (see above).

The general framework for the control of stateaid in Romania is given by Law No. 143/1999, asmodified by Law No. 603/2003. This normativeact defines the legal concepts relevant in this areaof competition law enforcement (the definition ofstate aid, categories of aid measures, the notionsof aid grantor and aid beneficiary, etc.) andempowers the Romanian Competition Council toperform ex ante control and ex post monitoringfunctions modelled after those performed by theCommission on the EU side.

Article 14(1) entitles the Competition Councilto issue regulations, instructions or specificguidelines transposing the state aid acquis. We donot intend to list in full in this context theregulations adopted by the Competition Councilin this sense. Suffices it to mention here that aregulation transposing the special regimeapplicable to steel aid, as resulting from theCommission’s Communication of March 2002,50)

has not been adopted to the date of our writing. Inthe absence of such a specific framework, thelegal regime applicable in Romania to steel aidremains somewhat unclear. For example, theCompetition Council’s Regulation on rescue andrestructuring aid51) stipulates that, when such aid is

granted to steel firms, “specific rules will have tobe observed with priority”, but it does not makeany reference where the relevant rules in questioncan be found. Moreover, the Competition Councilcould meet procedural difficulties in the attempt toenforce a negative decision in this area basedexclusively on the provisions of the Protocol.

In so far as coal aid is concerned, theCompetition Council adopted a framework for thissector in July 2004,52) transposing the principlesand provisions of the EC Regulation of July 2002.53)

According to this Regulation, closure aid cannotbe extended beyond the end of 2007, while aid forinitial investment and operating aid cannot bepaid after the end of 2010. Any plans to grant aidfor initial investment and operating aid must benotified to the Competition Council for approvalby the end of 2004. The notification informationmust include an accompanying “plan for access tocoal reserves” that is compatible with thegovernmental Strategy for the mining industryduring 2004-2010, by the end of 2004.

CCrriittiiccaall iissssuueess iinn tthhee nneeggoottiiaattiioonn ooff tthheeCCoommppeettiittiioonn CChhaapptteerr

We conclude this section with a fewcomments on two aspects relevant to the currentdebate in Romania on closing the negotiations onthe Competition Chapter. It seems that the tworemaining points to clarify before finalisingnegotiations on this chapter are the CompetitionCouncil’s “lack of credible enforcement record” inthe area of state aid (we remind that proof of acredible enforcement record is one of the threeconditions to be satisfied for closing negotiationson the Competition Chapter) and state aid for the

50) See supra note no. 35.51) Official Journal of Romania no. 470, part I, of 2.7.2002.52) Regulation on state aid for coal mining, Official Journal of Romania no. 736, of 16.8.2004.53) See supra note no. 41.


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restructuring of the steel sector. 54)

Lack of a credible enforcement record meansin this context that probably the number ofnegative decisions (i.e. decisions prohibitingincompatible or unlawful aid) adopted so far bythe Romanian Competition Council is morereduced than estimated in the case of a rigorousapplication of the state aid law according to thecriteria resulting from the state aid acquis.Furthermore, the Competition Council has noenforcement record with respect to the prohibitionand recovery of unlawful aid. Leaving asidepossible considerations related to the CompetitionCouncil’s institutional independence, this situationis, at least in part, due to the fact that theCompetition Council’s enforcement powers, asresulting from Law No. 143/1999 on state aid, arelimited on several accounts.

First, the Competition Council does not havethe ability to adopt itself interim measures in thecourse of investigations on unlawful aid (which,we remind, is defined as aid granted in breach ofthe notification obligation and stand-still clause),such as the information, provisional suspensionand provisional recovery injunctions that may beordered by the Commission on the EU side (seeSection I above). According to Article 17(2) of LawNo. 143/1999, interim suspension and recoveryorders can only be issued by the Court of Appeals,on request from the Competition Council.

Second, in cases of unlawful aid granted onthe basis of a normative act, the CompetitionCouncil cannot intervene directly for theannulment of the normative act in question andthe recovery of unlawful aid already paid on itsbasis. According to Article 17(1) of Law No.143/1999, the Competition Council has thepossibility to request to the Court of Appeals in

whose jurisdiction the aid grantor or the aidbeneficiary are located to “annul theadministrative act granting the aid” and order thesuspension of the measure and recovery ofunlawful aid already paid on its basis. To be noted,however, that this provision refers to theannulment of administrative acts by means ofwhich the unlawful aid was paid, and not to thenormative act on the basis of which payments aremade. Indeed, the normative acts on the basis ofwhich unlawful aid is granted cannot be annulledor modified in the course of administrativecontentious proceedings, and on grounds of theirbeing in conflict with the state aid law, which is inits turn a normative act ranking equal with thoseon which aid is granted according to theRomanian legal hierarchy.

In order to circumvent this legal trap, Article17 of Law 143/1999 establishes at paragraphs 3 to6 an informal procedure whose legal effects andconsequences are not very clear. According to thisprocedure, the Competition Council, whenlearning about unlawful aid, sends notice to thebody that issued the normative act on the basis ofwhich it is being granted (the government, in thecase of Emergency Ordinances, or the Parliament,in the case of organic laws). The issuing body andthe aid grantor are requested to suspend theapplication of this act within 10 days from receiptof the Competition Council’s notice, and to notifythe measure to the Competition Council for reviewwithin 30 days from receipt of the notice. Finally,the issuing body and the aid grantor are requiredto “take into account” the Competition Council’seventual decision on the measure if the laterrequests to amend the normative act in questionand recover unlawful aid already paid on its basis.A similar procedure is established at Article 18(1)

54) See Adevarul of 3.12.2004.

with respect to aid that was prohibited by theCompetition Council following notification, butwhich nevertheless is being granted on the basis ofa normative act adopted in disregard of theCompetition Council’s prohibition decision.

In sum, both procedures seem to relyexclusively on the willingness of the body thatissued the normative act in question to actaccording to the Competition Council’srecommendations, as there are no provisions asto how the latter could enforce its decisionsagainst the issuing body (be it the government orthe Parliament). Admittedly it is not easy to findthe legal and procedural solutions for thisproblem of conflict between the state aid lawand normative acts ranking equal in theRomanian legal order. Possibly one way tocircumvent it would have been to amend theRomanian Constitution by introducing an articleestablishing that freedom of competition is aconstitutional principle – the CompetitionCouncil could have acted on its basis in order torequest directly the annulment of the normativeacts conflicting with the state aid law. At anyrate, at an advanced stage of the preparations foraccession, the problem could be partially

overcome through the two-tier review systeminvolving the Competition Council and theCommission (see Section II above), which willprobably render the initiators of aid measuresmore sensitive to competition lawconsiderations.

As to state aid for the steel industry, wealready mentioned in the sub-section above thatuntil the end of the year 2005 Romania stillenjoys the more lenient treatment resulting fromProtocol 2 to the Association Agreement, whichallows the granting of rescue and restructuring aidto this sector whereas such aid is currentlybanned in the EU. In spite of this permittingregime, aid expenditures for the Romanian steelindustry were relatively low during the 2000-2003 period (see Table below). An all-time recordwas reached in 2001, on occasion of theprivatisation of Sidex Galati, and remainedrelatively high over the following two years as theprivatisation process was extended to other firmsin the sector. The aid expenditure reported belowfor the period 1993-2002 are exclusively relatedto restructuring, and mainly took the form of debtwrite-offs and rescheduling, or debt-equity swaps.These commitments are also reflected in the


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Aid to Romanian steel plants during 1993-2002 and forecasts for 2003-2010 (million USD)

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Total 2003-2010

Ispat-Sidex

Galati

34.8 11.5 27.1 19.7 26.2 911.6 14.8 1045.7 233.0

Siderurgica

Hunedoara

8.7 6.0 5,8 13.4 33.9 492.3

COS

Târgoviste

1.8 5.5 13.7 8.4 28.2 2.1 59.7 97.0

IS Câmpia

Turzii

16.2 3.2 0.1 4.5 24.0 91.7

CS Resita 33.5 2.4 1.3 6.3 2.3 102.6 148.4 93.7

Gavazzi

Steel Otelul

Rosu

0.0 62.0

Siderurgica

Calarasi

5.2 6.6 6.0 5.2 1.3 1.0 1.2 26.5

Sidermet

Calan

0.4 23,8 24.2

TOTAL 5.2 76.7 50.7 56.5 13.5 73.1 27.4 28.2 913.7 117.4 1362.4 1069.7

Source: ”The Restructuring Strategy of Romania’s iron and steel industry for the 2004-2010 period”; Romanian

Ministry of Economy and Commerce, April 2004.


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“Strategy for the restructuring of Romania’s steelindustry during the period 2004-2010”, as issuedby the Romanian government in Spring 2004,which, together with individual restructuringplans and the Competition Council’s decisionregarding aid granted to each steel firm, will beanalysed by the European Commission andeventually submitted for approval to the EuropeanCouncil. In this respect, a series of specificconditions will have to be met, in terms of thecredibility and viability of the plans proposed,proportionality of aid with the costs of therestructuring operation, and proposals forcapacity reduction.55)

One of the questionable aspects related tothe Spring 2004 version of the above-mentioned Strategy was that the paymentsproposed for the future were not structured byyears. This could become problematicparticularly considering uncertainty aboutwhether the Steel Protocol to the AccessionAgreement will be extended beyond the end of2005. Another possibly problematic aspectcould be the fact that the RomanianCompetition Council did not appear to takeinto account restructuring aid measures thatwere initiated before the coming into force ofLaw No. 143/1999 on state aid, but whichcontinued to be applied after that date, whenapproving restructuring aid measures proposedat the beginning of 2004. Finally, in 2002 theCompetition Council approved restructuringaid given in the context of the privatization ofSidex Galati through a decision that wascriticised by the Commission for not applyingcorrectly the viability and proportionalitycriteria resulting from EU legislation.

IIVV.. CCOONNCCLLUUDDIINNGG RREEMMAARRKKSS

Our concluding remarks relate to the followingthree main aspects: the regime currently applicablein the EU to steel and coal aid; lessons to be drawnfrom the experience of the countries that joined theEU in May 2004 in terms of what lies ahead forRomania in the area of state aid control; and topicalissues for Romania in the negotiation of state aidaspects under the Competition Chapter.

Following the expiry of the ECSC Treaty, the EUimplemented special regimes for steel and coal aid,maintaining a tighter discipline on aid with respectto that applicable to other economic sectors. The2002 Communication on aid to steel firms indifficulty prohibits aid for the rescue andrestructuring of steel firms, as well as aid for largeinitial investment projects undertaken in this sector.Steel firms in the EU may receive, instead, closureaid (if satisfying certain criteria), aid to reducedinitial investment projects undertaken by SMEs,and aid for other types of investment (R&D,environmental protection, employment, training).The 2002 Council Regulation on state aid for thecoal industry allows, broadly speaking, aid for thissector aiming at one of the following two broadobjectives: maintaining a minimum strategic levelof domestic hard coal production, or alleviating thesocial and economic consequences of closing thesurplus extraction units. This includes: operatingaid for extractions units about to be closed by theend of 2007; investment aid up to 30 % of the totalinvestment cost if related to maintaining aminimum level of hard coal production (aidallowed up to 2010); operating aid for firmsincluded in a national strategic plan formaintaining a minimum level of domestic coal

55) Eva Szymanska and Max Leinemeyer (2004): “Guidance for making a steel restructuring program”, European Commission, DG

Competition, Brussels (mimeo).

extraction; aid covering debt related torestructuring, such as the expenses related to theecological rehabilitation of former extraction fields;R&D, environmental protection and training aid.

Likewise to the case of Romania, some of thecountries that joined the EU in May 2004 facedsevere problems related to the restructuring oftheir steel and coal industries. While no specialallowances were made for the coal sector duringthe pre-accession period, these countries enjoyed,under the Steel Protocols to the AssociationAgreements, a more lenient treatment towards aidfor the steel sectors, including in particular thepossibility to grant rescue and restructuring aid. Inthe context of accession negotiation, the EUagreed to special transitional arrangements on aidfor the restructuring of the steel industry in theCzech Republic and Poland (where restructuringshould be completed by the end of 2006), andSlovakia (where fiscal aid to one particularbeneficiary shall be discontinued by end 2009).With the exception of the case of Slovakia, thesteel transitional arrangements concluded byPoland and the Czech Republic exclude thepossibility of any aid payments after the date ofaccession – in practice, the period of timecomprised between the date of accession and theexpiry of the transitional arrangement coveringonly compliance with the conditions of viability,productivity and re-dimensioning of productionon which restructuring aid was approved in thetransitional arrangement. For the case of Romania,where most restructuring aid for the steel industryseems to be granted in the form of fiscal aid, onemay envisage of a transitional arrangement of thetype concluded with Slovakia. In the absence ofsuch an arrangement, restructuring aid offered inother forms will have to be discontinued upon thedate of accession.

Aid covered by transitional arrangements(therefore including steel aid) did not fall underthe scope of the two-tier review mechanism,established in order to offer to the Commission thepossibility to exert control over aid measuresinitiated during the pre-accession period butwhich continued to produce effects afteraccession. According to this system, aid measuresput into effect during the pre-accession period andcontinued after accession would qualify as“existing aid” only if having passed the two-tierreview of the national state aid authority andCommission. By contrast, measures approved thenational authority only before accession wouldhave to be notified after accession to theCommission as “new aid”. Pre-accession aidmeasures that passed the two-tier test mentionedabove were included in a list attached to theAccession Treaty. For aid measures proposedduring the period between the finalisation of theAccession Treaty and the actual date of accession,the Commission established an interim procedure,this time involving the full notification of aid plansto the Commission. If the Commission raisedobjections, a formal investigation was consideredto be triggered, investigation that would besuspended until accession.

In Romania, the Protocol to the AssociationAgreement allowing the granting of restructuringaid to the steel sector is applicable until the end of2005. The Competition Council has not yetadopted a regulation transposing the specialregime applicable to steel aid as resulting from theCommission’s Communication of March 2002. Inthe absence of such a specific framework, thelegal regime applicable in Romania to steel aidremains somewhat unclear. The CompetitionCouncil could meet procedural difficulties in theattempt to enforce a negative decision in this area


77

based exclusively on the provisions of theProtocol. For the coal sector, instead, theCompetition Council recently adopted aframework the principles and provisions of the ECRegulation of July 2002. Closure aid cannot beextended beyond the end of 2007. Aid for initialinvestment and operating aid cannot be paid afterthe end of 2010. Any notification of a plan to grantaid for initial investment or operating aid must besubmitted by end 2004 and include anaccompanying “plan for access to coal reserves”compatible with the Strategy for the miningindustry during 2004-2010.

On a more general note, the RomanianCompetition Council’s limited powers to deal withunlawful or prohibited aid granted on the basis of

a normative act may in part explain the poorenforcement record so far in this area ofcompetition law. The problem may partly beovercome with the application of the two-tierreview system, performed jointly with theCommission, on aid measures to be continuedbeyond accession. As to the negotiation of atransitional arrangement for restructuring aid tothe Romanian steel sector, it is important that theconditions required by the Commission for theapproval of restructuring aid under a transitionalarrangement in terms of the credibility andviability of the individual restructuring plansproposed, proportionality of aid with the costs ofthe restructuring operation, and proposals forcapacity reduction, be met.


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BBiibblliiooggrraapphhyy

11.. PPuubblliiccaattiioonnss

Adinda Sinnaeve (1999): “State aid procedures: the reform project”, in Bilal Sanoussi and PhedonNicolaides, eds., Understanding State Aid Policy in the European Community: Perspectives on Rules andPractice, Maastricht: European Institute of Public Administration, pp. 209-230.

Alexander Schaub (1997): “State Aid in the ECSC Steel Sector”, Competition Policy Newsletter no. 2.Carl Baudenbacher (1999): A Brief Guide to European State Aid Law, London: Kluwer Law

International.Eva Szymanska and Max Leinemeyer (2004): “Guidance for making a steel restructuring program”,

European Commission, DG Competition, Brussels (mimeo).Fiona Wishlade (1998): “Competition Policy or Cohesion Policy by the Back Door? The Commission

Guidelines on National Regional Aid”, European Competition Law Review no. 6, pp. 346 et seq.. Georg Roebling (2003): “Existing Aid and Enlargement”, Competition Policy Newsletter no. 1, pp. 33-37. Gheorghe Oprescu, Isabela Atanasiu, Mariana Papatulica and Petre Prisecaru (2004): State Aid

Control in the Sensitive Sectors – Coal, Steel, Shipbuilding, Motor Vehicles (English and Romanianversions available at http://www.ier.ro).

Giuseppe Abbamonte (1996): “Market Economy Investor Principle: A Legal Analysis of an EconomicProblem”, European Competition Law Review no. 4, pp. 259-268.

Isabela Atanasiu (2001): “State Aid in Central and Eastern Europe”, World Competition vol. 24, no.2, pp. 257-283.

Janne Känkänen (2003): “Accession Negotiations Brought to Successful End”, Competition PolicyNewsletter no. 1, pp. 24-28.

Malcolm Ross (2000): “State aids and national courts: definitions and other problems”, CommonMarket Law Review vol. 37, pp. 401-423.

Marc Hansen, Anne van Ysendyck, Susanne Zühlke (2004): “The Coming of Age of EC State Aid Law:A Review of the Principal Developments in 2002 and 2003”, European Competition Law Review no. 4,pp. 202-233.

22.. OOffffiicciiaall DDooccuummeennttss

Agreement establishing an association between the European Economic Communities and theirmember States, of the one part, and Romania, of the other part, OJ L 357 of 31.12.1994.

Commission Communication amending the Community Framework for state aid for research anddevelopment, OJ C 48, 13.2.1998.

Commission Guidelines on National Regional Aid, OJ C 74 of 10.3.1998. The current Guidelines areup for revision towards the end of 2005.

Commission Notice on the application of state aid rules to measures relating to direct businesstaxation, OJ C 348 of 10.12.1998.


79

Commission Regulation (EC) No 2204/2002 of 5 December 2002 on the application of Articles 87and 88 of the EC Treaty to state aid for employment, OJ L 337, 13.12.2002, and successive amendments.

Commission Regulation (EC) No 68/2001 of 12 January 2001 on the application of Articles 87 and88 of the EC Treaty to training aid, OJ L 10, 13.1.2001 and successive amendments.

Commission Regulation (EC) No 69/2001 of 12 January 2001 on the application of Articles 87 and88 of the EC Treaty to de minimis aid, OJ L 10 of 13.1.2001.

Commission Regulation (EC) No 70/2001 of 12 January 2001 on the application of Articles 87 and88 of the EC Treaty to state aid to small and medium-sized enterprises, OJ L 10, 13.1.2001 andsuccessive amendments.

Communication form the Commission to the Council, the European Parliament and the ESCS ConsultativeCommittee (1999): The State of Competitiveness of the Steel Industry in the EU, COM(1999) 453 final.

Community Framework for state aid for research and development, OJ C 45, 17.02.1996. Community Guidelines on state aid for environmental protection, OJ C 37, 3.2.2001. Community Guidelines on state aid for rescuing and restructuring firms in difficulty, OJ C 244 of 1.10.2004. Council Regulation (EC No 659/1999 of 22 march 1999 laying down detailed rules for the

application of Article 93 of the EC Treaty, OJ L 83 of 27.3.1999.Council Regulation No. 1407/2002 of 23 July 2002 on state aid to the coal industry, OJ L 205 of

2.8.2002. Decision No 2/2000 of the Association Council of 17 July 2000 extending by five years the period

within which any public aid granted by Romania will be assessed taking into account the fact thatRomania is to be treated as an area identical to those areas of the Community described in Article87(3)(a) of the Treaty establishing the European Community, OJ L 230 of 12.9.2000.

Decision No. 2496/96/ECSC of 18 December 19996 establishing Community rules for state aid tothe steel industry, OJ L 338 of 18.12.1996.

European Commission (2004): State Aid Scoreboard – autumn 2004 update, COM(2004) 750 final.European Commission (2002): Communication on Rescue and Restructuring Aid and Closure Aid for

the Steel Sector, OJ C 70 of 19.3.2002.European Commission (2002): Multisectoral framework on regional aid to large investment projects,

OJ C 70 of 19.3.2002.

EEuurrooppeeaann CCoommmmiissssiioonn ((22000033))::

Vademecum – Community Rules on State Aid (available at http://europa.eu.int/comm/competition/state_aid/others/Vademecum/Vademecumen2003_en.pdf).

Law No. 143/1999 on state aid, Official Journal of Romania no. 470, part I, of 2.7.2002.Regulation on state aid for coal mining, Official Journal of Romania no. 736, of 16.8.2004.Report from the Commission on the application of Community rules for state aid to the coal industry,

COM (2002) 176 final.


80

The collapse of the communist regimesallowed the states in Central and Eastern Europe,including Romania, to express their firm option toadopt the free market economy model. They allsaw in the European Union a support in theirpotential development, while in the Europeanintegration process a chance for a new economiclaunch. In 1995, Romania forwarded its official

Request for Association with the European Unionin line with other former communist countriesduring the same period. To acquire the status of EUmember in the foreseeable future was set and stillis an absolute priority of the Romanian politics. Inthe past 14 years, with almost no exception, thegovernance programs were defined according tothe EU accession imperative, based on the


81

EEVVAALLUUAATTIINNGG CCOOSSTTSS AANNDD BBEENNEEFFIITTSS OOFF RROOMMAANNIIAA’’SS IINNTTEEGGRRAATTIIOONNIINNTTOO TTHHEE EEUURROOPPEEAANN UUNNIIOONN1)

CCoonnssttaannttiinn CCiiuuppaaggeeaa,, DDoorriinn JJuullaa,, LLaauurraa MMaarriinnaa[[,, GGeeoommiinnaa }}uurrlleeaa,,MMaannuueellaa UUnngguurruu,, RRaadduu GGhheeoorrgghhiiuu**

1) This article draws on a study carried out in the context of the Pre-Accession Impact Studies II program of the European Institute in RomaniaSee Study no. 12: Constantin Ciupagea, Laura Marinas, Geomina Turlea, Manuela Unguru, Dorin Jula, Radu Gheorghiu (2004): „A Cost-Benefit Assessment of Romania’s Accession to the European Union” (English and Romanian versions available at http://www.ier.ro). * Constantin Ciupagea is at present a seconded national expert with the European Commission, DG-JRC, Institute for Prospective andTechnological Studies Seville and Director of the Institute for World Economics, Bucharest. Dorin Jula is senior researcher at the Institute forEconomic Forecasting, Romanian Academy and dean of the Department of Banking and Finance Management at the Ecologic University ofBucharest. Laura Marina[ is deputy director of the European Centre for Studies in Economy and Finance from the Academy of EconomicStudies and lecturer at the Chair of International Economic Relations, in the field of the Economics of European Integration. Geomina Turleacoordinates the activity of the LINK Econometrics and Modelling Department at the Institute for World Economy and she is executive managerof the Romanian Centre for Economic Modelling. Manuela Unguru is senior researcher at the Institute of World Economics in Bucharest. RaduGheorghiu is senior researcher III at the Institute for World Economics, Bucharest.

AAbbssttrraacctt.. The study „A Cost-Benefit Assessment of Romania’s Accession to the EuropeanUnion”, part of the programme Pre-Accession Impact Studies II that was coordinated by theEuropean Institute of Romania, tries to offer a partial image of an evaluation of the qualitativeand quantitative impact of Romania’s potential integration into the EU in the short, mediumand long run. The focus is on the quantification and analyses of the transformations and effectsinduced by Romania’s accession to the European Union in terms of generated costs andbenefits. The main cost categories directly associated with the accession to the EuropeanUnion may be grouped in costs related to the adoption of the European norms and policies,costs related to the conformation with and implementation of the standards, costs of assumingthe status of European Union member and costs related to the modernisation of the Romanianeconomy. The main benefits of Romania’s accession to the European Union are generatedfrom supplementation and diversification of the financial resources, from acceleration ofreforms and support for the transition through the provision of fundamental elements for thedefinition of the national economic policies and from the intrinsic status of an EU Member.

The impact analysis of Romania’s integration process has been performed separately forthe pre-accession and post-accession periods. Also, the scenarios considered in the impactassessment must be differentially conceived, one considering integration as granted, the otherone trying to postpone the moment of foreseen integration into the EU. The study uses bothqualitative analyses and quantitative mathematic-economic modelling tools to assess thepossible changes at sectorial level, as well as at macroeconomic national level. The findingsof these analyses are presented at the end of this document.

fulfilment of the Copenhagen accession criteria,while the decisions adopted by the nationalauthorities have significantly influenced the “roadmap”, the date and the conditions for Romania’saccession. Following the Helsinki Council decisionfor the EU to start negotiation with Romania in thebeginning of year 2000, Romania came to grips withthe circumstances of taking decisions of majorimportance for its future. The potential “road maps”which Romania follows in its race for efficiency,competitiveness, development and stability wereand may be different, and consequently the de factosocial-economic evolution has varied, varies andwill vary with the road map chosen.

This study tries to offer a partial image of anevaluation of the qualitative and quantitative impactof Romania’s potential integration into the EU in theshort, medium and long run. The conditions andpremises of the Eastward enlargement arecompletely different from the ones related to any ofthe previous enlargements. Firstly, the Eastwardenlargement supposed accession, in a short periodof time, of a very large number of states. Secondly,the profile of Romania and of some of the Easterncountries that joined the EU in May 2004 was a veryspecial one, as full-grown market economy wasmissing and the experience of a democratic politicalsystem with only 14 years of operation was oftenconsidered to be insufficient. For this reason and asopposed to the other enlargements, a series ofextremely well defined criteria were established tobe met by the candidate states in order to becomefull-fledged members of the European group. Thirdly,it has to be mentioned that the Eastern countrieswere missing the specific experience of participatingto integration groups, based on competitive forces ofa free market environment. Fourthly, the basis of thisenlargement differed to a great extent from otherenlargements as they were prominently of political

reasoning.Romania’s as well as the other candidate

states’ accession is conditioned by the need toconform to the requirements (conditions) imposedby the four accession criteria:

1. Political criteria – to ensure the state of law;2. Economic criteria – existence of a

functional market economy which shouldallow the candidate state to cope with thecompetitive pressures and the market forceswithin the EU;

3. Legislative criteria - to assume the acquiscommunautaire in force at the date ofaccession;

4. Administrative criteria – to ensure thestability of institutions and the ability toassume the obligations resulting from theEuropean Union member quality.

Beyond the necessity of coping with thejuridical and administrative requirements, it isobvious that the conformation with the accessioncriteria and, by implication, the accession ofRomania to the European Union, implies a seriesof transformations at economic and political level.

The aim of present study is not an exhaustivestock taking of the transformations and effectsinduced by Romania’s accession to the EuropeanUnion but rather their quantification and analysesin terms of generated costs and benefits.

It is obvious that the institutional, economicand social adjustments induced by the adoption ofthe community norms and policies are costgenerators. Taking into account the manner inwhich accession criteria are formulated, theadministrative criterion respectively (the state’sability to cope with the requirements of being anEU member), and the manner in which theaccession negotiations are progressing(negotiations on the eventual transition periods

CONSTANTIN CIUPAGEA, DORIN JULA, LAURA MARINA{, GEOMINA }URLEA, MANUELA UNGURU, RADU GHEORGHIU

82

following the factual accession, allocated for theimplementation of the acquis communautaire),most of the costs associated with theaccomplishment of the Copenhagen criteria willconcentrate in the period prior to 2007 (theenvisage date for attaining the EU member status).The main cost categories directly associated withthe accession to the European Union may begrouped as follows:

1. Costs related to the adoption of theEuropean norms and policies (acquiscommunautaire), in his category beingincluded: costs generated by theinstitutional building, by the formation ofhuman resources in these structures, costsassociated with assuming communityobjectives of economic policy nature(which, depending on the area’scharacteristics and/or the time period, mayimply high costs on short term, evident in

the areas where the short term priorities ofthe two partners, Romania and the EU, aredifferent) etc. Most of these costs willconcentrate in the period prior to the factualaccession.

2. Costs related to the conformation with andimplementation of the standards definedby the European norms and policies – thereis an attempt to quantify the efforts requiredfor the compliance with the communityprovisions in the areas subject of the acquiscommunautaire. These costs may arise atinstitutional level (public authorities) andmicroeconomic level as well. This categoryincludes costs associated with specific areaslike: modernization of the transportationinfrastructure, labour and social securitystandards, consumer protection, qualitystandards, environment standards etc. Inthis category are also included the costs

EVALUATING COSTS AND BENEFITS OF ROMANIA’S INTEGRATION INTO THE EUROPEAN UNION

83

Direct impact Indirect impact

Economical - disposal of the trade exchange

barriers

- implementation of the community

provisions regarding competition

(with visible effects on the business

environment)

- implementation of the CAP tools in

agriculture

- access to the structural funds

- reorientation of the trade flows

- industrial and agricultural

restructuring

- implications at regional level

- accession to the convergence

criteria of the UEM (Maastricht)

Political - prevalence of the community law

over the national one

- direct applicability of the

community legislation

- modifications of the Constitution

and the constitutional statute of the

national parliament

- representation in and participation to

the community decision-making

process

- reorientation of the foreign policy

(including trade diplomacy)

- modifications in the elaboration and

implementation manner of the

governmental policies

associated with the free movement ofgoods, services, persons and capital.

3. Costs of assuming the status of EuropeanUnion member. These costs will materializeafter the accession to the European Unionand include the contributions to thecommunity budget, the participation to thecommunity institutions etc. In a small part,these costs may be also marked out prior tothe factual accession and compriseRomania’s co-financing contributions to theEuropean Union programmes where it ispart (ex. Phare, SAPARD, ISPA, Leonardo daVinci, FP6 program etc.).

4. Costs related to the modernisation of theRomanian economy. The costs included inthis category are directly related to themodernisation of the production capacitiesand the enhancement of the Romanianproducts and services competitiveness inorder to face the competitive pressuresinside the European Union. To a greatextent, these costs are situated, in terms oftime periods, prior to the accession date.This cost category includes costs strictlyrelated to the modernisation of theproduction capacities in the economysectors (enhancement of the technologicallevel, the quality of products and servicesetc.). The costs associated with themodernisation of production equipment, inorder to ensure the compliance with theproduction, environment, safety and otherstandards imposed by the European Unionare not included here.

Most of the costs derive from the existingdifferences between the institutional structures,the priorities and the content of the economicpolicies at Romania’s level, on the one hand, and

the defining elements of the community model, onthe other hand. Also, from a sector perspective, thegreatest part of these costs derives from the lowdevelopment level of a sector as compared to theEU one, which makes the acquis communautaireto seriously affect the sector’s competitiveness andto raise the alignment costs through the liquidationof certain companies or sectors which are not ableto financially support the transposition of theacquis communautaire.

The main benefits of Romania’s accession tothe European Union can be classified as follows:

1. Supplementation and diversification of thefinancial resources. The European Unionmember status ensures Romania’s access tothe structural funds and to the cohesionfunds. The volume (and implicitly the derivedeffects) of these fund transfers to Romaniacan not be currently assessed, the nationalfinancial distribution of the structural fundsbeing subject of the new 2007 – 2013programming period. Part of these benefitscan be set off before the accession’s date andit reveals the quantum and positive effects ofthe input of funds through the pre-accessionfinancial instruments or other instrumentsand programs developed by the EU for thecandidate countries.

2. Benefits resulting from the member status.These benefits will arise following the EUaccession and are the result of theparticipation to the single market and theeconomic and monetary union, of the bettersupport of the national interests through theparticipation in the EU institutions etc.

3. Acceleration of reforms and support for thetransition through the provision offundamental elements for the definition ofthe national economic policies. The transition


84

from a made to order economy to the marketeconomy has no historical precedent. Undersuch circumstances, during the wholetransition period the EU supplied Romaniawith a model for the elaboration of itseconomic policies (in view of the accessioncriteria and the integration will, in most casesthis meant the assumption of the respectivecommunity objectives and policies in theirwhole, or the duplication of certain memberstates’ policies). These benefits are difficult toestimate and may take the shape of anabridgement of the transition period. Thetechnical assistance provided by the EU toRomania in different areas is an example of abenefit in this category.

From the methodological point of view, it isdifficult to make a clear difference between theeffects of integration and the ones of the transitionprocess. On the other hand, the winner/loserdichotomy is a relative one. The identification of asector as winner or loser in the integration processdoes not come to the same thing for every companyor individual in that sector. Additionally, thesectorial analysis does not necessarily answer to apositive/negative influence on the welfare of theentire society. A losing sector may release resourcesfor other sectors, thus improving the efficiency ofthe allocation of resources in economy.

The integration assumes the achievement ofsocial-economic convergence targets within theEU, targets that are up-dated periodically with therequirements imposed by the historical moment.From the prospective point of view, convergence isdefined through a set of benchmarking indicatorsmirroring the desired targets. The European Unionstarted a monitoring process of the progress madeby the accession countries, as well as by themember states, in their road towards the

achievement of the objectives set in the LisbonCouncil, with the major goal of “EU becoming by2010 the most dynamic and competitiveknowledge-based economy in the world,maintaining and strengthening social cohesion atthe same time”. This objective is supposed to bereached through the so-called OMC (OpenMethod of Coordination), within whichmonitoring plays a priority role.

The impact analysis of Romania’s integrationprocess must be performed separately for the pre-accession and post-accession periods. Also, thescenarios considered in the impact assessmentmust be differentially conceived. At the level ofmacroeconomics, one type of analysis will refer tovarious simulations, temporally situated in theperiod 2000-2004 (already covered), meant tocompare the reality to what could have happenedin the Romanian society if the negotiation processwould not have been started. The second type ofanalysis is of prospective nature, comparingvarious scenarios plausible for the period 2005-2015, where the accession moment will be alsoincluded, earlier – 2007-2008 – or later – 2011-2012, depending on the evolution of the pre-accession process and the negotiation one. With aview to the quantification of the integration effectson the Romanian macro-economy, two alternativescenarios have been carried out for each of the twoperiods (2000-2004 and 2005-2015 respectively).

One of the major impact generating elementsis represented by the financial flows transferredbetween the EU and Romania, which will be netinflows from the EU to our country during theanalysed period. Beginning with year 2000, a pre-set program was agreed between the twonegotiation partners, stating that the directlytransferred financial flows have been or are goingto be in compliance with the following financing


85

scheme for pre-structural funds:

Following 2007 (with a programming onprinciple up to 2013), the EU commitments areincreasing in terms of financial flows volume, whilethe budgetary effort of Romania is determinedbased on the co-financing principles settled troughthe European Union methodologies for structuraland cohesion funds access, as well as byconsidering Romania’s contribution to the EuropeanUnion budget. The equivalent payments are clearlyset for the first three post-integration years:

The macro-economic impact related to thefinancial package cannot be reduced only to theabsolute value of the amounts directly allocated toRomania. This statement has its reasoning in thefact that the structural programmes and actionswhich could be developed with these funds maygenerate and support a process of durableeconomic growth, at least in the areas ofagriculture, infrastructure and environment. Theeffect might also benefit on the development of

human resources and on the increase in socialcohesion, based on rural development andregional equilibrium.

The sectorial analyses presented in thereferred study generated certain importantfindings and conclusions:

1. The economic development will not behomogenous between the economicsectors, in none of the possibledevelopment scenarios. There will always

be relative losers and winners. One of thefundamental issues for the politicaldecision-makers will be to find the social-economic policy solutions and measuresnecessary for the reduction of losses(costs) where these arise or are of acutenature, or in the best case, to find methodsfor transferring all the sectorial differencesin a global growth area.

2. The presented figures, disaggregated by


86

The contribution of the European Union

YearsPHARE ISPA SAPARD Total EU

Co-financing of

EU fundsTotal

2000 88 478 151 716 247 964

2001 103 413 151 666 228 894

2002 112 326 151 589 189 778

2004 174 312 161 646 243 889

2005 162 338 161 660 241 901

2006 128 364 161 652 219 872

The Financial Package for Romania – payments (million euro, prices 2004)

Year Payments of the European

Union

Own budget effort of Romania

(payments)

2007 2361 1678

2008 3124 1687

2009 3409 2298

Total 8893 5663

(million euro)

sectors of economic or social activity,show that the possible costs and benefitsof Romania’s European integration orisolation are not homogenouslydistributed in time. There are periodswhen the costs are prevailing in certainsectors or even in the economy as awhole, followed by periods of benefitssupremacy. The analyses should beperformed for a medium or long term andthe results should be discussed based onthe trends recorded towards the end of theprognosis period.

3. At the level of macroeconomics, in termsof the corporate sector, the integrationcosts, excluding the financial ones, will bedirect costs, related to the possibility offinding the necessary resources forrestructuring and financing theinfrastructure investments (in transportsand information sector mainly), the impactcosts of a higher competition in manysectors of the Romanian economyexposed to the Single European Market(the sectors of chemistry, machines andequipment, non-metallic materialprocessing, means of transportation).

4. Most of the costs related to Romania’saccession to the EU, in view of agricultureand agricultural policy, derive from thelow competitiveness and developmentlevel of the Romanian agriculturecompared to the community standards.Given the predominance of theagricultural area over the total arable area,the preponderance of private property andthe reduced average dimension of theagricultural exploitations, it may be statedthat the Common Agricultural Policy (CAP)

will have a significant effect on Romania.The production achieved by Romania inthis sector is under the incidence of CAP:in 2002, 57% of the agriculturalproduction was represented by thevegetable production (dominated bycereals) – which represents the main groupof products under the incidence of CAP,and 41% by the animal production –entirely under the incidence of thecommon agricultural policy. So, in theCommon position document, whichprovisionally closed the negotiations (onthe 4th of June 2004), there have beenidentified five strategic areas: ruraldevelopment, cultivable area for cereals,zoo culture - animal breeding, viniculturesector, agriculture-industry (sugar and milkprocessing).

5. An essential element in ensuring the long-term and sustainable-durable growth ofthe Romanian economy will berepresented by the programs aiming at thegradual development of the humancapital. Evidently, in the short and mediumrun there are inherent costs implied,which arise outside the educational sector,the research and development one, thehealth sector and the sector of informationinfrastructure.

6. It is necessary to increase the costs witheducation as GDP share. With a singleexception in 1998, the public expenseswith education, as a percentage of GDP,hang around 3%, despite the fact that theEducation Law provides a minimum of4%. This cost must be complemented withthe efforts for the accomplishment ofRomania’s integration in the European


87

space of higher education and research, aswell as the redefinition of the generalframework for education, professionalformation and training and the costsrelated to the personnel retraining andreorientation. Among the benefits impliedby the adoption of the Community Acquiswith regard to education there are to bementioned: the increase of the averageeducation level, which creates, ateconomic level, the premise for theincrease in the sophistication level forboth the productive activities anddemand; the increase in the degree ofcorrelation between the abilitiesdeveloped by the education system andthe ones requested in the labour market,which contributes to an increase in thedegree of human potential utilisation; theassurance of an homogeneous frameworkfor the occupational qualifications andstandards, which will create the premisefor a good order in the free movement ofthe labour force, with positive effects inrespect of adjusting the misbalancesexisting on the labour market.

7. Relatively to most EU member states, thesupport given in Romania for knowledgerelated activities (innovation, research anddevelopment, and higher education) issituated at a low level, which affects theflexibility of our economy and populationand diminishes the potential of growth inthe future. Not accidentally did theCouncil from Lisbon propose as the EUmain target the achievement of the „mostcompetitive economy in the world” statusfor the EU, and the Council fromBarcelona associated this target with the

fundamental factor called policies in theresearch and development area. The costsimplied by the achievement of such anobjective are unfortunately not just thedirect ones, which would mean to reach alevel of 3% of GDP for the total expensesin the research and development area, outof which one third governmental expensesand the rest covered by the private sector.The main issue consists in a huge difficultyand high adjacent costs necessary forimpelling the private sector to increase theinternal investments in research anddevelopment, on the one hand, and thehuge opportunity cost hidden by the non-achievement of this objective, on the otherhand.

8. According to the partial results presentedin the previous chapters, the sectors thatseem to be holding the winning cards forthe next years, due to the specific pre orpost-accession processes, are: marketservices, which will continue thedevelopment process stared in 1990, at ahigher pace relative to the rest of theeconomy, agriculture, due to the effortswhich Romania will focus onrestructuring, with an important financialand know-how support from the EuropeanUnion, as well as the sectors extremelyexposed to international competition,which lived though the initial competitiveimpact and the diminution of the domesticdemand in the first years of transition. Thedevelopment of imports and exports willcontinue at a steady pace, which willadditionally increase the externalcompetitiveness of these sectors.

9. In the information technology and


88

communication area, costs are related tokeeping under observation the competition onthe IT&C market, financing the e-Governmentprogrammes and applying the eEurope+ plan,supporting the development of infrastructure,as well as implementing the informationtechnology in the education system. Thebenefits consist in the tariff reduction for theIT&C services, the increase of the telephonyand Internet penetration rates, theparticipation in the eTen programme, but alsoin global advantages offered by thedevelopment of the information society(reduction in administrative corruption,increase in productivity, and reduction inproduction prices).

10. The social-economic activity sectors liableto suffer, in the future, at least in the shortand medium run, the impact of costs at ahigher level than benefits, will be thoserelated to the necessity of restructuring thearea of environment protection and thepublic utilities sectors. The labour marketmay experience distorting phenomena inthe next years, regardless of the scenariochosen by the political decision-makersfor Romania’s development, beforeperceiving the beneficial effects ofsustainable development among whichthe generation of new jobs will be mainlymentioned.

In terms of the macro-economic indicatorsevolution, the analyses comprised in the previouschapters and the prognoses based on the twoscenarios proposed to be run on the structure ofthe LINK-Dobrescu model for Romania lead us tothe following conclusions:

1. There is no doubt about the opportunities ofsustainable economic growth offered byRomania’s integration in the EU as soon as

possible. For the considered prognosisperiod – between 2004 and 2015 - theaverage yearly growth pace results to bewith approximately 2 percents higher in theintegration scenario case (4.54% comparedto 2.55%). Besides representing a yearlyexcess of gross domestic product equivalentto around 900 million – 1 billion Euros, thisdifference allows us to talk about aconvergence phenomenon of the Romanianliving standard towards the average EU one,in the integration scenario case, while in thedelayed scenario case divergences show upat the horizon of 2011-2012.

2. The integration of Romania in the EU in2007 can generate higher costs comparedto an alternative scenario of isolationism ordelayed integration in the first period oftime, corresponding to the pre-accessionand the first two-three years of post-integration in certain sectors of economicactivity and for certain groups of economicagents. It is the case of the growth rate of thereal average gross wage by economy whichseems to be higher in the delayedintegration scenario, in the first years of theperiod of interest, up to 2009-2010. Also,the trade balance deficit is higher in theintegration scenario up to year 2010, withvalues close to 1 billion Euros per year. Theunemployment rate presents lower values inthe first 5-6 years in the alternative scenariocase but is deteriorating towards the end ofthe prognosis period.

3. One of the main benefits of Romania’sintegration in the European Union isprovided by the openness degree of theeconomy towards the rest of the world (theweight in GDP of the sum of exports and


89

imports of goods and services). This isoscillating in the alternative scenario casebetween 76-80% during the prognosisperiod, whereas in the integration scenariothis is increasing gradually from 76% up toover 100% in year 2015. The openingphenomenon is accompanied by beneficialeffects as well as by the increase of foreigninvestment flows towards the Romanianeconomy sectors, the increase of the abilityto cover the necessary external funding ofthe internal deficits, the increase of thebilateral flows of labour force betweenRomania and other EU states and implicitlyof the income flows of the productionfactors, the increase of the labourproductivity in the Romanian economy,even in the less-developed sectors likeagriculture, as a result of the limitedtransfers of technology and structural fundsfor development and of the highcompetitive pressure of the single Europeanmarket.

4. Even if it is supposed that the policiesadopted in the case of an isolationistscenario would copy the policies of anintegration scenario, the results continues tobe different and in favour of the rapidintegration scenario. This demonstrates thatthe evolution in economy is not follow thesimple rules of arithmetic, but is a systemwith compensatory feed-back, which makes

the positive effects to be amplified throughsynergies of influence factors likerestructuring the system of domestic andexternal prices, factors of technical progressor development of human capital. Theconcrete example is offered by theevolution of Romania’s economy in the2000-2003 period, as compared to theresults obtained by running two differentscenarios, one starting from social-economic policy measures similar to thereal ones, the other extending the realhypotheses specific for year 2000 to theentire simulation period, up to 2004(freezing the social-economic policies atthe level of the basic year). The simulationsbased on the two scenarios offer resultsinferior to the effective achievements of thereal economy, which demonstrates that amodel will not be able to reveal bothstructural and behavioural changes to datein the macro and micro-economy. For the2000-2003 period, the growth of real GDPcumulated in the simulated isolationistscenario is 7,34% and 12,93% in theintegration scenario, whereas, in actual factthe increase in volume of the grossdomestic product in Romania was close to18% in the considered four years. A moredetailed picture of the differences betweenthe two above-mentioned scenarios isshown in the table below:


90


91

Table - Estimation of macroeconomic consequences of the integration of Romania in the

second stage of the process, 2005-2015 (base year – 2004)

- Percentage difference between the scenarios (integration vs delayed-integration) -

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

GDP 0.12% 0.60% 3.18% 6.48% 9.18% 10.51% 13.32% 17.52% 21.49% 26.80% 32.02%

Domestic

aggregate

demand

0.90% 0.40% 2.57% 5.91% 8.61% 9.65% 12.22% 16.47% 20.40% 25.53% 30.24%

Investment 0.19% 0.43% 4.72% 10.21% 16.53% 20.58% 27.66% 37.01% 46.04% 58.53% 71.78%

Private

consumption

0.11% 0.12% 2.44% 5.13% 7.72% 8.75% 11.31% 15.60% 18.91% 24.25% 29.31%

Current account

deficit *

0.00% -0.05% -0.31% -0.46% -0.57% -0.41% -0.40% -0.74% -1.10% -1.48% -1.77%

General

consolidated

budget deficit*

0.39% 0.18% 0.04% 0.17% 0.20% 0.11% -0.25% -0.43% -0.27% -0.14% -0.19%

Employment

rate**

1.88% 2.65% 1.73% 1.72% -0.22% 2.37% -0.95% -0.50% -2.61% -3.18% -5.52%

Unemployment

rate**

-1.87% -2.75% -1.67% -1.77% 0.26% -2.57% 1.05% 0.50% 2.64% 3.35% 5.48%

Labour

productivity***

0.03% 0.07% 1.22% 2.84% 4.37% 5.30% 5.96% 8.69% 12.16% 16.99% 22.46%

Real wage rate 0.01% 0.05% 0.85% -1.74% -1.57% -0.16% -0.08% -0.06% 0.12% 3.11% 5.53%

Inflation** 0.01% -0.01% -0.99% -1.04% -0.96% 0.05% -0.43% -1.00% -1.50% -1.02% -1.03%

*The deficit is expressed as share of GDP and has negative values. The differences presented are to be read as

follows: a negative value means a larger deficit in the integration scenario as share of GDP, a positive value

represents a smaller deficit in the integration scenario, expressed also as share of GDP.

**Differences between the values registered in the two scenarios.

***GDP per employed population

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ROMANIAN JOURNAL OF EUROPEAN AFFAIRS is the firstRomanian publication to focus exclusively on the European integrationdebate and on Romania's role in an enlarged European Union.

The editors warmly welcome submissions of papers. The RJEAcomprises mainly articles. We also intend to develop a section of bookreviews. The Romanian Journal of European Affairs may include articlesthat go beyond the scope of European integration topics, but are,nevertheless, intrinsically connected to them.

The ideal length of an article (written in English or French) is from4 000 to 8 000 words, including a 200-word abstract in English or Frenchand a very brief autobiographical note. Book reviews will be no longer than2 000 words.

RJEA is published on a quarterly basis, therefore contributorsshould consider notifying us of their intention to submit articles as soon aspossible (specifying title of the article, name of the author, abstract and abrief autobiographical note). Please send your articles or book reviewsbefore February 1st, May 1st, August 1st and November 1st respectively,so that your contribution may be considered for publication in theupcoming issue.

Contributors should send notifications, as well as the final andrevised version of their articles or reviews in electronic form to [email protected].

Documents

Rjea Vol4 No4 Dec2004