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IV. TRADE POLICIES BY SECTOR
(1) OVERVIEW
1. At Romania's first Trade Policy Review in December 1992, the process of shifting from a
predominantly state-controlled economy to a market economy was at an early stage.  The legacy of
the communist regime – one of the most centrally controlled economies in the region – was still very
much in evidence.  Participants at the Trade Policy Review had recognized the positive steps onrestructuring already taken but had also noted that "the process would be long and difficult, with
significant social costs".
1  Romania's trading partners had urged determination in the pursuit of reform
and macroeconomic stabilization.  They had also noted the importance of a supportive external
environment for Romania's successful transition to a market economy.  Romania's second Trade
Policy Review therefore provides an opportunity to assess the progress to date and the challenges forthe future to complete the transition.
2. Romania's privatization programme effectively dates from 1995. A portion of the shares in
state-owned enterprises in industry and services were distributed to citizens, and the remaining shares
held by the State were to be sold to domestic and foreign investors.  The latter process, however,
lagged behind expectations;  as of the end of 1996, just 20% of the planned privatization had beencompleted.  Without the discipline of the market, the financial condition of state-owned enterprises
deteriorated sharply.  The resulting build-up of arrears destabilized suppliers of inputs, increased the
volume of non-performing loans in the banking system, and undermined budgetary deficit targets.  As
of 1997, the Government's strategy shifted to rapid privatization and the closure of insolvent
enterprises, accompanied by measures to contain th e social implications.  The trend for privatization
in 1998 and 1999 is encouraging.
3. Developments during the period under review indicate more progress towards the market
economy in the sectors of agriculture and services than in industry, although significant challenges
remain in all sectors.  With respect to agriculture, control of land had largely shifted to the private
sector at the time of the previous Review.  Given the quality of the soil and the climate, considered to
be the most favourable in south-eastern Europe
2, the Trade Policy Review of 1992 envisaged export
development in this sector.  Although production had recovered in 1998 to 1989 levels, Romania is anet importer of agricultural products, indicating that the sector is under-performing in relation to its
potential.  Challenges for the future include the development of more efficient structures of
agricultural production, based on a fragmented pattern of land tenure, and the completion of
privatization of state-owned farms and of upstream and downstream industries.
4. The authorities improved the efficiency of measures to support and protect agricultural
producers during the period under review.  Export bans and quantitative restrictions that had been
introduced to reserve domestic production for the Romanian market were eliminated as of
1 January 1998.  In mid-1995, the authorities implemented the bound rates on agricultural products in
Schedule LXIX, to a simple average of 142%, but reductions in applied tariffs starting in 1997 have
brought the average applied MFN tariff down to 34%;  these reductions are important for the welfareof consumers, who spend some 60% of their budgets on food and beverages.  As of mid-1999, the
authorities provide assistance to agricultural producers through measures of domestic support.
5. Due to the lagging pace of privatization, the performance of industry is still dominated by
large state-owned enterprises.  A plethora of measures are used to keep such enterprises open,
including subsidies and the accumulation of arrears to the budget and suppliers, in addition to
                                                     
1 GATT (1993), Vol. II, p. 4.
2 GATT (1993), Vol. II, p. 80.WT/TPR/S/60 Trade Policy Review
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measures of protection at the border.  The main challenge facing the authorities is addressing the
adverse social consequences of restructuring.  Although temporarily sustaining employment and
incomes in Romania's hinterland, the authorities recognize that state-owned enterprises cannot be
indefinitely kept open for this purpose.  Multilater al lending agencies are supporting the Government's
efforts to restructure by providing financial resources to facilitate the adjustment of the labour force.
6. Romania's private sector is emerging, however, as a result of privatization and investment.
The authorities see Romania's economic future as depending mainly on the small and medium-sized
enterprise (SME).  In particular, the SME is the l eading form of industrial organization for Romania's
production of garments, the most dynamic sector in Romania's exports and imports.  The sector's
development also benefited from the elimination of long-standing import restrictions by the European
Union and Norway.  To further support the development of SMEs, the authorities have granted thisgroup of enterprises a fiscal incentive and intend to reduce, to the extent possible, the burden of taxes
and the costs of compliance by adopting a new tax code.
3  However, the authorities concede that
private sector development also depends, at this juncture, on the successful pursuit of privatization.
7. A vital component of private sector development is the more efficient provision of
business-related services, a sector stifled under central planning.  The authorities have given thepriority to regulatory change and privatization in financial and telecom services, as demonstrated by
the commitments assumed by Romania under the GATS.  On financial services, in particular,
Romania has a policy of open non-discriminatory access for the establishment of banks, subject to
prudential regulations.  As of 2003, Romania's market for basic telecom services will be open to
competition, and Romania has already opened the market for digital cellular mobile telephony.  In
1998, Romania successfully privatized stakes in the Romanian Development Bank and Romtelecom,
in each case with the participation of foreign inve stors.  Outstanding challenges for privatization in
1999 include transportation, utilities, and other financial service providers.
(2) P
RIVATIZATION AND ENTERPRISE RESTRUCTURING
8. In 1990, state-owned enterprises were either restructured as regies autonomes  in sectors
considered to be "strategic" such as energy production and distribution, mining, and telecom, or as
commercial companies, slated for privatization (L15/1990).4  The nominal capital of commercial
companies was established on the basis of book value, the cost of a company's assets (rather than
replacement value or market value), and registered at the Trade Registry.  A 30% share of the capital
in commercial companies (but not the regies ), was transferred to the population in the form of
Certificates of Ownership in five Private Ownership Funds (POFs), which acted as owner-
representative in the commercial companies (L58/ 1991).  Pending full privatization, the remaining
70% stake was held by the State Ownership Fund (SOF).  Foreign persons could participate in
privatization, but the SOF was required to grant preferential terms on price and financing management
and/or employees buy-outs (MEBO);  foreign investors benefited however from the provisions of the
law on foreign investment, including the incentive (L35/1991).
9. This initial approach, according to the IMF, "ended in failure due to organization problems,
conflicting incentives and political resistance".5  A new mass privatization programme in June 1995
                                                     
3 Herzfeld & Rubin (1999c).
4 By the end of 1991, the restructuring of state-owned enterprises had resulted in the creation of
320 regies  autonomes , 7,572 commercial companies whose capital was wholly owned by the State, and
338 commercial companies with partial state ownership of the capital (GATT, 1993, Vol. II, p. 17).
5 IMF (1997), p. 24.  The certificates of ownership were distributed to the population before the SOF
and POFs were established.  There were, moreover, inherent conflicts of interest because the POFs wereunwilling to trade the shares in their best companies against the vouchers and the SOF was not interested inRomania WT/TPR/S/60
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(L55/1995) covered the SOF's 70% stake in 3,905 st ate-owned enterprises.  Coupons (worth US$475)
were distributed to the population that had disposed of their certificates of ownership, and exchanged,
with the certificates (then worth US$12), for 60% of  the available shares in the selected companies,
either directly or indirectly through the POFs.  The remaining (non-controlling) stakes were offered
for sale to Romanian or foreign "strategic investor s".  To compensate for the inflated price of the
companies, the SOF offered a privatization rebate of 60% of the purchase price to pay debts or fundinvestment.  Foreign investors were also eligible for the investment incentive (Chapter III(4)(ii)).
10. To support the privatization programme, provide liquidity to shareholders and develop a new
source of funds for private sector development, secondary markets for trading securities were
established (L52/1994).  The capital market development programme consisted of the establishment
of the National Securities Commission to regulate, supervise, and control the capital market,accountable to Parliament;  the Bucharest Stock Exchange (BSE) and the over-the-counter market
(RASDAQ)
6;  The National Corporation for Clearing, Settlement and Depository;  and the
independent registers of shareholders, self-regulatory bodies of the capital market, securities
companies, custodian agents, independent external auditors, and investment advisors.  Open-end
investment funds (established on the basis of OU24/1993, modified and approved by L83/1994) are
regulated by the NSC.
11. The SOF's privatization results were disappointing, particularly for medium- and large-sized
companies (Table IV.1);  just 25% of medium-sized companies and 10% of large companies,
compared with 88% of small companies.  In terms of employment, only 20% of privatization had
been achieved by the end of 1996, accounting for just 780,000 employees of the initial
4,040,757 employees of state-owned commercial companies.7  The participation of foreign investors
in privatization tenders was modest, limiting the benefits to the Romanian economy of modernizingand developing the domestic capital base.
Table IV.1
Market privatizations of state-owned commercial companies, 1992-96
Size Original companies Annual number of companies privatized Total  privatized
1992 1993 1994 1995 1996
Small 3,124 15 238 473 322 982 2,030
Medium  2,549 6 24 110 268 238 646
Large 708 1 2 12 30 25 70
Total 6,381 22 264 595 620 1,245 2,746
Source : Data provided by the Romanian Development Agency.
12. The SOF, although the principal shareholder of state-owned enterprises, was unable to exert
financial discipline.  The administration of such enterprises consequently suffered, as manifested in a
build-up of inventories or low capacity utilization, the accumulation of arrears to suppliers and to the
budget, and a growing volume of non-performing loans in the banking sector.  Laws requiring
                                                                                                                                                                    
selling the stakes in the profitable companies in its portfolio, which it used to cross-subsidize loss-makers.
Certain wealthy Romanian investors accumulated hordes of certificates, disposed of by their owners at a fraction
of their face value, and were therefore in a position to acquire stakes in commercial companies.   This waspolitically unacceptable and it was decided in mid-1994 to launch a new privatization programme to revalue the
(already inflated) price of shares by a factor of four to five.
6 Listing requirements are described in Bucharest Stock Exchange (1997).  The number of listed
companies on the BSE increased from 76 in 1997 to 126 by the end of 1998 ( Romania:  Economic Newsletter ,
January-March 1999, Vol. 8, No. 4).
7 IMF (1997), p. 106.WT/TPR/S/60 Trade Policy Review
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financial discipline of state-owned enterprises proved unenforceable (e.g., OG13/1995), and creditors
(the State or other enterprises) did not have recour se to the new bankruptcy law (L64/1995);  the law
does not apply to regies .  An isolation programme (HG445/1994) for major loss-makers in SOF's
portfolio met without success.8  Without financial discipline, the condition of many regies  and
commercial companies deteriorated sharply, both in absolute terms and in relation to other Central
and Eastern European countries.9
13. After the 1996 elections, the Government's policy shifted to "rapid privatization of viable
companies and liquidation of non-viable economic agents through the court and administrative
procedures"10, accompanied by targeted programmes of redundancy payments, retraining, and
incentives for investment to mitigate the social cost s of transition in affected regions.  The rules and
procedures for privatization were modified (OU15/1997), and the authorities shifted to minimumoffered prices for companies, based on a "market" valuation rather than book value.  A number of
regies autonomes  were restructured as commercial companies to facilitate their eventual privatization
or liquidation (OU30/1997, as approved and modified by L207/1997).  The authorities separated the
bank privatization effort (L83/1997), and started preparing state-owned banks for privatization;
financial discipline on banks improved through a new bankruptcy law for banks (L83/1998), which
prevented insolvent private banks from operating.
14. An ambitious schedule of privatizing 2,710 companies in 1997 was established for the SOF;
just under one half were privatized by the end of the year.  Legislative instability in investment
(Chapter II(3)(v)), as well as the uncertain status of privatization rebates, may have had an adverse
impact.
11  In 1998, a new investment law (OU92/1997) and a new regime for privatization
(OU88/1997 approved by L44/1998) were introduced.12  The scope of the privatization programme
was enlarged to include regies  autonomes  restructured as commercial companies, and the
privatization of small and medium-sized companies was decentralized to local branches of the SOF.
Other changes are minimum environmental objectives for the buyer13, and the Government's "Golden
Share" in restructured regies autonomes  transferred to the SOF for sale.14
                                                     
8 According to OECD (1998, pp. 99-102), the programme delayed meaningful restructuring, and the
financial situation of the state-owned companies consequently deteriorated.
9 Pohl et al. (1997).
10 Government of Romania (1998a),  p. 94.
11 OU37/1997 rescinded the provisions of L55/1995 on the 60% privatization rebate, leaving unclear
the situation of investors having bid for a company prior to the elimination of the rebate.  The situation was thenclarified by OU59/1997, in October 1997, as a result of which the 60% privatization rebate was available for
contracts concluded up to 6 October 1997, and for contracts resulting from direct negotiation (but not auction).
12 The Government modified the institutional framework to speed privatization.  The two central
government bodies mainly concerned with privatization - the Romanian Development Agency (RDA) andNational Agency for Restructuring (NAR) - were merged to form the Ministry of Privatization (HG51/1998),and the SOF was subordinated to the new Ministry.  To emphasize the commitment to privatization of theauthorities, the Prime Minister assumed the direction of the Ministry of Privatization (HG363/1998).  This
institutional framework was modified again at the end of 1998.  The Ministry of Privatization was dissolved and
its functions assumed by the RDA, now responsible for providing foreign investors with the contacts ingovernment ministries and agencies to facilitate inve stment and participation in privatization (HG977/1998),
and the SOF resumed its previous status as an autonomous body, responsible to Parliament.
13 The methodological norms for the rules and procedures for the sale of shares and/or assets under
OU88/1997 were approved by HG55/1998.  The authorities ex plain that an environmental balance sheet for the
commercial company to be privatized is established, fr om which objectives are set for the buyer;  realization is
monitored by the relevant environmental authority.
14 Article 34 establishes the right of the State to appoint one or two representatives to the Board of
Administration and to disagree with decisions on the sale of assets, the take-over or liquidation of the company.Romania WT/TPR/S/60
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15. Results for 1997 and 1998 indicate an improvement in the pace of privatization of large and
medium-sized enterprises in relation to 1992-96, as well as an increasing involvement of foreign
investors in the process (US$515 million in 1997 and US$611 million in 1998).   Results for 1998
were mainly due to several large privatization deals – including the sales of 35% of Romtelecom and
51% of the (re-capitalized) Romanian Development Bank.  Another significant development for
enterprise restructuring is the expanding scope of bankruptcy proceedings for loss-making companiesthat cannot be saved by privatization (Table IV.2).
Table IV.2
Bankruptcy proceedings for commercial companies under the management of the State Ownership Fund (SOF), 1994-98
Stage of proceeding 1994 1995 1996 1997 1998 Total
Commercial companies under administrative
liquidation446 3 77 5 8
Commercial companies in judicial liquidation 2 9 30 38 127 206
Commercial companies removed from the
Trade Registry10334 1 1
Source : Data provided by State Ownership Fund of Romania.
16. This positive momentum on privatization has continued in the first half of 1999, the
authorities reporting the signature of privatization contracts worth lei 4,140 billion (US$275 million).
These contracts include the sale of Dacia, the most important car company, to Renault and the sale of
a 45% stake of Bancpost to GE Corporation and the Portuguese Investment Bank.  The authorities
have in place a new privatization law (L99/1999) and intend to accelerate restructuring and
privatization (HG374/1999), in particular for financial institutions, in order to qualify for World Bankprogrammes (PSAL and PIBL).
(3) A
GRICULTURE , INDUSTRY AND SERVICES
(i) Agriculture
(a) Policy objectives
17. Agriculture is a sector of particular importance to Romania.  Agricultural land covers some
14.8 million hectares, of which two thirds is arable (hills and plains) and the remainder pasture
(mountains);  forests are an additional national resource, covering some 6.7 million hectares.  The
most recent data for 1997 indicate that agriculture accounted for 36.8% of the active labour force –
3.3 million of a total 9.0 million – compared to 32.2% in 1992.  The sector's absorption of labour
during the period under review underlines its role as a social buffer in Romania's transition to a
market economy.  However, labour productivity is low, since agriculture accounted for just 16% of
GDP in 1998 (19% in 1997).  As an indicator of the importance of agricultural policy to consumers,58% of total household expenditure was devoted to food and beverages.
15
18. A striking characteristic of Romania's pattern of land tenure is the extreme fragmentation that
resulted from the process of reconstituting property rights or attributing such rights at the start of the
transition.  The Land Law (L18/1991) provided for the allocation of ownership rights over this land to
former owners or their successors, or to families that did not have property rights, up to a limit of10 hectares per owner.
16  Millions of family farms were thus established on small areas, largely
                                                     
15 European Commission, DGVI (1998), p. 22.
16 After 1945, expropriations and forced collectiviza tion left the State in a dominant position through
cooperatives and state-owned farms.   Land seizures led to the spontaneous privatization of the cooperatives,brought within the law by the restitution programme of the Land Law (Turnock, 1998).WT/TPR/S/60 Trade Policy Review
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devoted to subsistence farming.  More efficient structures of agricultural production emerged in some
areas by the establishment of larger farms through land sales and purchases (subject to a limit of
100 hectares under L18/1991), and also through farmer associations (under L36/1991) or less formal
"family associations".  As of 1998, the pattern of land tenure remains highly fragmented, with
2.33 hectares as the average size of the family farm (Table IV.3).17  In contrast, the state-owned farms
retained their large cultivated surfaces and we re restructured into commercial companies for
privatization;  however, the privatization process has lagged.
Table IV.3
Structure of agricultural production, 1998
Agricultural area
('000ha)Percentage of total
areaNumber of farms Average size (ha)
Total 14,746 100 n.a. n.a.
Of which:
Commercial companiesa1,747 12 676 2,584
Farmers associations 1,558 11 3,578 435
Family associations 950 6 7,175 132
Individual farmers 9,182 62 3,946,121 2.33
n.a. Not applicable.
a Former state farms.
Source: Information provided by the Romanian authorities.
19. Another feature of the Romanian agricultural sector at the start of the transition was the
dominant role of the State in upstream and downstream activities.  The "integrators" operated at the
farm gate to purchase excess production, and other state-owned enterprises functioned on the input
side, managing the supply of services of collectively owned agricultural machinery and equipment("agromecs, serragromecs, agroservice"), and providing seed and fertilizer inputs.  Such enterprises
were restructured under L15/1990 into regies autonomes , operating in grain purchasing, tobacco
purchasing, and research, and the remainder into commercial companies, slated for privatization.
Regies autonomes  were further transformed into commercial companies (to be privatized), or national
agencies (National Agency for Agricultural Products, National Society for Tobacco).  Companieswhere the State is a majority shareholder also account for the bulk of production of agricultural
machinery and equipment.
20. In this context, assistance granted to farmers consisted mainly of minimum purchase prices at
the farm gate and maximum prices for their inputs.  In 1992, administered prices applied to wheat and
milk, and to inputs – credit, diesel fuel, chemical fe rtilizers, seeds, mechanized services, pest control
substances, and irrigation – covered by subsidies from the Budget.
18  Another form of assistance was
the low-interest loans channelled mainly to state-owned enterprises by commercial banks and
especially Banca Agricola due to the client profile of this bank.  At the level of the consumer,
subsidized prices applied to products such as cooking oil, milk, bread, butter, sugar, and meat.19
                                                     
17 The clarification of ownership rights over land privatized through the Land Law was needed to give
farmers the collateral to secure credits  or the right to dispose of their land.  By 1998, 75.7% of titles to private
land had been distributed, accounting for 84% of the cove red agricultural land, compared to 3% at the time of
the first Trade Policy Review.  The Land Law was modified in 1997 to increase the restitution limit to
50 hectares (L169/1997), but the resulting claims could not be reconciled against available land, and the
implementation of the law is the subject of a draft law under discussion in the Parliament.
18 GATT (1993), Vol. II, p. 84.
19 GATT (1993), Vol. I, Table AIV.11, p. 148.Romania WT/TPR/S/60
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Domestic shortages were contained by export bans or quantitative restrictions as well as by temporary
exemptions or reductions on tariffs applied to certain imported products.
21. During the period under review, the system has undergone a substantial transformation
towards a reliance on market signals for producer and consumer choices, as well as more transparent
forms of assistance.  All prices were liberalized, including minimum and maximum prices at the
output and input levels, respectively, as well as prices at the wholesale and retail levels.  Exportrestrictions were also eliminated.  In mid-1995, Romania's applied tariffs on agricultural products in
Schedule LXIX averaged 142%, but applied levels were reduced on a temporary basis starting in 1997
(Chapter III(2)(iii)).  The practice of low-interest loans was eliminated in 1997.
22. At present, farmers are allocated vouchers on a per hectare basis to purchase inputs or
services at market prices;  the programme started in 1997 and was continued in 1998 and 1999.  Asum of lei 2,200 billion (about US$191 million) was allocated to vouchers in the Budget for 1999
(L36/1999) of a total budget of lei 5,300 billion for agriculture for 1999 (about US$459 million).
20
Individual agricultural producers are also exempted from the profits tax until 2000 (OU44/1997).  Inaddition, other measures of domestic assistance provided in 1999 concern (a) price reductions for
seeds produced in Romania used during the 1999 campaign (grains, potatoes, sunflower, soya, sugarbeet, hemp, flax, fruit trees, and vineyards);  (b) a subsidy of 70% for the interest on loans to finance
agricultural production from a fund established for this purpose (L/65/1998);  and (c) a 100% subsidy
for the reception, warehousing, and maintenance costs for wheat, for three months (OG49/1998).
23. The restructuring and privatization of the commercial companies in agriculture and food
production, where the State is the major or partial shareholder, also progressed.  The state monopoly
for grain storage, the regie autonome  Romcereal, was restructured (HG1054/1995) into the National
Agency for Agricultural Products (ANPA) and Comcereal, the latter consisting of 42 companies to beprivatized;  as of June 1999, 31 of the 42 had been privatized.  Privatization covered 1,014 of the
1,682 agricultural service providers (including agromecs), and 350 of the 534 food processors
(including beverages and tobacco).
(b) Key subsectors
21
Cereals
24. On an acreage basis, cereals are Romania's most important crop, accounting for 62% of arable
land (Table IV.4).  Major cereals-producing count ies of Romania are to the south and west of
Bucharest.  Production is mainly concentrated in maize (some 60% of acreage planted to cereals) and
wheat (30%).  Romanian yields are low, reflecting the declining use of inputs by private farmers, thedeteriorating quality of irrigation systems, and th e need for greater competition in the upstream and
downstream sectors.  In this context, the evolution of net exports from year to year depends mainly on
weather conditions.  In 1995, for the first time since 1989, the net export balance for cereals was
positive, maintained in 1996, 1997 and 1998.  If higher yields were to be realized on a consistent basis
(the highest yield since 1989 is 3.18 tonnes/hectar e in 1997), Romania would further consolidate its
position as a net exporter of cereals.
25. In addition to the assistance provided to farmers by vouchers for the purchase of inputs, and
the profit tax exemption until 2000, producers of cereals also obtain assistance in the form of price
                                                     
20 Export bonuses of lei 4.3 million tonne (US$293 tonne), apply to 20,000 tonnes of pork and
lei 5.5 million/tonne (US$374/tonne) for 10,000 tonnes of poultry.  ( Romanian Economic Daily , No. 70,
1 March 1999).  According to the authorities, no exported quantities have received the subsidy in practice.
21 Based on European Commission, DGVI (1998).WT/TPR/S/60 Trade Policy Review
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reductions for seeds produced in Romania, and used in the 1999 compaign;  a subsidy of 70% for
interest on loans to finance agricultural production (reimbursed from a special fund established by
L165/1998);  and free service, for three months, for the reception, warehousing and maintenance costs
for wheat (OG49/1998).  The simple average tariff on cereals is 14.2%.  Greater competition was
introduced in contracting and purchasing operations by the restructuring of Romcereal in 1995.
Export development is constrained by the throughout capacity of the Port of Constanta, on the BlackSea, currently under expansion.
Table IV.4
Crop distribution on arable land, 1989-98
1989 1992 1995 1996 1997 1998
Arable area 9,458 9,357 9,337 9,339 9,341 9,324
Of which:
Cereals 6,027 5,774 6,445 5,843 6,320 5,921
          - Wheat 2,359 1,475 2,501 1,798 2,424 2,035
          - Maize 2,733 3,336 3,109 3,005 3,037 3,136
          - Barley 768 628 582 515 626 517
Fodder 1,149 1,442 1,202 1,223 1,113 1,129
Oilseeds 1,072 810 807 1,012 872 1,156
Permanent crops
Orchards 318 305 278 271 266 241
Vineyards 278 299 292 289 286 275
Permanent pasture 4,705 4,830 4,890 4,890 4,901 4,904
Total of agricultural land 14,759 14,790 14,797 14,789 14,794 14,746
Forests 6,678 6,682 6,680 6,690 6,689 6,672
Source: Data provided by the Romanian authorities.
Wine
26. Romania is the eighth leading producer of wine in the world, with a level of production
comparable to that of Portugal or Germany.  Vineyards covered about 255,000 hectares in 1998,
located mainly in hilly areas in the Eastern and Southern Subcarpathian region, in the Transylvanian
plateau, and in the west of the country.  For the period 1993-97, annual production averaged
5.7 million hectolitres (about 23 hectolitres per hectare).  Of this domestic production,
450,000 hectolitres were exported annually, mainly to Germany, the United States, and theUnited Kingdom.  Romania applies a relatively hi gh degree of protection on imported wine – an
applied tariff of 144% in 1999 (compared to a statutory rate of 332.5%).
Live animals and meat
27. Romania was a net exporter of live animals and meat in the mid-1980s, spurred largely by a
re-direction of production from domestic consumption to exports.   An export ban on food exportswas temporarily imposed in 1990, but had been lifted on many products at the time of the first Trade
Policy Review, permitting some recovery in net exports.  All remaining quantitative restrictions on
food products were lifted during the period under review.  Protection is currently assured by tariffs at
the border, which rise by stage of processing from an average of 15% on live animals (bovine, swine,
sheep and goats, poultry) to 40% on the corresponding meat products.  Support is provided byvouchers to purchase inputs, allocated on the basis of hectares of arable land.Romania WT/TPR/S/60
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28. At the end of 1997, family farms owned 92% of the cattle herd, 72% of poultry, 59% of pigs
and 95% of sheep and goat herds;  the remainde r was accounted for by privately owned commercial
companies and state-owned farms.  Family fa rms produce mainly for own consumption, and are
therefore poorly equipped to manage herds in terms of feedstuffs, veterinary services, and breeding.
From this perspective, state-owned farms are better equipped, but their financial condition has
deteriorated sharply.  As a result, herds of live animals declined sharply in 1989-93, except for horsesused for transport and to work the land.  In relation to 1989 levels, the declines have been sharpest for
cattle and pigs (each down 50%).
29. These developments in the livestock sector have not substantially affected the evolution of net
exports, due to a shifting pattern of domestic consumption.  With respect to milk production, herds of
milk cows (within the cattle herd) have remained relatively stable and yields have risen sharply, butthe higher production has been consumed domestically.  For meat, total production in 1997 was
1,705,000 tonnes, compared to 1,911,000 tonnes in 1989, and per capita consumption decreased by
10% during the period under review.
Forests and wood
30. Romania's forests cover about 28% of its total area, and are located mainly in the Carpathian
mountains and its foothills.  Forests are almost entirely owned and managed by the State, through a
regie autonome .  After years of overexploitation by the former communist regime, the new Forestry
Code of 1996 requires the regie  to manage the national forests on sustainable basis, accounting for the
preservation of the environment.  On the proposal of the Ministry of Waters, Forests and the
Environment, the Government decides on annual ceilings for cut wood production, and sells the
resulting allocation to economic agents on the basis of auctions.
31. Cut wood is an important national resource – a source of fuel for households and also the
basis for Romania's export-oriented furniture industry.  Until 1998, domestic prices for cut wood were
depressed, in relation to world market prices, by the export ban on cut wood (automatic import
licensing continues to apply).  The tariffs applied at the border rise with the degree of processing,
from 7% on sawn wood to 30% on shaped wood and some 20% on furniture and other finished
products.
Fish
32. Romania has a fishing fleet composed of three ships, of which one trawler operates in the
Atlantic Ocean.  The fish is deep-frozen and directly  delivered on third markets.  Such fish, if caught
by or processed on Romanian-registered vessels is duty free (Chapter III(2)(v)).  Romania bound its
rates on most fish and fish products already in the Tokyo Round at 25%, and these rates were appliedin 1999.
(ii) Industry
(a) Policy objectives
33. Industry accounts for 35.5% of Romania's GDP a nd, within industry, state-owned enterprises
account for some 70% of total activity.  Many such  enterprises are loss-making, especially those in
energy-intensive activities, such as metallurgy, ex traction, chemicals, and transport equipment, which
accounted for one half of total industrial activity in 1997.  Such enterprises have a low level of energyWT/TPR/S/60 Trade Policy Review
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efficiency, the legacy of the distorted energy price policy of the former communist regime.22
Domestic prices of energy were doubled in 1997 and subsequently adjusted for developments in
world market prices and the exchange rate.  Energy inputs are supplied by state-owned enterprises
active in mining, energy production, importation and distribution (e.g., ROMPETROM and
ROMGAZ), and electricity generation (e.g ., CONEL, the national power authority).
34. Romania's state-owned industrial enterprises face major challenges to achieve
competitiveness on domestic and international market s.  The increased losses associated with low
capacity utilization or the build-up of inventories would normally subject such enterprises to
bankruptcy procedures and potential liquidation ( under L64/1995).  Given the social implications –
especially for mono-industrial areas such as the Jiu Valley (coal mining) or Galati (steel production) –
the State has not consistently used the instruments at its disposal to ensure financial discipline.Instead, such enterprises were kept open by large fiscal and quasi-fiscal subsidies, including direct
fiscal transfers, transfers from the State Own ership Fund, [salary and employer and employee
withholding] tax arrears, arrears to other enterpri ses (especially the utility supplier companies), and
arrears to banks".
23  Progress has been made, however, to reduce subsidization in 1998 for coal
mining (from US$385 million in 1996 to less than US$100 million in 1999), and lignite production isno longer subsidized.
35. For the state-owned commercial companies (including restructured regies autonomes )
operating in industry, the Government's objective is clear:  achieve privatization by the end of 2001.
This strategy relies on a more efficient and far-reaching programme than in the past.  It includes
decentralizing the activities of the SOF from Bucharest to its county branches, to bring the process of
privatization to the location of the companies themselves.  Companies will be privatized at the market
price, even if the price is lower than that id entified in the valuation report for the company
(L99/1999).  For certain designated investments of over US$50 million, customs duty, VAT, and
profits tax exemptions apply, subject to perfor mance requirements (OU67/1999).  Enterprises that
cannot be privatized will be granted subsidies or liquidated;  the line between the two options will be
determined, according to the authorities, by an  appraisal of the social cost (primarily labour
redundancy and unemployment insurance payments) implied by a shut-down.
36. The authorities acknowledge the sharp dichotomy between the state-owned enterprises and
the emerging private sector, operating within Romania's framework for private sector development
(Chapter III(4)).  Characterized by a low energy intensity, the authorities note the dynamic profile of
small and medium-sized enterprises (SMEs) produc ing communication equipment, electric machines,
textiles and clothing, fur, leather and shoes, and furniture, mainly through linkages with companies inthe European Union.
(b) Key subsectors
Energy
37. Romania has the largest indigenous production of crude petroleum and natural gas among the
Central and Eastern European countries, and also the largest petrochemical industry, dating from theearly 1970s.
24  Romania produces about one half of its total domestic needs for primary energy inputs,
and imports the rest (about 20% of Romania's impor ts).  Primary energy inputs are purchased at world
                                                     
22 Romania has the highest level of energy input per unit of physical output of crude steel among the
OECD countries and other countries in Central and Eastern Europe (OECD, 1998, pp. 164-168).
23 Government of Romania (1998a), p. 112.
24 U.S. Department of Energy (1998).Romania WT/TPR/S/60
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market prices by PETROM and ROMGAZ and are sold either to refiners or to RENEL to be
transformed into energy and then sold to enterprises.
38. Romania is addressing its "energy problem" in a number of ways.  Since 1992, the authorities
have permitted foreign investors to explore and develop Romania's hydrocarbon resources, located
onshore and offshore in the Black Sea (Box IV.1).  The domestic electricity monopoly, RENEL, was
restructured by HG394/1998 and HG395/1998 to enhance the scope of competition in the supply ofelectricity.  Privatization of generating plants is expected to attract foreign investment to upgrade
equipment.
25  The authorities are counting on investors in privatization to address the energy intensity
of industry as part of their general efforts to upgrade production facilities.
Machines and equipment
39. The situation of state-owned enterprises producing machinery and equipment also reflects the
legacy of the socialist regime.  In 1997, this branch was the single most important source of industrial
employment, at 13%, down from 16% at the time of  Romania's first Trade Policy Review.  At that
time, activity was sustained by the trade and payments arrangements under the CMEA;  after their
collapse in 1992, Romania had difficulty in establishing new markets, and stocks of output therefore
stood at over 50% of total output in 1997.  At the same time, Romania's need for capital goods – and
demand for consumer electronics – has expanded its imports of machinery and equipment, which now
account for 23% of imports, up from 15% in 1992.
40. Romania's tariff treatment of imports of machinery and equipment that are capital goods is
more favourable than those that are consumer g oods.  Televisions, audio equipment, and domestic
appliances are subject to the highest level of tariffs on non-agricultural products – about 40%, on
average – on top of which an excise tax of 15% and VAT of 22% is also applied (Table AIII.5);  the
VAT and excise tax also apply on domestically produced goods.  In principle, imports of capitalgoods are subject to a lower average level of tariffs – phased out for products covered by the ITA by
2000 – plus a VAT rate of 22%, but not an excise tax.  In practice, however, an exemption from
customs duties and VAT may be claimed as part of the incentive granted under an investment regime
(Table AIII.10)).
Transport equipment41. Romania's domestic industry produces ships, rail transport equipment, tractors and
automobiles, as well as ensuring their repair and that of airplanes and helicopters from abroad.
Transport equipment belonging to foreign persons may be repaired in Romania under the inward
processing regime, with the suspension of import rights.  The authorities have taken certain measures
to stimulate the export of products with long manufacturing cycles (OG14/1995), a product category
which includes ships and tractors, by providing an exemption from the payment of customs duties, the
customs commission, and VAT for imports of parts and components (Chapter III(2)(v)).
                                                     
25 Herzfeld & Rubin (1998c).WT/TPR/S/60 Trade Policy Review
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Box IV.1:  Investment in the exploration, deve lopment, and exploitation of petroleum resources
Article 135 of the Constitution of 1991 establishes that subsoil riches of any nature are public property, and
companies can therefore only conduct operations on a concessional basis.
The legal framework governing the exploration, development, and exploitation of petroleum resources
consists of the Petroleum Law (L134/1995) and HG1265/1996, which approves and sets forth theaccompanying Methodological Norms.  Companies, whether foreign or Romanian, are granted equalaccess.  Before a company can conduct operations, a concession agreement with the National Agency forMineral Resources (NAMR) is required.  The agreement covers the concession awarded and terms and
conditions guiding the concession.  The term of the concession may not exceed 30 years.
A concession agreement may be obtained either by establishing new exploitable reserves as a prospector,
or by participating in a NAMR-organized public bid for a confirmed deposit.  A prospector must obtain anexploration permit from the NAMR and, if the wells show results, a production and investment plan issubmitted to the NAMR for approval.  If the deposits are confirmed, the perimeter for petroleum operationsis established and technical and economic feasibility studies are concluded.  Upon approval of such studies
by the NAMR, the prospector is awarded a concession.
If, on the other hand, a company wishes to submit a bid for a confirmed deposit, that company must first
solicit the NAMR for the right to exploit the specific deposit.  Once this is done, the perimeter of thedeposit is established by the NAMR between January 1 and September 30 of every year and published inthe Official Monitor of Romania  by December 31.  A public bid is then opened up and participants must
submit technical and financial data about themselves, and establish a production and investment plan.  The
winner of the bid then negotiates with the NAMR and the final concession agreement is approved by theRomanian Government.
The successful bidder becomes a Romanian resident fo r tax purposes, and is subject to a 3% Petroleum
Operations Tax and a Royalty.  The 3% tax is calculated annually, based upon the gross value of "pricespracticed in the industry" during the applicable tax term.  The Royalty is established in each individual
concession agreement, and is paid in kind on a quarterly basis.  In addition, the titleholder is subject to
profits taxation (38%), from which the 3% tax and the royalty payments are deductible, starting from oneyear after production begins.
Titleholders benefit from an incentive in the form of customs duty and VAT exemptions on all imports
effected within the scope of petroleum operations, and all personal effects of expatriates hired by thetitleholder, its affiliates, and subcontractors.  Petr oleum producers may preserve foreign currency revenues,
or convert local currency transactions to foreign currency, and repatriate profits after fulfilling fiscal
obligations.  There is a five-year offset of explora tion expenditures for non-finalized objectives against
income from exploitation.
Titleholders are subject to additional taxation upstream .  For example, excise duties are due by producers
and importers of diesel oil and gasoline, and since 1996, producers of fuels have been subject to a 25%road tax applied on the wholesale price of fuel net of excise duty.  While the excise duty is included in the
taxable base of VAT, the road tax is excluded.
Source :  Herzfeld & Rubin (1998d).
42. Romania has a large potential market for automobiles based on its population of 23 million,
and low motorization index.26  The domestic automobile industry consists mainly of the state-owned
                                                     
26 Romania's motorization index is 7.1 persons per car, compared to between 2.0 and 3.1 persons per
car in the European Union.  (Government of Romania, 1998a, p. 349).Romania WT/TPR/S/60
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car company, Dacia, established in 1968 with th e assistance of Renault, and Daewoo Automobile
Romania, established in 1994 by the purchase of the car company OLTCIT, established in Romania in
1976 with the assistance of Citroen.  Dacia and Daewoo have a combined annual production capacity
of 210,000 units.  In 1998, Dacia sold 104,400 units on the domestic market and exported 1,360 units,
while Daewoo sold 23,500 cars on the domestic market and exported 2,600 units.
43. Protection for domestic production is ensured by the tariff at the border on new car imports of
30%.  Imports of used cars are assessed duties on the basis of the customs values established by the
Ministry of Finance (Chapter III(2)).  In addition to  custom duties, a specific excise tax of between 0
and 18%, a VAT of 22%, and a "road tax" of 5% (L118/1996 as modified) apply to imported cars;  the
excise tax, VAT, and road tax apply in principle to domestically produced automobiles.  However, a
reduction of 75% in the excise tax applies to automobiles produced with a local content of at least50% (Chapter III(2)).
44. Romania is intent upon revitalizing the domestic car industry by attracting foreign direct
investment.  The first major such investment occu rred in 1994, by Daewoo of Korea, and benefited
from the incentive under L71/1994 for investments over US$50 million, manufacturing with a 60%
local content and exporting at least 50% of annual production;  it was notified to the WTO as both aTRIM and a subsidy (Table AIII.10).   The second such investment is due to the privatization contract
concluded by Renault, on 2 July 1999, for the purchase of a majority stake in Dacia.  The authorities
have specified a package of incentives and conditions for Renault's investment in Dacia
(HG445/1999), pursuant to the latest investment law OU67/1999 (Table AIII.10).
27
Textiles and clothing
45. Textiles and clothing is the leading sector in Romania's trade, accounting for 26% of exports
and 15.4% of imports in 1998;  it is also the most dynamic sector in trade since the 1992 Trade PolicyReview.  The importance of two-way trade in this br anch of industrial activity is explained by the
reliance of the Romanian industry on imports of fabr ics and the development of outward processing of
garments, mainly for companies in Italy, Germany and France.  Thus, 92% of exports are destined for
the European Union, and 86% of imports originate in the EU.
46. One factor in this dynamism is the liberalization of restrictions maintained by large
developed-country markets on imports from Romania of textiles and clothing, an instance of the
external environment providing support for the transition.  Romania's proximity to the EU, and
relatively low level of wages (an average of US$165 per month), even by the standards of other
countries in the region, plus the duty-suspensive regime for processing in Romania, favour the
development of labour-intensive manufactures.  At the time of the first Trade Policy Review, importsfrom Romania were subject to restraints under the Multifibre Arrangement (MFA).  These were
                                                     
27 This package consists of incentives: (a) exemption from customs duties and VAT for imports of
immobile assets (defined under L15/1994) constituting an  in-kind contribution or a purchase from Renault's
financial contribution to the social capital of Dacia;  (b) exemption from customs duties and VAT for imports of
machines and equipment (defined under L15/1994 and specified on a list in HG434/1999);  (c) profits tax
holiday for five years;  (d) postponement for 65 days of the payment of the 5% road tax on domesticallyproduced and delivered cars;  (e) postponement for three years of the payment of the 22% VAT on domesticallyproduced and delivered cars;  and (f) postponement for three years of the payment of the 22% VAT on goodsand services delivered to Dacia by subcontractors), su bject to (a) minimum investment in the first year of
US$129.6 million;  (b) total investment of US$269.7 million in the first five years;  (c) modernizing the
domestic production facilities for parts and engines, and domestic distribu tion, and, for 2008-2010, development
of a new model for export on emerging markets (maxim um price US$6,000), contai ning a 60% local content;
and (d) the restructuring of the personnel of Dacia and affiliated companies to ensure a minimum employmentlevel of 16,280 persons, of which 8,000 at Dacia itself.WT/TPR/S/60 Trade Policy Review
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notified as restrictions by the European Communities, Canada, Norway, and the United States, under
the Agreement on Textiles and Clothing (ATC), and are subject to phase-out by 2005.  As of
1 January 1998, the EU and Norway eliminated all restrictions on imports from Romania;  Canada
and the United States maintain restrictions on imports of textile and clothing products from Romania.
47. Another explanation for the dynamism of textiles and clothing is the rising share of the
private sector – from 14% in 1989 to 85% in 1997.28  The sector's share in industrial employment
declined only slightly, from 16% in 1992 to 13% in 1997, indicating that labour shedding has been
modest in the shift from the state sector to the priv ate sector.  The shift has occurred mainly in the
assembly of garments, as the spinning, weaving, and finishing mills are large state-owned enterprises,
burdened with excess capacity and obsolete capital equipment.  Production of garments is mainly
assured by SMEs, equipped with state-of-the-art machinery and equipment.  Textiles and clothing
exports are supported, along with all other exports of Romania, by a credit for 50% of the interest rate
costs of financing production for exports, administer ed by the Eximbank (lei  23 billion in 1998, about
US$3 million at the average exchange rate).
48. Imports of textile and clothing products in Romania are free of quantitative restrictions, but
are subject to a relatively high level of tariff protection at the border;  this was also the case atRomania's first Trade Policy Review.
29  In particular, tariffs apply on carpets (40%), and garments for
women, men, girls or boys (35%)30;  preferential margins on imports from the European Union in
1999 are highest in this product category (Table AIII.3), but tariffs will be eliminated by 2002.
(iii) Services
(a) Policy objectives
49. The private sector has taken the lead in the rapid development of Romania's service sector
since the start of the transition.  In 1997, the private sector accounted for some two thirds of servicesactivity, compared to just 20% in 1992 (Table I.3).  In addition to the private initiative behind the
establishment of thousands of companies providing trade-related services, the authorities report a
largely successful privatization effort for small state- owned enterprises, such as restaurants, hotels and
grocery stores.  The share of the private sector wa s boosted even higher in 1998 by the privatization of
the national telecom monopoly, Romtelecom, and the first privatization of a state-owned bank, theRomanian Development Bank.  Outstanding challenges for privatization in 1999 include
transportation, utilities, and other financial service providers.
50. Just as in agriculture or industry, the authorities are intent upon completing the transition from
state ownership to the private sector with the shortest delays.  In financial services, the goal of
privatization is linked to the imposition of financial discipline on state-owned enterprises, based onthe argument that the market will then determine the allocation of savings between competing uses for
capital using market criteria.  An additional goal, of primary importance for the development of
SMEs, is a more efficient provision of business-related services.  The authorities are looking to
foreign investors, through privatization or direct investment, to provide the necessary expertise and
capital, supported by the commitments on services made by Romania in the Uruguay Round and inthe WTO negotiations on financial services and telecommunications.
                                                     
28 Government of Romania (1998a),  p. 360.
29 GATT (1993), Vol. I, p. 107.
30 Note also the mandatory labelling requirements in Romanian for footwear, and textiles and clothing
(Chapter III(4)(iv)(d)).Romania WT/TPR/S/60
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(b) Key subsectors
Financial services
Banking
51. Romania's banking system developed initially under the former communist regime.  Four
special purpose banks held the accounts of state-owned enterprises in their appointed domains of
activity.  Thus, the BNR ( Banca Nationala a Romaniei ) handled the accounts of state-owned
enterprises in industry and services, in addition to  issuing currency;  the Banca Agricola held the
accounts of collectives and state-owned farms;  the Investment Bank issued credits to fulfil the
investment objectives of the Plan;  and the Foreign Trade Bank processed foreign trade transactions
for authorized entities.31  The resulting banking system functioned essentially as a clearing-house for
centrally planned transactions, but not as an intermediary or provider of financial services as such;  inaddition, capital markets were not in existence.
52. A two-tier banking system was established in March 1991.  The BNR assumed the traditional
functions of a central bank with respect to monetary policy and the exchange rate (L34/1991), as well
as the role of overseeing banking activity (L33/1991), including licensing, developing accounting
standards, and supervising foreign exchange transactions.  Foreign banks could either establish a bankor establish a branch or subsidiary, provided the authorization of the BNR was obtained, subject to
incorporation as commercial companies (L31/1990).
53. Since 1991, the financial services sector has evolved towards greater private sector
involvement.  Many of the some 40 banks in the sector are private, mainly small Romanian private
banks involved in providing consumer and commercial banking services.  In addition, a number of
international banks established branches and subsidiaries, mainly for the purpose of providing trade
finance for their clients.  However, the state-owned banks are still dominant, accounting for 71% oftotal loans and 58% of deposits.  Their financial condition has been adversely affected by the non-
performing loans made to state-owned enterprises in agriculture and industry, which are in critical
condition, and generally, the difficult environment for economic operators.
32  Large spreads between
deposit and loan rates reflect a desire to compensate for the high volume of non-performing loans, as
well as the absence of competition among financial service providers.
54. The authorities have taken a number of steps since 1997 to augment competition in the
provision of financial services.  One aspect is bank privatization (L83/1997).  The procedure consists
of the nomination of a seven-member commission, responsible for conducting a transparent and
objective procedure, based on an evaluation report33, in conjunction with a restructuring plan
approved by the Ministry of Finance.  In 1997, th e authorities identified three major state-owned
banks – Bancpost, the Romanian Development Bank and Banca Agricola – for privatization.  The first
such privatization was successfully concluded in December 1998, when Société Générale acquired a
                                                     
31 Shen (1997, p. 36) comments that "instead of financial flows preceding and accompanying real flows
for optimum outcomes, Romania's centralized banking system helped facilitate and institutionalize functionalinefficiencies throughout the economy.  It became instrumental in suppressing unplanned initiatives ofmicro-entities.  Decentralizing the banking system and revitalizing financial instruments and institutions after
1990 thereby imposed another intricate responsibility which the new government needed to assume".
32 Government of Romania (1998a),  p. 102.
33 According to Article 7 of L83/1997, the report addresses the appropriate privatization method (which
can include the increase in the social capital of the bank), the post-privatization shareholder structure, the ceilingon share ownership for natural or legal persons, the quota of the share capital offered for privatization (that is,the share retained by the State), the categories of shares that may be issued, and the price.WT/TPR/S/60 Trade Policy Review
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51% share of the (recapitalized) Romanian Development Bank.34  In April 1999, negotiations were
concluded for the sale of a 45% stake in Bancpost to the GE Corporation and the Portuguese
Investment Bank.  The authorities expect the privatization of banks to proceed further in 1999-2000
with Bancorex slated for tender, after recapitalization, as well as Banca Agricola and Banca
Comerciala Romana.
55. According to Romania's agreement with the World Bank (PSAL and PIBL), whose
implementation is described by HG374/1999, the authorities have pledged to modify the Law on Bank
Privatization (L83/1997) in order to simplify the bank privatization procedure and drop the
Government's option of retaining a "Golden Share" or an equity position after privatization.  The
Programme also includes a number of specific actions to advance the restructuring of Banca
Comerciala Romana, Banca Agricola and Bancorex in  preparation for privatization.  The authorities
have established the Asset Resolution Agency to receive the non-performing assets of restructured
banks;  it started operations in May 1999 by receiving files from Bancorex, and the Agency will also
receive files from Banca Agricola.
56. The authorities have also enhanced the supervisory role of the BNR through its new statutes
(L101/1998), and new laws on banking activity (L58/1998) and the bankruptcy of banks (L83/1998).According to the authorities, the aim of these measures is "to strengthen the powers of the BNR to
regulate, supervise and sanction banks in Romania, and, where necessary, to intervene and close
troubled banks, thereby enhancing the safety of the banking sector".
35  The new law on banking
activity implements Romania's commitments under the WTO financial services negotiations
concluded on 12 December 1997 (GATS/SC/72/Suppl.2), according to which no restrictions apply to
the establishment of banks in Romania, other than the observance of prudential measures established
by the National Bank of Romania.36  The new bankruptcy law for banks replaced the bankruptcy law
for all commercial companies (L64/1995), which did not provide sufficient protection to
deposit-holders.37  The National Bank of Romania intends to enhance the security of deposit-holders
by issuing regulations requiring domestic banks to observe international standards of prudential
behaviour.
Insurance57. Romania's framework for the establishment of insurance companies (L47/1991) permits
foreign-owned providers of insurance services to establish in a joint venture with a Romanian partner,
with the authorization from the Insurance and Re insurance Activity and Surveillance Body, subject to
incorporation as commercial companies under L31/1990;  these requirements are also reflected in
Romania's GATS commitment on insurance se rvices (GATS/SC/72/Suppl.2). Additional
requirements apply to the establishment of  representative offices by foreign companies.
38  S u c h
offices may conclude contracts with foreign persons for their assets or properties, and reinsurance
contracts with Romanian insurance providers.
                                                     
34 "SocGen wins Romanian bank tender", Financial Times , 4 December 1998.
35 Government of Romania (1998a),  p. 103.
36 According to the U.S. Embassy in Bucharest (1997), "the application process is time-consuming".
37 The new law was inspired by the bankruptcy of the Dacia Felix Bank.  The BNR revoked the bank's
charter, which was reinstated under L64/1995 by the Bankruptcy Court in Cluj, without sufficient capital,posing a danger to unsuspecting deposit-holders and the recovery of remaining assets (Herzfeld &
Rubin (1997)).
38 According to Article 4 of L47/1991, a foreign company must be licensed to provide insurance
services in its country of origin, have ten years of experience in the activity, prove solvency and financialstability, and deposit the minimum capital requirement at a Romanian bank.Romania WT/TPR/S/60
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58. The requirements on insurance and reinsurance services in Romania are regulated by law
(L136/1995).  The only mandatory policy is third-party liability automobile insurance, and only
authorized insurance service providers can supply the service.  The terms and conditions of such
insurance contracts are established by government decision on the proposal of the Ministry of Finance
(Article 53).  The premiums for such contracts are generally low, reflecting the objective of ensuring
an affordable insurance cover, given the low average per capita income of Romanian citizens.Authorizations were granted to three private insurance providers in 1997, lifting the monopoly of the
two state-owned insurance companies, and to a fu rther five providers in 1998 (funded by foreign
direct investment).  Administered prices in the sector may limit the interest of private companies.
39
59. The insurance sector is severely underdeveloped in relation to market economies;  the
authorities note the figure of US$10.00 per capita expenditure on premiums in 1997, compared toUS$1,250 in the EU.
40  The authorities explain the low level of expenditure on insurance by low per
capita incomes, and the dominant role of the State in the provision of insurance until the start of the
transition. State-owned insurance providers are in a difficult financial condition, undercapitalized in
relation to the assumed risks, and the level of foreign participation in the market is low.  Many
products tailored to cover specific business-related risks (e.g., product or service liability) are notoffered on the Romanian market.  The regulatory authority has not issued prudential regulations on
minimum capital requirements and the margin of solvency.
60. The authorities intend to revitalize the insurance sector by proceeding in a similar fashion to
banking services.  A series of legislative initiatives are planned to enhance the role of the Insurance
Supervisory Authority, and to introduce a new law on the establishment of insurance providers and on
insurance activity.  The aim is to lift the limits on the establishment of foreign insurance service
providers in Romania, which will then facilitate the privatization of state-owned insurance companiesas a means to attract capital and expertise to the sector. The authorities also intend to tackle the limits
on the range of products available to clients, in recognition of the need to support financial market
development.  In addition, affordable insurance packages are key in the strategy to develop SMEs.
Communication services
61. Romania has a large potential market for telecom services based on its population of
23 million, the second largest market in Central a nd Eastern Europe, combined with the lowest line
density in Europe (14.4/100), and an estimated wait ing list of about 5 million.  Romania's strategy for
the development of the sector aims at a higher line density – some 25-30/100 by 2002 – and
modernizing the sector's infrastructure through laying of lines, installation of digital switching
equipment, and the availability of competitively priced services based on digital technology.
41
62. Romania liberalized access to the telecommunications sector during the period under review.
A first step was the separation of postal, and national and local wire and wireless communication
services into a series of regies autonomes  – Posta Romana, Romtelecom and Radiocommunicatii –
administered by the Ministry of Communications  (HG129/1997).  This step was followed by
establishment of separate regulatory regimes for telecom services (L74/1996) and postal services(L83/1996).
42  Romtelecom, the national network supplier, was restructured into a commercial
company in preparation for privatization (HG267/1997), and a 35% share was sold in 1998 to
Hellenic Telecommunications Organisation.  The privatization will be completed after 2000.
                                                     
39 U.S. Embassy in Bucharest (1997).
40 Government of Romania (1998a), p. 226.
41 U.S. Trade and Development Agency (1998).
42 Posta Romana has an exclusive monopoly until 2002, which may be renewed thereafter.WT/TPR/S/60 Trade Policy Review
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63. The privatization contract grants Romtelecom the monopoly for basic telecom services until
2003.  Romtelecom also shares the provision of mobile telephony services on the 1800 band with
another licensed supplier selected by aucti on (L51/1999 to approve and modify OU4/1996 on
licensing of GSM);  the privatization contract contains commitments on performance in terms of lines
laid, including in rural areas.  (Other suppliers ha ve been licensed to provide basic telecom services in
isolated areas, and a number of foreign suppliers are engaged in pilot projects.)  Tariffs are subject togovernmental supervision under Article 4 of L21/ 1996 on competition policy.  A formula on annual
price adjustments provides for domestic inflat ion (HG670/1998) plus a fixed 5% coefficient
(HG793/1998). The economic concentration in telecom services was approved by the Competition
Council (Decision 132/1998).
64. Romania has scheduled these policy directions for the telecom sector as commitments on
basic telecommunication services (GATS/SC/72/Suppl.1), to supplement the commitments on
value-added telecom services scheduled in the Uruguay Round (GATS/SC/72).
43  O n  m o b i l e
telephony services, Romania made a commitment on the supply of analog services (450Mhz/NMT),
providing Telefonica Romania with a monopoly until 2002 (the licence was required by Telemobil).
Romania also scheduled the commitment to license suppliers of digital mobile telephony services(900Mhz/GSM), which are required to pass their in ternational calls over Romtelecom's network until
the monopoly is ended in 2003.  Romania made additional commitments on telecom services,
adopting entirely the WTO Reference Paper on regulatory principles.
65. Conditions and licences for the provision of telecommunication services are set by the
Directorate in the National Agency for Communications.
44  The authorities intend to separate the
regulatory authority for telecommunication services from the Ministry by 2000.45  In November 1997,
the authorities licensed two operators – Mobil Rom and MobiFon –to develop the GSM system, for afee of US$50 million each.  Proposed tariffs for services are approved by the Office of Competition,
which, according to Article 4 of L21/1996 on competition policy, supervises companies operating in a
monopoly situation or other situations of special legal regimes.
Audio-visual
46
66. Romania distributes audio-visual services through two main channels:  television and radio
broadcasting; and rental or sale of pre-recorded  work.  The state-owned Radiocommunicatii is the
operator of its own earth satellite system and the largest provider of radiocommunication services,
including the dissemination and transmission of radio and TV programmes through satellite, terrestrial
and radio relay networks.  Radiocommunicatii rents these services to audio-visual service providers,
including the Romanian Radio Broadcasting Corporation (operator of three national public networks)and the Romanian Television Corporation (operator of two national public networks, TVR1 and
TVR2).
67. In addition to the state-owned television broadcast stations, four major private television
stations are licensed to operate in the area of Bucharest by the National Audio-visual Council.  The
Audio-visual Law (L48/1992) opened the broadcasti ng sector for the first time to private operators,
and provides access to legal persons established with foreign or domestic ownership, as well as access
to the retransmission network.  Established companies may acquire equity in other audio-visual
service providers subject to the ownership limit of 20%.  Romania has the largest share of the
                                                     
43 OG1/1998 ratified Protocol 4 to the GATS.
44 ITU (1998).
45 ITU (1998).
46 Defined as the production and distribution of motion pictures, television or radio programmes,
recorded music, music videos and recorded video tapes.Romania WT/TPR/S/60
Page 97
population connected to cable system operators in the region47, and the Copyright Law provides for
their mandatory licensing by the National Audio-visual Council (Chapter III(4)(iii)).48
68. In 1994, Romania adopted a regulatory regime for the state-owned radio and television
broadcasters (L41/1994) reserving a share of 40% of broadcast time for Romanian works.  This
legislation was then modified to harmonize with the European Union's Directive 89/552/EEC
(television without frontiers), as modified, a co mmitment of members of the Council of Europe.49
Such harmonization is also a condition for Romania's participation in the EU-funded support
programmes for the development of the audio-visual sector.  Accordingly, by 22 June 2002, the
state-owned operators must broadcast a majority of European works (without taking into account the
air time of news, sports, games, advertising and teletext services);  the Romanian authorities have
further specified that at least 30% of such European  works are required to be Romanian (Article 7 of
L124/1998 modifying and completing L41/1994).
69. In 1999, Romania modified the Audio-visual Law (L19/1999) to extend the broadcast time
requirements for European works to private operators.  As of 1 January 2003, all broadcast operators
licensed by the National Audio-visual Council are re quired to broadcast a majority of European works
(40% of such works are Romanian);  the remaining 49% of broadcast time will be free of restrictionwith respect to the origin of content.  The law states that, up until 1 January 2003, operators should
broadcast a majority of European works "in a progressive manner, and where practicable and by
appropriate means".
70. Romania did not schedule any commitments on audio-visual services in GATS/SC/72, and
radio and television broadcasting is excluded from the commitments made by Romania on
telecommunication services (GATS/SC /72/Suppl.1).  However, Romania could not list an exemption
from the obligation to extend most-favoured-nation treatment in GATS/EL/72 (it was not yet amember of the Council of Europe), and Romania therefore recognizes that its implementation of
Directive 89/552/EEC poses "practical difficulties" with the GATS Agreement.  In contrast, other
associated countries in the region of Central and Eastern Europe listed MFN exemptions for
preferential measures for audio-visual services of a European origin, of an indefinite duration, for the
stated purpose of promoting cultural exchanges within Europe.
50
Tourism
71. In addition to the business tourism attracted to the capital city of Bucharest and other major
centres, Romania has considerable potential to provide tourism services to domestic residents and
visitors.  Romania boasts beaches on the Black Sea, ski stations for winter sports, and a rich cultural
history of monasteries and castles, as well as villages.  Romania also has the potential to offereco-tourism in the wild Carpathian mountains and the protected natural preserve of the Danube Delta,
and rural or village tourism in certain areas.
                                                     
47 Government of Romania (1998a), p. 324.
48 International Intellectual Property Alliance (1998).
49 In particular Articles 4 and 5 of the Directive re quire broadcasters to reserve a majority portion of
their transmission time to European works.
50 U.S. ITC (1998), p. 6-3.WT/TPR/S/60 Trade Policy Review
Page 98
72. The authorities recognize that developing Romania's tourism potential requires improvement
of the infrastructure quality of hotels, restaurants, entertainment and communication services.
Another requirement is modernization of the ro ad transportation network, the main type of
transportation used by domestic and international tourists.  Privatization has advanced in the sector,
mainly in the case of small and medium-sized enterprises.  Several large state-owned tourism
enterprises are slated for privatization, and the author ities hope to attract an increased level of foreign
direct investment.  To this end, Romania has scheduled commitments in its GATS Schedule on
restriction-free access for investors to tourism services.Romania WT/TPR/S/60
Page 99
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