Feature: doing business in Central and Eastern Europe - a resource guide

US Department of State Dispatch, April 25, 1994 by Juanita Adams, Jim Pinkelman

The Central and East European (CEE) governments have made significant progress in their transition from communism to democracy; however, they continue to face challenges in developing private sectors. American expertise, products, and technology can help those CEE countries with pressing economic problems and, at the same time, create business opportunities and jobs for the United States.

The CEE countries are pursuing political and economic reforms, expanding trade and investment ties with the West, and diversifying their sources of imports. In the last four years, trade with the West and foreign investment have increased dramatically. As these governments promote private enterprise, the number of local agents, consultants, and other service providers has grown.

Experienced Western trading and consulting companies already established in CEE countries can help U.S. companies enter the regional market. Other businesses use joint ventures and direct investment to market their products and services. Other ways to approach the market include participating in trade fairs and licensing arrangements, advertising, hiring an agent, or forming partnerships with experienced West European firms.

To promote economic growth and open markets in the CEE region, the U.S. Government frequently deals directly with private and non-governmental sectors in addition to host government institutions. The United States provides technical assistance to help train bankers and managers; draft tax, labor, and commercial laws that will permit competition; create financial intermediaries to assist in the privatization process; and remove government regulation which impedes economic development.

The United States emphasizes the transitional nature of assistance to CEE but recognizes that certain countries, such as Albania, may require long-term such as Albania, may require Funding in fiscal year (FY)1993 increased 12% from FY 1992, a total of $400 million for 10 countries.

* As in the past, democratic initiatives receive about 7.5% of assistance, 17.5% of quality-of-life activities, and 75% of economic restructuring.

* Poland remains the largest single recipient of assistance, consistent with its size and special relationship with the United States.

* Enterprise funds (see p. 235) quickly and successfully meet the needs of the new private sectors and receive the largest segment of the budget. As evidenced in Poland and Hungary, such funds attract other international donor/ private sector support.

* The United States also supports development of private agriculture and agribusiness.

* To increase efforts to privatize state-owned enterprises, major programs are underway to support privatization of industry, housing, energy, health, banking, and other key sectors.

Countries of this region wish to integrate their economies with those of the West. Central and Eastern Europe can be profitable gateway to the Europe of tomorrow for American businesses interested in venturing into the CEE market. In the long run, the impact of U.S. private sector capital, goods, services, and expertise will be much greater on the development of free markets abroad than any assistance government can offer.

U.S. Government Initiatives

The United States provides bilateral assistance through the Support for East European Democracy (SEED) Act and multilateral aid through the Group of 24 (G-24), the Organization for Economic Cooperation and Development (OECD), the International Monetary Fund (IMF), and other institutions. The United States supports increased IMF and World Bank activity in Central and Eastern Europe and the integration of these countries into the General Agreement on Tariffs and Trade (GATT).

The United States seeks to develop the legal and policy framework that will lead to expanded trade and investment and to liberalized export controls.

SEED Act

The principles of U.S. policy are outlined in the SEED Act, which authorizes the U.S. Government to undertake a range of activities designed to encourage the establishment of democratic institutions, assist in the development of free market economies, and provide emergency humanitarian aid.

Through the SEED Act, Congress since 1989 has appropriated $1.4 billion to fund technical assistance programs in Central and Eastern Europe. Including food assistance and other U.S. contributions, total U.S. grant assistance to Central and Easntern Europe and the Baltic states in $4.6 billion, the largest contribution of grant assistance to the region.

The U.S. Agency for International Development (USAID) is primarily responsible for implementing the projects, most of which are open for competitive bidding. Some money is transferred to other U.S. Government agencies that have expertise in particular priority areas. Projects range from meeting humanitarian needs to establishing credit unions in CEE countries. USAID advertising requests for proposals and applications for such projects in Commerce Business Daily.

The SEED Act also extends programs such as General Schedule of Preferences (GSP) duty-free tariff treatment and Overseas Private Investment Corporation (OPIC) financing and insurance coverage, provides broad technical assistance, and establishes enterprise funds. It calls for 25 distinct actions to support structural adjustment; private sector development; trade and investment; educational, cultural, and scientific activities; and other assistance.