Trade: Since 1991, U.S. firms have dramatically increased their trade and investment activities in Central and Eastern Europe. In 1991, U.S. companies exported $1.6 billion of goods to the fourteen countries of Central and Eastern Europe: Albania, Bosnia-Herzegovina, Bulgaria, Croatia, Czech Rep., Estonia, Hungary, Latvia, Lithuania, FYR Macedonia, Poland, Romania, Slovakia, and Slovenia. By the end of 1999, U.S. exports had doubled to $3.2 billion. U.S. companies exported more than $338 million of meat, $295 million of aircraft, and $295 million of machinery in the first three months of 2000. Between 1991 and 1999, imports from the region increased from $3.7 billion to $6.7 billion.

Poland, with a population of almost 40 million, is the largest market in the region. In 1999, U.S. firms exported more than $825 million worth of goods to the Polish market. During this same year, U.S. companies exported $610 million of goods to the Czech Republic and $503 million worth of goods to Hungary. Together, these three markets account for more than 60 percent of U.S. exports to Central and Eastern Europe. In 1999, the United States imported $813 million worth of goods from Poland, $754 million of goods from the Czech Republic, and $1.89 billion worth of goods from Hungary. Imports from these three countries equaled 47 percent of total imports from the region (for detailed export and import data by individual country, see Annex 1).

Foreign Direct Investment: U.S. investment in Central and Eastern Europe also has risen dramatically over the past decade. By the end of 1999, U.S. companies had invested more than $16 billion in the region. American firms have invested more than $7 billion in Hungary, $5.1 billion in Poland, and $1.5 billion in the Czech Republic. Together these three markets have attracted 85 percent of all U.S. investment in the region.

One clear indication of increased U.S. business presence in Central and Eastern Europe is the exponential growth of membership in American Chambers of Commerce (AmCham) in the region. In the 10 years since the first AmCham was formed in Hungary, 1,885 individual companies have joined the 11 separate AmChams established throughout the region. U.S. Embassies in Albania and Macedonia are currently working with representatives of local U.S. companies to open AmChams in their respective countries; this would mean AmChams in 13 of the region's 15 countries. AmChams are important because they offer U.S. companies active in these markets a vehicle to express their views and concerns on doing business to host-country governments and they help build confidence in the local market for prospective new U.S. commercial partners.

• BUSINESS OPPORTUNITIES IN CENTRAL AND EASTERN EUROPE

The appeal of the Central and East European markets to U.S. exporters and investors stems from opportunities created during (1) their transition from centrally-planned to market economies and (2) the process of modernizing their economies in an effort to meet EU standards as they vie for eventual EU membership. The transition period has opened up these markets to Western goods, forced old industries to retool and reshape themselves, and created entirely new companies and industries in the region. The last decade has witnessed the massive privatization of state enterprises and utilities and the modernization of infrastructure. All of this change has increased the prospects for U.S. companies.

The potential for future growth is a source of optimism about these countries. In 1999, Poland's growth rate was 4.0 percent, the Czech Republic's was zero, and Hungary's was 4.2 percent. The European Bank for Reconstruction and Development forecasts real GDP growth for 2000 to be 4.5 percent for Poland, 2.0 percent for the Czech Republic, and 4.0 percent for Hungary. Their prospects for growth are expected to rise further as economic reforms continue and as they approach EU membership.

Trade: Part of the uniqueness of these markets is that Western consumer products had very little penetration prior to 1989. Now, CEE consumers' strong desire to take advantage of their new range of choices and their growing purchasing power translates into market opportunities for U.S. exporters. Additionally, the services sector in these countries was virtually non-existent prior to the transition. In the last decade, U.S. companies have successfully introduced services ranging from insurance to consulting to dry cleaning.

During the transition, CEE companies have had to modernize themselves to become competitive under free market conditions. They have sought U.S. technology and inputs in their restructuring efforts. Further, the CEE countries' drive to modernize their economies and prepare for EU accession has resulted in great efforts to develop basic infrastructure, such as telecommunications networks and roads. Strong projections for increased energy demand in the future have resulted in ambitious government plans to increase generation capacity and to upgrade distribution networks. U.S. companies have been at the forefront of both enterprise restructuring and infrastructure development.

The environmental technologies sector has particularly strong prospects for U.S. business. The environmental legacy of communist industry was polluted air, water, and soil. Meanwhile, the EU accession process has forced the CEE countries to bring their environmental standards in line with those of the EU. The result is significant opportunities for the sale of environmental technologies and services in the CEE region.

As the CEE economies recover and grow, CEE government procurement has become a significant source of opportunities. CEE governments are in the process of procuring products as diverse as aircraft, municipal water treatment systems, computer networks, and medical equipment. U.S. companies are lead competitors in these procurements.

Finally, in Southeast Europe, internationally funded reconstruction and development efforts are underway. New activities in the areas of energy, transportation infrastructure (including roads, ports, and bridges), and construction create opportunities for U.S. firms in this relatively unexplored region. However, since the majority of the large infrastructure projects will be funded by the EU, and implemented through tenders limited to companies located in the EU, American companies face a significant challenge when bidding on internationally-funded projects.

Foreign Direct Investment: The U.S. is already a major foreign investor in Central and Eastern Europe. American investors are taking advantage of the strategic location, good infrastructure, skilled and educated labor, and relatively low labor costs (compared to the EU), of countries such as Hungary, the Czech Republic, and Poland. In some cases, U.S. companies have invested to supply CEE domestic markets. In other cases, U.S. companies are placing investment in CEE countries to manufacture products which are then exported to the much larger EU market. Industrial products manufactured in CEE countries enter the EU duty-free as a result of the Europe Agreements - commonly referred to as the association agreements - that the CEE countries have signed with the EU. In addition, seven countries in the CEE region have entered into a multilateral free trade agreement, the Central Europe Free Trade Agreement (CEFTA). Those countries include Poland, Hungary, Czech Republic, Slovakia, Slovenia, Romania, and Bulgaria.

U.S. investment has taken several forms. Massive privatization efforts are attracting American companies to the telecommunications, energy, and light and heavy manufacturing sectors, to name a few. Further, CEE companies of all sizes are seeking U.S. joint venture partners. American companies have formed many successful partnerships with CEE companies, in particular, using the CEE companies' knowledge of local market conditions. Finally, U.S. companies are building greenfield manufacturing sites, and increasingly are investing in more high-tech, value-added facilities in the electronics, information technology and automobile parts sectors.

Overall, the prospects for doing business in the CEE region are strong and diverse for both U.S. exporters and investors. If companies are willing to be flexible to changing conditions, there are significant emerging opportunities to pursue in this dynamic region.

IV. USDOC/INTERNATIONAL TRADE ADMINISTRATION (ITA) PROGRAMS

• Market Entry

ITA supports U.S. companies interested in Central and Eastern Europe both here at home and overseas through a variety of means. Various ITA units help introduce American firms to the region's markets. But ITA's efforts do not stop there. ITA counsels and supports U.S. firms during the entire commercial undertaking, ensuring that the playing field is level and that American companies are treated fairly.

Central & Eastern Europe Business Information Center (CEEBIC): The heart of ITA's program for the region is our Central and Eastern Europe Business Information Center (CEEBIC), located in ITA's Market Access and Compliance unit. CEEBIC is a ten-year old program, funded by USAID, that serves as the USG's central clearinghouse for all economic, commercial, and financial information on 15 countries of Central and Eastern Europe. In particular, CEEBIC's overseas network of 13 foreign national trade specialists develops detailed information on new commercial opportunities in Central and Eastern Europe. That information is sent back to Washington where CEEBIC's headquarters staff puts it on CEEBIC's website and in its several publications for wide dissemination to the U.S. business community.

Our website - CEEBICNet - is a highly popular service receiving more than 135,000 inquiries weekly. It contains not only trade and joint venture leads for U.S. companies but a broad range of information products including market research, information on sources of finance, fact sheets,

unclassified U.S. Embassy reporting cables from throughout the region, and materials provided by the CEE countries themselves. It also contains important links to other USG websites, as well as those maintained by Central and East European countries and institutions. CEEBIC maintains a database of over 11,000 U.S. companies which regularly use its services (for a breakdown of the database by state, see Annex 2). CEEBIC has a monthly publication - Commercial Update - and a weekly internet publication - Southeast Europe Business Brief, both of which offer timely and substantive information on CEE markets to potential U.S. business partners.

CEEBIC also provides crucial support to the Administration's efforts to secure peace, build democracy, and create long-term prosperity in Southeast Europe in the aftermath of the Kosovo conflict. CEEBIC is adding foreign national trade specialists in Kosovo and in Northern Greece to serve the Balkan region. It also is the USG's leading source of information on reconstruction and economic development projects under the Stability Pact for Southeast Europe - a multilateral initiative of the United States and other G-8 countries designed to strengthen the war-torn Balkan region economically and politically. In furtherance of this objective, CEEBIC will conduct business seminars and briefings for U.S. firms to help them better understand the new commercial opportunities stemming from the Stability Pact and other projects being funded through international financial institutions.

CEEBIC is much more than just an information service. It also provides a highly effective business counseling and commercial development function. Once U.S. firms have been given information about the CEE markets and have begun to interact with their CEE counterparts, CEEBIC continues to guide and counsel them through that initial interaction and their negotiations with CEE companies and governments. We vigorously advocate for them against foreign competition, and when necessary, we work to protect their interests. This function is highly important for U.S. companies which face the many uncertainties of the CEE markets and their frequently difficult business climates.

U.S. Commercial Service: ITA's U.S. Commercial Service (CS) is committed to assisting U.S. firms in realizing their export potential by providing expert counseling and advice, information on markets abroad, international contacts, and advocacy services. In Central and Eastern Europe, 11 American CS officers provide in-country support and expertise as for U.S. companies doing business in this dynamic market. They also manage a network of 46 foreign national employees in the region to provide U.S. firms with hands-on support and guidance in these complex markets.

The U.S. Commercial Service provides timely and customized business solutions to assist U.S. firms to enter the new markets of CEE. This is done through a combination of cost effective basic and specialized services, including the following:

• •Agent-Distributor Service: CS specialists locate potential partner companies in Central and Eastern Europe that are interested in distributing U.S. products overseas;
• •Gold Key Service: CS specialists identify and organize individual meetings between U.S. companies and potential CEE partners and/or key government officials.
• •International Company Profile: To address concerns about potential partners, CS specialists perform background checks on CEE companies to reduce the commercial risk of a transaction.
• •Showcase Europe: In support of increased U.S. exports to Europe, the integration of Central and Eastern Europe into the global economy, and the development of an export strategy that views Europe as a single export market, CS offices throughout the CEE region and Western Europe are working together to promote export opportunities to U.S. companies.

Advocating for American Business: ITA's Advocacy Center acts as a unique, central coordination point marshaling the resources of 19 U. S. Government agencies in the Trade Promotion Coordinating Committee (TPCC) to ensure that sales of U.S. products and services have the best possible chance abroad.

Advocacy Center assistance in Central and Eastern Europe is broad and varied, but most often involves companies that must deal with CEE governments or government-owned corporations in some way. Assistance can include: (1) visits to a key CEE minister or deputy minister by a high-ranking U.S. government official; (2) direct support by U.S. officials (including Commerce and State Department officers) stationed at U.S. embassies in the CEE region; and (3) action coordinated by U.S. government agencies to provide maximum assistance in a case. The Advocacy Center is at the core of the President's National Export Strategy; its goal is to ensure opportunities for U.S. companies throughout the new markets of Central and Eastern Europe.

In the CEE region, the Advocacy Center has aggressively pooled the strength of numerous U.S. Government agencies, including Commerce, State, and Treasury, to support U.S. companies as they bid for major projects. For example, in 1998, the Advocacy Center wrote highly effective Secretarial letters on behalf of the U.S. company Parsons Power Group Inc. to the Croatian government to support Parsons' successful attempts to win a $96 million contract to upgrade a power plant in Croatia. Parsons had been introduced to the Croatian market during its participation in former Secretary Brown's trade mission to Croatia in 1996.

The Advocacy Center is currently assisting 40 U.S. companies pursuing projects in Central and Eastern Europe valued at $11.7 billion.

Trade Promotion Coordinating Committee (TPCC): Through the Trade Promotion Coordinating Committee, other U.S. Government agencies also are active in promoting U.S. commercial development in Central and Eastern Europe. Specifically, the Trade Development Agency (TDA), the Overseas Private Investment Corporation (OPIC) and Eximbank all are working with ITA to increase U.S. commercial presence in the region. For example, TDA and OPIC are co-located with our commercial office in Zagreb, Croatia to identify new infrastructure projects of potential interest to U.S. investors.

• Assuring Market Access

While good opportunities exist, the CEE markets also pose significant challenges. U.S. firms often face considerable obstacles when investing in or exporting to Central and Eastern Europe. These barriers usually stem from one of the following elements: (1) the transition from a centrally-planned to a market economy and (2) the EU accession process.

1.) Non-Tariff Barriers

A majority of the non-tariff barriers in Central and Eastern Europe are a direct result of the region's inexperience with a market economy and the immature legislative and regulatory environment that governs market relations in the region. As the CEE countries develop, the severity of many of these challenges is reduced and market forces become a determining factor in business relations. Poland, Hungary, and the Czech Republic have seen the most significant gains in this area, while the countries in Southeast Europe, particularly Albania and Bosnia and Herzegovina, still face severe market barriers. The primary non-tariff barriers in CEE are:

Corruption: Corruption is cited often by American firms as the most significant problem when doing business in the CEE region. Specifically, many companies face difficulties: when processing goods through customs, when applying for a business license, and when bidding on government procurements.

In Southeast Europe, in particular, ITA is playing a lead role in the U.S. Government's aggressive approach to combating corruption by actively fighting corruption through various international fora. ITA's Assistant Secretary for Market Access and Compliance Patrick Mulloy, as one of the U.S. Government's OSCE Commissioners, has championed the involvement of the OSCE in the fight against corruption in Central and Eastern Europe. Also, in cooperation with other members of the Stability Pact, we have lobbied the countries of Southeast Europe to adopt and implement the Stability Pact's Anti-corruption Initiative. This program outlines numerous measures that must be implemented in order to create an environment conducive to non-corrupt business practices.

Lack of Transparency: A second problem, closely related to corruption, that is prevalent throughout Central and Eastern Europe is the lack of transparency in decision-making, tendering, and government procurement. Decisions that affect legislation governing the business climate, specific government tenders, regulatory decisions, and judicial processes are often implemented in a non-transparent manner. To tackle this specific problem, ITA has encouraged the CEE countries to support U.S. Government efforts in the World Trade Organization that focus on improving transparency, especially in the area of government procurement. ITA is also actively engaged in the Stability Pact for Southeast Europe's fight to improve transparency in the region. ITA played an instrumental role in the drafting of the Stability Pact's Investment Compact, which places significant importance on improving transparency in the region.

Lack of Protecting Intellectual Property Rights (IPR) Protection: Through the Special 301 process, the U.S. Government monitors the enforcement of intellectual property rights around the world. In Central and Eastern Europe, this program is especially important due to high levels of IPR infringement, especially in the pharmaceutical, audio recordings, and optical media sectors. In the Special 301 review for 2000, five CEE countries (Czech Republic, Hungary, Latvia, Lithuania, and Romania) were placed on the Special 301 Watch List, while Poland was placed on the Priority Watch List for significant copyright infringements on sound and video recordings.

2.) Tariff Barriers

Tariff Differentials: While the U.S. Government supports EU enlargement into Central and Eastern Europe, one serious concern is the tariff differentials arising from the Europe Agreements - commonly referred to as the association agreements - that these countries have signed with the EU. (See Annex 3 for list of countries that have signed Europe Agreements) Under these agreements, CEE countries give EU exports duty-free treatment while still retaining Most Favored Nation (MFN) rates for U.S. exports. Once the CEE countries enter the EU, they will bring their tariffs in line with the EU's Common External Tariff (CXT). For industrial tariffs, this will generally result in a reduction of CEE tariffs to the CXT level.

This tariff differential problem could affect whether CEE countries continue to receive

U.S.-Generalized System of Preferences (GSP) benefits. Under the GSP statute, GSP may not be extended to countries that give more favorable tariff treatment to another developed country (such as the EU) than they do to the United States, if such preferential treatment has, or is likely to have, a significant adverse effect on U.S. commerce. U.S. GSP law requires that a country affording such preferential treatment be excluded from the U.S. GSP program if the President determines that it is providing such adverse preferential treatment.

In August 1999, the Senate Finance Committee raised its concerns about this matter in the report on the bill which extended the GSP statute for another three years. Chairman Roth of the Senate Finance Committee, Senators Biden, Levin and Hollings, Chairman Archer of the House Ways and Means Committee, Congressman Visclosky, and Congressman Bliley have sent letters to Secretary Daley expressing their concerns about the tariff issue.

The ITA, in conjunction with State and USTR, is encouraging CEE countries to reduce their applied industrial tariffs to the level of the E.U.'s CXT before full accession to provide relief to U.S. exporters. In addition to consultations with CEE officials visiting Washington, ITA Assistant Secretary for Market Access and Compliance Patrick Mulloy traveled to Poland, Hungary and the Czech Republic in June 1999 to press this issue and has written often to regional officials to follow up. Assistant USTR Catherine Novelli traveled to the those countries in March 2000 to press them to move on tariffs on products of particular interest to U.S. trade. In April 2000, A/S Mulloy returned to the Czech Republic and went to Slovakia and Slovenia to urge immediate tariff reductions to the CXT. In all of these meetings, the linkage of the tariff issue with GSP benefits was raised.

The President's Compliance Initiative seeks increased resources to combat this and other market access issues in Central and Eastern Europe and elsewhere in the world.

• ITA SUCCESS STORIES

Since the collapse of communism in CEE, ITA has been extremely successful in supporting U.S. companies as they take advantage of market opportunities in the region. Working together, the Central and Eastern Europe Business Information Center (CEEBIC), the U.S. Commercial Service, the Advocacy Center, and other ITA offices, have supported the presence of American firms and products throughout the region.

CEEBIC has been especially successful at supporting small and medium sized U.S. companies (SME's) as they expand into the region. Since 1990, when CEEBIC was founded, the support from CEEBIC staff for SME's has been considerable and successful, as evidenced by the following examples.

In January 1998, Global Development's President, Dan Burda, e-mailed CEEBIC informing that, "We have been investing in the Czech Republic in heavy industry and feel that it has been possible through information we obtained by your site [on the World Wide Web]." During follow-up conversations with Mr. Burda, CEEBIC learned that Global Development consults CEEBICNET regularly for both trade and investment leads and current commercial and economic information. The company's involvement with a Czech recycling and co-generation facility is the result of a trade lead published on the CEEBIC web-site. Global Development is exporting $25 million in environmental technology and equipment to the Czech firm. Mr. Burda was very complimentary of CEEBIC urging, "Keep up the good work!"

CEEBIC assists Idaho firm with new-to-market Sales in Latvia: In January 1998, Brian Page of Dome Technology, a small Idaho company beginning its international expansion, was unable to find a shipping company that could ship $2 million worth of construction materials to Latvia. In a conversation with a CEEBIC Washington-based Trade Specialist about Latvian tax rates, Mr. Page was pleased to learn that CEEBIC provided a substantial amount of additional market and country information, and was well informed about shipping companies that regularly send goods to Central and Eastern Europe, including Latvia. CEEBIC provided Mr. Page with a list of shipping companies with services and experience in the region. According to Mr. Page: "We went with one of these lines. Thank you so much. We had no luck anywhere else we turned to."

Florida Investor Continues Airline Services in Croatia with CEEBIC/FCS Assistance: John Barber invested over $750,000 in Croatia in 1992 to begin his own Airline, Ivan-Air, Ltd. This small firm provides airline services in-country for tuna fishermen, among other Croatian businesses, needing to get their goods to market. In the summer of 1997, the American investor experienced difficulty with the Croatian Ministry of Communication in getting an Air Operator Certificate (AOC) re-issued. Ivan-Air, Ltd. suspected unfair practices and approached the Commercial Section of the U.S. Embassy in Zagreb for assistance. From August to November 1997, Ivan-Air, Ltd. was losing $1000 daily.

The Commercial Service's Patrick Hughes along with CEEBIC representative Damir Novinic advocated on Ivan-Air's behalf and had U.S. Ambassador to Croatia Peter Galbraith write a letter to Croatian Minister Luzavec. Within ten days of this letter, on November 24, 1997, the Air Operator Certificate was re-issued to Ivan-Air, Ltd. Mr. Barber thanked the Embassy expressing his "sincere appreciation in particular to Patrick Hughes and Damir Novinic" citing that their assistance "made a significant difference" in keeping his business alive. This joint effort by FCS and CEEBIC allowed Mr. Barber to continue his airline services in Croatia and illustrates how FCS and CEEBIC work together on important market access issues affecting U.S. business.

• Ensuring Market Access for U.S. Companies in Central and Eastern Europe

Slovenia Reducing Industrial Tariffs to EU's Common External Tariff (CXT): The ITA, working in conjunction with State and USTR, has encouraged CEE countries to reduce their applied industrial tariffs to the EU's common external tariff (CXT) prior to accession. This is the best way to help minimize the tariff differentials that arise as part of the Europe Agreements that the CEE countries have signed with the EU. For example, in Slovenia, the trade weighted average MFN tariff facing top 100 U.S. exports to Slovenia in 1998 was 8.12 percent. If Slovenia adopted the CXT on those same products, the trade weighted average would be 2.02 percent, an improvement of 6.10 percent.

During 1998 and 1999, the ITA and other USG officials met with and wrote to senior Slovene officials about this issue. As a result, the Slovene Ministry of Economic Relations and Development drafted a tariff strategy to phase-in tariff reductions on all industrial products to reach the level of the CXT by 2003. Slovenia began lowering tariffs on a temporary basis in 1999. In April 2000, ITA's Assistant Secretary for Market Access and Compliance Mulloy

traveled to Slovenia to urge the Slovene Government and Slovene parliamentarians to pass legislation that would implement the comprehensive tariff reduction plan and make tariff changes permanent. This legislation is moving forward in the Slovene parliament.

Bulgaria Cracks-down on Optical Media Piracy: Working together with the U.S. Trade Representative (USTR) and the State Department (State), ITA was especially successful in pressuring the Bulgarian Government, through the Special 301 program, to aggressively tackle the severe levels of optical media (compact discs and CD-rom) piracy. In April 1998, Bulgaria, at that point the world's second largest producer of counterfeit optical media, was elevated to the Special 301 Priority Watch List and informed that they would be elevated even further, to the Priority Foreign Country list, if substantial improvements were not made in their enforcement regime. After significant pressure by ITA, USTR, and the State Department, Bulgaria introduced a stringent enforcement program and closed all factories that were producing unauthorized optical media.

Southeast Europe: Commercial Opportunities and Partnerships: On October 31 - November 2, 1999, Secretary Daley led an interagency delegation to Sofia, Bulgaria to host the "Southeast Europe: Commercial Opportunities and Partnerships Conference." The Conference, which attracted more than 100 U.S. companies, achieved three objectives: It (1) provided U.S. companies the most current information about business opportunities in the region; (2) identified economic reforms needed in Southeast Europe and ways to improve the region's business environment; and (3) arranged more than 250 matchmaking meetings between 76 American and 62 regional companies.

The Conference advanced the Stability Pact's goal of increasing the role of Southeast Europe's private sector in the economic development of the region. Regional companies forged partnerships with U.S. companies and were briefed on current and future reconstruction and development priorities for the region. The Investment Roundtable furthered the Stability Pact's Investment Compact by encouraging regional governments to improve the climate for investment in their countries. Finally, the issue of corruption, which is a central theme in the Stability Pact, was discussed at length during the Investment Roundtable.

CEEBIC to Host a Central and Eastern Europe Open House and a Business Forum on Southeast Europe: On July 14, the Central and Eastern Europe Business Information Center (CEEBIC) will celebrate its 10-year anniversary by hosting an open house for U.S. companies. CEEBIC Washington staff and CEEBIC employees from twelve countries in Central and Eastern Europe, will discuss new trade and investment opportunities with interested U.S. firms. Earlier that day, CEEBIC will host the Southeast Europe: Project and Financing Opportunities Forum . This interagency forum will explore financing and project opportunities for U.S. companies resulting from the multilateral Stability Pact for Southeast Europe and the U.S. Government's Southeast Europe Initiative. CEEBIC expects more than 300 U.S. firms to attend these events.