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Country Commercial Guides for FY 2000:
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CHAPTER VII: Investment Climate
A. Openness to Foreign Investment
General Attitude: The current Polish government, like the various other governments since the fall of communism in 1989, has sought to attract and maintain foreign investment. The government has expressed the view that foreign investment is essential for the rapid development and modernization of the Polish economy. All of the major political parties concur that Poland should maintain a free-market based economy and should strive to attract substantial foreign investment. The parties universally support attracting foreign direct investment in new or "greenfield" projects. The political parties and factions within parties differ about the extent of foreign ownership in certain so-called strategic enterprises (such as banks and the oil and energy companies) to be privatized and also over foreign ownership of agricultural land. The ruling coalition has supported allowing foreign investors to compete and, if they win, to take a dominant role in strategic enterprises and sectors of the economy. The coalition is reluctant, however, to liberalize quickly the limitation on foreign ownership of agricultural land.
Major Laws and Regulations: Poland has developed a legal regime that protects property rights and investment, allows private business activity in almost every sector of the economy, provides generally equal treatment for domestic and foreign companies, and permits the repatriation abroad of profits and capital. Overall, the current legal regime comports with free-market principles and is supportive of foreign investment. The Polish Constitution protects the rights of private ownership and succession and it states that expropriation is allowed solely for public purposes and only with just compensation. The pre-World War II Civil Code and the Commercial Code, as amended, set forth the rules on, among other things, the formation and enforcement of contracts, the creation, management and liquidation of companies, and the rights of shareholders. The Law on Companies with Foreign Participation of 1991 governs foreign investment in companies. The Foreign Exchange Act of 1998 regulates foreign exchange transactions. Moreover, the Economic Activity Act of 1988, as amended, specifies which economic activities require some form of prior governmental authorization. Together these laws open the Polish economy to foreign investment and generally have established a level playing field between foreign and domestic investors. After making substantial improvements in its foreign exchange, trade and investment regimes, Poland in 1996 joined the Organization for Economic Cooperation and Development (OECD). Moreover, Poland continues the process of implementing its trade and investment liberalization obligations to the OECD and the World Trade Organization (WTO).
A foreign investor may enter the Polish economy by means of a new or "greenfield" investment or by acquisition of or merger with an existing Polish company. The Law on Companies with Foreign Participation permits any level of foreign investment up to 100 percent, with a number of sectoral exceptions discussed below. That law requires that companies with foreign investors be established as joint stock companies or limited liability companies. In a number of sectors -- foreign trade, transportation, tourism and culture, banking and insurance -- a foreign enterprise may establish a representative office in Poland. Further, foreign investors from OECD and EU member countries have the right to establish branches, agencies and representative offices in the financial sector (banks, insurance companies, and brokerage houses). Foreign investments can be made in the form of Polish zloty obtained from the sale of convertible currencies or in-kind, in which case an audited valuation of the contribution is required.
In preparation for eventual membership in the European Union (EU), Poland has been harmonizing its laws and regulations with those in the EU's acquis communautaire. In addition, it has been lowering tariff and non-tariff barriers for EU exports and investment. This process generally benefits U.S. and other foreign exporters and investors, such as when Poland decided to provisionally permit marketing of products that have EU product certifications while Polish product certification is pending. Some U.S. companies benefit from this policy because their goods already had EU product certifications. Sometimes, however, the preferential rules for EU companies work to the disadvantage of U.S. and other foreign firms, such as when Poland imposes higher tariffs on U.S. exports to Poland (e.g., automobiles) than on competing EU exports.
Screening: Poland does not have any general screening mechanism for entry and establishment of businesses by foreign firms. Authorization requirements and foreign equity limits do exist for a limited number of sectors. The Law on Companies with Foreign Participation requires a permit from the Treasury Ministry for certain major capital transactions, or lease of assets, with a state-owned enterprise. Furthermore, that law allows restrictions on investment to only Polish entities for considerations of "public security." Thus, only a Polish entity can establish an airport, but licenses and concessions for defense production and management of seaports and airports will be granted on the basis of national treatment for investors from OECD countries.
Other sectoral laws establish ceilings on the share of foreign ownership: air transport (49 percent); certain fisheries activities (49 percent); radio and television broadcasting (33 percent); domestic long-distance telecommunications through the end of 1999 (49 percent); international telecommunications through 2003 (0 percent); and gambling (0 percent). Furthermore, approval requirements are still in place for foreign investments above certain thresholds in the insurance sector.
The sale of agricultural land to foreigners has long been a sensitive issue for Poland. The 1920 Law on Acquisition of Real Estate by Foreigners prohibited a foreigner from acquiring real estate without permission. In 1996, Poland liberalized that law as part of its effort to join the OECD. The amended law allows foreign individuals and firms to own an apartment, 0.4 hectares (4000 square meters) of urban land, or up to one hectare of agricultural land without need of a permit. Also, foreign companies no longer need to obtain pre-approval for larger amounts of land before participating in bidding for a project or privatization. The acquisition of real estate above 0.4 hectares in urban areas and 1.0 hectares in rural areas, or the purchase of shares in a foreign-controlled Polish company owning real estate, still requires approval from the Ministry of Interior, with the consent of the Defense and Agriculture Ministries.
Foreign and domestic investors alike must obtain governmental concessions, licenses or permits to engage in certain activities. The Economic Activity Act provides, among other things, that: the National Bank of Poland (NBP) and the Finance Ministry issue banking licenses; the Finance Ministry provides permission to operate an insurance company; the Securities and Exchange Commission grants licenses for brokerage activities; the Communications Ministry provides licenses for telecommunication services and courier services; the National Broadcasting Council issues radio and television broadcasting licenses; the Economy Ministry gives permits for foreign trading in certain goods and services, processing of gems, precious metals and non-ferrous metals; the Health Ministry authorizes permits for the pharmaceutical and medical materials sectors; the Transport Ministry provides licenses for air, international road, rail and maritime transport, and the construction and exploitation of highways; local governments provide permits for buses and taxis, waste disposal, pharmacies, and extraction of minerals; the Interior Ministry licenses the arms industries and security services; and the Agriculture Ministry provides permits for alcohol and tobacco industries. The processing and granting of these licenses and approvals generally has been routine and non-discriminatory, though often slow and bureaucratic. The government has pledged to deregulate the economy and significantly reduce the number of concessions and licenses required.
Privatization Program: Poland has privatized almost all of its small state-owned enterprises, most medium-size enterprises, and many large ones. The government has set a goal of privatizing 70 percent of the remaining state-owned enterprises by the end of its four-year term in 2001, including the telephone company (TPSA), the national airline (LOT), the dominant insurance company (PZU), the banks, the steel mills, the oil sector, and the electrical energy sector. To date, the current government in each major privatization has invited foreign investors to compete for a strategic interest. This openness to foreign investment has drawn objections from some commentators and politicians (including a number of politicians in the coalition) who fear that foreigners are acquiring too large a share of the Polish economy. Even if foreign investors were excluded from the privatization process, they could and sometimes do acquire a large equity interest after the privatization.
Discrimination against Foreign Investors: Generally, foreign investors receive similar treatment as domestic investors both at the time of their initial investment and after the investment is made, such as tax treatment and obtaining approvals and licenses. Foreign firms do face potential discrimination in public procurement contracts. Poland's 1994 Government Procurement Act, which is based on the United Nations model, allows for a twenty-percent price advantage for domestic firms. There also is a fifty-percent domestic material and labor content minimum required for all bids. Under that law, a joint venture between foreign and domestic firms, will qualify as "domestic" for procurement considerations.
B. Conversion and Transfer Policies
Restrictions on Converting or Transferring Funds: Poland provides full IMF Article VIII convertibility. The Foreign Exchange Act of 1998 provides for unrestricted conversion of currency for current operations and for direct investments (other than portfolio investments). A foreign investor still needs a permit from the National Bank of Poland for foreign exchange conversions in connection with most portfolio investments and short-term capital operations. Further, the law allows for the Council of Ministers to promulgate a six-months regulation that would establish special restriction on those persons engaged in capital operations other than direct investments, by imposing an obligation to maintain a non-interest bearing deposit in a bank account established specifically for such purpose. The Council of Ministers may only impose such special restrictions if the stability of the domestic currency exchange rate is at risk or that the supply of money is increasing too rapidly as a result of movement of capital. A foreigner without need of a permit may convert or transfer currency to make payments abroad for goods or services and also may make transfer abroad its share of after-tax profit due from operations in Poland. Capital brought into Poland by foreign investors may be freely withdrawn from Poland in instances of liquidation, expropriation, or decrease in capital share. Full repatriation of profits and dividend payments is allowed without obtaining a permit. The 1991 Law on Companies with Foreign Participation guarantees the availability of foreign currency for payment of dividends to shareholders. However, a Polish company (including a Polish subsidiary of a foreign company) must account for withholding tax to the Polish tax authorities on any distributable dividends unless a double taxation treaty is in effect; there is a double taxation treaty with the United States. An exporter may open foreign exchange accounts in the currency it chooses.
Future Liberalization Plans: Poland has committed to complying fully with the OECD Codes of Liberalization of Capital Movements and Current Invisible Operations by 2000. Accordingly, the government plans to remove the remaining restrictions on short-term and portfolio investment.
Availability of Foreign Exchange and Remittance: Foreign exchange is widely available through commercial banks, as well as money exchange houses (kantors). Payments and remittances in convertible currency may be made and received through a bank authorized to engage in foreign exchange transactions; most banks have such an authorization. Poland does not prohibit the remittance through a legal parallel market, including one utilizing convertible negotiable instruments (such as dollar-denominated Polish bonds in lieu of immediate payment in dollars); as a practical matter, however, such other payment methods are rarely, if ever, used. Foreign investors have not complained of any significant difficulties or delays in remitting investment returns such as dividends, return of capital, interest and principal, lease payments, royalties or management fees.
C. Expropriation and Compensation
Since the collapse of communism in 1989, potential expropriation in Poland has not been an issue. The Law on Land Management and Expropriation of Real Estate provides that property may be expropriated only in accordance with statutory provisions such as the construction of public works, national security considerations or other specified cases of public interest. Full compensation, at market value, must be paid for the expropriated property. Article 21 of the Constitution states that "Expropriation is admissible only for public purposes and upon equitable compensation." Although there have been no cases of expropriations since reforms began in 1990, the implementation of a major highway construction program in Poland may involve some expropriations of land under the above-mentioned law. As discussed above in Section A.1 (Openness to Foreign Investment), Polish law restricts or forbids foreign ownership in certain sensitive sectors (e.g., telecommunications, broadcasting and gambling).
D. Dispute Settlement
Government's Handling of Investment Disputes: There have been sporadic investment disputes between foreign investors and the government. The Polish government and state-owned enterprises have on several occasions contravened the spirit, if not the letter, of informal understandings or letters of intent with foreign investors. Most notably, Ameritech asserted that its joint venture partner, TPSA (the state-owned telephone company), violated its letter of intent by not allowing their analog cellular telephone joint venture (Centertel) to bid for a digital cellular (GSM) license. Ameritech took the dispute to international arbitration in Geneva under UNCITRAL rules, seeking compensation from the Polish government. The matter was successfully resolved outside of arbitration in December 1996. In 1997, the government decided to reopen bidding for the largest Polish press distributor (Ruch) after apparently reaching an informal agreement with the French publishing company Hachette to buy Ruch. Hachette has brought a civil action to compel the government to allow Hachette to buy Ruch; that case is still pending. Earlier, the German firm Saarpapier Vertriebs GmbH had to close its Polish operations because the government would not allow the firm to import waste paper for processing, even though the Polish Agency for Foreign Investments issued a permit to conduct that business. In 1996, the Arbitration Court in Zurich ruled in favor of the German firm, but Poland has so far refused to pay the sum specified by that court.
The Polish Legal System: Generally, foreign firms are wary of the Polish legal system and prefer to rely on other means to defend their rights (primarily, international arbitration). Similar to the French and German systems, the Polish legal system is a prosecutorial one. Contracts involving foreign parties normally have a dispute settlement clause that gives terms for arbitration of possible dispute in a third country court (in Britain or Switzerland, for example, in the case of a dispute between U.S. and Polish parties). So far, no major investment dispute with a foreigner has been resolved in Polish courts. Poland has a Commercial Code, written before World War II, and U.S. and other foreign business have urged its overhaul. Poland has a bankruptcy law. Prior to 1998, a secured creditor's position could be superseded by subsequent tax arrearages and other secured credits. The new Mortgage Banking Act of 1997 and the Law on Registered Pledges and Pledge Registry of 1997, which entered into effect on January 1, 1998, now protect qualified mortgagors and secured creditors against subsequent tax liens and other secured and unsecured claims. Monetary judgements are usually made in local currency.
International Arbitration: Foreign investors, other than Hachette, have chosen to protect their rights through international arbitration rather than use the Polish courts to resolve their investment disputes. As shown in the case of Saarpapier, a decision by an arbitration body is not automatically enforceable in Poland.
Poland is party to four international agreements on dispute resolution, with the Ministry of Finance acting as the government's representative:
The 1923 Geneva Protocol on Arbitration Clauses The 1958 New York Convention on the Recognition and Enforcement of International Arbitration Awards The 1961 Geneva European Convention on International Trade Arbitration The 1972 Moscow Convention on Arbitration Resolution of Civil Law Disputes in Economic and Scientific CooperationPoland is not a member of Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States.
E. Performance Requirements/Incentives
Trade Related Investment Measures (TRIM) Notification/Compliance: Poland notified the World Trade Organization (WTO) that on January 1, 1997, it terminated the measure notified previously under Article 5.1 of the TRIMs. This measure, which had concerned tax rebates limited to domestic cash registers, was the only one that Poland previously had given notice of to the WTO.
Performance Requirements: Poland generally does not impose performance requirements for establishing or maintaining an investment. In connection with the privatization of certain large companies the government and the purchasers have negotiated terms that included performance requirements. For example, Fiat and Daewoo agreed, among other things, to meet certain negotiated production targets when they bought state-owned car plants. As discussed above (A.1. Openness to Foreign Investment), there are limits on foreign participation in certain economic activities, such as broadcasting and telecommunications.
Investment Tax Incentives: There are performance requirements, however, for access to investment tax relief and incentives for investments in areas of high structural unemployment (see below E. Foreign Trade Zones/Free Ports). These performance requirements include: a minimum value of investment (at least 2 million ECU), transfer of technology, creation of employment, and export orientation (exports that generate more than 50 percent of total revenue). The government is considering a major revision to its tax laws, which could reduce or eliminate current investment tax incentives.
Foreign Participation in Government Financed Research: Foreign companies have not participated in government-funded research and development projects managed by the Committee for Scientific Research (KBN). Nonetheless, there is no proscription against such participation.
Visa and Work Permit Requirements: Foreign investors can and do bring personnel into Poland. Poland's visa and work permit requirements allow foreigners to live and work in Poland. However, many firms and foreigners in practice have had difficulty in obtaining visas. Poland requires an applicant to receive the visa for working in Poland in his or her home country, rather than in Poland or in neighboring countries. This procedure is burdensome.
Discriminatory or Preferential Export/Import Policies: The government supports exporters through export credit guarantees from a state-owned insurance entity (KUKE). KUKE does provide credit guarantees for all firms registered in Poland (this includes foreign firms and firms with foreign capital). However, for products subject to export contracts, the Minister of Economy (in agreement with the Minister of Finance) establishes a minimum percentage share of components of Polish origin in the final product for it to be considered a domestic product. Currently, the minimum percentage share is 50 percent.
Firms from EU countries in many cases benefit from preferential duty rates. Base customs duties are specified in the Customs Tariff, encompassing about 10,000 items adapted to the WTO Combined Classification. Base customs duty rates for industrial products from WTO countries vary from 0 - 11 percent, but for agricultural goods the range is much wider (0 - 300 percent). Many goods imported from the EU member countries enjoy privileged customs duty rates (usually, zero percent). Pursuant to its Association Agreement with the European Union, Poland has lowered its average rate for industrial products from EU countries from 3.6 percent in 1997 to zero percent in 1999. Textiles, steel products, fuels and cars are subject to separate tariff agreements. Furthermore, non-European developing countries benefit from preferential duty rates (0.7 - 0.8 percent of the base rate). The least developed countries are released completely from customs duty payments. In all cases, certificates of origin complying with WTO standards must be submitted, otherwise preferential rates will not be applied.
F. Right to Private Ownership and Establishment
Rights of Ownership and Establishment: Domestic and foreign private entities have a general right to establish and own, as well as dispose of, a business and to engage in almost all forms of lawful economic activities. Article 64 of the Constitution provides: "Every person has the right to ownership, other property rights, and the right of inheritance. Ownership, other property rights, and the right of inheritance are subject to legal protection that is equal for all. Ownership may be restricted only by law and only to the extent to which it does not abridge the essence of the right of ownership." In addition to absolute, or private property, a second form of title in Poland for real estate is the perpetual lease, under which the lease holder generally controls the property for 40 to 99 years, and which can be extended for up to 99 additional years. Such a perpetual tenant has the right to dispose of its interest in the land by sale, gift, or bequest. As discussed above in Section A.1. (Openness to Foreign Investment), there are a few sensitive areas in which participation of foreigners is restricted, e.g., telecommunications and broadcasting; further, foreign ownership of other than a small amount of real estate requires a government permit. Apart from these limited restrictions, foreign entities can freely establish, acquire and dispose of interests in business enterprises.
The Civil Code, as amended, regulates property rights, between individuals or legal entities. The amendment of July 1990 reintroduced the basic standards of free market economy and ownership. The Civil Code regulations are based on the principles of equality of all parties, regardless of their ownership status, equivalency of obligations, discretion and freedom of contracts.
Competitive Equality: The private sector has expanded rapidly since 1989 and now dominates almost every sector of the economy. State-owned enterprises still dominate such sectors as telecommunications, coal, steel, insurance, energy and utilities. The private sector is estimated to employ over two-thirds of Poland's labor force and to produce about 70 percent of GDP, if the large gray market is included. The competition between privately owned and state-owned enterprises is steadily being replaced by competition among just privately owned entities. Officials at various levels of government can, and occasionally do, exercise their discretionary authority to help state-owned enterprises. For example, tax authorities have not pressed some large, troubled state-owned enterprises to pay their taxes, in order to avoid putting them into bankruptcy.
G. Protection of Property Rights
Real Property: Poland's legal system protects and facilitates the acquisition and disposition of property. Mortgages do exist, and the mortgage market is expanding as increasing numbers of single-family homes/townhouses are built. The 1997 Mortgage Banking Act provides that a recorded mortgage by a licensed mortgage bank will take priority over subsequent tax liens and other secured and unsecured claims.
Chattel/Personal Property: The 1997 Law on Registered Pledges and Pledge Registry provides protection for secured creditors and establishes a new registry system. Creditors will be able to place liens on assets and rights, both present and in the future.
Legal System: There is a functioning non-discriminatory legal system accessible to foreign investors that protects and facilitates acquisition and disposition of all property rights, such as land, buildings and mortgages. Foreign investors often voice concern about frequent or surprise issuance of or changes in laws and regulations. Foreign investors have complained about the slowness of the judicial system.
Intellectual Property Rights: Protection of intellectual property rights is provided by the 1994 Copyright Law, the 1985 Trade Mark Protection, and the 1972 Law on Inventive Activity. Poland is a member of the Berne Convention for the Protection of Literary and Artistic Works, as revised by the Rome Act, the Universal Copyright Convention of Geneva as revised in Paris, and the World Institute for Protection of Intellectual Property (WIPO). Also, in 1991 Poland signed the Madrid Agreement on International Registration of Trademarks. In its bilateral economic treaty with the United States, Poland has committed itself to providing adequate protection of intellectual property. Poland has taken some measures to implement the World Trade Organization (WTO) TRIPS Agreement, however, it still needs to provide protection for sound recordings created before 1974. Due to a lack of protection for such sound recordings and concerns about piracy, Poland was kept on the Special 301 "Watch List" in 1999 and will be subject to an "out of cycle" review later in 1999. The government has made limited progress in combating piracy, especially that of computer software, but much more remains to be done.
H. Transparency of the Regulatory System
Transparent Policies: The government acknowledges that its policies are not as transparent as they ought to be. Consequently, the government has begun to study ways to deregulate, increase transparency and promote competition. At the same time, Poland is harmonizing its laws and regulations with those in the European Union (EU). While often EU laws and regulations are more transparent and pro-competitive than the Polish ones they will replace, sometimes the EU consistent rules are not very transparent or not pro-competitive. For example, Poland has sought to implement the EU's audio-visual directive in a way that limits the broadcasting of U.S. audio-visual products. Poland tends to have the most difficulty with transparency in its newer regulatory bodies, such as the Pension Fund Supervisory Office (UNFE) and the Energy Regulatory Office.
Competition: Competition policy in Poland remains an area of concern, especially because almost a quarter of output still comes from the state-owned sector. The government seeks to encourage the competition necessary for a free-market economy primarily through privatization of most of the remaining large state-owned enterprises and deregulation. In addition, the Office for Competition and Consumer Protection is responsible for the tracking and elimination of anti-competitive practices.
Tax, Labor, Health and Safety, and Other Laws as Impediments: Foreign and domestic investors must comply with a variety of laws concerning, among other things, taxation, labor practices, health and safety, and the environment. Poland is in the process of transition as it harmonizes its laws and regulations with the EU's. Complaints about these laws, especially the tax system, center on the lack of clarity and often draconian penalties for minor errors. The actual tax burden, labor, health and safety requirements, and environmental rules generally are not excessive when compared with those in the EU. Overall, these laws and regulations have not been either a significant attraction for investors or a major impediment to investment in Poland. When Poland completes the harmonization process, these laws should be comparable to those in the EU.
Bureaucratic Procedures: Foreign investors often point out the difficulties in completing bureaucratic requirements and subsequent delays when investing in Poland. Generally, the regulatory requirements are considered to be more burdensome than those in EU countries.
I. Efficient Capital Markets and Portfolio Investment
Capital Markets: Poland's policies generally facilitate the free flow of financial resources. Banks can and do lend to foreign and domestic companies. Companies also can and do borrow abroad and issue commercial paper. Poland has developed healthy and growing equity markets. The 1991 Law on Public Trading in Securities and Trust Funds created the regulatory framework for operations on the capital market and introduced its major agents: the Securities and Exchange Commission; the stock market; and the stock-broker. Since the opening of the Warsaw Stock Exchange (WSE) in 1991, the number of listed joint stock companies has increased from 5 to over 200 at the end of 1998. The capitalization of WSE has grown from USD 142 million in 1991 to more than USD 21 billion (or almost 15 percent of GDP) at the end of 1998. The over-the-counter market (CeTO) began operations in 1996 and, as of the end of 1998, it had over 20 firms. The 1997 Investment Funds Act allows for open-end, closed-end, and mixed investment funds. The declining rate of inflation and a growing economy should lead to financial institutions offering more and longer-term products and services. The introduction in 1999 of mandatory pension funds managed by private firms marked a major step forward in the development of the Polish capital markets.
Credit Allocation: Credit allocation has been on market terms. The government, however, has some programs offering below-market rate loans to certain domestic groups, such as for farmers and homeowners.
Access: Foreign investors and domestic investors have access to the Polish financial markets. Most private Polish investment is still financed from retained earnings, while foreign investment is mainly direct investment, using funds obtained outside of Poland. More and more Polish firms are raising capital in Europe or the United States.
Legal, Regulatory and Accounting Systems: Poland's legal, regulatory and accounting systems often lack transparency and differ significantly from those in European Union (EU) countries and in the United States. Poland is in the process of harmonizing these systems with those in the EU, which sometimes also lack transparency. The Finance Ministry is rewriting the accounting regulations. The major international accounting firms provide services in Poland and they are familiar with the U.S., EU and Polish accounting standards.
Portfolio Investment: The Polish regulatory system fosters and supervises the portfolio investment market. Both foreign and domestic persons may place funds in demand and time deposits, stocks, bonds, futures and derivatives. The stock and Treasury bill markets are fairly liquid, but many other investments are not, such as Treasury bonds. The Polish Securities and Exchange Commission has built an excellent reputation for supervising the stock market.
Banking System: The Polish banking system is sound and considered one of the best regulated and supervised in Central and Eastern Europe. As of the end of the first quarter of 1999, the banking system had total assets of 340 billion Polish zlotys (USD 85 billion). The National Bank of Poland reported that 11.2 percent of the banking system's loans were non-performing at the end of the first quarter of 1999, compared with 31 percent at the end of 1993. As of mid-1999, foreign-controlled banks held approximately 60 percent of the banking system's assets.
Cross-shareholding: Cross-shareholding arrangements are rare and play a minor role in the Polish economy.
Hostile Takeovers: Neither the government nor private firms have taken measures to prevent hostile takeovers by foreign or domestic firms. Hostile takeover attempts are still rare, but have been occurring more frequently.
Standards-setting Organizations: Governmental agencies, and not companies, set industry standards. These agencies are not required to consult with either domestic or foreign firms when establishing standards, though the former much more than the latter tend to play an influential role in the process.
Private Sector Restrictive Practices: Private domestic companies compete with foreign firms, but they do not engage in practices to restrict foreign investment or foreign participation or control of domestic enterprises.
J. Political Violence
Poland is a politically stable country. There have been no confirmed incidents of politically motivated violence to foreign investment projects in recent years. Poland has neither belligerent neighbors nor insurgent groups. The Overseas Private Investment Corporation (OPIC) provides political risk insurance for Poland.
K. Corruption
Anti-Corruption Laws and Regulations: Polish laws and regulations provide a legal basis for combating corruption. Bribery is a criminal offence and bribes are not tax deductible. The Finance Ministry's tax authorities concede, however, that bribes are often disguised as other payments, which are deductible. Officially, if the tax authorities discover a bribe, the matter is supposed to be turned over to the police and prosecutor. In practice, the tax authorities do not seem to discover evidence of bribery. One of the chief tools in preventing corruption is a transparent system of government procurement by open tender at all levels of government. Poland implemented a completely revised Public Procurement Act based on the United Nations model procurement law at the national level in 1995 and at the local (gmina) level in January 1996. Moreover, a 1997 law restricts economic activity for people holding public positions. This law prevents a public official from engaging in business activities where he or she would have a conflict of interest while he or she is an official and for one year thereafter. The law applies to parliamentarians, government officials, and local officials.
OECD Anti-Bribery Convention: Poland signed the OECD Convention on Combating Bribery in 1997 and is in the process of ratifying that convention and enacting implementing legislation.
Obstacle to Foreign Direct Investment: U.S. firms have not identified corruption as an obstacle to foreign direct investment.
Cases of Corruption: Reports of alleged corruption occasionally surface. They often appear in connection with privatization, government contracting, and the issuance of a regulation or permit that benefits a particular company. Reportedly, corruption by custom and border guard officials, tax authorities, and local government officials often occurs and, if discovered, is usually punished. Businesses report that sometimes Polish officials have asked for political campaign contributions in return for favorable treatment. Overall, U.S. firms have not considered bribe seeking by low level officials to constitute a major impediment to their operations in Poland.
Combating Corruption: There has been no significant improvement in enforcement of anti-bribery criminal laws by the police authorities or denial of tax deductions by the tax authorities. Nonetheless, the government has sought to reduce the opportunities for corruption. It has announced a plan to deregulate the economy. The private sector is now paying greater attention to fighting corruption. In 1998, concerned Poles established the Polish chapter of Transparency International. This chapter plans to operate a hot line for those who do not know what to do when they are asked to give a bribe or when they know that someone takes bribes. Specialists employed by Transparency International will provide information and advice. The organization also plans to promote transparency in government operations.
Bribery of a Domestic Official: Bribery and abuse of public office are crimes under the Polish criminal code, Articles 239-245. Also, a violation of the Public Procurement Act of 1995 is considered to be a violation of the Budgetary Law of 1991. Article 62 of the Budgetary Law specifies penalties, including warnings, reprimands, and fines up to three times the average monthly salary; articles 65-68 authorize the establishment of investigative commissions in cases of suspected bribery.
Bribery of a Foreign Official: The Justice Ministry states that existing Polish laws and regulations treat the payment of a bribe to a foreign official as a criminal offense, the same as if it were a bribe to a Polish official. Further, a bribe to a foreign or a Polish official is not tax deductible, according to the Finance Ministry.
Enforcement Agencies: The Justice Ministry and the police are responsible for enforcing Poland's anti-corruption criminal laws. The Finance Ministry administers tax collection and is responsible for denying the tax deductibility of bribes. However, neither ministry has a special office tasked with combating corruption.
Convictions: No foreign investor or major government official has been found guilty of corruption. A number of officials have been investigated and fewer charged, but these cases do not seem to reach a conclusion.
L. Bilateral Investment Agreements
Bilateral Investment Agreements: As of May 1999, Poland had ratified 57 bilateral investment agreements: Albania (1993); Argentina (1992); Australia (1992); Austria (1989); Belgium and Luxembourg (1991); Belarus (1993); Bulgaria (1995); Canada (1990); China (1989); Croatia (1995); Cyprus (1993); the Czech Republic (1994); Denmark (1990); Egypt (1996); Estonia (1993); Finland (1991); Former Yugoslav Republic of Macedonia; France (1990); Germany (1990); Greece (1994); Hungary (1995); India (1998); Indonesia (1993); Iran (1997); Israel (1992); Italy (1992); Kazakhstan (1995); Kuwait (1993); Latvia (1993); Lithuania (1993); Malaysia (1994); Moldova (1995); Morocco (1995); the Netherlands (1994); Norway (1990); Portugal (1993); Romania (1995); Singapore (1993); Slovenia; Slovakia (1996); South Korea (1990); Spain (1993); Sweden (1990); Switzerland (1990); Syria (1996); Thailand (1993); Tunisia (1993); Turkey (1994); Ukraine (1993); United Arab Emirates (1994); the United Kingdom (1988); the United States (1994); Uruguay (1994); Uzbekistan (1995); and Vietnam (1994).
Agreements with the United States: The United States and Poland signed a Bilateral Commercial and Investment Treaty (BIT) in 1991; it entered into force in 1994. The Treaty grants U.S. investors domestic privileges and provides for international arbitration in the case of investment disputes. In 1974, the United States and Poland signed a double taxation treaty.
M. OPIC and Other Investment Insurance Programs
OPIC: The Overseas Private Investment Corporation (OPIC) provides political risk insurance for U.S. companies investing in Poland against political violence, expropriation, and inconvertibility of local currency. OPIC offers medium and long-term financing in Poland through its direct loans and guarantees program. Direct loans are reserved for U.S. small businesses or cooperatives and generally range in the amount from two to ten million dollars. Loan guarantees are issued to U.S. lending institutions and range in size from USD 10 million to USD 75 million, and in certain instances up to USD 200 million.
MIGA: The World Bank's Multilateral Investment Guarantee Agency (MIGA) also provides investment insurance similar to OPIC's for investments in Poland.
Embassy's Purchase of Local Currency: Embassy Warsaw estimates that it uses almost five million dollars worth of zlotys per year. It obtains the foreign currency from banks at the market rate, which usually is close to the official parity rate.
Risk of Change in Value of Polish Zloty: The U.S. dollar has fluctuated significantly against the Polish zloty in 1998 and the first quarter of 1999. In the first half of 1999, the Polish zloty depreciated by about 15 percent in real terms against the U.S. dollar. Further fluctuations in the currency are possible. The National Bank of Poland (NBP) has pegged the exchange rate to a basket of currencies consisting of the U.S. dollar (45 percent) and the Euro (55 percent). The NBP devalues the zloty at the rate of 0.3 percent per month and allows the market rate to fluctuate around the central parity rate within a band of plus or minus fifteen percent. The NBP may adjust the rate of devaluation based on changes in market conditions.
N. Labor
Poland has a well-educated, skilled labor force. Productivity is low by Western standards, but it is rising. Unit costs remain competitive. In 1999, the average gross wage in Poland rose to over USD 450 per month. There are shortages of persons with foreign language skills and training in contemporary management, finance, and marketing. Polish workers are usually eager to work for foreign, especially American, companies. Most aspects of employee-employer relations are governed by the 1996 Labor Code, which lists employee and employer rights in all sectors, both public and private. The Polish government adheres to the International Labor Organization (ILO) Convention protecting worker rights.
Poland's economy employed nearly 15 million people in 1999, with 2.1 million or 11.6 percent officially registered as unemployed. Many of the registered unemployed actually work full or part time in the unofficial, gray economy, which adds an estimated 12-15 percent to the official GDP. Overall, employment in the public sector continues to shrink as the private sector grows. Employment has expanded most quickly in mostly private service industries such as retail trade, finance, insurance, as well as in the clothing, fuel, power, timber, and food processing sectors. The state-owned sector is still about a quarter of the labor force, though employment in such fields as coal mining, steel and energy is declining.
The impact of unemployment varies dramatically by region. Major urban areas such as Warsaw, Cracow, and Poznan have unemployment rates between three and six percent, while jobless in the agricultural areas in the northeast and northwest can exceed 25 percent.
For more detailed labor related information, please consult the Embassy's Labor Trends report published by:
Department of Labor Bureau of International Affairs 200 Constitution Avenue, NW Room "S" 5006 Washington, D.C. 20210 Tel (202) 219-6234 Fax (202) 219-5613 In Poland, please consult: Embassy Labor Attache U.S. Embassy Al. Ujazdowskie 29/31 00-540 Warsaw Tel (48-22) 628-3041O. Foreign Trade Zones/Free Ports
The establishment, operation and closure of foreign trade zones or "free customs areas" (WOCs) in Poland is regulated by the 1997 Customs Law, and the December 1998 Resolution of the Council of Ministers on the Conditions and Criteria for Establishing and Closing WOCs (Dz.U. 164, art.1163, 12/30/1998). Business activities pursued within WOCs (formally, eight such areas were approved as of January 1996, but in 1998 one zone - Sokolka - was closed) are based on the same principles as those applied in the European Union (EU) member countries. Foreign-owned firms have the same investment opportunities as do Polish firms to benefit from foreign trade zones, free ports, and special economic zones.
The seven free customs areas are located at:
- WOC Gliwice (southern border)
- WOC Malaszewicze/Terespol (eastern border)
- WOC Przemysl-Medyka (eastern border)
- WOC Warszawa-Okecie International Airport (duty-free retail trade within the airport)
- WOC Szczecin (Baltic port)
- WOC Swinoujscie (Baltic port)
- WOC Gdansk (Baltic port)
Most of the existing free trade zones are involved in storage, packaging and repackaging. Bonded warehouses and customs and storage facilities are available, although it can be difficult for a company to obtain permission to build or buy its own facilities.
In October 1994, Poland enacted the Law on Special Economic Zones (SEZ). SEZs offer exemptions from income tax, local taxes and fees, and accelerated amortization of fixed assets. SEZs are intended for areas with significant unemployment. Since 1994, seventeen SEZs have been established in Poland. In June 1999, Polish government responding to pressures exerted by the European Union decided to stop opening new SEZs and cease extending the area of the existing ones. An amended law on SEZs should be ready at the end of 1999.
In the meantime, permits can be issued till the end of 2001 in zones located in local governments (gminas) with unemployment 150% above the national average, and for the other zones till the end of the year 2000. Two zones (Czestochowska and Mazowiecka Zones) will likely be closed since no investors appeared in these zones since they were established in 1997. Permits will not be issued to firms operating in sectors considered in the EU as sensitive, i.e., shipbuilding, steel industry and synthetic fiber production.
The Polish government is planning to work on an alternative set of financial instruments aimed at investment support, e.g. grants. Gminas and regions are encouraged to create their own instruments of attracting investors, e.g. sale of land below market value or the development of land at the expense of the gminas. Any proposals regarding SEZs will call for amendments to the current legislation. The European Union will be consulted about any amendments.
P. Foreign Direct Investment Statistics
Investment Trends: In recent years, Poland has been attracting high levels of foreign direct investment (FDI). Foreign companies choose Poland for a variety of reasons, including, its size, skilled work force, and low labor cost. It is expected that 1999 will be another good year for FDI in Poland. These expectations are based on the government's plans to privatize major Polish companies from the telecommunication sector (TPSA), banking (Pekao SA), insurance (PZU), the national airline (LOT), and power plants. The government in the first half of 1999 sold in the single largest transaction a majority stake in Pekao SA for USD 1.1 billion to Unicredito/Allianz (Italian and German). It also sold to Allied Irish Bank an 80 percent stake in a large regional bank (Bank Zachodni) for USD 580 million. Poland has become the leader in attracting FDI in the region, with Hungary falling to the second position and the Czech Republic keeping its third place.
Polish Investment Abroad: Poland is a net capital importer. Compared to the amount of foreign capital invested in Poland, Poland's foreign investments are very small. One of the reasons for the low level of Polish foreign investment is the low level of savings of Polish companies. According to data of the National Bank of Poland, through the end of 1997 Polish firms had invested USD 678 million abroad (down USD 57 million from 735 million invested a year early). Poland's foreign investments are largest in Germany (23.4 percent), Great Britain (18.3 percent), the United States (12.1 percent), and France (11.1 percent). Over 50 percent of Poland's foreign investments are connected with the financial sector, 23.1 percent is invested in trade and services, 8.4 percent in transport, communications and warehouse management, 5.8 percent in manufacturing, and 2.4 percent in construction. Moreover, as part of the OECD accession process, Poland relaxed restrictions on the ability of Poles to invest in securities and stocks outside of Poland.
Levels of Foreign Direct Investment: According to data collected by the Polish Agency for Foreign Investment (PAIZ), foreign direct investment (FDI) in Poland reached a record-level of USD 10 billion (6.5 percent of GDP) in 1998. Total FDI reached USD 30.7 billion (20 percent of GDP) at the end of 1998. Out of this total, large investors (USD one million or more) invested USD 27.3 billion. Commitments to make additional investments during this period totaled USD 13 billion. PAIZ estimates that FDI in Poland in 1999 will easily reach the 1998 level (USD 10 billion).
According to official statistics, the U.S. is for the first time since 1989 in second place with regard to the volume of capital invested in Poland, right behind Germany. Germany also ranks first in terms of the number of firms operating in Poland. Several investments by U.S. firms have been attributed to other countries because they were made by the European subsidiary of the U.S. parent (e.g., Adam Opel/General Motors and Coca Cola). At the end of 1998, U.S. investments accounted for 18 percent of the total value of foreign investments in Poland. The manufacturing sector remains the most popular sector with foreign investors in Poland. In the years 1989-1998, USD 15.9 billion were invested in that sector, of which USD 4.5 billion were invested in the food industry and USD 3.6 billion in the motor industry. The second most attractive sector for foreign investors was the financial services sector, followed by trade and repairs, and construction sectors.
As of December 1998, 714 companies from over 30 countries had invested over USD one million in Poland. Among foreign firms and financial institutions, the largest capital investment was made by Italy's FIAT, which by December 1998 had invested over USD 1.36 billion. The Korea's DAEWOO has moved to a second place with investments worth USD 1.35 billion, followed by Gazprom (USD 960 million), the HypoVereinsbank AG (USD 724 million), EBRD (USD 650 million), Metro AG (USD 600 million), and Polish American Enterprise Fund (USD 505 million).
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Foreign Investments in Poland 1990 - 1998 (USD Millions) Year Equity and Loans Commitments Grand Total: 1989 4.0 N/A 1990 88.0 N/A 1991 490.0 N/A 1992 1,423.0 N/A 1993 2,828.0 4,649.0 1994 4,320.8 4,932.5 1995 6,832.2 5,249.6 1996 12,027.7 7,933.3 1997 17,705.4 10,777.1 1998 27,279.6 13,326.8 Investment Individual Years: 1990 84.0 N/A 1991 402.0 N/A 1992 933.0 N/A 1993 1,405.0 N/A 1994 1,492.8 283.5 1995 2,511.4 317.1 1996 5,195.5 2,683.7 1997 5,677.7 2,843.8 1998 9,574.2 2,549.7 Total Investment United States: 1991 N/A N/A 1992 N/A N/A 1993 1,028.0 1,010.0 1994 1,413.7 1,534.3 1995 1,698.0 1,520.0 1996 2,965.6 2,669.9 1997 3,981.8 3,167.0 1998 4,911.2 3,654.4 United States Individual Years: 1993 N/A N/A 1994 385.7 524.3 1995 284.3 -14.3 1996 1,267.6 1,149.9 1997 1,016.2 497.1 1998 929.4 487.4Foreign Direct Investments (by countries of origin)(December 1998)
Country Total Equity and Loans (USD Millions) Germany 5,117.3 U.S.A. 4,911.2 France 2,398.9 Italy 2,037.6 Great Britain 1,929.5 Holland 1,878.9 International 1,813.1 South Korea 1,412.4 Russia 958.0 Austria 758.3 Sweden 691.5 Switzerland 666.2 Denmark 558.4 Norway 455.8 Canada 235.6 Ireland 226.1 Japan 198.3 Finland 191.2 Belgium 115.2 Portugal 147.2 Grand Total 27,279.6----------------------------------------------------------------Foreign Direct Investments (by industry sector destination - Dec.1998)
Sector Equity and Loans Commitments (USD millions) (USD millions) Manufacturing 15,912.1 6,970.6 of which: - Food products, beverages, tobacco products 4,460.7 1,471.0 - Transport equipment 3,627.9 2,083.3 - Other non-metal goods 2,576.8 1,249.8 - Pulp, paper, paper products, publishing and printing 1,353.9 325.3 - Chemicals, chemical products 1,272.4 470.0 - electrical machinery 1,016.3 372.7 - other machinery and apparatus 584.8 343.1 - rubber and plastics 422.7 228.1 - basic metals and metal products 422.7 228.1 Financial Intermediation 4,802.9 1,140.4 Wholesale and retail trade, repairs 2,942.7 2,193.7 Construction 1,685.3 1,133.8 Transport and Communication 719.3 159.2 Hotels and restaurants 429.8 207.1 Communal, social, individual 397.8 386.1 Electricity, gas and Water supply 241.8 1,000.0 Real estate, renting and business activities 112.0 123.5 Agriculture 24.1 8.0 Mining and quarrying 11.8 4.4The Top Twenty Major Foreign Investors in Poland (December 1998)
Investor Equity and Origin Branch Loans (USD millions) Fiat 1,357.4 Italy Car manufacture Daewoo 1,348.4 S. Korea Car production, electronic equipment, construction, telecommunications RAO Gazprom 958.0 Russia construction (gas pipelines) Bayerische Hypo Und Vereinsbank 724.0 Germany banking EBRD 653.5 Int'l banking, capital participation in enterprises Metro AG 598.0 Germany retail and wholesale trade Polish-American Enterprise Fund 505.0 USA capital funding of private firms and participation in privatization IPC 440.0 USA pulp and paper ING Group 420.0 Netherlands banking Commerzbank AG 389.0 Germany banking Philip Morris 372.0 USA tobacco industry International Reemtsma Cigaretten Fabriken GmbH 368.1 Germany tobacco industry Adam Opel AG 360.0 Germany car manufacture Coca-Cola Beverages 360.0 G.Britain soft drinks production Harbin BV 325.9 Netherlands brewing ABB 310.2 Int'l power supply systems, turbines, electric engines Nestle 309.0 Switzerland food processing Saint Gobain 296.0 France glass, insulating materials Pilkington 295.0 G.Britain glass Finance Corp. 284.2 Int'l investment in private sector projects across all industry sectors Pepsico 283.0 USA food processing----------------------------------------------------------------
The Top 20 U.S. Investors in Poland (December 1998)
Company Value of Investments (USD millions) Polish-American Enterprise Fund 505.0 IPC 440.0 Philip Morris 372.0 PepsiCo 283.0 Citibank 235.2 Epstein 200.0 Procter and Gamble 190.0 Mars Incorporated 163.0 Enron Int'l 132.0 Delphi Automotive Systems Holding Inc. 114.4 Goodyear 112.0 Mc Donald's 107.0 D.Chase Enterprises 100.0 Curtis 100.0 J.P.Morgan 100.0 Central European Media 85.0 Schooner Capital Corp/ White Eagle Industries 80.0 Sheraton Warsaw 80.0 R.J.Reynolds Tobacco Texaco Inc. 68.6 F & P Holding Co. Inc. 66.8Major Investments by Country of Origin, Number of Companies, Total Value,(Percent Share of Total), through December 1998
1. Germany, 163 companies, USD 5,117.3 million (18.8 percent) 2. United States, 112 companies, USD 4,911.2 million (18.0 percent) 3. France, 60 companies, USD 2,398.9 million (8.8 percent) 4. Italy, 64 companies, USD 2,037.6 million (7.5 percent) 5. Great Britain, 28 companies, USD 1,929.5 million (6.9 percent) 6. Holland, 42 companies, USD 1,878.9 million (6.8 percent) 7. International, 18 firms, USD 1,813.1 million (6.6 percent 8. South Korea, 4 companies USD 1,412.4 million (5.2 percent)----------------------------------------------------------------
Source: PAIZ.
Note: PAIZ data is collected by means of a survey. The methodology applied by PAIZ is based on the OECD benchmark definition of FDI. The definition of FDI includes:
- equity contributed by foreign investors to the companies established by them in Poland (the foreign investor's share must be at least 10 percent);
- medium- and long-term loans granted by foreign investors to the companies established by them in Poland;
- the value of re-invested profits reduced by dividend exported from Poland to the country of origin of investor.
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