A Brave New Region?
A Brave New Region?
Removing Barriers to Business
in the Baltic Sea Region
H.C. Andersens Boulevard 18 · DK-1787 København V
Tel. (+45) 3377 3377 · Fax (+45) 3377 3300 · [email protected] · www.di.dk
A Brave New Region?
Removing Barriers to Business in the
Baltic Sea Region
June 2003
Published by the Confederation of Danish Industries
Editor: Torben Mandrup Timmermann
Print: Kailow Graphic
ISBN 87-7353-461-7
500.6.2003
Preface1
"Tear down this wall…"
In 1987, Ronald Reagan, then President of the United States, gave
a strong, emotional speech at the Berlin wall, in which he in no
uncertain terms appealed to his Soviet colleague – "Mr Gorbachev,
tear down this wall…" At that time, his speech was regarded as
mere wishful thinking. But only two years later, Mr Reagan’s words
had become reality, and the Berlin wall had been reduced to rubble
and remnants. After many years of preparation and arduous
negotiations, the Danish EU Presidency in 2002 succeeded to
conclude accession talks with eight Central and Eastern European
countries. Instead of a divided Europe, the prospect of one united
Europe now seems within reach – with all the benefits this will lead
to for business and society. And for the first time ever, the "Sea of
Peace" is not just a Soviet propagandist name for the Baltic Sea, but
rather a political reality.
As the enlargement will hopefully soon take place, it is natural to
consider Denmark’s significant focus on the Baltic Sea Region as
being successfully completed.
This conclusion, however, is in many ways premature. At the same
time as new issues are being solved, our efforts in the Baltic Sea
Region should be continued. After all, the new member states have
only had 14 years to get rid of Communism and implement the political and economic reforms that it has taken Western Europe decades to carry out. And although reforms have been impressive,
there are still areas in which the countries need "help to help
themselves".
It is equally important that the enlargement is properly "wrapped". For years, the EU has operated with the slogan that the enlargement must not establish new lines of separation in Europe. If
the EU – not least the Nordic countries – after Copenhagen suddenly remove their attention from Central and Eastern Europe,
there will be an immediate danger that the EU’s new neighbours,
Russia, Ukraine etc. will be forgotten. In the worst case this will
mean that those countries will turn their backs on the EU, and that
the citizens of the EU will be living next to a new circle of instability and insecurity instead of a neighbouring "circle of friends".
This report – A Brave New Region? Removing Barriers to Business
in the Baltic Sea Region – deals with one of the areas where the
work has not been finalised. Although the Berlin Wall and the Iron
Curtain have been torn down, there are still a number of wall
remnants left which constitute a barrier to trade and investments
in the Baltic Sea Region. This means that the vision of one strong
Baltic Sea Region, which may act as a strong growth centre
without barriers to business activities, still has not come true.
Consequently we need to launch a joint political effort to achieve
this goal.
The report is a contribution of the Confederation of Danish
Industries (DI) to such an effort. The report has been funded by
Industriens Realkreditfond and focuses the existing wall remnants that still block the way for a barrier-free Baltic Sea Region,
and in addition the report gives specific recommendations on how
to demolish these wall remnants. The present report is a follow-up
to the DI survey on barriers to business activities in the Baltic Sea
Region which was presented in 2000.
A barrier-free Baltic Sea Region may even in 2003 seem like wishful thinking. As the reader will know, the Øresund Region still has
not become one strong region. Mr Reagan’s famous speech in 1987
does, however, constitute a welcome underlining of the possibility
that dreams and visions may suddenly come true. After all, the
challenge has become more manageable. It is easier to remove remnants than to demolish an entire wall.
June 2003
Hans Skov Christensen
Confederation of Danish Industries
Contents
Summary – A strong Baltic Sea Region?
7
One Baltic Sea Region – A sustainable vision?
13
Remaining wall remnants in Poland, the Baltic countries and Russia
23
Legislation and regulations
33
Setting up business
36
Land purchase
39
Tax rules
40
Customs procedures
42
Technical product legislation
43
Public administration
49
Setting up business
56
Product registration and approval
57
Land purchase and building licence
58
Tax authorities
60
Customs authorities
62
Corrupt authority
69
Recommendations and conclusion –
Demolish any remnants of the wall!
83
References and Notes
93
Summary –
One strong Baltic Sea Region?
8
Summary –One strong Baltic Sea Region?
AFTER COPENHAGEN
2002 was a year of celebration for the EU and its enlargement
process. "Wonderful Copenhagen" has rightfully become a slogan
that will be remembered, after accession negotiations with eight
Central and Eastern European countries were successfully concluded.
2003 is the year of follow-up: How far have the new and former
member states come in their enlargement preparations?
This report follows up on the ambition to create one strong Baltic Sea
Region2 without barriers to trade and investments. How far have the
countries come in their efforts to fulfil the ambition that there should
be no difference between doing business in Tallinn and Tammerfors
– or St. Petersburg and Stockholm? Do the EU enlargement process
and Russia’s WTO negotiations imply that the region is presently –
not least in relation to DI’s latest survey three years ago – close to
being one region, and that the existing vast trade and investment potential may be realised? Are there really still any barriers to trade
and investments left in Estonia, Latvia, Lithuania, Poland, and Russia? These are the questions that DI has attempted to answer by
interviewing a representative selection of 45 member companies.
1. THE BIG WALL DEMOLISHED ...
According to a large majority of the interviewed companies, barriers
to business activities have been significantly reduced in the past
three years in Estonia, Latvia, Lithuania, and Poland. The smallest
number of problems remains in Estonia. This is a clear indication
that the EU accession process has functioned as an efficient tool in
removing barriers in these countries.
… b u t s t i l l s o m e r e m n a n t s o f t h e wa l l r e m a i n
Even though quite a large number of wall remnants have been
demolished in Russia since 2000, and even though Russia has come
a long way from its starting point in 1992, barriers remain higher
by far in Russia than in any of the other countries. One explanation
is that Russia is not part of the EU enlargement process. Instead of
implementing existing EU legislation, Russia has had to adopt a
separate, new legislation. At the same time, this is a clear indication
that the Partnership and Cooperation Agreement of 1997 between
EU and Russia has not had the desired effect. One provision of the
Agreement is that Russia will align its legislation to that of EU, but
this has not happened.
A total of 60 pct. of the interviewed companies state that over the
past three years it has generally become easier to do business in or
export goods to the countries in the eastern part of the Baltic Sea
Region.3 Only around 5 pct. find that conditions have become more
difficult. More than 90 pct. of the interviewees are satisfied with
their trading and business partners, who are all described as being
professional and reliable. The fact that these companies regard
operating in the Baltic Sea Region as advantageous is underlined
by the expectations held by all 45 companies that their business
activities will be increased in the countries in question over the
next three years.
2. … BUT STILL SOME REMNANTS OF THE WALL REMAIN
In spite of this progress the objective of a barrier-free region has
not been achieved. Although the EU – and to some degree the WTO
– accession process has been an efficient tool for clearing away
rubble, there are still considerable wall remnants left. The most
important barriers to business still remain within the area which
under one headline may be named "good governance", i.e. rules,
regulations and public administration. In other words, the framework conditions that are crucial to well-functioning market economies, not least with respect to companies’ ability to do business,
are still not satisfactory.
More specifically, over 50 pct. of the interviewed companies point
out that they keep running into inadequate rules and regulations.
The tax systems, for example, are inadequate in many of the countries. At the same time, it is a serious shortcoming that there are
9
10
Summary –One strong Baltic Sea Region?
no explanatory notes to laws, which are crucial for allowing civil
servants, companies, lawyers etc. to interpret the laws – in other
words furnishing these parties with explanations describing how
the legislators intended the laws to work in practice.
Slightly less than 70 pct. of the interviewed companies state that
they still experience significant problems with the authorities in
the countries. For example, customs clearance is still too slow, tax
inspectors act over-zealously and arbitrarily, and the attempts of
civil servants to extort companies to pay bribes are all too common.
Generally, the administrative practices of the old system still
prevail to some extent, and the service culture has not yet gained
ground within the public system. It should be added, though, that
there is a considerable lack of civil servants and judges who have
graduated after 1989.
The fact that considerable wall remnants remain in the Baltic
countries and Poland stresses the fact that there are limitations to
an EU membership’s efficiency as a wrecking ball. Some of the
important business legislation, such as taxation, is not part of the
EU legislative framework and thus it is not included in the law
package which the new member states need to adopt prior to
membership. It is of equal importance that the EU does not operate
with minimum standards for "good administrative practice". In
principle, the EU has always taken it for granted that new member
countries were able to administer both national and European
business legislation without any problems. This means that this
report uncovers two gaps in the EU enlargement procedure which can
only be remedied by means of new, supplementary initiatives.
As regards Russia, the WTO rapprochement has indeed demolished
certain wall remnants. However, WTO does not treat areas such as
efficient tax legislation and other forms of "good public administration" to the same extent as is the case of the EU procedure.
3. THE REMAINING WALL REMNANTS MUST BE DEMOLISHED!
The vision of one strong Baltic Sea Region without any barriers to
trade and investments is now entering its third phase. First, the Berlin
Wall fell and the Soviet Union was dismantled. Then accession
EU structural funds
negotiations were closed with the Baltic countries and Poland. The
road is now paved for an actual integration. However, this requires
hard work.
When the four countries enter the EU on 1 May 2004, some of the
barriers that still remain in the three Baltic countries and Poland
will disappear automatically. Among those are slow customs
clearance procedures towards other EU member countries and
local authority requirements for national approval of products that
already comply with EU standards.
As membership in itself, as mentioned above, does not remove all
barriers, renewed efforts are required to create a barrier-free
region. The need for this is stressed by the fact that the WTO
accession does not automatically remove the remaining barriers either.
Fist of all, a "demolition plan" including a benchmarking procedure
and a best-practice procedure for a barrier-free Baltic Sea Region
must be drawn up. This plan should aim at one of the areas not
covered by EU and WTO membership, namely the adoption of
efficient and flexible business legislation within areas such as
taxation and land purchase. The countries in the region should
establish joint signposts to how many public authorities it is
necessary to approach to e.g. purchase land or establish a new company, and to how long this should take. Ideally, Russia should be
part of this process, which acts as a point in favour of anchoring the
process in the only regional organisation where Russia is also a
member, namely the Council of the Baltic Sea States. These efforts
could very well be carried out in cooperation with the Nordic Council
of Ministers, which holds considerable experience in breaking down
barriers between the Nordic countries, and which is already cooperating with the Eastern Baltic Sea countries within various areas.
Secondly, special efforts should be carried out within "good governance" in the new member states. These efforts should be continued
within the framework of the EU Phare programme, which will continue until 2006. In connection with the planned reform of the EU
structural funds in 2006 it should be taken into consideration that
the new member states have other needs than existing member states.
11
12
Summary –One strong Baltic Sea Region?
Whereas the structural funds at present are primarily used for infrastructure, reschooling of labour etc., the funds should be reformed to
allow new member states to receive support for "good governance",
such as establishing improved legal systems and tax systems and
training civil servants. Operating according to the "one size fits
all-principle" will just not be good enough, when the EU is enlarged
in 2004 with countries that have fundamentally different needs.
Thirdly, wall remnants in Russia should be the subject of special
efforts. The benchmarking and best practice procedures may
contribute to this end. However, it will be of vital importance that
the EU as an organisation participates actively. EU's new "neighbourhood initiative", "Wider Europe", should be implemented in
such a way that it primarily demolishes wall remnants, i.e. that
allocations are made towards "good governance". At the same time,
the new partnership agreement to be concluded within the framework of "Wider Europe" must include elements to ensure that
Russia is encouraged to adopt and implement business legislation
that is aligned with that of the EU. This is to avoid a repetition of
the present agreement, which has primarily consisted of words
rather than action. This will, unlike today, necessitate establishing
deadlines for implementation of the various changes, and also
annual evaluations. Funds for this purpose should be allocated
from within the frameworks of the EU Tacis programme and the
EU Northern Dimension.
One Baltic Sea Region –
A sustainable vision?
14
One Baltic Sea Region – a sustainable vision?
Finland
Norway
Estonia
Russia
Latvia
Sweden
Denmark
Lithuania
Kaliningrad
Germany
Poland
A circle of friends
Since the end of World War II, Denmark has had friendly and
economically profitable relations to all western neighbouring
countries in the Baltic Sea Region. Now the circle is closed. Today,
Denmark has good relations to all its neighbours in the region and
may be said to be enclosed in a circle of friends and economic
partners.
Economic harmonisation
needed
This does not mean, however, that the efforts to make the Baltic
Sea Region into one strong region with no barriers to trade and
investments have been finalised. One important problem is that
the prosperity of the Eastern Baltic Sea countries is still considerably lower than that of the Western Baltic Sea countries4 and still
somewhat below that of the least developed EU member states.5
Their economic level is approximately that of Brazil and Mexico.6
Since the breaking down of the Berlin Wall and the dismantling of
the Soviet Union, companies in the western and eastern parts of the
Baltic Sea Region have benefited from the comparative advantages of
the region. Western companies have entered new markets and have
been able to manufacture high-quality products at low
labour costs, which still only amount to approximately 10-15 pct. of
Danish labour costs7, and eastern companies have gained technology,
15
Po t e n t i a l m u s t b e u s e d
know-how, insight in market economy business operations etc. This
cooperation and increased trade have contributed to increased
prosperity in all countries in the Baltic Sea Region.
However, the Baltic Sea Region cannot be regarded as one region
until a major economic harmonisation has taken place. Considerable
economic inequality leads to insecurity, distrust, crime etc. and
may create gaps. If the vision of one strong Baltic Sea Region is to
come true, the modernisation of the Eastern Baltic Sea countries
must be continued.
As globalisation is making the world smaller and is bringing
markets, people and cultures closer together, local markets are still
very important to the economic development of a country.8 Exporting or investing companies may often find it easier to make use of
comparative advantages if markets are close to the domestic
market rather than far away from it. Shorter distances are often
significantly important in transporting people and goods. Access to
labour also becomes easier. For example, more than 80 pct. of
Danish direct investments in Central and Eastern Europe are
made in the Eastern Baltic Sea countries9, and several analyses
show that there is still a large potential for trade and investments
in the Baltic Sea Region.10 With its six cities of more than a million
inhabitants, 10 countries and more than 100 million citizens, the
Baltic Sea Region has the potential to become one of the most
economically strong regions in Europe. It is thus important that
the huge unexploited trade and investment potential between the
countries is realised.
Potential must be used
This can only be done by the business community. This means that
it must have decent operating conditions. Decent operating conditions for companies involve "good governance", i.e. adequate laws
and rules and public administration, to support their activities.
Companies create
growth
The economic figures speak for themselves. Viewed over a number
of years all countries in the Baltic Sea Region have seen a high
economic growth rate, on average around 4 pct., which is higher
that the average growth rate in the EU-15 of around 3 pct. The
highest growth rates are found in the Eastern Baltic Sea countries,
even though their growth was somewhat curbed by the Russian
Higher growth rate
than in EU-15
16
One Baltic Sea Region – a sustainable vision?
crisis in August 1998. This development was quickly turned
around, however, and since 2000, average growth rates have been
high.11 One positive effect of the crisis was that particularly the
Baltic countries were successful in directing their attention at new
markets, especially within the EU, and that Russian manufacturers
and exporters profited from the low exchange rate for roubles. See
Fig. 1.
Figure 1
Real GDP in Estonia, Latvia, Lithuania, Poland and Russia
Index (1989=100)
140
Estonia
120
Latvia
Lithuania
100
Poland
80
Russia
60
40
20
0
Source: European Bank
for Reconstruction and
Development
89 90 91 92 93 94 95 96 97 98 99 00 01 02
The upward trend in the Baltic Sea Region is also in evidence in the
development within economic key areas. Thus inflation, foreign
debts, unemployment and public debts have been considerably
reduced from 1999 to 2001. See Fig. 2.
Increased trade
The progress that has taken place in the future EU member states
has to a large extent been caused by their involvement in international trade after the breakdown of Communism.12 Russia has
been part of this development, but the country’s progress is to a
large degree due to increased energy prices in recent years.
The progress is based not least on trade between the Western and
the Eastern Baltic Sea countries throughout the 1990s and until
today. For example, Denmark’s exports to the Eastern Baltic Sea
countries increased by 198 pct. from 1993 to 2002 – from DKK 5.6
17
Growing investments
Figure 2
Macroeconomic climate in Estonia, Latvia, Lithuania, Poland and Russia
Foreign debts
pct. of GDP
84,2%
1999
Inflation
pct.
67,5%
52,3%
2001
18,7%
10,3%
12,7%
Unemployment
pct. of labour force
56,8%
91,1%
Public debts
pct. of GDP
Source: European Bank
for Reconstruction and
Development
billion to 16.7 billion, whereas imports from the countries went up
from DKK 6.3 billion in 1993 to 14.7 billion in 2002, which corresponds to an increase of 131 pct.13 See Fig. 3.
Figure 3
Danish Exports
12 months average
Index (1993=100)
400
Export of goods
to Estonia, Latvia,
Lithuania, Poland
and Russia
350
300
Total Danish
export of goods
250
200
150
100
50
0
Source:
Statistics Denmark
94
95
96
97
98
99
00
01
02 03
The prosperity enjoyed by the future EU member states is also
largely caused by growing foreign investments during the past 10-15
Growing investments
18
One Baltic Sea Region – a sustainable vision?
years. The generally highly trained labour force of these countries,
combined with low wages and production costs have been very attractive to foreign companies. This has led to the establishment of
subsidiaries, outsourcing of production etc. On the other hand,
investments have supplied the countries with modern technology,
management principles and market insight. In addition, the investments have increased foreing trade, which partly consists of international trade between affiliated companies.14 Foreign companies
have also invested in Russia, but to a much smaller degree than in
the other countries.
The increase in Danish direct investments in Estonia, Latvia,
Poland and Russia during the second half of the 1990s was somewhat higher than that of the first half, and companies expect this
trend to continue for the next few years.15 At the end of 2001,
Danish direct investments in the Eastern Baltic Sea countries
amounted to DKK 18.4 billion. DKK 9.9 billion were related to
Poland, 7.7 billion to the three Baltic countries, and 0.8 billion to
Russia.16 See Fig. 4. In early 2003, around 1,000 Danish companies
were registered in the five countries, including subsidiaries, sales
companies, joint ventures etc.17
EU and WTO membership
will increase growth
Similarly, there is no doubt that the likely EU membership in 2004
of the Baltic countries and Poland will boost the growth rate
further. Tariff rates, waiting times at borders etc. will be eliminated,
which will clear the path for a single market where goods, services,
people and capital may move freely, and this will in turn increase
competitiveness considerably. Billions of Euro18 will flow into the
countries via the EU structural funds. Russia’s possible membership
of the WTO, which will particularly reduce trade barriers, will also
have a positive effect on growth rates.
Great trade and
investment potential
Results of a survey carried out by the Danish Trade Council indicate
that there is a large potential for exports to the future EU member
countries, which may be realised in connection with the EU enlargement.19 Danish exports to other EU countries amounted to DKK
721 per EU citizen in 2001. Exports to the applicant countries only
amounted to DKK 212 per citizen in the same period. This is an
illustrative example of the export potential that may be realised
through a continued reform and integration process.20
19
But no automatic progress
Figure 4
Danish Direct Investments in Estonia, Latvia, Lithuania, Poland and Russia
Bill. DKK
20
Russia
18
16
Estonia, Latvia,
Lithuania
14
Poland
12
10
8
6
4
2
0
Source: Danmarks Nationalbank
(National Bank of Denmark)
1996
1998
1999
2000
2001
Experience from countries like Spain and Portugal also indicates
that foreign investments will go up after EU accession, because the
business community regards EU membership as a seal of approval
and security against radical political, economic and legislative
fluctuations. In addition, the significant investments made in the
past few years – many of them through foreign companies – have
led to increasing productivity, and wage costs per manufactured
unit is generally considerably lower than in most EU countries.21
Russia’s possible membership of the WTO will have a similar, if
probably more limited effect.
The probable EU membership of the Baltic countries and Poland,
and Russia’s possible membership of the WTO are not as such
sufficient to ensure continued economic growth, and an unused
potential is not worth a lot.
But no automatic
progress
First of all it should be kept in mind that the countries’ GDP
growth must be seen in the light of the fact that during the first
years of reform, their average GDP went down by 40 pct., and that
the countries’ average real GDP is still below the level of 1989. This
means that the starting point for growth was very low.22 The higher
the level gets, the more difficult it will be to maintain growth rates.
Low starting point for
growth
20
One Baltic Sea Region – a sustainable vision?
Macroeconomic
imbalances
In addition, there are still a number of macroeconomic imbalances
that need attention. These imbalances are generally larger than in
the existing EU member countries. Several of the countries have a
public budget deficit, and except for Russia, they all have a
balance-of-payment deficit. In spite of economic growth, Lithuania
and Estonia continue to have unemployment rates of 15 pct. and 12
pct. respectively, and these rates are only decreasing slowly. Since
1998, Poland has experienced a dramatic decline in positive growth
and private investments. As mentioned above, real volume growth
only amounted to 1.1 pct. in 2001, and the unemployment rate is
going up and approaching 20 pct.
Benefits will be reduced
A number of the benefits that the countries have so far enjoyed will
also gradually disappear. Their low wage level will rise further. For
example, the wage level of Poland has increased by 20 pct. since
1998. In spite of growing productivity and inflation, the cost
advantages that companies have had so far due to low wages will
go down compared to other low-wage countries. Certain favourable
tax conditions will also disappear.23 Already at this point there is a
trend that still more companies choose to place their activities in
Asia or other Eastern European countries such as Ukraine and
Belarus.
EU alignment not
finalised
It should also be pointed out that the conclusion of the negotiations
on EU membership in December 2002 was a sign to the Baltic
countries and Poland that they are now basically ready to become
members of the EU; but at the same time it was stressed that
improvements are still needed within a number of areas in all
countries. The countdown to actual membership in May 2004 has begun, and there is only little time to make the necessary improvements.
No significant Russian EU
alignment
Russia has not been part of the EU alignment process. By signing
the Partnership and Cooperation Agreement with the EU, which
entered into force in 199724, Russia has committed itself to gradually
align its legislation to that of the EU. However, the agreement does
not stipulate any schedule or deadlines for implementation of
aligned legislation etc. Consequently, the EU has not been able to
influence Russia into adopting the same business standards as the
applicant countries, and Russia has not made any significant EU
alignment of its own accord.
21
Important need of reform in Russia
Russian negotiations on membership of the WTO have done some,
but far from all, of the work needed. Russia still does not comply
with WTO requirements, and the prerequisites for WTO membership
are less comprehensive and far more loosely defined than those of
EU membership. Russia’s lack of reform is reflected e.g. in limited,
if increasing foreign investments. Direct foreign investments in
Russia amounted to only USD 47 per citizen from 1989 to 2001. In
the Baltic countries and Poland, foreign direct investments in the
same period were 20-40 times higher.25
Important need of
reform in Russia
Consequently, there is no basis for sitting on one’s hands and
waiting for things to happen. Things do not happen on their own accord, and whatever happens may happen at various speeds,
depending on the efforts put into improvements. The different ways
that the existing EU countries have developed clearly indicate that
different efforts to create favourable framework conditions for
business give different results. Many of the improvements that
need to be done before and after EU and WTO accession are to take
place within areas which companies consider barriers to enhanced
business activity.
Different efforts give
different results
In order to realise the vision of the Baltic Sea Region as one strong
growth region in Europe, efforts must, of course, be made within a
number of areas: Sustainable investments in new technology,
machinery etc. (physical capital) must be made; training, further
education etc. must be carried out (human capital); and confidencebuilding measures between people must be taken (social capital)26.
Removing the barriers that this interview survey has identified
within legislation and public administration is thus only part of the
solution.
Demolition of wall
remnants only part of
the solution
The breaking down of these barriers is, however, a central part of
the solution, because well-functioning legislation and public
administraton are fundamental framework conditions for efficient
business operations. See Fig. 5. Just like remnants of an almost
demolished wall these barriers prevent the trade and investment
potential of the region from being fully used. "Good governance"
does not automatically lead to increased welfare. But experience
shows that "bad governance" may easily lead to the opposite of
welfare.27 If the Baltic Sea Region is to present itself as one region,
But a central part of
the solution
22
One Baltic Sea Region – a sustainable vision?
companies must be able to operate freely. This is not possible today.
In other words, massive investments in these areas are needed.
Figure 5
Good governance – a basic condition for welfare
Welfare
Physical capital
(technology,
machinery etc.)
Human capital
(education,
training etc.)
Social capital
(trust between
people)
Good governance
(Legislation and regulations and public administration)
Remaining wall remnants in
Poland, the Baltic countries
and Russia
24
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
With the survey Barriers to business in the Baltic Sea Region28 in
2000 DI, on the basis of a questionnaire survey among 250 member
companies, put a critical light on the framework conditions for
business activity in the Eastern Baltic Sea countries. This new survey which is based on interviews with 45 DI member companies –
both companies that participated in the last survey and new
companies – is a follow-up on the last survey focussing on the
working conditions for companies in the Eastern Baltic Sea
countries in the light on Estonia's, Latvia's, Lithuania's and
Poland's probable EU accession and Russia's efforts to be integrated into international economic structures, among others the WTO.
By conducting interviews with the companies instead of only using
a questionnaire DI has had the opportunity to get below the
surface of the problems. The interviews were conducted from
October 2002 to March 2003.
This report does not attempt to give an exhaustive picture of the
barriers that companies meet. On the basis of the interviews, the
report puts light to the biggest barriers that the companies are
confronted with. With only few exceptions the barriers identified
are characteristic for the Eastern Baltic Sea countries and not for
the Western Baltic Sea contries.
Purpose
The purpose of the survey is to identify the biggest barriers to trade
and investments in the Eastern Baltic Sea contries, including the
development since 2000. This knowledge can be used by Danish
companies with active or potential business activities in the
countries in question. Furthermore, DI will provide decision
makers in the Baltic Sea Region, the EU etc. with information
about company experiences, documentation of barriers and recommendations for concrete action in order to eliminate the barriers.
What wall remnants must be demolished both before and after EU
and WTO accession so that there will be no difference between
doing business in Tallinn and Tammerfors or Stockholm and
St. Petersburg? And what has to be done to demolish the wall
remnants?
Aim
The aim of the survey is to contribute to the demolishing of barriers
to trade and investments in the Baltic Sea Region in order to secure
growth and prosperity in the whole region.
25
Method
The survey includes 45 DI member companies with different kinds of business activi-
Method
ties in the Eastern Baltic Sea countries, including export companies, subsidiaries,
sales offices, subsuppliers, joint ventures etc. The survey does not include companies
which have left one of the markets or did not finalise the efforts to establish business
activity in one of the countries.
.
The participating companies reflect the weight of the markets for the Danish
businesses. This means that most interviewed companies have business activities in
Poland which is the biggest Danish market, fewest in Estonia, which is the smallest
market etc.
The survey also includes companies from different sectors.
The survey takes into consideration different company needs in the Baltic Sea Region,
e.g. raw materials, reduction of labour and production costs, new markets etc.
Furthermore, both small, medium-sized and large companies have participated in the
survey because the size of a company is important for the way a company sees a barrier.
Finally, geographic issues have been taken into consideration. There is a big difference
between conditions, costs etc. for doing business in large cities and small towns.
The interviewees include company managers, e.g. managing directors and export
managers.
The companies have been asked about the barriers to export and investments in the
Eastern Baltic Sea countries. The interviews were based on an electronic questionnaire answered by the companies.
The questions focused on: Laws, rules and procedures (bureaucracy); technical
barriers to trade (e.g. labelling and certification); customs and duties;29 contrary civil
servants; corrupt authority;30 corruption in the private sector; infrastructure; level of
costs; cooperative partners; workforce; own competencies and economic strength;
public support programmes and financing. Furthermore the companies were asked if
they experience problems in connection with setting up business and day to day
operations in the countries in question. At the same time the companies have been
asked to assess whether the problems are experienced ”to a larger extent”, ”to some
extent”, ”to a lesser extent” or ”not at all”. In some instances it was possible to
answer ”do not know”. See fig. 6.
Question frame
26
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
Figure 6
Barriers to trade and investments in the Eastern Baltic Sea countries.
Answers from the companies interviewed
Legislation and regulations
Public administration
Infrastructure
Level of costs
Cooperation partners
Workforce
Lack of own competence
and strength
Lack of public support
and financing
Corruption in the
private sector
0
10
20
30
40
50
60
70
80
90
100
Pct.
What are barriers?
In this report, the terms "barriers" – or "wall remnants" – cover
conditions that interfere with companies’ possibilities of doing
business, e.g. exporting or establishing companies, in a certain
country. The questionnaire concerning barriers is described above.
Barriers are not unique
to Central and Eastern
Europe …
Many years’ focusing on Central and Eastern Europe may have led
to the impression that barriers to business are only found in those
countries. This is of course far from being the case.
Companies experience barriers in Denmark, in the EU and in
relation to the rest of the world. In early 2003, the Øresund Industri
& Handelskammare published a report on barriers to further
integration within the Oeresund Region that focused on taxation,
labour market conditions and social aspects.
Under the auspices of the Nordic Council and Council of Ministers
efforts are being made to remove the most prohibitive barriers for
letting the Nordic Region evolve into a coherent and competitive
business region. At present, the Swedish presidency of the Nordic
27
...but there are certain common characteristics of countries in the East
Council of Ministers is working to remove barriers within the
Nordic countries within six areas, including certain kinds of tariffs
and border traffic.
Companies experience barriers to their activities between EU
countries as well. In 2002, the European Commission published a
report on barriers to services in the single market. One of the
findings of the report is that a company based in one EU member
state will have major difficulties in establishing a service business
in another EU member state.
In the WTO, removing global trade barriers is negotiated on an
ongoing basis. In the light of these negotiations, the Nordic industrial organisations decided to publish a joint report in the autumn
of 2002 on barriers to global trade. The report stresses that global
trade barriers still exist.31
The basic difference in the debates on barriers in different contexts
are the characteristics and scope of the various barriers. It is
possible to determine a hierarchy of barriers in which barriers are
defined according to their effect on business. In short: The more
wall remnants the more pressing are the needs to demolish them as
quickly as possible to the benefit of companies’ export, investments
etc.
Barriers are basically country specific. Due to the relatively similar
development of some countries, however, these countries have basically similar characteristics which means that the barriers characteristic to these countries may be compared. This applies e.g. to the
five countries in the Eastern part of the Baltic Sea Region on the
one hand and the countries in the western part of the Baltic Sea
Region on the other.
Even though they are at different stages of their processes of
change, Estonia, Latvia, Lithuania, Poland and Russia have two
basic characteristics in common, which make them comparable
when discussing the barriers that companies from a long tradition
of democracy and market economics, e.g. Denmark, encounter with
respect to trade and setting up businesses.
...but there are certain
common characteristics
of countries in the East
28
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
For one thing, these countries have had less than 15 years to
restructure their legislation, administration, standards etc. from 45
to 70 years of communist totalitarianism, i.e. full state control of all
major aspects of public and civic life, to pluralist democracy,
following just a few years of democratic systems in the turbulent
inter-war period – except for Russia, which had none. In other words,
these countries do not have a deep-rooted democratic tradition.
Secondly, these countries have had to readjust their economic
systems from centrally governed planned economies to decentralised
market economies. Consequently, the readjustment process of the
Eastern Baltic Sea countries have been significantly more complicated than the process that e.g. Spain and Portugal went through
in the 1980s. Whereas Spain and Portugal did not have any democratic tradition, they functioned as market economies and thus did
not have to go through an overall economic transition. The five
countries in the eastern part of the Baltic Sea Region are still – always considering their differences – going through two basic
transitional processes.32 (See Fig. 7).
...different from those of
the counties in the West
Countries having a long tradition of democracy and market
economy are characterised by having well-consolidated and stable
Figure 7
The double transformation process in Poland, the Baltic countries
and Russia
Totaliarian
political
systems
Democracy
Planned
economy
Market
economy
29
Th e l a r g e s t wa l l r e m n a n t s
political and economic systems. This applies for instance to the
countries in the western part of the Baltic Sea Region, i.e. Denmark,
Norway, Sweden, Finland and Germany, and it has – always considering differences and continued shortcomings – resulted in good and
stringent legislation, administrative systems and financial structures,
wellfunctioning businesses etc. All Western Baltic Sea counties are
welfare states that offer social security. In addition, all of these countries are structurally relatively similar.
All of the above conditions are to a varying degree important for business operations and are generally considered to be characteristic of
all the Western Baltic Sea countries, to some degree in contrast to
the Baltic countries, Poland and Russia. The latter countries have
a range of characteristics in common, including a number of similar barriers to business activities, which are of a basically more
prohibitive nature than those usually found in the more developed
countries in the western part of the Baltic Sea Region. This is due
to the fact that the countries are in the process of going through the
two previously mentioned transitional processes.
The barriers to business existing in the Baltic Sea Region can be
divided into two layers. The first is a layer of barriers which are found
Figure 8
The barrier hierarchy – from top to bottom
n
n er
d i st
ce Ea
en nd ies
eri a tr
xp ern oun
e e est c
Ar W Sea
the ltic
Ba
• No tax
harmonisation
• Voluntary
labelling
• Arbitrary public administration
• Slow customs clearance
• Ineffective and "political" courts
• Corruption
n
di
ce ic
en alt
eri B
xp ern s
e e st rie
Ar Ea unt
the a co
Se
• Complicated legislation and
regulation
30
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
in both the western and the eastern part of the Baltic Sea Region. The
second layer consists of more prohibitive barriers that are found in
the Eastern Baltic Sea countries, but not in the Western Baltic Sea
countries.
As the all-important objective is to create one strong Baltic Sea
Region, the most important and interesting issues of the barrier survey are the following: What barriers to business activities are the
most characteristic – and thus the most onerous for companies – of
the countries in the eastern part of the Baltic Sea Region compared to
the countries in the western part of the Baltic Sea Region? Are there
other barriers which cannot be said to be characteristic for countries
at a specific development level? Are there differences between countries in spite of their in many ways similar starting point? And not
least: How is the process of demolishing the barriers coming along?
The largest wall
remnants
Based on the 45 interviews it may be ascertained that the most
important barriers by far to business activities in the Eastern
Baltic Sea countries are related to "good governance", which will be
the main focus areas of the analysis:
Legislation and regulations, including procedures, registration,
labelling and certification. This includes rules that entail that companies in some countries have to submit reports to the tax
authorities once a month or have to go through a lot of official bodies
to set up a business; complicated rules for purchase of land; or costintensive requirement for labelling and certification of products.
Public administration i.e. actual interpretation and implementation of formal regulatory requirements as well as the style of
public administration. The analysis will focus on issues such as
unpredictability, arbitrariness and slowness, e.g. in connection
with customs clearance and tax inspections.
Other barriers / wall
remnants
During the interviews some companies have indicated other types of problems, which
will be mentioned here but not described further, as too few of the interviewed
companies have experienced and pointed out these problems to make them
representative in this context. They are also factors which are often described as
problematic by various institutions, for instance the EBRD.
31
Insolvency law
The legal systems of the respective countries, in particular that of Russia, are gene-
Legal systems
rally described by the companies in question as well as in other surveys as being
insufficiently developed to be able to offer adequate services to the business sector.
The communist systems did not have legal systems that included the functions that
exist in societies governed by the rule of law. The legal system functioned as part of
the State, not as an independent body. The planned economy system settled loss or
conflict by means of negotiation, arbitration and political decisions, not through the
>>
legal system. There were only few judges and lawyers. This arbitrary, politically
among citizens and companies. In other words, the system needed to enforce legal
In our experience, the
legal system does not
work properly. Knowing
the right people is important to keep things
going.
dispute between companies did not exist, and due to the lack of capacity courts in
Danish company in Poland
governed legal system had the effect that citizens did not trust the legal system and
did not consider trials as an appropriate method of solving dispute. Thus, when the
communist systems broke down, there was no market economic legal basis or legal
tradition, few judges and lawyers and only a very limited trust in the legal system
<<
some of the countries are overburdened. According to some of the companies
interviewed, the legal systems in the various countries apparently still suffer from this
inheritance.
Around half of the existing judges in Central and Eastern Europe received their
training under communist rule. The lack of continuing education means that only few
judges have specialised in administrative law, business law and white collar crime. In
addition, the majority of the most competent legal graduates want to be employed in
the private sector, where both pay and prestige exceed what may be achieved in
public service. The courts are understaffed and lack modern equipment and information technology.33
According to many of the affected companies, the consequences of this include odd
and inconsistent court rulings, cases that are not finished because companies do not
find them worth the effort, no enforcement of decisions, etc.
As the survey has primarily focused on active companies, only few of the interviewed
companies have had actual experience with insolvency law. Insolvency law is vitally
important to operating a company. In order to be able to run the risk of operating a
company it is crucial that you have the option of going into liquidation if the company is not profitable. It is equally important that as a business partner you have the
option to recover your debts.
Insolvency law is not the same in the Eastern Baltic Sea countries. A common feature
is, however, that their insolvency law is inappropriate and that in many cases it obstructs the winding-up of a company. Among the rules missing are provisions on sus-
Insolvency law
32
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
pension of payments which for a short period may protect a business against its creditors, in order that a sensible solution may be found. Better possibilities for recovering debts when a customer goes bankrupt are also needed.
Banking systems
The banking systems of the countries are also still inhibiting business activity. A
banking system which has not been sufficiently developed to service the market is a
typical problem of the former Soviet-dominated Eastern European planned
economies. Communist countries had institutions which went under the name of
banks; however, seen from a market economic perspective they were not banking
systems at all. Acting on orders from the central planning authorities, government
monopoly banks distributed money and granted credit to huge, loss-making,
government-owned businesses. The banks actually functioned as providers of state
subsidies to businesses. Thus, when the transition to market economy started, the
banks were weak, lacked qualified staff, did not have any know-how on banking, the
legislation was inadequate, etc.34
All companies participating in this survey who have wanted to use the banking
systems in all of the Eastern Baltic Sea countries still describe the banking system as
inadequate and cost-intensive, in spite of extensively positive development in the
Baltic countries and in Poland, and moderate progress in Russia during the past few
years. There are a number of reasons why it is advantageous for a business to borrow
funds locally instead of from its home country, one of then being avoidance of
exchange risks.
One major problem is the banks’ exorbitant requirements with respect to the issue of
bank guarantees and credits. A rate of 10 pct. p.a. for bank guarantees is not unusual.
In Denmark, the corresponding rate is about 0.5 pct. p.a. A related problem is that
the rate of interest of a loan is generally very high compared to the Danish level,
although for the past few years there has been a downward trend. In the Baltic
countries the interest rates have been at 8-12 pct. p.a., in Poland 15-20 pct., and in
Russia 15-25 pct.
>>
The banks are very unwilling to take a risk and grant credits. We needed
to build for a few million DKK. Before construction could begin, we spent
six months talking to various Polish banks about financing the construction. They all accepted and wanted to grant us the credits. But every time
we expected a new deal to be in place, they invented new terms, which
we then fulfilled. And it went on this way. At no point did we get a letter
telling us that they didn’t want to do it after all. It just … fizzled out.
Danish company in Poland
<<
33
Good legislation and regulations are crucial to business operations
Legislation and regulations
The requirements that authorities prescribe for business operations in terms of rules, regulations, procedures etc. are crucial to
companies’ ability to do their job. The requirements form the
framework inside which the companies must cooperate with their
employees and the surrounding community. The better the framework is, the better the business operations will be.
Good legislation and
regulations are crucial
to business operations
Communism and democracy, planned economy and market
economy, both are sets of diametrical opposites. The mechanisms
intended for regulating the various groups of society are fundamentally different. Communist, planned economy states placed the
state and bureaucracy at the centre. Democratic, market economy
countries place their citizens at the centre. The communist societies
were not rules of law. The communist parties laid down the rules,
and to the extent that rules and regulations existed, they were only
intended to justify the actions of the party and the state. Concepts
such as right of ownership, contracts and business law were not
well developed.35
Typical barrier in a
reform process away
from communism
In other words, the requirements put to the business community by
the authorities in connection with the breakdown of communism in
Central and Eastern Europe had to be completely changed when
the countries underwent a system change in the early 1990s.
Defective and obscure legislation is a characteristic barrier to
companies from countries such as the Western Baltic Sea countries
having a long tradition of market economy.
One of the conditions for EU accession is that applicant countries
must adapt their national business legislation to the EU set of
rules, the acquis communautaire, in order to give the countries’
national and not least foreign companies equal working conditions,
irrespective of which EU country they choose to do business in. This
has been a gigantic task. It has been estimated that the countries’
adaptation to the set of rules of around 80,000 pages is the most
comprehensive task that the administration and legislators have
ever had to solve with such short notice.36
34
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
Part of EU adaptation in
the Baltic countries and
Poland
The new EU member states have thus in cooperation with the EU
and the member states for a number of years allocated huge financial and administrative resources towards the implementation of
the required legislation alignment to the EU set of rules.
At the same time, the adoption of the set of rules has been relatively
uncomplicated, because the acquis has been known already with
respect to theory, practice and negotiations on accession,37 and
Poland and the Baltic countries have already to a wide extent
translated and implemented legislation similar to that of the existing
EU member states.
Certain aspects not
included in the EU set
of rules
Parts of the respective countries’ rules and regulations governing
business law are not included in the EU set of rules, however, and
it has been the responsibility of the respective countries to implement the necessary changes, which include e.g. procedures for setting up a business, inspections carried out by authorities (e.g. tax
inspections), purchase of land etc.
Russia not a part of the
EU integration
Russia has not been a part of the EU integration process, and
consequently the country’s legislation has not been subjected to a
systematic alignment to EU legislation similar to what has taken place
in the applicant countries, even though part of the Danish
bilateral support towards the East and the EU technical-administrative programme, Tacis, have been aimed at laying down rules and
regulations according to western market economic principles. Russia
has to a wide extent been reluctant to adopt existing western
legislation and regulations, a fact which in itself has made the country’s
adaptation far more complicated and difficult.38 Thus, the challenge for
Russia has been to change legislation and regulations to support a
market economy without using too much from the countries that have
long experience with it. To coin a phrase, Russia has wanted to reinvent
the wheel with respect to a range of regulatory requirements to the
business community, to a far wider extent than has been the case of the
other Eastern Baltic Sea countries.
Large barrier in 2000
DI's barrier survey from 2000 pointed out that the most important
barriers to business activities in the eastern part of the Baltic Sea
Region included a number of legislation and regulations. A similar
Swedish study from 200039 showed that inconsistent and weak
35
Continued, but reduced barrier in 2003
legislation constituted one of the main problems for Swedish business activity in the Baltic countries and Russia.
Generally, legislation and regulations in the Eastern Baltic Sea
countries are still problematic according to around 50 pct. of the 45
interviewed companies. Only about 10 pct. feel that legislation and
regulations do not constitute a problem at all. The overall picture
covers large differences between countries. The Baltic countries
and Poland have seen major positive developments as rules and
regulations have been aligned to EU requirements. In Russia,
things are moving in the right direction, but much slower.
Continued, but reduced
barrier in 2003
Among the interviewed companies it is the general opinion that the
legislative aspect has improved quickly in the Baltic countries and
Poland over the past three years. Companies feel that legislation
and regulations have to a large extent been adapted to EU
standards. Within certain areas, the companies even think that
business legislation is better suited to business needs than in e.g.
Denmark. In general, low taxes are considered to be particularly
pro-competitive. Similarly, with respect to Estonia and Lithuania,
employee contract terms are more beneficial to productivity than is
the case in Denmark. In the case of Estonia, Latvia and Lithuania
the flexible working environment regulations are considered to be
very important.
Major legislative
improvements in the new
EU member states
However, there are still shortcomings. Many, particularly smaller,
companies stress that legislation within various areas still seems
But further improvements are still needed
36
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
defective, obscure and administratively cost-intensive. This is
due partly to the fact that many legislative acts have not been
supplemented with explanatory notes, and that there is a lack of
instructions, regulations, circulars etc., which makes it difficult for
authorities as well as companies, lawyers etc. to interpret the
legislation. As mentioned earlier, the comprehensive legislation
amendments have been necessary in the transitional period. It
should be stressed, however, that the frequent changes are not unproblematic to companies. First, the changes also cause problems
for civil servants, who are unable to keep up with legislative developments. This also goes for companies, lawyers etc., which will be
described further below. Secondly, companies wanting to make
investments – particularly long-term investments – require legislative
predictability and stability.
Small steps forward in
Russian legislation
It is also agreed that Russian business legislation is going in the
right direction, but that the pace is much slower than in the future
EU member states, and also that the problems mentioned are even
more in evidence in Russia. In spite of the commitments Russia
made by signing the above Partnership and Cooperation Agreement
with the EU it is still, more than five years after the adoption of the
agreement, difficult to find items of Russian legislation that may be
characterised as an outright alignment with EU standards. The
steps in the right direction are due, however, to Russia’s efforts to
align its legislation with WTO regulations.40
Below are a number of examples of legislative improvements and
continued shortcomings within important areas.
SETTING UP BUSINESS
Need for uncomplicated
establishment
procedures
When a company wishes to set up a business in a market, the first
obstacle is the regulatory registration procedures. Requirements to
the establishment of a business is an important parameter for a
company to evaluate whether it wants to enter a market. Companies
need the procedure to be as uncomplicated and inexpensive as possible, documents to be few and easy to understand, and processing
to be brief, in order that they may make their products and services available in the market, etc.
37
Ve r y c o m p l i c a t e d e s t a b l i s h m e n t p r o c e d u r e s i n R u s s i a
Requirements to the establishment of a business vary widely
between countries all over the world. In some countries, the
procedure is easy and does not involve large costs. In other
countries, however, the procedures are very onerous to companies.41
In Russia, the procedures related to setting up business, be it a
subsidiary, sales office, representation office etc, are characterised
by all companies – even very large ones – as being extremely
complicated and demanding.
The most complicated procedural aspect is that there is no central
registration office. A company must take care of its own registration
with several authorities. According to information collected by the
World Bank, in order to be able to set up business you need to go
through 19 official bodies. This is an extremely large number.
Compared to the rest of the world, Russia is definitely one of the
most demanding.42 Equally problematic are the frequent changes in
the procedures which includes renewed forms etc. For that reason
many companies choose to let external intermediaries, e.g. lawyers,
do their registration on their behalf in order to avoid the need to
familiarise themselves with cumbersome documentation and long
waiting hours at public offices. This entails large costs, which is a
particular burden for small and medium-sized enterprises.
Figure 9
Number of permits needed to set up a business
Russia
Greece
China
Spain
Poland
Lithuania
Germany
Latvia
Finland
Sweden
Norway
Denmark
Source: The World Bank
0
2
4
6
8
10 12 14 16 18 20
Very complicated
establishment
procedures in Russia
38
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
In addition to this, companies regularly need to be reapproved by a
number of public authorities.
The registration procedure needed to initiate cooperation with a
Russian firm which is e.g. to act as an agent on the Russian market
is characterised by all relevant companies as being cumbersome.
In order to be allowed to cooperate, the company and its Russian
partner must get four approvals: From the Ministry of Foreign
Trade, the Ministry of Health, customs authorities and their bank.
>>
Registration of a company is very complicated and comprehensive.
There is no centralised registration system. As a business, you need to
take care of your own registration with a number of public authorities.
Danish company in Russia
Improved procedures in
the Baltic countries and
Poland
The establishment procedures in the Baltic countries and Poland
have improved over the past few years, and further improvement is
on its way. This goes not least for Estonia and Latvia. Estonia is not
included in the World Bank report, but the interviewed companies
do not indicate any particular difficulties within this area, and
other surveys made by DI reach the same conclusion. Latvia has
improved considerably over the past few years. According to the
World Bank report, at present you only need to go through 7
authorities. The simplified registration procedure is a result of the
new Latvian business legislation, which was adopted in 2001. The
changes are reflected in the impression that the interviewed
companies have of the registration procedure. Companies that were
registered some years ago indicate that the procedure was complicated, whereas businesses that have been established recently
have found the procedure relatively uncomplicated.
But still cumbersome in
Poland and Lithuania
Many of the interviewed companies still characterise setting up
business in Poland and Lithuania as a procedurally complicated
affair, although not as complicated as in Russia. This corresponds
to the World Bank report, according to which it is still necessary to
go through 11 authorities in Poland and Lithuania in order to set
up business.43 However, this constitutes an improvement compared
to the procedures a few years ago, and the Polish authorities have
even set up an electronic registration system. Particularly with
respect to Poland, the relevant interviewees state that the
<<
39
B u t s t i l l c u m b e r s o m e i n Po l a n d a n d L i t h u a n i a
establishment procedure was extremely complicated a few years
back, and that you needed to go through a far larger number of
public offices. In these countries, many of the interviewed companies chose to let intermediaries take care of registration.
It is complicated to set
up business in Poland.
You need to go through
a lot of different authorities.
<<
LAND PURCHASE
Procedures in connection with the purchase of land in Russia are
characterised by all parties as being very complicated. The legislation
is obscure, and you need to go through a number of public offices to
get the necessary permits.
44
As regards procedures related to buying land in Poland, Estonia,
Latvia and Lithuania, these are still described as being complicated
and in some cases even obscure. Foreigners buying property and
land for industrial purposes in Poland need to get a permit from the
Ministry of the Interior rather than from local authorities, which
entails further bureaucracy. And even if you are the owner of a
Polish registered business you need to get the approval from the
Ministry of the Interior even to buy a piece of land. In Estonia and
Latvia the interviewed companies feel that you have to go through
too many public offices, boards and committees to be able to
purchase land, which causes the process to take very long. In
Latvia, legislation is also obscure on certain points. You cannot, for
instance, buy a particular piece of land unless you own all the
buildings on the plot. If necessary, you need to contact the owner of
the buildings. However, it is not always possible to find the owner
of a building, and in some cases, buildings – e.g. sheds – do not have
an owner. The legislation does not provide any means of solving
that problem. In Lithuania it is a requirement that you can find the
owner of a particular plot of land in order to be allowed to buy it.
However, it is not always easy to find the owner, as the land
registration is very unclear.
>>
>>
We wanted to buy a piece of land from an institution next to our
business. The institution agreed and put their assent in writing. The
application and the letter of assent was forwarded to the local land
committee. Subsequently the land committee wanted to inspect the
area to prepare a statement on the company’s proposed use of the
area. After that the case would be transferred to another committee
which was supposed to either confirm or reject the land committee’s
Danish business in Poland
40
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
decision. We thought it was far too bureaucratic for such a small and
uncontroversial matter where seller and buyer agreed from the outset,
and the plot of land was undeveloped etc.
Danish company in Estonia
TAX RULES
Improved tax rules in
Russia
All relevant companies state that the tax rules in Russia have
improved as a result of the economic reform programme, which was
introduced by President Putin and which has been continuously
extended since 2000. Among the positive changes the companies
count a general simplification and clarity of liabilities, lowering of
the tax on profits and improved possibilities for deduction.
But still a number of
outdated elements
Improvements are still needed within a number of areas. Interviewees
state that rules on deduction and depreciation are inadequate. The
same goes for the tax collection system. You have to pay taxes on
profits three months in advance. It is very difficult to calculate your
profits so early. If you do not pay enough, repayment involves a very
high rate of interest, approximately 18-20 pct. a year.
Extensive control and
reporting
The predominant problem in Russia within the tax legislation area,
which is being mentioned by all relevant companies, is the comprehensive control and reporting measures.
According to new legislation adopted in the summer of 2001, the
number of planned inspections must not exceed one every other
year. The Act does not, however, lay down any provisions on the
number of non-planned inspections that can be made if the
controlling body suspects a violation of the tax legislation.45 In
practise, companies perceive control inspections as taking place
very often. See below.
Regulatory requirements comprise very detailed and frequent
financial reporting. Companies of a certain size pay taxes once a
month. Within this area, Russia has its very own, very complicated
and detailed financial reporting system. Companies indicate that it
is not possible to use the International Accounting Standards
(IAS), which are used worldwide, as too many other reporting
criteria have to be met on top of those. It is quite simply necessary
to construct an accounting system exclusively for Russia. At the
<<
41
M u c h r e p o r t i n g a n d c o n t r o l i n Po l a n d , L a t v i a a n d L i t h u a n i a
same time, several companies point out that regulation changes
within the area are frequent, and that these changes sometimes
apply retrospectively. These conditions place enormous administrative
burdens on companies, which as a result need much more staff than
in other Baltic Sea markets to perform these tasks.
Tax rules have also been subject to considerable improvements in
the past few years in Poland, Latvia and Lithuania. However,
comprehensive reporting and control requirements from tax
authorities are stressed by many companies as being a considerable
burden in these countries, even though they are not as extensive as
in Russia.
In spite of the improvements the Polish tax rules are still considered
problematic by many companies. Often tax rules are not properly
described. As regards Poland, many companies stress the fact that
the tax payment system is inadequate. It is not possible to set off
profits made the previous month against the loss made the following month. Basically, the Polish model matches the Danish model,
apart from the fact that tax is paid every month instead of once a
year. This reduces flexibility for the companies, as many projects
run for more than one month. The tax payment system in Latvia is
also considered by many companies to be inefficient and outdated.
Many interviewees point out the number and complexity of forms
required for payment. As regards Lithuania, the high level of documentation required by authorities is pointed out, as are impractical
deduction rules. For example it is not possible to refund mileage
allowances without the employee being liable for taxes. Rules on
depreciation are not considered to be adequate, in particular due to
their longevity.
All of the interviewed companies state that financial reporting
requirements to Polish authorities as well as the authorities’
control measures are still too extensive and inefficient. The IAS are
only partly recognised by the Polish authorities, as companies are
still expected to pay state taxes according to Polish standards, Polish Accounting Standards (PAS). This means that double accounting procedures are required, which in turn entails increased administration costs. Authorities do not accept computerised accounting systems, which means that companies also need to keep two
Much reporting and
control in Poland,
Latvia and Lithuania
>>
Polish tax rules are
cumbersome. This is
particularly due to the
fact that you have to
submit tax accounts
once a month.
<<
Danish business in Poland
42
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
>>
The IAS still haven’t
been fully recognised
by Polish authorities,
which is why a number
of additions are needed
to make the system
compatible to the
Polish one.
<<
sets of books; one paper-based and one computerised. The relevant
companies have to allocate considerably more staff for these activities than are necessary in the Western Baltic Sea countries. Reporting conditions in Lithuania and Latvia also leave something to be
desired. Companies stress e.g. that tax authorities’ reporting
requirements are still cumbersome, and documentation requirements are substantial.
CUSTOMS PROCEDURES
Danish business in Poland
One of the most important issues brought forward in DI’s barrier
survey in 2000 was administration in connection with customs
clearance. Some of the problems mentioned in this connection were
difficulties in determining dutiable value, lack of clarity in connection with positioning of customs nomenclature and difficulties in
obtaining export permits and licences.46
Improved Russian
customs procedures
Russian customs procedures in connection with import of goods are
characterised by the interviewed companies as not being particularly complicated.
Determining dutiable
value is a problem
However, the companies unanimously express the need for certain
adaptive measures. Difficulties in determining the dutiable value
are still a problem. There is no fixed parameter according to which
the value is fixed. Consequently, the companies do not know whether
the dutiable value is based on the transfer price between two
companies, a random catalogue price or something entirely
different.
New requirements for
analysis
In addition, the Russian authorities have introduced a requirement
for analysis of certain products before they can be allowed into the
country. This has been done in order to prevent cheating. These
analyses are considered a delaying factor, however, and no differentiation is taking place between countries and companies. It
should be taken into consideration that there is no fixed procedure
as to when the analyses must be finalised, which means that the
processing time is only dependent on the authorities other obligations, goodwill etc., which in turn makes terms of delivery uncertain.
Rigid rules for
subsequent adjustment
In the opinion of many of the participating companies the rules for
subsequent adjustment of customs duties are too rigid. If you have
43
Fr e q u e n t c h a n g e s o f c u s t o m s r u l e s
stated a too high price on your invoice, there is no way out. You have
to pay the duties, and it is not possible to get a refund. In most
other countries it would have been possible to have the amount
readjusted at the Customs office.
Many companies also stress the frequent changes of Russian
customs rules as cumbersome and time-consuming, and it is often
difficult to understand the relevance of the changes.
Frequent changes of
customs rules
In addition, many companies state that Russian regulations authorise
frequent inspections.
Frequent inspections
According to all interviewed companies, the Baltic countries and
Poland have made major progress in the past few years as regards
customs procedures, and the countries are generally described as
being uncomplicated. The legislative problems described in DI’s
barrier survey of 2000 no longer present any significant problem in
the Baltic countries and Poland. In this respect, the perception that
the interviewed companies have of the development within this
field is close to that of the European Commission. The Commission’s
latest Progress Report prepared in the autumn of 2002 states that
the Baltic countries and Poland by and large comply with EU
customs regulations.47 Many of the participating companies
compare procedures in the Baltic countries and Poland to the
procedures governing exports to Norway. In the case of Poland it is
particularly emphasised that the number of tariff headings in
documents has been reduced, and as a company it is now possible
to have an account at a customs station, which means that it is no
longer necessary to transfer money for each lorry.
Major progress in the
Baltic countries and
Poland
Many of the companies, however, express a wish for more flexible rules
for subsequent adjustment of excess customs paid in these countries.
Rigid rules for deferred
adjustment
Legal authority to carry out frequent customs inspections is also
mentioned by the interviewed companies as a problem in Poland,
Latvia and Lithuania. This also to some extent applies to Estonia.
Many inspections
TECHNICAL PRODUCT LEGISLATION
Technical product legislation sets up requirements as regards health,
safety and environmental issues. Different product regulations and
44
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
product approval requirements often constitute barriers to free
trade. In a report like the present it would be out of place to give an
account of the situation in all product areas. Below are some general
comments regarding registration, approval, labelling and certification
of products in the Eastern Baltic Sea countries.
For Estonia, Latvia, Lithuania and Poland, membership of the EU
will require a full implementation of EU legislation in those countries.
Subsequent to the conclusion of agreements with EU on conformity
assessment and approval of industrial products (the "Europe
Agreements"), a continued process of alignment with EU legislation
has taken place. The general memoranda of understanding have
now been translated into specific "protocols" (the so-called PECA
agreements), which in effect enlarge the "single market" for specific
sectors (e.g. machinery and electric appliances). Such PECA agreements are already in force in Lithuania and Latvia. With respect to
Estonia an agreement is close to being concluded, whereas the Polish agreement has not yet been quite finalised. The number of sectors involved varies in the respective countries. The different
degrees of alignment is a determining factor for how companies
perceive the situation, e.g. with respect to whether the CE label is
sufficient to gain free access to the market, or whether local approvals
and perhaps certification are necessary.
Russia has also entered into negotiations with the EU, partly in
connection with the country’s wish to become a member of the
WTO, partly as a result of its wish to harmonise its legislation to
that of the EU. It is, however, a long way to go before common
objectives and means may clear the path for a harmonisation of
legislation. Consequently, a large number of products require
special approval and certification before they may be marketed.
Approval and
registration
In a number of areas, among them pharmaceuticals and food,
approval and registration of products are basic requirements in
order to allow them to be sold in a market.
Russian procedures not
difficult
The procedures for approval and registration required by relevant
Russian ministries, e.g. the Ministry of Health and the Ministry of
Agriculture, are not regarded by the interviewed companies as
being complicated.
45
A p p r o va l s a r e e x p e n s i v e a n d u n s u b s t a n t i a t e d
Approvals have to be obtained in spite of the fact that products
have already been approved by the corresponding Danish authorities.
Approvals are characterised as being very expensive, i.e. in the
area of several thousand dollars per product for each approval. If a
company has many products, in some cases more than a hundred,
getting approvals is very costly; and this in spite of the fact that it
is often very difficult to discover any technical reason for that kind
of duplicate approval. One of the alleged reasons is that the Russians
within certain fields do not have access to adequate equipment and
laboratories to test products. Thus, the companies are of the
opinion that the real reason is that Russia wants to get additional
public funds. However, Russian companies will need to go through
a similar registration procedure in order to be allowed to sell their
products in the EU.
Approvals are expensive
and unsubstantiated
One thing that Poland and the Baltic countries have in common is
the tendency to charge heavily for services without any technical
justification. Similarly, the Baltic countries and Poland do not have
the necessary equipment to test products within a number of fields.
In reality, these countries rely on existing approvals. Thus, in
relation to the new EU member countries the interviewed companies
have the impression that payment of fees is intended to add to the
coffers of the respective countries. The companies in these
countries will, however, also have to go through similar registration
procedures in order to be able to sell their products in the EU.
Unjustified cash cow
Certain products are labelled in order to guarantee consumers that
the products fulfil certain basic safety requirements with respect to
health and environment. At the same time, a label acts as the
manufacturer’s guarantee that a product has been produced in
compliance with relevant requirements. Certification of a company’s
product lines and products is carried out by state-authorised bodies
by means of random sampling in order to check that the products
comply with the label requirements. This way, certification contributes to making consumers trust the company and its products.
Labelling and
certification
Companies typically do not regard it as a problem to get a label and
undergo certification, as this procedure gives them and their
products a certain seal of approval. As labelling and certification
cost the companies a lot in terms of both time and money, it is,
46
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
however, very much in the companies’ interest to have as few
authority labels as possible.
The EU and Central and Eastern Europe have had different traditions
of labelling and certification of products. Central and Eastern
Europe have traditionally operated with the principle of "premarket control", i.e. that authorities in the case of some products
must approve the product before it may be sold on the market. In
addition, "post-market control", checking the product after it has
been launched on the market, is also used. Within the EU the
general principle is – except in cases of some hazardous products –
that companies may label products without authority approval,
which means that the companies guarantee that the product
complies with relevant legal requirements. The authorities’ task is
to check the products in the market, i.e. "post-market control".
EU and EEA countries use a common label, the CE label, which is
required for a range of products in order that they may be marketed,
sold or used. This includes toys, building materials, machinery and
electrical and pharmaceutical products. At present, more than 20
product groups must be labelled.
Danish companies manufacturing products which must be labelled
with the CE label would naturally prefer the Baltic countries,
Poland and Russia to accept the CE label in order that they may
reduce their costs of certification and administration. This applies
not least to the Baltic countries and Poland, all of which will
become members of the EU single market in a few years.
The CE label is not valid
in Russia
None of the interviewed companies have experienced that the
Russian authorities have accepted the CE label. Within the
relevant product areas, labelling and certification by the Russian
certification institute, Gosstandart, are required, i.e. the companies have to go through the certification procedure required by
Gosstandart, and the product must be labelled. A study carried out
by the Danish Agency for Enterprise and Housing states that there
are specific Russian requirements within almost all aspects of
medical equipment and pharmaceuticals, machinery and electrical
equipment and appliances.49
47
No major differences
A large majority of the interviewed companies state that Gosstandart’s
requirements to the products are not significantly different from
the CE label requirements.
No major differences
Generally, Gosstandart’s labelling and certification requirements
are not perceived as an expression of discrimination towards
foreign products on the part of the Russian authorities. Both national
and international manufacturers must comply with the same
requirements in order to be able to sell a product in the Russian
market, and Gosstandart’s label is not valid within the EU.
But no discrimination
Russian certifications are a major cost to the companies, The Russian certifications typically cost the same as in Western Europe
However, in view of the fact that the companies already have acquired the CE label, which is identical to the Russian label in so many
ways, the companies regard the Russian labelling and certification
procedure as unnecessarily time-consuming and expensive. The
cost is typically several thousand dollars per product. In addition,
the label and certification are only valid for a specific period of
between one to three years, and both label and certification must be
renewed even if the product specifications remain unchanged.
Certification must be renewed if a company changes its name, even
if this has no influence on the product range or type of products.
The additional labelling and certification requirements also mean
that companies have to allocate considerable funds to administration
in connection with preparation for and follow-up on inspection
visits.
Several thousand dollars
per certification
>>
In relation to our
products the Russian
certification is unjustified
and unnecessary. The
certifications we have
obtained in Denmark
are practically the
same.
<<
Danish company in Russia
All of the participating companies, which cover a wide spectrum of
the labelling areas mentioned above, state that the CE label is valid
on the market in the Baltic countries. The study prepared by the
Danish Agency for Enterprise and Housing concludes that there
are no particular national requirements within the areas covered
by the study, i.e. medical equipment, machinery and electrical
equipment and appliances.50
CE label is valid in Baltic
countries
According to the interviewed companies there is a general, increasing
trend that the Polish authorities recognise the CE label. However,
this is still not fully the case with respect to various types of
electrical and medical equipment, machinery and pharmaceutical
Increasing but not total
recognition in Poland
48
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
products. Paradoxically, some companies have had experiences
where the Polish authorities had begun accepting the CE label
within their product area, but then later returned to the practice of
requiring Polish labelling. The study carried out by the Danish
Agency for Enterprise and Housing emphasises the fact that the
Polish implementation of regulations within this area often implies
small amendments and additions, to the effect that additional
Polish testing has to be carried out on medical equipment, certain
types of machinery, and certain types of electrical equipment and
appliances.51
The 45 interviewed companies experience the Polish labelling and
certification procedures very differently. Some companies find
them relatively smooth, other regard them as extremely bureaucratic and slow. No fixed pattern emerges.
Huge unjustified costs
>>
Polish certifications
within our area are just
a means of income. We
cannot see that they are
technically justified. But
there is a downward
trend.
<<
Danish company in Poland
In any circumstances there is an almost uniform impression that
the requirement for Polish labelling and certification is technically
unjustified, and that its only purpose is to increase public funds.
The Polish certifications are very costly for the companies. Rates
vary, but generally the companies pay several thousand dollars per
product certification, which is valid for a specific period, typically
between 1-3 years. Recertification – and consequently renewed
payment – must take place, even though a product’s specifications
have not been altered. As regards products, this is different from
the situation in the EU, where recertification is only required if
product specifications have been changed. In addition, the companies have to pay additional expenses incurred by inspectors’ visits,
and they have to spend considerable time on preparations and
follow-up.
49
We l l - f u n c t i o n i n g e x e r c i s e o f a u t h o r i t y i s v i t a l
Public administration
In order to be able to run a business it is of vital importance that
the government services administer and enforce legislation and
regulations in a smooth and uniform manner. In fact, slow-working
bureaucracy is one of the main enemies of the business community,
especially when it comes to attracting foreign investments.52
Because of this, the EU accession process and cooperation with
Russia, including preparations for WTO membership, have focused
on making the public institutions and administrations of the
Eastern Baltic Sea countries more efficient and modern.
Well-functioning public
administration is vital
Administrative capacity, practice and culture rarely devlop at the
same pace as legislation and regulations. Fulfilment of formal
requirements to legislation and regulations, as described in the
previous section, cannot be regarded as an indication that the
countries’ administrative capacity, practice and culture are automatically undergoing a similar development. Adopting rules and
regulations that only constitute the framework for the changes is
one thing. Another matter is the way in which the authorities
actually implement the rules and regulations. Good and transparent
legislation makes it more difficult for the authorities to complicate
life for the companies. But much has to be done in addition.
Poorly functioning public institutions that administer legislation
and regulations governing the business community are a typical
problem for countries going through a transition process like that
of the Eastern Baltic Sea countries. And it is within this problem
area that we find the second major group of barriers.
Typical problem in a
transition process
What need to be changed are administrative and human attitudes
and habits which have been acquired through 45-70 years of
communist command economy and authority control, during which
people were trained to obey orders and not to take independent
initiatives. Under communist rule, public institutions did not
function as the government’s link to society, but rather as
instruments of control over society. And the activities of the public
authorities were not governed by rule of law, but by the whims of
the Communist Party. This meant that the administrative systems
of the respective countries were insufficient, inscrutable, complex
and very often corrupt.53 This controlling attitude created a lack of
Ingrained habits must
be changed
50
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
trust in the actors of society within the public authorities, and this
mistrust still to some extent characterises the public institutions.
Huge quantities of new
legislation
It of course also takes quite some time for the public administration
to get acquainted with and administer the enormous amounts of
new rules and regulations of which the majority have been taken
over from unfamiliar democratic and market economic administrative
cultures with which there is no experience and no practice to be
drawn on within the administration.
Lack of administrative
experience
Consequently, the existing problems are naturally to some extent
due to the short democratic and market economic administrative
practice. The frequency and expedience of amendments to legislation and regulations result in administrative insecurity, which
means that the authorities do not know how to translate the
changes into practice, because things are moving so fast, and there
is no experience on which to base decisions. Another aspect of this
problem may be that officials have no knowledge of the new
legislation that has been adopted. The problem is intensified by the
fact that the administrations are insufficiently financed, civil
servants are in need of training, and staff turnover is very high.
The turnover problem is due in particular to the fact that government
changes often result in staff replacements within the public
administration, and also to the fact that better paid jobs within the
private sector attract the majority of, and often the best, candidates.
Insufficient training of civil servants is evident e.g. due to the fact
that they have a very inflexible interpretation of the wording of
legislation and regulations, which are rarely supplemented by
explanatory notes.
No measurable standards
In addition to this it is difficult to measure progress within this
field. Neither the EU nor other organisations or institutions have
prepared minimum standards for "good public administration",
which the countries may use as guidelines. There is no defined set
of rules like the acquis within the legislative area, in which
countries may seek assistance with respect to theory, practice and
accession negotiations. In connection with earlier enlargement
processes it has always been taken for granted that new members
would be able to implement EU legislation.54
51
Pa r t o f E U A c c e s s i o n
In spite of this it is a requirement that the authorities of the future
EU member countries are able to administer EU rules and regulations, and in cooperation with EU and the member countries, the
applicant countries have carried out training of civil servants,
modernisation etc.55
Part of EU Accession
As Russia has not been part of the EU accession process, the
authorities of the country have not been influenced by administrative
initiatives of the EU in the same way as the applicant countries,
although part of the bilateral support to Central and Eastern
Europe and EU’s technical-administrative programme, Tacis, have
been directed towards training of civil servants etc. Consequently,
the influence from the administrative principles that have governed
western democracies and market economies for decades has been
less significant in Russia than in the Baltic countries and Poland.
Russia not part of
the EU accession
process
In DI's barrier survey of 2000 it was pointed out that various forms
of inadequate public administration were at the top of the list of
barriers. Also the Swedish survey of 2000 mentioned above
emphasised public administration as a problem area.56
Among the most
important barriers
in 2000
The major problem, which is pointed out by slightly less than 70
pct. of the interviewed companies, is public administration, i.e. how
the civil servants understand legislation and regulations and the
way legislation and regulations are enforced in relation to the companies. There has been some, although still not adequate
improvements in the Baltic countries and Poland. No significant
improvements have taken place in Russia.
The major problem
in 2003
All companies which have any experience within this field state
that there is a marked difference between the Baltic countries and
Poland on the one hand and Russia, where the problem is most
severe, on the other.
The problem is most
severe in Russia
According to almost all of the interviewed companies the Russian
public administration is still criticisable, and only limited progress
has taken place. In general, companies try to avoid going to the
Russian authorities with their problems in cases where a problem
might have been discussed with the authorities, but this is not
necessary for the existence of the company. At best this will be a
52
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
waste of time. A major part of the established companies say that if
you do not possess the necessary muscle, willpower etc, it is not
advisable to establish in Russia. It is the company’s general opinion
that the attitude of the authorities is: "It’s you against me." Several
of the participating companies have the impression that the
authorities take it for granted that companies will cheat as much
as they can, and the system is therefore based on control and
even more control. This is the basis for an extreme amount of
bureaucracy.
Also a problem in the
future EU member states
A number of large companies in particular describe generally
positive cooperation with the authorities. A large majority of the
interviewed companies point out, however, that the pace in which
EU-aligned business legislation etc. has been adopted in the Baltic
countries and Poland has been significantly higher than the pace in
which the civil service has exercised its authority. In other words
the implementation is lagging behind.
Slow implementation of
new laws
For instance, it is emphasised that in several countries problems
often arise in cases where new legislation does not automatically
replace the old one by the time of adoption. In some instances the
reason is that the civil servants have not – or only with very short
notice – been informed about the changes. In such instances it is
not unusual that problems arise concerning the interpretation of
the new legislation or that civil servants try to profit on the lack of
clarity. In these countries, contact to the authorities has been
delegated to the widest possible extent to local cooperative partners,
employees or consultants who have knowledge about the local language,
administrative practices etc.
Slowness
One of the most serious weaknesses of the public administration in
all the Eastern Baltic Sea countries – with variations between
countries – is slowness. This slowness is due not least to the fact
that authorities seem to lack decision-making power. Under
communist rule, decisions were traditionally only taken at top
level. Companies often experience that decision-making by civil
servants is pushed upwards in the system, handed over to another
authority or postponed awaiting further reports etc. This is e.g. the
case in getting approvals from authorities, which is of fundamental
importance to the establishing and operations of companies.
53
Lack of cooperation between authorities
Companies perceive this problem in relation to almost all authorities
– customs, tax, registration and approval of products, purchase of
land, fire safety approvals etc. The elements that have been
emphasised by the majority of the interviewed companies are
discussed below. The general opinion is that authorities’ handling
of cases in the Baltic countries and Poland on average takes 2-3
times as long than in the Western Baltic Sea countries, in Russia
often even longer.
The lack of cooperation between different public institutions is
emphasised as another general problem in the Eastern Baltic Sea
countries. The problem is evident in the absence of the automatic
communication between authorities which is found in other
countries, such as Denmark. Here it is often only necessary to give
information to very few authorities, even though the information is
needed by many authorities. The authorities which receive the
information will then take care of passing the information on to
other relevant authorities. This is still not the case in many
Eastern Baltic Sea countries.
Lack of cooperation
between authorities
Another general problem in all countries is that their regulatory
control mechanisms in many ways do not work as they are supposed
to. Many of the interviewed companies are of the opinion that
particularly local companies get away with violating rules concerning
labour, working environment, accounting and holiday pay etc., and
that wages are often undeclared. Now and then an example is
made, but this is practically insignificant in the larger context. This
means for instance that companies which choose to follow the rules
have generally higher costs and higher prices and that they lose
employees who are lured away by higher wages, although this is a
short-term consideration, as they do not get holiday pay, they get
less job security etc.
Inadequate control
mechanisms
In addition, the civil service is perceived as lacking training in
relation to their handling of the companies. This is not least the
case with respect to languages, where the ability to communicate in
English is still in short supply.
Lack of foreign
language skills
54
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
Very limited service
from authorities
One problem which many companies emphasise is that it is difficult
to get any assistance from authorities. In particular small and
medium-sized enterprises still perceive that it is too difficult to get
through to the right people with the right information. One result
of this is that the possibilities of getting help to interpret legislation,
which, as mentioned above, lack explanatory comments and guidelines
etc., are limited, and that in case of doubt, companies will have to
attempt to find out for themselves what the intention of the
legislation is. Put differently: There is a widespread opinion among
companies that the authorities in the eastern countries do not
consider it part of their job to assist companies, and that inquiries
often result in ambiguous answers. The authorities consider their
job to be primarily exercise of control.
Lack of trust
At the same time many of the interviewed companies have the
opinion that the authorities do not trust them. This creates
additional bureaucracy and is reflected in the way authorities
behave towards the companies.
Geographic
administrative
differences
Add to this that the administration of rules and regulations may
vary considerably depending on which part of the country you are
in. This results in insecurity and additional administrative
burdens for companies that operate in different regions. The
differences are mainly due to the fact that some districts are more
used to servicing foreign companies than others because more
foreign companies have settled there. This variation of experience
means that the knowledge that local authorities have of rules and
required documents is higher in some districts than in others, and
that foreign companies get better and faster service there. In some
cases administrative inertia within certain areas have reached
such a level that companies for that reason alone have decided that
it is not worthwhile trying to set up business there. On the other
hand examples exist of areas where local authorities have been
proactive in their efforts to encourage businesses to establish in
their area.
It should be noted here that in the Eastern Baltic Sea countries it
generally takes quite some time for new, centrally adopted legislation
to be implemented in the local districts. Figuratively spoken the
"seeping down" from the central to the local level is relatively slow.
55
Pe r s o n a l r e l a t i o n s a r e i m p o r t a n t
Most of the interviewed companies state that good personal contacts within the civil service are important in all countries, but that
they are considerably more important in the Eastern Baltic Sea
countries than in the Western Baltic Sea countries in general in order to get things through. This applies to all institutions – customs,
tax, product registration, approving authorities, municipalities, government, politicians etc. For example, several companies find it
necessary to be proactive towards the authorities, i.e. that the companies on their own initiative take contact to relevant authorities, e.g.
customs and tax, and explain their trade, product type, transactions with the parent company etc., because company operations
for that reason alone will go more smoothly.
Personal relations are
important
Disregarding corruption, most of the interviewed companies share
the general opinion that the time it takes to get through authoritative
bodies is considerably shortened if the authorities – and as a rule
individual public officials – have a thorough knowledge of the
company’s representatives, products etc. Consequently it is quite
important to the companies that the public officials in question do
not change jobs, as that will have a delaying effect on company
operations for a period. For this reason, companies have to spend a
disproportionate amount of resources on creating a personal
contact network with public officials, compared to what it takes in
the Western Baltic Sea markets, in order to get tasks done by the
authorities. Many of the interviewed companies state, however,
that the importance of personal relations in the Eastern Baltic Sea
countries is generally not higher than in certain Southern
European EU member states.
Many of the participating companies state that they find it necessary to employ local staff or consultants (e.g. laywers) to handle the
authorities, as they know the language, standards of behaviour etc.
All interviewees emphasise that they really appreciate their local
staff and see many advantages in having them. The problem is that
it is necessary at all to employ local staff in order to be able to
handle the authorities.
Necessary to employ
local staff
>>
We employ local staff
to take care of contact
to the authorities. They
know exactly who to
approach and how.
<<
Danish company in Poland.
56
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
>>
>>
The authorities are very
formalistic. This is why it
has been necessary for
us all along to employ
an Estonian to take care
of legal matters.
<<
We employ Russians to deal with the authorities. It is very difficult for
e.g. a Dane to get through to the authorities if you don’t know the
language or their way of doing things, both formally and informally.
You have to continuously take care to build up and maintain a good
relationship with the authorities. Without good personal relations to
the authorities it is very difficult to operate in Russia.
Danish company in Russia
Danish company in Estonia
The following contains a number of specific examples of barriers
that companies experience in connection with the authorities’
administration. The examples are not exhaustive but serve as a
summary of the most important barriers that a majority of companies have emphasised.
SETTING UP BUSINESS
Setting up business is
heavy going in Russia
The above-mentioned laborious and complicated procedure, which
companies have to go through in order to set up business in Russia,
is the cause of slow and arbitrary exercise of authority, according to
all companies concerned. The conclusion of the World Bank study of
the matter is that it takes 50 days to start up business in Russia.
None of the companies interviewed for the present study has
indicated that it can be done that quickly. Registrations alone take
an average of 3-6 months, according to the participating companies.
However, it has taken many of the participating companies,
including big ones, even longer time. The heavy and complicated
procedure for setting up business is not the only cause of slow and
arbitrary exercise of authority. Several companies indi-cate that
bad communication and power struggles between different
authorities are important delaying factors. This creates problems
for instance when business is set up in a border area, where the
responsibilities of two authorities overlap, or in different locations
within the country, because this makes it necessary to operate
through several local authorities or between local and county
authorities.
Several of the interviewed bigger Danish companies exporting to
Russia through a partner company indicate that they have contemplated setting up their own sales office but that these plans have
been abandoned because it is too costly in terms of time, money, and
administrative resources. In the view of these companies, a
<<
57
S t i l l d i f f i c u l t i n Po l a n d a n d L i t h u a n i a
prospect of considerable additional earnings as a result of such a
move is necessary for it to pay off.
The information published by the World Bank concerning company
registration times in Poland and Lithuania, given as 58 and 62 days
respectively, connects better with the actual situation.58 Several
companies which started business in Poland some years ago have
indicated that mere registration could easily take 6-7 months, but
information supplied by companies that are currently setting up
business or have done so recently suggests that registration time
has been reduced considerably, on the order of 2-3 months, without
additional measures having to be taken.
Still difficult in Poland
and Lithuania
This should be compared with an average registration time of 23
days in the western part of the Baltic Sea Region.59
PRODUCT REGISTRATION AND APPROVAL
Good personal relations are also reported by most of the companies
concerned to be of great importance for reducing the time required
for registration and approval of products for the Russian market.
The better the relevant institute knows the company’s products
and the people in charge of the company’s activities in this area,
the faster approval is obtained. Consequently, bottleneck problems
for approvals frequently occur when these persons in the institutes
leave their jobs. Then companies can start building personal
relationships all over again.
Personal relations
important in Russia
The institutes that exercise authority, and whose role is to test and
approve products and issue certificates so that the products can be
imported into Russia, are frequently represented and remunerated
by certain companies while at the same time appearing to be
independent. This means that these institutes will recommend the
products of certain companies while approvals of other companies
drag on. It is not necessarily the case that Russian companies are
given preferential treatment. Favoured companies can easily come
from EU countries.
Confusion of hats
Many of the companies concerned indicate that it may take several
months – in the case of some product groups several years – to
obtain a ministerial approval. It is not unusual that companies
Time and cost consuming
58
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
spend between a third and half of a year’s work of one employee
just on registration and re-registration of products. Unless one
knows how to navigate the system, knows the right officials, etc.
Bureaucratic procedures
too slow in Poland and
the Baltic countries
Many of the companies concerned also point out that administrative
procedures in this field are slow in Poland and to some extent, but
generally to a lesser degree, also in the Baltic countries although
the level of delay cannot be compared with that in Russia. There
continues to be a tendency for authorities to delay matters
unnecessarily and to continue to ask new questions about the
products over a long period of time, questions that could have been
asked at an earlier point in time. If companies, particularly new
ones, are not completely familiar with procedures, things may take
very long. Very little assistance is available. It must be emphasised,
however, that there is considerable variation from one area to another.
>>
It can easily take 3-4
months to obtain a
product approval, often
more.
<<
Danish company in Russia
Personal relations
important
A majority of the companies asked indicate that personal relations
are also important in the Baltic countries and Poland in order to
make things go smoothly. It is pointed out clearly that bribes are
not in question, but that a good dinner may be helpful.
>>
It takes us a minimum of 3 months to obtain relevant product approvals.
In the case of new companies, it can easily take a year or more. The
difference is due to the fact that we are well-established and that we
have well-trained staff to take care of the matter. They know exactly
what to do and who to contact.
Danish company established in Poland
LAND PURCHASE AND BUILDING LICENCE
The above-mentioned approvals by the authorities belong in the category of fundamentally important approvals, which the companies
cannot bypass if they wish to start business. Licences for land purchase and building are naturally only relevant to the extent that
companies have a need for these things. For obvious reasons, many
companies have such needs.
Land purchase is difficult
in Russia
Russia is in a category of its own in this respect as well. All the
companies involved state that land purchase, in particular, is very
difficult and burdensome, because it is still a recent phenomenon,
and the authorities are finding it difficult how to interpret the
<<
59
C u m b e r s o m e i n t h e B a l t i c c o u n t r i e s a n d i n Po l a n d
regulations and translate them into practice. There is much
uncertainty at the levels of local and county authorities. For
instance, several companies have indicated that it has been
extremely difficult to find out if it was only possible to buy the land
occupied by the company’s buildings, or if it was possible also to
acquire surrounding land. Furthermore, it is necessary to go
through an endless number of public bodies to acquire the
necessary approvals and licences. Several of the companies interviewed
point out that in Denmark one sends the relevant documents to the
appropriate authorities to obtain planning permission and a
building licence, and then the matter more or less takes care of itself. That is not how things work in Russia.
>>
Regardless of whether it is a question of taking over an existing enterprise, brownfield, or greenfield, there are heaps of approvals and
regulations. Approvals for land purchase, planning and building
permissions, fire authorities approvals, health and safety at work, etc.
It is our impression that it is virtually impossible to abide by all the
regulations. And it is extremely important to know the right people,
especially when, as in our case, we refuse to engage in any form of
bribery. At the present time we do not know the right people, and it
is a great challenge for us to build a sufficiently strong network with
the relevant authorities.
<<
The experience of a Danish company with Russian authorities
Though the complexity and the time spent on these activities in the
Baltic countries and in Poland are less than in Russia according to
the companies in question, these aspects are very burdensome
compared to the situation in the western part of the Baltic Sea
Region. Planning permissions and building licences are by no
means obtained as automatically as is usually the case in
Denmark. In normal circumstances it will typically take several
months. Authorities have particular difficulties in dealing with
complex cases compared to authorities in the western part of the
Baltic Sea Region with much longer administrative experience.
On the other hand, companies with the right contacts and offering
many modern job opportunities to a local community, report that
the entry procedure went altogether very smoothly, as the authority involved itself made sure that all bureaucratic matters were
Cumbersome in the
Baltic countries and
in Poland
60
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
attended to. The question of bribes did not arise in any way. In such
instances, the entry procedure often takes no longer than on the
markets in the Western Baltic Sea countries.
>>
In connection with building licences and planning permissions, documents
are sent to he relevant authorities, and then things run more or less
automatically. That is not possible in Latvia and Lithuania. Such matters
are dealt with much more bureaucratically.
Danish company in Latvia and Lithuania
>>
Purchase of land for our
company in Poland took
relatively little time,
about 6 months.
We wanted to buy a piece of land from an institution located next to
our company. The institution approved of the idea, and we obtained
their consent in writing. We forwarded the application and the
declaration of consent to a local land committee. Since everything had
been specified, and as it concerned a rather limited (about 500 m2)
and uncontroversial area, we had imagined it would take about a month.
The committee turned up to inspect the premises so that a statement
could be prepared about the company’s proposal for using the land.
That in itself took a couple of months. Subsequently, the matter was
put before another committee, which was to confirm or overrule the
first committee’s decision. This also lasted a fair amount of time. In
other words, it took several months to reach a decision in such a small
matter, where the buyer and the seller were agreed from the start,
where the land was undeveloped, etc. That is far too much time.”
Another Danish company in Estonia adds: ”Land purchase, planning
permissions, in fact nearly all kinds of permissions take at least twice
as much time to obtain as in Denmark.
Danish company in Poland
Two Danish companies in Estonia
>>
<<
TAX AUTHORITIES
Zealous tax inspection
in Russia
As described above, the procedures of the Russian tax system are
based on comprehensive reporting and allow for frequent control
measures. According to all of the companies interviewed, this
comes out clearly in the administration of the regulations by the
authorities. Inspections by the tax authorities are carried out
frequently and are experienced by all of the companies asked as
extraordinarily zealous compared to what is known to be the case
for corresponding authorities in western markets. Inspectors turn
up in the companies and go through documents until they find
something. Trivial errors can very often be found. No flexibility is
<<
<<
61
Money machine
shown, and no guidance in the use of forms is given. An error is an
error, and companies are fined regardless of the gravity of the
error. Furthermore, inspections often take several days or weeks
and therefore consume a lot of administrative time. Documents
have to be found, matters have to be discussed, etc. Many companies
also point out that operating by the book is not popular with the tax
authorities, i.e. abiding by the regulations. That does not give them
any "extra bread", as they say. Several companies express a feeling
that the tax authorities pay close attention to which companies are
making good money, so that they can exploit the control situation a
bit more. By contrast, refunds to companies are a slow affair.
Money machine
Problems with tax inspections also figure high on the lists in other
studies.60
One consequence pointed out by all of the companies asked is that
the number of employees engaged in handling the tax authorities is
much higher than in the western part of the Baltic Sea Region.
>>
>>
Of the 10 people we have in Moscow, 6 are accountants who are engaged
in administrative reporting to the tax authorities. In Denmark, Norway or
Sweden, we would have had one at the most, maybe only one half of an
employee, to take care of the same work. When you sell a product, regardless of whether this is a credit or cash sale, you first need to produce an
offer and an order confirmation, then you need that to be stamped and
approved, then you have to go to the bank, and then you need to bring
the approvals to your storehouse so that the products can be released,
then you need to go back and get the invoice proper and then back to the
bank again, and then, at some point, you get some money. This produces
an incredible amount of administrative bookkeeping. There is somebody
from the tax authorities controlling in the office nearly every day. The tax
people control invoices, order confirmations, payments, etc.
Danish company in Russia
<<
The tax authorities make use of any existing or virtually non-existing
interpretation of the rules. In western Europe, generally, tax authorities
act by the principles of transparency and fair play. This is not true of
the Russian tax authorities. Here, every means is used to get more
income.
<<
Danish company in Russia
62
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
The same picture in
Poland, Latvia, and
Lithuania, but on a
lesser scale
According to many of the companies interviewed, there are also
problems with the tax authorities in Poland, Latvia, and Lithuania,
only generally on a smaller scale. The main difference between Russia and the other countries appears to be that the high frequency of
problems is constant in Russia but only periodical in Poland,
Latvia and Lithuania, i.e. inspections are intensified when a pressing need occurs such as having to meet tax authority budgets.
There is frequent reporting, inspections are comprehensive, trivial
errors are severely punished, and there is too much focus on
companies that make good profits, the institution is a moneyearning machine to a very large extent, payment of outstanding
debts, such as VAT, can take several months, etc. In the latter case,
it is not unusual to be told that documents have disappeared, or
that the official in charge of the matter has been ill. In these countries, also, several companies convey an impression that the tax authorities pay close attention to what companies are earning well, so
that there is also a very good chance of generating extra earnings
on the part of the tax authorities. In any case many companies find
it a striking coincidence that control is much less comprehensive
with companies with poor earnings. Some companies have also
conveyed an impression that, in some instances, control measures
were continued e.g. because the authorities do not have to refund
overpaid VAT as long as inspection is still in progress.
>>
We had forgotten to
write the registration
number on a voucher
and to stamp an invoice.
So we were fined.
After a tax inspection
we received a 70-page
report listing trivial
errors. And a fine.
<<
Two Danish companies
in Latvia
>>
We were building for
about 50 million DKK
and had 5 million DKK
in VAT outstanding. The
VAT was paid back in
3-4 instalments about
half a year later.
<<
Danish company in Poland
>>
Refunding of overpaid VAT can easily take up to 3 months. Upon inquiring
about the cause of the delay, one is usually told that they have never
received the request, that documents have disappeared, that the official
in charge of the matter is ill, etc. At the same time we have been
indirectly threatened with further inspection by the tax authorities
unless the refund claim is annulled.
Danish company in Latvia
CUSTOMS AUTHORITIES
Customs administration
in Russia continues to
be problematic
Customs administration in Russia continues to be problematic and is
one of the heaviest burdens for all types of businesses needing to import goods into the country. Total cost increases of about 10 pct. as a
result of time-consuming and administratively costly customs administration are not unusual. In the Swedish study referred to, more
than 80 pct. of those participating answered that border crossing and
customs clearance were constraints on company activities in Russia.61
<<
63
Ve r y c l o s e c o n t r o l
Russian authorities examine both goods and documents in a way
that is felt by westerners to be exceptionally close. All goods have
to be unloaded. If one tiny item is missing, a fine of 100-200 USD
per lorry is easily issued. Sometimes customs officers do not even
know what to control because they do not know the goods. In that
case they may spend very long time figuring out which appellations
in the documents match the goods in the lorry. Transportation time
is increased, and goods become more expensive. The same thing
applies when it comes to trivial errors in the documents such as
spelling mistakes and typing errors, words not spelt with a capital
letter, a missing consonant in the name of the road in the company’s
address, etc. The packing list must be absolutely accurate. The
slightest deviation is punished.
Very close control
A number of companies are under the impression that the structure
of Russian customs declaration is central, i.e. that clearance is only
possible via Moscow, and feel that it is wasteful to have to go by
Moscow if goods are to be delivered e.g. to the Ural. However, it is
quite possible for decentral clearance to take place by application
and permission. The problem is rather that the central customs
clearance authorities do not inform about the possibilities for
decentral clearance, possibly because their own earnings might go
down if they did.
Limited information
on clearance
Many of the participating companies report problems resulting
from frequent changes in customs regulations without timely
notification of customs officials, which causes slow and unpredictable
customs administration. Slow, because, for very good reasons, local
officials do not know the regulations or because they have had very
little time to familiarise themselves with new regulations. Unpredictable, because customs officials attempt to take advantage of the
unclear situation and earn themselves an extra penny.
Slow implementation of
changes in regulations
In the case of certain types of product, the Russian authorities
require products to be analysed and approved before they can be
allowed into the country. The problem was that extensive swindle had
been observed with the product in question. According to the companies concerned, the initiative as such was therefore perfectly reasonable. This leads to a general problem, however. Russian
authorities exercise no flexibility in the administration of regulations.
Delay caused by
product analysis
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R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
The companies concerned wonder why exceptions are not made for
products that have been approved in other countries and by institutes whose quality is well-known. Part of the reason for this is
slow adjustment in the authorities responsible for carrying out the
analyses.
Changing customs houses
is time consuming
If a company wishes to change to another custom house, it may be
3 months before a reply is received.
Max. tariff rates
employed
Certain tariff rates are open to interpretation, and for certain products the tariff spread is very considerable. The spread may be as
much as 15-20 pct. Several of the companies interviewed find that
Russian customs officers frequently attempt to apply every possible
interpretation to employ the highest tariff, which varies by several
pct. In such cases, where different interpretations are possible, the
best results are obtained by having good personal relations to the
customs authorities. Similar results are possible without good
personal relationships, but will often require argumentation over a
long period of time and extensive documentation.
Arbitrary customs
administration
One serious problem about shipments to Russia is that customs
administration is frequently arbitrary, according to several companies.
The way in which customs clearance is done frequently varies from
one customs officer to another and from one customs house to
another. At some customs houses forms have to be completed in one
way, at other customs houses in a different way. Some customs
officers want things done in one way, others in a different way. This
may be with regard to the choice of language for completing the documents. In some places English is accepted, in other places it is
not. One cannot be sure that a perfectly legal shipment is allowed
entry. A shipment may arrive in St. Petersburg at one time without
any major problems, while a perfectly identical shipment is not permitted to enter via Moscow the following week – and vice versa. An
additional factor is that one is not necessarily told what should be
changed in order to have a shipment cleared through customs.
Unwillingness to assume
responsibility
In those cases, the only thing that can be done is trying to contact
relevant customs authorities. That is no easy matter, however.
Companies frequently find that a case is caught in a circle with the
customs authorities, that nobody is willing to take responsibility
65
Fr e q u e n t c u s t o m s i n s p e c t i o n s
and make a decision on what is to be done. A case is then passed on
among different customs officials, back and forth, up and down the
system, back and forth from one department to the next, randomly.
One’s case gets lost, and one has to start all over again. Sometimes
a solution is never found, and it will be necessary to take back all
the goods.
At other times an official suddenly decides to make a decision. The
delay in customs may easily be a couple of weeks. Several companies
indicate that this is easily the case with 10-15 pct. of all shipments.
In these cases it is not unusual that transportation costs are
quadrupled. This is particularly burdensome for companies with
high transportation costs relative to the price of the goods. It is not
unusual for transportation costs to be 20 pct. of the price of an
article. To this must be added costs for administration, telephoning,
etc. Altogether this can easily increase the cost of a shipment by up
to 10 pct., which must necessarily affect the price of the product.
These things happen despite the fact that the area is regulated.
However, regulations are of no use when local customs officials
create their own rules. And by the time one might file a complaint
with another authority, the shipment in question will have been lost.
All the companies concerned also point out that inspections by the
customs authorities are far more frequent, time-consuming, and resource demanding than in western countries in the Baltic Sea Region.
Frequent customs
inspections
Companies managing their own customs matters in relation to
Russia generally spend a lot of administrative time on handling
customs clearance and on customs authorities generally. The general
picture given by companies established in Russia is that on
average there is one employee who is fully engaged with taking
care of relations to the custom houses, i.e. one full-time employee.
According to the same companies, about 0.04 full-time equivalent is
generally used for the same work in Denmark. Companies attach
great importance to having experienced people in charge of this
task because this makes things run more smoothly. When these
persons change jobs or are absent, things automatically move more
slowly. This is because it is important to know the local customs
officers and their whims. If a stamp is not right, you have to go back
in many places and change all the documents.
Extra personnel
66
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Average customs
clearance time: 3 days
According to most of the companies interviewed, the average
customs clearance time in Russia is about 3 days when everything
goes by the book. Sometimes it is less, but frequently it takes
longer, up to about a week. This is the case, e.g., when new people
arrive or new regulations are introduced. Irregularities often occur
around 1 January when new customs directives are generally
issued. It may take anything between 4 hours, 3 days and 10 days.
Consequently, companies can never be certain when a shipment
arrives. Administrative capacity is required to update customers on
whether or not a shipment has arrived. This introduces an element
of uncertainty into the rhythm of shipping, etc.
>>
It may take from 4 hours to 3 days, and often more, to get goods out
of the custom house. Currently we are operating in 60 markets around
the world, from Mexico to Indonesia. Customs clearance in Russia is
the most time-consuming anywhere. Long clearance time and not least
the great variations in clearance time are a cost problem, in particular
for companies that export perishable goods.
Danish company in Russia
Improved customs
clearance in the Baltic
countries and in Poland
According to a great majority of the companies interviewed,
customs clearance in the Baltic countries and in Poland has improved
considerably in recent years. As a general rule, things go smoothly
now provided all the documents are in order. There have also been
improvements at the borders between the Baltic countries, where,
<<
67
Improvements still needed
until a few years ago, companies had frequent problems, particularly with waiting time, at the border stations. With respect to
Poland, companies particularly single out the positive effects of the
decentralised structure of customs clearance.
There is still a need for improvements, however. Several of the
problems that persist in the Baltic countries are pointed out in the
Swedish study, and the latest progress report by the European
Commission calls for certain improvements in all the countries.62
With respect to regulations, the parallel to Norway is pointed out
as an example of how far companies felt that the Baltic countries
had come with respect to adopting appropriate customs regulations. With respect to the administrative practices, this parallel is
not pointed out.
Improvements still
needed
A complete break with the very formalistic and inflexible customs
administration in Poland and the Baltic countries is called for.
Even trivial errors are punished severely as any error counts as an
error. This may be simply a spelling error or copies of documents
rather than the originals, etc. In such cases, a shipment will be held
in custom for precisely as long as it takes to do things correctly. No
consideration is given as to whether or not the shipment is by a
company that is otherwise known always to adhere strictly to the
rules.
Too little flexibility
Most of the directly affected companies agree that practical customs
administration, i.e. the manner in which customs officials interpret
rules, regulations and the law, varies from one customs clearance
house to another also in the Baltic countries and in Poland.
Customs administration
differs
Companies directly involved in activities in the Baltic countries
and in Poland indicate that they have to make a point of getting to
know the customs officials personally in order to make things run
satisfactorily. However, the problem is that one can never be sure
which officials are on duty when the goods arrive and what their
preferences are. Furthermore, several of the companies interviewed
indicate that as a rule bottleneck problems occur when officials
with whom good personal relations have been established leave
service. It takes time to build new relations, which means that in
the meantime customs clearance time is increased.
Personal relations
significant
68
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Clearance time continues
to be slow
According to many, particularly directly involved companies,
customs clearance time in the Baltic countries and in Poland
continues generally to be too long. The average is 1-2 days. Despite
improvements, the customs administration is still characterised by
inadequate organisation and delegation. Furthermore, the employees’
speed of work does not strike the companies as very high. Finally,
the European Commission points out that improvements in the IT
area will be able to shorten clearance times considerably.63
Frequent customs
inspections
The companies concerned in Poland and Latvia also point out that
customs inspections are relatively frequent where export
documents are scrutinised meticulously, where the correspondence
between documents and goods is controlled, etc. Several companies
indicate that it is quite normal for customs inspections to last up to
3 weeks per year.
As a result, it is true also of the Baltic countries and of Poland that
the administrative time that companies spend on customs
clearance, including meetings with customs authorities, is much
greater than for the equivalent function in the western countries of
the Baltic Sea Region, most obviously in comparison with Norway.
Extra administrative
resources
>>
By law, Polish customs officials can take 30 days to manage an import
clearance job. They do not often take 30 days. In about 10 pct. of all
instances they take 3-4 days, or even 10 days. Our people have come
to know the procedures very well, but now and then they still make
trivial errors. A well-functioning customs administration such as that
in Norway would never allow goods to be held because of such trivial
errors.” ”We still find that we are being held in customs for 3-5 days
because of little inaccuracies in the documents. It costs us a fortune.
<<
Danish company exporting to Poland and Danish company established in Poland
>>
Sometimes we urgently need a piece of merchandise which is critical
for our ability to continue operations. At the customs house they say
they are busy and that the merchandise cannot be cleared that day.
When asked when it can be cleared, they answer that they do not
know. Upon directly approaching the customs house, it turns out that
all officials are out. They are at a birthday party, and one walks away
empty-handed.
Danish company established in Estonia
<<
69
Definition
>>
Customs officials interpret regulations very differently, and they are
inflexible. Also, clearance procedures continue to take too long. In the
best of cases, we spend a full working day getting a shipment out of
the customs house. They are still highly focussed on documents and
stamps. At one time, a shipment was held because there was a difference
of 0.04 DKK in an invoice for 210,000 DKK. The customs system in
Latvia is still operating much too slowly and inflexibly.
<<
Danish company established in Latvia
CORRUPT AUTHORITY
In the summer of 2002, Confederation of Danish Industries brought
out the publication Avoid Corruption – A Guide for Companies,
according to which a corrupt public official is defined by the Danish
Penal Code as anyone who "while exercising a Danish, foreign or
international public office or function, unduly receives, demands or
accepts the promise of a gift or other privilege." 64
Definition
The description continues: "Corruption – and especially the more
gross forms of corruption – is the abuse of power for private benefit
or profit. A distinction is made between different forms of corruption
[...] grand corruption and petty corruption. "Grand corruption" or
"gross corruption" takes place on the highest level of political
authority it involves heads of state, ministers and top officials who
are in control of resources and legislation. […] "Petty" corruption or
"bureaucratic corruption" takes place on a low bureaucratic level,
and the typical bribe takers are police officers, customs officers,
taxing and licensing authorities […] [Regarding corruption
between private entities] the situation is the same […] The reason
why a distinction is made [between official and private corruption]
is that public corruption has a more undermining effect on social
stability and democratic rules." 65
Corruption, not least corruption among public officials, is a typical
and central problem for countries such as the Baltic countries,
Poland, and Russia that are in a transition process.66 A great risk of
corruption is introduced if there is a large money flow and when an
estimate is needed which affects this flow of money.67 In a variety of
situations large cash sums pass through the hands of people in
public offices, be it customs authorities, tax authorities, local
authorities or others. This fact in combination with the low real
A typical problem for
former communist
countries
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R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
salaries of public officials, weak legislation and administrative
structures, insufficient funding to develop administrative capacity,
the tradition for non-transparency in public administration and
decision-making in communist systems, the removal of the extensive
control systems of communist systems and the tradition of bartering
across informal networks, all of these create a fertile soil for
corrupt authority.68
As has appeared, authority is exercised in a way that is characterised
by delays (e.g. in connection with approvals and customs
clearance); obstruction (e.g. demands for additional information);
arbitrary administration (e.g. inconveniencing interpretations of
regulations) etc. Above, a number of causes explaining why these
things happen have been listed. A further cause is that in some
instances officials work slowly, and arbitrarily, or in a deliberately
harassing manner, in an attempt to get companies to pay for not
being treated in that way.
Causes companies
problems
Danish companies are increasingly involved in the global economy.
This gives Danish companies a series of new challenges, not the
least of which is corruption. To companies, the existence of corruption means long official procedure times, increased costs, uncertain
investments, obstruction and lost contracts, etc.69 Therefore, many
companies include studies of corruption in their market evaluations.70
Limited corruption
in Denmark
International studies have shown that typically Denmark is in the
top 3 countries with the least corruption.71 The fact that Danish
companies are rooted in a country with very limited corruption
does not make it less difficult for Danish companies to operate in
markets where corruption is more widespread.
Second biggest barrier
3 years ago
DI's questionnaire-based study referred to earlier from 2000,
involving 250 member companies, showed that corruption was
perceived as the second biggest barrier to business activity in the
Baltic countries, Poland, and Russia. Corruption is also singled out
as one of the key problems in the Swedish barriers study from 2000
mentioned earlier.72
Impressions – not direct
proof
Below is given a description of the nature of corrupt authority and
examples of different types of corrupt authority. The examples are
71
Continued but highly disparate problem in 2003
not exhaustive. The intention is to give a picture of the complexity
of corrupt authority and of the kinds of dilemma that companies
have to confront as a result. It must be emphasised that none of the
companies interviewed have indicated that they have been involved
in corruption. The perceptions of the field described can therefore
only be characterised as impressions.
Corrupt authority continues to be a problem in the eastern part of
the Baltic Sea Region. This is the perception with more than 60 pct.
of the companies interviewed. But behind the figure lie very big
differences across different countries.
Continued but highly
disparate problem in
2003
Corrupt authority continues to exist in all the eastern countries of
the Baltic Sea Region. According to a majority of the companies
interviewed, a common feature shared by all the Eastern Baltic Sea
countries is that especially minor phenomena such as speeding
fines, parking tickets, MOT tests, trivial document errors, fire
approvals, and forward pushing of lower-level procedures, all of
these are apparently managed, in most instances, with minor
acknowledgements.
Corrupt authority
continues to exist in all
countries
Only few of the participating companies indicate that there are
problems in relation to private agents. Furthermore, many of the
interviewed companies point out that private agent corruption, in
particular of a mafia-like type, is to all appearances restricted to a
relatively small number of business areas.
Private corruption a
limited problem
There may be a tendency to regard the situation as being the same
in all the countries. The study makes it clear that it is very
important to distinguish among the countries.
Big differences across
countries
In Russia, corrupt authority is a major problem, according to the
perception of the companies. This perception is in agreement with
the country’s position as no. 71 of 102 countries on the Transparency International Corruption Index 2002 (TI 2002). This places
Russia at the level of countries like Honduras, Zimbabwe and
India.73 Relative to the economic level of development, the level of
corruption in Russia is rather high.74
72
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
Figure 10
Corruption 2002
1.
Finland
2.
Denmark
6.
Sweden
12.
Norway
18.
Germany
29.
Estonia
31.
Italy
36.
Lithuania
44.
Greece
45.
Poland
52.
Latvia
71.
Russia, Zimbabwe, Honduras, India
Source: Transparency International Corruption Index 2002
In Estonia, corrupt authority has now become a limited problem,
as seen by the companies interviewed. The country’s position on
TI 2002 was as no. 29. This puts Estonia ahead of certain EU
countries, e.g. Italy (31) and Greece (44).
In Lithuania, Poland and Latvia, corruption is still perceived as a
problem by a majority of the countries concerned. The level of
corruption is perceived as lying somewhere between those in Russia and Estonia. The European Commission also continues to point
out problems with corruption in these countries, and on the TI 2002
they figured in positions 36, 45 and 52, respectively. In the present
study, the differences among these three countries by TI 2002 could
not be traced. Taken together, the four countries are at a level
which is typical of their stage of development.75
In comparison to the western countries of the Baltic Sea Region,
the Eastern Baltic Sea countries, taken together, are far down on
the list.76
The problem is often not
the size of the amount
itself …
Typically, the problem af corrupt autority seems not to be the size
of the amount itself. In the present context this means that the
payment which officials attempt to collect from a company would
often not immediately directly influence the price of an article in
73
Competition distorted
the case of compliance. Generally smaller sums of money are involved or "acknowledgements", such as a bottle of whisky. For these officials, the sum total of such contributions is considerable. Several
of the companies interviewed point out that they have found it striking that many customs officials, tax inspectors, etc., can have such
low salaries while at the same time being so well-off. For instance,
a regular customs officer makes 50 USD a month. But they frequently have big houses and cars. It is not surprising either that the
higher up one gets into the system, the higher will be the demands
for payment.
Considering the differences between the countries, the fundamental
problem, in the assessment of the companies, consists in the fact
that many public services can apparently be performed faster with
a bribe and that, alternatively, matters are often delayed so much
that the companies’ competitive power is reduced. Likewise, it
appears to be possible to do things that were not otherwise possible,
e.g. as already mentioned, not having to abide by certain regulations and winning public contracts. In certain instances, it appears
to be possible to influence legal acts and regulations with money.
Consequently, competition is distorted, and, as a result of this,
companies are economically disadvantaged.
Competition distorted
The existence of corruption also forces companies to confront a big
dilemma. If they do not pay up, it entails increased economic costs
or losses. If they pay up, they break the law and run the risk of
subsequent punishment. The penalty in Denmark for active bribery
is a fine, simple detention, or imprisonment for up to 3 years. This
also applies for bribery committed in the countries covered by the
present study. An additional risk is that the company’s name is
discredited. One also becomes more vulnerable to extortion, as
officials will naturally repeatedly extort companies that have
already proved willing to take this step.77
Unreasonable dilemmas
Despite continued problems, a majority of the participating companies
perceive a downward trend in the case of the Baltic countries and
Poland. This is due very largely to the EU accession process. The
EU strongly emphasises the fight against corruption in connection
with the construction of administrative capacity, strengthening of
the legal system, etc. As a result, the future EU countries, in
Downward trend in the
Baltic countries and in
Poland …
74
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
cooperation with the EU, have invested large sums in fighting corruption in the Baltic countries and in Poland, and the countries
have strengthened legislation, established organs responsible for
fighting corruption, introduced national and regional anti-corruption programmes, raised maximum penalties, etc. Both the Council
of the Baltic Sea States and the European Council have drawn considerable attention to corruption. Furthermore, a number of corruption cases have been taken to court in recent years as a deterrent,78 and members of the press in the countries continue to delve
into cases where, formerly, they would remain silent.
...but continues to be a
problem
However, as already mentioned, a majority of the companies still
regard corruption as a problem in Latvia, Lithuania and Poland,
which indicates that the implementation is not yet up to the level
of the changes that have been introduced in legislation, regulations
and structures.
Status quo for Russia
By contrast, companies indicate that there has been no noticeable
development in Russia. This is true, despite the fact that Russia
also invests considerable means in fighting corruption, where much
emphasis is laid on developing and enforcing anti-corruption legislation and on making regulatory, legislative and administrative reforms more effective. E.g., Russia has cooperated closely with the
OECD since 2001 on monitoring anti-corruption developments in
Russia and on identifying necessary forward-looking initiatives.79
Not accepted
In any event, the strong focus on corruption and the fight against
corruption has resulted in the positive outcome that corruption is
no longer perceived as acceptable and that inquiries about bribes
involve grave risks in all countries for the officials concerned. Many
of the companies interviewed indicate that this is undoubtedly an
important reason why inquiries about bribes are generally presented indirectly or in mumbled phrases and by all appearances in
many cases through several links.
Bribery can be avoided
It must be emphasised that nearly all of the companies interviewed
indicate that, despite the odds described, it is possible to set up and
run a business in all the countries without bribery. First of all, patience is a key word. If one is willing to wait the extra time and accept the extra costs and loss of income, one will get one’s things
75
Setting up business
through in the end. There are also other possibilities for moving
faster through the system than by means of bribery. One can put
slow local authorities under pressure by referring to cases where
permissions have been granted within a certain period of time. The
Danish embassies have much experience in this field. Good contacts are a great help. If you are setting up a business in an area
and promising to create a large number of job opportunities – and
maybe sub-supplier activities to boot – that will also typically have
a positive effect on speed. And if one is a frequent visitor to the
same customs house, one is a good source of income.80
At the same time there are advantages about not engaging in corruption. Potential extortionists get a signal that extortion will not
get them anywhere. Thus one does not get into a self-perpetuating
process, and one does not make oneself vulnerable.
>>
We do not engage in corruption. And it is possible to do business without. We prefer to take the necessary debate and allow things to take
as much time as they do. Gradually they realise that they might as well
give up trying because they will not get anything out of their attempts.
Once you get involved in it, you get caught in a web, and you make
yourself vulnerable. And we think it is important that we try to move
things in the direction we would like to have them move.
<<
Danish company in Lithuania
>>
Ever since we started in the Baltic countries and Poland 10 years ago,
we have found it fruitful to run a policy of no bribes. Various authorities
attempted to get some payment on the side. But we refused. And we
have been able to observe that things have been moving in the right
direction in the Baltic countries and Poland in recent years.
<<
Danish company with activities in the Baltic countries, Poland and Russia
As has become apparent, it is particularly difficult to set up business
in Russia. The large number of public authorities that have to be
contacted, the great number of official forms that have to be completed together with the low salaries of employees in public service
and a stronger tradition for supplementing one’s income create a
fertile soil for corruption. The interviews create an impression that
setting up business in Russia can apparently become a good deal
easier if officials are bribed.
Setting up business
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R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
Several companies indicate that this appears also to be the case in
Poland, Latvia and Lithuania. The pressure is particularly strong
on small and middle-sized companies. The authorities often do not
attach great importance to a small company starting up a factory
with perhaps 10-15 employees. This in itself can be a factor that
delays procedures. And it must be remembered that procedures
take considerably longer in any case than for equivalent cases in
the Western Baltic Sea countries. If, however, one is prepared to
pay extra, it would appear that it is not unusual that permissions
can be obtained much faster.
How large sums have to be paid appears to vary and to depend on
a number of factors. The speed with which a permission is to be
granted. The economic strength of the company. The number of
authorities that have to be involved, including health and safety
authorities and fire authorities, will vary according to the kinds of
product one is going to manufacture. Permissions for land purchase
and planning and building permissions. The more authorities that
have to be involved, the more will be demanded. The demand also
increases with the number of permits that have to be issued. The
more permits, the greater the cost. The greater the risk in granting
a certain permission, the more expensive it will be. The level of
authority one needs to contact in order to obtain a permission is
also of great importance. The higher the level, the costlier it is.
Licences and permits
One of the areas where many companies are often met with direct
or indirect invitations to bribery is in connection with the acquisition
of licences and permits.
Attempts by the authorities to obtain extra payment under the
table are encountered in certain cases in all the countries in
connection with obtaining permission to purchase land and in
connection with planning and building permissions.
As mentioned earlier, product registration is a slow process, especially
in Russia and Poland. If one is willing to pay extra, the impression
is, according to many of the companies interviewed, that considerable reduction in time is frequently possible in all the countries
concerned.
77
Control measures
Similar examples are given in connection with product approvals in
Russia. The institutes, which perform the function of an authority,
and whose job it is to test and approve products and issue certificates so that the products can be imported into Russia, sometimes
represent certain companies, i.e. companies competing with other
companies, while at the same time appearing to be independent.
This means that these institutes will recommend the products of
certain companies. Bribery appears to be quite helpful in that kind
of situation. In certain domains and in certain countries products
have to be analysed or otherwise approved by the authorities before
importation is possible. The companies concerned perceive that
acknowledgements would be able to make these things run more
smoothly.
As mentioned earlier, many of the companies interviewed perceive
a general problem in all the countries in the fact that, in many
areas, the authority control mechanisms do not function as they
should, especially regarding local companies’ adherence to labour
market regulations, health and safety regulations, and tax and
holiday pay regulations, among others. Many of the companies
interviewed are convinced that this is connected to local companies
having access to and choosing to bribe the controlling authorities.
Control measures
Several of the companies interviewed perceive that public calls for
tenders continue to varying degrees to be bought in all the countries.
The companies concerned perceive that fewer public tenders are
won when one is not willing to pay. The demand is typically in the
range of 1-5 pct. of the value of the tender.
Public calls for tenders
and public procurement
According to several of companies asked, public tender contracts
are still awarded to personal networks made up of friends and acquaintances. They will frequently – but by no means exclusively –
consist of a country’s own companies. A common way of ensuring
the latter is to formulate the call for tender in such a way that it is
tailored to the competences or product specifications of certain
companies. Also, the companies in question frequently perceive the
process as unclear.
Public utilities are a very typical example of this. Most often they
are owned by the local authority. State-owned enterprises are another
78
R e m a i n i n g wa l l r e m n a n t s i n Po l a n d , t h e B a l t i c c o u n t r i e s a n d R u s s i a
>>
typical example. Both publish public calls for tenders to deliver
services. Decisions on the tenders are often not transparent. The
countries do not have the same norms concerning disqualification
and impartiality that apply in the western part of the Baltic Sea
Region. For instance, it is not infrequent that the general manager
of a utility company can be the co-owner of a contracting firm which
makes a bid for and wins the utility company’s tender. Or that
board members in a partly state-owned enterprise also have vested
interests in private companies. In other words, what would
typically be characterised as a conflict of roles. This does not mean
that a company cannot win a tender or negotiate other agreements
about cooperation with public institutions and wholly or partly
state-owned public enterprises without corruption.
I have had inquiries
about extra payment
from public officials in
all of the three Baltic
countries in order to
finalise projects.
<<
Danish company with
activities in Estonia,
Latvia, and Lithuania
>>
We got our product approved by the appropriate Ministry. When, after
waiting for several months, we received the permission, we believed
that we could now start to sell our product. However, the state enterprise that had a monopoly in the area refused to accept the decision
and use our product. They indicated that our product could not be
used. Our own investigations demonstrated beyond any doubt that
this was not a problem. In that way they were able to block the decision,
and as a matter of fact we have never been able to get into the
market. We are fully convinced that this must be attributed to close
connections between the management of the state enterprise and our
local competitors. We simply had to scrap our product. We attempted
to appeal to all ministerial levels. We attempted to get assistance from
the Danish embassy. But to no avail. We had a clear feeling that we
could have come into the market if we had been willing to pay for it.
But we were not, and never will be. The story of another of our business areas was exactly the same. Here, however, we succeeded in getting into the market after 2-3 years. It took us enormous amounts of
administrative time.
Danish company with activities in Poland
Customs
Corruption in the customs system continues to be a widespread
phenomenon in all the countries, according to a large majority of
the participating companies.
<<
79
U n d e r- d e c l a r a t i o n a n d u n d e r- i n v o i c i n g
>>
The typical means used by customs officials for exerting pressure
on companies is the time factor. Anybody knows that time is money.
A classic opportunity for delaying procedures is if there is a
mistake in the documents. As indicated earlier it is not unusual
that a typing error or the like may occur in the customs documents,
and both grave and small mistakes are punished severely. If one
chooses to pay, one will typically stand a good chance of getting
one’s goods out of custom relatively quickly. Alternatively, it will be
necessary to produce new documents, which may take several
hours.
>>
A detail is incorrectly given in the documents. You wait for 6-8 hours.
Half an hour before closing time a customs officer comes out and
looks at the goods and says that maybe the goods can be released that
day, but that this will necessitate that a couple of colleagues will have
to work overtime, which the customs officers are not paid to do. If you
pay x amount of money, you will get your goods at 8 pm., the same
evening. Otherwise you may have to wait for several days before the
goods can be released, which will often cost much more. Then there is
nothing for it, of course, but to wait.
Hints concerning extra
payments are not
infrequent at customs
locations.
<<
Danish company with
activities in Lithuania
<<
Danish company with activities in Poland
>>
Officials can decide at will to scrutinise all the details of every item in
the export documents. Often they are able to find insignificant typing
errors, a stamp turned upside down, etc. Then you either have to pay
or wait. It also once happened that it took 8 days to get a lorry released
that was 1 cm too high because the driver refused to pay. Absurdities,
quite simply. In principle the authorities in question are right that
there is a mistake. But often the mistakes are so small that any reasonable authority would exercise enough flexibility to allow the goods to
pass through.
<<
Danish company in Russia
Many of the companies interviewed with exports to Russia indicate
that under-declaration and under-invoicing of imports constitutes
a problem.
In the EU single market there is free movement of goods, among
other things. Therefore, goods can be imported into a EU country
without any customs duty having to be paid, and in relation to
Under-declaration and
under-invoicing
80
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future EU countries customs tariffs are being drastically reduced.
However, with respect to Russia, a number of products still carry
import duty – the same way as is the case from Russia to the EU.
Different tariffs apply to different products. If, for instance, goods
can be declared at a tariff of 5 pct. instead of 25 pct., a lot of
money is saved. The extent to which this happens is highly
dependent on which tariff applies to the products. The higher the
tariff, the more widespread the practice.
The same applies in the case of under-invoicing. Typically a
percentage of the price of the shipment is paid to import it into the
country, and VAT has to be paid. If, for example, the invoice says
that the goods are valued at 250,000 DKK instead of 1,000,000
DKK, it cannot help but have an effect on the final price of the
product. Here responsibility is of course shared between the exporter,
who declares the low tariff, and the customs officer, who turns a
blind eye on the matter. As proof of this observation, several of the
companies interviewed mention that Finnish statistics on exports
to Russia do not correspond with Russian statistics on imports from
Finland. Exports far exceed corresponding imports. That is to say
that either the statistics are a shambles or under-invoicing –
smuggling, in plain language – takes place. It must be pointed out
that this is primarily the case for product items with high customs
tariffs.
Under-declaration and under-invoicing are no doubt possible for
several reasons. For example, several companies have got the
impression that customs officials often appear with several different hats, i.e. both as customs officer and freight forwarder.
Customs officials appear first to be responsible for filling in the
documents, then they change hats and, acting as customs officers,
they give the documents the necessary customs clearance stamps.
In the assessment of several companies, even products that have to
be analysed by the local authorities before being imported in order
to establish their nature, are allowed into several of the countries
at a lower tariff rate because the customs officers get paid for it
even if the contents do not match the description.
81
Changes in legislation and regulations
Bigger companies estimate that as a result of the above practice
they incur income losses amounting to millions of DKK. Certain
companies estimate that as much as 20 pct. of their market is
taken up by illegal products.
At the higher and more expensive end of the scale, corruption
continues to exist in all the countries. Companies with local
production have been approached in some instances with information
that certain things can be bought at a fixed price. 50,000 USD is not
an unusual demand for removal of import duties, changes in
legislation, etc.
Changes in legislation
and regulations
Recommendations
conclusion –
Demolish any remnants of the wall!
84
R e c o m m e n d a t i o n s a n d c o n c l u s i o n – D e m o l i s h a n y r e m n a n t s o f t h e wa l l !
Things take time
A radical system change requires great patience before all reforms
are in place. However frustrating it may be, there is no way of
getting round the three t’s – time, time and time. This is particularly
true of the Baltic countries, Poland, and Russia, all of which have
had to carry out a unique political and economic change of system in
record time. One of the main actors in the Baltic Sea Region, Mr.
Leszek Balcerowicz, former Polish Finance Minister and currently
President of the National Bank of Poland, has expressed it in the
following way: "In all other radical transformation processes the
focus was either on the political system, while the economic system
remained unchanged, or the focus was only on the economic system,
while the political system remained unchanged." 81 This "doubleness" of the reform process has meant that the countries have had
to reform just about every sector of society simultaneously – and, on
top of that, within a very short period of time.
The countries have come
a long way...
Viewed in this perspective, there is no doubt that the countries
have come a very long way since the fall of the Berlin Wall and the
collaps of the Soviet Union. In many ways the prospect of EU membership has operated as a "reform engine" for the Baltic countries
and Poland, which has not only added speed to the reforms, but has
also provided the countries with guidelines in the reform process.
See figure 11.
...but still have far to go
It is equally clear, however, that the countries still have a long way
to go, and that the EU membership (and the WTO process, for that
matter) is not in itself a panacea that will bring the countries up to
the level of old Western Europe from one day to the next. Therefore
there will still be a need for an extra effort after the enlargement
to make sure that the positive development is continued. In the
case of Poland and the Baltic countries, this will mainly take place
within the EU framework, whereas the WTO and the various
regional initiatives within the EU will play the decisive role for
Russia.
EU and WTO membership
does not remove all
barriers
The report has charted a number of barriers to trade and investments in the Baltic Sea Region. If the vision of a single strong
Baltic Sea Region is to become reality, this is a very specific area
where there is a need for a renewed effort. For one of the main conclusions of the report is that EU membership does not automatically
85
Not one common solution for all
Figure 11
Demolish the wall remnants in the Baltic Sea Region EU enlargement as a tool
Product licensing
(technical product
legislation)
Customs clearance in
relation to other
member states
Barriers that will
automatically be
removed by EU
membership in the
Baltic countries
and Poland
Barriers which
can be removed
by the Council of
the Baltic Sea
States
Barriers which can
be removed within
the EU framework
demolish the remaining wall remnants that are in the way of "good
governance" in the Baltic countries and Poland, neither with
respect to legislation and regulations, nor with respect to public
administration. A large part of the business legislation that is
causing problems to companies in the Baltic Sea Region is not
contained within the 80,000 pages of the EU legislation package.
Furthermore, the EU does not operate with clear minimum
standards for "good public administration". It is precisely in this
second area that companies encounter the biggest problems, e.g. in
the shape of slow customs clearance and zealous and arbitrary tax
inspections. Russian membership of the WTO, whose conditions for
membership are much broader than those of the EU, would not
solve the problems just described.
Because of the differences in the region’s association to the EU and
the WTO, it is not possible to set up one common solution for all of
the Eastern Baltic Sea countries. Or, in the image of tearing down
walls: Several items from the toolbox must be used to tear down the
remaining pieces of the wall!
Not one common
solution for all
86
R e c o m m e n d a t i o n s a n d c o n c l u s i o n – D e m o l i s h a n y r e m n a n t s o f t h e wa l l !
Part of a ”demolition
plan” in the Council
of the Baltic States
First of all a "demolition plan" should be worked out aimed at
demolishing one of the areas not covered by EU and WTO
membership, viz. the adoption of effective and flexible business
legislation in such areas as taxation and purchase of land. The
"demolition plan" should be constructed as a benchmarking process
and a best practice process for a barrier-free Baltic Sea Region. The
countries in the region should join forces in formulating targets for
how many public authorities one needs to have contact with to start
up a new company, purchase land, construct a building, and how
much time it must be allowed to take. Similarly, best practice
standards should be formulated for customs82 and tax systems and
for fighting corrupt authority. Ideally, Russia should take part in
these processes, which suggests that the processes should be
anchored in the only regional organisation where Russia is
represented, i.e. the Council of the Baltic Sea States.
The work with a detailed benchmark and best practice process may
be based upon the work already initiated by the countries’ ministers
of economy, trade and industry in the Council of the Baltic Sea States.
For example, each year the ministers agree on an action plan, which
is intended, among other things, to contribute towards ensuring economic development and to realise the region’s economic potential.83
Demolition of barriers has been a recurring element in the action
plans, most recently in the "Moscow Action Plan" from March 2002.
Till now, however, the initiatives have not had clear deadlines and
evaluation mechanisms which ensure that the ministers systematically
follow up on the development every year. Without a systematic and
persistent approach, evaluations will remain loose, ill-founded and
incoherent. The coming chairmanship, the Estonian, should, therefore, renew the specific focus on demolition of the barriers to trade
and investments described above through the implementation of a
detailed benchmark and best practice process.
This work might take place in cooperation with the Nordic Council
of Ministers, which has already built up experience with breaking
down barriers between the Nordic countries and is furthermore
engaged in cooperation with the Eastern Baltic Sea countries in
various areas. From a Danish perspective, the Danish chairmanship
of the Nordic Council of Ministers in 2005 will be a good opportunity
87
Separate EU effort
Figure 12
Demolish the wall remnants in the Baltic Sea Region the Baltic Sea regional cooperation as a tool
Setting up business
Barriers that will
automatically be
removed by EU
membership in the
Baltic countries and
Poland
Barriers which
can be removed with
in the framework of the
Baltic Sea cooperation by
the means of a benchmarking and best practice
process within the Council
of the Baltic Sea States
and the Nordic Council
of Ministers
New tax system
(reporting,
inspections etc.)
Customs system
(inspections,
external customs
clearance etc.)
Land purchase
Building license
Barriers which can
be removed within
the EU framework
Corrupt authority
for focussing attention on more integrated cooperation with the
Council of the Baltic Sea States on demolition of barriers. See
figure 12.
Secondly, a separate effort should be made within the framework of
the EU to promote "good governance" in the new member states,
precisely for the reason already mentioned that, by itself, the
expansion will not solve a number of central problems. Of course, a
price will have to be paid to demolish remaining wall remnants.
Therefore, sufficient funding should be allocated in the EU budget
for 2007-2012.
First of all this should take place within the framework of the
already existing Phare programme. Phare has existed since 1989
and has, to a large extent, focussed on building institutions, i.e. on
training officials etc. in the EU candidate countries, including the
Baltic countries and Poland. The EU has decided to allow Phare to
continue until 2006, i.e. until after expansion, in a so-called transition facility.84 This is a clear signal that the countries continue to
have great deficits in these areas, which is clearly pointed out by
the European Commission.85 In the remaining Phare period, therefore, funds should be allocated for improving the legal systems and
the tax and customs systems in the countries. See figure 13. However, there is no reason to believe that all problems associated with
"good governance" will have disappeared or even been significantly
Separate EU effort
Continue focus under
Phare
88
R e c o m m e n d a t i o n s a n d c o n c l u s i o n – D e m o l i s h a n y r e m n a n t s o f t h e wa l l !
reduced such a short time after expansion. Thus the transition
arrangement for Phare will not suffice.
Reform the structural
funds
Therefore, as a result of the phasing out of Phare, it should become
an element in the reform of the structural funds in 2006 that the
new member states have different needs from the present member
states. Where the structural funds are mainly spent today on building
infrastructure, retraining workforces and so on, the funds should
be reformed so that the new countries can obtain support for "good
governance", for instance for building adequate up-to-date legal,
tax and customs systems and for training public officials. There is
a need for better, faster working, and incorruptible courts. The
studies of law must be improved, the teaching capacity must be
increased, etc. Likewise, there is a need for improvements in the
tax systems, which includes, not least, an increased effort in the
training of officials.
The funds should be made more flexible to accommodate the member
countries’ different needs, and they should be opened up to new
priority areas. It is no use, quite simply, to operate by the "one-sizefits-all principle", when, in 2004, countries whose needs differ in
several ways from those of the current member states will accede to
the EU. See figure 13. This proposal is consistent with one of the
main elements in the initiative concerning a new regional policy
put forward by the British government.86
More focussed effort
with respect to Russia
Thirdly, a more focussed effort must be made with respect to
remains of the wall in Russia. The "demolition plan" of the Council
of the Baltic States, including the benchmark and best practice
process among the countries in the region in the areas mentioned
will constitute a significant contribution. However, considering
Russia’s size and foreign policy focus it will be crucially important
that the EU as an organisation becomes an active player in the
field in order to ensure progress.
After the conclusion of the negotiations with the ten future member
countries for accession, the EU has launched a "new neighbourhood" initiative in March 2003, "Wider Europe", aimed in part at
the EU’s new neighbours to the east, including Russia.87 As part of
the initiative, the EU and Russia are going to negotiate a new
More focussed effort with respect to Russia
cooperation agreement. The first proposal by the European Commission suggests that the new cooperation agreement should make closer
economic integration with the EU possible, in part by accession into
the EU’s internal market provided that Russia undertakes to carry
out sufficient political, economic, and institutional reforms.
This cooperation agreement should be implemented in such a way
that it will demolish as many remaining wall remnants as possible.
As already mentioned, a central defect in the EU‘s existing Partnership and Cooperation Agreement with Russia is that no deadlines have been formulated as to when the process of convergence
to the EU’s norms must be completed. In order for the new cooperation agreement to achieve the necessary effect in practice, it is
therefore crucial that deadlines are fixed as part of an action plan.
It is equally important that progress is evaluated each year.
According to the European Commission, Russia should also have
the opportunity to adapt to the EU package of legislation. One very
central area, where companies need Russian adaptation to this
legislation is in the area of technical product legislation. As has
been made clear already, it is expensive for companies to be
completely updated about the technical requirements that are
made and to adapt products to the different requirements. Here an
advantageous strategy would be for the EU to negotiate an agreement based on the same principle as the PECA agreements with
future EU countries mentioned earlier because these agreements
89
90
R e c o m m e n d a t i o n s a n d c o n c l u s i o n – D e m o l i s h a n y r e m n a n t s o f t h e wa l l !
are regarded as an important and effective instrument for the
future EU countries in their pre-accession strategy with respect to
the free movement of goods.88
As has appeared from the present study it is very important,
however, that Russia will also implement improvements in areas
not covered by the EU package of legislation, because this is where
some of the greatest barriers to companies are to be found. Consequently, this effort should focus especially on improvements in the
Russian legal, tax and customs systems.
Still a need for Tacis
Some of the funding for this, for all of the areas mentioned, should
be allocated within the framework of the Tacis programme, which
has supported for instance "good governance" in 13 Eastern European
and Central Asian countries, including Russia, since 1991. See
figure 13. The 2006 EU budget should include a specific budget line
for the new neighbourhood policy. It is not cost free to demolish wall
remnants in Russia either!
Figure 13
Demolish the wall remnants in the Baltic Sea Region – the EU as a tool
Barriers that will
automatically be
removed by EU
membership in the
Baltic countries and
Poland
Barriers which
can be removed
by the Council of
the Baltic Sea
States
Barriers which
can be removed within the
EU framework by the means of
Reforms of the legal system
Reforms of the tax system
Reforms of the customs
system
Corrupt authority
• Phare (Baltic countries and Poland)
• Structural funds (Baltic countries and Poland)
• Tacis/Northern Dimension (Russia)
• Neighbourhood policy (Russia)
91
Th e i n i t i a t i v e s o n l y p a r t o f t h e s o l u t i o n
Finally, the EU should use the EU's Northern Dimension to demolish wall remnants. The Northern Dimension is the EU regional initiative which aims at solving problems in the Baltic Sea Region.
The 2004 – 2006 Northern Dimension action plan should, thus, focus on the demolishment of wall remnants. How, for example, can
customs clearance and border control between the Baltic countries
and Russia be made more flexible and effective? How to avoid that
the barriers between the Baltic countries and Russia will become
insurmountably high compared to the rest of the region? If a separate
budget line will be earmarked for the neighbourhood policy in 2006
part of the funds should be allocated to the Northern Dimension.
Till now the Northern Dimension has been a policy without separate
funding!
Allocate funds under the
Northern Dimension
The demolition initiatives that have been proposed do not constitute a complete solution to the realisation of the vision of one
strong Baltic Sea Region without any barriers to trade and investments. Efforts must also be made in other fields, of course, such as
investments in new technology and machinery as well as in education and training. Even if an effort aimed at demolishing barriers
associated with good governance is therefore only part of the solution, it is nevertheless central. Well-functioning legislation and
public administration are quite simply key elements in the
ambition to create a framework of favourable conditions for trade
and industry. If those foundations are not in place, many other
initiatives (e.g. investments in new technology) will not have the
intended effect.
The initiatives only
part of the solution
The demolition of barriers identified in the present study will not
be tantamount to the existence of a Baltic Sea Region completely
without barriers. Each time some barriers have been demolished,
other barriers will move up in the barrier hierarchy. Suddenly
companies will point to new barriers to trade and investments. The
Øresund Region can serve as a good example of this. There are no
great problems with the bottom level of the barrier hierarchy
("good governance"), indeed it is almost taken for granted that
there are no problems at this level. Nonetheless companies still
encounter barriers – only in one of the more easily penetrable layers in the barrier hierarchy. For instance companies point out that
mobility is weakened by the fact that it is difficult for employees to
New barriers will
move up
92
R e c o m m e n d a t i o n s a n d c o n c l u s i o n – D e m o l i s h a n y r e m n a n t s o f t h e wa l l !
bring their pensions with them across the borders. If the Baltic Sea
Region is to become one region, it is crucial that a process is initiated
whereby new barriers are constantly brought into focus.
Not a mere labour
of Sisyphus
The message that new barriers are constantly emerging and that
there is a need for a continual effort on the barrier front should not
of course be taken to mean that this is a mere labour of Sisyphus.
The purpose is rather to formulate more precisely the level of
ambition for the Baltic Sea Region: The immediate goal for the
Baltic Sea Region will have been reached when companies on their
eastward journey will no longer encounter heavy barriers that are
expressive of the incomplete transition process away from communism and planned economy, but "merely" old familiars from e.g. the
Øresund Region. By then, the Baltic Sea Region will have moved all
the way up in the barrier hierarchy and will have emerged – for
better or for worse – as a "normal" region with far better conditions
for growth and prosperity than today.
References and Notes
94
References
References
Balcerowicz, Leszek: "Understanding
Postcommunist Transition." Journal of
Democracy, Vol. 5, no. 1, 1994.
Barysch, Katinka and Heather Grabbe:
"Who's ready for EU enlargement."
Centre for European Reform, December
2002.
Berthelsen, Jens og Sune Diernæs (eds.):
Avoid Corruption – a guide for companies. Confederation of Danish Industries,
2002.
Bjerregaard, Søren: "Store danske muligheder på de østeuropæiske markeder."
Erhvervspolitisk Indsigt. Confederation
Of Danish Industries, December 2002.
Center for Economic and Financial
Research and the World Bank:
"Monitoring of Administrative Barriers
to SME development in Russia", 2002.
Commission of the European Communities: "2002 Regular Reports on [Poland's,
Latvia's, Lithuania's] progress towards
accession."
Commission of the European Communities: "Rapport om første fase af
strategien for tjenester i det indre
marked", July 2002.
Commission of the European Communities: "Wider Europe – Neighbourhood: A New Framework for Relations
with our Eastern and Southern Neighbours", March 2003.
Confederation of Danish Industries et al.:
Globalisation – views of the Nordic
business community, November 2002.
Danish Agency for Enterprise and
Housing: Analyse af barrierer for samhandel mellem Østersøregionens lande,
Februar 2003.
Danish Ministry of Labour [now Danish
Ministry of Employment]: Østersøregionen – Et fælles arbejdsmarked for
vækst, velfærd og beskæftigelse,
November 2001.
Danish Ministry of Trade and Industry
[now Danish Ministry of Economic and
Business Affairs]: Realising a Potential:
From Assistance to Economic Growth in
the Baltic Sea Region, 2001.
Danmarks Nationalbank [National Bank
of Denmark]. Statistical material.
Danish Trade Council: The Challenge of
EU Enlargement – Danish Export Opportunities following the Enlargement of
the European Union, May 2002.
EEG Business Updates: "EU funds and
enlargement. How much and where?",
February 2003.
Ehlert-Jürgensen, Heide and Johnny
Thomas Holst (eds.): Barrierer i Østersøregionen. Dansk Industris medlemsundersøgelse af handelsbarrierer og
investeringer i Østersøregionen. Confederation of Danish Industries, December
2000.
European Bank for Reconstruction and
Development: Transition report 2002.
Friis, Lykke & Kenneth S. Hansen: Et udvidet EU – Slaraffenland eller minefelt
for de kriminelle? Danish Institute of
International Affairs, 2002.
Friis, Lykke and Anna Jarosz-Friis: Countdown to Copenhagen. Big Bang or Fizzle
in the EU's Enlargement Process? Danish
Institute of International Affairs, 2002.
HM Treasury, Department of Trade and
Industry, Office of the Deputy Prime
Minister: A modern regional policy for
the United Kingdom, March 2003.
95
References
Jacobsen, Christen Boye: Implementing
the acquis communautaire – the fight
over 80.000 pages. RGSL Working Papers
No. 7, Riga 2002.
Jakobsen, John: "Konference: Øresundsregionen i stampe." Berlingske Tidende,
21 January 2003.
Kok, Wim: "Enlarging the European
Union – Achievements and Challenges."
Report of Wim Kok to the European
Commission, 26 March 2003.
The Stockholm Chamber of Commerce:
Study of Swedish business establishments
in Russia and the Baltic countries, 2000.
UNICE task force on enlargement: "2002
Report on candidate countries' progress
towards accession."
Uniting Europe, No. 222, 10 March, 2003.
www.cbss.st
www.ds.dk
www.europa.eu.int
Paldam, Martin: Udviklingen i Rusland,
Polen og Baltikum. Lys forude efter
ændringen af det økonomiske system.
The Rockwool Foundation, 2002.
Royal Danish Ministry of Foreign Affairs’
market profiles for Estonia, Lithuania
and Poland 2003; the Ministry’s market
profile for Russia 2002.
www.greco.coe.int
www.norden.org
www.oecd.org
www.rru.worldbank.org
www.transparency.org
Scientific Council for Government Policy:
Towards a Pan-European Union. The
Hague, 2001.
www.um.dk
Statistics Denmark. Statistical material.
Åslund, Anders: Building Capitalism.
The Transformation of the Former Soviet
Bloc. Cambridge University Press, 2002.
Sutela, Pekka: "Russia and Europe: Some
Economic Aspects." Draft 11.03.2003. 2.
To be published by Carnegie Endowment
Moscow Centre.
Task Force on Organized Crime in the
Baltic Sea Region: Global Corruption
Report 2003 – Central and Eastern
Europe and the Baltic States; Situation
Report on Corruption in the Baltic Sea
Region, 2002.
96
Notes
Notes
1
This version has been translated
from Danish. The title of the Danish
version is ”En slagkraftig og
barrierefri Østersøregion? – Spræng
murbrokkerne væk!”
11 One important exception, however,
being Poland, where real volume
growth in 2001 amounted to 1.1 %.
Denmark, Estonia, Finland, Latvia,
Lithuania, Norway, Poland, Russia,
Sweden and Germany.
13 Danmarks Statistik.
3
Estonia, Latvia, Lithuania, Poland
and Russia.
15 Danish Ministry of Labour [now
Danish Ministry of Employment].
Appendix 1 p 8.
4
Denmark, Finland, Norway, Sweden,
Germany.
5
Katinka Barysch and Heather
Grabbe: "Who's ready for EU
enlargement." Centre for European
Reform, December 2002 p 4.
2
12 Bjerregaard pp 1-6.
14 Bjerregaard pp 1-6.
16 Information from Danmarks
Nationalbank [National Bank of
Denmark], August 2002.
17 Royal Danish Ministry of Foreign
Affairs’ market profiles for Estonia,
Lithuania and Poland 2003; the
Ministry’s market profile for Russia
2002; and information received by
telephone from the Danish embassies in the five countries.
5
Martin Paldam: Udviklingen i
Rusland, Polen og Baltikum. Lys forude efter ændringen af det økonomiske system. The Rockwool Foundation, 2002.
7
Uniting Europe, No. 222, 10 March
2003.
18 "EU funds and enlargement. How
much and where?" EEG Business
Updates, February 2003 p 1.
8
Paldam.
19 Danish Trade Council, May 2002.
9
Østersøregionen – Et fælles arbejdsmarked for vækst, velfærd og
beskæftigelse. Danish Ministry of
Labour [now Danish Ministry of
Employment], November 2001.
20 Bjerregaard p 3.
10 See e.g. The Challenge of EU
Enlargement – Danish Export
Opportunities following the
Enlargement of the European Union.
Danish Trade Council, May 2002;
Søren Bjerregaard: "Store danske
muligheder på de østeuropæiske
markeder." Erhvervspolitisk Indsigt.
Confederation of Danish Industries,
December 2002 pp 1-6; Realising a
Potential: From Assistance to Economic Growth in the Baltic Sea
Region. Danish Ministry of Trade and
Industry [now Danish Ministry of
Economic and Business Affairs],
2001.
21 Barysch and Grabbe p 14.
22 Paldam pp 20-21, 35; European Bank
for Reconstruction and Development: Transition report 2002, p 58
(As the only country Poland is above
the 1989 level).
23 Barysch and Grabbe pp 13-14.
24 http://europa.eu.int/comm/
external_relations/ceeca/pca/
pca_russia.pdf
25 "Transition Report" 2002 p 67.
26 The concept of "social assets" has
been taken from a recent theory
used by e.g. Paldam pp 22, 243ff.
97
Notes
27 See Christen Boye Jacobsen:
Implementing the acquis
communautaire – the fight over
80.000 pages. RGSL Working
Papers No. 7, Riga 2002 p 30.
35 Jacobsen p 15.
28 Heide Ehlert-Jürgensen and Johnny
Thomas Holst (eds.): Barrierer i
Østersøregionen. Dansk Industris
medlemsundersøgelse af handelsbarrierer og investeringer i Østersøregionen. Confederation of Danish
Industries, December 2000.
38 Paldam p 184;
http://www.um.dk/udenrigspolitik/oe
steuropa/central/; http://www.europa.eu.int/comm/europeaid/projects/tacis/foreword_en.htm
29 In the survey these issues are
described as "legislation and
regulations."
30 In the survey these issues are
described as "public administration."
31 John Jakobsen: "Konference:
Øresunds-regionen i stampe."
Berlingske Tidende, 21 January 2003;
www.norden.org; "Rapport om
første fase af strategien for tjenester
i det indre marked." Commission of
the European Communities, July
2002; Globalisation – views of the
Nordic business community.
Confederation of Danish Industries
et al., November 2002.
32 Paldam p 13.
33 Towards a Pan-European Union.
Scientific Council for Government
Policy. The Hague, 2001 pp 73-80;
Barysch and Grabbe pp 9-10; Study
of Swedish business establishments
in Russia and the Baltic countries.
The Stockholm Chamber of
Commerce, 2000; Lykke Friis &
Kenneth S. Hansen: Et udvidet EU –
Slaraffenland eller minefelt for de
kriminelle? Danish Institute of
International Affairs, 2002 pp 24-25;
Jacobsen p 15.
34 Anders Åslund: Building Capitalism.
The Transformation of the Former
Soviet Bloc. Cambridge University
Press, 2002 pp 239-243; Paldam pp
80-81.
36 Jacobsen p 27.
37 Jacobsen p 27.
39 The Stockholm Chamber of
Commerce p 4.
40 Pekka Sutela: "Russia and Europe:
Some Economic Aspects." Draft
11.03.2003 p 2. To be published by
Carnegie Endowment Moscow
Centre.
41 http://rru.worldbank.org/Doing
Business/TopicReports/
EntryRegulations.aspx
42 Cf http://rru.worldbank.org/
DoingBusiness/TopicReports/
EntryRegulations.aspx
43 Cf http://rru.worldbank.org/
DoingBusiness/TopicReports
/EntryRegulations.aspx
44 This survey only focuses on purchase
of land for industrial use. Consequently, the report only covers
purchase of land for industrial use.
45 "Monitoring of Administrative
Barriers to SME development in
Russia." Center for Economic and
Financial Recearch and the World
Bank, 2002 p 8.
46 Ehlert-Jürgensen and Holst (eds.) p 10.
47 2002 Regular Report on [Poland's,
Latvia's, Lithuania's] progress towards accession. Commission of the
European Communities, 2002.
48 http://www.ds.dk/167
98
Notes
49 Analyse af barrierer for samhandel
mellem Østersøregionens lande.
Danish Agency for Enterprise and
Housing, February 2003 pp 13-15.
63 2002 Regular Report on [Poland,
Estonia, Latvia, Lithuania] progress
towards accession. Commission of
the European Communities.
50 Danish Agency for Enterprise and
Housing pp 10-11.
64 Jens Berthelsen and Sune Diernæs
(eds.): Avoid Corruption – A Guide
for Companies. Confederation of
Danish Industries, 2002, p 7.
51 Danish Agency for Enterprise and
Housing pp 11-12.
52 Jacobsen pp 23-24.
65 Berthelsen og Diernæs (eds.)
p 9-10.
53 See Jacobsen p 31.
66 Paldam p 17-18
54 Lykke Friis and Anna Jarosz-Friis:
Countdown to Copenhagen. Big
Bang or Fizzle in the EU's Enlargement Process? Danish Institute of
International Affairs, 2002 p 32; Wim
Kok: "Enlarging the European Union
– Achievements and Challenges."
Report of Wim Kok to Commission
of the European Communities,
26 March 2003 p 72.
67 Paldam p 279.
55 Jacobsen p 31.
56 Ehlert-Jürgensen and Holst (eds.)
p 17; The Stockholm Chamber of
Commerce, 2000 p 4.
57 http://rru.worldbank.org/
DoingBusiness/TopicReports/
EntryRegulations.aspx
58 http://rru.worldbank.org/
DoingBusiness/TopicReports/
EntryRegulations.aspx
59 http://rru.worldbank.org/
DoingBusiness/TopicReports/
EntryRegulations.aspx
60 See Centre for Economic and
Financial Research and the World
Bank p 5.
61 The Stockholm Chamber of
Commerce p 4.
62 The Stockholm Chamber of
Commerce p 4; 2002 Regular Report
on [Poland, Estonia, Latvia,
Lithuania] progress towards
accession. Commission of the
European Communities.
68 Friis & Hansen p 24.
69 Berthelsen og Diernæs p 3.
70 Jacobsen p 24.
71 Se www.transparency.org. The index
includes corruption both in the case
of public officials and private agents.
Transparency International is independent of government and profit
considerations.
72 The Stockholm Chamber of
Commerce p 4.
73 See www.transparency.org
74 Paldam p 25.
75 2002 Regular report on [Poland,
Estonia, Latvia, Lithuania] progress
towards accession. Commission of
the European Communities; Paldam
p 25.
76 See also: "2002 Report on candidate
countries' progress towards
accession." UNICE task force on
enlargement. [For Estonia p 11,
Latvia p 9, Lithuania p 7, Poland p 5]
and 2002 Regular report on [Poland,
Estonia, Latvia, Lithuania] progress
towards accession. Commission of
the European Communities.
77 Berthelsen og Diernæs (eds.) pp 17,
23.
99
Notes
78 Reference is also made to Global
Corruption Report 2003 – Central
and Eastern Europe and the Baltic
States; Situation Report on
Corruption in the Baltic Sea Region.
Task Force on Organized Crime in
the Baltic Sea Region, 2002 and the
evaluation reports by the European
Council on Estonia, Latvia, Lithuania
and Poland at: www.greco.coe.int/
79 http://www.oecd.org/oecd/pages
/home/displaygeneral/0,3380,
EN-document-87-3-no-no-3058487,00.html#title1
80 Further advice to be found in
Berthelsen and Diernæs (eds.).
81 Leszek Balcerowicz: "Understanding
Postcommunist Transition." Journal
of Democracy, Vol. 5, no. 1, 1994.
82 Even if the internal EU customs
control is going to disappear, the
countries will still need to be able to
carry out effective customs clearance
services, e.g. in relation to Russia. In
this connection, therefore, it will
continue to be relevant to uphold
the objective set up by the Council
of the Baltic States that customs
clearance of goods at the border
customs stations should take no
more than two hours. Also, the
customs inspections will not
disappear with expansion.
83 www.cbss.st
84 http://europa.eu.int/comm/
enlargement/pas/phare/focus.htm
85 http://europa.eu.int/comm/
enlargement/pas/phare/focus.htm
86 A modern regional policy for the
United Kingdom. HM Treasury,
Department of Trade and Industry,
Office of the Deputy Prime Minister,
March 2003.
87 "Wider Europe – Neighbourhood:
A New Framework for Relations
with our Eastern and Southern
Neighbours." Commission of the
European Communities, March 2003.
88 http://europa.eu.int/comm/enterprise/regulation/pecas/pecas.htm
A Brave New Region?
A Brave New Region?
Removing Barriers to Business
in the Baltic Sea Region
H.C. Andersens Boulevard 18 · DK-1787 København V
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