To Join the EU,Romania faces many hurdles

Graft and Rights Issues

Make Outcome Uncertain;

Warnings Rattle Optimists

By DAN BILEFSKY

Staff Reporter of THE WALL STREET JOURNAL

September 20, 2004; Page A19



BUCHAREST -- Romania is so impatient to join the European Union that

the EU's blue flag already is seen throughout the capital and inside the imposing Senate building, the site where thousands of protesters helped overthrow Nicolae Ceaucescu's communist dictatorship in 1989.

No less eager are big multinationals such as Microsoft Corp. and

Siemens AG. They join other foreign investors in watching for the European Commission to decide on Oct. 6 whether Romania's overhauls suffice to finish entry negotiations by the end of this year, allowing Romania to join the EU along with Bulgaria in 2007.

The outcome is still uncertain: Unlike Bulgaria, which has speeded

through required reforms, Romania risks being left behind unless it

satisfies EU demands to better fight corruption, overhaul its judiciary, improve its business environment and respect press freedom and human rights.

The reformist party of Adrian Nastase, Romania's prime minister, could find it harder to win the November general election if the EU

negotiations stall. This could present a new risk for the thousands of foreign companies that have invested a total of nearly $10 billion in the country during the past six years.





Most foreign direct investments have flowed into Romania in the hope

that it would be next in line for EU membership. Another draw is its pool

of talented workers and monthly wages of only about $200 -- about a

quarter of an EU average already sharply reduced by earlier EU entrants

from Eastern Europe.

Romanian officials publicly are optimistic. Viorel Ardeleanu, a

Brussels-based Romanian diplomat working for Romania's EU entry, sees the challenges. "But we're confident we'll get there," he said.

Yet recent warnings from EU headquarters in Brussels have rattled even the most ardent optimists. The EU is suffering from expansion fatigue as it struggles to come to terms with the recent increase in membership to 25 countries from 15.

Jean-Christophe Filori, spokesman for EU Enlargement Commissioner

Günter Verheugen, said: "The EU is exhausted after the last big enlargement in May. In the case of Romania, there are still big challenges in the areas of corruption, governance and the rules of law."

EU and Romanian officials alike say graft and corruption are the

biggest challenges the country must overcome.

Last year, the government investigated nearly 1,100 teachers, doctors and others for taking bribes in return for such things as issuing fake exam results and distributing medicine, according to the Romanian government.

To crack down on corruption among high government officials, the

government two years ago created an anti-corruption prosecutor's office.

Since then, four government ministers, four state secretaries, seven judges and prosecutors, 23 court bailiffs, 10 mayors, 18 customs officials, three generals and 167 police officers have come under criminal investigation.

Some foreign companies complain that the country suffers from vestiges of the communist era's old command economy.

When Romania joined the North Atlantic Treaty Organization in April,

Bucharest announced abruptly that the occasion would be marked with a state holiday. U.S. contract manufacturing firm Solectron Corp., which operates its factory seven days a week, said it was forced to pay its workers double time, or lose hundreds of thousands of dollars if the factory was left idle. It was fined EUR1,200 ($1,460) by local authorities for ignoring the holiday.

"The people running this country still behave like the old communist

regime," said Liana Brasaveanu, Solectron head of human resources in

Romania.

Romania has been praised for introducing a unified tax code for foreign and Romanian companies and for phasing out tax amnesties for Romanian companies.

But foreign investors still believe they are under tighter tax scrutiny to make up for tax relief given to Romanian companies. Gilbert Wood, an American who is president of the Foreign Investors Council in Bucharest and has dozens of foreign companies as clients, said that "tax harassment" of Western firms is common.

Meanwhile, not everyone here is convinced that EU membership is that

desirable, and some Romanians grumble about feeling Brussels' heavy

regulatory hand even before entry into the EU.

Varujan Pambuccian, a member of the Romanian parliament, who has been a key architect of the country's information-technology policy said: "We already have lived under a dictatorship in this country -- and joining the EU will just mean replacing one totalitarian regime with another."

Write to Dan Bilefsky at dan.bilefsky@wsj.com