RESTRICTEDWORLD TRADE
ORGANIZATIONG/C/W/206
18 May 2000
(00-2036)
Council for Trade in Goods Original:  English
ROMANIA’S REQUEST PURSUANT TO ARTICLE 5.3
OF THE AGREEMENT ON TRIMS: REPLIES TO WRITTEN QUESTIONS
FROM THE EUROPEAN COMMUNITTIES
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The following communication, dated 15 May 2000, has been received from the Permanent
Mission of Romania.
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1. Please describe in detail the measure for which the GoR is requesting an extension (local
content percentages, trade balancing requirements, basis for calculation, product coverage, type
of producers to which it applies etc.).
The TRIM for which the GoR is requesting an extension is the measure notified by Romania
under Article 5.1 of the Agreement on TRIMs, circ ulated in document G/ TRIMS/N/1/ROM/1 of 7
April 1995.
The TRIM was applied under Law 71/1994 to newly established companies in industry,
having a foreign capital participation, to which foreign investors’ share represented at least US$ 50
million.
The companies that had choose to benefit from the advantages offered by Law 71/1994 have
also to completely fulfil their obligations esta blished through the same Law, namely: the obtained
production should have an integration value degree in  Romania of minimum 60 per cent and an export
of minimum 50 per cent of the annual value of production.
Please see also document G/C/W/196, Part I, answers to questions 1 and 2.
2. We understand that fulfillment of TRIMs is a condition to obtain certain advantages. If
so, please explain what is meant by “the Trims is applied by the GOR under mandatory
legislation?” (See G/TRIMS/N1/ROM/1). Does it mean that authorization to invest/operate is
(was) denied unless local content requirements were fulfilled? In other words, is (was) fulfilling
the TRIM a condition for establishment? Or, alternatively, is (was) any form of
penalties/sanctions envisaged in case conditions are not met?
The TRIMs applied by the Romanian Government under Law 71/1994 represented only a
condition to obtain certain advantages.
During the period for which the above mentioned Law has been in force (June 1994-June
1997), from the overall investments made in Romania,  only two firms have chosen to participate
under that Law (one in the car sector and the other in the shipbuilding sector).G/C/W/206
Page 2
As the advantages refers to exemption of customs duties for a seven-year period and profit tax
exemption for a five-year or seven-year period (see doc. G/TRIMS/N/1/ROM/1 and the answer to
question 3 below), in the case when, in 14 years estimated from the date of the enterprise’s
registration, the company diminishes its social capital so that the participation of the foreign investorlowers to an amount under a minimum of US$ 50 million or the company is voluntarily dissolved, the
company will be obliged to pay all taxes and cust oms duties normally due for all the functioning
period.
3. Please quantify the total value of these benefits (foregone customs duties, taxes and
other) and describe how they accrue to beneficiaries .
The total value of  the benefits cannot be measured but it can be qualitatively estimated. Thus,
as the purpose of the Law 71/1994 was to attract important foreign investors in industry, some of the
benefits accruing for Romania are estimated to be: the maintenance of the employment in the two
industrial areas were the two companies were established; enhancement of investments and
participation of the domestic capital in small and medium-sized enterprises in horizontal industry andin service’s related sectors; the export encouragement; product quality improvements.
According to the Law 71/1994, the facilities  granted for investments are the following:
- exemption of custom duties, for a seven-year period, beginning from the date of company’s
registration, for machines, equipment, instal lations, imported for investment purposes and
subscribed as participation in kind or pa id from own drawn or borrowed sources;
- exemption of custom duties, for a seven-year period, estimated from the date of company’s
registration, for raw materials, consumption materials, spare parts and component parts,imported for the own company’s production purp oses and paid from own drawn or borrowed
sources; and
- profit tax exemption for a five-year period, estimated from the date of obtaining profit, but not
more for seven years from the start of the productive activity.
Both industries (auto and shipbuilding) are considered to be very important for the national
economy.
The above mentioned facilities contributed to alleviate the economic and social situation in
the respective fields, by improving the manufacturing technologies, re-launch their activities and
maintaining and creating new employment in areas with an increasing unemployment rate.
4. Describe also the legislative state of play and the process that has led to Government
Ordinance 67/1999, eliminating investme nt incentives for new investments.
1. The Government of Romania started from the 1997 the preparatory legal process aimed at the
elimination of TRIMs, establishing a new legal investment regime, under which the new
investments in Romania made after December 1997 are not anymore subject to TRIMs.
2. The first step was made in June 1997, by issuing the Government Emergency Ordinance
(GEO) No. 31/1997, amended by GEO No.92 of  December 1997 (approved by Law 241 of
1998).
3. Furthermore, in May 1999, the GoR issued the GEO No.67, regarding measures for economic
activity development, which grants a series of fiscal and customs incentives to certainG/C/W/206
Page 3
category of new investments, namely the investments with major impact on the Romanian
economic activity.
4. The incentives granted to the newly established investments under each of these legal acts do
not rely on TRIMs anymore.
5. However, in order to preserve the advantages and obligations granted to already established
investors, the new legislation stipulates that the provisions of Law 71/1994 continue to apply
to investments made under that law and for the time period foreseen therein.
5. What has the FDI inflow been since the GoR eliminated the investment incentives?
Please provide FDI data for the period 1994-1998 and for 1999, by country of origin.
Since the entry into force of WTO, legislation regarding investments improved several times.
Since 1997, the legislation concerning investments does not contain any TRIMs, the incentives given
to the investors being not subject to local content or export requirement.
The volume of FDI in Romania is very low as compared to the needs of the country and to the
volume of FDI in neighbouring countries and reached the amount of around 3 billion dollars for the
period between 1994-1999.
6. The facilities for which you are requesting an extension are in the automotive and
shipbuilding sector.
(a) Are there other sectors to which the TRIMs have applied in the past? If so, please
describe how the TRIMs applied and when and how they were phased out.
No, there are no other sectors to which the TRIMs have applied in the past .
(b) Please describe the main features of the Romanian automotive industry (including parts
and components) and shipbuilding industry.
(c) Please describe the facilities in question (investors, level of investment, location, type of
production, markets etc.).
The two sectors were characterized by lack of working capital, high debts, reduced
productivity and low use of existing units, which due mainly to the fact that equipment and
technologies date back to 1970s-1980s.
The domestic car industry is represented by  Dacia Renault Auto mobile S.A., Daewoo
Automobile Romania S.A. and ARO S.A.
Daewoo Automobile Romania (DAR) S.A., esta blished under Law 71/1994, has an intensive
program of production increase depending on the market demands.
In 1997, DAR S.A. has begun to produce engines in its new factory with a capacity of
300,000 pieces/year. The 1,500 ccm, 4 cylinders gasoline powered engine is abiding the
European technical standards and equips cars produced by DAR S.A. Also, DAR S.A. has
begun to produce gearboxes (200,000 pieces/year).
Till now more than 650 million USD have been  invested in order to modernize technology,
decrease expenditures and consumption with an aim to achieve a high productivity. DAR S.A.
manufactures 10 models.G/C/W/206
Page 4
Before 1995 the former car producer Automobile Craiova has been producing up to 5,400
cars per year. Presently DAR S.A. production goes up to 25,000 cars per year, 300,000
engines and 250,000 transmissions.
At present, Romania has 11 shipyards, located at the Black Sea and the Danube.
Daewoo Mangalia Heavy Industr y (DMHI) S.A., established under Law 71/1994, has an
intensive program production increase as well. The main products and services supplied by
the company are new shipbuilding and maintenance services. The investment that has been
realized during 1997-1999 consists of equipmen t, modern technologies, know-how, with a
total amount of 51 million USD. At DMHI S.A. before this investment only one ship per year
was build. After 1997, they build 11 ships per year (of 9,000 TDW).
Both factories established under Law 71/ 1994, have become very modern, exporting a
substantial portion of their productions.
7. Why do you consider that the TRIMs have been effective in developing Romania’s
automotive and shipbuilding industries?
Please provide annual data for the period 1991-1999 as regards:
- production
- export markets
Please see document G/C/W/196, Part I, answers to questions 15 and 16.
8. What measures has the GoR undertaken, in the periods 1995-1999, to prepare for the
elimination of the TRIMs in question? Please explain in detail (legislative process, industrialpolicy elements, consultations with industry etc.).
Please see answer to question 4 above.
(a) When did the GoR realise that it would be unable to meet the deadline of 31 December
1999 to phase out the TRIMs?
1. At the end of the Uruguay Round the Law 71/1994 was already in force. The process
of domestic consultations led to the elimination of the inconsistent TRIMs from the new
legislation enacted in 1997 for investments made after that date.
9. Why did the GoR wait until 27 December 1999 to notify its requests for extension?
The question of the extension of the transition period for TRIMs was discussed in other fora
in the WTO, including the General Council as part of the preparatory process of Seattle Ministerial
Conference and, as many other Members, Romani a hoped that a solution could be reached there.
The lack of decision in Seattle placed our country in the position to present the request pursuant toArticle 5.3 of the TRIMs Agreement.
10. Please describe in detail why maintaining the TRIMs is essential for Romania’s
development, financial and trade needs.
Please see document G/C/W/196, Part I, answers to questions 13(a) and (d).G/C/W/206
Page 5
11. Please provide an evaluation of the direct impact of the TRIMs on employment in the
sector and describe the methodology used to arrive at your assessment.
DAR S.A. increased the number of direct jobs from 3,900 to 4,714 and created more than
2,000 new jobs in the horizontal industries; DMHI  S.A. maintained the 3,500 jobs which otherwise
would have been eliminated.
DAR S.A. will maintain the jobs and DMHI S.A. is going to reach its full capacity, i.e. 5,000
jobs.
12. In case of rejection by the WYO of the requested extension, describe the estimated effect
on:
(a) existing level of investment
(b) employment
(c) parts and components industry?
It would be difficult to presume that the elimination of the existing TRIMs before the end of
the granted period will not affect the business strategy plans of the respective companies
based on foreign direct investment.
Also, the removal could send an inappropriate message for potential new foreign direct
investors on the predictability of the law under which they decide to invest.
The activity of the automotive and shipyard industries, together with the services generated
by them, and its positive effects on other horizontal related industries, due to the fact that they
rely on supplies of other domestic industries as chemistry, electrotechnics, electronics,metallurgy etc., stimulate a considerable employment.
It appears also that according to the developmental plans of these two industries new
investments are foreseen which will increase the demand for necessary materials and raw
materials. This could lead to new investments in these areas, especially through establishing
new small and medium-sized enterprises.
It is expected that on this basis the competitiveness will be stimulated as well as the increase
of products’ quality.
It is to be recalled that the legislation related to the investment regime enacted after 1997 does
not include TRIMs anymore.
As for the existing TRIMs under the Law 71/1994 it is worth to mention that they were
limited in time from the very beginning. This was reflected also in Romania’s TRIMs
notification.
In the event of an unfavorable decision by the Council to grant Romania the extension of
TRIMs measure it requests, such a decision would create financial and social dislocation in
the areas of the two investments.
We trust that the Council will take dully into c onsideration the specific situation of Romania’s
economy and all factors which determined the GOR to present the request for extension and it
will grant the requested extension. Adjusting to the elimination would cause great difficulties
to Romania, as valid contracts and credibility of the investment regime  would be affected.G/C/W/206
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(d) Why did the GoR request an extension for 4 years, until 31 December 2004? According
to our understanding of the Romania TRIMs, law 71/94 envisages benefits accruing to
investors fulfilling the TRIMs for a period of  7 years. Since law 71/94 was adopted on 20
June 1994, advantages to investors fulfilling the TRIMs are due to expire in 2001.
Extension up to 2001, if granted, would allow the GoR to meet its “contractual”obligations vis-à-vis investors. Please explain.
According to Law 71/1994, the 7 years period is to be counted from the moment of the
establishing the investment.
Thus, DAR S.A. was established on November 16, 1994 and the seven-year period
expire on November 16, 2001, while DMHI S.A was established on May 27, 1996 andthe seven-year period expire on May 27, 2003.
13. What further measures does GoR plan to enforce during the period of requested
extension, to prepare for elimination of the Trims?
Please see document G/C/W/196, Part  I, answer to question 3(a).
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