Executive Summary

Romania welcomes all forms of foreign investment.  The government provides national treatment for foreign investors and does not differentiate treatment by source of capital.  Romania’s strategic location, membership in the European Union, relatively well-educated workforce, competitive wages, and abundant natural resources make it a desirable location for firms seeking to access European, Central Asian, and Near East markets.  U.S. investors have found opportunities in the information technology, automotive, telecommunication, energy, services, manufacturing, consumer products sectors, and banking.

The investment climate in Romania is a mixed picture, and potential investors should undertake due diligence when considering any investment.  The March 2019 EU Country Report for Romania points to persistent legislative instability, unpredictable decision-making, low institutional quality, and the continued weakening of the fight against corruption as factors eroding investor confidence.  The EU noted that important legislation was adopted without proper stakeholder consultation and often lacked impact assessments.

The pace of economic reforms has slowed, and since January 2017, efforts to undermine Romania’s anti-corruption prosecutors and weaken judicial independence have shaken investor confidence in the government’s commitment to combat corruption.  Political rhetoric has reportedly taken an increasingly nationalist tone, with political leaders occasionally accusing foreign companies of not paying taxes, taking advantage of Romanian workers and resources, and sponsoring anti-government protests.

The Government of Romania’s (GOR) mandatory transfer of payroll taxes from employers to employees in January 2018 negatively affected all companies through additional administrative costs resulting from negotiation and registration of new labor contracts.  The government’s sale of minority stakes in SOEs in key sectors, such as energy generation and exploitation, has stalled since 2014. The GOR has weakened enforcement of its state-owned enterprise (SOE) corporate governance code, exempting several SOEs from the code in December 2017 and weakening SOEs’ capability to invest through regular and exceptional dividend distributions.

Consultations with stakeholders and impact assessments are required before enactment of legislation.  However, this requirement has been unevenly followed, and public entities generally do not conduct impact assessments.  Since 2017, frequent government changes have led to rapidly changing policies and priorities that can serve to complicate the business climate.  Romania has made significant strides to combat corruption, but corruption remains an ongoing challenge and recent actions by the government could have in fact hindered anti-corruption efforts.  Inconsistent enforcement of existing laws, including those related to the protection of intellectual property rights, also serves as a disincentive to investment.  Fiscal changes, passed through Emergency Ordinance (EO114) on December 21, 2018 without prior consultation, imposed taxes on the banking, energy, and telecommunications sectors.  The measure shocked markets, causing private sector backlash. On March 29, the Government of Romania softened the bank tax, upholding taxes on energy and telecommunication companies.

Although women in Romania have equal access under the law to investment development and protections, women have been reported to face societal challenges.  The problem is worse in rural areas and for Roma women. According to the World Bank, almost half of rural women in Romania have not completed upper secondary education and 43 percent are in the poorest quintile.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 61 of 180

(down 2 spots)

http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2019 52 of 190

(down 7 spots)

http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 49 of 126

(down 7 spots)

https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, stock positions) 2017 USD 3.6 billion http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 USD 10,000 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Romania actively seeks foreign direct investment, and offers a market of around 19 million consumers, a relatively well-educated workforce at competitive wages, a strategic location, and abundant natural resources.  To date, favored areas for U.S. investment include IT and telecommunications, energy, services, manufacturing – especially in the automotive sector, consumer products, and banking. InvestRomania is the government’s lead agency for promoting and facilitating foreign investment in Romania.  InvestRomania offers assistance and advisory services free of charge to foreign investors and international companies for project implementation and opening new offices or manufacturing facilities.

Romania’s accession to the European Union (EU) on January 1, 2007 has helped solidify institutional reform.  Conversely, legislative and regulatory unpredictability, as well as weak public administration, continue to negatively impact the investment climate.  As in any foreign country, prospective U.S. investors should exercise careful due diligence, including consultation with competent legal counsel, when considering an investment in Romania.  Allegedly, in past cases, governments in Romania have allowed political interests or budgetary imperatives to supersede accepted business practices in harmful ways to investor interests.

The energy sector has suffered from recent changes.  In 2018, offshore companies benefited from a streamlined permitting process, but were hit with a windfall profit tax that previously applied only to onshore production.  Additionally, in February 2018 the reference price for natural gas royalties was changed from the Romanian market price to the Vienna Central European Gas Hub (CEGH) price, resulting in a significant increase in royalties.  Energy producers have expressed concern about additional regulatory requirements in EO114, which caps the price of wholesale natural gas, among other modifications. Business associations, including the American Chamber of Commerce in Romania (AmCham), the Foreign Investor Council (FIC), and the Coalition for Romania’s Development, have criticized EO114’s new taxes and how it reverses natural gas market liberalization.

Investments involving public authorities can be more complicated than investments or joint ventures with private Romanian companies.  Some allegations cite that large deals involving the government – particularly public-private partnerships and privatizations of key SOEs – can be stymied by vested political and economic interests, or delayed due to a lack of coordination between government ministries.

In May 2018, the Public-Private Partnership (PPP) Law was revised through emergency ordinance (EO) and responsibility for PPPs of national interest was shifted to the National Strategy and Prognosis Commission.  PPPs of regional or local interest are governed by local authorities. The initiative of implementing a project through a PPP lies exclusively with the public partner. The contribution of the public partner can be in cash, provided the public contribution complies with state aid rules and with public finance legislation.  The public partner can cover costs for stages prior to project implementation, including feasibility studies, and can assume payment obligations or provide guarantees to the project company. According to the PPP law, the public partner initiates the PPP project and awards it according to public procurement rules. Implementation of the PPP legislation will be of considerable interest to investors over the next few years.  The EO is subject to parliamentary review.

In April 2018, the Foreign Investors Council (FIC) issued an open letter to the government and Parliament underscoring business climate uncertainty from the government’s failure to finalize EO 79.  In 2017, EO 79 shifted the burden of mandatory payroll deductions for pensions, healthcare, and income taxes from employers to employees. Parliament has yet to confirm or modify the law, leaving employers uncertain.  To avoid reductions in employee net pay, many companies voluntarily increased salaries to offset employee losses. Other companies, wary of further possible changes, offered monthly bonuses rather than formally amending contracts.

As an example of changes to the taxation regime and ongoing systemic tax disputes between the government and foreign investors, the Ministry of Health (MOH) announced February 2018 an increase in “the clawback tax” for Q4 2017, from 19.42 percent to 23.45 percent.  Pharmaceutical companies pay the clawback tax on all sales of drugs reimbursed through the public health system. The MOH calculates the tax to recover the cost for reimbursed drug sales in the previous quarter that exceed its budget. The pharmaceutical industry, both generic and innovative, immediately decried the tax increase.  Industry sees itself as financing the growth in drug consumption in Romania while the MOH’s budget has remained flat since 2011. The International Innovative Pharmaceutical Producers Association (ARPIM) issued a press release noting that from 2013-2017, pharmaceuticals paid USD 1.75 billion in clawback taxes, exceeding one year of the MOH’s annual budget for drugs in the public health system.  Since implementation of the clawback tax in 2009, the pharmaceutical industry has suggested numerous solutions to address the lack of predictability and transparency in the National Health Insurance House’s computations, but the GOR has shown no interest in increasing government spending for medicine to reduce the tax burden on private companies.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities are free to establish and own business enterprises, and to engage in all forms of remunerative activity.  Romanian legislation and regulation provide national treatment for foreign investors, guarantee free access to domestic markets, and allow foreign investors to participate in privatizations.  There is no limit on foreign participation in commercial enterprises. Foreign investors are entitled to establish wholly foreign-owned enterprises in Romania (although joint ventures are more typical), and to convert and repatriate 100 percent of after-tax profits.

Romania has taken established legal parameters to resolve contract disputes expeditiously.  Mergers and acquisitions are subject to review by the Competition Council. According to the Competition Law, the Competition Council notifies Romania’s Supreme Defense Council regarding any merger or acquisition of stocks or assets which could impact national security.  The Supreme Defense Council then reviews these referred mergers and acquisitions for potential threats to national security. To date, the Supreme Defense Council has not blocked any merger or acquisition. The Romanian capital account was fully liberalized in 2006, prior to gaining EU membership in 2007.  Foreign firms are allowed to participate in the management and administration of the investment, as well as to assign their contractual obligations and rights to other Romanian or foreign investors.

Other Investment Policy Reviews

Romania has not undergone any third-party investment policy reviews through multilateral organizations in over ten years.  The Heritage Foundation’s 2019 Economic Freedom Report indicates that secured interests in private property are recognized.  The Report also notes declines in judicial effectiveness and investment freedom, which outweigh improvements in property rights, the tax burden, and government spending.  The Report identifies labor shortages and political instability as the greatest economic risks.

According to the World Bank, economic growth rates have increased, but the benefits have not been felt by all Romanians.  Progress on implementing reforms and improving the business environment has been uneven. The World Bank’s 2019 Doing Business Report and Doing Business in the European Union Report indicates that Romania ranks below the EU average in the ease of starting a business, dealing with construction permits and setting up utility services.  Starting a business was made more cumbersome by introducing fiscal risk assessment criteria for value-added tax applications, thereby increasing the time required to register as a value-added taxpayer. Numerous international bodies including the European Commission, the Group of States Against Corruption, the Venice Commission, and Transparency International have expressed concern about what has been seen as an attempt to roll-back anti-corruption efforts and called on the Romanian government to focus on strengthening anti-corruption efforts, including introducing stronger corporate ethics standards and implementing existing anti-corruption legislation.  No substantive progress has been made in these areas.

Business Facilitation

The National Trade Registry has an online service available in Romanian at https://portal.onrc.ro/ONRCPortalWeb/ONRCPortal.portal.  Romania has a foreign trade department within the Ministry of Business Climate, Trade, and Entrepreneurship and an investment promotion department in the Ministry of Economy.  InvestRomania is the government’s lead agency for promoting and facilitating foreign investment in Romania. InvestRomania offers assistance and advisory services free of charge to foreign investors and international companies for project implementation and opening new offices or manufacturing facilities.  More information is available at http://www.investromania.gov.ro/web/.

According to the World Bank, it takes 6 procedures and 35 days to establish a foreign-owned limited liability company (LLC) in Romania, compared to the regional average for Europe and Central Asia of 5 procedures and 13 days.  In addition to the procedures required of a domestic company, a foreign parent company establishing a subsidiary in Romania must authenticate and translate its documents abroad. Foreign companies do not need to seek an investment approval.  The Trade Registry judge must hold a public hearing on the company’s application for registration within 5 days of submission of the required documentation. The registration documents can be submitted, and the status of the registration request monitored, online.

Companies in Romania are free to open and maintain bank accounts in any foreign currency, although, in practice, Romanian banks offer services only in certain hard currencies including: Euros, U.S. dollars, Swiss francs and Romanian Leu.  The minimum capital requirement for domestic and foreign LLCs is RON 200 (USD 47). Areas for improvement include making all registration documents available to download online in English. Currently only some are available online, and they are only in Romanian.

Romania defines microenterprises as having less than nine employees, small enterprises as having less than 50 employees, and medium sized enterprises as having less than 250 employees.  Regardless of ownership, microenterprises and SMEs enjoy “de minimis” and other state aid schemes from EU funds or from the state budget. Business facilitation mechanisms provide for equitable treatment of women in the economy.  According to the World Bank Doing Business Report, women are able to register a LLC with the same amount of time, cost, and number of procedures as men.

Outward Investment

There are no restrictions on outward investment.  There are no incentives for outward investment.

2. Bilateral Investment Agreements and Taxation Treaties

The U.S.-Romanian Bilateral Investment Treaty (BIT) on the Reciprocal Encouragement and Protection of Investment (signed in May 1992 and ratified by the U.S. in 1994) guarantees national treatment for U.S. and Romanian investors.  The agreement provides a dispute resolution mechanism, liberal capital transfer, prompt and adequate compensation in the event of an expropriation, and the avoidance of trade-distorting performance requirements. In 2004 the U.S. government negotiated a political understanding with the EU and eight accession countries, including Romania, to cover any possible inconsistencies between pre-existing BITs and the countries’ impending EU obligations.  A resulting revised BIT was ratified by the U.S. Senate and the Romanian Parliament in 2004, and went into effect on February 9, 2007. Other bilateral trade agreements with third countries were terminated upon Romania’s EU accession. Romania has a bilateral taxation treaty with the United States; the treaty was signed in 1973 and entered into force in 1974. It is available at https://www.irs.gov/pub/irs-trty/romania.pdf.

3. Legal Regime

Transparency of the Regulatory System

Romanian law requires consultations with stakeholders, including the private sector, and a 30-day comment period on legislation or regulation affecting the business environment (the “Sunshine Law”).  Some draft pieces of legislation pending with the government are available in Romanian at http://www.sgg.ro/acte-normative/.  Proposed items for cabinet meetings are not always publicized in advance or in full.  As a general rule, the agenda of cabinet meetings should include links to the draft pieces of legislation (government decisions, ordinances, emergency ordinances, or memoranda) slated for government decision.  Legislation pending with the parliament is available at http://www.cdep.ro/pls/proiecte/upl_pck.home for the Chamber of Deputies and at https://www.senat.ro/legis/lista.aspx for the Senate.  The Chamber of Deputies is the decision-making body for economic legislation.  Regulatory impact assessments are often missing, and Romanian authorities do not publish the comments they receive as part of the public consultation process.

Foreign investors point to the excessive time required to secure necessary zoning permits, environmental approvals, property titles, licenses, and utility hook-ups.  In January 2018, the Public Consultation Ministry was downgraded to a directorate within the Ministry of Labor and Social Justice. Except for occasional mentions in the Single Registry of Transparency of Interests (RUTI), the Ministry has had no recorded activity.  The ruling coalition has now installed its third Prime Minister in fourteen months, which has resulted in frequent changes to government leadership, including cabinet members, mid-level officials and associated staff, and changes to some agencies’ jurisdictions. This lack of both personnel and institutional stability has raised concern among the business community.

Public comments received by regulators are not made public.  The Sunshine Law (Law 52/2003 on Transparency in Public Administration) requires public authorities to allow the public to comment on draft legislation and sets the general timeframe for stakeholders to provide input.  However, there is no penalty or sanction if the public authority does not follow the Sunshine Law’s public consultation timelines. There have been cases when the public authorities have set deadlines much shorter than the standards set forth in the law.  There were no transparency enforcement regulatory reforms announced or implemented in 2018.

International Regulatory Considerations

As an EU member state, Romanian legislation is largely driven by the EU acquis, the body of EU legislation.  European Commission (EC) regulations are directly applicable, while implementation of directives at the national level is done through the national legislation.  Romania’s regulatory system incorporates European standards. Romania has been a World Trade Organization (WTO) member since January 1995 and a member of the General Agreement on Tariffs and Trade (GATT) since November 1971.  Romania is a member of the EU since 2007. Technical regulation notifications submitted by the EU are valid for all Member States. The EU signed the Trade Facilitation Agreement (TFA) in October 2015. Romania has implemented all TFA requirements.

Legal System and Judicial Independence

Romania recognizes property and contractual rights, but enforcement through the judicial process can be lengthy, costly, and difficult.  Foreign companies engaged in trade or investment in Romania often express concern about the Romanian courts’ lack of expertise in commercial issues.  There are no specialized commercial courts, but there are specialized civil courts. Judges generally have limited experience in the functioning of a market economy, international business methods, intellectual property rights, or the application of Romanian commercial and competition laws.  As stipulated in the Constitution, the judicial system is independent from the executive branch and generally considered procedurally competent, fair, and reliable. Affected parties can challenge regulations and enforcement actions in court. Such challenges are adjudicated in the national court system.

Inconsistency and a lack of predictability in the jurisprudence of the courts or in the interpretation of the laws remains a major concern for foreign and domestic investors and for wider society.  Even when court judgments are favorable, enforcement of judgments is inconsistent and can lead to lengthy appeals. Failure to implement court orders or cases where the public administration unjustifiably challenges court decisions constitute obstacles to the binding nature of court decisions.

Mediation as a tool to resolve disputes is gradually becoming more common in Romania, and a certifying body, the Mediation Council, sets standards and practices.  The professional association, the Union of Mediation Centers in Romania, is the umbrella organization for mediators throughout the county. Court-sanctioned and private mediation is available at recognized mediation centers in every county seat.

There is no legal mechanism for court-ordered mediation in Romania, but judges can encourage litigants to use mediation to resolve their cases.  If litigants opt for mediation, they must present their proposed resolution to the judge upon completion of the mediation process. The judge must then approve the agreement.

Laws and Regulations on Foreign Direct Investment

Romania became a member of the European Union on January 1, 2007.  The country has worked assiduously to create an EU-compatible legal framework consistent with a market economy and investment promotion.  Nevertheless, implementation of these laws and regulations is often reported to be delayed or inconsistent, and lack of legislative predictability undermines Romania’s appeal as an investment destination.

Romania’s legal framework for foreign investment is encompassed within a substantial body of law largely enacted in the late 1990s.  It is subject to frequent revision. Major changes to the Civil Code were enacted in October 2011 including replacing the Commercial Code, consolidating provisions applicable to companies and contracts into a single piece of legislation, and harmonizing Romanian legislation with international practices.  The Civil Procedure Code, which provides detailed procedural guidance for implementing the new Civil Code, came into force in February 2013.

In 2010, Romania passed a judicial reform law with the objective of improving the speed and efficiency of judicial processes, including provisions to reduce delays between hearings.  The Mediation Law, revised in October 2012, provides alternative dispute resolution options. The new Criminal Code, that includes provisions applicable to the economic felonies, came into effect in February 2014.  In 2018, Parliamentary leaders announced plans to amend both. The 2003 Fiscal Code and Fiscal Procedure Code, amended several times since their passage, was revised in January 2019. Fiscal legislation is revised frequently, according to some, oftentimes without due consideration of data-driven assessment of the economic impact.

Given the state of flux of legal developments, investors are strongly encouraged to engage local counsel to navigate the various laws, decrees, and regulations, as several pieces of investor-relevant legislation have been challenged in both local courts and the Constitutional Court.  There have been few hostile take-over attempts reported in Romania. Romanian law has not focused on limiting potential mergers or acquisitions. There are no Romanian laws prohibiting or restricting private firms’ free association with foreign investors.

Competition and Anti-Trust Laws

Romania has extensively revised its competition legislation, bringing it closer to the EU Acquis Communautaire and best corporate practices.  A new law on unfair competition came into effect in August 2014. Companies with a market share below 40 percent are no longer considered to have a dominant market position, thus avoiding a full investigation by the Romanian Competition Council (RCC) of new agreements, saving considerable time and money for all parties involved.  Resale price maintenance and market and client sharing are still prohibited, regardless of the size of either party’s market share. The authorization fee for mergers or takeovers ranges between EUR 10,000 (USD 11,230) and EUR 50,000 (USD 56,150). The Fiscal Procedure Code requires companies that challenge an RCC ruling to front a deposit while awaiting a court decision on the merits of the complaint.

Romania’s Public Procurement Directives outline general procurements of goods and equipment, utilities procurement (“sectorial procurement”), works and services concessions, and remedies and appeals.  An extensive body of secondary and tertiary legislation accompanies the four laws. Separate legislation governs defense and security procurements. In a positive move, this new body of legislation moved away from the previous approach of using lowest price as the only public procurement selection criterion.  Under the new laws, an authority can use price, cost, quality-price ratio, or quality-cost ratio. The new laws also allow bidders to provide a simple form (the European Single Procurement Document) in order to participate in the award procedures. Only the winner must later submit full documentation.

The public procurement laws stipulate that challenges regarding procedure or an award can be filed with the National Complaint Council (NCC) or the courts.  Disputes regarding execution, amendment, or termination of public procurement contracts can be subject to arbitration. The new laws also stipulate that a bidder has to notify the contracting authority before challenging either the award or procedure.  Not fulfilling this notification requirement results in the NCC or court rejecting the challenge.

The March 2019 EU Country Report for Romania notes that the share of negotiated public procurement procedures without prior publication was among the highest in the EU: 21 percent in 2018, up from 17 percent in 2017.  Approximately 34 percent of contracts awarded by public institutions in 2018 were single bids, down from 40 percent in 2017. This raised concerns among businesses about corruption in public procurement, which reduces competition and decreases efficiency of public spending.  The ongoing transition to a new e-procurement system, have laid the foundation for more transparency in the procurement process. EO 46 passed in May 2018 and Government Decision (GD) 502 passed in July 2018 created the legal framework for a National Centralized Procurement Office.  The European Semester report recommends that, before expanding centralized procurement to more complex products, Romania should solidify experience in the procurement of simple products subject to demand aggregation.

Expropriation and Compensation

The law on direct investment includes a guarantee against nationalization and expropriation or other equivalent actions.  The law allows investors to select the court or arbitration body of their choice to settle disputes. Several cases involving investment property nationalized during the Communist era remain unresolved.  In doing due diligence, prospective investors should ensure that a thorough title search is done to ensure there are no pending restitution claims against the land or assets.

Dispute Settlement

ICSID Convention and New York Convention

Romania is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.  Romania is also a party to the European Convention on International Commercial Arbitration concluded in Geneva in 1961 and is a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID).  Romania’s 1975 Decree 62 provides for legal enforcement of awards under the ICSID Convention.

Investor-State Dispute Settlement

Romania is a signatory to the New York Convention, the European Convention on International Commercial Arbitration (Geneva), and the Settlement of Investment Disputes between States and Nationals of Other States (ICSID).  There have been 15 ICSID cases in total against Romania. Three of them involved U.S. investors. The arbitral tribunal ruled in favor of Romania in two of them. Five investor-state arbitration cases against Romania are currently pending with the International Center for Settlement of Investment Disputes (ICSID).  Local courts recognize and enforce foreign arbitral awards against the government. There is no history of extrajudicial action against investors.

International Commercial Arbitration and Foreign Courts

Romania increasingly recognizes the importance of investor-state dispute settlement and has provided assurances that the rule of law will be enforced.  Many agreements involving international companies and Romanian counterparts provide for the resolution of disputes through third-party arbitration. Local courts recognize and enforce foreign arbitral awards and judgments of foreign courts.  There are no statistics on the percentage of cases in which Romanian courts ruled against state-owned enterprises (SOEs).

Romanian law and practice recognize applications to other internationally-known arbitration institutions, such as the International Chamber of Commerce (ICC) Paris Court of Arbitration and the United Nations Commission on International Trade Law (UNCITRAL).  Romania has an International Commerce Arbitration Court administered by the Chamber of Commerce and Industry of Romania. Additionally, in November 2016, the American Chamber of Commerce in Romania (AmCham Romania) established the Bucharest International Arbitration Court (BIAC).  This new arbitration center focuses on business and commercial disputes involving foreign investors and multinationals active in Romania.

According to the World Bank 2019 Doing Business report, it takes on average 512 days to enforce a contract, from the moment the plaintiff files the lawsuit until actual payment.  Associated costs can total around 26 percent of the claim. Arbitration awards are enforceable through Romanian courts under circumstances similar to those in other European countries, although legal proceedings can be protracted.

Bankruptcy Regulations

Romania’s bankruptcy law contains provisions for liquidation and reorganization that are generally consistent with Western legal standards.  These laws usually emphasize enterprise restructuring and job preservation. To mitigate the time and financial cost of bankruptcies, Romanian legislation provides for administrative liquidation as an alternative to bankruptcy.  Nonetheless, investors and creditors have complained that liquidators sometimes lack the incentive to expedite liquidation proceedings and that, in some cases, their decisions have served vested outside interests. Both state-owned and private companies tend to opt for judicial reorganization to avoid bankruptcy.

In December 2009, the debt settlement mechanism Company Voluntary Agreements (CVAs) was introduced as a means for creditors and debtors to establish partial debt service schedules without resorting to bankruptcy proceedings.  The global economic crisis did, however, prompt Romania to shorten insolvency proceedings in 2011.

According to the World Bank’s Doing Business report, resolving insolvency in Romania takes 3.3 years on average, compared to 2.3 years in Europe and Central Asia, and costs 10.5 percent of the debtor’s estate, with the most likely outcome being a piecemeal sale of the company.  The average recovery rate is 35.8 cents on the dollar. Globally, Romania ranks 52nd of 190 economies on the ease of resolving insolvency.

4. Industrial Policies

Investment Incentives

Currently, customs and tax incentives are available to investors in six free trade zones.  State aid is available for investments in free trade zones under EU regional development assistance rules.  In 2018, the government amended the state aid program for large investments instituted under GD 807/2014, lowering the investment threshold to EUR 1 million and moving away from the calls for applications approach.  Investors can apply at any time, and applications are reviewed on a first-come first-served basis. As of December 31, 2018, of the 62 applications submitted in 2018, 19 were approved, 30 had been rejected, and the rest were under review.  Large companies may receive aid of up to 50 percent of their eligible costs. The ceiling is 35 percent in the counties of Ilfov, Timis, Arad, Caras Severin, and Hunedoara while in Bucharest the ceiling is 10 percent. The ceiling for small and medium-sized enterprises (SMEs) is 10 percent higher than permissible aid for large companies, and for the smallest category of companies, the ceiling is 20 percentage points higher.  Prospective investors are advised to thoroughly investigate and verify the status of state incentives.

In 2007, Romania adopted EU regulations on regional investment aid, and instituted state aid schemes for large investments, SMEs, and job creation.  Both Romanian and EU state aid regulations aim to limit state aid in any form, such as direct state subsidies, debt rescheduling schemes, debt for equity swaps, or discounted land prices.  The EC must be notified of, and approve, GOR state aid that exceeds the pre-approved monetary threshold for the corresponding category of aid. To benefit from the remaining state aid schemes, the applicant must secure financing that is separate from any public support for at least 25 percent of the eligible costs, either through his own resources or through external financing, and must document this financing in strict accordance with Ministry of Finance guidelines.  Amendments made in 2010 to the state aid scheme for regional projects score applications based not only on the economics of the project, but also on the GDP per capita and unemployment rate for the county of intended investment. When granting state aid, the Ministry of Finance requires that the state revenues through taxes equals the state aid granted. Numerous foreign and American firms have successfully applied for and received Romanian State Aid.

The renewable energy support through Green Certificate System, part of the Renewable Energy Law, provided incentives for certain types of renewable energy.  The support is not available for renewable energy investments made after January 1, 2017, but investors that qualified under the support system can trade certificates until 2032.  The Green Certificates are traded in parallel with the energy produced. Although the Green Certificates are intended to provide an additional source of revenue for renewable energy producers, repeated revisions to the support system including deferring release of the certificates, and lowering the mandatory green certificate quota that consumers and suppliers have to acquire have created instability in the renewables investment climate.  Energy intensive industrial consumers receive exemptions from acquiring green certificates. In March 2017, the government revised the renewable energy support legislation. The changes include extending the validity of tradable green certificates to allow trading until 2032 and requires green certificates trading to be done anonymously, with the intention of balancing the market for all green certificates sellers.

As an EU member state, Romania must receive EC approval for any state aid it grants that is not covered by the EU’s block exemption regulations.  The Romanian Competition Council acts as a clearinghouse for the exchange of information between the Romanian authorities and the EC. The failure of state aid grantors to notify the EC properly of aid associated with privatizations has resulted in the Commission launching formal investigations into several privatizations.  Investors should ensure that the government entities with which they work fully understand and fulfill their duty to notify competition authorities. Investors may wish to consult with EU and Romanian competition authorities in advance, to ensure a proper understanding of notification requirements.

Companies operating in Romania can also apply for aid under EU-funded programs that are co-financed by Romania.  When planning a project, prospective applicants must bear in mind that the project cannot start before the financing agreement is finalized; the application, selection, and negotiation process can be lengthy.  Applicants also must secure financing for non-eligible expenses and for their co-financing of the eligible expenses. Finally, reimbursement of eligible expenses – which must be financed upfront by the investor – is often very slow.  Procurements financed by EU-funded programs above a certain monetary threshold must comply with public procurement legislation. In an effort to increase the rate of EU funds absorption, Romania has amended regulations to allow applicants to use the assets financed under EU-funded programs as collateral.  Allegedly, understaffing and a lack of expertise on the part of GOR management entities, cumbersome procedures, and applicants’ difficulty obtaining private financing still remain significant obstacles to improved EU funds absorption and project implementation by Romania.

Foreign Trade Zones/Free Ports/Trade Facilitation

Free Trade Zones (FTZs) received legal authority in Romania in 1992.  General provisions include unrestricted entry and re-export of goods, and exemption from customs duties.  The law further permits the leasing or transfer of buildings or land for terms of up to 50 years to corporations or natural persons, regardless of nationality.  Foreign-owned firms have the same investment opportunities as Romanian entities in FTZs.

Currently there are six FTZs, primarily located on the Danube River or close to the Black Sea: Sulina, Constanta-Sud Agigea, Galati, Braila, Curtici-Arad, and Giurgiu.  The administrator of each FTZ is responsible for all commercial activities performed within the zone. FTZs are under the authority of the Ministry of Transportation.

Performance and Data Localization Requirements

The government generally does not mandate local employment.  The notable exception is the Offshore Law (Law 256/2018), which requires that at least 25 percent of the employees of offshore titleholders have to be Romanian citizens with fiscal residence in Romania.  There are no excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of foreign investors or their employees. There are no government-imposed conditions on permission to invest.  The government does not require investors to establish or maintain data storage in Romania. Romania neither follows nor is there legislation requiring a “forced localization” policy for goods, technology or data. Romania does not have requirements for foreign IT providers to turn over source code or provide access for government surveillance.  Romania’s Constitutional Court has twice ruled such specific legislative drafts are unconstitutional. There are no measures that prevent or unduly impede companies from freely transmitting customer or other business-related data outside the country. There are no performance requirements imposed as a condition for establishing, maintaining or expanding an investment.

5. Protection of Property Rights

Real Property

The Romanian Constitution, adopted in December 1991 and revised in 2003, guarantees the right to ownership of private property.  Mineral and airspace rights, and similar rights, are excluded from private ownership. Under the revised Constitution, foreign citizens can gain land ownership through inheritance.  With EU accession, citizens of EU member states can own land in Romania, subject to reciprocity in their home country.

Companies owning foreign capital may acquire land or property needed to fulfill or develop company goals.  If the company is dissolved or liquidated, the land must be sold within one year of closure, and may only be sold to a buyer(s) with the legal right to purchase such assets.  Investors can purchase shares in agricultural companies that lease land in the public domain from the State Land Agency.

The 2006 legislation that regulates the establishment of specialized mortgage banks also makes possible a secondary mortgage market, by regulating mortgage bond issuance mechanisms.  Mortgage loans are offered by commercial banks, specialized mortgage banks, and non-bank mortgage credit institutions. Romania’s mortgage market is now almost entirely private. The state-owned National Savings Bank, CEC Bank, also offers mortgage loans.  Since 2000, Romania has had in place the Electronic Archives of Security Interests in Movable Property (AEGRM) that represents the national recording system for the priority of mortgages structured by entities and assets, ensuring the filing of transactions regarding mortgages, assimilated operations, or other collateral provided by the law, as well as their advertising.  Most urban land has clear title, and the National Cadaster Agency (NCA) is slowly working to identify property owners and register land titles. According to the National Cadaster Plan, 2023 is the deadline for full registration of lands and buildings in the registry. According to NCA data, 12.5 million (31 percent) of the estimated real estate assets (land and buildings) were registered in the cadaster registry as of March 2019.

Romania has made marginal improvement in implementing digital records of real estate assets, including land.  The 2019 World Bank Doing Business report ranks Romania 44 for the ease of registering property. The cadaster property registry is far from complete, and the lack of accurate and complete information for land ownership continues to be a challenge for private investors ‎and SOEs alike.

Intellectual Property Rights

Romania remains on the U.S. Trade Representative (USTR) Special 301 Watch List in 2019.  It also hosts illicit infringing websites that are included in the 2018 Notorious Markets List.  As elsewhere in the EU, Internet piracy – both Torrent site peer-to-peer (P2P) file sharing and business-to-consumer piracy – remains the top intellectual property rights (IPR) concern.  Despite the low priority placed on IPR enforcement at the policy level, cooperation between law enforcement authorities, including prosecutors and police officers, and intellectual property-based private industry continues at the working level.  This has led to innovative approaches to prosecuting IPR crimes within this constrained legal and fiscal environment: in order to increase the odds of IPR cases advancing in court, law enforcement authorities, when appropriate, are bundling related charges of fraud, tax evasion, embezzlement, and organized crime activity alongside IPR violations.  Not only has this increased the odds of IPR cases going to court, it also strengthens the evidence of “social harm” stemming from IPR violations, as a lack of social harm was often previously cited as a reason for dismissing IPR cases.

Romania’s Customs Authority reported the seizure of approximately 703,221 pieces of counterfeited goods in 2018 compared to 1.4 million pieces of counterfeit goods in 2017 and 1.52 million pieces in 2016.  The declining trend continues at an accelerated pace, in line with growing purchasing power and demand for genuine physical goods. Sweets, cigarettes, clothing, and footwear accounted for the majority of those seizures.  The amount of seized pharmaceuticals had fallen from 370 pieces in 2016 to zero in 2017 and 2018. According to both the National Customs Authority and the national police, the vast majority of counterfeit goods seized in Romania originate in China.

Romania is a signatory to international conventions concerning IPR, including the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), and has enacted legislation to protect patents, trademarks, and copyrights.  Romania has signed the Internet Convention to protect online authorship. While Romania’s IPR legal framework is generally good, enforcement remains weak and ineffective, especially in the area of internet piracy. The once-flagrant trade of retail pirated goods has largely been eliminated, but unlicensed use of software and personal use of pirated audio-video products remains high.  While Romania has passed broad IPR protection enforcement provisions, as required by the WTO, judicial enforcement remains lax.

Romania is on the Special 301 Watch List primarily due to weak enforcement efforts against online copyright piracy.  Customs officers have ex-officio powers and so can seize counterfeit goods and, after the rights holder inspects the goods and drafts a declaration, destroy them.  The government is responsible for paying for the storage and destruction of the counterfeit goods. Counterfeit goods are not prevalent in the local market.

Patents

Romania is a party to the Paris Convention for the Protection of Industrial Property and subscribes to all of its amendments.  Romanian patent legislation generally meets international standards, with foreign investors accorded equal treatment with Romanian citizens under the law.  Patents are valid for 20 years. Romania has been a party to the European Patent Protection Convention since 2002. Patent registration can be filed online.  Since 2014, Romania has also enforced a distinct law regulating employee inventions. The right to file a patent belongs to the employer for up to two years following the departure of the employee.

Trademarks

In 1998, Romania passed a trademark and geographic indications law, which was amended in 2010 to make it fully consistent with equivalent EU legislation.  Romania is a signatory to the Madrid Agreement relating to the international registration of trademarks and the Geneva Treaty on Trademarks. Trademark registrations are valid for ten years from the date of application and renewable.  Since 2014, trademark registrations can be filed online. In 2007, Romania ratified the Singapore Treaty on the Law of Trademarks.

Copyrights

Romania is a member of the Bern Convention on Copyrights.  The Romanian Parliament has ratified the latest versions of the Bern and Rome Conventions.  The Romanian Copyright Office (ORDA) was established in 1996 and promotes and monitors copyright legislation.  The General Prosecutor’s Office (GPO) provides national coordination of IPR enforcement, but copyright law enforcement remains a low priority for Romanian prosecutors and judges.  Many magistrates still tend to view copyright piracy as a “victimless crime” and this attitude has resulted in weak enforcement of copyright law. Due to the popularity of downloading pirated content, copyright infringement of music and film is widespread throughout Romania.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.

6. Financial Sector

Capital Markets and Portfolio Investment

Romania welcomes portfolio investment.  In September 2016, the FTSE included Romania on its “Watch List” for a possible upgrade to “Emerging Market” status.  Currently, FTSE states that Romania’s single outstanding criterion is liquidity to support sizable global investments.  The Financial Regulatory Agency (ASF) is responsible for regulating the securities market. The ASF implements the registration and licensing of brokers and financial intermediaries, the filing and approval of prospectuses, and the approval of market mechanisms.

The Bucharest Stock Exchange (BVB) resumed operations in 1995 after a hiatus of nearly 50 years.  The BVB operates a two-tier system. The main market consists of 85 companies. The official index, BET, is based on a basket of the 10 most active stocks listed.  BET-TR is the total return on market capitalization index, adjusted for the dividends distributed by the companies included in the index. Since 2015, the BVB also has an alternative trading system (ATS-AeRO) with 292 listed companies targeting small and medium size enterprises (SMEs), requiring more relaxed listing criteria.  The BVB allows trade in corporate, municipal, and international bonds. Starting July 2015, investors can use gross basis trade settlement, and beginning March 2015, trades can be settled in two net settlement cycles. The BVB’s integrated group includes trading, clearing, settlement, and registry systems. The BVB’s Alternative Trading System (ATS) allows trading in local currency of 15 foreign stocks listed on international capital markets.

Despite a diversified securities listing, the situation on the international capital and financial markets has adversely affected the Romanian capital market, and liquidity remains low.  Neither the government nor the Central Bank imposes restrictions on payments and transfers. The red tape associated with capital market access, still high trading fees, and inconsistent enforcement of corporate governance rules have kept Romania within the frontier market tier.  Country funds, hedge funds and venture capital funds continue to participate in the capital markets. Minority shareholders have the right to participate in any capital increase. Romanian capital market regulation is now EU-consistent, with accounting regulations incorporating EC Directives IV and VII.

Money and Banking System

There are 34 banks and credit cooperative national unions currently operating in Romania.  The largest is the privately-owned Transylvania Bank (16.5 percent market share), followed by Austrian-owned Romanian Commercial Bank (BCR, 15.1 percent); French-owned Romanian Bank for Development (BRD-Société Générale, 12 percent); Italian-owned UniCredit (9.2 percent); and Austrian-owned Raiffeisen (8.5 percent).

The banking system is stable and well-provisioned relative to its European peers.  According to the National Bank of Romania, as of December 2018, non-performing loans accounted for 4.95 percent of total bank loans.  As of December 2018, the solvency rate of the banking system was 19.66 percent, which has remained steady over recent years.

The GOR has encouraged foreign investment in the banking sector, and there are no restrictions on mergers and acquisitions.  The only remaining state-owned banks are the National Savings Bank (CEC Bank) and EximBank, comprising 8.1 percent of the market combined.  Parliament is considering draft legislation to establish a state-owned development bank that would focus on SME financing and large infrastructure projects.

While the National Bank of Romania must authorize all new non-EU banking entities, banks and non-banking financial institutions already approved in other EU countries need only notify the National Bank of Romania of plans to provide local services based on the EU passport.

The Romanian Association of Banks has promoted a dialogue with interested parties – institutions, representatives of consumers’ associations, businesses, and the media –to improve the legal framework to allow adoption of digital technologies in the financial and banking sectors.  The current stance of Romania’s regulators toward bitcoin and digital currencies is one of caution. The National Bank of Romania is reserved about crypto currencies and has issued several statements warning users about digital currencies.

Foreign Exchange and Remittances

Foreign Exchange

Romania does not restrict the conversion or transfer of funds associated with direct investment.  All profits made by foreign investors in Romania may be converted into another currency and transferred abroad at the market exchange rate after payment of taxes.

Romania’s national currency, the Leu, is freely convertible in current account transactions, in accordance with the International Monetary Fund’s (IMF) Article VII.

Remittance Policies

There is no limitation on the inflow or outflow of funds for remittances of profits, debt service, capital gains, returns on intellectual property, or imported inputs.  Proceeds from the sales of shares, bonds, or other securities, as well as from the conclusion of an investment, can be repatriated.

Romania implemented regulations liberalizing foreign exchange markets in 1997.  The inter-bank electronic settlement system became fully operational in 2006, eliminating past procedural delays in processing capital outflows.  Commission fees for real-time electronic banking settlements have gradually been reduced.

Capital inflows are also free from restraint.  Romania concluded capital account liberalization in September 2006, with the decision to permit non-residents and residents abroad to purchase derivatives, treasury bills, and other monetary instruments.

Sovereign Wealth Funds

Romania is in the process of establishing a sovereign wealth fund.  In November 2018, the GOR approved the legal framework to establish a Sovereign Development and Investment Fund (SDIF).  On March 10, the Ministry of Finance (MOF) published a draft government decision to transfer the most profitable SOEs, along with government equity in privatized energy companies, to the SDIF.  SDIF management could sell equity or assets of SOEs in which the government is majority owner without complying with the Privatization Law.  SDIF management would also have the discretion to use revenue from dividends and sales of assets to fund public or private companies, public-private partnerships (PPPs), or other government-backed projects.

7. State-Owned Enterprises

According to the World Bank, there are approximately 1,200 state-owned enterprises (SOEs) in Romania, of which around 300 are majority-owned by the Romanian government.  There is no published list of all SOEs since some are subordinated to the national government and some to local authorities.  SOEs are governed by executive boards under the supervision of administration boards. The 2016 Corporate Governance Code (Law 111) improved implementation of corporate governance in SOEs. However, the government exempted several SOEs from the Code in 2017, and implementation of the Code remains incomplete.

SOEs are required by law to publish an annual report.  Majority state-owned companies that are publicly listed, as well as state-owned banks, are required to be independently audited.  The Corporate Governance Code (enacted through Emergency Ordinance 109 / 2011 and revised through Law 111 / 2016) does not have language requirements for SOE executive and non-executive board members.  Enforcement of the Corporate Governance Code has been uneven; many SOEs are currently managed by interim boards, often with politically appointed members that lack sector and business expertise. The March 2019 EU Country Report for Romania noted that corporate governance legislation applicable to SOEs is robust but only sparsely applied.  Appointments of interim boards are a recurrent practice, departing from the spirit of corporate governance laws.

Privatization Program

The Ministry of Energy oversees energy generation and distribution assets, and uranium and coal mining.  The Ministry of Economy has authority over state-controlled natural gas carrier Transgaz, national electricity carrier Transelectrica, national salt company Salrom, national waters company SNAM, and copper mining company Cuprumin.  The Ministry of Transportation (MOT) has authority over the entities in the transportation sector, including rail carrier CFR Marfa. Romania’s privatization law permits the responsible authority to hire an agent to handle the entire privatization process, though ultimate decision-making authority remains with the government.  Joint ventures between state-owned energy companies and private investors for electric power production have been stalled due to decreasing energy consumption and declining energy prices.

The terms of Romania’s 2013-2015 precautionary stand-by agreement with the IMF included the sale of minority stakes in several state-owned energy companies through initial public offerings (IPOs) and secondary public offerings (SPOs) on the Bucharest Stock Exchange (BVB).  To date, successful transactions have included a 15 percent SPO for natural gas transmission operator Transgaz in April 2013 (following a 10 percent IPO in November 2007), an IPO for 10 percent stake in nuclear power producer Nuclearelectrica in September 2013, an IPO for a 15 percent stake in natural gas producer Romgaz in October 2013, and an IPO on the BVB and London Stock Exchange for the majority privatization of state-controlled electricity distributor Electrica in June 2014.  Privatization has stalled since 2014. The government has repeatedly postponed IPOs for hydropower producer Hidroelectrica and integrated coal mining and coal-fired power production company Oltenia Energy Complex.

Romania has implemented the Electricity Directive and the Gas Directive of the EU’s Third Energy Package, introducing a structural separation between transmission system operator activities, and generation, production and supply activities.  Ownership unbundling rules apply to investors with participation in energy transmission, generation, production, and/or supply activities. According to the Third Energy Package directives, the same entity cannot control generation, production and/or supply activities, and at the same time control or exercise any right over a transmission system operator (TSO).  Furthermore, the same entity cannot control a TSO and simultaneously control or exercise any right over generation, production and/or supply activities. Consequently, the Ministry of Economy oversees the national natural gas carrier Transgaz and national electricity carrier Transelectrica, while the Ministry of Energy has authority over state-controlled electricity producers.  Prospective investors are strongly advised to conduct thorough due diligence before any acquisition, particularly of state-owned assets.

As a member of the EU, Romania is required to notify the European Commission’s General Directorate for Competition regarding significant privatizations and related state aid.  Prospective investors should seek assistance from legal counsel to ensure compliance with relevant legislation. The state aid schemes aim to enhance regional development and job creation through financial support for new jobs or investment in new manufacturing assets.  The Ministry of Finance issues public calls for applications under the schemes. GOR failure to consult with and then properly formally notify the EC has resulted in delays and complications in some previous privatizations.

Private enterprises compete with public enterprises under the same terms and conditions with respect to market access and credit.  Energy production, transportation, and mining are majority state-owned sectors, and the government retains a monopoly on electricity and natural gas transmission.

Investors receiving state aid, whose investments have been affected by the global economic crisis, have found renegotiation of their state aid agreements to be cumbersome, in part due to local authorities’ failure to acknowledge that market conditions have changed.  Some investors have experienced problems due to the occasional failure of GOR entities to fully honor contractual obligations following conclusion of privatization agreements.

Romanian law allows for the inclusion of confidentiality clauses in privatization and public-private partnership contracts to protect business proprietary and other information.  However, in certain high-profile privatizations, parliamentary action has compelled the public disclosure of such provisions.

8. Responsible Business Conduct

Romania adhered to the OECD Declaration on International Investment and Multinational Enterprise in 2004.  The government regularly sends representatives to the working sessions of the OECD Investment Committee and its Working Party on Responsible Business Conduct.  Romania established an OECD National Contact Point in 2005 to promote the OECD Guidelines for Multinational Enterprises. Romania’s investment promotion agency InvestRomania currently serves as the contact point.

Romania defines responsible business conduct (RBC) in its National Anticorruption Strategy (NAS) as promoting a competitive business environment with integrity and implementing international standards and best practices in the public and private sector.  In June 2018, as part of the NAS cooperation meetings, the Ministry of Justice organized a roundtable with stakeholders on SOE integrity.

Several NGOs in Romania monitor, advocate, and raise concerns on RBC issues.  No high-profile cases of private sector impact on human rights were recorded in 2018.  Though, the National Council for Combating Discrimination (CNCD), the government agency responsible for applying domestic and EU anti-discrimination laws, imposed several fines on companies for discrimination against their own staff or prospective employees.  The cases involved gender-based discrimination and harassment over labor union membership and child care leave. The government has not fully implemented a law which prohibits discrimination against persons with physical, sensory, intellectual, and mental disabilities in employment, education, transportation, and access to health care.

Romania does not participate in the Extractive Industries Transparency Initiative (EITI), but is an adherent to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas since 2012.

9. Corruption

Romania’s fight against high and medium-level corruption, a model in Southeastern Europe over the past decade, has suffered significant setbacks in the past two years due to a concerted government campaign to weaken anti-corruption efforts and judicial independence.  Judicial institutions, NGOs, the EU, and North Atlantic Treaty Organization allied governments have all raised concerns about GOR legislative initiatives that further this trend. Some have been implemented, other scaled back or delayed. Romania was ranked 61 of 180 countries in Transparency International’s 2018 Corruption Perception Index, among the lowest ranked EU member states, still ahead of Bulgaria and Hungary.

The European Commission’s 2018 Report on Progress under the Cooperation and Verification Mechanism (CVM) in Romania, that measures progress in the area of judiciary reform and anti-corruption since 2007, stated that while in 2017 reform momentum was lost, in 2018 progress on reforms actually went backward, particularly in the areas of judicial independence and tackling high-level corruption.  As in previous CVM reports, Parliament is reported as the worst offender, with members adopting amendments that weakened conflict of interest rules and introducing “problematic or uncoordinated proposals” without consultation with stakeholders. Despite opposition from stakeholders and judicial leaders, and without any impact assessments, the government pushed through several judicial statutes, repeatedly challenged over constitutionality, which the judicial community feared would weaken judicial independence, professional standards, and quality.  In an April 2018 ad hoc report, the Group of States against Corruption (GRECO) warned the statutes will weaken judicial independence. A report by the Venice Commission adopted in March 2018 warned that proposed changes to the NGO legislative framework would place onerous reporting requirements on the civil society sector. Parliament also adopted a raft of amendments weakening the criminal code and criminal procedure code. Most of those changes were found unconstitutional by the Constitutional Court, but many could be resurrected in an altered form in an effort to meet constitutional muster.

The political and media campaign against the National Anti-Corruption Directorate (DNA) a source of particular ire for integrity challenged politicians, realized its objectives in 2018, with high level indictments and convictions falling off significantly from prior years.  The Chief Prosecutor of the DNA was dismissed in August 2018 and has not been replaced. Meanwhile a new prosecutor’s office, dedicated solely to prosecuting judges and prosecutors, was set up and has promptly shown signs of being politically influenced. Both the national cabinet and Parliament adopted codes of conduct, yet their overly general provisions have so far rendered them inconsequential.  Conflicts of interest, respect for standards of ethical conduct, and integrity in public office in general remained a concern for all three branches of government. Individual executive agencies were slow in enforcing sanctions, and agencies’ own inspection bodies were generally inactive. Changes at several key regulators’ and tax agencies’ leadership raised concerns of politicization.

Progress on the implementation of the national anti-corruption strategy for 2016-2020, which the previous government adopted in 2016, has been slow, especially as far as its prevention component is concerned.  The strategy focused on strengthening administrative review and transparency within public agencies, preventing corruption, increasing and improved financial disclosure, conflict of interest oversight, more aggressive investigation of money laundering cases, and passage of legislation to allow for more effective asset recovery.  The strategy includes an increased focus on corruption prevention, including education in civics and ethics for civil servants, a requirement for peer reviews of state institutions, stepped-up measures to strengthen integrity in the business environment, a significant decrease in public procurement fraud, and an increased role for ethics advisors and whistle-blowers.  There has been little action in these areas, especially on the prevention component. Absent political support from the top, the new National Agency for Managing Seized Assets (ANABI) has only made limited progress.

In March 2002, to reduce corrupt practices in public procurement, the GOR inaugurated a web-based e-procurement system, designed to provide a transparent listing of both ongoing and closed solicitations, with the names of the winners and the closing prices made available to the public.  In March 2018, the system moved to http://sicap-prod.e-licitatie.ro/pub.  The use of e-procurement has increased government efficiency, reduced vulnerability to corruption, and improved fiscal responsibility in government procurement.  State entities, as well as public and private beneficiaries of EU funds, are required by law to follow public procurement legislation and use the e-procurement system.  Sectorial procurements, including private companies in energy and transportation, also have to follow the public procurement laws and tender via the e-procurement website.

Romania implemented the revised Public Procurement Directives with the passage in May 2016 of four new laws to improve and make more transparent the public procurement process.  The National Agency for Public Procurement has general oversight over procurements and can draft legislation, but procurement decisions remain with the procuring entities. In October 2016, the “Prevent” IT system, an initiative sponsored by the National Integrity Agency for ex-ante check of conflicts of interests in public procurement, was signed into law.  The mechanism aims to avoid conflicts of interest by automatically detecting conflict of interests in public procurement before the selection and contract award procedure. The March 2019 EU Country Report for Romania points to limited progress on public investment prioritization and public procurement.

The laws extend to politically exposed persons, yet, at the same time, criticism of magistrates by politicians and in the media and lack of respect of judicial decisions remain frequent.  Laws prohibit bribery, both domestically and for Romanian companies doing business abroad. The judiciary remains paper based and inefficient, and Romania loses a number of cases each year in the European Court of Human Rights (ECHR) due to excessive trial length.  Asset forfeiture laws exist, but a functioning asset forfeiture regime remains under development. Fully 80 percent of cases in the court system are property related.

While private joint stock companies use internal controls, ethics, and compliance programs to detect and prevent bribery, since 2017 the government has rolled back corporate governance rules for state-owned enterprises and has repeatedly resorted to profit and reserves distribution in dividends to bolster the budget.  U.S. investors have complained of both government and business corruption in Romania, with the customs service, municipal officials, and local financial authorities most frequently named. The March 2019 EU Country Report for Romania, and reports from companies, point to concerns about corruption in the procurement of medical devices, and in the authorization and procurement of pharmaceuticals.  In environmental projects, the use of obsolete feasibility studies has resulted in favoring existing businesses already operating locally. In some cases, demands for bribes by low- to mid-level officials reach the point of harassment. For example, companies report demands for bribes when local infrastructure improvements are needed to facilitate business operations, especially for roads which are funded from the local budget.

Romania is a member of the Southeast European Law Enforcement Center (SELEC).  NGOs enjoy the same legal protections as any other organization, but additional protections are not provided to NGOs involved in investigating corruption.  Recent regulations have increased costs and administrative burdens for NGOs and reduced the pool of potential donors.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Romania is member of the UN Anticorruption Convention.  Romania is not a member of the OECD Anti-Bribery Convention.

Romania expressed interest to join the new anti-corruption working group of the Open Government Partnership initiative.

Resources to Report Corruption

Contact at government agency responsible for combating corruption:

National Anticorruption Directorate (DNA)
Str. Stirbei Voda nr. 79-81, Bucuresti
Telephone: +40 21 312 73 99
Email: anticoruptie@pna.ro
http://www.pna.ro/sesizare.xhtml?jftfdi=&jffi=sesizare

Contact at “watchdog” organizations:

Expert Forum
Strada Semilunei, apt 1, Sector 2, Bucuresti
Telephone: +40 21 211 7400
Email: office@expertforum.ro

Freedom House Romania
Bd. Ferdinand 125, Bucuresti
Telephone: +4021 253 28 38
Email: guseth@freedomhouse.ro

ORGANIZATION: Funky Citizens
Colivia, Pache Protopopescu 9
Telephone: +40 0723 627 448
Email: elena@funkycitizens.org

10. Political and Security Environment

Romania does not have a history of politically motivated damage to foreign investors’ projects or installations.  Nonetheless, anti-shale gas protestors invaded the site of a U.S. energy company’s exploratory well in October 2013, damaging the perimeter fence and some equipment.  Major civil disturbances are rare. During the February 2017 anti-government protests, and off and on since then some government leaders pointed to “multinationals” as among the orchestrators.  As of March 2019, there has been no tangible effect of this claim, and there has been no retribution taken against multinational companies by the government or protestors.

11. Labor Policies and Practices

Romania has traditionally boasted a large, skilled labor force at comparatively low wage rates in most sectors.  The labor pool has tightened in highly skilled professions, in particular the information technology and health sectors, due to emigration and a deteriorating primary and secondary education system that fails to adequately prepare many graduates, particularly in rural areas, for university.  The university system is generally regarded as good, particularly in technical fields, though foreign and Romanian business leaders have urged reform of outdated higher education curricula to better meet the needs of a modern, innovation-driven market. Payroll taxes remain steep. As a result, an estimated 25-30 percent of the labor force works in the underground economy as “independent contractors” where their salaries are neither recorded nor taxed.  Even for registered workers, underreporting of actual salaries is common.

The unemployment rate in Romania declined by 0.8 percent to 4.1 percent in 2018, but additional data show a shrinking labor supply.  At 69 percent in Q3 2018, the labor force participation rate, the portion of the working age population (15-64 years) who are employed or actively seeking employment remains among the lowest in the EU.  Romanian employers in the engineering, machinery, IT services, and healthcare sectors report difficulties in hiring and retaining employees, as Romania faces a shortage of medium- to high-skill workers. As Romania’s emigration crisis deepens, other industries including food service and construction also face worker shortages.  According to the World Bank, more than 23 percent of Romania’s working age population, just over 3 million people, live and work abroad. The overwhelming majority of these emigrants (88 percent) work in other EU nations, primarily Spain, Italy, Portugal, Germany, and the United Kingdom. Many emigrants are younger and more qualified than the remaining population, constraining the supply of skilled labor.  While the unemployment rate among youth aged 15-24 declined from 18.3 percent in 2017 to 16.2 percent in 2018, the number of young people neither in education, employment, nor training (NEETs) remains very high, despite a decline in 2017. Long-term unemployment affected 2.1 percent of the labor force in 2017 and 1.8 percent in 2018. Romania faces a shortage of healthcare staff as doctors and nurses continue to seek work abroad, motivated not only by the higher salaries, but also by the country’s antiquated medical system.  According to the Ministry of Education, 10,000 doctors have left Romania in the last two years.

The GOR lacks a comprehensive strategy to remedy labor shortages, despite having taken some steps in recent years to attract and retain talent.  Employees in some sectors have benefitted from fiscal incentives. For example, IT professionals are eligible for certain income tax exemptions. In addition, in December 2018, the GOR introduced an additional income tax and social contributions exemption for a period of ten years for employees in the construction sector.  The provision also introduced a specific minimum wage of RON 3,000 (USD 717) for construction workers. In 2017, the GOR adopted a unitary wage law to establish a more consistent framework for wages across the public sector. The law provided for a salary increase of at least 25 percent for most public sector employees; wages for some workers in the healthcare sector doubled in nominal terms as of March 2018.  Discussions with unions and businesses continue on the specific applications of the Unitary Wage Law.

The Labor Code regulates the labor market in Romania, controlling contracting, jurisdiction, and the application of regulations.  It applies to both national and foreign citizens working in Romania or abroad for Romanian companies. As an EU member state, Romania has no government policy that requires the hiring of nationals, but has annual work permit quotas for other, non-EU nationals.  For 2019, Government Decision No. 34/2019 established an annual limit of 20,000 new work permits, a substantial increase over 2018’s limit, initially set at 7,000 and raised mid-year to 15,000. Work permits are valid for one year and are renewable with an individual work contract.  Employers pay a EUR 100 (USD 113 or RON 473) tax for most foreign workers with the exception of seasonal workers and those present in Romania on student visas, for whom the tax is EUR 25 (USD 28 or RON 117). The GOR also reduced the cost of employing non-EU citizens. The amended legislation no longer requires employers to pay a minimum wage equivalent to the gross average wage.  Normal minimum wage law applies with the exception that highly skilled non-EU workers must receive at least twice the gross minimum wage. Foreign companies still resort to expensive staff rotations, special consulting contracts, and non-cash benefits.

Since Romania’s revolution in December 1989, labor-management relations have occasionally been tense, the result of economic restructuring and personnel layoffs.  Trade unions, much better organized than employers’ associations, are vocal defenders of their rights and benefits. Employers are required to make severance payments for layoffs according to the individual labor contracts, company terms and conditions, and the applicable collective bargaining agreements.  The Labor Code differentiates between layoffs and firing; severance payments are due only in case of layoffs. There is no treatment of labor specific to special economic zones, foreign trade zones, or free ports.

Romanian law allows workers to form and join independent labor unions without prior authorization, and workers freely exercise this right.  Labor unions are independent of the government. Unions and employee representatives must typically notify the employer before going on strike, and must take specific steps provided by law before launching a general strike, including holding discussions and attempting reconciliation with management representatives.  Companies may claim damages from strike organizers if a court deems a strike illegal. Labor dispute mechanisms are in place to mediate any conflicts between employers and employees regarding economic, social, and professional interests. Unresolved conflicts are adjudicated in court according to the civil code. The employee, employer, or labor union may initiate proceedings.  Several public-sector strikes took place in Romania during 2018, bringing doctors, nurses, teachers, civil servants, prison guards and local police officers to the streets. They sought higher pay, better working conditions, and sufficient staffing, especially in the healthcare sector, in which staff often work excessive overtime due to personnel deficits.

Union representatives alleged that few incidents of antiunion discrimination are officially reported because it is difficult to prove legally that employers laid off employees in retaliation for union activities.  The government has generally respected the right of association, and union officials state that registration requirements stipulated by law were complicated, but generally reasonable. The current law permits, but does not impose, collective labor agreements for groups of employers or sectors of activity.  Collective bargaining is used for companies with more than 21 employees and provides for written agreements between employees and the employer or employer’s association. According to the Ministry of Labor, companies and employees had finalized 8,839 collective labor agreements as of the third quarter of 2018.  Since 2014, parliament has periodically considered a bill to reintroduce collective bargaining at the national level, a practice that previously established minimum pay and working conditions for the entire economy but eliminated in 2011 by the new Social Dialogue Act.

As an EU and International Labor Organization member state, Romania observes international labor rights.  The law prohibits all forms of forced or compulsory labor, but enforcement is not uniform or effective. As penalties are insufficient to deter violations, reports indicated that such practices continued to occur, often involving Roma, disabled persons, and children.  The minimum age for most forms of employment is 16, but children may work with the consent of parents or guardians at age 15, provided the tasks correlate with their abilities. Employment in harmful or dangerous jobs is forbidden for those under the age of 18; the government maintains a list of dangerous jobs in which the employment of minors is restricted.

Romania does not waive or derogate labor laws and regulations to attract or retain investments.  Since 2011, employers have had more flexibility to evaluate employees based on performance and hiring and firing procedures have been significantly relaxed.  The main objective for Romania’s national labor strategy for 2014-2020 is the development of an efficient, dynamic, and flexible workforce. Romania aims to ensure that, by 2020, 70 percent of people aged 20-64 will have access to a quality job which rewards them based on their capacity and competence and ensures a decent standard of living.

The minimum wage has nearly tripled in nominal terms since 2012, rising from RON 700 (USD 167) per month to RON 2,080 (USD 497) per month in 2019.  In addition, a government decision issued in December 2018 introduced a differentiated minimum wage, decreeing that employees with a university degree or 15 years of work experience must receive at least RON 2,350 (USD 569) monthly, 13 percent more than other minimum wage workers earn.  Despite these measures, Romania has the highest rate of employed persons at risk of poverty among EU member states at 17.1 percent. Conversely, despite significant productivity gains in recent years, which are catching-up from a low starting point, wage increases have been outpacing productivity growth since 2016.  This led to a marked acceleration of unit labor costs, which posted a 9.3 percent nominal increase in 2018 following an 8 percent increase in 2017.

In January 2017, the government removed the cap on social welfare contributions, imposing these mandatory payroll deductions for pensions, healthcare, and income taxes on employees’ entire gross salary.  In June 2017, the GOR passed the Unitary Wage Law with the dual aim to raise and standardize public sector salaries across the government, resulting in a 25 percent wage increase across the board for most public workers starting January 1, 2018.  As noted above, some sectors including health and education received larger increases, while some individual government employees saw a salary reduction resulting from standardization. In July 2017, the GOR announced that it would shift the burden of paying social contributions and payroll taxes, approximately 22.5 percent of salary, from employers to employees, effective January 1, 2018.  The measure applies to both the public and private sectors. Although not required by the law, many businesses voluntarily increased employee salaries to cover the cost of social contributions and avoid reductions in employees’ net pay. However, the rapid pace of change and the government’s tendency to change laws without consultation with the private sector has created an uncertain environment.  Some companies have preferred to temporarily offer monthly bonuses rather than amend employee contracts to reflect higher gross wages, hoping to avoid problems in the event the law is changed again.

Separately, in a 2017 effort to curtail underreporting of work, the GOR increased the minimum required payroll taxes that employers must pay for their part-time employees to equal those for a full-time employee earning minimum wage.  Coupled with the change in the legal tax incidence of social contributions described above, the law had the unintended consequence that some employees owed more in social contributions than their monthly earnings. Subsequently, the GOR issued a government ordinance in February 2018 to allow part-time workers to pay social contributions for their actual gross income only, mandating that the employer make up the difference.

In 2018, the GOR passed new legislation clearly articulating the way the labor code applies to companies employing teleworkers, defining the distinction between teleworkers and employees who work fulltime from home.  In addition, a new law regulating internships established standards for the number of interns a company may hire, as well as contract length, minimum pay, and reporting requirements. The law creates a dedicated Internship Register under the supervision of the Local Labor Force Employment Agency.  Contract length may not exceed 720 hours or six months. Interns cannot work more than 40 hours per week and must receive wages equivalent to at least 50 percent of the gross minimum wage. Interns who are minors can work a maximum of 30 hours per week and six hours per day. Interns may not make up more than five percent of a company’s workforce.  Finally, a new law updated regulations affecting day laborers who work without labor contracts. Individuals cannot be employed as day laborers for more than 120 days per calendar year with the exception of those working in vineyards, seasonal animal rearing, or seasonal activities in university botanical gardens, for whom the limit is 180 days per year.  Workers may not serve as a day laborer for more than 25 consecutive calendar days without a labor contract. Laborers who violate this law are subject to fines of up to RON 2,000 (USD 478).

12. OPIC and Other Investment Insurance Programs

OPIC has been authorized to do business in Romania since the signing of the 1992 bilateral agreement.  OPIC-supported investment funds in Romania and Southeast Europe include the 2013 Treetops Capital Agribusiness Fund (Romania), and the 2012 Accession Mezzanine Capital (Poland, Romania, Bulgaria, Ukraine, and Czech Republic).  The 2009 OPIC-supported non-bank financial institutions in Romania included CAPA Finance, Verida Credit, and Express Finance. Third country governments do not provide significant investment financing or insurance to their firms in Romania to a level that makes it difficult for U.S. firms to compete.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source

National Statistics Institute (INS)

USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2018 $238.7B 2017 $211,900 http://www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical Source

National Office of the Trade Register (ONRC)

USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) End-2018  $1,132 2017 $3,620 http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2017 $85 http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm
Total inbound stock of FDI as % host GDP 2018 26.4%   2017 46.5% N/A


Table 3: Sources and Destination of FDI

FDI domestic data from the National Office of Trade Register are below CDIS and National Bank of Romania data.  Tax havens sources of inward FDI, i.e., Cyprus, are domestically reported as such, without mentioning the ultimate source as another possible country of origin.  The CDIS source does not report outward direct investments from Romania.

Direct Investment From/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment 2017 Outward Direct Investment: N/A
Total Inward 90,824 100% The CDIS source does not report outward direct investments from Romania.   
Netherlands 23,515 25.9%
Germany   11,619 12.8%
Austria  11,465 12.6%
Italy 5,675 6.2%
France 5,665 6.2%
“0” reflects amounts rounded to +/- USD 500,000.


Table 4: Sources of Portfolio Investment

Portfolio Investment Assets (June – 2018)
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries 4,577 100% All Countries 1,580 100% All Countries 2,997 100%
Luxembourg 870 19.0% Luxembourg 761 48.1% International Organizations 743 24.8%
International Organizations 743 16.2% Austria 352 22.3% Netherlands 392 13.1%
Austria 704 15.4% Germany 149 9.4% Austria 352 11.8%
Netherlands 402 8.8% Ireland 75 4.7% U.S. 223 7.4%
U.S. 256 5.6% France 66 4.2% UK 161 5.4%

Romania did not attract significant foreign direct investment (FDI) until after the 1990s, due to delays in post-Communist economic reforms.  According to data provided by the National Office of the Trade Registry, the cumulative net stock of FDI from January 1990 to December 2018 totaled USD 63.11 billion.  Romanian direct investments abroad from January to December 2018 totaled USD 2.36 million.

Major sectors for foreign investment include:

  • Automobile and automotive components (Renault, Daimler Benz, Ford, Siemens, Continental, Alcoa, Delphi Packard, Johnson Controls, Adient, Honeywell Garrett, Michelin, Pirelli);
  • Banking and finance (Citibank, Société Générale, MetLife, ING, Generali, Raiffeisen, Erste Bank, Unicredit, Alpha Bank,  Intesa Sanpaolo, Garanti Bank, Credit Agricole, Allianz, Fairfax, JC Flowers);
  • Information Technology (Amazon, Hewlett Packard, Adobe, Intel, Microsoft, Oracle, Cisco Systems, IBM);
  • Telecommunications (Orange, Deutsche Telekom, Telesystem International Wireless Services, Vodafone, Liberty Media/UPC);
  • Hotels (Hilton, Marriott, Best Western, Crowne Plaza, Accor, Ramada, Radisson, Sheraton);
  • Manufacturing (Timken, General Electric, Cameron, LNM, Marco, Flextronics, Holcim, Lafarge, Heidelberg, Plexus, Toro);
  • Consumer products (Procter and Gamble, Unilever, Henkel, Coca-Cola, PepsiCo, Parmalat, Danone, Lactalis);
  • Retail chains (Metro, Delhaize, Kingfisher, Dm Drogerie, Carrefour, Cora, Selgros, Auchan, Kaufland, Praktiker, Leroy Merlin).
  • Energy: Hunt Oil, Stratum Energy, Mazarine Energy, Sand Hill, Black Sea Oil and Gas, ExxonMobil.

According to Romanian Trade Registry statistics, the value of U.S. direct investment in Romania as of December 2018 was about USD 1.13 billion.  The U.S. is the 14th-ranked foreign investor nation after the Netherlands, Austria, Germany, Cyprus, Italy, France, Luxembourg, Spain, Greece, Czech Republic, Switzerland, UK and Hungary.  U.S. based investment represented 1.84 percent of Romania’s total FDI. As official statistics do not fully account for the tendency of U.S. firms to invest through their foreign, especially European-based, subsidiaries, the actual amount of U.S. FDI is higher.  Romanian statistics also over-emphasize physical, capital-intensive investments, while overlooking the impact of foreign investment in services and technology.

Significant U.S. direct investors (including investments made through branches or representative offices) include:

  • Advent Central and Eastern Europe – investment fund;
  • AECOM – engineering and design;
  • Adient – automotive;
  • Met Life – life insurance;
  • Alcoa – automotive, aluminum processing;
  • Bunge – grain trading;
  • Cargill – grain export and food processing;
  • Citibank – banking;
  • Coca-Cola – beverage, food;
  • Cooper Cameron – gas field equipment manufacturer;
  • Delphi – automotive parts;
  • EuroTire – mining and heavy equipment tires;
  • Flextronics – medical, telecom, automotive;
  • Ford – automotive assembly;
  • General Electric – diversified industrial products;
  • Hewlett Packard – IT equipment, services;
  • Hoeganaes – iron powder for automotive;
  • Honeywell – automotive;
  • IBM – IT equipment;
  • Intel – software development services;
  • JC Flowers – investment fund;
  • McDonald’s – food;
  • Microsoft – software services;
  • New Century Holding – investment fund;
  • Office Depot – office and business supplies;
  • Oracle – IT services, consulting;
  • Pepsico – beverage;
  • Philip Morris – tobacco products;
  • Procter and Gamble – consumer products;
  • Qualcomm – telecommunications;
  • Timken – industrial bearings;
  • Liberty Media UPC – cable television operator;
  • Visa – financial services;
  • URS – engineering;
  • Hunt Oil – oil and gas production;
  • Stratum Energy – oil and gas production;
  • Mazarine – oil and gas production;

In addition to these companies, the European Bank for Reconstruction and Development (EBRD) remains the single largest investor (debt plus equity) in Romania, with some USD 9.81 billion invested.  The United States is a 10 percent shareholder in the EBRD.

14. Contact for More Information

B-dul Dr. Liviu Librescu 4-6
Telephone: +40-21-200-3300
Email: InfoBuch@state.gov

2019 Investment Climate Statements: Romania
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