Romania WT/TPR/S/60
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I. ECONOMIC ENVIRONMENT1
(1) BACKGROUND
1. Romania's transformation to a market economy began in December 1989 in a very difficult
economic, social and political context, and in the absence of any previous history of market-based
economic reform.2  The communist regime in power throughout the post-war period had nationalized
land and industry, and instituted strict central control of economic decisions.  Drawing on Romania'sresources of arable land and primary energy inputs (coal, natural gas and oil), the regime emphasized
the development of energy-intensive heavy industries and self-sufficient agriculture.  Imports and
exports relied largely on the trade and payments arrangements under the Council for Mutual
Economic Assistance (CMEA).  Between 1979 and 1989, the regime entirely repaid Romania's
foreign debt by severely compressing imports, reducing consumption, and halting imports ofmachinery and equipment.  Romania thus entered th e transition with a largely obsolete capital stock.
2. At the time of its first Trade Policy Review in December 1992, Romania was in the full throes
of a recession.
3  Between 1989 and 1991, real GDP declined by over 20%.  Real consumption
expenditures rose sharply in 1990 due to the partial release of pent-up demand, increased real wages
and higher government expenditures.  Expansionary monetary and fiscal policies (the budget surplusswung from surplus to deficit in 1991), in a period when output was declining, drew in imports, and
the current account deficit widened sharply.  The deficit was financed mainly by external debt, as
foreign investment inflows were low.
3. Romania had also initiated the process of structural reform at the time of its first Review.  It
had liberalized trade, partially liberalized domestic prices, and established in May 1992 a
market-driven exchange rate;  in addition, steps had been taken to shift the basis of Romania's
economy from state-owned enterprises to the private sector, in particular by establishing theregulatory foundations for a market economy, opening the economy to foreign investment, and
initiating state-owned enterprise restructur ing.  State-owned enterprises either became
regies autonomes  in sectors considered to be "strategic", such as utilities, mining, telecommunications
or commercial companies, slated for privatization.  In these circumstances, participants at the first
Review urged Romania to pursue macroeconomic stabilization and carry through on structural reform.
4. The underlying pressure for adjustment in Roma nia's state-owned enterprises was exacerbated
by the collapse of the trade and payments arrangements within the CMEA.  Such markets were the
traditional destinations for Romania's exports of energy-intensive products, which were essentially
bartered for imports of energy.  Consequently, the Secretariat's Report for the first Review noted that
"one of the major challenges for Romania in the years to come will be to restructure and modernizeindustries, according to market signals (which may imply closure of some), and to develop
internationally competitive exports among sectors that were previously reliant on CMEA trading
arrangements".
4  To support the transition to a market economy, Romania's principal trade policy
objectives were further liberalization, balance-of-payments equilibrium, the full integration of
                                                     
1 Based mainly on information provided by the Romanian authorities, IMF (1997), IMF (1998) and
OECD (1998).
2 For a discussion of Romania's "immiserising-growth" of the 1980s, see Daianu (1994a).
3 GATT (1993), Vol. I, pp. 15-19.
4 GATT (1993), Vol. I, p. 20.WT/TPR/S/60 Trade Policy Review
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Romania into the world trading system and participation in European regional and sub-regional
arrangements.5
(2) RECENT ECONOMIC DEVELOPMENTS
(i) Macroeconomic indicators
5. A feature of Romania's transition was the early recovery of merchandise exports, in
mid-1992, in spite of the more difficult external environment, providing the basis for a recovery inincome of 17% between 1993 and 1996 (Table I.1).
6  Real net exports rose 12.4% in 1993 and 11.5%
in 1994.  An analysis by the IMF has shown that this strong export growth was accounted for mainly
by state-owned enterprises rather than the emerging private sector.7  The absence of wage discipline
on such enterprises allowed the well-organized indus trial workforce to secure substantial real wage
increases;  between December 1994 and December 1996, real wages in industry rose by 36%.
6. This real wage growth, together with a progressively overvalued exchange rate, fuelled an
import boom;  in 1995, imports rose from US$6.5 bill ion to US$9.5 billion, an increase of 45%.  The
dramatic fall in net merchandise exports in 1995 led to a merchandise trade deficit of US$1.6 billion.
Thus, the sharp recovery of industrial production in 1993-94 was followed by a deteriorating external
account in 1995-96;  the current account deficit incr eased from 1.7% of GDP in 1994, to 4.9% in 1995
and 6.6% in 1996.  Romania financed the deficit by drawing down reserves and accumulating external
debt, as the level of foreign direct investment remained low.  Romania's external debt thus increased
by 50% in 1995 and 1996.
7. After the change of Government in the 1996 elections, Romania embarked on a programme of
macroeconomic stabilization, supported by multilateral financial institutions.  Fiscal and monetary
policies were tightened substantially.  Real GDP contracted by 6.9% in 1997, domestic consumption
by half that rate and domestic investment by double that rate.  Net exports rose in 1997 and thecurrent account deficit fell slightly.  However, th e political resolve to sustain the stabilization
programme weakened in the fall of 1997, and looser monetary and fiscal policies prevailed.  The rate
of inflation for the year as a whole was 155%, partly reflecting the one-off price level jumps
associated with further price de-controls in early 1997.
8. Policy priority shifted in 1998 to curbing inflat ion.  To give credibility to this effort, the
exchange rate was used as an external anchor fo r price stability, with the authorities permitting a
controlled depreciation of the national currency of 1-2% per month.  The much tighter monetary
policy helped to bring inflation down from 5% a month in early 1998 to 1% a month in August.  In
combination with a fiscal policy that was unexpectedly expansionary, real interest rates rose sharply,
contributing to a continued sharp decline in GDP, down by 7.3% in 1998.  The real appreciation of thenational currency – up 18% in the first eight months of 1998 – increased the attractiveness of
imported goods, while exports stagnated, lifting the current account deficit to US$2.9 billion.  As an
emergency measure to stem the growing deficit, Romania introduced a surcharge of 6% on the
majority of imports in October 1998.  This measure was reduced to 4%, was notified to the WTO and
was the subject of consultations in the WTO Committee on Balance-of-Payments Restrictions in
                                                     
5 GATT (1993), Vol. II, p. 29.
6 Daianu (1994b).
7 IMF (1997), p. 18.  The six traditional branches of Romania's industry – food, metallurgy, electricity
production, petroleum processing, chemicals, and machines and equipment – accounted for some 60% of
industrial output and of exports in 1993-96.Romania WT/TPR/S/60
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February 1999, which concluded that Romania was in conformity with its obligations under
Article XII (balance-of-payments restrictions) of GATT 1994.
Table I.1
Selected macroeconomic indicators, 1992-98
1992 1993 1994 1995 1996 1997 1998
Real economy (change in %)
  Real GDP -8.8 1.5 3.9 6.9 3.9 -6.9 -7.3
  Real domestic demand
     Private consumption -7.5 0.9 5.0 17.0 11.1 -3.0 -6.0
     Gross fixed investment -12.2 -3.0 -1.7 0.5 -3.5 -14.4 -13.5
  Real  net exports -21.0 12.4 11.5 -82.4 -19.8 21.0 -34.4
CPI (end-year) 199.2 295.5 61.7 27.8 56.9 151.4 40.6
GDP deflator 199.9 227.3 139.0 35.3 45.3 147.6 45.9
Industrial production -21.9 1.3 3.3 9.4 6.3 -7.2 -17.0
Employment (millions) 10.5 10.1 10.0 9.5 9.4 9.0 10.0
Unemployment rate (end-year % of labour force) 7.4 9.5 10.9 8.9 6.3 8.8 ..
Public finance (% of GDP)
  Balance -4.6 -0.4 -1.9 -2.6 -4.0 -3.6 ..
  Revenue 37.4 33.9 32.1 31.9 30.1 30.7 ..
  Expenditures 42.0 34.2 33.9 34.5 34.1 34.3 ..
Money and credit (end of year, % change)
  Domestic credit 34.6 139.7 115.4 89.5 80.8 50.8 71.4
  Broad money (M2) 79.6 141.0 138.1 71.6 66.0 104.9 48.9
Current account (US$ million) -1,518 -1,239 -516 -1,732 -2,611 -2,159 -2,926
Exports (US$ million)
  Goods 4,286 4,882 6,067 7,882 8,061 8,431 8,302
  Services 683 799 1,132 1,510 1,626 1,706 1,217
Imports (US$ million)
  Goods 5,659 6,012 6,550 9,487 10,555 10,411 10,927
  Services 939 1,122 1,460 2,006 2,336 2,464 1,871
Capital account (US$ million) 1,454 1,412 1,294 1,298 1,997 3,004 2,279
  FDI (net in US$ million) 73 97 347 404 456 1,267 2,079
Reserves in convertible currencies
  US$ billion 837 996 2,086 1,579 2,103 3,803 2,867
  Months of merchandise imports 1.5 1.7 3.2 1.7 2.1 3.7 2.7
Gross external convertible currency debt (end-year in US$ million) 3,240 4,249 5,563 6,482 8,345 9,503 9,658
Exchange rate (annual average) 308 760 1,655 2,033 3,083 7,168 8,876
CPI real effective rate (1991 = 100) 125.0 182.5 185.1 159.9 166.2 193.6 201.6
.. Not available.
Source : Data provided by the Romanian authorities and IMF (1998).
9. In autumn 1998, the IMF expressed doubts about the sustainability of Romania's
macroeconomic policy mix8, a view which also gained ground in international capital markets.  One
third of Romania's total external debt, of US$9.6 billion at the end of 1998, was subject to repayment
                                                     
8 "IMF concludes Article IV Consultation with Romania", Public Information Notice (PIN) No. 98/79,
6 October 1998 [Online].  Available at http://www.imf.org [14 May 1999].WT/TPR/S/60 Trade Policy Review
Page 4
or rescheduling in 1999, much of it by the end of the first half of the year;  the management of the
debt in 1999 was expected to be difficult given Romania's weak external position.  According to the
authorities, Romania's debt service was some 20% of exports in 1998.  Possibly combined with the
turmoil in international capital markets as a result of the Asian financial crisis, these developments led
to the downgrading of Romania's credit worthiness by major rating agencies.  In this context,
Romania made a renewed attempt at stabilization by targeting a reduced budget deficit of 2.5% in the1999 Budget, down from 4% in 1998.
(ii) Monetary and exchange rate policy
10. The principal mechanisms of support to (mainly) state-owned enterprises during the period of
recovery in 1993-96 appear to have been fiscal and quasi-fiscal subsidies.
9  Such enterprises
continued to operate in spite of their declining competitiveness (wage growth exceeded labourproductivity growth) and the sharp deterioration of their financial condition, as evidenced by the
accumulation of arrears to suppliers, of arrears in wage tax and social security contributions to the
budget, and of interest and loan payments to the ba nks.  Fiscal measures of support included direct
transfers from the budget, and the periodic bail-out of loss-making enterprises, and quasi-fiscal
measures consisted of two principal mechanisms of support:  the National Bank of Romania providedloans at highly subsidized interest rates to enterprises in agriculture, and the subordination of
exchange rate policy to the goal of supporting energy-intensive industries.
11. Subsidized loans were provided by the National Bank of Romania to Banca Agricola, the
state-owned bank financing activity of the state-owned enterprises in the agricultural sector, as well as
privately owned agricultural enterprises.  Given the large volume of non-performing loans of
state-owned enterprises in agriculture, such assistance could be considered to constitute not so much a
subsidized loan as an unrequited transfer.
10  These loans became a major cause of monetary policy
instability in 1991-96, derailing annual targets for monetary growth.
12. The interruption of foreign exchange market liberalization in 1996 is explained by the need to
provide support to energy-intensive industries.11  Following the elimination of temporary surrender
requirements in 1992, the foreign exchange market was further liberalized in 1994 by the licensing of
banks to deal in foreign exchange, resulting in th e development of a direct-dealing interbank foreign
exchange market;  foreign banks were permitted to obtain licences in 1995.  Faced however with a
sharp depreciation of the currency, the National Bank of Romania (temporarily) revoked the licences
of all private banks in March 1996 – only state-owned banks retained their licences – and instituted a
(virtually) fixed exchange rate.  This action appear s to have been mainly designed to alleviate the
pressure on state-owned energy-intensive industries, since it effectively foreclosed domesticenergy-price increases.  The overvalued rate in 1996 (implicitly) taxed exports and subsidized
imports, an important component of which was energy (Chart I.1).
12
                                                     
9 IMF (1997), p. 62.
10 IMF (1997), p. 9.
11 IMF (1997), p. 53.
12 In 1991-96, primary energy inputs accounted for some 20% of Romania's imports, a legacy of the
development under central planning of energy-intensive industries on the basis of a distorted energy pricepolicy.  In 1994-96, state-owned enterprises accounted for some 80% of industrial employment.  As the
financial condition of such enterprises deteriorated in 1995-96 due to low capacity utilization or inventory
build-up, arrears accumulated to regies autonomes  supplying energy inputs.Romania WT/TPR/S/60
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80.0100.0120.0140.0160.0180.0200.0220.0240.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4-50.0-40.0-30.0-20.0-10.00.010.020.030.0Chart I.1
Real effective exchange rate index and quarterly changes, 1992-98
Index December 1991 = 100 Per cent
Source : Data provided by the Romanian authorities.1992 1998 1993 1994 1995 1996 1997Percentage annual change (right scale)Real effective exchange rate
 (left scale)
13. In addition to supporting (mainly) state-owned enterprises in industry and agriculture, rather
than restructuring them to achieve competitivene ss, these quasi-fiscal subsidies were the cause of
macroeconomic instability.  The IMF indicates for 1991-96 that Romania's "high and variable rates of
inflation and the frequent balance-of-payments crises since 1991 have mainly resulted from monetary
and exchange rate policies being geared to covering large losses in the agricultural and
energy-intensive enterprises, losses that had their or igin in the failure to advance reform of these
sectors".13  Thus, two key features of the macroeconomic stabilization programme of 1997 were the
cessation of the practice of direct loans by the National Bank of Romania to focus monetary policy on
price stability, and the liberalization of the foreign exchange market.  The National Bank reinstated
the licences of private banks to deal in foreign exchange.  Romania accepted Article VIII of the IMF
Articles of Agreement in March 1998, liberalizing payments and transfers on the external currentaccount;  capital account convertibility is a longer-term objective.
(iii) Fiscal policy
14. Romania began the transition with a budget surplus, which gave way to consecutive annual
budget deficits starting in 1991.  The level of the deficit has varied considerably from year to year,
reflecting Romania's difficulty in collecting taxes as the transition to a market economy progresses,
and periodic attempts to tighten fiscal policy to bring expenditures into line with revenues.  Fiscal
policy is burdened by subsidy-support of state-owned enterprises in industry and assistance to
                                                     
13 IMF (1997), p. 11.WT/TPR/S/60 Trade Policy Review
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agriculture, as well as investment programmes to prepare enterprises for privatization or the issuance
of government-backed securities to re-capitalize banks or forgive accumulated arrears;  the financing
of social safety nets and infrastructure restoration or improvement projects has consequently been
compromised.  However, Romania improved the transparency of assistance by shifting to on-budget
forms of support in 1997.  Thus, although the deficits in 1997 and 1998 were approximately the same
as in 1996, at 4% of GDP, these deficits covered al l forms of government assistance, except for the
unforeseeable extent of the forgiveness of enterprise arrears.
15. In 1997 and 1998, fiscal policy exhibited a pronounced stop-and-go pattern due to a
consistently over-optimistic projection of collected revenues.  In 1998, anticipated revenue targets
were undershot by mid-year, requiring a significant tightening of expenditures in the second half of
the year, to bring the deficit within the initial target of 4% of GDP.  In assessing the 1998 policy mixin the context of a rising current account deficit, the IMF was of the view that a fiscal tightening was
required to reduce the deficit in 1999 and prevent a third year of recession, suggesting that a better
fiscal balance could be achieved by a significant increase in tax revenues.
14
16. In Romania, the main sources of funds to finance expenditures are taxes on commercial
companies (24%), customs duties, excise taxes and VAT (38%), and social security contributions(26%);  additional one-off sources of funds are privatization receipts.
15  Taxes on commercial
companies include a tax on wages, which Romania intends to replace with a personal income tax in
2000.  The shift will widen the tax base to include persons unofficially at work, whose contribution to
total economic activity is officially estimated at some 25%, but could be as high as 60%.  The taxation
of persons, rather than the companies' wage bill s, will also permit the introduction of other forms of
taxation, such as taxes on personal financial wealth, income therefrom and so forth.
17. Various forms of tax relief limit the revenue raised by the Government from commercial
companies, and also distort economic activity.  Tax holidays or exemptions to the payment of customs
duties, excise taxes or VAT on imported products are available to enterprises under a large number of
laws and regulations.  Particularly noteworthy are investment incentives (Chapter III(4)(ii)).  The
authorities concede that "the vast number of exemptions granted to different lobbies", together with
relatively low levels of rates of (direct) taxation and problems of revenue collection explain therelatively low share of tax revenues in GDP (34.3% in 1997) compared to other transition
economies.
16  Improving tax collection and limiting the scope of tax evasion is also a goal of
Romania.
(3) MAIN STRUCTURAL DEVELOPMENTS17
(i) Trade liberalization
18. Participants at the first Review in December 1992 had congratulated Romania on the basic
reform of the trade regime since 1989 – both the end of the State's monopoly on trade and the use of
the customs tariff as the main instrument of co mmercial policy.  Romania anchored this initial
progress in trade liberalization in the WTO in the form of tariff bindings on all products;  applied
MFN rates in 1998 were well below bound rates, particularly on agricultural products.  Preferencesapply under free-trade agreements with the European Union and other regional trade partners.
                                                     
14 "IMF concludes Article IV Consultation with Romania", Public Information Notice (PIN) No. 98/79,
6 October 1998 [Online].  Available at http://www.imf.org [14 May 1999].
15 Government of Romania (1998a), p. 64.
16 Government of Romania (1998a), p. 82.
17 Covered in detail in Chapter III.Romania WT/TPR/S/60
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19. In mid-1995, Romania implemented the results of the Uruguay Round for agricultural
products by applying the levels of MFN tariff rates bound in Schedule LXIX.  Substantial reductions
were made on a temporary basis in 1997, and were largely maintained in 1998 and 1999, bringing the
simple average MFN tariff on agricultural products down to 33.9% in 1999, compared to a bound rate
of 134.1% according to Schedule LXIX.  On non-agricultural products, applied rates remained steady
at 16% throughout the period under review, well below the bound level of some 35%.  Romania liftedall remaining bans and quantitative restrictions on exports as of 1 January 1998, replacing them with
automatic licensing for statistical purposes.
20. To support the transition to a market economy, the paramount national goal of Romania is
accession to the European Union (EU), its most important trading partner.  The European
Commission recommended in its Opinion of July 1997 that accession negotiations be opened oncemore progress had been made by Romania towards satisfying the conditions of membership.
Generally accepting this Opinion, Romania intends to accelerate the pace of political and economic
reform, as well as the transposition of the acquis into domestic law, to attain the objective of
membership with the shortest delay.  Romania's pr ogress to complete the regulatory framework for a
market economy was spurred in many areas by the request for accession.
(ii) Price liberalization
21. There has been a significant liberalization of prices during the period under review.  At the
time of the first Review in 1992, the Government's Report noted the start of price liberalization in
1990, followed by subsequent reforms in 1991 and 1992, estimated to have freed 71% of prices in the
economy.
18  Remaining administered prices concerned those subsidized for social reasons (e.g., bread,
sugar, milk, butter, electricity and heating power), and prices or fees set by the regies autonomes  or
state-owned enterprises in certain sectors (e.g., electricity and heating power, basic telecom services,coal, crude petroleum, ores, steel, wood, and food products).
19  In 1998, in contrast, the number of
administered prices were far fewer, consisting mainly of electricity and heating power, basic telecom
services and products of the mining industry.
(iii) Foreign investment
22. The Government's Report for the first TPR in 1992 had noted Romania's liberal regime for
foreign direct investment, containing guarantees against nationalization or expropriation without
sufficient compensation, and an incentive with a customs duty component and a profits tax holiday.20
Romania had noted the policy of actively attracting foreign direct investment as domestic needsexceeded available capital resources.  Foreign direct investment however played only a minor role in
Romania's transition between 1989 and 1996, with levels becoming more significant only in 1997 and1998.  The authorities report that the total level of foreign direct investment between December 1990
and December 1998 was US$3.6 billion, of which two thirds came in 1997-98.
23. Several factors may explain the recent upsurge of interest in Romania on the part of foreign
direct investors.  The investment regime has been liberal since the start of the transition, and
Romania's location is attractive (e.g., a large domestic market, proximity to the EU linked by afree-trade agreement, low unit labour costs).  Since the 1996 elections, Romania has accelerated
privatization (Chapter IV(2)), recognized to be a magnet for foreign investors, who have helped
restore competitiveness by new capital, technology and management techniques.  Romania has also
                                                     
18 GATT (1993), Vol. II, p. 38.
19 GATT (1993), Vol. II, Annex 17, pp. 125-129.
20 GATT (1993), Vol. II, p. 47.WT/TPR/S/60 Trade Policy Review
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taken steps to address possible features of its economic environment that may discourage investment.
Key developments are current account convertibility and the principle of equality between foreign and
domestic investors.  As of mid-1999, the incentive was available to investments in oil and gas
exploration, "disadvantaged" regions or to certain investments of at least US$50 million with a major
impact on economic activity.  Other developments of note are the improvements in the regulatory
regime for private sector development, includin g the framework for the protection of intellectual
property rights.
(iv) Privatization21
24. The privatization of state-owned enterprises effectively began in 1995, when a portion of the
shares in state-owned enterprises in industry and services were successfully distributed to citizens.
The remaining shares held by the State were designated to be sold to domestic and foreign investors,but the process lagged;  as of the end of 1996, just 20% of planned privatization had been completed.
Without the discipline of the market, the financial condition of state-owned enterprises deteriorated
sharply, both in absolute terms and in relation to other Central and Eastern European countries.
22
25. The new coalition Government, established after the elections in November 1996, announced
an ambitious schedule of privatization, coupled with measures to impose financial discipline onloss-makers.  Several major loss-making state-owned enterprises were closed, accompanied by
redundancy payments to laid-off workers.  However, the political resolve of the coalition Government
to carry through the process of restructuring state-owned enterprises weakened towards the end of
1997, and results for the year as a whole were below expectations.
26. A renewed attempt to accelerate privatization was made in 1998, a year in which the level of
share capital that was privatized was the highest ever achieved by Romania since the transition began.
Stakes in several large state-owned enterprise s, including two banks and the national telecom
operator, were sold to foreign investors;  these sales also boosted foreign direct investment to a
historic high.  The more positive momentum on privatization appears to have been sustained into
1999, with the sale of a refinery, two more bank privatizations, and the sale agreement for the most
important domestic car company.  Financial discipline also improved as the number of state-owned
enterprises subjected to bankruptcy proceedings expanded sharply.
(4) O
UTPUT AND TRADE TRENDS
(i) Sectoral composition of output
27. Given the initially gradualist approach to th e restructuring of state-owned enterprises in
industry, it is perhaps not surprising that the changes in the composition of Romania's GDP were
relatively modest during the period under review.  The shares of agriculture and industry in GDP have
declined in favour of services and consumption (T able I.2).  Furthermore, the change in ownership
structure – from state-owned to the private sector – has also been lower in industry than in services or
agriculture (Table I.3).  Private sector ownership accounted for about 45% of industrial production in
1998, compared to 55% for state-owned enterprises.  At the same time, the latter accounted for 75%
of industrial employment, compared to just 25% in the private sector.  The difference in labourproductivity between the state-owned enterprises and th e private sector – a factor of at least 2.5 –
indicates the dichotomy that exists in Romania's economy between the traditional basis for industrial
activity in state-owned enterprises and the dynamism of the emerging private sector.
                                                     
21 Covered in detail in Chapter IV.
22 Pohl et al. (1997).Romania WT/TPR/S/60
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Table I.2
GDP by origin, 1992, 1997 and 1998
(Per cent)
1992 1997 1998
Agriculture and forestry 19.0 18.1 16.0
Industry 38.3 35.5 31.7
Construction 4.8 5.3 5.2
Transportation and communication 8.5 10.7 10.4
Commerce, tourism, hotels and restaurants 14.3 9.9 12.1
Services 12.6 11.8 14.1
Financial, banking and insurance 5.3 1.3 1.2
Source: Data provided by the Romanian authorities.
Table I.3
Private sector ownership in GDP sectors and selected activities, 1992-98(Per cent)
1992 1993 1994 1995 1996 1997 1998
A g r i c u l t u r e 8 28 48 98 99 09 2 9 0
Industry 12 17 23 29 39 43 45
Construction 21 27 52 58 69 72 71
Services 19 29 39 58 67 71 72
Total private sector share of GDP 26 35 39 45 55 58 58
Source: Data provided by the Romanian authorities.
28. Labour productivity is low in agriculture.  The latest figures, for 1997, indicate that
agricultural activity accounted for approximately 42.3% of the active labour force – 3.8 million of a
total 9.0 million – compared to just 19% of GDP.  The passage of control of agricultural land into
private hands early in the transition resulted in the establishment of millions of family farms, engagedmainly in production for their own consumption.  More  efficient structures of agricultural production
would make an important contribution to Ro mania's economic growth (Chapter IV(3)(i)).
29. During the period under review, the service sector has experienced an important shift from
state ownership to private ownership, from 19% in 1992 to 72% in 1998.  This development is partly
due to the relatively successful effort to privat ize small and medium-sized enterprises – hotels,
restaurants and tourism operators – as well as the development of services linked to domestic and
international trade.  In financial services and telecom services, Romania has successfully privatized
stakes in state-owned enterprises, and the likely c ontinuing trend of such privatizations in the future
will complete the transfer of services to private sector ownership.
(ii) Composition of trade
30. The shifting composition of trade during the period under review again reflects the dichotomy
in Romania's economy between the traditional basis fo r industrial activity in state-owned enterprises
and the dynamism of the emerging private sector.  The most significant change in exports is the rising
share of textiles, clothing and footwear – from 12.2% of exports in 1992 to 33.3% in 1998 – mainly at
the expense of mineral products, chemicals and transport equipment (Table I.4).  A similar shift is in
evidence on the import side;  textiles and clothing increased its share of imports from 9% in 1992 to
15.4% in 1998 (Table I.5).  The dynamism and importance of two-way trade in this branch ofindustrial activity is explained by the reliance of the Romanian industry – composed largely ofWT/TPR/S/60 Trade Policy Review
Page 10
privately owned small and medium-sized enterprises – on outward processing of garments, mainly for
companies in Italy, Germany and France (Chapter IV(3)(ii)).
Table I.4
Composition of exports, 1992-98
(Per cent)
1992 1993 1994 1995 1996 1997 1998
Live animal and animal products 4.2 3.3 3.6 2.1 1.9 2.4 1.1
Vegetable products 1.1 1.2 1.0 2.6 4.6 1.9 2.2
Fats and animal or vegetable edible oils 0.2 1.3 0.8 1.0 0.9 1.5 0.9
Foodstuffs, beverages, tobacco 1.1 1.0 1.1 0.9 1.3 1.2 1.1
Mineral products 13.1 11.7 11.6 9.2 8.6 7.6 6.1
Chemicals 9.7 7.0 7.9 9.1 8.5 6.6 4.1
Plastic, rubber and articles 2.0 1.7 2.3 2.6 2.4 2.2 2.1
Wood products, cork, and wattles 3.5 3.6 3.6 3.3 3.6 4.0 4.6
Textiles and textile articles 10.4 16.0 18.8 19.8 21.4 23.0 26.0
Footwear 1.7 3.3 5.0 5.4 6.2 6.4 7.3
Articles of stone, cement, ceramics, glass, etc. 2.0 2.0 1.8 1.9 1.9 1.8 1.9
Basic metals and articles thereof 16.8 19.6 17.3 18.2 15.7 18.5 19.1
Machinery, appliances, and electrical equipment 11.6 9.0 8.4 8.3 8.3 8.7 9.5
Transport equipment 10.8 8.3 6.4 5.4 5.4 5.3 5.1
Other 11.8 11.0 10.4 10.2 9.3 8.9 8.9
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: Data provided by the Romanian authorities.
Table I.5
Composition of imports, 1992-98(Per cent)
1992 1993 1994 1995 1996 1997 1998
Live animal and animal products 1.4 1.0 1.4 1.3 0.6 0.6 1.8
Vegetable products, cereals 6.9 7.3 2.0 1.5 1.5 1.5 1.9
Foodstuffs, beverages, tobacco 7.1 6.1 5.5 5.7 5.3 4 4.4
Mineral products 32.4 28.7 26.8 24.2 23.5 21.3 14.2
Chemicals 6.6 7.8 7.9 9.0 8.6 8.3 8.7
Plastic, rubber and articles 2.9 3.1 3.2 3.8 3.9 3.9 4.3
Crude hides and skins, leather, furs, etc. 1.2 1.7 2.1 2.1 2.3 2.5 2.6
Textiles and textile articles 9.0 10.1 11.4 11.8 11.7 13.9 15.4
Footwear 0.7 0.7 0.9 1.0 1.1 1.4 1.7
Basic metals and articles thereof 4.3 4.3 4.9 5.3 6.2 5.9 6.7
Machinery, appliances, and electrical equipment 14.6 17.6 20.4 20.6 21.9 23.0 23.0
Transport equipment 4.7 4.3 4.7 3.9 3.6 3.4 4.1
Other 8.2 7.3 8.8 9.8 9.8 10.5 11.2
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: Data provided by the Romanian authorities.
31. One feature of Romania's changing composition of imports during the period under review is
the declining share of mineral (notably energy) products, from 32.4% in 1992 to 14.2% in 1998.  In
value terms, Romania's import bill for mineral products remained largely unchanged until 1998, whenRomania WT/TPR/S/60
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a significant decline occurred, from over US$2 b illion to US$1.5 billion, due in part to declining
world market energy prices.  Another significant fe ature of the evolution of imports is the rising
expenditure on imports of capital goods and consumer electronics – in the category of machinery and
equipment – which now account for 23% of imports, up from 15% in 1992.
32. Although there has been change in the composition of Romania's trade during the period
under review, further change is likely as the shift to the private sector of state-owned enterprises
continues.  In particular, for the period 1992-96, it appears that the contribution of state-owned
enterprises to the recovery of exports was due in part to support by fiscal and quasi-fiscal subsidies,
the latter practices having ended in 1997.23  In certain sectors, however, Romania intends to continue
to support the domestic industry, even as it shifts to the private sector.  One recent example is the
incentive granted to Dacia, the most important domestic car company, in the context of thepreliminary sale agreement concluded with Renault.
24
(iii) Direction of trade
33. At its first Review, the effect of the collapse of trade among the members of the CMEA on
the direction of Romania's trade had already been noted.  The European Communities had replaced
the former Soviet Union as Romania's most important trading partner, both with respect to exportsand imports.  In 1992, the EC accounted for 35% of Romania's exports (although the value of exports
to the EC declined) and for 41% of Romania's imports;  the leading sector in bilateral trade was
textiles and clothing.  By 1998, this trend had continued, with the (now 15 members) European Union
accounting for some 65% of Romania's exports and 58% of its imports (Table I.6).  Well behind is the
United States, Romania's second leading trade partner on the export side (3.9%) and the Russian
Federation, Romania's second leading trade partner on the import side (9%).  It is important to note, in
interpreting these figures and their significance to Romania's other trade partners, that both Romania'sexports and imports have virtually doubled during the period under review.
(5) O
UTLOOK
34. Romania has made a renewed attempt at achieving stabilization by targeting a reduced budget
deficit of 2.5% in the 1999 Budget, an essential step to improving Romania's weak external position.
In order to achieve this target, which is two thirds of the deficit of 1998, the authorities recognize thatvery tight control of expenditures is needed in combination with new measures to raise revenues;  the
scope for difficult economic policy decisions is limited by the presidential and parliamentary elections
scheduled for November 2000.  In the past, control of expenditures has posed particular problems as
unanticipated claims on the State arose from the restructuring of state-owned enterprises.  In 1999, the
authorities plan to continue privatization in order to improve the underlying context for theformulation of fiscal policy.  The authorities expect the fiscal tightening to reduce the current account
deficit to 5.5% of GDP, down from 7.2% in 1998;  GDP is expected to decline by some 4%, and
inflation is expected to remain modest.
35. Superimposed on the continuing need for macroeconomic stabilization and structural reform
in Romania's economy in 1999 and beyond, are the adverse implications on Romania's economy ofthe conflict in Kosovo.  As the IMF has pointed out, "the six most affected [IMF] member countries
                                                     
23 IMF (1997), p. 11.
24 Similarly, Romania provided an incentive to investments in industry over US$50 million,
manufacturing with a 60% local content and exporting a minimum 50% of annual production (L/71/1994),
notified to the WTO (Chapter III).  This incentive was, in particular, of assistance to Daewoo Automobile
Romana, established in 1994 by the purchase of the state-owned car company OLTCIT.WT/TPR/S/60 Trade Policy Review
Page 12
(Albania, Bosnia-Herzegovina, Bulgaria, Croatia, FYRM, and Romania) share a basic fragility of
economic structures, [and] they are exposed to the crisis in differing degrees and through different
channels".25  For Romania, the main channels of influence identified by the IMF are the disruption to
transit trade through the Former Republic of Yugoslavia, which has affected trade with third
countries, and damage to investor confidence.  On  the whole, however, the IMF expects the effect on
the Romanian economy to be "modest", adding some 0.4-0.5% to the expected GDP decline of 4% in1999;  Romania considers the impact to be critical and estimates the conflict will add 1-1.3% to the
expected GDP decline in 1999.
Table I.6
Direction of trade, 1992, 1997 and 1998
(Per cent)
1992 1997 1998
Exports Imports Exports Imports Exports Imports
Europe 63.25 70.00 72.05 76.20 78.25 81.25
Which:
European Union 35.18 41.27 56.50 52.20 64.50 57.70
EFTA 2.38 2.14 1.30 1.50 1.20 1.35
CEFTA 3.79 5.14 4.06 5.69 4.44 8.79
Russian Federation 9.51 12.75 2.96 12.02 0.97 8.98
America 4.05 5.95 5.80 7.60 6.30 7.05
Which:
USA 1.92 3.55 3.80 4.10 3.85 4.22
Brazil 0.07 0.53 0.21 0.81 0.11 1.21
Asia-Oceania 28.75 19.30 16.60 14.55 11.00 10.95
Which:
Turkey 5.02 2.81 4.20 1.89 3.89 2.30
Israel 0.71 0.75 1.46 1.21 1.14 0.94
Korea, Rep of 0.09 0.37 0.52 5.12 0.22 2.15
China 4.56 1.18 0.52 1.06 0.27 1.50
Africa 3.95 4.75 5.55 1.65 4.45 0.75
Which:
Egypt 1.76 2.56 2.80 1.03 2.22 0.37
Source: Data provided by the Romanian authorities.
                                                     
25 IMF (1999).