```

[Senate Hearing 106-823]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 106-823

        TREATMENT OF U.S. BUSINESS IN EASTERN AND CENTRAL EUROPE

=======================================================================

                                HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON EUROPEAN AFFAIRS

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                              JUNE 28, 2000

                               __________

       Printed for the use of the Committee on Foreign Relations

 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 senate

                    U.S. GOVERNMENT PRINTING OFFICE
68-121 CC                   WASHINGTON : 2001

                     COMMITTEE ON FOREIGN RELATIONS

                 JESSE HELMS, North Carolina, Chairman
RICHARD G. LUGAR, Indiana            JOSEPH R. BIDEN, Jr., Delaware
CHUCK HAGEL, Nebraska                PAUL S. SARBANES, Maryland
GORDON H. SMITH, Oregon              CHRISTOPHER J. DODD, Connecticut
ROD GRAMS, Minnesota                 JOHN F. KERRY, Massachusetts
SAM BROWNBACK, Kansas                RUSSELL D. FEINGOLD, Wisconsin
CRAIG THOMAS, Wyoming                PAUL D. WELLSTONE, Minnesota
JOHN ASHCROFT, Missouri              BARBARA BOXER, California
BILL FRIST, Tennessee                ROBERT G. TORRICELLI, New Jersey
LINCOLN D. CHAFEE, Rhode Island
                   Stephen E. Biegun, Staff Director
                 Edwin K. Hall, Minority Staff Director

                                 ------                                

                    SUBCOMMITTEE ON EUROPEAN AFFAIRS

                   GORDON H. SMITH, Oregon, Chairman
RICHARD G. LUGAR, Indiana            JOSEPH R. BIDEN, Jr., Delaware
JOHN ASHCROFT, Missouri              PAUL S. SARBANES, Maryland
CHUCK HAGEL, Nebraska                CHRISTOPHER J. DODD, Connecticut
LINCOLN D. CHAFEE, Rhode Island      PAUL D. WELLSTONE, Minnesota

                                  (ii)

  

                            C O N T E N T S

                              ----------                              
                                                                   Page

American Chamber of Commerce in Poland, letter from Mac 
  Raczkiewicz, chairman, to Hon. Joseph R. Biden, Jr.............    59
Article entitled ``Czech Recovery Hopes Grow,'' from the 
  Financial Times, June 27, 2000, submitted by Senator Gordon 
  Smith..........................................................    33
Buzek, Prime Minister Jerzy, Republic of Poland, letter to Hon. 
  Jesse Helms....................................................     8
Jenkins, Kempton, president, Ukraine-United States Business 
  Council, Washington, DC........................................    33
    Prepared statements..........................................    38
    Letter from Alan C. Frederickson, president, Die Casters 
      International, Inc.........................................    59
Lauder, Ronald S., chairman, Central European Media Enterprises, 
  New York, NY...................................................    16
    Prepared statements and chronology of events on the TV Nova 
      scandal....................................................    20
Ludolph, Charles M., Deputy Assistant Secretary for Europe, 
  International Trade Administration, U.S. Department of 
  Commerce, prepared statement with annexes submitted for the 
  record.........................................................    62
Nevitt, Peter K., chairman of the board, Greenbrier Europe, San 
  Francisco, CA..................................................    46
    Prepared statement...........................................    47
Shaub, Patricia, vice president, Government and Regulatory 
  Affairs, Entergy Corp., prepared statement submitted for the 
  record.........................................................    71
Singer, Paul, Elliott Associates, L.P., prepared statement 
  submitted for the record.......................................    74
Wayne, Hon. E. Anthony, Assistant Secretary of State for 
  Economic, Business, and Agricultural Affairs, Department of 
  State, Washington, DC..........................................     2
    Prepared statement...........................................     9
    Responses to additional questions for the record from Senator 
      Gordon H. Smith............................................    54
    Response to additional question for the record from Senator 
      Chuck Hagel................................................    57

                                 (iii)

  

 
        TREATMENT OF U.S. BUSINESS IN EASTERN AND CENTRAL EUROPE

                              ----------                              

                        WEDNESDAY, JUNE 28, 2000

                               U.S. Senate,
                  Subcommittee on European Affairs,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:15 p.m. in 
room SD-419, Dirksen Senate Office Building, Hon. Gordon H. 
Smith (chairman of the subcommittee) presiding.
    Present: Senator Smith.
    Senator Smith. Good afternoon, ladies and gentlemen. I will 
call to order this hearing of the Subcommittee on European 
Affairs of the Foreign Relations Committee. The topic is the 
treatment of U.S. business in Central and Eastern Europe.
    I would like to welcome our witnesses today who are here to 
discuss this topic. In the decade that has passed since the 
fall of communism American businesses have been in the 
forefront of the emerging markets of the countries of Central 
and Eastern Europe. The U.S. Government has matched the 
business community in its support of these emerging markets 
with resources to teach these new democracies such important 
topics as the rule of law, trade promotion, market access, and 
intellectual property rights.
    I sought to hold this hearing to find out how successful 
our endeavors have been in trying to help these former 
Communist countries to join the global economy. As the owner of 
a small business myself, I have actively sold products abroad 
and know the importance of a favorable business climate.
    This hearing will attempt to answer two questions: the 
first, has our Government attempted to create a promising 
business climate for interested Americans, the second, have 
these emerging countries created a climate that allows a market 
economy to work?
    We hear horror stories all the time of capitalist systems 
that are really not capitalist but are masquerading in some 
form of cronyism. We do have a number of witnesses today both 
from the Department of State and the private sector who will 
comment on the business climate in Central and Eastern Europe.
    I am a little concerned that the Department of Commerce has 
chosen not to participate today with even an Under Secretary or 
Assistant Secretary, or even Deputy Assistant Secretary to talk 
about what they have done to support emerging democracies. I 
assume something is being done, but no one from the Commerce 
Department has decided it was important enough to come here 
today.
    I would like to invite the next Secretary of Commerce, 
whoever he or she is, to come before this committee on another 
occasion so that we can revisit this issue.
    There are problems for some American businesses abroad. The 
Greenbrier Companies from my State is one of the largest 
manufacturers of railroad cars and is located in Lake Oswego, 
Oregon. Greenbrier is actively involved in a joint venture in 
Poland, and Peter Nevitt, chairman of Greenbrier Europe, is 
here to give their view regarding doing business in Poland.
    I am also happy to welcome former U.S. Ambassador Ron 
Lauder, a pioneer in the emerging markets of Eastern Europe. 
Mr. Lauder is here to testify on the ups and downs of his 
company, Central European Media Enterprises Limited, and what 
he has had in terms of experience in these countries.
    I am also pleased to welcome Mr. Kempton Jenkins, president 
of the Ukraine-United States Business Council. I look forward 
to your thoughts on the business in the Ukraine.
    I would also like to note for the record the testimony 
submitted by Mr. Paul Singer on behalf of Elliott Associates. 
For the record, I would like to state I am especially troubled 
by reports of inappropriate pressure by the European Union on 
countries in Central and Eastern Europe who aspire to become EU 
members themselves.
    It is well-known that EU has said quite clearly to 
candidate countries that by choosing American companies over 
European firms they place their EU membership in jeopardy. It 
is critical to ensure that U.S. companies are competing on a 
level playing field, and I certainly hope this administration 
is making this point clearly and consistently to our friends in 
the European Union.
    It is now our pleasure to hear from the administration 
Assistant Secretary, Tony Wayne, and we welcome you, sir, and 
would turn the mike to you. Thank you for being here.

 STATEMENT OF HON. EARL ANTHONY WAYNE, ASSISTANT SECRETARY OF 
    STATE FOR ECONOMIC, BUSINESS, AND AGRICULTURAL AFFAIRS, 
              DEPARTMENT OF STATE, WASHINGTON, DC

    Mr. Wayne. Thank you, Mr. Chairman. It is my pleasure to be 
here, and I want to commend you on taking the initiative to 
have a hearing on this important topic. The transformation 
going on in Central and Eastern Europe, as you know, is vital 
to the national security of the United States. The role that 
U.S. business has played and is playing in that is vital to our 
prosperity and to the prosperity of the countries of that 
region, and so again thank you very much for providing this 
opportunity to talk.
    I might just start off by reassuring you on your last point 
that whenever we become aware of an EU member State making that 
inappropriate argument we take it up directly with the member 
State and with the country to which the argument may have been 
made.
    We do not accept that argumentation, as you can understand, 
at all and in fact there should be no linkage between choosing 
the best commercial partner for your country and the prospect 
of EU membership, which we do support, but you can be assured 
that I personally have many times made that argument, and I 
know the Secretary of State has, and our ambassadors do also.
    Senator Smith. Unfortunately you have to make it too often, 
do you not?
    Mr. Wayne. Well, people try to use any leverage they think 
they might be able to use. That is a fact of what happens out 
there, and so we remain vigilant, and we will continue to do 
so.
    Let me make a few introductory remarks, and I will try and 
keep them to a few and I might cut back a little bit on some of 
my oral remarks here if I go on too long, but clearly 
attracting trade and investment to Central and Eastern Europe 
is vital if that region is going to complete its transition to 
free market prosperity and democracy.
    It is equally vital and a similarly high priority for us to 
support American business in identifying the opportunities that 
are out there and overcoming the challenges, of which there are 
many, that still fall in their path, and to assure that there 
is, indeed, a level playing field for our businessmen and 
businesswomen as they work to expand into these areas.
    I think that Americans, from your State of Oregon all the 
way here to Washington, DC, know how important trade has become 
in today's world for our prosperity. Between 1994 and 1998 we 
created 1.4 million jobs related directly to trade, and 
American jobs which are involved in trade, I think as you 
probably know, Senator, average a higher pay of 13 to 16 
percent above the norm, so trade is very important, and I would 
argue it has become more important as we move into what has 
been called the new economy.
    We are linked even more closely together than we were 
before, so this is increasingly important, and we at the State 
Department certainly place a very high priority in supporting 
our firms in Central and Eastern Europe.
    Now, where we are today in Central and Eastern Europe may 
need just a little bit of setting the scene. Ten years after 
the fall of the Berlin Wall many of these countries are still 
seeking the prosperity that comes with free markets. The 
transition has been a difficult one. Some places it has 
progressed more quickly than others, but there have been 
problems everywhere, and there are clearly lingering problems 
throughout the region.
    One of the key issues that we think about as we look at 
this broadly is transparency. Justice Holmes once talked about 
``sunshine being the greatest of all disinfectants.'' Well, 
that certainly is true. In decisionmaking throughout the region 
we very much want to encourage transparency in government 
decisionmaking.
    When an official makes a decision about a contract, about a 
new regulation, about a business opportunity, we would like to 
have it be clear why he made that decision, and we would like 
to have the opportunity to be there to comment on it to make 
sure that there is a level playing field. That is not often the 
case in some of these countries.
    Lack of transparency also relates to another problem that 
you know is prevalent throughout the whole region, and this is 
corruption and bribery. Worldwide bribery results in the loss 
of tens of billions of dollars in lost American exports and 
lost opportunities to invest. This is a very high priority for 
us, as I mentioned in a number of our programs and in a number 
of individual interventions that we make to try to support 
American communities, or companies.
    Related to that, of course, is criminal activity, which in 
some of these societies is still a very serious problem, so we 
are working, of course, not only with the economic authorities 
but with law enforcement authorities in the region to try to 
get a hold of this serious problem of illicit activities.
    Physical infrastructure is a big problem throughout the 
region, the ability to deliver goods. Roads, ports, 
telecommunications systems are still below the standards in 
Western Europe, let alone in the United States.
    Institutional infrastructure, what relates to good 
governance, remains a serious problem. In a number of the 
banking systems there are still debts left over from the 
previous Communist rule. There are out-of-date operating 
procedures. There are supervisory structures that are woefully 
lacking, often to ensure the right kind of regulation, the 
regulation that we have come to expect in our own system.
    Just recently I think you might have noticed there was a 
bank that collapsed in the Czech Republic. A few weeks earlier 
there was a serious banking crisis in Romania, and so these 
remain problems that the countries have to deal with.
    Finally, there is a problem of continued privatization. 
Privatization has not gone forward completely in the great 
majority of these countries, and that is part of the ongoing 
structural reform that is required.
    Not surprisingly, the countries that have made the most 
progress toward free market institutions have attracted the 
most American and other direct investment, and so getting the 
right framework is very much important, and that is part of 
what we have tried to do.
    As well as addressing specific business concerns when they 
have come up, and opportunities, we have tried to get the 
countries of the region to adopt the right economic policy and 
regulatory framework that will attract investment.
    Now, there are some impressive results to date on the trade 
front. In 1991, U.S. companies exported about $1.6 billion 
worth of goods to the 15 countries of the region. By the end of 
1999, U.S. exports had doubled to about $3.2 billion.
    We have been working broadly through on the anti-bribery 
and corruption front through the OECD. I think, Senator, you 
know there is an OECD Anti-Bribery Convention which we have 
gotten many of the countries of Western Europe to adhere to, 
some of whom we have had to persuade to move in that direction. 
That is dealing with one part of the problem.
    We have also been working in Central and Eastern Europe in 
a number of specific areas in the intellectual property, 
working with the American Bar Association Central and Eastern 
European law initiative to help these countries develop 
stronger legal systems. We have been working also in some cases 
with NGO's such as Transparency International and, as I 
mentioned, we have been working on some specific anticorruption 
programs in southeast Europe.
    Our ambassadors in Central and Eastern Europe and all of 
our embassy officers for the variety of economic agencies, 
including the Commerce Department, of course, have been on the 
front lines of this effort and the effort of supporting 
American businesses. This has really been where we are often 
alerted first to problems that come up, and then we can support 
them both through higher level demarches from back here and in 
visiting officials to those countries.
    The opportunities are clearly substantial. American firms 
have invested more than $7 billion in Hungary, for example, 
$5.1 billion in Poland, $1.5 billion in the Czech Republic, as 
reported by those countries. That is a substantial amount of 
investment.
    We have taken some specific approaches to certain regions. 
In southeast Europe, following the fighting in Kosovo, we 
developed with our European partners something that is called 
the Stability Pact for Southeast Europe.
    As a key part of that, we knew as a part of that that what 
we have to do is create the right structure of where private 
capital can come in and investment can flourish because, 
Senator, as you know, it is not government capital these days 
that really makes the difference. It is the flow of private 
investment and capital, and that can move overnight, or quicker 
than overnight from one corner of the world to another. There 
are many choices out there, so you have to have the right 
environment that will have people make the decisions to invest.
    So we have really tried in the stability pact to lay out a 
bargain to the countries of the region. We will support you in 
attracting investment, we will provide seed money for you to 
get investment going, we will provide risk insurance, but in 
turn you need to undertake the reforms that are needed to 
create a good business climate, to create good free markets 
with good governance, with transparency that will invite 
private investors to come in.
    In that connection, we have established an anticorruption 
initiative to which the countries of the region have signed up, 
and an investment pact to which countries of the region have 
signed up, and we have begun to put in place, country by 
country, monitoring programs to see how these countries are now 
going to carry out the commitments they have made, and we are 
pulling together all of the donors, that is, the international 
financial institutions as well as the donors, the 
representatives of the local government, and also in liaison 
with the private sector.
    In this approach OPIC has been involved and has made 
available several hundred million dollars of investment 
guarantees to help mobilize private equity financing. We are 
going to be working with the European Bank for Reconstruction 
and Development in the same vein of making over $100 million 
available to support small and medium enterprises.
    On the trade side of this, there is an important initiative 
that we were hoping we can get the support of the Senate for. 
This is the Southeast Europe Trade Preferences Act, which one 
of your colleagues, Senator, has introduced, that would extend 
duty-free treatment for 5 years on a number of items for 
Southeast Europe. We think this is a very important initiative. 
It would help strengthen the economies of the region. It would 
promote a robust private sector development in the region, and 
encourage further the integration of the region.
    It is also, I think, an important part of a lever that we 
are working on with the European Union, because we, as part of 
our initiative, have encouraged them to move forward with their 
own unilateral one-way lowering of tariffs so goods from 
Southeast Europe can move into the European Union without any 
tariffs.
    So I very much hope that you and your colleagues will 
consider supporting and passing this legislation.
    In the Baltic region, we have also taken a specific effort 
to work with the Governments of Lithuania, Latvia, and Estonia 
to remove specific investment barriers and to promote U.S. 
investment in exports, and again there have been very good 
results. Overall trade between the United States and the three 
Baltic States has nearly doubled since 1996.
    The United States has also undertaken strenuous efforts to 
foster investment in other business ties with Russia. Russia's 
new president, Vladimir Putin, has stated clearly that foreign 
investment will be essential to improving the economic outlook 
for Russia, and that significant progress on economic reform 
will be necessary to attract investment.
    The United States, I think as you know, Mr. Chairman, is 
the leader in foreign direct investment in Russia, with over $2 
billion invested in 1999 alone. During his meetings with 
President Putin in Moscow recently President Clinton emphasized 
that major new flows of foreign investment to Russia are 
possible, but only if action on the necessary structural and 
policy reforms is forthcoming.
    Perhaps no other country in the region has experienced such 
a large gap between economic performance and potential as 
Ukraine, endowed with good natural resources, superb 
agricultural land, and well-educated population, as well as a 
strategic location, Ukraine is positioned to be one of the most 
successful of the former Soviet States in attracting foreign 
investment needed to restructure its economy, yet at $55 per 
capita, Ukraine has one of the lowest rates of direct foreign 
investments in the region.
    The United States, with some $570 million out of $3 billion 
total of foreign investment is the single largest source of 
foreign investment in Ukraine. The United States, the IMF, the 
World Bank and other donors have delivered the same message to 
Ukraine for the past 5 years: market economics can only be 
successful in Ukraine when the government reduces its role in 
the economy and creates an environment conducive to investment, 
foreign as well as domestic, deals with serious problems of 
corruption, and gives freer reins to private enterprise.
    These initiatives in Central and Eastern Europe benefit 
Americans. They encourage peace and stability in that part of 
the world, the part of the world that not long ago was an 
alliance threatening the United States. These initiatives also 
translate into economic opportunities for American workers, 
farmers, and business people.
    In 1998, for example, aggressive advocacy by our Ambassador 
to Croatia and our Under Secretary of State for Economic and 
Business Affairs resolved a number of obstacles with the 
Croatian Government which resulted in Bechtel Corporation 
signing a $600 million highway construction contract with the 
Government of Croatia.
    In Bulgaria over the past several years we aggressively and 
successfully tackled severe levels of piracy of compact disks 
and CD-ROM software. The joint efforts by Commerce, State, and 
USTR, and our embassy in Bulgaria, resulted in stringent 
Bulgarian enforcement programs, the closure of all factories 
producing unauthorized CD's, and the protection of important 
American intellectual property rights.
    In all candor, Senator, I also would like to add that our 
budget and our personnel are stretched very thin as we try to 
undertake these activities both in Central and Eastern Europe 
and around the world. In today's global economy, as I 
mentioned, our capacity to defend our national security 
interests and our capacity to defend our economic interests are 
more closely linked than ever.
    We work very hard to defend these interests, to be good 
advocates for American commercial and economic interests, yet, 
as you know, only 1 penny out of every $1 that the Federal 
Government spends right now is on international affairs and, as 
you well know, we are not talking about foreign aid here.
    We are talking about the 44,000 export licenses that we at 
State work to approve each year, worth $25 billion. We are 
working for the 120,000 American jobs in the defense industry 
and in the dual use industries that are tied to that, the many 
more thousands or millions of jobs tied to other kinds of 
exports.
    When we negotiate in the State Department with our 
colleagues our U.S. intellectual property rights that save 
American film, music, and software industries from piracy, we 
are talking about a total of maybe $200 billion a year that we 
are working to save, so I think we are working hard to defend 
America's national security and economic security interests, 
and we appreciate your support in this effort.
    It has been my pleasure to make this initial statement, and 
I look forward to your questions, sir.
    Senator Smith. Thank you, Mr. Secretary. I assure you we 
are concerned about the budget for this 150 account. It should 
be more if we are serious about protecting American business 
interests as well as national security interests and waging 
peace and spreading prosperity. It is not a budget I will 
defend, and have tried to change.
    I am going to include for the record a statement for the 
Entergy Corporation. It is a statement of Patricia Schwab, who 
is their vice president for Government and Regulatory Affairs. 
It is testimony about their company's experience in Bulgaria, 
which is a positive one, which is nice, so I am going to 
include that in the record, and also a letter from Chairman 
Jesse Helms to the Prime Minister of Poland.
    [The Entergy Corporation statement can be found on page 
71.]

    [The letter from Chairman Helms follows:]

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                       Washington, DC, May 9, 2000.

The Honorable Jerzy Buzek
Prime Minister
The Republic of Poland

    Dear Mr. Prime Minister:

    I have just learned that the government of Poland has taken steps 
that may significantly undercut the ability of the Polish economy to 
attract foreign investment, particularly American investment.
    Poland's Ministry of Treasury has filed an action in a Polish court 
to prevent one of the National Investment Funds (NIF's), Octava, from 
exercising its full rights to amend its charter to permit share 
redemptions. I understand that the Ministry has continued to pursue 
this anti-market activity, even though Poland's Securities and Stock 
Exchange Committee has expressly held that the proposed action by the 
NIF is lawful.
    Most disturbing of all, however, has been public statements by a 
Deputy Minister of the Treasurer that Poland does not want to give 
large shareholders, ``e.g. American investment funds, the possibility 
to withdraw their money from the NIF's at a profit.'' This is 
profoundly disappointing to those of us who have watched and supported 
the market reforms that have been the foundation of Poland's great 
economic growth over the last decade.
    Mr. Prime Minister, our confidence in this progress, and the 
partnership between the United States and Poland, will certainly be 
shaken if your government chooses to disregard private rights and to 
treat American investors unfairly. Unfair treatment, including the use 
of state power to bring about dilatory lawsuits, betrays the promise of 
privatization and will undercut Poland's standing in the international 
marketplace.
    I request your assistance to resolve an apparently dilatory lawsuit 
against Octava and to allow it and other NIFs the freedom necessary to 
exercise their full rights, including share redemptions. I would be 
grateful if you would inform me of the steps the government of Poland 
is taking to bring this matter to a fair and just close.
            Sincerely,
                                     Jesse Helms, Chairman.

    Senator Smith. And in connection with his letter, Mr. 
Secretary, I have this question that is directly related to the 
letter. Are you aware of problems investors have had 
withdrawing from the Polish national investment funds that were 
originally created to back the transition of about 500 State-
owned business to privatize companies.
    Are you aware of that? And it is my understanding that one 
American investment corporation, Elliott Associates, is now 
unable to withdraw its funds from these funds.
    Mr. Wayne. Mr. Chairman, I will honestly admit I am not 
aware of that, but I would be happy to get the information and 
look into it and get back to you.
    [A reply to Senator Smith's question and to additional 
questions for the record can be found on page 54.]

    Senator Smith. We will supply you with a copy of this 
letter from the chairman. The European Union has repeatedly 
stated that the Czech Republic is far behind the West in 
dealing with corruption and crony capitalism. Do you agree with 
their assessment of that?
    Mr. Wayne. Well, Senator, I think there is a problem, I 
think throughout the region in dealing with corruption and 
crony capitalism.
    Senator Smith. It is not unique to the Czech Republic?
    Mr. Wayne. It is not unique. There are a few other 
countries that might even have a more serious problem.
    Senator Smith. My only other question is, are you helping 
the Greenbrier Company, one of those that will be testifying 
today who have run into a number of problems with the 
Transportation Ministry? Are you aware of their circumstance, 
and have you made any effort to be helpful to them?
    Mr. Wayne. Yes; Senator, I am aware of it, and I can 
happily say that we have been working very closely with the 
Greenbrier Companies and have raised their difficulties 
repeatedly with the Government of Poland at the very highest 
levels. Not only has our Ambassador in place raised this a 
number of times, but Deputy Secretary Eizenstat particularly 
raised it with Deputy Prime Minister Vosorovek and with Foreign 
Minister Gremek.
    We have underscored that there needed to be in this case, 
and in this case there needs to be all the time an open end 
transparent public procurement procedure in Poland which, as I 
understand, was part of the problem which the Greenbrier 
Company faced.
    I believe that in response to a number of these arguments 
and other arguments the Government of Poland has, indeed, 
issued a new tender recognizing that there was not an open 
process here, that there has been progress made, and I know you 
will get to hearing more detail probably from representatives 
of the Greenbrier Companies in dealing with their concerns. We 
hope that now these problems will be dealt with with a second 
tender.
    We also note that there is a process going on of 
privatizing the Polish Railway System, of providing budgetary 
sustenance to the railway system to buy some of the materials, 
Greenbrier cars and other things Greenbrier makes, so this is 
an ongoing process, but we certainly intend to stay active in 
this process and to be as supportive as we can.
    Senator Smith. Well, Mr. Secretary, I thank you for coming 
and participating and answering questions. We appreciate very 
much the work that you do, and those in the State Department, 
to help our businesses in this country to reach markets abroad. 
It is one of the best ways we can spread peace and prosperity, 
so thank you, sir.
    Mr. Wayne. Thank you very much.
    [The prepared statement of Secretary Wayne follows:]

              Prepared Statement of Hon. E. Anthony Wayne

                              INTRODUCTION
    Thank you, Senator for inviting the Department of State to join you 
in your probe of challenges and opportunities for the American business 
community in Central and Eastern Europe. I am pleased to be here, and 
would personally like to thank you for your leadership on this vital 
topic. The Department shares your deep concern about the frequent 
incidences of corruption and weak rule of law which impede free trade 
in many of these emerging economies.
    On behalf of Under Secretary Larson who, as you know, is in Japan 
today, I would also like to thank you for your dedicated service as a 
judge for the Ambassador Charles E. Cobb Awards--warm appreciation to 
you and to your Chief of Staff for helping the Department select the 
Ambassador and Economic Officer who exhibit the most dedication, 
innovation and success in promoting U.S. exports and trade overseas.
    Senator, I am pleased to have this opportunity to discuss the 
current environment for business in Central and Eastern Europe. The 
region's ability to attract private sector involvement, including trade 
as well as investment, is critical to its ability to complete its 
transition to free market prosperity and democracy. We have long stated 
that as important as the assistance we give these countries is, private 
sector involvement in their economies is essential.
    The region provides opportunities to a wide variety of American 
enterprises--small- and medium-sized enterprises as well as large 
corporations, farmers as well as business people. At the same time, 
supporting American business, identifying economic opportunities, and 
leveling the playing field for American exporters and investors are top 
priorities for the State Department and for our embassies in this 
region and around the world.
    Americans from Oregon to Washington, D.C. are increasingly aware of 
the role trade is playing in our current economic prosperity and 
overall growth. Data show that open markets helped make the United 
States the fastest growing economy in the G-7 with an annual growth 
rate of 3.9% from 1994-1997. Jobs supported by American exports grew by 
1.4 million between 1994 and 1998 and statistics show these American 
jobs supported by goods exports pay about 13% to 16% above the U.S. 
national average.
    We in the State Department play a central role in working with 
American companies and with the firms, governments, and other 
institutions in Central and Eastern Europe to create open markets and 
rule of law. This has been a challenging process and one that will 
continue to require our attention. The numbers show we will be 
successful: Those countries that have made the most progress towards 
open markets and democratic rule of law are the ones that have been 
most successful in attracting private sector U.S. investment.

                        SITUATION IN THE REGION
    Ten years after the fall of the Berlin Wall and the demise of 
Communism, the countries of Central and Eastern Europe are continuing 
their work to realize free market prosperity. The transition has been 
difficult and has moved at different speeds in the different countries. 
Although the situation varies from country to country, certain problems 
remain all too common in the region.
    One is the lack of transparency. ``Sunshine,'' as Justice Holmes 
once remarked, ``is the greatest of all disinfectants.'' We find, 
however, that governments and other institutions in the region are not 
always open in their decision-making. Too often it is not apparent, 
either to Americans or even to the citizens of that particular country, 
why an official does what he does or what the reasons are behind the 
government instituting a particular regulation or procedure. In some 
cases, the governments do not publicize laws or regulations.
    The lack of transparency feeds directly into another barrier to 
trade and investment: bribery and corruption. Worldwide, bribery 
results in tens of billions of dollars in lost exports for American 
companies and, others that play by the rules. However, bribery and 
corruption also impede governments from delivering the services their 
citizens need and expect and undermine their confidence in their 
governments and in democracy.
    An additional problem in a number of countries in the region is the 
high level of criminal activity. Domestic and transnational criminal 
activity is a powerful deterrent to domestic, let alone international 
investment in certain of the countries of Central and Eastern Europe. 
Such criminal activity includes intellectual property rights piracy in 
sectors including pharmaceuticals, audio recordings, and the optical 
media.
    Problems with infrastructure, physical as well as institutional are 
further concerns. Roads, ports, telecommunications systems, and other 
physical infrastructure are often not up to the standards we take for 
granted in Western Europe or the U.S. The people of Central and Eastern 
Europe and their present governments have inherited the results of 
decades of mismanagement by Communist governments. Albania is perhaps 
the most extreme example where the public still lives in decrepit 
apartments and there is no rail link to the rest of Europe because of 
the Hoxha paranoia. Estimates are that the imported Swedish concrete 
used to build the more than 700,000 bunkers could have been used 
instead to build as many two-bedroom apartments.
    Institutional infrastructure also varies from country to country in 
the region, but again in many cases its weakness constitutes yet 
another challenge for investors, domestic as well as foreign. For 
example, the banking systems in a number of these countries are saddled 
with bad debts left over from the period of Communist rule or continue 
to suffer from out-of-date, uncompetitive operating procedures. 
Financial and regulatory supervision authorities in a number of these 
countries also need to be strengthened. The banking system of the Czech 
Republic was recently shaken by the collapse of the country's third 
largest bank. A similar situation also occurred recently in Romania.
    The failure of a number of countries in the region to complete the 
process of privatizing state-owned entities not only perpetuates the 
inefficiencies and economy-damaging distortions of the Communist era, 
but raises questions in the minds of some as to how serious those 
governments are about making the needed reforms. Again, the figures 
show those countries that have made the most progress toward free 
market institutions and good governance have attracted the most 
American and other foreign direct investment.
    The amounts of investment can be substantial. To date, American 
firms have invested more than $7 billion in Hungary, $5.1 billion in 
Poland, and $1.5 billion in the Czech Republic, according to data 
published by the recipient countries.

                    WHAT THE UNITED STATES IS DOING
    In partnership with the governments of the region, as well as with 
our own private sector and with interested nongovernmental 
organizations, the State Department and we in the Department's Bureau 
of Economic and Business Affairs are working to address these concerns 
and to help foster a framework that opens these countries further to 
American business and investment. We remain convinced that such a 
partnership will yield real benefits to both sides.
    There are a number of overarching efforts, for example, our efforts 
to battle corruption through encouraging countries in the region that 
have signed the OECD Anti-Bribery Convention to ratify and fully 
implement it. The Czech Republic and Hungary, both of which are members 
of the OECD, have ratified and implemented the Convention, as have 
Bulgaria and the Slovak Republic. Poland has signed, but has not yet 
ratified or implemented. We are pressing governments in Central and 
Eastern Europe, as we do elsewhere in the world, to take action to 
protect intellectual property rights. We are working with the American 
Bar Association's Central and Eastern European Law Initiative (CEELI) 
to help these countries develop stronger legal systems.
    We have worked with the governments of the region to strengthen 
their IPR regimes. Bulgaria has been a particularly good example where, 
working with us, the Bulgarian government authorities have taken 
effective action to combat a serious problem with piracy of 
intellectual property in that country.
    We have pursued bilateral investment treaties (BITs) with many of 
the countries in the region. The basic aims of the BIT program are to 
protect U.S. investment abroad and, in particular, to guarantee 
national treatment for U.S. investments; the free transfer of all funds 
related to investment; access to international arbitration to settle 
investment disputes with host country governments; freedom from 
performance requirements, such as local content or export quotas; the 
right to engage top managerial personnel of the investor's choice; and 
expropriation only under internationally recognized standards and with 
prompt, adequate and effective compensation. The BITs also encourage 
adoption of market-oriented domestic policies that treat private 
investment fairly and support the development of international legal 
standards consistent with all these objectives. We currently have 
signed BITs with 15 countries in the region, though not with Russia. 
Twelve of these are now in force.
    In addition, I must point out the State Department and our 
embassies and consulates in the region constantly work hard on behalf 
of American commercial interests. In Central and Eastern Europe--from 
the Baltics to the Balkans--U.S. Ambassadors and our embassy officers 
are the eyes, ears and in-country negotiators for U.S. commercial and 
economic interests--from trade and investment to anti-corruption, 
environmental safeguards, and cultural, people-to-people exchanges. 
Furthermore, as experts on host-country markets and business practices, 
these officials can and do identify opportunities for American firms 
and advocate on their behalf, companies that range from small and 
medium enterprises like bagel bakeries to major firms such as Enron and 
Ford.
    Exemplary business practices overseas and good corporate 
citizenship are among the best exports that the United States can 
offer. To emphasize this, the State Department initiated an annual 
Award for Corporate Excellence, an award recognizing outstanding 
corporate citizenship, innovation and exemplary business practices 
overseas. America business leaders are frequently Ambassadors in 
transition economies. They lead by their conduct: strict adherence to 
the Foreign Corrupt Practices Act, high labor, environmental and human 
rights standards; shared technology, training and professional, 
exchanges with local firms; and, their own democratic values. In many 
Central and Eastern European countries, business executives are close 
and effective partners with our Ambassadors and Embassy teams.
    I should point out that the European Union, as it pursues 
enlargement to include most of the countries of the region, shares many 
of our goals, and seeks many of the same reforms. We are consulting 
closely with the EU on how our efforts can be coordinated to achieve 
the best results. Still, from time to time, some in the EU try to 
influence commercial decisions by saying that choosing a U.S. firm or 
partner over a EU firm could harm the EU accession prospects of a 
country. We rebut such assertions quickly and firmly to the EU and to 
the recipient country.
    In addition to these general policies and programs, there are a 
number of specific initiatives geared to particular parts of the region 
designed to improve the investment and business climate.
Southeast Europe
    One such international partnership is the Stability Pact for 
Southeast Europe. The Pact was announced at the July 30, 1999 Sarajevo 
Summit with President Clinton and other leaders--both Western European 
and from the region. The Pact is a straightforward bargain in which the 
international community will work to integrate Southeast Europe into 
the broader European and Transatlantic mainstream and the countries of 
the region will implement the reforms that are necessary for such 
integration to take place.Part of the Stability Pact is the Investment 
Compact under which the region's countries take steps to improve the 
investment climate. In return, the other Stability Pact members, 
including the U.S. committed to help the region in this effort and to 
work together with the international financial institutions to develop 
appropriate vehicles to mobilize private finance and mitigate risk.
    On the investment side, OPIC is using its investment guarantees to 
mobilize up to $150 million in private equity financing by creating one 
or more private sector investment funds which will provide a $200 
million credit line for companies or commercial partnerships with 
significant U.S. participation; and establish an OPIC on-the-ground 
presence in the region to serve as a resource for the U.S. investment 
community.
    We are working with the European Bank for Reconstruction and 
Development (EBRD) to develop an initiative for providing up to $130 
million to support small- and medium-sized enterprises (SMEs) in this 
region. A U.S. contribution of $10 million this year towards a total 
U.S. contribution of $50 million is expected to leverage an additional 
$80 million from the EBRD in debt financing for SMEs from other 
European donors. Part of the U.S. contribution will provide technical 
assistance to accelerate the transition of these countries to more 
market-oriented economies. Specifically, EBRD teams will identify legal 
and regulatory constraints for private sector development and provide 
technical assistance to promote sound business practices and good 
governance.
    On the trade side, Stability Pact Partners underscored the 
importance of Southeast Europe's integration into and access to the 
European Union's more developed markets and the global trading system.
    Connected with this is the proposed Southeast Europe Trade 
Preferences Act (SETPA). President Clinton discussed SEPTA during the 
July 1999 Sarajevo summit as an important mechanism to stimulate 
economic growth in the region and to integrate countries of the region 
into the broader European and Transatlantic mainstream. We note Senator 
Moynihan has introduced legislation to create a preference system for 
Southeast Europe.
    The SETPA would demonstrate American commitment to the economic 
development of Southeast Europe by extending duty-free treatment for 
five years to a number of products that are currently ineligible under 
the GSP program: iron and steel products, agricultural products, 
footwear, glassware, ceramics, automobiles, bicycles, clocks and 
watches. The only product area not to receive additional coverage under 
SEPTA is textiles and apparel.
    Through SETPA, the United States aims to strengthen the economies 
of the region, promote the robust development of the private sector and 
encourage further integration of countries of the region into 
international trade regimes such as the WTO. The announcement of SETPA 
also prompted the European Union to propose expanding its existing 
autonomous trade preference package for western Balkan countries, 
further boosting the region's economies and commitment to reform.
    At the urging of the United States, the Stability Pact also 
includes an anti-corruption initiative that brings together the United 
States, the European Union, and regional countries in a common effort 
to promote good governance and to combat official corruption. The 
initiative will thereby help improve the environment for trade and 
investment in the region.
    Let me note as well that while we support Southeast Europe's 
integration into the European Union's markets, we strongly believe this 
should be done in a way that avoids commercial problems with the U.S. 
Enlargement is not a zero-sum game, but rather should serve to 
strengthen the transatlantic relationship through stronger linkages 
between candidates for accession to the EU and the United States as 
well as to the European Union. Enlargement Commissioner Verheugen 
agrees and has argued strongly there is no contradiction between our 
growing transatlantic partnership and enlargement.
Central Europe
    Results on the trade front are already impressive. In 1991, U.S. 
companies exported $1.6 million worth of goods to the fifteen countries 
of Central and Eastern Europe. By the end of 1999, U.S. exports had 
doubled, to $3.2 million.
    We have a good and very active dialogue with Hungary, which, as one 
of the most advanced of the EU accession candidate countries, is 
progressing in its negotiations with the EU. At the same time, the 
Hungarians are working very constructively with us on trade problems 
associated with accession, including the issue of tariff differentials. 
Hungary also ratified early the OECD Bribery Convention, and is now 
working on its implementation.
    Poland too is a leading candidate for EU accession, and we have 
been successfully engaging the Poles in a number of economic areas 
important to the U.S. On IPR, Poland is in the process of updating its 
antiquated copyright law to bring it into compliance with its WTO 
obligations. The Polish Government is also in the process of enacting 
legislation to restructure and privatize the Polish Railways. We expect 
this to result in a number of business opportunities for U.S. railroad 
companies. In this connection, I note that Paul Nevitt, Chairman of 
Greenbrier-Europe, will be testifying on the next panel. I would like 
to point out that our embassy in Warsaw as well as senior officials 
here in Washington have convinced Polish officials to take steps to 
meet the concerns that Greenbrier had regarding the sale of rail cars 
to Polish Railways.
    United States investment in Poland continues to grow. Citibank, for 
example, is in the process of becoming a major participant in the 
Polish banking sector, with its acquisition of Bank Handlowy. Like 
Hungary, Poland has ratified the OECD Bribery Convention; it still is 
in the process of passing implementing legislation.
    American firms are also active in the Czech Republic. Boeing is a 
35% owner in a Czech fighter trainer manufacturer (called Aero 
Vodochody) with Czech Airlines (CSA). Boeing will also be competing for 
a number of civilian aircraft tenders by CSA. One problem we are 
discussing with the Czech Government is eliminating the current 4.8 
percent tariff on large civil aircraft so that Boeing can compete 
fairly with Airbus which pays zero duty. The Poles and Bulgarians have 
done so and the Hungarians have agreed to a waiver. We expect the Czech 
Republic to do the same.
    I note that Ronald Lauder, Chairman of Central European Media 
Enterprises (CME) will be speaking on the next panel about the problems 
his company encountered in the Czech Republic. American shareholders 
have a significant investment in the Czech broadcasting sector through 
CME. We have been very active in support of CME, and there is a process 
underway in the context of our Bilateral Investment Treaty (BIT) to 
resolve CME's BIT dispute through international arbitration.
Northern Europe Initiative
    The U.S. is looking at trade and business development in the Baltic 
Sea region as well, a key component of our Northern Europe Initiative 
(NEI). NEI is a U.S. Government strategy to promote stability, 
strengthen free market and democratic institutions and security 
structures, and bolster U.S. trade and investment in the Baltic Sea 
region. Two of the six priority areas for NEI activity are business 
promotion and law enforcement. For FY 2000, we have allocated $1 
million in regional Support for East European Democracy (SEED) Act 
funds for NEI activities.
    Working closely with American businesses, we established, a 
business/government dialogue with the governments of Lithuania, Latvia, 
and Estonia to remove specific investment barriers and to promote U.S. 
investment and exports.
    The NEI law enforcement programs have also targeted problems such 
as IPR protection and contract enforcement. Among the results are NRG's 
$500 million investment in Estonia's energy sector, which Estonia's 
cabinet approved June 27. Overall trade between the U.S. and the three 
Baltic states has nearly doubled since 1996.
Russia
    The United States' efforts to foster investment and other business 
ties with Russia deserve particular attention. Russia's new President, 
Vladimir Putin, has stated that foreign investment will be essential to 
improving the economic outlook for Russia, and that significant 
progress on economic reform will be necessary to attract that 
investment. However, Russia still lacks a genuine competitive 
environment for investment, both domestic and foreign, and it lags far 
behind Central Europe in attracting foreign investment. In the ten 
years from 1988 to 1998, Russia received only $61 per-capita in foreign 
investment, compared to $389 for Poland and $967 for the Czech 
Republic.
    The United States is the leader in foreign direct investment in 
Russia, with over $2 billion invested in 1999 alone. Many household 
names in the United States are now household names in Russia. However, 
Russia has yet to realize the potential offered by its abundant natural 
resources and educated workforce. The financial crisis of 1998 dealt 
all investors in Russia a setback. During his meetings with President 
Putin in Moscow this month, President Clinton emphasized that major new 
flows of foreign investment to Russia are possible, but only if action 
on the necessary structural reforms is forthcoming.
    The United States Government has consistently urged the Russian 
Government to institute reforms to improve the climate for doing 
business in Russia, while continuously supporting U.S. investors who 
have undertaken the risks of establishing businesses there and 
encouraging the development of domestic Russian entrepreneurship. We 
have used the U.S.-Russia Joint Commission and its Business Development 
Committee to keep investment-oriented reform issues at the forefront of 
our bilateral agenda. The U.S. has also supported the activities of the 
international financial institutions in Russia, while insisting that 
their assistance be additional to private sector resources and be 
conditioned on structural reforms that benefit foreign and domestic 
investors alike.
    Reflecting the importance of Russia's vast reserves of oil and gas, 
U.S. and other Western oil companies have been among the pioneers of 
investment in Russia. The USG has long encouraged the development of 
the legislative and regulatory framework for Production Sharing 
Agreements (PSAs) in Russia, with the goal of establishing a stable and 
transparent legal, financial and regulatory environment for investments 
in the oil and gas sector. In Moscow, President Putin assured President 
Clinton of his commitment to completing the framework for PSA's.
    The election of many new Duma members last December opened an 
opportunity, which we are pursuing, for the Duma's ratification of our 
1992 Bilateral Investment Treaty with Russia. This treaty would ensure 
treatment for U.S. investors no less favorable than that accorded to 
Russian investors in many areas of the economy, provide protections 
against expropriation, and set rules for adjudicating investment 
disputes. Another avenue for reform is Russia's accession to the World 
Trade Organization, a process that involves bringing Russia's regime 
for trade and investment into line with internationally accepted 
standards. We have actively encouraged and supported that process. We 
are also encouraging the Organization of Economic Cooperation and 
Development to deepen its dialogue with Russia on policy reforms to 
improve its investment climate.
    We are, moreover, committed to enhancing the rule of law and 
protection of shareholder rights in Russia and have acted on this 
commitment in a very tangible way. Late last year, Secretary Albright 
made a difficult decision to delay $500 million in Ex-Im Bank 
guarantees to the Russian oil company TNK, in order to give time for a 
review of that company's business practices before the transaction was 
completed. Also, advocacy by USG officials in Washington and our 
Embassy in Moscow helped to convince Russian officials to terminate an 
attempt to re-privatize the Lomonosov Porcelain factory near St. 
Petersburg. It also blunted efforts to reduce the scope of foreign 
investment in the Russian insurance industry. We have repeatedly 
raised, at both the local and federal levels, the difficulties U.S. 
investors have had in securing enforcement of favorable judgments made 
by Russian courts.
    The focus of our bilateral assistance in the economic area has 
turned to the regions of Russia, where we support: the implementation 
of international accounting standards; development of small- and 
medium-sized enterprises; and improvement of legislation affecting 
business. The U.S.-Russia Investment Fund makes equity investments in 
Russian enterprises and Russian-American joint ventures, as well as 
providing capital to business through Russian banks. We have funded 
thousands of exchanges that give Russian citizens an opportunity to 
develop their skills and establish valuable contacts with U.S. 
counterparts.
    Admittedly, progress toward a welcoming climate for investment in 
Russia has been slow and the environment for doing business in Russia 
remains extremely difficult. However, as President Clinton noted in his 
speech before the Duma earlier this month, with a new President, a new 
government and a new Duma, Russia has a new chance to build prosperity 
and strength, while safeguarding democratic freedoms and the rule of 
law. The President emphasized to both President Putin and the Russian 
people that the United States welcomes a strong Russia that uses its 
strength to promote economic development, reinforce the rule of law, 
fight crime and corruption, defend democratic freedoms and build good 
relations with its neighbors and the world. We will continue our 
efforts to promote a better climate for investment in Russia as a means 
to that end.
Ukraine
    Perhaps no other country in the region has experienced such a large 
gap between economic performance and potential as Ukraine. Endowed with 
good natural resources, superb agricultural land, a well-educated 
population, ethnic peace, and a strategic location in Europe, Ukraine 
was positioned to be one of the most successful of the former Soviet 
states in attracting the foreign investment needed to restructure its 
economy.
    Yet at $55 per capita, Ukraine has one of the lowest rates of 
direct foreign investment in the region. The U.S., with some $570 
million out of $3 billion total, is the single largest source of 
foreign investment in Ukraine. These figures have both remained static 
for several years and are very small for a country of 50 million people 
with the resource base and economic potential of Ukraine. In contrast, 
the figures for Poland, a country of 40 million which aggressively 
embraced reform, are $5.1 billion and $30 billion.
    The United States, together with the IMF, the World Bank, and other 
donors, has consistently delivered the same message to Ukraine for the 
past five years: market economics can only be successful in Ukraine 
when the government reduces its role in the economy and gives freer 
reign to private enterprise. When this happens, we will begin to see 
investment rise again, and with rising investment will come sustained 
growth.
    Much of U.S. assistance, $200 million last year and, $2 billion 
since independence, has been focused on helping Ukraine reform its 
economy and its governing institutions. We remain committed to making 
Ukraine's future a success and improving the climate for investment and 
opening up Ukrainian markets is crucial to a positive outcome.
    We are also seeking ways to support the reform efforts of Prime 
Minister Viktor Yushchenko's government--leveraging resources and 
cooperating with other international donors whenever possible. USAID 
and other agencies continue to target economic reforms, privatization 
efforts, private sector development (small and medium enterprises) and 
civil society for crucial assistance.
    As I have said, U.S. investors are the single largest source of 
foreign investment in Ukraine. Their problems, both specific and 
general, are a regular agenda item in all high-level bilateral 
meetings, most recently during President Clinton's trip to Kiev on June 
5. We have been pleased with the more business-friendly policies of the 
Yushchenko government. Investors report they have encountered a more 
cooperative, businesslike attitude when dealing with officials under 
the new government.
    We remain concerned, however, about U.S. investor problems that 
remain unresolved, and more generally about Ukraine's poor investment 
climate and slow pace of economic reform. In addition to resolving the 
investment disputes, we have urged Ukraine's government to take 
specific steps to improve its investment climate, including instituting 
more transparent procurement and licensing requirements, implementing 
regulatory reform, improving protection of shareholder rights, 
improving enforcement of judicial decisions, and enforcing a strong 
code of ethics.
    Ukraine has a reputation as a difficult place to do business. In 
its Corruption Perceptions survey of 85 countries, Transparency 
International ranked Ukraine 69th. Corruption is a major obstacle to 
genuine reform and long-term economic recovery in Ukraine, Russia, and 
indeed throughout the former Soviet Union. Again, we have and will 
continue to provide assistance, in this area. However, it is the 
responsibility of Ukraine's government to tackle this problem, through 
deregulation, legal reform, and greater transparency.

                               CONCLUSION
    In closing, let me reiterate that these initiatives in Central and 
Eastern Europe yield benefits to Americans in terms of peace and 
stability in a part of the world that not so long ago was an alliance 
threatening the United States. Moreover, these initiatives translate 
into economic benefits for American workers, farmers, arid business 
people. In 1998, for example, aggressive advocacy by the U.S. 
Ambassador to Croatia and the Under Secretary of State for Economic, 
Business, and Agricultural Affairs resolved a number of obstacles with 
the Croatian Government. As a result, the San Francisco-based 
corporation Bechtel was able to sign a $600 million highway 
construction contract with the Croatian Government.
    Since then, Bechtel has succeeded in concluding agreements to 
commence work on the first stage of the project and renegotiated the 
contract at greater value to provide a more extensive Croatian highway 
than was first planned.
    Bechtel's story is only one of many. In recent days, work by the 
U.S. Ambassador in Sofia and others in the U.S. Government bore fruit 
when the Bulgarian Government finalized for signature a loan agreement 
with Citibank in connection with Westinghouse's $77 million contract to 
upgrade the safety of the Kozloduy nuclear power plant. This project, 
which involves the first Ex-Im bank loan to Bulgaria, will make a vital 
contribution to improving nuclear safety in the region and improving 
the environment there.
    Another recent success is the decision by the shareholders of 
Eastern Slovak Ironworks (VSZ) to endorse a deal by U.S. Steel to buy 
all steel and related assets of VSZ Kosice, the Slovak Republic's 
largest company. The deal will make U.S. Steel the largest U.S. 
investor and largest private sector employer in Slovakia.
    In all candor, however, I must say that our budget and our 
personnel are stretched too thin to provide the protection American 
business deserves in today's global economy. If anything, America's 
economic well-being is becoming increasingly intertwined with decisions 
and developments around the world. We must bolster our ability to 
defend and promote our core interests overseas. U.S. diplomatic 
programs defend these core national interests, including commercial 
advocacy. Yet today only one penny out of every dollar the Federal 
government spends is devoted to international affairs.
    We are not talking about foreign aid. Every year, when the State 
Department processes some 44,000 export licenses for defense articles 
valued at more than $25 billion, we sustain 120,000 American jobs. When 
the State Department negotiates agreements to safeguard U.S. 
intellectual property rights to save America's film, music and software 
industries as much as $200 billion a year, we do so not to aid others, 
but principally to advance America's prosperity. Even when the State 
Department promotes economic reform and good governance in Central and 
Eastern Europe, we do so not only to help these countries, but to 
promote America's economic and national security interests.
    Thank you. I will be happy to respond to your questions.

    Senator Smith. We will call up next our second panel that 
will consist of Mr. Ronald S. Lauder, chairman of the Central 
European Media Enterprises. He will be followed by Mr. Kempton 
Jenkins, president of the Ukraine-United States Business 
Council, and they will be joined by Mr. Peter K. Nevitt, 
chairman of the board of Greenbrier Europe.
    Welcome, gentlemen. Thank you all for coming and 
participating in this hearing, and we hope we can shine a light 
on some of the difficulties and make hopefully a better 
business climate in the future for both sides of the Atlantic 
and certainly for the prosperity of Central and Eastern Europe.
    Mr. Lauder, welcome. The mike is yours.

STATEMENT OF RONALD S. LAUDER, CHAIRMAN, CENTRAL EUROPEAN MEDIA 
                   ENTERPRISES, NEW YORK, NY

    Mr. Lauder. Thank you, Mr. Chairman. My name is Ronald 
Lauder, and the story that brings me here begins in 1986 when I 
had the privilege of representing the United States of America 
as the Ambassador to Austria in Vienna, in the heart of Central 
Europe. Vienna is just across the border from the country that 
was then called Czechoslovakia, a country that had been under 
Communist rule since 1947.
    Sitting where I was in Central Europe, I witnessed the 
devastation that this part of the world had experienced from 
the Second World War, the Holocaust and the failure of the 
Communist system under which the Czech people had toiled for 40 
years. Even before the fall of the Berlin Wall I set out to 
make a positive contribution in this part of the world through 
the Ronald S. Lauder Foundation by starting Jewish schools that 
have educated more than 10,000 children, schools in 15 
countries in Eastern Europe.
    The Velvet Revolution of 1989 brought great hope to the 
Czech people as they set out to create a democracy in a market-
based economy. The fall of communism was a watershed event in 
the history of Central and Eastern Europe, and I was optimistic 
that I could also make a significant, positive contribution by 
establishing a free press.
    Accordingly, I underwrote the establishment of independent 
television stations in the new democracies of Central and 
Eastern Europe. Under the Communist system, the government in 
these countries owned and controlled all forms of media, 
television, radio, and newspapers. I hoped to provide these 
societies with the same kind of free press that we enjoy here 
in this country.
    The former Communist countries of Central and Eastern 
Europe needed and still need enormous capital investment. It 
was my hope that if my independent television stations were 
successful I would thereby create an example for other private 
investors who might in turn also want to invest in these 
countries.
    In 1994, I brought Central European Media, or CME, to the 
United States capital markets and raised $66 million in initial 
public offering. CME thereby became a public company with 
shares traded on the NASDAQ Stock Exchange. The shares of CME 
were traded by well-known U.S. brokerage firms such as Merrill 
Lynch, Morgan Stanley, Dean Witter, Solomon Smith Barney, and 
Prudential Securities.
    CME's shares were purchased by thousands of U.S. citizens, 
large and small, directly and indirectly, for their private 
accounts, mutual funds, pension plans, IRA's, Keogh plans, and 
for their children's education.
    The first television station that Central European Media 
launched was TV Nova in Prague, the capital of the Czech 
Republic. TV Nova was an enormous success. Soon after its 
launch in 1994 the station had revenues of approximately $100 
million per year, and was proclaimed by the news media to be 
the most successful launch of a TV station in history.
    The success of TV Nova allowed Central European Media to 
return to the U.S. equity markets in 1995 and 1996 to raise an 
additional $220 million in equity and sell $170 million in 
bonds in 1997. Much of these proceeds were used to finance 
successful launches of stations in Romania, Slovakia, Slovenia, 
and Ukraine. To this day, Central European Media's television 
stations in Romania, Slovakia, Slovenia, and Ukraine are the 
leading independent television stations in those countries.
    So what went wrong? How did hundreds of American taxpayers 
see their investments in Central European Media stock tumble, 
despite the fact that this country built one of the most 
profitable television stations in Europe? The answer is sad but 
simple. TV Nova was stolen.
    TV Nova, a television station that generated $100 million 
of revenue every year in 1995, 1996, 1997, 1998, was stolen 
from CME by the joint access of the Czech Media Council and 
Vladimir Zelezny, CME's former business partner in TV Nova. The 
Media Council stole TV Nova by repudiating its prior official 
approvals on CME's position after TV Nova became successful. 
This was done by initiating administrative procedures attacking 
the business protections the Media Council had formerly 
guaranteed when it was soliciting CME's capital in 1993. And by 
affirmatively supporting Dr. Zelezny's acts, rather than 
stopping him, when he violated obligations to CME that the 
Media Council was required by law to protect.
    Vladimir Zelezny stole TV Nova by renouncing his agreement 
with CME and exercising improper influence on members of the 
Media Council. Zelezny officially threatened Czech political 
leaders with what was in many ways blackmail because of his 
ability to control the press.
    Yet the TV Nova scandal is about even more than the theft 
of American investment. It is about the rule of law. This 
country and our taxpayers invested heavily in the hope of 
building a foundation for free markets behind the old Iron 
Curtain. The dream was that capitalism would take root quickly 
and secure freedom for the future. Sadly, the TV Nova scandal 
proves in the Czech Republic only crony capitalism has sprung 
up. The rule of law has been ignored in favor of insider 
connections and back-door deals.
    More than investment decisions are at stake here. American 
foreign policy in the region must be reassessed in light of the 
reality that corruption, not capitalism, is growing there. TV 
Nova still exists and remains enormously profitable. However, 
the Czech Government maintains that CME does not own it. The 
advertising revenue of TV Nova no longer goes to the public 
shareholders of CME, many of whom are U.S. citizens. Instead, 
Vladimir Zelezny is pocketing TV Nova's $100 million of 
advertising revenue.
    The position of the Czech Government today is a far cry 
from its position in 1993. When I considered making this 
investment in 1993, the Czech Government went out of its way to 
encourage U.S. investors to make an investment in a private 
television station. The Czech Government pledged to protect any 
investment U.S. investors would make in a television station. 
They pointed out that such an investment would be protected by 
the bilateral investment treaty between the United States and 
the Czech Republic. Signed in 1991, the treaty is a sovereign 
guarantee that specifically states that the U.S. investment in 
the Czech Republic may not be expropriated.
    In the 1991 bilateral investment treaty the Czech Republic 
agreed to treat investments made by United States nationals 
fairly and equitably, to provide such investments full 
protection and security, not to impair the enjoyment of such 
investments through arbitrary or discriminatory measures, and 
not to expropriate such investments either directly or 
indirectly.
    In making our investment in TV Nova, Central European Media 
took the bilateral investment treaty between the United States 
and the Czech Republic at its word. We made this investment 
with the knowledge that our television station was protected 
unequivocally under the bilateral investment treaty. We had 
every reason to expect that, should the Czech Government ever 
attempt to expropriate our television station, the U.S. 
Government would insist immediately that the Czech Government 
reverse any such expropriations.
    I must say that our U.S. Ambassador there, John Shattuck, 
has been exemplary in this respect, speaking to the Czech 
Government on our behalf, yet the Czech Government has ignored 
his pleas and everyone else's pleas.
    Almost one year ago on August 5, 1999, TV Nova's television 
signal was illegally terminated. The termination of our signal 
immediately deprived viewers of TV Nova's programming and our 
company of the lifeblood of any television station, the 
advertising revenue. On that day, Vladimir Zelezny began to 
broadcast a competing television signal instead, despite being 
legally bound to broadcast our signal under an exclusive 
contract officially blessed by the Czech Government at the time 
of our investment.
    CME then immediately went before the Czech Media Council. 
The Czech equivalent of our FCC it is the government entity 
that officially blessed our exclusive contract at the time of 
our investment. CME demanded that the broadcast of our signal 
be resumed. The Czech Media Council refused. The Media Council 
effectively said, quote: ``This is of no concern to us. This is 
merely a business dispute. Go to the courts.''
    CME has gone to the Czech courts. In fact, we recently 
received a decision by the court that our contract is exclusive 
and that Vladimir Zelezny must broadcast our television signal. 
When we then returned to the Media Council and showed them the 
court ruling that required Vladimir Zelezny to broadcast our 
television signal. Sadly, the Media Council again refused, 
saying we must await an appeal, a process that could take 
years.
    In the meantime, Vladimir Zelezny continues to broadcast 
his television signal and pocket the $100 million per year of 
revenues that belong to the shareholders of Central European 
Media, many of whom are U.S. citizens.
    The list of Zelezny's crimes is extensive. We have 
submitted proof to the Czech police that he forged false 
contracts to justify his illegal actions. We have submitted 
those false contracts to the Czech courts as proof of these 
crimes, including detailed expert reports demonstrating the 
forgery. This has also been ignored.
    We have submitted proof that Zelezny has engaged in tax 
fraud and cut sweetheart deals with advertisers on TV Nova that 
stole revenues from CME with companies that he owned, but this 
proof, too, has been ignored by the Czech police. And on top of 
this he has stolen copyrights and lied under oath.
    The response CME has received to its proof has made it 
clear that no matter what evidence CME presents, Czech 
prosecutors will not go forward without improper inducement. I, 
as a responsible businessman, operate under American law and 
rule of ethics, and will not provide these inducements.
    There have been private detectives hired to stalk and 
intimidate CME employees and their families. It is rumored 
also, and widely rumored in the Czech Republic, that there are 
dossiers about the Czech Republic's leading politicians and 
threats, should anything ever happen, that these dossiers will 
be put on TV. And this has paralyzed many Czech politicians.
    So what needs to be done? First, the State Department 
should demand, immediately and publicly, that the expropriation 
of TV Nova be reversed, not done in quiet diplomacy but 
publicly.
    Second, the State Department should insist that the $100 
million of advertising revenue that Vladimir Zelezny has 
pocketed over the last year be returned to CME. Make no mistake 
about it, the Czech Government has the ability to follow the 
rule of law. It is simply a matter of encouraging Prague to do 
the right thing. Perhaps the best way to get Czechs' attention 
is for the State Department to say loud and clear: Stop 
stealing from American taxpayers!
    Third, the Treasury Department should demand that the 
international institutions funded by U.S. taxpayers cease 
giving financial support to the Czech Republic until the 
expropriation of TV Nova is reversed.
    It is an insult to the American taxpayers that the European 
Bank for Reconstruction and Development, the International 
Monetary Fund, and the World Bank, funded by U.S. taxpayers, 
continue to give U.S. taxpayers' money to the Czech Republic. 
It is absolutely outrageous that the International Monetary 
Fund and World Bank are planning to reward the Czech Republic 
by holding their annual meeting in September in Prague.
    American investors have already lost hundreds of millions 
of dollars from the expropriation of TV Nova. It compounds this 
crime to take tax dollars from the same investors to fund the 
EBRD, the IMF, and the World Bank, when these institutions show 
such little regard for U.S. taxpayers.
    The future of former Communist countries of Central and 
Eastern Europe is not yet written. The United States can make a 
huge difference by insisting that our treaty be honored, that 
the rule of law be upheld. We need to reverse what has happened 
to TV Nova, not just for the sake of investors, but for the 
good of the Czech Republic and the United States.
    Our goals in the region are clear, peace and prosperity. 
But history is also clear: peace and prosperity only follow the 
rule of law. What happened to TV Nova is not only a scandal in 
the region. Bribery and blackmail are commonplace in the 
region. And if this is allowed to stand, countless others will 
be inspired to follow the example. No one, be they Czech 
citizens or American taxpayers, can afford to see the rule of 
law ignored.
    I thank you very much for the opportunity to tell the story 
of what happened to TV Nova, and I will be happy to answer any 
questions. Thank you.
    [The prepared statements of Mr. Lauder follow:]

                 Prepared Statement of Ronald S. Lauder

    Thank you, Mr. Chairman. My name is Ronald Lauder, and the story 
that brings me here begins in 1986, when I had the privilege of 
representing the United States of America as the ambassador to Austria 
in Vienna, in the heart of Central Europe.
    Vienna is just across the border from the country that was then 
called Czechoslovakia, a country that had been under Communist rule 
since 1947. Sitting where I was in Central Europe, I witnessed the 
devastation that this part of the world had experienced from the Second 
World War, the Holocaust, and the failure of the Communist system under 
which the Czech people had toiled for forty years.
    Even before the fall of the Berlin Wall, I set out to make a 
positive contribution in this part of the world through the Ronald S. 
Lauder Foundation by starting Jewish schools that have educated more 
than 10,000 children in schools in fifteen countries.
    The Velvet Revolution of 1989 brought great hope to the Czech 
people as they set out to create a Democracy and a market-based 
economy. The fall of Communism was a watershed event in the history of 
Central and Eastern Europe, and I was optimistic that I could also make 
a significant positive contribution by helping to establish a free 
press.
    Accordingly, I underwrote the establishment of independent 
television stations in the new democracies of Central and Eastern 
Europe. Under the Communist system, the governments in these countries 
owned and controlled all forms of media: television, radio and 
newspapers. I hoped to provide these societies with the same kind of 
free press that we enjoy in this country.
    The former Communist countries of Central and Eastern Europe 
needed--and still need enormous capital investment. It was my hope that 
if my independent television stations were successful, I would thereby 
create an example for other private investors, who might, in turn also 
want to invest in these countries. In 1994, I brought Central European 
Media, (or CME), to the United States capital markets and raised $66 
million dollars in an initial public offering.
    CME, thereby, became a public company with shares traded on the 
NASDAQ stock exchange. The shares of CME were traded by well-known U.S. 
brokerage firms such as: Merrill Lynch; Morgan Stanley; Dean Witter; 
Salomon; Smith Barney and Prudential Securities. CME shares were 
purchased by thousands of U.S. citizens, large and small, directly and 
indirectly for their private accounts, mutual funds, pension plans, 
IRA's, Keogh plans, and for their children's education.
    The first television station that Central European Media launched 
was TV Nova in Prague, the capital of the Czech Republic. TV Nova was 
an enormous success. Soon after its launch in 1994, the station had 
revenue of approximately $100 million dollars per year and was 
proclaimed by the news media to be the most successful launch of a TV 
station in history. The success of TV Nova allowed Central European 
Media to return to the U.S. equity markets in 1995 and 1996, to raise 
an additional $220 million dollars in equity and sell $170 million 
dollars in bonds in 1997.
    Much of these proceeds were used to finance successful launches of 
stations in Romania, Slovakia, Slovenia and Ukraine. To this day, 
Central European Media's television stations in Romania, Slovakia, 
Slovenia and Ukraine are the leading independent television stations in 
those countries.
    So what went wrong? How did hundreds of American taxpayers see 
their investments as Central European Media's stock tumble despite the 
fact that this company built one of the most profitable television 
stations in Europe?
    The answer is sad but simple: TV Nova was stolen.
    TV Nova, a television station that generated $100 million of 
revenue every year in 1995, 1996, 1997 and 1998 was stolen from CME by 
the joint access of the Czech Media Council and Vladimir Zelezny, CME's 
former business partner in TV Nova. The media council stole TV Nova by 
repudiating its prior official approvals of CME's position after TV 
Nova became successful, by initiating administrative and criminal 
prosecutions attacking the business protections it had formally 
guaranteed. When it was soliciting CME's capital in 1993, and by 
affirmatively supporting Dr. Zelezny, rather than stopping him, when he 
violated obligations to CME that the Media Council was required by law 
to protect, Vladimir Zelezny stole TV Nova by renouncing his agreements 
with CME, exercising improper influence on members of the media 
council, and threatening Czech political leaders with blackmail.Yet the 
TV Nova scandal is about even more than the theft of American 
investment, it is about the rule of law. This country--and our 
taxpayers--invested heavily in hope of building a foundation for free 
markets behind the old Iron Curtain. The dream was that capitalism 
would take root quickly and secure freedom for the future.
    Sadly, the TV Nova scandal proves in the Czech Republic only crony 
capitalism has sprung up. The rule of law has been ignored in favor of 
insider connections and backdoor deals. More than investment decisions 
are at stake here. American foreign policy in the region must be 
reassessed in light of the reality that corruption, not capitalism, is 
growing there.
    TV Nova still exists and remains enormously profitable. However, 
the Czech government maintains that CME does not own it. The 
advertising revenue of TV Nova no longer goes to the public 
shareholders of CME, many of whom are U.S. citizens. Instead, Vladimir 
Zelezny is pocketing TV Nova's $100 million of advertising revenue. The 
position of the Czech government today is a far cry from its position 
in 1993, when I considered making this investment.
    In 1993, the Czech government went out of its way to encourage U.S. 
investors to make an investment in a private television station. The 
Czech government pledged to protect any investment U.S. investors would 
make in a television station, and pointed out that such an investment 
would be protected by the bilateral investment treaty between the 
United States and the Czech Republic, which was signed in 1991. This 
treaty is a sovereign guarantee that specifically states that U.S. 
investment in the Czech Republic may not be expropriated.
    In the 1991 bilateral investment treaty, the Czech Republic agreed 
to treat investments made by United States nationals fairly and 
equitably, to provide such investments full protection and security, 
not to impair the enjoyment of such investments through arbitrary or 
discriminatory measures, and not to expropriate such investments either 
directly or indirectly.
    In making our investment in TV Nova, Central European Media took 
the bilateral investment treaty between the United States and the Czech 
Republic at its word. We made this investment with the knowledge that 
our television station was protected unequivocally under the bilateral 
investment treaty. We had every reason to expect that should the Czech 
Government ever attempt to expropriate our television station, the U.S. 
government would insist immediately that the Czech government reverse 
any such expropriation. Unfortunately, this has not occurred.
    Almost one year ago, on August 5, 1999, TV Nova's television signal 
was illegally terminated. The termination of our signal immediately 
deprived Czech viewers of TV Nova's programming and our company of the 
life-blood of any television station advertising revenue. On that same 
day, Vladimir Zelezny, began to broadcast a competing television signal 
instead, despite being legally bound to broadcast our signal under an 
exclusive contract officially blessed by the Czech government at the 
time of our investment.
    CME immediately went before the Czech Media Council, the Czech 
equivalent of the FCC and the government entity that had officially 
blessed our exclusive contract at the time of our investment, and 
demanded that the broadcast of our signal be resumed. Sadly, the media 
council refused. The Media Council effectively said: ``this is of no 
concern to us. This is merely a business dispute. Go to the courts.''
    CME has gone to the Czech courts. In fact, we recently received a 
decision by the court that our contract is exclusive and that Vladimir 
Zelezny must broadcast our television signal. We then returned to the 
Media Council and showed them the court ruling that required Vladimir 
Zelezny to broadcast our television signal. Sadly, the Media Council 
again refused, saying that we must wait to appeal--a process that could 
take years.
    In the meantime, Vladimir Zelezny continues to broadcast his own 
television signal and pocket $100 million per year of revenue that 
belongs to the shareholders of Central European Media, many of whom are 
U.S. citizens.
    The list of Zelezny's crimes is extensive. We have submitted proof 
to the Czech police that Zelezny has forged false contracts to justify 
his illegal actions and has submitted those false contracts to Czech 
courts. Our proof of these crimes, including detailed expert reports 
demonstrating the forgery, has been ignored. We have also submitted 
proof that Zelezny has engaged in tax fraud and cut sweetheart deals 
with advertisers on TV Nova that stole revenues from CME, but this 
proof, too, has been ignored by Czech police. On top of this, Zelezny 
has stolen copyrights, lied under oath, and even broke into CME's 
computer system in London.
    The responses CME has received to its proof have made clear that no 
matter what evidence CME presents, Czech prosecutors will not go 
forward without inducements that I, as a responsible businessman 
operating under American law and rule of ethics, cannot and will not 
provide. Zelezny has hired private detectives to stalk and intimidate 
CME employees and their families. Vladimir Zelezny has dossiers on the 
Czech Republic's leading politicians, and his threats to expose on his 
television station the unseemly details of these politicians' lives 
have paralyzed the Czech government's ability to deal with this issue.
    So what needs to be done? First, the State Department should demand 
immediately and publicly that the expropriation of TV Nova be reversed. 
Second, the State Department should insist that the $100 million 
dollars of advertising revenue that Vladimir Zelezny has pocketed over 
the last year be returned to CME. Make no mistake about it: the Czech 
government has the ability to follow the rule of law here. It is simply 
a matter of encouraging Prague to do the right thing. Perhaps the best 
way to get the Czech's attention is for the State Department to say, 
loud and clear: ``stop stealing from American taxpayers!'' Third, the 
Treasury Department should demand that the international institutions 
funded by U.S. taxpayers cease giving financial support to the Czech 
Republic until the expropriation of TV Nova is reversed.
    It is an insult to American taxpayers that the European Bank for 
Reconstruction and Development, the International Monetary Fund and the 
World Bank, funded by U.S. taxpayers, continue to give U.S. taxpayers 
money to the Czech Republic despite the expropriation of TV Nova.
    It is absolutely outrageous that the International Monetary Fund 
and World Bank are planning to reward the Czech Republic by holding 
their annual meeting in September in Prague' American investors have 
already lost hundreds of millions of dollars from the expropriation of 
TV Nova. It compounds this crime to take tax dollars from these same 
investors to fund the EBRD, the IMF and World Bank when these 
institutions show such little regard for U.S. taxpayers.
    The future of the former communist countries of Central and Eastern 
Europe is not yet written, and the United States can make a huge 
difference by insisting that our, treaties be honored, that the rule of 
law be upheld and by not rewarding criminals. We need to reverse the 
expropriation of TV Nova. Not just for the sake of American investors, 
but in the larger sense, for the good of the Czech Republic and the 
United States. Our goals in the region are clear: peace and prosperity. 
But history is also clear: peace and prosperity only follow the rule of 
law.
    Vladimir Zelezny is not the only thief in the region. Bribery and 
blackmail are not his alone. If the expropriation of TV Nova is allowed 
to stand, countless others will be inspired to follow his example. No 
one, neither Czech citizens, nor American taxpayers, can afford to see 
the rule of law ignored.
    Thank you for the opportunity to tell the story of the 
expropriation of TV Nova.
    I would be happy to answer any questions.

                                *  *  *

    In addition to the direct testimony Mr. Lauder has presented, the 
following background information is offered as a more extensive 
examination of the TV NOVA scandal. A chronology of the scandal's major 
events is provided, as well.

    As the Rule of Law has continued to be frustrated inside the Czech 
Republic, Mr. Lauder and other American investors have been forced to 
seek justice outside the Czech system. The following information 
details the international arbitration Mr. Lauder has commenced that 
seeks to hold the current government of the Czech Republic accountable 
for its action.
    It should be noted that while Mr. Lauder has personally initiated 
this action, he has pledged that any proceeds from a favorable ruling 
will be used to compensate other investors. In other words, Mr. Lauder 
is seeking justice here, not personal profit.

                   I. INTRODUCTION TO THE ARBITRATION
    Pursuant to Article 3 of the Arbitration Rules of the United 
Nations Commission on International Trade Law (the ``UNCITRAL Rules''), 
Ronald S. Lauder has commenced arbitration against the Czech Republic. 
Mr. Lauder has launched this arbitration as a result of actions by the 
Czech Republic in breach of the Treaty Between the United States of 
America and The Czech and Slovak Federal Republic Concerning the 
Reciprocal Encouragement and Protection of Investment, executed on 
October 22, 1991 (the ``Treaty''). The Czech Republic has assumed the 
rights and obligations of the Czech and Slovak Federal Republic under 
the Treaty.
    After having recognized the need for foreign investment to foster 
the development of television broadcasting in the Czech Republic, and 
after having actively solicited and received foreign participation in 
its first nationwide private television station, the Czech Republic 
breached its Treaty obligations by taking affirmative steps to 
constrain the scope of the foreign investor's interest and by failing 
to protect the foreign investment that it specifically approved. Once 
the television broadcasting venture created with foreign capital became 
established and successful, and while the local Czech participants in 
the company organized to hold the foreign investment were arranging the 
sale of their interests at a substantial profit, the Czech Republic 
reversed its position on the fundamental nature of the foreign 
investment in a manner that favored local investors and critically 
undermined the value of the foreign investment. These actions have been 
unfair, arbitrary, unreasonable and discriminatory against the foreign 
investor, and have consequently constituted breaches of the Treaty.
    The dispute between Mr. Lauder and the Czech Republic is an 
``investment dispute'' as defined by Article VI(1) of the Treaty. As 
such, it is subject to arbitration pursuant to Articles V.E (2) and (3) 
of the Treaty.
    The Treaty entered into effect in the Czech and Slovak Federal 
Republic on December 19, 1992. (Decree of the Ministry of Foreign 
Affairs No. 187/1993 Coll.) After the Government of the Czech and 
Slovak Federal Republic ceased to exist on December 31, 1992, the Czech 
Republic succeeded to the rights and obligations of the Czech and 
Slovak Federal Republic under the Treaty. (Article 5 of Constitutional 
Act No. 4/1993 Coll.)
    As set forth in more detail below, the dispute arose on July 23, 
1996. More than six months having passed without the settlement of the 
dispute through consultation and negotiation, Articles V.1 (2) and (3) 
of the Treaty provide that the dispute may be submitted to arbitration 
after the complaining national consents ``in writing to the submission 
of the dispute for settlement by conciliation or binding arbitration'' 
pursuant to any of the methods permitted by the Treaty.
    Mr. Lauder has consented in writing to submit his dispute with the 
Czech Republic for binding arbitration pursuant to the UNCITRAL Rules 
(Letter from Ronald Lauder to the Ministry of Finance of the Czech 
Republic, dated August 19, 1999.)
    Pursuant to Article VI(3)(b) of the Treaty, the Czech Republic has 
consented to submit the dispute to arbitration in a number of forums, 
including before an ad hoc tribunal established pursuant to the 
UNCITRAL Rules.

                       II. THE ARBITRATION CLAIM
A. The Czech Republic Undertook Obligations to Promote and Protect 
        Investments of U.S. Investors
    The Treaty sets forth an array of undertakings by both signing 
nations, designed to promote and protect investments in each nation by 
investors of the other nation. Among others, the Czech Republic, acting 
through the Council, has breached the following provisions of the 
Treaty:

          a. ``Investment shall at all times be accorded fair and 
        equitable treatment, shall enjoy full protection and security 
        and shall in no case be accorded treatment less than that which 
        conforms to principles of international law' (Article 
        II(2)(a));

          b. ``Neither Party shall in any way impair by arbitrary and 
        discriminatory measures the management, operation, maintenance, 
        use, enjoyment, acquisition, expansion, or disposal of 
        investments'' (Article II(2)(b)); and

          c. ``Investments shall not be expropriated or nationalized 
        either directly or indirectly through measures tantamount to 
        expropriation or nationalization (`expropriation') except for a 
        public purpose; in accordance with due process of law; in a 
        nondiscriminatory manner; upon payment of prompt, adequate and 
        effective compensation; and in accordance with the general 
        principles of treatment provided for in Article 11(2)'' 
        (Article III).
B. Mr. Lauder's Investment in the Czech Republic is Protected under the 
        Treaty
    Mr. Lauder indirectly controls zeska nezavisla televizni 
spoleznost, spol. s r.o. (``CNTS''), a Czech corporation engaged in the 
business of providing broadcasting services for TV Nova, the Czech 
Republic's most popular and successful television station.
    Mr. Lauder has direct voting control of Central European Media 
Enterprises Ltd. (``CME Ltd.''), the leading commercial television 
company in Central and Eastern Europe. One of CME Ltd.'s wholly owned 
subsidiaries is CME Media Enterprises B.V. (``CME''). CME, in turn, 
holds a 99% equity interest in CNTS through its wholly owned 
subsidiary, CME Czech Republic B.V. Pursuant to Article I(1)(a) of the 
Treaty, the CME and CNTS assets in the Czech Republic constitute an 
``investment'' of Mr. Lauder, who exercises ultimate control over CNTS 
and its operations in the Czech Republic, thereby entitling him to the 
benefits and protections of the Treaty.
C. By Unreasonably and Discriminatorily Depriving Mr. Lauder of His 
        Investments, the Czech Republic Has Failed to Abide by its 
        Obligations Under the Treaty
            1. Background of Mr. Lauder's Investment
    On October 30, 1991, only eight days after the Treaty was signed, 
the Czech Republic's Act on the Operation of Radio and Television 
Broadcasting was adopted. (Act No. 468/1991 Coll, the ``Media Law''). 
The Media Law empowered the Council to grant licenses for television 
broadcasting. In spite of the Treaty provisions protecting American 
investors from discrimination, the Council did not administer the Media 
Law in a manner that presented a level playing field for a foreign 
investor competing against Czech nationals.
    In late 1992 and early 1993, the Council participated in 
negotiations with, among others, (i) the Central European Development 
Corporation GmbH (``CEDC''), a German company also controlled by Mr. 
Lauder and the predecessor to CME; (ii) Dr. Vladimir Zelezny, a Czech 
national, and (iii) CET 21, spol. s r.o. (``CET 21''), a Czech company. 
The goal of the negotiations was the issuance of a license and the 
formation of a company for television broadcasting in the Czech 
Republic.
    In order to encourage a substantial foreign investment while at the 
same time preventing foreign ownership of broadcasting licenses, the 
Council required and approved a structure that would permit CEDC to 
obtain the use and economic benefit of a license issued to a Czech-
owned company--CET 21.
    Thus, on February 9, 1993, when the Council issued a license to CET 
21 to operate the first nationwide private television station in the 
Czech Republic (the ``License''), the License acknowledged CEDC's 
``substantial foreign capital participation'' and CEDC's partnership 
with the holder of the License, CET 21. The Council's grant of the 
License to CET 21 was made expressly subject to, among other things, 
the condition that CET 21 form a joint venture with CEDC and use the 
License through that joint venture. When the Council issued the 
License, it knew that CET 21 and CEDC had explicitly agreed that 
neither of them would be authorized to broadcast commercial television 
without the other.
    In April 1993, CET 21 and CEDC agreed on a Memorandum of 
Association (``MOA'') for the creation of the required joint venture: 
CNTS. Under the MOA, CEDC contributed 75% of CNTS's start-up capital, 
and obtained a 66% ownership interest in return. The remaining 25% of 
start-up capital was contributed by zeska spozitelna a.s., a Czech 
bank, which obtained a 22% ownership interest. CET 21 contributed to 
CNTS the right to use the License ``unconditionally, unequivocally and 
on an exclusive basis,'' and obtained a 12% ownership interest in 
return for this contribution. Dr. Zelezny served as the General 
Director and Executive of CNTS and as the General Director of CET 21.
    The MOA reflected the organizational structure that had been 
negotiated with the intensive participation of the Council and under 
its oversight. The concept behind the structure was that CNTS would be 
the central and only operating company for the new television station. 
CNTS was to pay all costs and keep all revenues associated with 
operating the television station.
    On April 20, 1993, the Council gave its formal approval to the MOA.
    In February 1994, CNTS and CET 21 began broadcasting TV Nova under 
the License. TV Nova quickly became the Czech Republic's most popular 
and successful television station. In August 1994, CME took over CEDC's 
interest in CNTS, which it has held since May 1997 through CME Czech 
Republic B.V.
            2. Commencement of Dispute and Attempt at Resolution
    On July 23, 1996, citing a change in the Media Law, the Council 
commenced administrative proceedings claiming that the arrangement 
between CNTS and CET 21 amounted to an illegal transfer of the License. 
This action was directly contrary to the structure that the Council had 
approved a little more than three years previously for the express 
purpose of fostering foreign investment within the framework of the 
Media Law.
    CME and CNTS opposed the Council's position in the administrative 
proceeding as unfair and without any basis in law. An opinion from the 
Institute of the State and Law of the Academy of Sciences of the Czech 
Republic released on August 13, 1996 supported CNTS and CME's position 
that the relationship initially approved by the Council was proper 
under the Media Law, as amended. CME and CNTS nevertheless also began 
negotiations to settle the dispute amicably. It was fundamental to 
CME's position that any settlement could not substantively affect its 
legal rights and the economics of its investment in the Czech Republic.
    At the Council's insistence, CME was forced to accept a 
modification of the terms of its MOA with CET 21. Under the new terms, 
the language of the MOA in which CET 21 had contributed the ``right to 
use'' the License on an exclusive basis was amended to provide that CET 
21 contributed to CNTS the ``know-how'' connected with the License, 
still on an exclusive basis. CME was repeatedly assured that this 
change would not alter the basic economic position of the participants 
in TV Nova.
    At approximately the same time that the Council commenced 
administrative proceedings against CNTS, the local investors in CNTS 
began to sell their interests in CNTS to cash out their very 
substantial profits from the early success of the venture. On July 17, 
1996, zeska spozitelna a.s. sold its 22% interest in CNTS to CME, 
raising CME's ownership share to 88%. Then, in December of 1996, 
various local investors who indirectly owned a 5.2% interest in CNTS 
through CET 21 sold that interest to CME. Dr. Zelezny, who acted as an 
intermediary for that sale, further arranged for the pooling of all but 
1% of the remaining Czech ownership of CNTS into a new entity known as 
Nova Consulting a.s. (``Nova Consulting''). In conjunction with this 
reorganization, Dr. Zelezny purported to increase his ownership 
interest in CET 21 to a majority 60% share. On August 11, 1997, CME 
purchased Nova Consulting's 5.8% interest in CNTS for US$ 28.5 million. 
As a result of these transactions, CME had increased its ownership 
interest in CNTS from 66% to 99%, and local investors, through CET 21, 
retained only a 1% interest in CNTS.
    In September 1997, having extracted the concessions regarding the 
MOA from CNTS and CME, the Council dismissed the administrative 
proceeding concerning TV Nova.
            3. Continuation of Arbitrary and Discriminatory Actions by 
                    the Czech Republic
    Contrary to CME's belief in late 1997 that the revised arrangements 
forced upon it by the Council would not adversely impact its investment 
in the Czech Republic, the events that ensued proved the opposite. At 
the instigation of influential Czech nationals (including principally 
Dr. Zelezny), the Council has used its power unfairly and unreasonably 
to undermine the value of the CNTS investment. In doing so, the Council 
has discriminated against CME as a foreign investor by providing 
favorable treatment for the business endeavors of the local investors 
(and, in particular, Dr. Zelezny), who had sold their interest in CNTS 
at great profit.
    Relying on the changes in the MOA required by the Council, CET 21 
and Dr. Zelezny, as the majority owner of CET 21, have recently taken 
the position that CET 21 is not required to honor its partnership with 
CNTS. In particular, they claim that CET 21 and CNTS do not have an 
exclusive relationship. This claim is completely at odds with the 
course of dealings the parties have followed from 1993 until October 
1998, when CET 21 began to repudiate their longstanding arrangement. 
CET 21 and CME always understood that CNTS, exclusively, would pay all 
costs and provide all services associated with TV Nova. CET 21 and Dr. 
Zelezny assert that a non-exclusive relationship is required by the 
Council's reading of Czech law, and that the only right CNTS (or CME as 
its 99% owner) has obtained as a result of contributing all of the 
capital to create TV Nova is the right to compete with others for the 
provision of services. For the past year, CET 21 and Dr. Zelezny have 
been systematically repudiating all obligations to CNTS. These acts 
culminated on August 5, 1999, when CET 21 ceased broadcasting TV Nova 
with CNTS and announced that it would no longer obtain any services 
from CNTS.
    While Dr. Zelezny and CET 21 have been pursuing their campaign to 
cripple CNTS for their own private profit, the Council has taken 
actions and issued opinions that were supportive of and essential to 
their efforts.
    On March 3, 1999, Dr. Zelezny secretly wrote to the Council asking 
it to confirm several legal opinions that CET 21 wished to advance, all 
of which related to disputes between CET 21 and CNTS. On March 15, 
1999, twelve days after Dr. Zelezny's letter, the Council responded. As 
requested by CET 21, it took the unfounded position that agreements 
between broadcast operators and service providers must be on a non-
exclusive basis. In issuing this opinion, the Council did not disclose 
that it had received the secret communication from Dr. Zelezny or that 
it was adopting almost word for word the views that Dr. Zelezny had 
expressed in his March 3 letter. The Council's position in its March 
15, 1999 letter was completely at odds with its 1993 approval of the 
exclusivity arrangement that was the foundation for the investment of 
foreign capital necessary to the formation of TV Nova.
    As the scope of the rights of CNTS have become a matter of 
increasing dispute, including much litigation over Dr. Zelezny's and 
CET 21's entitlement to repudiate all rights of CNTS, the Council has 
refused to take actions that responsibly address the situation it was 
instrumental in creating. Its inaction has amounted to a failure to 
protect the legitimate interests of the foreign investors. On July 26, 
1999, the Council informed the Czech parliament that it considers the 
current dispute to be of a merely commercial nature that should be 
resolved privately between CNTS and CET 21, a position that improperly 
takes no account of the critical role the Council has played by its 
disavowal of its original formal approval of CNTS's exclusive right to 
use the license.
    The Council's actions have violated the Treaty and have contravened 
its purpose. The terms to which the Council agreed in 1993 were pivotal 
in leading CME to invest tens of millions of dollars into the Czech 
Republic. Once the local investors cashed out their positions in CNTS, 
causing their interests to diverge from Mr. Lauder's interests, the 
Council further took steps to benefit the local investors at Mr. 
Lauder's expense. As a result of the Council's earlier actions and its 
current refusal to remedy the situation, CNTS's business activity has 
come to a standstill, thus wholly undermining the value of Mr. Lauder's 
investment in violation of the terms of the Treaty.
    Despite the efforts made on behalf of Mr. Lauder, the dispute has 
yet to be resolved satisfactorily. Mr. Lauder remains open to, and 
would welcome, an amicable settlement of this dispute. However, in 
light of the fact that the dispute has not been amicably settled over 
several years to date, and given the urgency the dispute has taken on 
as a result of the Council's recent behavior and the recent halt of all 
business activities of CNTS, it has become necessary to file this 
Notice of Arbitration.

                      III. WHAT ARBITRATION CAN DO
    Mr. Lauder has requested that the Tribunal provide the relief 
necessary to restore CNTS's exclusive rights to provide broadcasting 
services for TV Nova and thereby restore to his the economic benefit 
available under the arrangement initially approved by the Council. To 
this end, the Tribunal has been requested to order the Czech Republic 
to take such actions as are necessary to restore the contractual and 
legal rights associated with the claimant's investments. Among other 
things, the Czech Republic should:

          a. be ordered to impose conditions on the License that 
        adequately reflect and secure CNTS's exclusive right to provide 
        broadcast services and its right to obtain all corresponding 
        income in connection with the operation of TV Nova;

          b. be required to enforce such conditions, including by 
        revoking the License and reissuing it to CNTS or to such other 
        entity and under such other circumstances as would restore the 
        initial economic underpinnings of Mr. Lauder's investment; and

          c. be held liable for the damages Mr. Lauder has incurred to 
        date, in an amount to be determined by the Tribunal, taking 
        into account, among other factors, the fair market value of Mr. 
        Lauder's investment prior to the breaches of the Treaty.

    The relief requested comports with the international law of state 
responsibility and is consistent with the calculation of expropriation 
damages in the Treaty. Article 111(1) of the Treaty indicates the 
compensation required in the event that an investment is expropriated 
or nationalized (directly or indirectly) in a manner that is based on a 
valid public purpose, accords with due process and is not 
discriminatory. In such cases, the ``compensation shall be equivalent 
to the fair market value of the expropriated investment immediately 
before the expropriatory action was taken or became known; to be paid 
without delay; include interest at a reasonable market rate; and be 
freely transferable at the prevailing market rate of exchange on the 
date of expropriation.''
    1. In this case, while no official expropriation has been 
announced, the Czech Republic, through the actions of the Council, has 
deprived Mr. Lauder of the entire value of his investment without 
complying with the standards of fairness, non-discrimination and due 
process set forth in the Treaty. If an investor is entitled to the fair 
market value of its investment for an expropriation that comports with 
due process, is nondiscriminatory and serves the public interest, Mr. 
Lauder must be entitled to at least the same remedy in the 
circumstances presented here.

              A Chronology of Events in the TV NOVA Scandal
------------------------------------------------------------------------

------------------------------------------------------------------------
Oct. 1991.........................  Czechoslovakia enters a bilateral
                                     investment treaty with the United
                                     States.
1992..............................  Central European Development
                                     Corporation (``CEDC''), a
                                     predecessor company to CME,
                                     negotiates an agreement with
                                     Vladimir Zelezny (``VZ'') and
                                     others prescribing a business
                                     relationship between CEDC and CET
                                     21, whereby the parties would
                                     jointly apply for the Czech
                                     Republic's first nationwide private
                                     television license.
Feb. 3, 1993......................  CET 21 and CEDC enter into an
                                     agreement entitled ``Overall
                                     Structure of a New Czech Commercial
                                     Television Entity.'' The agreement
                                     provides for the formation of a new
                                     company--CNTS--that would be the
                                     ``only'' company to run the
                                     television station. In addition,
                                     CET 21 and CEDC agree that
                                     ``neither party has the authority
                                     to broadcast commercial television
                                     without the other.''
Feb. 5, 1993......................  CET 21 and CEDC enter into a second
                                     agreement on the structure of a
                                     Czech Commercial Television Entity.
                                     As with the Feb. 3, 1999 Agreement,
                                     the Council for Radio and
                                     Television Broadcasting (the
                                     ``Media Council'') is notified of
                                     this Agreement and included in its
                                     official file. Both the Feb. 3 and
                                     the Feb. 5 Agreement are referred
                                     to in the license granted to CET 21
                                     and CEDC.
Feb. 9, 1993......................  The Media Council issues the Czech
                                     Republic's first nationwide private
                                     television license to CET 21. The
                                     license acknowledges CEDC's
                                     ``substantial foreign capital
                                     participation'' and CEDC's
                                     partnership with the license
                                     holder.
April 1993........................  CET 21 and CEDC agree on a
                                     Memorandum of Association (``MOA'')
                                     for the creation of CNTS. Under the
                                     MOA, CET 21 contributes to CNTS the
                                     right to use the license
                                     ``unconditionally, unequivocally,
                                     and on an exclusive basis''; CEDC
                                     contributes 75% of the capital that
                                     CNTS needs; and Ceska sporitelna
                                     (``CS'') Bank contributes the
                                     remaining 25%. In return, CET 21
                                     has a 12% interest in CNTS; CEDC
                                     has a 66% interest; and CS Bank has
                                     a 22% interest.
April 21, 1993....................  The Media Council approves the MOA.
1994..............................  CEDC transfers its interest in CNTS
                                     to CME.
Feb. 2, 1994......................  CET 21 and CNTS begin broadcasting
                                     TV Nova, which becomes the Czech
                                     Republic's most widely watched and
                                     successful television station.
Late 1995 or Early 1996...........  VZ approaches CNTS claiming that a
                                     modification of the MOA is
                                     necessary because as written it
                                     amounts to an illegal transfer of
                                     the license from CET 21 to CNTS.
Jan. 1996.........................  The Czech Parliament amends the
                                     Media Law to more clearly
                                     distinguish license-holders and
                                     service providers.
July 23, 1996.....................  The Media Council commences
                                     administrative proceedings
                                     concerning TV Nova, arguing that
                                     the arrangement between CME and CET
                                     21 is impermissible.
Aug. 1996.........................  CME, at the request of CS Bank,
                                     acquires CS Bank's interest in
                                     CNTS. Resulting ownership of CNTS:
                                     CME = 88%; CET 21 = 12%.
Oct. 4, 1996......................  VZ acknowledges, in a letter to the
                                     Media Council, that CET 21 ``has no
                                     authorization'' to broadcast
                                     without the ``direct participation
                                     of CEDC,'' pursuant to the
                                     agreements reached when CNTS was
                                     formed.
Nov. 14, 1996.....................  VZ offers assurances that CET 21 and
                                     CME can change the language of the
                                     MOA to satisfy the Media Council
                                     without affecting business
                                     arrangements between the parties in
                                     any way. Following negotiations
                                     with the Media Council, CET 21 and
                                     CME modify the MOA so that CET 21
                                     now contributes the ``know-how''
                                     connected with the license, still
                                     on an exclusive basis.
February 1997.....................  CET 21 amends its Memorandum of
                                     Association to increase VZ's
                                     ownership interest to 60%.
Aug. 96-Apr. 97...................  With VZ acting as an intermediary,
                                     CME purchases a 5.2% interest in
                                     CNTS from owners of CET 21. During
                                     this same time period, CET 21
                                     owners pool an additional 5.8%
                                     interest in CNTS and transfer this
                                     to Nova Consulting. Resulting
                                     ownership of CNTS: CME = 93.2%;
                                     Nova Consulting = 5.8%; CET 21 =
                                     1%.
May 21, 1997......................  As a result of pressure from the
                                     Media Council and at the
                                     recommendation of VZ, CNTS and CET
                                     21 enter into a Services Contract,
                                     which makes CNTS ``the exclusive
                                     object of the rights and
                                     obligations arising during its
                                     activity.'' The contract provides
                                     that CNTS shall incur all costs of
                                     providing services to CET 21 and,
                                     in return, shall collect all of TV
                                     Nova's advertising, sponsorship and
                                     other revenues, with 100,000 CzK
                                     per month going to CET 21.
Aug. 1997.........................  CME considers taking CNTS public in
                                     the Czech Republic, but its
                                     advisers later recommend against
                                     doing so based on market
                                     conditions, the likely valuation of
                                     CNTS, and other considerations. VZ
                                     concurs in this recommendation.
Aug. 11, 1997.....................  CME and VZ enter into a Share
                                     Purchase Agreement, pursuant to
                                     which CME purchases for $28.5
                                     million the 5.8% interest in CNTS
                                     held by Nova Consulting. In the
                                     discussions leading up to the
                                     Agreement, VZ threatens that if CME
                                     does not purchase this interest, he
                                     will transfer it to third parties
                                     of questionable repute. He also
                                     refuses to accept payment in CME
                                     shares. The agreement includes
                                     broad non-compete and non-
                                     solicitation covenants by VZ.
                                     Resulting ownership of CNTS: CME =
                                     99%; CET 21 = 1%.
Sept. 16, 1997....................  Acknowledging the execution of the
                                     amended MOA and the Services
                                     Contract, the Media Council
                                     dismisses the administrative
                                     proceeding concerning TV Nova.
Jan.-Apr. 1998....................  AQS, a competing program acquisition
                                     company controlled by VZ, is
                                     established. VZ causes CET 21 to
                                     enter into an agreement with AQS
                                     for the purchase of foreign and
                                     domestic programs.
Sept.-Oct. 98.....................  VZ represents TV Prima, TV Nova's
                                     primary competitor in the Czech
                                     market, in discussions involving
                                     the possible acquisition of TV
                                     Prima by SBS Broadcasting.
Sept.-Oct. 98.....................  All employees in the CNTS program
                                     acquisition department move to AQS.
                                     VZ announces AQS as the ``exclusive
                                     programme acquisition arm'' for TV
                                     Nova, which would ``fully replace
                                     CNTS.'' VZ issues an unauthorized
                                     guarantee from CNTS, securing all
                                     obligations incurred by AQS in
                                     connection with program
                                     acquisitions in the Czech Republic.
                                     VZ grants AQS an unauthorized power
                                     of attorney from CNTS to enter
                                     acquisition agreements.
Late 1998.........................  In negotiations with CME, VZ seeks
                                     to replace the existing Services
                                     Contract with multiple new services
                                     agreements limiting CNTS
                                     compensation for services provided
                                     to CET 21.
Mar. 3, 1999......................  VZ writes to the Media Council
                                     asking it to confinn several legal
                                     opinions of CET 21, all of which
                                     relate to disputes between CET 21
                                     and CNTS.
Mar. 15, 1999.....................  The Chair of the Media Council
                                     writes back to VZ adopting
                                     virtually all of the opinions in
                                     VZ's letter, including the
                                     assertion that relationships
                                     between a broadcasting operator and
                                     a service organization are built on
                                     a non-exclusive basis.
April 1999........................  VZ personally signs and causes to be
                                     filed with Czech Trademark Registry
                                     nearly 200 certificates of transfer
                                     purporting to convey, from CNTS to
                                     CET 21, registered trademarks and
                                     applications for trademarks for
                                     various important products and
                                     services owned by CNTS. Upon
                                     objection by CNTS, VZ withdraws the
                                     certificates.
April 19, 1999....................  VZ is dismissed as General Director
                                     and Executive of CNTS.
April-May 1999....................  VZ works to establish a new company
                                     to provide CET 21 with services for
                                     the operation of TV Nova, making a
                                     public announcement of his plans at
                                     the beginning of June.
April 26, 1999....................  VZ's attorney writes to distributors
                                     informing them that AQS is the sole
                                     program acquisition entity for TV
                                     Nova and stating that ``[o]nly
                                     programming purchased by AQS, a.s.
                                     will be broadcast on the channel TV
                                     Nova.''
May-June 1999.....................  VZ (personally and through his
                                     agents) solicits CNTS employees,
                                     telling them to tender their
                                     resignations before June 30, 1999,
                                     so as to be able to start work at
                                     VZ's new services company by
                                     September.
May-July 1999.....................  VZ (through his attorney) writes to
                                     CNTS stating that CET 21 should
                                     receive all of TV Nova's
                                     advertising revenue. VZ and his
                                     attorney threaten to dissolve CET
                                     21's contractual relations with
                                     CNTS unless CNTS agrees to
                                     relinquish advertising revenues by
                                     August 15.
June 1999.........................  VZ unveils ``magic contracts''
                                     (previously unknown to CME),
                                     including: (1) a purported Annex to
                                     the CNTS-CET 21 Services Contract,
                                     under which CNTS is only entitled
                                     to receive advertising revenues
                                     corresponding to the amount of
                                     services CNTS provides to CET 21;
                                     and (2) a ``General Agreement on
                                     the Transfer of Copyrights''
                                     between CNTS and CET 21, which
                                     appears to have the purpose of
                                     allowing CET 21 to re-invoice CNTS
                                     for the fees paid to AQS for the
                                     purchase of programs.
June 10, 1999.....................  VZ announces the establishment of
                                     Czech Production 2000 (``CP
                                     2000''), a new services company
                                     formed for the express purpose of
                                     ``stimulating competition'' with
                                     CNTS. VZ obtains funding for CP
                                     2000 through a loan from IPB Bank,
                                     a Czech Bank that owns the license
                                     holder for TV Prima.
June 11, 1999.....................  CET 21 enters into an agreement to
                                     transfer its 1% interest in CNTS to
                                     Produkce, prompting legal action by
                                     CNTS.
June 12, 1999.....................  VZ causes the TV Nova broadcasting
                                     signal to be diverted from CNTS
                                     studios during the ``Call the
                                     Director'' talk show, thus making
                                     it temporarily impossible for CNTS
                                     to broadcast TV Nova programming.
June 29-30........................  147 out of 500 employees resign from
                                     CNTS.
July 1, 1999......................  VZ causes CET 21's Memorandum of
                                     Association to be amended; the
                                     intended result of the change was
                                     to reduce his control over the
                                     company.
July 1999.........................  VZ and CP 2000 announce that they
                                     are nearly ready to take over CNTS'
                                     entire role in TV Nova.
July 20, 1999.....................  The Media Council announces that no
                                     media laws have been broken to date
                                     in the dispute over TV Nova.
Aug. 5, 1999......................  VZ, citing the failure of CNTS to
                                     provide CET 21 with TV Nova's play
                                     list for that day, cancels the
                                     Services Agreement. VZ announces
                                     that he will henceforth broadcast
                                     TV Nova without CNTS and announces
                                     that CP 2000 is now purchasing
                                     advertising for TV Nova. (He later
                                     announces that yet another company,
                                     Mag Media 99, will assume these
                                     functions.) CNTS employees are
                                     idled.
Aug. 5, 1999......................  CNTS requests that the Media Council
                                     call an extraordinary session to
                                     address VZ's latest action. A
                                     representative of the Media Council
                                     publicly states that the Media
                                     Council intends to consider the
                                     dispute at its scheduled meeting on
                                     August 17, 1999. Despite this
                                     statement, the Council takes no
                                     further action.
Aug. 6 and 13, 1999...............  CNTS again requests that the Media
                                     Council address the wrongful
                                     conduct of VZ and CET 21. Among
                                     other requests, CNTS calls on the
                                     Council to commence proceedings to
                                     revoke CET 21's license.
Aug. 23, 1999.....................  Ronald S. Lauder, as a shareholder
                                     with voting control over CME,
                                     initiates an arbitration claim
                                     against the Czech Republic based on
                                     violations of the Bilateral
                                     Investment Treaty between the
                                     United States and the Czech
                                     Republic.
Aug. 23, 1999.....................  The Chairman of the Media Council
                                     states that the dispute is merely a
                                     commercial matter that must be
                                     settled by the courts.
Sept. 9, 1999.....................  As a result of VZ's repudiation and
                                     the Media Council's continued
                                     inaction, CNTS is forced to suspend
                                     its technical and production
                                     operations and dismiss over two
                                     hundred employees. Fifty more
                                     employees are dismissed several
                                     weeks later.
Nov. 10, 1999.....................  The arbitral tribunal in CME's
                                     arbitration against VZ grants an
                                     interim order directing VZ to take
                                     steps to restore CNTS to its prior
                                     position as an exclusive provider
                                     of critical services for TV Nova.
                                     Among other things, the order
                                     requires VZ to sever all dealings
                                     between CET 21 and other service
                                     providers and to resume exclusive
                                     relations with CNTS in the areas
                                     where CNTS was previously providing
                                     these services, including program
                                     acquisition, programming and
                                     broadcasting services, and
                                     brokerage of advertising and
                                     receipt of advertising revenues.
                                     The order is to remain in effect
                                     until the tribunal directs
                                     otherwise.
Nov. 10, 1999.....................  VZ begins a campaign trumpeting his
                                     refusal to comply with the arbitral
                                     tribunal's interim order.
Dec. 8, 1999......................  CME applies to the arbitral tribunal
                                     for a partial final award embracing
                                     the terms of interim order and
                                     imposing substantial fines against
                                     VZ for his non-compliance with the
                                     order.
Dec. 21, 1999.....................  The Media Council approves a scheme
                                     to increase CET 21's share capital
                                     that is subsequently implemented by
                                     VZ and CET 21. As a result of the
                                     scheme, VZ's interest in CET 21 is
                                     reduced (at least on the surface)
                                     from 60% to 11.8%, while his close
                                     associates receive substantial
                                     interests in the company in
                                     exchange for token consideration.
                                     The Media Council grants the
                                     approval despite having received a
                                     copy of the tribunal's interim
                                     order, and despite the widespread
                                     understanding that the purpose of
                                     the scheme is to frustrate
                                     enforcement of the interim order by
                                     nominally divesting VZ of control
                                     over CET 21, and to shield his
                                     assets from any final award of
                                     damages.
Jan. 19, 2000.....................  The Czech State Attorney's Office
                                     concedes that local police and
                                     prosecutors have improperly handled
                                     criminal complaints filed by CNTS
                                     concerning, among other things,
                                     VZ's fabrication of contracts
                                     purporting to transfer valuable
                                     CNTS assets to CET 21. At the same
                                     time, the Office denies it has any
                                     ability to direct the local offices
                                     to take further action.
Feb. 22, 2000.....................  CME (as a Dutch entity owning an
                                     investment in the Czech Republic)
                                     initiates an arbitration proceeding
                                     against the Czech Republic based on
                                     violations of the Bilateral
                                     Investment Treaty between the
                                     Netherlands and the Czech Republic.
------------------------------------------------------------------------

    Senator Smith. Ron, that is an incredible story. I wonder 
if you can tell me, is our Government, our State Department 
beginning any of the steps you suggested? What efforts are 
being undertaken to sort of go above, I guess, what--the delay 
in the courts of the Czech Republic is, you are saying that is 
sort of indefinite.
    Mr. Lauder. I think the feeling of the Czech Government is 
that they do not fear the State Department. I think what we are 
seeing over and over again in Eastern Europe and other places 
is that if something happens to an American citizen, if he is 
put in jail, the State Department will immediately react. The 
reaction is quite different when it is something economic. So 
the question is, what can be done?
    I know there have been many, many conversations the State 
Department had with the Czech Government in private. I think it 
is very important that it be said in public. Let us be a public 
example. Also, there is nobody, no citizen today in the Czech 
Republic that does not understand what is happening, and what 
happened to TV Nova.
    Senator Smith. Is this story about TV Nova widely known in 
the Czech Republic?
    Mr. Lauder. I would say that there is nobody in the Czech 
Republic who does not know the story. It has been carried on 
all the media. And what has happened is, they have said to 
themselves this government is no different from the former 
governments in that the rule of law does not apply. The right 
people are above the law. Everyone knows what happened. And 
they watch the U.S. Government not be able to make a change, 
and they watch the Czech Government stand on the side. The 
Czech Government could change this instantly if they wanted to.
    Senator Smith. Your feeling is the popular opinion in the 
Czech Republic does not support what happens, but perhaps feels 
powerless to do something?
    Mr. Lauder. I think the Czech people want to see excellent 
television. And they do not care, frankly, who puts it on.
    Senator Smith. And they are not seeing that any more?
    Mr. Lauder. They are seeing excellent television, but it is 
being put on by a stolen TV station. The result is that they 
also have seen that somebody can ignore the law and be 
successful. It sends a message. It sends a message not only in 
the Czech Republic, it sends a message throughout the region, 
and I think that is the critical element.
    And frankly I think that in this region I am probably one 
of the best-known people because I have been there first. And I 
believe if this could happen to me, then it could happen to 
many, many other companies and probably has. They have been 
either too small, or they have had such excellent business 
elsewhere to complain about it. But I believe if it is 
happening here, it is happening all over.
    Senator Smith. So you are not here to recommend more U.S. 
investment in the Czech Republic today.
    Mr. Lauder. I am here to recommend that the State 
Department--I heard a few minutes ago about the CEPA, I guess 
it is called, where the State Department is recommending giving 
even more favorable terms to that region. I think instead of 
rewarding them for what they are doing they should be--in fact 
the money should be cut back from them.
    I think at the same time that they are not following the 
rule of law, it is a mistake to be putting money into EBRD and 
putting money into one thing after another, funneling money 
into it. We, after all, watched what happened in Russia 
sometime ago. This is similar things happening on a smaller 
scale in the Czech Republic.
    The person from the State Department spoke about a bank 
that just failed. The reason why that bank failed is--it is 
called the IPB bank--was that money was tunneled out of it. It 
was taken out. Literally, one asset after another was tunneled 
out, with the government's knowledge, and the bank failed.
    Again, there are many other examples.
    Senator Smith. It is interesting, we received from the 
Czech Embassy an article today that was run in the Financial 
Times in the Czech Republic, and it says growth was driven by 
exports to Western Europe as well as the first increase in 
fixed capital investment for 11 quarters. Economists said 
foreign direct investment was the force behind both 
developments, with a record inflow expected again this year, 
after last year's $4.8 billion, the highest per capita figure 
in the region.
    And there is a quote, ``we are still living in a two-speed 
economy. One part is on the brink of bankruptcy, but a rising 
group of companies with the help of foreign investors are now 
performing reasonably well,'' and I will include that for the 
record.
    [The article referred to follows:]

   [From the Financial Times (U.S. Edition), Tuesday, June 27, 2000]

                       Czech Recovery Hopes Grow

                     (By Robert Anderson in Prague)

    The Czech economy is on the road to recovery, gross domestic 
product figures showed yesterday, with strong west European demand and 
record foreign direct investment making up for weak consumer spending 
and long-delayed corporate restructuring.
    GDP increased by 4.4 percent year-on-year in the first quarter--
double that expected by many economists--representing the first robust 
period of growth since the economy began to pull out of recession in 
spring last year. Compared to the previous quarter, seasonally adjusted 
GDP grew 1.3 percent.
    Alone among the leading economies of central Europe, the Czech 
Republic went into recession in 1998-99 after a currency crisis and 
subsequent tightening of monetary and fiscal policy exposed and 
intensified structural problems in the financial and corporate sectors. 
Yesterday's figures give hope that the economy will converge with the 
European Union, rather than fall further behind.
    However, economists warned that overall growth this year was still 
likely to reach only 2.5 percent at best because the rise in the first 
quarter was exaggerated by the low base last year, more working days 
and increased inventories.
    ``There are some positive signals but I would not dare in saying 
that we are back on track for strong sustainable growth,'' said Pavel 
Sobisek, chief economist of Bank Austria Creditanstaft.
    Growth was driven by exports in western Europe as well as the first 
increase in fixed capital investment for 11 quarters. Economists said 
foreign direct investment was the force behind both developments, with 
a record inflow expected again this year after last year's $4.88bn, the 
highest per capita figure in the region.
    Although there is no sign yet of overheating, economists said the 
precarious state of many large corporates and banks--as well as 
institutional deficiencies such as the poor legal framework--would 
continue to hamper growth.
    ``We are still living in a two-speed economy,'' said Mr. Sobisek. 
``One part is on the brink of bankruptcy, but a rising group of 
companies, with the help of foreign investors, are now performing 
reasonably well.''
    Kamil Janacek, chief economist of Komercni Banka, said the credit 
squeeze and recession had accelerated industrial restructuring, with 
productivity now rising four times faster than real wages. This should 
help growth next year reach up to 4 percent. ``From next year there is 
a strong probability we will again be catching up with the EU,'' he 
said.

    Senator Smith. Ron, thank you, and we will use the 
influence of this committee to try and spur the interest of 
American citizens and to make sure that everybody plays by 
rules that we recognize as Western and as honest and available 
to the light of day. Those are the things that will either 
advance world prosperity or retard it, and we wish it to be 
advanced everywhere in Eastern and Central Europe.
    Mr. Lauder. All we want is transparency and the rule of law 
and, frankly, our station back.
    Senator Smith. And anything less than that will lead us 
backward.
    Mr. Jenkins, welcome, sir.

  STATEMENT OF MR. KEMPTON JENKINS, PRESIDENT, UKRAINE-UNITED 
            STATES BUSINESS COUNCIL, WASHINGTON, DC

    Mr. Jenkins. Mr. Chairman, thank you very much. It is a 
poignant moment for me to be back in this august chamber. I 
first came here to argue with Senator Fulbright about 
maintaining Radio Liberty and Radio Free Europe. That was a few 
years ago, as you can imagine.
    I also want to take note immediately of your comments about 
the Department of Commerce's absence, which I deeply regret. I 
used to direct that part of the Commerce Department, and I know 
there is a great reservoir of talent and knowledge about 
Central Europe. It is their prime responsibility, not the State 
Department's, to deal with business disputes, commercial 
disputes such as Ron has experienced, which are not unique. 
What he describes is particularly gruesome, I think, but there 
are similar tales throughout the area.
    I also want to comment on European Union pressure on the 
countries of the area. I have experienced that in all of the 
various responsibilities I have had in that area over the last 
20 years. It is common practice for these governments to be 
told by the Europeans, in some cases rather bluntly and in 
others rather delicately, that you had better remember which 
side your bread is buttered on when it comes to letting these 
contracts.
    I know that IBM had problems in Poland, and certainly I 
have run into this in the Ukraine, where Ukraine, which aspires 
to be an EU member, has been told in various ways in various 
cases that these contracts better go to German or French 
companies, not American companies. I guess that is competition. 
I do not like it very much, and I am delighted that the State 
Department representative said that they do weigh in and are 
weighing in with the EU.
    I am not sure that it does not need a somewhat higher level 
initiative on our part to be sure that it gets the attention it 
deserves. After all, we may be engaged in a more modified 
effort to improve conditions in Eastern Europe today, but we 
were the givers of the Marshall Plan who put the Europeans in 
business, and occasionally I think they need to be reminded of 
that.
    Having said that, I want to introduce myself briefly, and 
then I will make a few comments and submit my full statement 
for the record.
    Senator Smith. We will receive that, and we thank you, and 
just for your notice I am told there are four stacked votes 
beginning at 3:30, and that is 20 minutes away, which probably 
means we have about 30 minutes for the balance of the hearing.
    Mr. Jenkins. I will try to leave half of that for Peter.
    I am Kempton Jenkins, president of the Ukraine-U.S. 
Business Council. We have some 40 major U.S. corporations who 
are doing or trying to do business in Ukraine. Our members have 
had very varied experiences in Ukraine, which illustrate both 
the potential of this entire rich market and the barriers and 
the frustration of bringing that potential to fruition.
    Ukraine is a country of 51 million people. It is 95-percent 
literate. It possesses what is agreed to be the richest farm 
soil in the world, and it has long experience as the Soviet 
Union's aerospace center, with a concentration of scientific 
talent.
    Today, it is led by President Kuchma and Prime Minister 
Yuschenko, and for the first time in its history a majority in 
the legislature who are all committed to economic reforms. This 
triad of political leadership came into being in December and 
we have seen some very significant progress already and are 
very hopeful that we are looking at the kind of blossoming in 
Ukraine which the State Department representatives spoke of.
    Prior to becoming president of the council, I was a 
consultant to the Government of Romania, which had many of the 
same problems, and I worked on them to try and get them to 
introduce the rule of law and transparency and predictability 
and so forth. I was a corporate vice president of ARMCO, which 
is a major American steel company, for 10 years and I was 
president of the former U.S.-Soviet Trade Council when I first 
left government in 1980. For 30 years prior to that I was a 
career Foreign Service officer, with more than 15 of those 
years dealing with the Soviet Union and Eastern Europe.
    In my written testimony I lay out both the region-wide 
barriers and, in discussing Ukraine specifically, I provide 
individual company-by-company score cards for some of the 
successes and some of the failures, and there are many of both.
    I am heartened by the successes, and I am discouraged by 
the failures, but we have a very good ongoing dialog with the 
Ukrainian Government and with the U.S. Government, and I am 
optimistic that we are going to continue to see success 
outnumber or eventually overcome the failures.
    From my perspective, which is fairly broad and long, I 
believe that Central and Eastern Europe today offer a very rich 
opportunity for us to participate in the inevitable development 
of these economies into a truly prosperous area. It seems clear 
that it is very much in the national interest of the United 
States to see that happen. After decades of irrational economic 
policies, it is hardly surprising to me, and what Ron is 
experiencing and I gather Peter, too, would have been almost 
predictable.
    The road to progress is erratic. It is going to be rocky. 
It is, after all, only a decade since the Soviet Union 
collapsed, and that is not much time for a transition from 
Marxism-Leninism to free markets.
    We believe, and I think I speak for all of my corporations, 
and I know it is generally agreed within the U.S. Government, 
that it behooves us to stay the course. Certainly our members 
share the expectation that there is great potential out there. 
I would like to simply stress a few additional points, and then 
let the record speak to the details.
    I want to praise the committee for its decision to focus on 
this critical part of the world and the recognition that 
foreign investment and the conditions which promote foreign 
investment are, in fact, critical and central to the progress 
we want to see in Central and Eastern Europe. Without it, in my 
judgment, and I think everybody would agree, there is little 
hope for real democracy, and all of the conditions that that 
means, to grow.
    There is a stark difference between individual countries. 
This is not one area with a uniform set of problems. There is a 
set of problems, and they do occur. Frequently they occur in 
one country or another, or eventually in all of them, but there 
is a big difference in the success and the progress they have 
made.
    I am distressed to anticipate what Peter's problems in 
Poland may have been, and certainly the Polish performance in 
the EU question, where they have been really pretty aggressive, 
because they have had a dramatic economic recovery, and 
comparing that to Byelorussia gives you the parameters of the 
development in the area.
    Byelorussia is still in the 18th century at this point, and 
I do not see much hope under the present political leadership, 
but the Poles really have accomplished a great deal, and their 
economy has really grown a lot. The standard of living is up. 
Politics are more open, predictable, and democratic.
    I think it is also important to stress that we are talking 
about investment, not domestic or foreign investment. Both are 
necessary. If you have the rule of law in the Czech Republic 
you will have Czech capital return to the Czech Republic. There 
is more money out there for these countries which has flown 
from them, especially in the case of Russia, than the 
international institutions or the meager AID budget can ever 
provide to these economies, so investment conditions both 
domestic and foreign are what we are talking about.
    Senator Smith. You really cannot fool the marketplace. That 
is the thing I continue to impress upon European leaders. You 
cannot kid the market. It will react and it will move if you do 
not have transparency and a rule of law, things that we just 
take for granted, but unfortunately that lesson has yet to be 
learned, I guess.
    Mr. Jenkins. Well, that is one of the points I wanted to 
make. It is very difficult for these countries and the leaders 
of these countries, and I know several of them, to really 
ingest the reality that they are competing with Mexico and 
Brazil and Korea. They are not just competing with Hungary and 
Bulgaria. They come from such sheltered or limited backgrounds 
that they have not really developed an appreciation of that 
yet. It is coming. It takes time, and implementation is much 
more difficult than actually understanding it.
    President Kuchma in Ukraine fully appreciates this fact 
today, and he is driving very hard to implement that 
understanding within Ukraine. It is taking a long time, but 
today's Ukraine is only 9 years old, and I think we have to 
keep that in mind.
    The other side of this is that Ukraine is also a huge 
marketplace and in potential value to the United States and the 
American business community it far exceeds a number of markets 
in the rest of the world, where we tend to concentrate our 
activities today. So I think Ron's foresight in moving into the 
television market in that part of the world is to be commended, 
and notwithstanding your Czech experience Ron I hope you are 
still there. During President Clinton's recent visit to Kiev, 
his speech was carried on the television station you have an 
investment in.
    Senator Smith. It is to be commended not to be confiscated.
    Mr. Jenkins. That is true. I think it is very important 
also to recognize that these markets are not for the timorous 
or short-term investors.
    Senator Smith. Can you tell me, Mr. Jenkins, in your 
opinion would it be productive or unproductive for us to grant 
permanent normal trade relations to Ukraine?
    Mr. Jenkins. I am glad you raised that. I was going to 
raise it if you did not. I think it borders on the obscene that 
we have played such a political game with this issue. I think 
it is very important to recognize and acknowledge and graduate 
countries who in fact have lived up to the purpose of the 
Jackson-Vanick amendment which was passed on my watch in the 
State Department. I understand it completely. It played a 
constructive role at a certain point.
    Today, Ukraine is as free of anti-Semitism as the United 
States is, in my judgment, and I think that needs to be 
acknowledged. Not a lot of trade hard dollar effect would occur 
from this. President Kuchma when he was here 8 months ago met 
with members of the House International Relations Committee. He 
said, I am embarrassed that here we are, an outpost of 
democracy in Central Europe, but we are still treated as though 
we were North Korea.
    I am disappointed the President did not take that 
``deliverable'' with him when he went to Kiev. I think it is 
very important that we step up on that subject and move it. I 
know there is support. I have talked to members of the House 
Ways and Means Committee. I have talked to Members on the 
Senate side, and my hope is that this will happen quickly, but 
the administration should take the lead. I think what they are 
doing is playing a little bit of politics. They do not want to 
irritate Moscow by giving permanent MFN to Ukraine first.
    Moscow continues to have a serious problem with anti-
Semitism, Ukraine does not, and I think it would incentivize 
the Soviets--the Russians, excuse me, or the Soviets within 
Russia who continue to pursue these terrible policies to see 
Ukraine acknowledged by the United States. It is not a reward, 
it is an acknowledgement, and so I am pleased you raised that. 
I firmly believe that is a desirable thing to do.
    Let me quickly wrap up, if I might, sir. I think basically 
these markets are worth the candle. I do not think we cannot be 
there. I think American corporations generally have recognized 
that. I think it is important to be very hard-nosed and gradual 
in the approach. Go in small. Develop relations. Train a staff. 
Make a small investment and then grow it.
    People who go in with a $300 million investment are going 
to lose their shirts.
    Senator Smith. You make an interesting point that we need 
to be in there. Do they know we need to be in there, and does 
that work to our disadvantage in their knowing that?
    Mr. Jenkins. I think that varies from country to country. I 
think the new members of NATO are now so self-satisfied that 
they have made the cut that they do not have that same urgent 
feeling of how important it is for the United States to be 
actively participating in their investments. In the Ukraine, 
that is not true.
    Senator Smith. The point you make I wish I could broadcast 
to the whole world, or at least all of Eastern and Central 
Europe, is that they are competitors for American capital. I 
mean, it is Brazil, it is Mexico, it is everywhere that you 
have an emerging economy.
    Mr. Jenkins. Well, I am convinced that on the whole we are 
on the right path. I think the policies and actions and 
implementation thereof by our own administration in partnership 
with you, the Congress, could be more effective.
    As Ron pointed out, he has found the State Department's 
representation a little too delicate to be effective, and I 
think that simple bureaucratic contradictions and policies and 
legislation reflecting our own domestic political interests 
frequently combine to undermine our overriding national 
security interest in the economic development of the area. My 
hope is we can improve the coherence of this policy and our 
resources and harness them more effectively to promote the 
investment climate in the entire area.
    From our vantage point U.S. programs today are too diverse. 
They are seeking a wide range of desirable goals, from 
democracy and gender equality to child labor laws, 
environmental and education goals. In reality, the climate for 
such societal improvements must be based on economic progress, 
for which investment both foreign and domestic is central, and 
I would like to see--there are a number of steps other than 
permanent MFN I would be happy to talk about, but for Peter's 
sake I am going to save some time.
    [The prepared statements of Mr. Jenkins follow:]

                 Prepared Statement of Kempton Jenkins

                              INTRODUCTION
    Mr. Chairman, I am Kempton Jenkins, President of the Ukraine-U.S. 
Business Council, a group of some 40 major U.S. corporations doing or 
hoping to do business in Ukraine. Our members have had varied 
experiences in Ukraine which illustrate both the potential of this 
entire rich market and the barriers and frustration of bringing that 
potential to fruition. Ukraine is a country of 51 million people, 95% 
literate, possessors of what is agreed to be the richest soil in the 
world, and with a long experience as the Soviet Union's aerospace 
center with its concentration of scientific talents. And today is led 
by President Kuchma, Prime Minister Yuschenko and for the first time a 
majority in the legislature all committed to economic reforms.
    Prior to taking the chair as President of the Council, I have been 
a consultant to the Government of Romania, Corporate Vice President of 
ARMCO a major American steel company, President of the former U.S.-
Soviet Trade Council, and for 30 years, a career Foreign Service 
officer with more than 15 of those years dealing with the USSR and 
Eastern Europe.
    I firmly believe from this perspective that Central and Eastern 
Europe offer a rich opportunity for U.S. and other Western corporations 
to participate in the inevitable development of these economies into a 
truly prosperous area. It seems clear that it is very much in the 
national interest of the United States to see that occur. However, 
after decades of irrational economic policies, it is hardly surprising 
that the road to progress now is erratic and often very rocky. It has 
only been a decade since the Soviet collapse--for a transition from 
Marxism--Leninism to free markets. We believe it behooves us to stay 
the course. Certainly our members share the expectation that there is 
eventually a bright future.
    I would like simply to stress a few additional points and submit my 
detailed statement for the record.
    I want to praise the committee for its decision to focus on this 
critical part of the world and implicit recognition that foreign 
investment, and the conditions which could create incentives for 
investment constitute the most important key to producing viable, 
democratic members of a new Europe. Without such investment, critical 
economic development will continue to lag, and political commitment to 
democracy will continue to be frustrated.

TREATMENT OF U.S. BUSINESS--INVESTMENT CONDITIONS--VARIES SHARPLY AMONG 
                            THESE COUNTRIES
    A stark contrast between Poland's unprecedented economic 
development today and the stagnation in Byelorussia serve to emphasize 
this point: Investment is the cardinal requirement for genuine economic 
development. Governments do not invest, corporations do. The countries 
of Eastern Europe and Central Europe succeed to the degree that they 
effectively establish business conditions which attract corporate 
investment, both foreign and domestic.
    These nations are in fact in an intense global competition--to-date 
few have acted to aggressively engage, such as Poland has so 
successfully done.
Long-Term Outlook Essential
    Engagement in these markets is not for the faint-hearted nor short-
termers. Predictability and transparency run directly contrary to the 
Soviet culture which prevailed for decades. Western and especially 
American businessmen are too prone to continue to pick a favorite 
politician in a given country--a president who is accessible, while 
ignoring the emerging array of businessmen and even legislators who 
represent the future--in short, the need to build a diversified 
business presence is very important.
U.S. Corporations Much More Sophisticated Today
    Fortunately, U.S. corporations today are sophisticated and far-
sighted, in contrast to 20 years ago when as a U.S. Government official 
I found our timorous companies often out-strategized by European and 
Japanese competitors who inevitably benefited from their governments' 
subsidies. Generally speaking, there is now recognition that one must 
start small, build ties and access, create local management structures 
and plan in a multi-year framework.
Challenges Not Really a Lot Different Than in Today's Third World 
        Market
    It is important for us to recognize, as corporations have, that the 
barriers and frustrations we experience in Central Europe, are often 
even worse in other major markets where they have been operating--e.g. 
India, Indonesia and Brazil.
    Finally I wish to say that it is my firm belief that these markets 
are decidedly worth the effort. As illustrated by Ukraine, basic 
positives are impressive--large educated population, strategically 
located and rich in natural resources. U.S. Government policy can 
effect the problems at the margin, and more could be done. But, I 
believe we will see economic progress in these countries, undergirding 
democratic regimes which become valuable members of Western Society. 
And I believe U.S. business will play a critical role in producing this 
happy result.
    In closing, Mr. Chairman, it is also my judgment that the policies, 
actions, and implementation there of by our Administration in 
partnership with our Congress could be more effective. In some cases 
simple bureaucratic contradictions and in others, policies and 
legislation reflecting special domestic political interests, often 
combine to undermine our overriding national security interests in the 
economic and political development of this critical area. My hope is 
that we can improve the coherence of our policy and our resources and 
harness them more effectively to promote the investment climate for the 
entire area. From our vantage point, U.S. programs today are too 
diverse, seeking a wide range of desirable goals, from democracy and 
gender equality, to child labor laws, environmental, and education 
goals. In reality the climate for such societal improvements must be 
based on economic progress for which investment both foreign and 
domestic is central.

                                 ______
                                 

                Additional Statement of Kempton Jenkins

                              INTRODUCTION
    Mr. Chairman, I am Kempton Jenkins, President of the Ukraine-U.S. 
Business Council, a group of some 40 major U.S. corporations doing or 
hoping to do business in Ukraine. Our members have had varied 
experiences in Ukraine which illustrate both the potential of this 
entire rich market and the barriers and frustration of bringing the 
potential to fruition. Mr. Chairman, Ukraine is a country of 51 million 
people, 95% literate, possessors of what is agreed to be the richest 
soil in the world, and with a long experience as the Soviet Union's 
aerospace center with its concentration of scientific talents.
    Prior to taking the chair as President of the Council, I have been 
a consultant to the Government of Romania, Corporate Vice President of 
a major American steel company, President of the former U.S.-Soviet 
Trade Council, and for 30 years, a career Foreign Service officer with 
more than 15 years dealing with the USSR and Eastern Europe.
    We firmly believe that Central and Eastern Europe offer a rich 
opportunity for U.S. and other western corporations to participate in 
the inevitable development of these economies into a truly prosperous 
area. We also believe that it is very much in the national interest of 
the U.S. to see that occur. We also are convinced that the barriers and 
frustrations which I now concern myself with in Ukraine are often 
common to the rest of the former Soviet Empire. After decades of 
irrational economic policies, it is hardly surprising that the road to 
progress is erratic and often very rocky. I believe it behooves us to 
stay the course and certainly our members share the expectation that 
there is eventually a bright future in front of us.

                          A TOUGH MARKETPLACE
    Business problems, opportunities and successes in the entire area 
are products, above all, of the historic emergence of new independent 
states from the Soviet cocoon. It should not be a surprise to anyone 
that it is not easy!
    First, the former pieces of the Soviet Empire both historically 
independent East European countries and the newly independent former 
autonomous republics of the USSR itself are a collection of widely 
varying governments, natural resources, cultures, and economies. There 
is no single formula or laundry list which applies to all of them.
    Second, notwithstanding these wide disparities, and the historic 
adjustments involved, the entire area is a very important economic 
piece of the global economy and offers perhaps more potential for 
growth and progress than much of the rest of the world.
    Third, U.S. corporations today are a far cry from 20 years ago when 
I was working with them in dealing with the Communist world. U.S. 
corporations are now sophisticated and strategically wise, a far cry 
from 1980 when most corporations looked at ``long-term'' as two years 
or in some cases three quarters! We have globalized perhaps better than 
others, even though we started out well behind traditional European and 
Japanese trading companies.
    Fourth, this means that while U.S. corporations are not going to 
jump in with large initial investments in recently converted Communist 
economies, they are also not going to walk away from Eastern Europe 
which has obvious lucrative potential: educated populations, rich 
natural resources and impressive industrial know-how (even though it is 
often encrusted with decades of Soviet mismanagement). U.S. 
corporations have demonstrated impressive staying power in the entire 
region.
    Finally, it is very important to keep a realistic perspective on 
the market choices U.S. corporations face in the global market place. 
Dealing with the full array of barriers, problems and downright 
hostility is not new to U.S. corporations. They have coped with 
unpredictable and often bizarre behavior in countries like Brazil, 
Indonesia, and India; all of which are major markets which cannot be 
ignored, but which have always been very frustrating places to do 
business.
    And, if in acknowledging the traditional difficulties in these 
third world major markets isn't enough, think for a moment of the 
myriad difficulties U.S. companies have trying to do business--bid 
processes, zoning requirements, petty corruption, licensing and 
inspection barriers, supplier uncertainty and Government intervention, 
in the U.S. Try dealing with local, state and federal officials on a 
port, housing or agriculture project in New Orleans, Newark or Las 
Vegas or any other major city in the U.S.

                            COMMON PROBLEMS
Soviet Mentality
    To obviously varying degrees among these countries in the area the 
basic instinct to preserve ``Government Control'' has made Western 
investment impossible at worst or very slow at best. Letting ``the 
market decide,'' especially in the politically sensitive area of 
resource allocation, is a new concept and often perceived as unfair and 
contrary to political stability (reads control).
Nationalism
    Where the Soviet collapse has created a vacuum, the old centralized 
non-market culture has often found a new political basis in old-
fashioned nationalism--protect our home industries, don't close 
facilities because workers will lose jobs, do not permit foreign 
ownership in general especially of our land, telecom and basic 
industries.
Natural Resources
    Raw material costs have no predictable supply and demand basis 
because there has been no marketplace to provide it. U.S. companies 
agree that the single most powerful market factor for Ukrainian 
consumers is price. Coca Cola, an initially great sales success, has 
steadily been undermined by lower cost and inferior concentrate so 
that, today other (inferior in quality in the eyes of consumers) 
beverages are taking market share from Coca Cola even though Coca Cola 
is preferred by consumers.
    Costs in genuine market economies are more or less predictable, 
permitting producers to set price and plan ahead. In traditional non-
market economies there is little concept of pricing based on cost and 
supply and demand. This is a hard lesson to learn and clearly it is 
taking time to imbue these concepts.
Labor
    Often underestimated, labor skills in most of the former USSR and 
Eastern Europe are impressive and can be a significant advantage for 
Western companies. On the other hand, Soviet labor practices created a 
solid tradition based on security not incentives and today in most of 
Eastern Europe it is extremely difficult, if not impossible, to pare 
back on labor costs. Instead U.S. companies are faced with the 
ingrained expectation that the government (or employer) will provide 
all basic needs such as housing, health care, and transportation as 
well as job security. This expectation is changing, but slowly.
    There are numerous, encouraging examples of the value of young 
skilled technical workers providing excellent bases for new 
entrepreneurs. The renowned Hugo Boss clothing company now provides a 
significant share of its ``up-market'' clothing in Ukraine for its 
international market. An American investor recently told me that he has 
found that for top quality, low-cost software engineers, Kiev is the 
place to be. Computer parts producers are finding Bulgarian labor a 
real ``gold mine'' in their words. In short, the younger workforce is 
potentially a major asset.
Management Skills
    Most U.S. Companies throughout the area are finding it very 
difficult to build mid-level management. Virtually none of the 35-55 
year old pool while technically impressive has the managerial instincts 
required to produce on the basis of market demands, or develop such 
things as advertising programs based on market surveys.
    Many companies are hard at work developing in-country training 
programs and in some cases bring mid-level and upper-level people to 
the U.S. for training. These programs obviously are the road to long-
term success, but take time. Generally, young managers from Eastern 
European countries are quick to learn and clearly more adept than most 
of their third world counterparts, reflecting the superior technical 
education traditions in their countries. On the other hand senior 
management people have much more to overcome and often are less 
successful in making the transition.
    I must point out that U.S. company training programs are 
complicated and even aborted by arbitrary U.S. consular treatment of 
visa applications for trainees, especially for young, promising women. 
I fully appreciate the immigration legislation restraints on American 
consular officers--I was a vice consul in my first foreign service 
assignment in 1951 and had to deal with waves of displaced persons from 
Central Europe. However, there is clearly a need for reform of 
Administration guidelines and the mentality of our consular officials 
which often exceed legislative requirements in order to appear 
``tough'' to the home office. U.S. policy to promote investment in 
these countries needs to extend down to the consular appreciation of 
the value of business training exchange.
Financial Infrastructure
    Few Eastern or Central European countries began the last decade 
with viable commercial financial institutions in place operating under 
the rule of law. Central Banks were traditionally relatively well-
connected with their Western counterparts and viewed as islands of 
``business and financial wisdom'' in the otherwise dismal economic 
landscapes of Eastern European countries. However, commercial (as 
opposed to macroeconomic) financial capacity was virtually non-
existent.
    To varying degrees progress is unfolding in this arena, but once 
again this is a subject which requires decades not years. And, in this 
area, the former Soviet Empire is generally behind other third world 
countries. It will be years before Ukraine and other former Soviet 
Republics have established fmancial services in place. It is no 
accident that much of today's news regarding oligarchs, corruption and 
scandals in Russia and Central Europe centers on new bank based 
empires.
Lack of Other Internal Business Structure
    In most of the area, acceptable hotels, airline connections, 
telecommunication, and adequate clerical help was not available as the 
decade of freedom began. Today in the more successful countries, four 
and five star hotels have sprung up, modern telecommunications and 
bilingual support staff are available as well. However, there is a wide 
disparity in availability of these services. In Ukraine, e.g., there is 
a good pool of bilingual support staff, but no adequate hotel 
accommodations. Most of the countries have adequate airline 
connections, but not all. These factors may seem frivolous or bordering 
on ``pampering U.S. executives.'' However in today's highly competitive 
global market place, U.S. companies which have pared down their 
executive staff to a Spartan level, consider ``executive time'' a 
critical factor in investment decisions. What Vice President will 
choose to visit a Central Asia capital if it is just as important to 
visit Sao Paulo? As a practical matter, selections for investment are 
often influenced by these amenity factors.
    In practice the creation of reasonable hotel facilities has proven 
especially subject to corruption and mismanagement. Power struggles and 
the appetite for ``a piece of the pie'' have blocked or delayed many 
obviously necessary hotel projects throughout the area.
Corruption
    I give corruption a special section because symbolically it is so 
critical. Even though ``corruption'' is a challenge for businesses 
everywhere--including the U.S.--the extent and intractability of 
corruption in the former Soviet Republics is one of the first things 
one hears whenever business conditions are discussed. And, it is 
generally perceived by businessmen that ``corruption'' is very serious 
and largely uniform throughout the former Soviet Union. In the Eastern 
European countries the problem while present is considered less of a 
problem.
    It is important to point out that corruption covers a wide range of 
activities of varying seriousness. In some cases there is an actual 
concern for individual safety. In some cases businessmen have been 
roughed up by hired hooligans. More often the traditional shake down 
process to compensate for pitiful salaries among customs, licensing, 
and tax authorities and even senior officials is the problem. Oddly, 
IMF and World Bank constraints have often worked against needed salary 
increases, thereby unwittingly contributing to continuation of petty 
corruption.
Arbitrary Political Leadership
    American and other Western businessmen are not unacquainted with 
the challenges in doing business in countries ruled by corrupt, violent 
and unpredictable despots. Sukarno's Indonesia, the Shah's Iran, Papa 
Doc's Haiti, Merciar's Slovakia and Lukashenko's Byelorussia illustrate 
the international nature of the problem. Suffice it to say the ``the 
personna at the top'' is a very serious factor. Shervardnadze clearly 
is a major factor in attracting what little foreign investment has 
occurred in Georgia. There is undeniably an immeasurable value to a 
country's appeal to Western investors if the national leader is 
respected and considered to be an effective executive as well as a true 
patriot--if he is also committed to Democracy, that is icing on the 
cake. Ukraine is fortunate in this regard.

                AS AN ILLUSTRATION, LETS LOOK AT UKRAINE
    In November 1999, Ukraine reached a watershed point in its 9 year 
independent history. President Leonid Kuchma faced off--head to head--
with the leader of the Communist Party. Notwithstanding a discouraging 
9 year history of steadily declining standards of living, the people of 
Ukraine rejected the Communist appeals to turn back to Soviet ``good 
old days'' and re-committed Ukraine to a market economy and democracy.
    President Kuchma, fresh from his solid victory, committed Ukraine 
to a new beginning and selected Central Bank President Viktor 
Yuschenko--a highly regarded reformer--as his new Prime Minister.
    In the first 6 months since the ``new beginning'' Ukraine has 
racked up impressive increases in economic activity in the first 
quarter including:

          a. Capital investment has grown 26%;

          b. Individual savings are up 130%;

          c. Hard currency investment is up 20%;

          d. GDP is up 5.5%; and

          e. Industrial production is up 10%.

In addition the following reforms have moved ahead:

   Most important, the creation of a pro-reform majority in the 
        legislature (Rada) and election of a new Speaker (Plyuishch) 
        and Deputy Speaker (Medvechuk) who support Kuchma's reform 
        agenda was accomplished;

   The new Rada majority now includes key committee chairmen 
        who are themselves businessmen and are committed to attracting 
        investment;

   Major Government restructuring was implemented. A 
        consolidation of Ministries, (35 to 17) has reduced 
        bureaucratic delays and tempting opportunities for corruption;

   Combination of licensing and registration functions under 
        new leadership was carried out;

   A Presidential decree was issued abolishing remaining 
        collective farms, privatization of grain silos has advanced and 
        is now virtually complete. Past farm debts to the government 
        were forgiven;

   The new Rada passed a new balanced budget consistent with 
        IMF standards;

   The Prime Minister succeeded in restructuring the commercial 
        debt with 100% subscription by Ukraine's commercial lenders;

   The Rada, on May 18, adopted the enabling legislation (with 
        U.S. participation in the process) for oil and gas exploration 
        profit sharing by a solid majority vote;

   On May 4, the administration submitted a major revision of 
        the tax code to the Rada which would dramatically reduce and 
        simplify tax rates and presumably lead to a significant 
        increase in tax collection;

    The current tax code was a historic break with the Soviet past. It 
        is considered compatible with European codes and has produced 
        some increases in collections (47%). The new draft code which 
        would have been ``dead on arrival'' in the old Rada, has a good 
        chance to make it through the new reform minded Rada and could 
        add significant momentum to other economic improvements which 
        we have already seen.

   UNFULFILLED GOALS--AGRIBUSINESS OPPORTUNITIES AND CONSTRAINTS IN 
                             EASTERN EUROPE
    (The non-profit agriculture investment organization Citizen's 
Network for Foreign Affairs has assisted in the preparation of this 
section.)
    The markets of Eastern Europe, including Russia and Ukraine, 
represent unprecedented opportunity for American agri-businesses, 
particularly U.S. manufacturers of farm equipment, crop protection 
products, seeds and food processing equipment. In Russia and Ukraine 
alone, the market potential for large tractors and harvest combines is 
enormous. It is estimated that for farm equipment suppliers, even for 
the replacement of decaying field inventories only, these two markets 
present a potential for 53,000 tractors and an estimated 14,000 
combines, figures in excess of current U.S. production. The potential 
annual market for seeds, fertilizers and crop protection products runs 
anywhere from 6 to 10 billion dollars annually. Yet, with the exception 
of Hungary, the promise of these potentially huge markets lies largely 
unfulfilled.
    The lack of privatization and reform in the agriculture sectors, 
the lack of privatization of land and the restructuring of farms, 
corruption, price controls, inept and ill-advised tax policies, and the 
lack of credit and fmancial institutions have largely left American 
companies not only frustrated, but in some cases the recipients of 
substantial accounts receivable. In Ukraine alone, American 
manufactures of crop protection products are facing bad debts amounting 
to over $150 million.
    This lack of reform which has limited the prospects of U.S. 
agribusinesses has also resulted in depressing agriculture production, 
particularly in Russia and Ukraine, greatly limiting these countries' 
prospects for economic growth as well as threatening political 
stability. Russia today is a recipient of U.S. food aid, and Ukraine, 
once known as the bread basket of Europe, is producing at less than one 
fifth of its potential and is facing the prospect of its worst harvest 
since 1945.
    Chief among the limitations facing American agribusiness companies 
is the lack of access to adequate short- and medium-term financing, 
whether through commercial finance channels or through guarantees. 
While the U.S. ExIm Bank has provided some financing backed by 
sovereign guarantees, it has been woefully inadequate and has been 
essentially limited to two transactions. Local commercial bank 
financing is also nonexistent, and the farms themselves remain 
essentially unrestructured and often bankrupt.
    The lack of farm restructuring, as well as the lack of 
privatization of state input supply, has also been a severely limiting 
factor. Land, largely still in the hands of collective agriculture 
enterprises, cannot be bought or sold and, importantly, cannot be used 
as collateral. What bank can lend where it cannot protect its exposure?
    In Ukraine, commercial finance in the agriculture sector simply 
does not exist, and the banking sector is weak and undercapitalized. 
Interest rates are upwards of 60% and multi-year midterm finance (three 
to five years) essential for financing large scale, high-priced 
equipment such as tractors and combines is totally unavailable.
    In Russia, the 1998 financial crash all but wiped out the few banks 
engaged in providing agriculture loans. SBS Agro, the largest 
agriculture bank, is essentially in government receivership, and the 
relatively small financing provided by the government was decimated by 
the ruble devaluation.
    Also, U.S. agribusiness companies which have sought to finance 
sales through commodity backed contracts where payment is made through 
agriculture production have seen these efforts largely fail because of 
high risk, high cost, as well as government interference and 
corruption. This has particularly been the case in Ukraine where the 
govermnent proclaimed supremacy in its claims on agriculture production 
and has essentially confiscated production committed to the repayment 
of American suppliers.
    Ukraine has recently further limited the viability of commodity 
backed credit transactions through ill-timed and unwise tax policy. In 
order to protect a small number of politically well-placed owners of 
Ukrainian sunflower processing facilities, Ukraine last year 
implemented a 23% tariff on the export of sunflowers. The chilling 
effect on all commodity backed credit transactions was substantial. The 
export of sunflowers had been Ukraine's largest cash crop, and had been 
the source of currency needed to pay U.S. and other Western suppliers. 
Also, the tax has depressed sunflower production as farmers have been 
forced to absorb the tax.
    Similar situations have occurred in Russia where local oblast 
governments have restricted the movement of commodities that have left 
U.S. companies unable to export part of a crop as a method to pay for 
inputs and equipment they have provided.
    While arbitrary export taxes have hindered the ability to earn hard 
currency to pay for imports of equipment and farm inputs, other flawed 
tax policies continue to impede investment. A critical issue, for 
example, is the VAT tax that in Ukraine is 20% and which applies up 
front to the purchaser. This substantial penalty upon the purchaser has 
had a chilling effect on the potential sales of high-ticket agriculture 
equipment. The fact that these taxes apply to the import of ``the means 
of production'' and that purchasers have to pay ``up front'' and are 
not allowed to amortize over a three to five year term is a significant 
hurdle.
    The lack of privatization of state input and commodity monopolies 
has also hindered opportunities for U.S. agribusinesses particularly in 
Ukraine. Though headway has been made in recent months with the 
privatization of grain storage facilities, the continued existence of 
the Government monopoly, which attempts to maintain its control over 
the distribution of commodities such as wheat, hinders competition and 
threatens the emergence of new private distribution structures as well 
as processors.
    Prime Minister Yuschenko last week announced that the Government of 
Ukraine will place top priority on agricultural reforms in the second 
half of 2000.
                      INTERNATIONAL MONENTARY FUND
    IMF assistance is critical to the efficacy of the often tough 
reforms which are essential in the massive economic re-structuring of 
the former Soviet empire. Russia is the most dramatic illustration of 
these difficulties which have produced repeated suspensions of credits. 
The IMF continues today to be central to Russia's economic struggles. 
Ukraine's dependence on the IMF, like Russia and much of the region, is 
also central.
    Late last year, the IMF e.g., was seized with the problem that 
Ukraine's National Bank (then led by current Prime Minister Yuschenko) 
had misstated its reserves in order to meet IMF hurdles for additional 
assistance to Ukraine. As a result the flow of IMF funding has been 
suspended while an independent audit was undertaken. The results are 
awaited.

                     ILLUSTRATIVE SPECIFIC PROBLEMS
    While there is growing recognition of the importance of this major 
market, corporate strategic vice presidents are all too often 
disheartened, frustrated and cynical about promised reforms. To take 
Ukraine, again, as an illustration, a partial list of American 
complaints about business conditions in Ukraine is instructive:

   More generally, past debts of Ukrainian farmers, state 
        collectives, and national entities totaling some $150 million 
        have led several major U.S. agro-industry providers to limit 
        sales of critically needed fertilizer, pesticides, and seed to 
        a cash on the barrel-head basis for businesses--which has 
        sharply reduced their inputs. As a result Ukraine's harvests 
        have steadily declined for over 5 years. If you are a major 
        agricultural society and have only very limited access to the 
        products of DuPont, Dow, Monsanto and others, it will and has 
        led to depressed productivity. The Prime Minister has 
        acknowledged this input debt and instructed that the back 
        payments be made--to date payments have not eventuated.

   A very promising joint venture between United Technologies 
        (Otis Elevator) has been driven to the brink of bankruptcy 
        because municipal authorities throughout Ukraine have not 
        received pledged housing funds which permit them to pay the 
        Otis joint-venture.

   Ukraine has become the number one producer and exporter of 
        pirated optical discs in Eastern and Central Europe. President 
        Clinton in his visit to Kiev last month raised the issue and 
        received reassurances that new tougher legislation will be 
        enforced. The two Presidents in fact issued a joint statement 
        approving an action plan calling for closure of pirate plants 
        and taking action against infringement.

   Honeywell, a world renowned leader in energy efficiency and 
        airport systems has been a major investor in Ukraine. In May of 
        this year Ukrainian authorities placed a moratorium on all 
        payments for the modernization of Kiev's central airport--all 
        work is suspended and Honeywell's participation in Ukraine is 
        in jeopardy. This sort of problem is not new, but it produces a 
        great sense of frustration and has a chilling effect on 
        corporate interest in investment.

   U.S. corporations (Phillip Morris and RJ Reynolds) have been 
        frustrated while new, presumably more efficient licensing 
        procedures are installed. The result has been the parking of 
        millions of dollars worth of product in expensive European 
        warehouses. This problem comes on top of years of contraband 
        and counterfeit problems, fostered by a Byzantine system of 
        licenses, fees, and regulatory bodies.

   Ceres Terminals, a reputable container port management firm 
        from New Jersey was one of the most impressive success stories. 
        Working intelligently with Odessa customs officials and the 
        port authority, Ceres created a world class container operation 
        with dramatically increased volume and efficiency in Ukraine's 
        principle port.

    Unfortunately, Ceres has just this month withdrawn in frustration 
        from this joint venture in Odessa. Basically this has occurred 
        because the Port Authority has squeezed Ceres for more expenses 
        and violated the terms of their joint venture agreement. 
        Frequent visits from health inspectors and tax officials were a 
        consistent irritant.

    This tendency to milk any successful agreement, violating 
contractual agreements in the process is all too typical throughout the 
former Soviet empire.

                            SUCCESS STORIES
    While the frustrations are wide-spread and serve as disincentives 
for the vitally needed foreign investments, there are success stories 
which clearly demonstrate that determined U.S. corporations with 
reasonably patient time-tables can succeed:

   John Deere has made major sales of over 1600 units of farm 
        equipment in transactions which have proven to be successful. 
        Just last month Deere and its joint venture partner in Ukraine 
        opened a $2 million facility to coordinate its distribution, 
        parts, and service network throughout Ukraine.

   Pioneer, after more than two years finally collected 
        $400,000 in December and today expects to receive final 
        settlement of their $2 million claim. This will allow Pioneer 
        to proceed with a major investment to expand their seed project 
        in Ukraine.

   Most recently Cargill after years of frustrating efforts to 
        resolve past input debts, completed negotiations to open a new 
        $50 million sunflower seed processing plant in Donetsk. The 
        plant will create 400 jobs, reliable income for Ukraine's seed 
        producing farms and valuable tax income for the Government.

   Coca Cola, while suffering today from raw material cost 
        increases, has become a major presence in Ukraine with a 
        national bottling plant network.

   BRIM, a University of Michigan Corporation, has successfully 
        set up a joint venture employing space based imaging to map 
        Chernobyl fall out movements from fires and floods, as well as 
        mapping natural resource deposits.

   Morrison-Knudsen has been a major contractor in the joint 
        Ukraine-U.S. program to dismantle the infrastructure and 
        weapons from Ukraine's formerly formidable nuclear rocket 
        force. Morrison-Knudsen characterizes their cooperation--as 
        ``outstanding'' as they carry out their strategically critical 
        efforts.

   Boeing, in a unique joint venture (Sea-Launch) with Ukraine, 
        Russia, and the Norwegian ship building firm Kvaemer, has 
        successfully launched a commercial demonstration space 
        satellite and is now engaged in a regular production line in 
        this cutting edge activity. Boeing does point out that 
        additional improvement in the business climate, especially 
        protection of investors assets will be critical to foreign 
        investment. They continue to see Ukraine as a potentially 
        lucrative market for aircraft sales.

    These are but a few of the successes and the problems which 
illustrate the complexity and challenges of doing business in this 
disparate area. I am firmly convinced that the entire region--from the 
former Soviet zone of Germany to the Pacific Coast of Russia presents 
an immense opportunity. And, when U.S. firms are resolute, patient and 
politically sensitive, they stand a chance to reap the immense 
benefits. For this to happen they need the full support of the U.S. 
government. The contributions of U.S. corporations have been and 
increasingly will be a critical factor to the evolution of the former 
Soviet vassal states into prosperous participants in the new global 
economy.

    Senator Smith. Thank you very much. Peter.

   STATEMENT OF MR. PETER K. NEVITT, CHAIRMAN OF THE BOARD, 
              GREENBRIER-EUROPE, SAN FRANCISCO, CA

    Mr. Nevitt. Good afternoon, Mr. Chairman. Thank you for 
taking the initiative to hold a hearing before this 
distinguished subcommittee on the important subject of 
investment in Eastern Europe, and with the chairman's 
permission I will submit my testimony in writing and then just 
summarize it quickly for the committee at this time.
    My name is Peter Nevitt. I am chairman of Greenbrier-
Europe, which is a subsidiary of the Greenbrier Companies. 
Greenbrier is one of the largest manufacturers of rail cars in 
North America. We are headquartered in Lake Oswego, Oregon. Its 
largest manufacturing facility is in Portland. We have about 
1,400 employees. Last year's sales were about $619 million, and 
our stock is traded on the New York Stock Exchange.
    In 1997, Greenbrier decided to expand its operations. 
Manufacturing operations to Europe. Our Portland plant had been 
operating at capacity for several years. We wanted to move to 
Europe to serve our customers and after a careful consideration 
of all the relevant factors we selected Poland because of its 
commitment to a free and open economy and to the rule of law.
    The Polish Government assured us that our investment in 
Poland would be welcomed, and that Greenbrier would be treated 
fairly as a Polish company. Therefore, based on those 
assurances, we decided to invest in Poland and acquired 
controlling interest in a factory located in southwestern 
Poland.
    After acquisition, Greenbrier took a number of steps to 
improve the factory and to improve the working conditions for 
its employees. We increased the number of employees from 550, 
who were mostly on furlough. There were only about 25, I think, 
in the factory because I visited it at that time, to 880 active 
employees today.
    We increased the salaries of our employees by nearly 80 
percent. We have invested heavily in training our workers, and 
we have sent 61 workers to the United States and Canada for 
training here, and we have invested an additional $20 million 
in the factory itself to purchase equipment and to improve 
working conditions for our workers.
    We are pleased with our investment in Poland, and we have 
been successful in winning contracts to manufacture rail cars 
in Western Europe, and Greenbrier's exports of rail cars from 
Poland to Western Europe is very important to Poland for its 
foreign exchange. Our factory is now profitable and, as I 
indicated, we are quite satisfied with our investment.
    However, we have encountered one major disappointment, and 
that disappointment is that Greenbrier has been, or had been at 
least arbitrarily excluded from selling rail cars to the Polish 
National Railroad, PKP, which is practically the only customer 
for rail cars in Poland.
    To make a long story short, PKP, certain individuals within 
PKP conspired to form a consortium to monopolize the sale of 
rail cars to PKP, to themselves, in effect. They arranged a 
rigged bid, and they awarded the rigged bid to friends, and 
this is a case, of course, of crony capitalism, to which the 
chairman referred earlier in his remarks.
    However, I am pleased to report that thanks to the help 
provided by yourself, Senator Smith, and by other concerned 
parties in the Government and Congress, and including the U.S. 
Embassy in Poland, which has been quite helpful, communication 
was made to responsible individuals in the Polish Government 
and the unfair rigged bid of PKP was withdrawn and replaced 
with a transparent bid and a level playing field.
    I want to reiterate, Mr. Chairman, that Greenbrier is very 
pleased with its investment in Poland. We are profitable, and 
on behalf of Greenbrier's CEO, Bill Furman, who could not be 
here today because of previous commitments, and on behalf of 
the thousands of employees of Greenbrier, we want to extend a 
heartfelt thank-you to you personally and to the U.S. Congress 
and the administration for the superb assistance you gave to 
Greenbrier as it established itself in Europe.
    [The prepared statement of Mr. Nevitt follows:]

                 Prepared Statement of Peter K. Nevitt

                            I. INTRODUCTION
    Good afternoon, Mr. Chairman, and members of the Subcommittee. 
Thank you for inviting me to testify this afternoon before this 
distinguished panel. My name is Peter Nevitt and I am the Chairman of 
Greenbrier-Europe, a subsidiary of The Greenbrier Companies. Greenbrier 
is one of the largest manufacturers of railroad freight cars in North 
America.
    Greenbrier is headquartered in Lake Oswego, Oregon. Its largest 
manufacturing facility is in Portland, Oregon where it has 1,400 
employees. Greenbrier operates additional facilities in the states of 
Arkansas, Kansas, Texas, California and Washington. Greenbrier also has 
factories in Canada, Mexico, and Poland, as well as an engineering and 
design center in Germany. Greenbrier's total sales last year were $619 
million. The company's stock is traded on the New York Stock Exchange.

              II. GREENBRIER DECISION TO INVEST IN POLAND
    In 1997 Greenbrier decided to expand its manufacturing operations 
to Europe. This decision was based on a desire to serve the European 
market, including certain American railroad companies that were 
beginning to invest in Europe. The European market also offered an 
opportunity to increase U.S. revenues through the export of technical, 
engineering and design skills.
    Greenbrier employment in the United States has been increased to 
provide support services to Greenbrier's European activities. I should 
note that it is impossible to export rail cars manufactured by 
Greenbrier in the United States to Europe because of the high cost of 
shipping such cars to Europe.
    Greenbrier was very particular and selective in determining the 
country in Europe that offered the best location for the start of its 
European operations. After careful consideration of all relevant 
factors, we selected Poland because of its stable government, its 
geographic proximity to major commercial markets, its commitment to a 
free and open market economy, its strong relations with its traditional 
trading partners, and its dedicated, skilled workers. Furthermore, 
Greenbrier received strong encouragement from Polish government 
officials to invest in Poland. The Polish government assured Greenbrier 
that its investment in Poland would be welcome and that Greenbrier 
would be treated fairly as a Polish company.
    After Greenbrier investigated a number of possible factory sites in 
Poland, Greenbrier opted to acquire the WagonySwidnica factory, located 
in Silesia, close to the German border. At the time of our acquisition, 
the factory had little work, few employees, and practically no 
customers. However, the city of Swidnica and the surrounding area 
provided a pool of highly skilled workers. Therefore, based on the 
assurances Greenbrier had received from the Polish government, 
Greenbrier decided to invest in Poland and acquire a controlling 
interest in WagonySwidnica.

 III. THE GREENBRIER COMMITMENT TO WAGONYSWIDNICA HAS BEEN SIGNIFICANT
    Greenbrier took possession of the WagonySwidnica factory on March 
9, 1998. Since that time, Greenbrier has:

   Increased the number of employees at WagonySwidnica from 550 
        (mostly on furlough) to 880 active employees.

   Increased salaries of its workers by nearly 80%.

   Invested heavily in the training of its workers and sent 61 
        workers to the United States and Canada for additional 
        specialized training.

   Invested an additional $20 million in the factory to 
        purchase equipment and to improve working conditions for its 
        employees.

   Increased the WagonySwidnica backlog of orders for rail cars 
        from about $3 million to $47 million.

   Supported the local community through contributions to local 
        charities and sponsoring local civic functions.

    Greenbrier is very pleased with its investment in WagonySwidnica. 
Our employees at WagonySwidnica are highly skilled and have a solid 
work ethic. Labor unions representing our workers in Poland have been 
supportive of our efforts to improve production and increase economic 
opportunity for all employees.
    Under Greenbrier management and with Greenbrier investment, 
WagonySwidnica has been successful in winning contracts to manufacture 
and sell rail wagons in Western Europe. (``Rail cars'' are referred to 
as ``rail wagons'' in Europe.) Our European customers report that the 
quality of WagonySwidnica products is excellent.
    Early this year, Greenbrier acquired the Adtranz freight wagon 
supplier from Daimler-Chrysler. Adtranz is based in Siegen, Germany, 
near Frankfurt. This acquisition makes Greenbrier one of the major 
freight wagon suppliers in Europe and one of Europe's leading design 
and engineering centers for freight wagons. As a result of this 
acquisition, Greenbrier intends to expand its rail wagon manufacturing 
in WagonySwidnica and possibly elsewhere in Poland. This acquisition 
could result in a significant number of additional jobs for Poland, so 
long as the political and economic environment rewards new investment 
from companies such as Greenbrier.
    Greenbrier exports of rail wagons from Poland provide Poland with 
much needed foreign exchange. Unlike many foreign investors in Poland 
that cater exclusively to the internal Polish market, Greenbrier has 
significant sales to foreign markets. At the same time, Greenbrier 
expects fair treatment and a level playing field to compete in the 
Polish market.

IV. GREENBRIER HAS BEEN ARBITRARILY EXCLUDED FROM SELLING RAIL CARS TO 
                   THE POLISH NATIONAL RAILROAD, PKP
    Greenbrier's major disappointment in conducting business in Poland 
has been the arbitrary action by certain individuals within the Polish 
state-owned railroad, Polish National Railways (herein called PKP). 
These improprieties have prevented WagonySwidnica and Greenbrier from 
building wagons for PKP. This condition, which apparently has been 
corrected, was unfair to Greenbrier and to its workers at 
WagonySwidnica. The short history of Greenbrier's initially 
disappointing relationship with the Polish state-owned railroad, PKP, 
is as follows:
    A. Conspiracy to Monopolize Sales to PKP: Certain individuals 
within PKP conspired to form a consortium to monopolize the sale of 
rail wagons to PKP. This consortium, known as Consortium Taborowa, is 
composed of PKP and a number of companies in Poland including three 
manufacturers of rail wagons. PKP owns about 90% of the stock of this 
consortium, known as Consortium Taborowa. Certain key PKP officers that 
control equipment acquisitions by PKP have always been and presently 
are the principal officers of the Consortium Taborowa. At the direction 
of these key officers, PKP granted this Consortium Taborowa the 
exclusive right to issue tenders for rail wagons on behalf of PKP.
    B. PKP Awarded an Order for Rail Wagons to its Friends Rather Than 
Through a Transparent Bidding Process: In April of 1999, Consortium 
Taborowa issued a tender for 4,500 rail wagons. This tender contained 
requirements that made it impossible for any bidder to qualify to 
participate in the tender except for the two rail car manufacturers 
that were members of the Consortium Taborowa. Furthermore, the bids 
were reviewed and awarded by officers of PKP who also were officers of 
Consortium Taborowa, rather than by any independent party. Not 
surprisingly, the Consortium Taborowa awarded the entire contract for 
4,500 wagons to its own members. The bidding procedure adopted by PKP 
in this case did not begin to meet the requirements for transparency 
required by the United States, the European Union, and the 
international financial institutions such as the World Bank and EBRD.
    C. Greenbrier's Bid on the Tender Rejected on Arbitrary Grounds: 
Greenbrier attempted, in good faith, to bid on the tender by submitting 
a bid to the Consortium for 1,500 wagons. Greenbrier's pricing was 
competitive and, in fact, somewhat lower than the pricing offered by 
the factories that were awarded this work. The requested delivery dates 
were within the time period requested by the Tender. Greenbrier merely 
asked for a share of the 4,500 wagon order, not the entire order, so 
that other Polish manufacturers and their workers might share in the 
contract. Greenbrier's bid was rejected on the grounds that it did not 
comply with the terms of the tender bid. As noted previously, the terms 
of the tender made it impossible for any company to qualify other than 
the members of the Consortium.
    D. Greenbrier Has Appealed the Arbitrary Rejection of its Bid: When 
Consortium Taborowa rejected Greenbrier's bid on grounds designed to 
disqualify any manufacturer except members of Consortium Taborowa, 
Greenbrier appealed the decision to the Public Procurement Office. 
Greenbrier felt it was critically important that it try to protect its 
workers' jobs. The Public Procurement Office was sympathetic to 
WagonySwidnica's plight, and critical of the conduct of Consortium 
Taborowa. The appeal, however, was denied on very narrow grounds 
concerning the lack of jurisdiction of the Public Procurement Office, 
because PKP represented that no State funding of the transaction was 
involved.
    During the hearing before the Public Procurement Office, Consortium 
Taborowa represented that neither the credit of PKP nor the credit of 
the Polish government would be utilized in financing the 4,500 wagons. 
Since that time, however, the fact has become clear that the 4,500 
wagons can not be financed without support from either (or) all of the 
Polish government, PKP, the assignment of PKP receivables, the 
Consortium (90% owned by PKP), or by some other State corporation. In 
view of this misrepresentation of facts, further appeal by Greenbrier 
to the Public Procurement Office is possible and appropriate.
    Greenbrier also has argued that the Consortium Taborowa bid award 
violates the Polish anti-monopoly laws. WagonySwidnica has filed an 
appeal with the Polish Office for Competition and Consumer Protection, 
which has commenced an aggressive investigation of this conspiracy.

V. GREENBRIER APPEARS TO BE ACHIEVING A RESOLUTION OF ITS PROBLEMS WITH 
                                  PKP
    A. Intervention by Polish Government Officials Has Blocked the 
Award of the Rigged Bid and Resulted in Transparency of a New Bid 
Tender: I am pleased to report that the intervention of responsible 
Poland government officials in the bidding procedure followed by PKP 
appears to have resulted in the cancellation of the tender bid for the 
4,500 rail wagons. We are told that PKP has no intention of 
implementing the awards made pursuant to the 4,500 rail car tender. We 
also are told that PKP will issue no further tenders through the 
Consortium Taborowa. If this is true, Greenbrier is deeply grateful to 
those Polish officials who insisted from the beginning that the 
Consortium Taborowa and its rigged tender should have no role in a 
modern, market-oriented Poland.
    B. Greenbrier is Bidding on a New Tender by PKP: Currently 
Greenbrier is bidding on a new tender by PKP for 1,000 freight wagons. 
I am pleased to report that this bidding procedure appears to be 
transparent. This bid request, however, contains a number of 
requirements for financing terms that are not commercially acceptable 
to anyone in light of PKP's precarious financial condition. To further 
complicate things, the tender includes a provision that all of the 
terms of the tender are ``non-negotiable,'' thus precluding even minor 
changes typically necessary to meet the needs of lenders and lessors. 
Therefore, in the tender's present form, it is impossible for anyone to 
file a firm response.
    Greenbrier is hopeful that the very stringent requirements of this 
bid request are due to inexperience rather than intent. Consequently, 
Greenbrier has asked PKP to eliminate the ``non-negotiable'' provision 
from the tender. If that requirement is removed, a bidder can be chosen 
on the basis of the merits of its bid as to specifications, price and 
delivery dates subject to final negotiation of financing arrangements. 
Because of the complexity of the financing and the need to involve 
third party financial institutions, we believe that such a procedure is 
the only feasible way to successfully conclude that tender.
    C. Poland has Been Successful in Establishing a System of 
Commercial Law: I am pleased to report that Poland has been generally 
successful is establishing a commercial and legal environment conducive 
to American investment. The Public Procurement Office and the Office 
for Competition and Consumer Protection are examples of conscientious 
agencies that offer protection from arbitrary and abusive conduct.
    D. The Chairman of PKP has Been Particularly Helpful: The current 
Chairman of the Management Board of PKP, Mr. Krzystof Celinski, is a 
very capable executive. He has been sympathetic to Greenbrier's 
experience with Consortium Taborowa. However, certain persons within 
PKP seem to operate independently of supervision. Unfortunately, a 
large state-owned company such as PKP is difficult for a responsible 
Polish official to manage effectively, because of the social upheaval a 
railroad strike would cause. Certain management people within the 
present structure of PKP sometimes use their ability to ferment labor 
unrest in order to achieve their own ends.
    The PKP situation is further complicated by the fact that the 
company is hemorrhaging money on a daily basis and needs to be 
privatized as quickly as possible. Such privatization will require 
large reductions in personnel. The Sejm, hopefully, will pass the 
privatization legislation this summer. The Polish presidential election 
is scheduled for early October and parliamentary elections are expected 
by March or April next year. Failure to enact the PKP privatization 
legislation this Summer probably would delay action until next Spring. 
Financing for PKP and its freight car orders will be needed before 
then. We understand that Citibank and Salomon Smith Barney are trying 
to arrange this financing. The attitude toward this financing by Mr. 
Bauc, the new Finance Minister, seems favorable, provided that the 
pending privatization legislation is passed by the Sejm.

VI. NUMEROUS UNITED STATES OFFICIALS HAVE COME TO THE AID OF GREENBRIER 
  AND HAVE BROUGHT THE DISPUTE TO THE ATTENTION OF POLISH GOVERNMENT 
                               OFFICIALS
    As an American businessman with a major problem abroad, I was 
immensely surprised and gratified at the assistance Greenbrier received 
from the United States Government. Both the Legislative and Executive 
branches made impressive efforts to help prevent an injustice from 
being inflicted upon our company. Frankly, I had no idea that such 
assistance was available and Greenbrier is immensely grateful for it.
    A. Congressional Assistance: When this difficulty first arose just 
over a year ago, Greenbrier brought the matter to the attention of the 
fine Chairman of this body, Senator Gordon Smith. Senator Smith and his 
excellent staff, including, in particular, Rob Epplin and Martha Cagle, 
worked hard to ensure that the matter was brought promptly to the 
attention of the Polish Ambassador here in Washington, to the United 
States Ambassador in Warsaw and to key officials in the Administration 
that deal with such disputes. He had the matter investigated thoroughly 
and met repeatedly with the Polish Ambassador to obtain regular updates 
on the progress of our discussions. He encouraged the Polish government 
to address the matter promptly and fairly. Senator Smith's credibility 
at the Polish Embassy and throughout the Polish government was 
extremely high due to his long-standing friendship with the country and 
his tireless efforts on behalf of Poland's membership in NATO; 
throughout this dispute, we heard repeated statements of admiration for 
the Senator from numerous Polish officials.
    Other members of Congress also expressed their willingness to be of 
assistance, particularly Senators Patty Murray and Max Cleland. We at 
Greenbrier will always remember the tireless efforts of the Senator 
from Georgia. He personally engaged the assistance of Vice President 
Gore, the National Security Advisor, key officials at the Departments 
of State, Commerce and Defense and made regular contact with the Polish 
Ambassador here in Washington and the United States Ambassador in 
Warsaw. Senator Cleland clearly was going to see that Greenbrier was 
treated fairly in Poland. He never asked for special favors or special 
treatment; he simply asked that American companies, including 
Greenbrier, be given an opportunity to compete fairly and openly 
abroad.
    B. Assistance from the Clinton Administration: Again, I personally 
was amazed and gratified by the assistance that Greenbrier received 
from key representatives of the Clinton Administration. I simply had no 
idea that our government was so willing to be of assistance to American 
companies that attempt to seize new business opportunities abroad. I 
couldn't possibly name here all of the hard-working individuals that 
took an interest in Greenbrier's plight, but the following must be 
noted:

          1. U.S. Department of State: The assistance that we received 
        from Ambassador Daniel Fried and his excellent staff in Warsaw 
        (including the DCM, Michael Mozur; the Political Counselor, 
        Jeffrey Goldstein; the Economic Counselor, John Hoover) was 
        very impressive. Likewise, we received regular and valuable 
        assistance from then-Under Secretary Stuart Eisenstat and the 
        Poland Desk Officer, Jim Wojtasiewicz.

          2. U.S. Department of Commerce: We received valuable 
        assistance from Under Secretary David Aaron, Assistant 
        Secretary Patrick Mulloy and Poland Desk Officer, Amy Zona. 
        Their assistance included numerous meetings with 
        representatives of the Polish Embassy and meetings in Warsaw 
        with key Polish officials.

          3. U.S. Department of Transportation: Secretary Rodney Slater 
        and Federal Railroad Administrator, Jolene Molitoris, were 
        extremely helpful to Greenbrier's efforts to resolve this 
        controversy. They and their key staff (including DOT Chief of 
        Staff, Jerry Malone; Deputy Chief of Staff, Norma Krayem; 
        Associate FRA Administrator, Charles White; and Director of 
        International Policy, Ted Krohn) jumped immediately on this 
        issue and had numerous meetings in Warsaw, Swidnica and 
        Washington, D.C. with key Polish officials. Greenbrier is 
        indebted to the energetic efforts expended in its behalf by 
        these valued public servants.

          4. So Many Others: Greenbrier received valuable assistance 
        and support from the U.S. Trade and Development Agency 
        (particularly from Director Joe Grandmaison), the Overseas 
        Private Investment Corporation (particularly from Managing 
        Director for Business Development, Joan Edwards) and from the 
        U.S. representatives at the World Bank and European Bank for 
        Reconstruction and Development. The hard work of these 
        individuals was extremely helpful to Greenbrier's efforts to 
        resolve this matter.

    VII. POLISH GOVERNMENT OFFICIALS HAVE BEEN HELPFUL TO GREENBRIER
    Poland is blessed by the fact that patriotic officials who are 
concerned with the welfare and future of Poland lead its major 
political parties. All the major political parties are pro NATO, pro 
American, pro free enterprise, and anxious to meet the stringent 
requirements for joining the EU. Whatever political party is in power 
makes a real effort to place highly qualified individuals in positions 
of responsibility. Encouraging foreign investment and particularly 
American investment in Poland is a high priority of these individuals. 
They are very concerned with the creation of a fair and efficient 
political environment, the establishment of workable commercial laws, 
and the dismantling of needless protectionism.
    A. Polish Embassy: Greenbrier has been extremely gratified by the 
support it has received from the Polish Embassy here in Washington D.C. 
Then-Ambassador Jerzy Kozminski was extremely sympathetic to 
Greenbrier's plight and worked hard to correct it. Greenbrier feels 
deeply indebted to Ambassador Kozminski and his excellent staff, 
including Krzysztof Wybieraiski, Mariusz Handzlik and Andrzej 
Dziekonski.
    B. Ministry of Finance: Greenbrier has been very impressed with Dr. 
Leszek Balcerowicz, until recently Finance Minister and Deputy Prime 
Minister, and the architect of the financial stability that has been 
achieved in Poland. Dr. Balcerowicz expressed to PKP his dismay at the 
tender procedure for the 4,500 rail cars described above.
    The new Finance Minister, Jaroslaw Bauc, was a deputy minister to 
Dr. Balcerowicz and hopefully will continue Dr. Balcerowicz' policies. 
There is some concern in the financial community that Mr. Bauc was not 
also appointed Deputy Prime Minister as was customary with previous 
Ministers of Finance. We are pleased with our initial contact with 
Minister Bauc and look forward to working with him in the months ahead.
    Another avid defender of privatization and outstanding talent is 
Mrs. Korniasiewicz, a Deputy Minister of the Treasury.
    C. Office of the Prime Minister: Prime Minister Jerzy Buzek has 
been a strong supporter of free enterprise and adherence to principles 
of transparency in bidding. Mr. Buzek is said to have been re-energized 
by the recent reorganization of the Polish government. His strong 
support is expected to achieve passage by this September of needed 
legislation to enable privatization of PKP.
    D. Office of the President: President Aleksander Kwasniewski is a 
strong supporter of American and other foreign investors in Poland. Mr. 
Kwasniewski's political party is SLD, the successor to the old 
communist party. However, as noted earlier, SLD and all the major 
political parties favor free enterprise, NATO membership, entry into 
the EU, and encouraging foreign and particularly American investment. 
Mr. Kwasniewski is strongly favored to be re-elected President this 
October.
    E. Minister of Transportation: Mr. Jerzy Widzyk is the new Minister 
of Transportation. His reputation is that of a trouble-shooter, and he 
seems well fitted to help manage privatization of PKP. Greenbrier looks 
forward to working with Minister Widzyk.
    Deputy Minister of Transportation, Witold Chodakiewicz, has 
provided fair consideration of Greenbrier issues.
    Former Minister of Transportation, Boguslaw Liberadzki, who is now 
Vice Chairman of the Transportation Committee of the Sejm, strongly 
favors transparency.

                            VIII. CONCLUSION
    Greenbrier is very pleased with its investment in Poland. Although 
Greenbrier has experienced some difficulties in establishing its Polish 
factory, responsible Polish government officials have made Greenbrier 
feel welcome and have addressed problems that would otherwise 
discourage American investment. Poland has great potential as a nation 
and as a loyal ally of the United States. We look forward to expanded 
operations and opportunities in Poland.
    In conclusion, Mr. Chairman, on behalf of Greenbrier's CEO, Bill 
Furman, who could not be here today because of other previous 
commitments, and the thousands of employees of Greenbrier, we want to 
extend a heartfelt ``thank you'' to the United States Congress and to 
the Administration for the superb assistance you gave to Greenbrier as 
it has established itself in Europe.

    Senator Smith. Thank you. I am delighted to learn of your 
overall satisfaction in your dealings in Poland. I am very 
familiar with the bid that you describe. As you noted, we have 
been trying to nudge things along and make them transparent, 
and I am pleased it has turned out better.
    I wonder if you have any reason to believe or suspect that 
any of the U.S. companies in Poland have been singled out for 
sort of discrimination under pressure from the European Union? 
Do you have that sense?
    Mr. Nevitt. Well, I have not heard it admitted by any 
public officials. I think that that certainly is a possibility. 
I do not know of any such instance, though, Mr. Chairman.
    Senator Smith. I do not either. That is why I asked the 
question. I got it in writing in other countries, which was 
shocking.
    Mr. Nevitt. The Poles love Americans, and they are very 
anxious for American investment, and frankly more American 
companies should go to Poland. The welcome mat is out, and 
fortunately the political atmosphere in Poland, the politicians 
on either of the three major parties are all pro-American and 
pro-NATO, and welcome American investment, and are for the rule 
of law.
    There are always going to be groups somewhere, somehow, who 
are going to try to set up their own little honey pot, so to 
speak, but there is legal recourse available within Poland. It 
is finding its way. It is new. It has only been in existence 
for about 8 years.
    Senator Smith. Do you sense any reluctance on the part of 
the Polish Government to continue forward with more and more 
privatization?
    Mr. Nevitt. I think they are very anxious for 
privatization, particularly privatization of companies that can 
export, because they need foreign exchange. They do have a 
balance of trade problem. Part of that is because they are 
making investments in capital improvements that are being 
imported into Poland. The government itself, under former 
Finance Minister Balcerowicz, was running a very, very tight 
economic ship, and I hope they continue to do so.
    Senator Smith. Is there anything we should be doing as the 
U.S. Government to encourage more transparency in Poland, or do 
you think it is moving ahead at the right pace?
    Mr. Nevitt. I think there is good communication with the 
responsible individuals in government in Poland, and I think it 
is working very well. I might also add that Poland is almost 
key to Ukrainia. The Poles look forward to building trade with 
Ukrainia, and they frankly look forward to Ukrainia getting 
admission into NATO. They want somebody between them and Mother 
Russia.
    Senator Smith. You had a comment, Mr. Jenkins.
    Mr. Jenkins. Yes, Mr. Chairman. In the catalogue of things 
we would like to see the U.S. Government do better, one of them 
is visa policy.
    Our corporations, to succeed, must build mid-level 
management cadres and that frequently requires bringing people 
to the United States for training. Time and time again, 
arbitrary policies and decisions by vice consuls--and I was a 
vice consul, and I was engaged in this problem a long, long 
time ago--result in the fact that there will be 10 people 
invited over for a training course and four will be denied, 
usually young women.
    There is a very discriminatory attitude within the Consular 
Service of the United States representing consular policy in 
the U.S. Government that people will be brought over to the 
United States only if they can be certain they will return, and 
they just jump at the conclusion that young women are more 
likely to stay. This has been very upsetting to our 
corporations, who cannot operate effectively in that part of 
the world if they cannot train people in the process.
    Senator Smith. I thought we were trying to export, what was 
it, some notions of political correctness. This does not 
comport with that.
    Mr. Jenkins. I am in trouble at home already on this, but I 
think that is important, and I think it would be very helpful 
if the committee and the Congress generally would call this up. 
It conflicts directly with what we are trying to do at the 
national policy level.
    Senator Smith. Is this the State Department's 
responsibility?
    Mr. Jenkins. It is the State Department's responsibility. I 
say that sadly, having spent 30 years of my life in the State 
Department.
    Senator Smith. You did not fix it while you were there.
    Mr. Jenkins. It actually was running pretty good.
    I would like, if I could, Mr. Chairman, to insert in the 
record a classic case, at a much lower level than Ron's, of 
essentially a foul-up bureaucratic snafu within our own 
Government which has caused so far a defeat for an investment 
effort involving the Defense Department and various elements 
within the Defense Department. It illustrates the fact that we 
do not have a coherent priority within our administration with 
congressional support to move ahead on this issue, which is 
such an important historic opportunity, in my judgment.
    Senator Smith. We will receive that without objection and 
include it in our record.
    [The insert referred to, a letter from DCI, Inc., is on 
page 59.]
    Senator Smith. I think, Mr. Jenkins, somebody in Commerce 
heard your comment, because we have just had delivered to us 
some testimony from Charles M. Ludolf, who is Deputy Assistant 
Secretary for Europe from the Commerce Department, so while he 
is not here, we will include his testimony in the record.
    [The statement referred to is on page 62.]
    Senator Smith. We are glad they have at least showed up in 
that way, and I know the Commerce Secretary is involved in a 
political campaign, and whenever his replacement gets here we 
will ask him to come up and talk to this issue as well.
    Gentlemen, thank you very much. Part of the role of the 
U.S. Congress is transparency, and this is about oversight, and 
this is not just about what benefits Americans and American 
capital but ultimately what benefits these other countries we 
care about as well, because the market, free enterprise plays 
by the rules of openness and fair play, and where it is not, it 
will retard the development of these countries and take 
opportunities away from Americans and Europeans. We do not want 
that.
    So that is the spirit in which this hearing has been held, 
and we thank you for your contributions. The hearing is 
adjourned.
    [Whereupon, at 3:35 p.m., the subcommittee adjourned.]
                              ----------                              

             Additional Questions Submitted for the Record

  Responses of Hon. E. Anthony Wayne to Additional Questions for the 
                  Record From Senator Gordon H. Smith

    Question. The European Union has repeatedly stated that the Czech 
Republic is far behind the West in dealing with corruption and crony 
capitalism. Do you agree?

    Answer. There is some truth in such a view, but I would caution 
that the difficulties of economic transition from socialism to a 
market-based economy also far exceed the problems faced by most West 
European economies.
    Crony capitalism and corruption have been problems and, in fact, 
have tarnished the view many Czechs have of capitalism and democracy. 
Yet, I sincerely doubt that many Czechs would exchange their current 
economic and political states for those of the old regime prior to the 
``Velvet Revolution.''
    In our bilateral contacts and in various multilateral organizations 
the U.S. Government is encouraging our Czech counterparts to emphasize 
good governance and transparency in economic processes in order to 
relegate crony capitalism to the dustbin containing some other famous 
``-isms.'' The Czech Government sent a high level delegation to the 
Global Forum On Fighting Corruption hosted by Vice President Gore in 
February 1999. The Czechs also attended a follow up Regional Conference 
for Central and Southern European Nations hosted by the Romanians with 
U.S. support in March of this year. We have urged them to participate 
as fully as possible in the next Global Forum to be hosted by the 
Netherlands in May 2001.
    The Czechs have participated in regional anti-corruption seminars 
conducted by the Department of Justice. I also am pleased to bring to 
your attention that, as of January this year, the Czech Republic is now 
a full party to the Bribery Convention of the Organization for Economic 
Development and Cooperation (OECD). Although the Czech implementing 
legislation has some weaknesses, this very positive step makes the 
Czech Republic an ally in a broader effort to curb international 
business bribery.
    Another positive development, which the U.S. Government has had no 
direct role in, is that in October 1999, the Czech Republic signed the 
Council of Europe Criminal Law Convention Against Corruption. The 
Convention is significant for the Czech Republic, and for the rest of 
Central and East Europe, because the Council of Europe is the 
organization that traditionally sets the criminal law norms for Western 
Europe.

    Question. The U.S. Government encourages investment abroad, and in 
particular investment in countries formerly dominated by the Soviet 
Union. What steps has the State Department taken to protect American 
investors in Central Europe? What steps does the State Department plan 
on taking in the future?

    Answer. Continuing to expand the U.S. Bilateral Investment Treaty 
(BIT) program is the single best action the U.S. Government can take to 
protect U.S. investors abroad. The U.S. Government already has BITs in 
force with numerous countries in Central Europe with the Czech 
Republic, the Slovak Republic, Bulgaria, Poland and Romania, and we are 
currently in BIT negotiations with Slovenia. In addition to the BITs 
with the Central European countries formerly dominated by the Soviet 
Union, the U.S. has negotiated BITs with Russia (not yet in force), 
Ukraine (in force) and many of the newly independent states.
    BITs ensure U.S. investors are entitled to be treated as favorably 
as their competitors, establish clear limits on expropriation of 
investments, prohibit various performance requirements, afford U.S. 
investors the right to transfer funds freely, and give U.S. investors 
the right to submit an investment dispute with the treaty partner's 
government to international arbitration. This last aspect of the BIT is 
the closest thing to an insurance policy ensuring that U.S. investors 
will be treated fairly. However, it is the BIT's overall focus on 
encouraging adoption in foreign countries of market-oriented policies--
especially related to improving investment regimes--and supporting the 
development of international law standards that will benefit U.S. 
investors the most in the long run. Countries' implementation of these 
investment sector reform policies will not only improve their 
investment climates, but should also create additional opportunities 
for U.S. investors.
    In addition to the protections afforded by our BITs, it is standard 
practice for the U.S. Government to assist U.S. investors who are 
interested in investing abroad or who have already invested abroad and 
have run into problems. We are aware of ongoing investment disputes 
involving U.S. investors in every Central European country. Several of 
these disputes have gone to international arbitration under BITs. The 
U.S. Government is monitoring such cases and is providing appropriate 
assistance to the U.S. investors. In many instances, U.S. Government 
officials have met with the appropriate host government officials to 
insist that U.S. investors receive all due consideration under local 
and international law. U.S. Government officials also actively support 
U.S. investors in Central Europe by advocating at the highest levels a 
level playing field for investment.

    Question. The right to pursue international arbitration as a 
dispute resolution mechanism is seen by foreign investors and creditors 
alike as essential to any major infrastructure project. In fact, the 
European Union requires such a mechanism in order to meet the 
requirements of accession to the E.U. In this regard, what has the 
government of Bulgaria done to move swiftly in adopting such a measure? 
Are there any obstacles that you are aware of? In addition, what is the 
United States Government doing bilaterally, or through its 
participation in the Stability Pact, to encourage the immediate 
adoption of international arbitration legislation?

    Answer. The EU's identification in December 1999 of Bulgaria as a 
candidate for accession followed the Bulgarian government's intensified 
economic reform efforts in 1999, and since has provided impetus for 
continued reform. Recent reforms have included taking initial steps to 
improve investors' ability to use international arbitration to settle 
disputes.
    On March 21, 2000, Bulgaria became the 149th signatory of the 
International Center for Settlement of Investment Disputes (ICSID) 
Convention. Bulgaria has yet to ratify the Convention, but has taken 
the first step toward fulfilling the commitment Bulgaria made under the 
Stability Pact's Investment Compact on accession to international 
conventions on arbitration and enforcement of arbitral awards. Bulgaria 
was already a member of the 1958 New York Convention on the Recognition 
and Enforcement of Foreign Arbitral Awards and the 1961 European 
Convention on International Commercial Arbitration.
    The U.S. Government is also pursuing several different avenues to 
help Bulgaria improve its judicial system, including the use of 
arbitration as a valid and available option to settle disputes. In 
particular, we are supporting the American Bar Association's Central 
and East European Law Initiative (ABA/CEELI), which is working with the 
Bulgarian Judges Association to introduce Alternate Dispute Resolution 
(ADR) to the court system.
    We are also working actively with the Bulgarian Government on 
fulfillment of Stability Pact commitments. To that end, we have been 
instrumental in the establishment of mechanisms for coordinating and 
monitoring progress on reform commitments in each of the signatory 
countries. The Investment Compact commitments include agreements to 
accede to international arbitration conventions, to increase 
transparency of the legal and regulatory framework, to establish an 
open and transparent government procurement process, and to fight 
corruption. With respect to corruption, it is significant that the 
Government of Bulgaria has both ratified and implemented the OECD 
Bribery Convention.
    Finally, after the U.S.-Bulgaria BIT went into force June 2, 1994, 
Bulgaria committed to a range of dispute settlement procedures starting 
with notification and consultations. Bulgaria accepts binding 
international arbitration under ICSID rules in disputes with U.S. 
investors. The U.S. is committed to ensuring that U.S. investors in 
Bulgaria are able to achieve their rights under the BIT.
    The U.S. Government has worked to encourage the adoption by the 
Bulgarian Government of investment-sector related reforms that will 
improve Bulgaria's investment climate. Through the Bilateral Investment 
Treaty, the U.S. Government has ensured that U.S. investments in 
Bulgaria are protected and U.S. investors have the right to take 
investor-state disputes to international arbitration.

    Question. In most of the infrastructure projects in Bulgaria, 
particularly those in the energy sector, private investors are not 
capable of securing financing for their projects unless the investment 
is backed by a sovereign guarantee from the government of Bulgaria. We 
understand that the Bulgarian Government is very limited in the 
issuance of such guarantees through its program with the International 
Monetary Fund. What is the U.S. Government doing to ensure that U.S. 
companies that are seeking such guarantees are in a competitive 
position with their European counterparts?

    Answer. The U.S. Government has advocated actively for U.S. 
companies that are interested in investing in the energy and other 
sectors in Bulgaria in an effort to ensure they are able to compete 
fairly. State, Commerce, and Energy Department officials have had 
frequent discussions with Bulgarian Government officials, including 
Prime Minister Kostov, in meetings here and in Sofia.
    We are mindful of the importance of the Bulgarian Government living 
up to its commitments with the IMF and maintaining litnits on debt. We 
support the IMF program in Bulgaria and do not advocate that Bulgaria 
undermine its hard-earned macroeconomic stability by assuming sovereign 
guarantees in excess of the ceiling. At the same time, however, we are 
maintaining close communication with the highest level Bulgarian 
Government officials, to underscore the benefits of U.S. investments 
and services, especially in the energy sector. These benefits include 
improved environmental and nuclear safety and contributions to economic 
growth (through capital and technology transfers and increased, energy 
efficiency).
    Our efforts have enabled U.S. companies to obtain highly-sought-
after contracts. The Bulgarian Government recently signed a $77 million 
credit agreement with Ex-Im Bank for a contract with a U.S. company to 
upgrade nuclear safety at Kozloduy nuclear power plant, the first Ex-Im 
transaction in Bulgaria since 1967. The financing for this project is 
included on the Bulgarian Government's priority list of projects for 
which a government guarantee is available.
    Projects on which U.S. exporters are competing do not necessarily 
require Bulgarian Government guarantees. In addition to being open for 
short, medium, and long-term transactions in the public sector, Ex-Im 
Bank is also open for short and medium-term transactions in the 
Bulgarian private sector. Ex-Im Bank is also prepared to consider 
financing in support of U.S. exports for Bulgarian borrowers with 
independent access to private international capital markets and their 
own credit ratings from recognized rating agencies. Ex-Im Bank will 
also consider projects that can be secured through the assignment of 
hard currency earnings.
    We will continue to pursue these and other ways to assist U.S. 
companies interested in investing in Bulgaria. We will also continue to 
urge high level Bulgarian Government officials to ensure fair and 
equitable treatment for all foreign investors.

    Question. I understand that you are aware of problems investors 
have had in withdrawing funds from Polish National Investment Funds, 
that were originally created to back the transition of roughly 500 
state-owned businesses to privatized companies. Could you describe what 
actions the U.S. Government has taken and will take to resolve this 
issue, which affects the investments of many American citizens.

    Answer. We are aware of a dispute involving the U.S. investors in 
the Polish National Investment Fund (NIF) named Octava. We understand 
that the dispute arose last year when a majority of Octava's 
shareholders, including representatives of the U.S. investors, voted in 
favor of authorizing a share buyback program. The buyback program would 
allow interested shareholders to withdraw funds from (or more 
specifically sell back their shares to) Octava.
    The Polish Ministry of State Treasury (``Ministry''), which is both 
a shareholder in and regulator of all the NIFs, opposed the share 
buyback program and filed a lawsuit in an attempt to reverse its 
decision. The Ministry argues that share redemptions are not permitted 
under the 1993 law that created the NIFs, since actions that serve to 
reduce the capital of a NIF could undermine the primary objective of 
the funds, namely increasing the value of the privatized companies they 
control. However, the Ministry is aware that investments in the NIF 
funds are not performing as investors had hoped and that some 
structural changes will be required; the Ministry reportedly wants such 
changes to take place in a manner that will not result in an increase 
in the Polish Government's stake in the NIFs, as this would run counter 
to the goals of its privatization program.
    The court case is still pending. In the meantime, the court has 
prevented Octava from implementing the share buyback program. 
Simultaneously, Octava's management, representatives of the U.S. 
investors, and the Ministry have been holding negotiations to find a 
compromise solution. It is our understanding that the parties recently 
reached a working level agreement that is acceptable to all sides, 
including the U.S. investors. Although we have not been able to learn 
the exact details of the accord, we have been informed that it is 
currently awaiting the signature of the Treasury Minister.
    At this time we are unaware of any other instances of U.S. 
investors facing difficulties in divesting from Polish NIFs. In the 
case of Octava, Department of State and U.S. Embassy-Warsaw officials 
have followed the dispute from the beginning. Embassy officials have 
met with all the principals involved and have urged the Government of 
Poland to seek a fair and rapid resolution to this case. We will 
continue to provide all appropriate assistance to the U.S. parties in 
this dispute, and will continue to raise our concerns with high-level 
Polish government officials, and, as appropriate, encourage the 
Government of Poland to bring this issue to closure.
                                 ______
                                 

Response of Hon. E. Anthony Wayne to Additional Question for the Record 
                        From Senator Chuck Hagel

    Question. You have outlined very effectively the problems that U.S. 
businesses encounter with foreign governmental agencies, taxing 
methods, power supply, etc., in setting up operations in NIS and former 
Soviet bloc countries. Are you aware of any problems that have been 
caused by our own governmental agencies in this part of the world? What 
kind of cooperation have you experienced with the U.S. Government in, 
for instance, establishing joint ventures between U.S. companies and 
former Communist governments in privatization efforts and in advancing 
mutually beneficial trade, economic development, and regional or 
national security goals?

    Answer. One area where the U.S. Department of State has cooperated 
with the Department of Commerce and some 17 other agencies is the Trade 
Promotion Coordinating Committee (TPCC). Over the last seven years, the 
TPCC has responded to the immediate needs of U.S. businesses, large and 
small, who are interested in entering or expanding into the countries 
of the former Soviet Union. The TPCC Interagency Working Group on 
Energy has worked towards the rapid, safe, and environmentally-
sensitive development of energy resources with the Newly Independent 
States (NIS) of the former Soviet Union. Business Development 
Committees (BDCs) with Russia, Ukraine, and Kazakhstan are working to 
promote and facilitate U.S. trade and investment by identifying and 
working to eliminate barriers.
    In December 1999, the Commerce Department and State Department 
successfully persevered in the forum of the U.S.-Kazakhstan BDC and 
Joint Commission to overcome obstacles to trade and increase market 
access. We have seen progress in customs, labeling regulations, and 
currency restrictions.
    In Russia, we have worked hard, together with Commerce, to relieve 
some of the most onerous problems facing U.S. businesses in Russia. We 
have made concrete progress through the Binational Commissions (an OVP 
initiative jointly supported by State and Commerce) on tax, customs, 
and regulatory issues. In the energy area, we have had a strong team 
working together from State and Commerce (and Treasury) to push Russia 
to pass Production Sharing Agreement (PSA) legislation and complete the 
PSA framework. In sum, cooperation has been good, progress has been 
made in some areas, and there is a clear game plan that we are all 
working from to make real progress in the future.
    Energy developments and transportation initiatives in the Caspian 
Basin continue to be a central focus of interagency efforts that 
support the expansion of mutually beneficial relations with the states 
of the NIS. Recent discussions have focused on regional oil and gas 
transportation, the improvement of legal frameworks necessary to 
support enhanced U.S. commercial energy investment in Kazakhstan and 
Uzbekistan, and with respect to the latter, currency convertibility 
issues. Several outreach initiatives have been undertaken and 
coordinated in the energy sector that support U.S. commercial ties in 
the NIS. Other programs are outlined in the Report on Implementation of 
Section 303 of the Freedom Support Act.
    We in the State Department play a central role in working with 
American companies and with the firms, governments and other 
institutions in Central and Eastern Europe to create open markets and 
rule of law to attract private sector U.S. investment. In partnership 
with our colleagues at the Department of Commerce and governments of 
the former Soviet Union, we are working to address U.S. business 
concerns and help foster a framework that opens these countries further 
to American business and investment.
    There are a number of overarching efforts such as battling 
corruption through our joint State-Commerce efforts to battle 
corruption through encouraging countries in the region that have signed 
the OECD Anti-Bribery Convention to ratify and fully implement it. The 
Czech Republic and Hungary, both of which are members of the OECD, have 
ratified and implemented the Convention, as have Bulgaria and the 
Slovak Republic. We are working with other USG agencies to press 
governments in Central and Eastern Europe to take action to protect 
intellectual property rights. Bulgaria has made significant progress 
here.
    We jointly have pursued bilateral investment treaties (BITs) with 
many countries in the region. The basic aims of the BIT program are to 
protect U.S. investment abroad. We currently have signed BITs with 15 
countries in the region. Twelve of these are now in force.
    There are also a number of specific initiatives geared to 
particular parts of the region designed to improve the investment and 
business climate. One such international partnership is the Stability 
Pact for Southeast Europe. The Pact was announced at the July 30, 1999, 
Sarajevo Summit with President Clinton and European leaders.
    Results on the trade front are already impressive in Central 
Europe. In 1991, U.S. companies exported $1.6 billion worth of goods to 
the 15 countries of Central and Eastern Europe. By the end of 1999, 
U.S. exports had doubled, to $3.2 billion.
    U.S. firms have made inroads with opportunities from Greenbrier's 
investment to produce railroad cars in Poland to Bechtel's $600 million 
highway construction contract with the Croatian Government.
    Our embassies, with State officers and Department of Commerce FCS 
personnel, constantly work hard on behalf of American commercial 
interests. In Russia and Central and Eastern Europe--from the Baltics 
to the Balkans--U.S. Ambassadors and Embassy Senior Commercial and 
Economic Officers are the eyes, ears and in-country negotiators for 
U.S. commercial and economic interests--from trade and investment to 
anti-corruption, environmental safeguards, and cultural exchanges. 
Furthermore, as experts on host-country markets and business practices, 
these State and Commerce officials can and do identify opportunities 
for American firms and advocate on their behalf, companies that range 
from small and medium enterprises like bagel bakeries to major firms 
such as Enron and Ford.
    During the absence of an FCS officer from AMEMB Tashkent, for 
example, Commerce relied on the State Department to support our 
coordinated efforts to work for market access in the U.S.-Uzbekistan 
Trade, Investment and Energy Committee.
    In Washington, the State Department's Office of Commercial and 
Business Affairs (CBA) is teamed with the Department of Commerce's 
Advocacy Center (AC) and Market Access and Compliance (MAC) to help 
individual American companies go after lucrative opportunities abroad. 
The two offices conduct joint project advocacy on behalf of U.S. 
business interests. At this time, we are currently collaborating on 
updating the interagency Advocacy Guidelines that are used by Commerce 
and State officers both in Washington and overseas. For large or 
complex cases, Commerce and State Department staff routinely come 
together with interagency backing for U.S. companies. CBA, AC and MAC 
collaboration is producing numerous success stories ranging from 
Williams in Lithuania; to Boeing in Russia, to NRG in Estonia (which 
will be the biggest single foreign investment in Estonia's history) to 
Westinghouse Electric's nuclear safety project in Bulgaria (which has 
resulted in the first Eximbank transaction in that country since 1967).
    In short, State and Commerce work together closely and quite 
successfully both in Washington and abroad, to advance U.S. commercial 
interests. It is a natural partnership.
                              ----------                              

      Additional Statements and Material Submitted for the Record

            American Chamber of Commerce in Poland,
     Warsaw Financial Center, ul. Emilli Plater 53, 00-113,
                                     Warsaw, Poland, June 27, 2000.

Senator Joseph R. Biden, Jr., Ranking
Subcommittee on European Affairs,
United States Senate,
Washington, DC.

    Dear Senator Biden:

    It is our understanding that the Subcommittee for European Affairs 
will hold a hearing on June 28th concerning the experience of American 
investors in Central and Eastern Europe. It is our pleasure to add our 
voice to the hearing through this letter.
    The American Chamber of Commerce in Poland represents the largest 
bloc of foreign direct investment in Poland through its over 300 member 
companies. The rapidly rising level of investment by American firms in 
Poland is a testament to the economic reform progress Poland continues 
to make and the vision of our member firms. To date, American companies 
have invested over $7.5 billion dollars with an additional $3.5 firmly 
committed in the near term.
    It is our experience that in every country there are individual 
companies which experience problems due to a lack of transparency, 
inefficient bureaucracies or unfair practices. We are pleased to say 
that in Poland this is definitely the exception, rather than the rule. 
The American Chamber of Commerce works diligently with the government 
and opposition on continuing reform and on behalf of our member firms 
when they experience any of the conditions mentioned. While some 
occasional difficulties remain, we see strong evidence of improvement 
from year to year in Poland.
    Successive governments in Poland have continued their practice of 
working closely with the American Chamber of Commerce in fiscal, tax, 
labor market, macro-economic, licensing, concession, intellectual 
property and public procurement areas--to name but several--with the 
aim of using our organizations depth of expertise and experience to 
further improve the attractiveness and competitiveness of the Polish 
economy. Our involvement directly in the reform process allows us to 
gauge the changes which have been made, are underway or planned. The 
success of our member firms speaks strongly about the results achieved 
to date.
    More than eighty Fortune 500 companies have made investments in 
Poland, along with many U.S. small and medium sized enterprises and a 
growing number of entrepreneurs starting businesses in this dynamic 
economy. Poland is continuing its solid growth, aided by American 
investment and providing a dynamically growing market for American 
companies, goods and services.
    We would be pleased to provide any additional information on 
American investment and our companies experience in the market if it 
will be of assistance to the Subcommittee.
            Sincerely,
                                 Mac Raczkiewicz, Chairman.
                                 ______
                                 
                   Die Casters International, Inc.,
                                        One Spruce Terrace,
                                          Wayne, NJ, June 20, 2000.

The Honorable Kempton Jenkins
President, Ukraine-U.S. Business Council,
1615 L Street, N.W., Suite 900,
Washington, DC 20036.

    Dear Kempton:

    I understand that you have been invited to testify before the 
Senate Foreign Relations Committee on the state of U.S. business 
interests in Central Europe. In Ukraine, too often failures are 
attributed to corruption, frequently by Ukraine government officials, 
as well as to the onerous and numerous risks and instabilities inherent 
within the business and legal environment in that region of the world 
today. However, sometimes failures are created by the U.S. government. 
Our project is a classic example of exactly the latter situation. The 
following could be included in the record as to how one agency in the 
Department of Defense has unilaterally decided to throw away $3 million 
of public investment despite a decision to the contrary by the Office 
of the Secretary of Defense and despite the continual support of the 
Ukraine government.
    For two and one-half years, Die Casters International, Inc. (DCI) 
has had $3 million of high technology equipment, seventy percent 
American that was designed and purchased with DCI and Nunn-Lugar funds, 
uselessly warehoused in Kyiv, Ukraine and in Tiraspol, Moldova, while 
DCI attempted to have available and assigned funding from the U.S. 
Department of Defense (DoD) released to complete DCI's defense 
conversion project. In May of this year, the Office of the Secretary of 
Defense (DoD-Policy) reaffirmed a decision it made in January to 
release $560,000 to DCI Last week, the Defense Threat Reduction Agency 
(DTRA) took unilateral action contrary to this decision and informed 
DCI that DTRA will not fund the project. DTRA now plans to close DCI's 
contract as a failure. DCI is working hard to have this astonishing 
decision by DTRA reversed with the help of the Ukraine government.
Background
    In October 1995, DTRA (then known as the Defense Nuclear Agency) 
awarded DCI a $4.1 million contract for Ukraine. Under the contract, 
using $3 million of Nunn-Lugar funds and $1.1 million of DCI funds, DCI 
was to establish a die cast manufacturing site in Ukraine through a 
joint venture with a Ukrainian defense conversion partner, Meridian. 
However, the Meridian project turned out to be a pure startup for which 
required outside financing could not be obtained. So, in 1997, with the 
support of the Ukraine government and approval of DoD, DCI and 
Burevestnik agreed to work together to form a joint venture to produce 
die castings. By the beginning of 1998, DCI had achieved most of the 
project's objectives, including:

   DCI designed and had manufactured $3 million of high-
        techology, capital equipment to be contributed to the joint 
        venture with its Ukraine defense conversion partners, 
        Burevestnik and TechnoMet. Seventy percent of this equipment 
        was produced in the United States, thirty percent in Moldova 
        and Russia.

   Under DCI's leadership, a former Soviet manufacturer and a 
        leading U.S. manufacturer collaborated to produce new machines 
        designed and built with American technologies for the Ukrainian 
        and Russian markets.

   DCI developed and negotiated a joint venture agreement and 
        charter with its Ukraine partners, to form a Ukrainian closed 
        joint stock company where DCI will control the Board of 
        Directors and business flow.

   DCI has organized a team of leading experts from America, 
        Ukraine and Russia that will help ensure the success of the 
        conversion project.

   DCI's Ukrainian partners have agreed to contribute to the 
        joint venture buildings, manufacturing equipment and a strong 
        backlog of manufacturing orders. The current operations are 
        profitable, with over eighty percent of $2.2 million sales 
        exported to Europe and East Europe.

   DCI had obtained agreements to transfer Russian furnace 
        technology to North America with General Signal and to transfer 
        to America Ukrainian metallurgical technology to recycle 
        manufacturing metal waste.
DCI's. Efforts to Complete the Project
    However, DCI's original contract funds from DTRA ran out in 1998. 
Since then, DCI has requested $730,000 in additional funds to complete 
the project by registering the joint venture, upgrading the plant 
facilities, installing the equipment, providing operator training and 
incorporating quality control equipment and practices. DCI has 
continued operations in order to obtain those funds. Meanwhile, the 
following events have occurred:

   June 1998: After identifying $750,000, DoD executed an 
        agreement with the Ukraine Ministry of Defense to fund the 
        additional needs of the DCI-Burevestnik conversion project. At 
        that time, $500,000 was allocated for DCI-Burevestnik and 
        $250,000 for a project that has never developed.

   December 1998: Senator Strom Thurmond, then Chairman of the 
        Senate Armed Services Committee, wrote a letter to Secretary 
        Cohen requesting full funding of the DCI project. (See attached 
        letter).

   February 1999: Secretary Cohen responded that DoD plans to 
        provide the additional funds to DCI, subject to negotiations 
        with DTRA. (See attached letter). Immediately after this 
        letter, DCI went to DTRA at DTRA's request to negotiate, but 
        DTRA did not negotiate then and has not negotiated since.

   March-August 1999: DCI sent letters and used other means of 
        communication to reach key government officials, such as 
        Secretary Cohen, Vice President Gore, and Ambassador Pifer, 
        asking them to save the valuable DCI-Burevestnik project in 
        Ukraine. (See attached letter).

   August 1999: Assistant Secretary of Defense Edward Warner 
        wrote to DCI that DoD shares DCI's interest but does not have 
        the $730,000 requested by DCI available and could not proceed 
        until some Defense Contract Audit Agency (DCAA) issues were 
        resolved first. Those issues have since been resolved, having 
        been determined to have no impact on the funding or the 
        project.

   January-May 2000: Deputy Assistant Secretary of Defense 
        Susan Koch, who reports to Dr. Warner, decided to provide 
        $560,000. DCI adjusted its operating plans to complete the 
        project within those funds. Dr. Koch reaffirmed her decision in 
        early May 2000, and DTRA was tasked to implement her decision.

   May 2000: DCI had to engage a Washington law firm to stop 
        DTRA from taking unilateral action to move $2 million of the 
        project's equipment to an undisclosed location without DCI's 
        consent. DTRA would not answer DCI's simple questions, such as 
        how it planned to move the equipment and how it planned to 
        ensure that supplier support and warrantees would remain 
        effective. The manner in which DTRA took such unilateral action 
        has caused additional project restart costs of approximately 
        $115,000.
DCI's Need for Relief
    Throughout this time, DCI has received continued support from its 
Ukraine partners and from the Ukraine government. Yet, after more than 
a month following Dr. Koch's May decision and without negotiating, over 
the past week DTRA has informed DCI that it will not provide either a 
contract modification or a grant to complete the project. This 
indicates that DTRA unilaterally plans to terminate the project as a 
failure, something that should be unacceptable by all parties, American 
and Ukrainian.
    DCI needs to have DoD-Policy's decision implemented immediately, 
with DTRA providing the $560,000 as a grant. In addition, DTRA should 
pay directly the $115,000 costs caused by DTRA's conduct last month. 
Only in this way can DCI save what can surely be a successful defense 
conversion project.
Political Ramifications
    There are several serious political ramifications if the project is 
not completed, including:

   Instead of producing $6 million of new export sales for a 
        severely depressed Ukraine economy, instead of providing an 
        additional 100 to 150 jobs in Ukraine, and instead of having 
        American technologies showcased in the capital of Ukraine for 
        export to Russia and Ukraine, the $3 million of equipment 
        purchased by DCI and DoD has been gathering dust in storage for 
        more than 2.5 years.

   Instead of providing a model American-Ukrainian enterprise 
        to showcase how the two countries can work together, the only 
        showcase will be how DoD did not honor its June 1998 
        commitment.

   Instead of one successful conversion project with an 
        American company, for the nearly $100 million of taxpayers' 
        Nunn-Lugar funds invested under the oversight of DTRA since 
        1994 ($20 million in Ukraine), DTRA and DoD will have a string 
        of failed projects. Compounding this is the loss of the future 
        prospect the DCI project presents. With the successful 
        completion of the first DCI model joint venture, DCI plans to 
        replicate that model, similar to franchising, into a string of 
        up to ten additional joint ventures that would provide for well 
        over 3,000 additional jobs in Ukraine and Russia, significant 
        hard currency cash flow, and considerable export sales of 
        American technology.

   Instead of having a model industrial operation that could be 
        replicated in Kharkiv, Ukraine as part of the Kharkiv 
        Initiative, the failed DCI project will only support the broken 
        U.S. Government promises similar to those articulated in the 
        New York Times on June 6: ``Deprived Ukraine City Finds U.S. 
        Help No Help.''

   Instead of allowing DCI to showcase a DoD defense conversion 
        project where American technologies can be exported into Russia 
        and Ukraine and where Russian and Ukrainian technologies could 
        be transferred to America, those technologies remain dormant at 
        the detriment of American industry.
The Key Players
    The key DoD personnel involved with this project are:

   Dr. Edward Warner, Assistant Secretary of Defense, Strategy 
        and Threat Reduction (STR).

   Dr. Susan Koch, Deputy Assistant Secretary of Defense, STR/
        Cooperative Threat Reduction.

   Mr. Marc Palevitz, Administrator in Dr. Koch's office, and 
        lead policy person on the DCI project.

   Brigadier General Thomas Kuenning, Ret., Director--Threat 
        Reduction Implementation Office, DTRA.

   Mr. Edward Archer, Senior Contracts Officer, Contracts and 
        Acquisition Office, DTRA.
Conclusion
    It is such a waste for DoD not to release funds that it has been 
sitting on for five years and that were promised to the Ukraine 
government two years ago, and thus preventing the United States and 
Ukraine governments from demonstrating at least one successful 
conversion project between American and Ukrainian companies. After 
failures with over $100 million of Nunn-Lugar funds allocated to DTRA's 
oversight and with the $70 million of Nunn-Lugar funds given to the 
Defense Enterprise Fund, the chance for one success should be 
absolutely and earnestly pursued by DoD. Yet, DTRA makes its own policy 
decisions and takes unilateral actions that go against that logic.
            Very truly yours,
                           Alan C. Frederickson, President.

                                 ______
                                 

 Prepared Statement of Charles M. Ludolph, Deputy Assistant Secretary 
  for Europe, International Trade Administration, U.S. Department of 
                                Commerce

                            I. INTRODUCTION
    Mr. Chairman, I am pleased to be with you this afternoon to discuss 
U.S. business activity in Central and Eastern Europe and to review what 
the Commerce Department's International Trade Administration is doing 
to advance U.S. commercial interests in this important region. In the 
ten years that have passed since the countries of Central and Eastern 
Europe (CEE) rid themselves of communism, considerable progress has 
been made in the region to secure democracy and establish free-market 
economic systems. The pace and depth of political and economic reform 
has varied in Central and Eastern Europe and progress has sometimes 
been uneven, but the course is clear. Democratic values are taking hold 
and central planning has given way to free-market principles throughout 
the region. The private sector in Central and Eastern Europe is vibrant 
and growing and the countries are moving closer towards membership in 
the European Union (EU).
    The Commerce Department's International Trade Administration (ITA) 
has been a very active player within the USG in encouraging and 
supporting the economic transformation of Central and Eastern Europe. 
We have a unique interaction with the U.S. business community, and have 
been able to significantly expand America's commercial presence in the 
region and to protect U.S. economic interests already there. As a 
result, U.S. foreign policy objectives in Europe have been furthered 
and peace has been made more secure. Today, I would like to review the 
extent of U.S. commercial activity in Central and Eastern Europe, the 
opportunities for American firms in the region, and the extensive 
program of support that Commerce ITA offers to the U.S. business 
community to help them compete, including efforts to overcome market 
access problems that they confront. We have been very successful in our 
efforts and we have several examples to relate to you.

II. STATUS OF U.S. EXPORTS AND INVESTMENT IN CENTRAL AND EASTERN EUROPE
    During the last decade, U.S. firms have learned to view CEE not 
only as an emerging market, but also as an emerging marketplace. 
American companies have grown increasingly sophisticated in their 
understanding of the opportunities, difficulties, and challenges of 
doing business in the region. As a result, both U.S. exports and 
investment in CEE have dramatically increased.
    Trade: Since 1991, U.S. firms have dramatically increased their 
trade and investment activities in Central and Eastern Europe. In 1991, 
U.S. companies exported $1.6 billion of goods to the fourteen countries 
of Central and Eastern Europe: Albania, Bosnia-Herzegovina, Bulgaria, 
Croatia, Czech Rep., Estonia, Hungary, Latvia, Lithuania, FYR 
Macedonia, Poland, Romania, Slovakia, and Slovenia. By the end of 1999, 
U.S. exports had doubled to $3.2 billion. U.S. companies exported more 
than $338 million of meat, $295 million of aircraft, and $295 million 
of machinery in the first three months of 2000. Between 1991 and 1999, 
imports from the region increased from $3.7 billion to $6.7 billion.
    Poland, with a population of almost 40 million, is the largest 
market in the region. In 1999, U.S. firms exported more than $825 
million worth of goods to the Polish market. During this same year, 
U.S. companies exported $610 million of goods to the Czech Republic and 
$503 million worth of goods to Hungary. Together, these three markets 
account for more than 60 percent of U.S. exports to Central and Eastern 
Europe. In 1999, the United States imported $813 million worth of goods 
from Poland, $754 million of goods from the Czech Republic, and $1.89 
billion worth of goods from Hungary. Imports from these three countries 
equaled 47 percent of total imports from the region (for detailed 
export and import data by individual country, see Annex 1).
    Foreign Direct Investment: U.S. investment in Central and Eastern 
Europe also has risen dramatically over the past decade. By the end of 
1999, U.S. companies had invested more than $16 billion in the region. 
American firms have invested more than $7 billion in Hungary, $5.1 
billion in Poland, and $1.5 billion in the Czech Republic. Together 
these three markets have attracted 85 percent of all U.S. investment in 
the region.
    One clear indication of increased U.S. business presence in Central 
and Eastern Europe is the exponential growth of membership in American 
Chambers of Commerce (AmCham) in the region. In the 10 years since the 
first AmCham was formed in Hungary, 1,885 individual companies have 
joined the 11 separate AmChams established throughout the region. U.S. 
Embassies in Albania and Macedonia are currently working with 
representatives of local U.S. companies to open AmChams in their 
respective countries; this would mean AmChams in 13 of the region's 15 
countries. AmChams are important because they offer U.S. companies 
active in these markets a vehicle to express their views and concerns 
on doing business to host-country governments and they help build 
confidence in the local market for prospective new U.S. commercial 
partners.

       III. BUSINESS OPPORTUNITIES IN CENTRAL AND EASTERN EUROPE
    The appeal of the Central and East European markets to U.S. 
exporters and investors stems from opportunities created during (1) 
their transition from centrally-planned to market economies and (2) the 
process of modernizing their economies in an effort to meet EU 
standards as they vie for eventual EU membership. The transition period 
has opened up these markets to Western goods, forced old industries to 
retool and reshape themselves, and created entirely new companies and 
industries in the region. The last decade has witnessed the massive 
privatization of state enterprises and utilities and the modernization 
of infrastructure. All of this change has increased the prospects for 
U.S. companies.
    The potential for future growth is a source of optimism about these 
countries. In 1999, Poland's growth rate was 4.0 percent, the Czech 
Republic's was zero, and Hungary's was 4.2 percent. The European Bank 
for Reconstruction and Development forecasts real GDP growth for 2000 
to be 4.5 percent for Poland, 2.0 percent for the Czech Republic, and 
4.0 percent for Hungary. Their prospects for growth are expected to 
rise further as economic reforms continue and as they approach EU 
membership.
    Trade: Part of the uniqueness of these markets is that Western 
consumer products had very little penetration prior to 1989. Now, CEE 
consumers' strong desire to take advantage of their new range of 
choices and their growing purchasing power translates into market 
opportunities for U.S. exporters. Additionally, the services sector in 
these countries was virtually non-existent prior to the transition. In 
the last decade, U.S. companies have successfully introduced services 
ranging from insurance to consulting to dry cleaning.
    During the transition, CEE companies have had to modernize 
themselves to become competitive under free market conditions. They 
have sought U.S. technology and inputs in their restructuring efforts. 
Further, the CEE countries' drive to modernize their economies and 
prepare for EU accession has resulted in great efforts to develop basic 
infrastructure, such as telecommunications networks and roads. Strong 
projections for increased energy demand in the future have resulted in 
ambitious government plans to increase generation capacity and to 
upgrade distribution networks. U.S. companies have been at the 
forefront of both enterprise restructuring and infrastructure 
development.
    The environmental technologies sector has particularly strong 
prospects for U.S. business. The environmental legacy of communist 
industry was polluted air, water, and soil. Meanwhile, the EU accession 
process has forced the CEE countries to bring their environmental 
standards in line with those of the EU. The result is significant 
opportunities for the sale of environmental technologies and services 
in the CEE region.
    As the CEE economies recover and grow, CEE government procurement 
has become a significant source of opportunities. CEE governments are 
in the process of procuring products as diverse as aircraft, municipal 
water treatment systems, computer networks, and medical equipment. U.S. 
companies are lead competitors in these procurements.
    Finally, in Southeast Europe, internationally funded reconstruction 
and development efforts are underway. New activities in the areas of 
energy, transportation infrastructure (including roads, ports, and 
bridges), and construction create opportunities for U.S. firms in this 
relatively unexplored region. However, since the majority of the large 
infrastructure projects will be funded by the EU, and implemented 
through tenders limited to companies located in the EU, American 
companies face a significant challenge when bidding on internationally-
funded projects.
    Foreign Direct Investment: The U.S. is already a major foreign 
investor in Central and Eastern Europe. American investors are taking 
advantage of the strategic location, good infrastructure, skilled and 
educated labor, and relatively low labor costs (compared to the EU), of 
countries such as Hungary, the Czech Republic, and Poland. In some 
cases, U.S. companies have invested to supply CEE domestic markets. In 
other cases, U.S. companies are placing investment in CEE countries to 
manufacture products which are then exported to the much larger EU 
market. Industrial products manufactured in CEE countries enter the EU 
duty-free as a result of the Europe Agreements--commonly referred to as 
the association agreements--that the CEE countries have signed with the 
EU. In addition, seven countries in the CEE region have entered into a 
multilateral free trade agreement, the Central Europe Free Trade 
Agreement (CEFTA). Those countries include Poland, Hungary, Czech 
Republic, Slovakia, Slovenia, Romania, and Bulgaria.
    U.S. investment has taken several forms. Massive privatization 
efforts are attracting American companies to the telecommunications, 
energy, and light and heavy manufacturing sectors, to name a few. 
Further, CEE companies of all sizes are seeking U.S. joint venture 
partners. American companies have formed many successful partnerships 
with CEE companies, in particular, using the CEE companies' knowledge 
of local market conditions. Finally, U.S. companies are building 
greenfield manufacturing sites, and increasingly are investing in more 
high-tech, value-added facilities in the electronics, information 
technology and automobile parts sectors.
    Overall, the prospects for doing business in the CEE region are 
strong and diverse for both U.S. exporters and investors. If companies 
are willing to be flexible to changing conditions, there are 
significant emerging opportunities to pursue in this dynamic region.

      IV. USDOC/INTERNATIONAL TRADE ADMINISTRATION (ITA) PROGRAMS
A. Market Entry
    ITA supports U.S. companies interested in Central and Eastern 
Europe both here at home and overseas through a variety of means. 
Various ITA units help introduce American firms to the region's 
markets. But ITA's efforts do not stop there. ITA counsels and supports 
U.S. firms during the entire commercial undertaking, ensuring that the 
playing field is level and that American companies are treated fairly.
    Central and Eastern Europe Business Information Center (CEEBIC): 
The heart of ITA's program for the region is our Central and Eastern 
Europe Business Information Center (CEEBIC), located in ITA's Market 
Access and Compliance unit. CEEBIC is a ten-year old program, funded by 
USAID, that serves as the USG's central clearinghouse for all economic, 
commercial, and financial information on 15 countries of Central and 
Eastern Europe. In particular, CEEBIC's overseas network of 13 foreign 
national trade specialists develops detailed information on new 
commercial opportunities in Central and Eastern Europe. That 
information is sent back to Washington where CEEBIC's headquarters 
staff puts it on CEEBIC's website and in its several publications for 
wide dissemination to the U.S. business community.
    Our website--CEEBICNet--is a highly popular service receiving more 
than 135,000 inquiries weekly. It contains not only trade and joint 
venture leads for U.S. companies but a broad range of information 
products including market research, information on sources of finance, 
fact sheets, unclassified U.S. Embassy reporting cables from throughout 
the region, and materials provided by the CEE countries themselves. It 
also contains important links to other USG websites, as well as those 
maintained by Central and East European countries and institutions. 
CEEBIC maintains a database of over 11,000 U.S. companies which 
regularly use its services (for a breakdown of the database by state, 
see Annex 2). CEEBIC has a monthly publication--Commercial Update--and 
a weekly internet publication--Southeast Europe Business Brief, both of 
which offer timely and substantive information on CEE markets to 
potential U.S. business partners.
    CEEBIC also provides crucial support to the Administration's 
efforts to secure peace, build democracy, and create long-term 
prosperity in Southeast Europe in the aftermath of the Kosovo conflict. 
CEEBIC is adding foreign national trade specialists in Kosovo and in 
Northern Greece to serve the Balkan region. It also is the USG's 
leading source of information on reconstruction and economic 
development projects under the Stability Pact for Southeast Europe--a 
multilateral initiative of the United States and other G-8 countries 
designed to strengthen the war-torn Balkan region economically and 
politically. In furtherance of this objective, CEEBIC will conduct 
business seminars and briefings for U.S. firms to help them better 
understand the new commercial opportunities stemming from the Stability 
Pact and other projects being funded through international financial 
institutions.
    CEEBIC is much more than just an information service. It also 
provides a highly effective business counseling and commercial 
development function. Once U.S. firms have been given information about 
the CEE markets and have begun to interact with their CEE counterparts, 
CEEBIC continues to guide and counsel them through that initial 
interaction and their negotiations with CEE companies and governments. 
We vigorously advocate for them against foreign competition, and when 
necessary, we work to protect their interests. This function is highly 
important for U.S. companies which face the many uncertainties of the 
CEE markets and their frequently difficult business climates.
    U.S. Commercial Service: ITA's U.S. Commercial Service (CS) is 
committed to assisting U.S. firms in realizing their export potential 
by providing expert counseling and advice, information on markets 
abroad, international contacts, and advocacy services. In Central and 
Eastern Europe, 11 American CS officers provide in-country support and 
expertise as for U.S. companies doing business in this dynamic market. 
They also manage a network of 46 foreign national employees in the 
region to provide U.S. firms with hands-on support and guidance in 
these complex markets.
    The U.S. Commercial Service provides timely and customized business 
solutions to assist U.S. firms to enter the new markets of CEE. This is 
done through a combination of cost effective basic and specialized 
services, including the following:

   Agent-Distributor Service: CS specialists locate potential 
        partner companies in Central and Eastern Europe that are 
        interested in distributing U.S. products overseas;

   Gold Key Service: CS specialists identify and organize 
        individual meetings between U.S. companies and potential CEE 
        partners and/or key government officials.

   International Company Profile: To address concerns about 
        potential partners, CS specialists perform background checks on 
        CEE companies to reduce the commercial risk of a transaction.

   Showcase Europe: In support of increased U.S. exports to 
        Europe, the integration of Central and Eastern Europe into the 
        global economy, and the development of an export strategy that 
        views Europe as a single export market, CS offices throughout 
        the CEE region and Western Europe are working together to 
        promote export opportunities to U.S. companies.

    Advocating for American Business: ITA's Advocacy Center acts as a 
unique, central coordination point marshaling the resources of 19 U.S. 
Government agencies in the Trade Promotion Coordinating Committee 
(TPCC) to ensure that sales of U.S. products and services have the best 
possible chance abroad.
    Advocacy Center assistance in Central and Eastern Europe is broad 
and varied, but most often involves companies that must deal with CEE 
governments or government-owned corporations in some way. Assistance 
can include: (1) visits to a key CEE minister or deputy minister by a 
high-ranking U.S. government official; (2) direct support by U.S. 
officials (including Commerce and State Department officers) stationed 
at U.S. embassies in the CEE region; and (3) action coordinated by U.S. 
government agencies to provide maximum assistance in a case. The 
Advocacy Center is at the core of the President's National Export 
Strategy; its goal is to ensure opportunities for U.S. companies 
throughout the new markets of Central and Eastern Europe.
    In the CEE region, the Advocacy Center has aggressively pooled the 
strength of numerous U.S. Government agencies, including Commerce, 
State, and Treasury, to support U.S. companies as they bid for major 
projects. For example, in 1998, the Advocacy Center wrote highly 
effective Secretarial letters on behalf of the U.S. company Parsons 
Power Group Inc. to the Croatian government to support Parsons' 
successful attempts to win a $96 million contract to upgrade a power 
plant in Croatia. Parsons had been introduced to the Croatian market 
during its participation in former Secretary Brown's trade mission to 
Croatia in 1996.
    The Advocacy Center is currently assisting 40 U.S. companies 
pursuing projects in Central and Eastern Europe valued at $11.7 
billion.
    Trade Promotion Coordinating Committee (TPCC): Through the Trade 
Promotion Coordinating Committee, other U.S. Government agencies also 
are active in promoting U.S. commercial development in Central and 
Eastern Europe. Specifically, the Trade Development Agency (TDA), the 
Overseas Private Investment Corporation (OPIC) and Eximbank all are 
working with ITA to increase U.S. commercial presence in the region. 
For example, TDA and OPIC are co-located with our commercial office in 
Zagreb, Croatia to identify new infrastructure projects of potential 
interest to U.S. investors.
B. Assuring Market Access
    While good opportunities exist, the CEE markets also pose 
significant challenges. U.S. firms often face considerable obstacles 
when investing in or exporting to Central and Eastern Europe. These 
barriers usually stem from one of the following elements: (1) the 
transition from a centrally-planned to a market economy and (2) the EU 
accession process.
            1.) Non-Tariff Barriers
    A majority of the non-tariff barriers in Central and Eastern Europe 
are a direct result of the region's inexperience with a market economy 
and the immature legislative and regulatory environment that governs 
market relations in the region. As the CEE countries develop, the 
severity of many of these challenges is reduced and market forces 
become a determining factor in business relations. Poland, Hungary, and 
the Czech Republic have seen the most significant gains in this area, 
while the countries in Southeast Europe, particularly Albania and 
Bosnia and Herzegovina, still face severe market barriers. The primary 
non-tariff barriers in CEE are:
    Corruption: Corruption is cited often by American firms as the most 
significant problem when doing business in the CEE region. 
Specifically, many companies face difficulties: when processing goods 
through customs, when applying for a business license, and when bidding 
on government procurements.
    In Southeast Europe, in particular, ITA is playing a lead role in 
the U.S. Government's aggressive approach to combating corruption by 
actively fighting corruption through various international fora. ITA's 
Assistant Secretary for Market Access and Compliance Patrick Mulloy, as 
one of.the U.S. Government's OSCE Commissioners, has championed the 
involvement of the OSCE in the fight against corruption in Central and 
Eastern Europe. Also, in cooperation with other members of the 
Stability Pact, we have lobbied the countries of Southeast Europe to 
adopt and implement the Stability Pact's Anti-corruption Initiative. 
This program outlines numerous measures that must be implemented in 
order to create an environment conducive to non-corrupt business 
practices.
    Lack of Transparency: A second problem, closely related to 
corruption, that is prevalent throughout Central and Eastern Europe is 
the lack of transparency in decision-making, tendering, and government 
procurement. Decisions that affect legislation governing the business 
climate, specific government tenders, regulatory decisions, and 
judicial processes are often implemented in a non-transparent manner. 
To tackle this specific problem, ITA has encouraged the CEE countries 
to support U.S. Government efforts in the World Trade Organization that 
focus on improving transparency, especially in the area of government 
procurement. ITA is also actively engaged in the Stability Pact for 
Southeast Europe's fight to improve transparency in the region. ITA 
played an instrumental role in the drafting of the Stability Pact's 
Investment Compact, which places significant importance on improving 
transparency in the region.
    Lack of Protecting Intellectual Property Rights (IPR) Protection: 
Through the Special 301 process, the U.S. Government monitors the 
enforcement of intellectual property rights around the world. In 
Central and Eastern Europe, this program is especially important due to 
high levels of IPR infringement, especially in the pharmaceutical, 
audio recordings, and optical media sectors. In the Special 301 review 
for 2000, five CEE countries (Czech Republic, Hungary, Latvia, 
Lithuania, and Romania) were placed on the Special 301 Watch List, 
while Poland was placed on the Priority Watch List for significant 
copyright infringements on sound and video recordings.
            2.) Tariff Barriers
    Tariff Differentials: While the U.S. Government supports EU 
enlargement into Central and Eastern Europe, one serious concern is the 
tariff differentials arising from the Europe Agreements--commonly 
referred to as the association agreements--that these countries have 
signed with the EU. (See Annex 3 for list of countries that have signed 
Europe Agreements.) Under these agreements, CEE countries give EU 
exports duty-free treatment while still retaining Most Favored Nation 
(MFN) rates for U.S. exports. Once the CEE countries enter the EU, they 
will bring their tariffs in line with the EU's Common External Tariff 
(CXT). For industrial tariffs, this will generally result in a 
reduction of CEE tariffs to the CXT level.
    This tariff differential problem could affect whether CEE countries 
continue to receive U.S.-Generalized System of Preferences (GSP) 
benefits. Under the GSP statute, GSP may not be extended to countries 
that give more favorable tariff treatment to another developed country 
(such as the EU) than they do to the United States, if such 
preferential treatment has, or is likely to have, a significant adverse 
effect on U.S. commerce. U.S. GSP law requires that a country affording 
such preferential treatment be excluded from the U.S. GSP program if 
the President determines that it is providing such adverse preferential 
treatment.
    In August 1999, the Senate Finance Committee raised its concerns 
about this matter in the report on the bill which extended the GSP 
statute for another three years. Chairman Roth of the Senate Finance 
Committee, Senators Biden, Levin and Hollings, Chairman Archer of the 
House Ways and Means Committee, Congressman Visclosky, and Congressman 
Bliley have sent letters to Secretary Daley expressing their concerns 
about the tariff issue.
    The ITA, in conjunction with State and USTR, is encouraging CEE 
countries to reduce their applied industrial tariffs to the level of 
the E.U.'s CXT before full accession to provide relief to U.S. 
exporters. In addition to consultations with CEE officials visiting 
Washington, ITA Assistant Secretary for Market Access and Compliance 
Patrick Mulloy traveled to Poland, Hungary and the Czech Republic in 
June 1999 to press this issue and has written often to regional 
officials to follow up. Assistant USTR Catherine Novelli traveled to 
the those countries in March 2000 to press them to move on tariffs on 
products of particular interest to U.S. trade. In April 2000, A/S 
Mulloy returned to the Czech Republic and went to Slovakia and Slovenia 
to urge immediate tariff reductions to the CXT. In all of these 
meetings, the linkage of the tariff issue with GSP benefits was raised.
    The President's Compliance Initiative seeks increased resources to 
combat this and other market access issues in Central and Eastern 
Europe and elsewhere in the world.

                         V. ITA SUCCESS STORIES
    Since the collapse of communism in CEE, ITA has been extremely 
successful in supporting U.S. companies as they take advantage of 
market opportunities in the region. Working together, the Central and 
Eastern Europe Business Information Center (CEEBIC), the U.S. 
Commercial Service, the Advocacy Center, and other ITA offices, have 
supported the presence of American firms and products throughout the 
region.
    CEEBIC has been especially successful at supporting small and 
medium sized U.S. companies (SME's) as they expand into the region. 
Since 1990, when CEEBIC was founded, the support from CEEBIC staff for 
SME's has been considerable and successful, as evidenced by the 
following examples.
A. Helping Small and Medium Companies Expand into Central and Eastern 
        Europe
    CEEBICNET Leads to Exports for Illinois Manufacturer: Global 
Development/Aaron Equipment is a small manufacturer based in Chicago, 
Illinois, with offices in Portland, Oregon and Sarasota, Florida. The 
company has been involved in environmental technology since 1960 and is 
a supplier of environmental equipment to many major U.S. and 
multinational firms.
    In January 1998, Global Development's President, Dan Burda, e-
mailed CEEBIC informing that, ``We have been investing in the Czech 
Republic in heavy industry and feel that it has been possible through 
information we obtained by your site [on the World Wide Web].'' During 
follow-up conversations with Mr. Burda, CEEBIC learned that Global 
Development consults CEEBICNET regularly for both trade and investment 
leads and current commercial and economic information. The company's 
involvement with a Czech recycling and co-generation facility is the 
result of a trade lead published on the CEEBIC web-site. Global 
Development is exporting $25 million in environmental technology and 
equipment to the Czech firm. Mr. Burda was very complimentary of CEEBIC 
urging, ``Keep up the good work!''
    CEEBIC assists Idaho firm with new-to-market Sales in Latvia: In 
January 1998, Brian Page of Dome Technology, a small Idaho company 
beginning its international expansion, was unable to find a shipping 
company that could ship $2 million worth of construction materials to 
Latvia. In a conversation with a CEEBIC Washington-based Trade 
Specialist about Latvian tax rates, Mr. Page was pleased to learn that 
CEEBIC provided a substantial amount of additional market and country 
information, and was well informed about shipping companies that 
regularly send goods to Central and Eastern Europe, including Latvia. 
CEEBIC provided Mr. Page with a list of shipping companies with 
services and experience in the region. According to Mr. Page: ``We went 
with one of these lines. Thank you so much. We had no luck anywhere 
else we turned to.''
    Florida Investor Continues Airline Services in Croatia with CEEBIC/
FCS Assistance: John Barber invested over $750,000 in Croatia in 1992 
to begin his own Airline, Ivan-Air, Ltd. This small firm provides 
airline services in-country for tuna fishermen, among other Croatian 
businesses, needing to get their goods to market. In the summer of 
1997, the American investor experienced difficulty with the Croatian 
Ministry of Communication in getting an Air Operator Certificate (AOC) 
re-issued. Ivan-Air, Ltd. suspected unfair practices and approached the 
Commercial Section of the U.S. Embassy in Zagreb for assistance. From 
August to November 1997, Ivan-Air, Ltd. was losing $1,000 daily.
    The Commercial Service's Patrick Hughes along with CEEBIC 
representative Damir Novinic advocated on Ivan-Air's behalf and had 
U.S. Ambassador to Croatia Peter Galbraith write a letter to Croatian 
Minister Luzavec. Within ten days of this letter, on November 24, 1997, 
the Air Operator Certificate was re-issued to Ivan-Air, Ltd. Mr. Barber 
thanked the Embassy expressing his ``sincere appreciation in particular 
to Patrick Hughes and Damir Novinic'' citing that their assistance 
``made a significant difference'' in keeping his business alive. This 
joint effort by FCS and CEEBIC allowed Mr. Barber to continue his 
airline services in Croatia and illustrates how FCS and CEEBIC work 
together on important market access issues affecting U.S. business.
B. Ensuring Market Access for U.S. Companies in Central and Eastern 
        Europe
    Slovenia Reducing Industrial Tariffs to EU's Common External Tariff 
(CXT): The ITA, working in conjunction with State and USTR, has 
encouraged CEE countries to reduce their applied industrial tariffs to 
the EU's common external tariff (CXT) prior to accession. This is the 
best way to help minimize the tariff differentials that arise as part 
of the Europe Agreements that the CEE countries have signed with the 
EU. For example, in Slovenia, the trade weighted average MFN tariff 
facing top 100 U.S. exports to Slovenia in 1998 was 8.12 percent. If 
Slovenia adopted the CXT on those same products, the trade weighted 
average would be 2.02 percent, an improvement of 6.10 percent.
    During 1998 and 1999, the ITA and other USG officials met with and 
wrote to senior Slovene officials about this issue. As a result, the 
Slovene Ministry of Economic Relations and Development drafted a tariff 
strategy to phase-in tariff reductions on all industrial products to 
reach the level of the CXT by 2003. Slovenia began lowering tariffs on 
a temporary basis in 1999. In April 2000, ITA's Assistant Secretary for 
Market Access and Compliance Mulloy traveled to Slovenia to urge the 
Slovene Government and Slovene parliamentarians to pass legislation 
that would implement the comprehensive tariff reduction plan and make 
tariff changes permanent. This legislation is moving forward in the 
Slovene parliament.
    Bulgaria Cracks-down on Optical Media Piracy: Working together with 
the U.S. Trade Representative (USTR) and the State Department (State), 
ITA was especially successful in pressuring the Bulgarian Government, 
through the Special 301 program, to aggressively tackle the severe 
levels of optical media (compact discs and CD-rom) piracy. In April 
1998, Bulgaria, at that point the world's second largest producer of 
counterfeit optical media, was elevated to the Special 301 Priority 
Watch List and informed that they would be elevated even further, to 
the Priority Foreign Country list, if substantial improvements were not 
made in their enforcement regime. After significant pressure by ITA, 
USTR, and the State Department, Bulgaria introduced a stringent 
enforcement program and closed all factories that were producing 
unauthorized optical media.
    Southeast Europe: Commercial Opportunities and Partnerships: On 
October 31-November 2, 1999, Secretary Daley led an interagency 
delegation to Sofia, Bulgaria to host the ``Southeast Europe: 
Commercial Opportunities and Partnerships Conference.'' The Conference, 
which attracted more than 100 U.S. companies, achieved three 
objectives: It (1) provided U.S. companies the most current information 
about business opportunities in the region; (2) identified economic 
reforms needed in Southeast Europe and ways to improve the region's 
business environment; and (3) arranged more than 250 matchmaking 
meetings between 76 American and 62 regional companies.
    The Conference advanced the Stability Pact's goal of increasing the 
role of Southeast Europe's private sector in the economic development 
of the region. Regional companies forged partnerships with U.S. 
companies and were briefed on current and future reconstruction and 
development priorities for the region. The Investment Roundtable 
furthered the Stability Pact's Investment Compact by encouraging 
regional governments to improve the climate for investment in their 
countries. Finally, the issue of corruption, which is a central theme 
in the Stability Pact, was discussed at length during the Investment 
Roundtable.
    CEEBIC to Host a Central and Eastern Europe Open House and a 
Business Forum on Southeast Europe: On July. 14, the Central and 
Eastern Europe Business Information Center (CEEBIC) will celebrate its 
10-year anniversary by hosting an open house for U.S. companies. CEEBIC 
Washington staff and CEEBIC employees from twelve countries in Central 
and Eastern Europe, will discuss new trade and investment opportunities 
with interested U.S. firms. Earlier that day, CEEBIC will host the 
Southeast Europe: Project and Financing Opportunities Forum. This 
interagency forum will explore financing and project opportunities for 
U.S. companies resulting from the multilateral Stability Pact for 
Southeast Europe and the U.S. Government's Southeast Europe Initiative. 
CEEBIC expects more than 300 U.S. firms to attend these events.

                                Annex 1

                                        U.S. Trade With Central and Eastern Europe, 1991-1999--Total U.S. Exports
                                                     [In Calendar Year and Millions of U.S. Dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  1991      1992      1993      1994      1995      1996      1997      1998      1999
--------------------------------------------------------------------------------------------------------------------------------------------------------
World.........................................................   421,730   448,164   465,091   512,626   583,031   622,827   687,598   680,474   692,821
Albania.......................................................        18        36        34        16        14        12         3        15        25
Bosnia-Herzegovina............................................         0         5        25        39        28        59       102        40        44
Bulgaria......................................................       142        85       115       110       132       137       104       115       103
Croatia.......................................................         -        91       103       147       140       106       139        97       108
Czech Republic................................................         -         -       267       297       363       410       592       568       610
Czechoslovakia................................................       123       413         -         -         -         -         -         -         -
Estonia.......................................................         -        59        54        33       139        83        48        87       162
Hungary.......................................................       256       295       435       309       295       331       486       482       503
Latvia........................................................         -        55        90       101        89       165       219       187       218
Lithuania.....................................................         -        44        57        41        52        63        87        62        66
Macedonia.....................................................         -         4        11        14        21        14        34        15        59
Poland........................................................       459       641       912       625       776       968     1,171       882       825
Romania.......................................................       209       248       324       340       256       266       254       340       177
Slovakia......................................................         -         -        34        43        61        63        82       111       127
Slovenia......................................................         -        38        92        96       110       131       113       123       113
Federal Republic of Yugoslavia................................         -        39         2         1         2        46        49        74        59
Yugoslavia....................................................       371       225         -         -         -         -         -         -         -
                                                               -----------------------------------------------------------------------------------------
Total Central Europe..........................................     1,578     2,278     2,555     2,211     2,479     2,854     3,483     3,198     3,199
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                                        Total U.S. General Imports--Customs Value
                                                     [In Calendar Year and Millions of U.S. Dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 1991      1992      1993      1994      1995      1996      1997      1998       1999
--------------------------------------------------------------------------------------------------------------------------------------------------------
World........................................................   487,129   532,665   580,659   663,256   743,505   791,315   869,874   913,885  1,024,766
Albania......................................................         3         5         8         6         9        10        12        12          9
Bosnia-Herzegovina...........................................         -        10         7         4         3        10         8         7         15
Bulgaria.....................................................        56        79       159       215       183       126       172       219        200
Croatia......................................................         -        47       106       115        93        71        83        73        110
Czech Republic...............................................         -         -       277       316       364       482       610       672        754
Czechoslovakia...............................................       145       241         -         -         -         -         -         -          -
Estonia......................................................         -        12        20        29        62        60        77       125        237
Hungary......................................................       367       347       401       470       547       677     1,078     1,567      1,892
Latvia.......................................................         -        11        22        41        86        99       149       115        229
Lithuania....................................................         -         5        16        15        26        34        80        81         97
Macedonia....................................................         -        47       111        82        89       125       147       175        136
Poland.......................................................       357       375       454       651       664       627       698       783        813
Romania......................................................        69        87        69       195       222       249       400       393        434
Slovakia.....................................................         -         -        65       131       129       124       166       166        169
Slovenia.....................................................         -       101       229       265       289       290       277       287        276
Federal Republic of Yugoslavia...............................         -        39         0         0         0         8        10        13          5
Yugoslavia...................................................       674       225         -         -         -         -         -         -          -
                                                              ------------------------------------------------------------------------------------------
Total Central Europe.........................................     1,671     1,631     1,944     2,537     2,768     2,993     3,965     4,688      5,376

--------------------------------------------------------------------------------------------------------------------------------------------------------
Prepared by: U.S. Department of Commerce, Central and Eastern Europe Division, June 2000.

Source: U.S. Department of Commerce, Bureau of the Census.

                                Annex 2

                                            CEEBIC Database by State
                                              [As of June 15, 2000]
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
Alabama.......................  53             Louisiana........  45             Ohio.............  635
Alaska........................  5              Maine............  51             Oklahoma.........  64
Arizona.......................  109            Maryland.........  431            Oregon...........  116
Arkansas......................  41             Massachusetts....  507            Pennsylvania.....  527
California....................  1,171          Michigan.........  276            Rhode Island.....  60
Colorado......................  128            Minnesota........  192            South Carolina...  73
Connecticut...................  324            Mississippi......  27             South Dakota.....  9
Delaware......................  22             Missouri.........  142            Tennessee........  88
Florida.......................  471            Montana..........  8              Texas............  482
Georgia.......................  205            Nebraska.........  42             Utah.............  35
Hawaii........................  18             Nevada...........  21             Vermont..........  39
Idaho.........................  19             New Hampshire....  75             Virginia.........  739
Illinois......................  693            New Jersey.......  446            Washington.......  172
Indiana.......................  149            New Mexico.......  24             Washington, DC...  785
Iowa..........................  65             New York.........  1,205          West Virginia....  25
Kansas........................  41             North Carolina...  205            Wisconsin........  207
Kentucky......................  60             North Dakota.....  14             Wyoming..........  3
                                                                                     Total........  11,387
----------------------------------------------------------------------------------------------------------------

                                Annex 3

                CEE Europe Agreement with European Union
------------------------------------------------------------------------
                                                         Year Tariff
                                    Year Signed      Reductions (for EU)
                                                            Began
------------------------------------------------------------------------
Poland........................               1991                  1992
Hungary.......................               1991                  1992
Czechoslovakia \1\............               1991                  1992
Romania.......................               1993                  1993
Bulgaria......................               1993                  1993
Estonia \2\...................               1995                  1995
Latvia \2\....................               1995                  1995
Lithuania \2\.................               1995                  1995
Slovenia......................               1996                  1997

------------------------------------------------------------------------
\1\ Note: After their split at the end of 1992, the Czech Republic and
  Slovakia signed separate Europe Agreements with the EU in 1993.
\2\ In the case of the Baltics, Free Trade Agreements were signed in
  1995, which went into effect immediately. The FTAs were later
  incorporated into Europe Agreements.

                                 ______
                                 

       Prepared Statement of Patricia Schaub, Entergy Corporation

                           EXECUTIVE SUMMARY
    It is a pleasure to submit this statement to the European Affairs 
Subcommittee on the experience of the Entergy Corporation in doing 
business in Central and Eastern Europe. Our statement will specifically 
discuss Entergy's experience in the energy sector in Bulgaria. Entergy 
will be rehabilitating an existing 840 MW lignite-fired electric power 
generating facility located adjacent to Bulgaria's largest lignite mine 
in the Southeastern part of the country.
    In summary, we believe that Entergy's investment in Bulgaria is a 
win-win situation. It enables the Entergy Corporation to position 
itself in a strategic emerging energy market. On the Bulgarian side, 
our investment provides much needed improvements to a facility that has 
not been able to meet the environmental, health and safety standards 
required by the European Union. The rehabilitation will allow the plant 
to operate safely for many years, providing energy to a growing 
economy. While there continue to be obstacles to finalizing this 
project, we have been working as partners with the Bulgarian government 
to remove remaining impediments--which will benefit not only Entergy, 
but future investors, and ultimately, the Bulgarian economy.

                          ENTERGY CORPORATION
    Entergy is a global energy company, headquartered in New Orleans, 
Louisiana. The company is engaged in a wide range of power production 
and distribution operations, as well as in a number of other 
diversified service areas. The company is a leading provider of 
wholesale energy marketing and trading services, as well as a 
recognized leader world-wide in power development and nuclear power 
operations.
    Currently, Entergy owns, manages and invests in power plants with a 
generating capacity of nearly 30,000 megawatts both domestically and 
internationally and delivers electricity to about 2.5 million customers 
in portions of Arkansas, Louisiana, Mississippi and Texas. In 1998, 
Entergy ranked among the largest U.S. utility companies, with total 
revenues of more than $8 billion dollars and total assets of more than 
$22.9 billion dollars.
    Entergy Wholesale Operations (EWO)--the wholesale power 
development, trading and marketing unit of Entergy--is primarily 
focused on emerging competitive markets of North America and Europe. 
Its portfolio of assets currently includes roughly 12,700 megawatts of 
gross generation capacity in operation, under construction or announced 
development projects around the world. The portfolio includes fifteen 
assets located in nine countries.
    One of Entergy's most important priorities as a company is its 
commitment to conduct its operations, both domestically and 
internationally, in a manner that places a high premium on health, 
safety and the environment. Entergy also places a high priority on its 
ability to give back to the communities it serves. This commitment can 
be seen in the company's sponsorship--at home and abroad--of a variety 
of education and literacy projects, community and economic development 
programs, health and social service projects and environmental 
improvement programs.

                      THE MARITZA EAST III PROJECT
    In October 1998, Entergy signed a joint development agreement with 
the Bulgarian National Committee of Energy CoE (now called the State 
Agency for Energy and Resources (SAEER)), and the National Electric 
Company (NEK) to develop a project to own, operate and refurbish the 
Maritza East III power plant in Bulgaria. Entergy sees the ``Maritza 
East III project'' as the beginning of an important relationship 
between the company and its Bulgarian partners.
    The Maritza East III plant is a lignite-fired facility located in 
south-central Bulgaria near the town of Stara Zagora. The facility is 
currently owned and operated by the NEK and is located 37 miles from 
the Turkish border. Lignite-burning plants currently supply 30-35% of 
power in the country. Lignite reserves at the site are estimated at 
approximately 2 billion tons and represent approximately 80 percent of 
the country's domestic coal reserves.
    The scope of work for the Russian-designed power plant, which was 
originally commissioned between 1978 and 1981, consists of replacing 
worn-out boiler parts and making a variety of additional upgrades to 
turbines, plant control and pollution control systems. This work is of 
critical importance to the Bulgarian people and to the residents of the 
region. For example, like many other power plants in Eastern Europe, 
the Maritza East III plant is not currently fitted with modern 
pollution control equipment. Installation of new flue gas 
desulphurization (FGD) equipment as part of the Entergy refurbishment 
effort will reduce sulfur dioxide (SO2) pollution emissions by at least 
ninety percent (90%), or by over 1000 tons of SO2 per day. This 
reduction will mean that for the first time, SO2 emissions from the 
Maritza East III plant will meet World Bank SO2 emission limits. 
Furthermore, with the addition of this equipment, ground level 
concentrations for SO2 emissions in the vicinity of the Maritza East 
III plant will meet the E.U. and Bulgarian SO2 air quality standards 
that were established to protect public health.
    All electricity generated by the plant will be sold to the NEK in 
accordance with Bulgaria's new energy law, which was passed in July 
1999. The new law aims to bring the country in line with the E.U. 
electricity directive and is part of Bulgaria's overall E.U. accession 
program.

                     CURRENT STATUS OF THE PROJECT
    Entergy has overall responsibility for the development of the 
project and is also leading the development effort, with support from 
NEK in several areas.
    The total project cost is approximately $450 million dollars. The 
rehabilitation work and the installation of the FGD equipment is 
expected to take 36 months. However, during the rehabilitation program, 
each unit will be rehabilitated in turn, while the remaining three 
units will continue to operate. This will enable the total capital cost 
to be partly offset by internally generated funds.
    Much of the initial permitting and licensing work has already been 
completed on the project. In addition, environmental approval for the 
project has been granted by the Bulgarian Ministry of Environment and 
Waters. Work to obtain the remaining approvals needed for the project 
is underway.

                        BULGARIA AT A CROSSROADS
    Bulgaria is at a critical point in its history. Under the 
leadership of Prime Minister Ivan Kostov, Bulgaria has worked very hard 
over the past two years to turn its economy around and recover from 
years of mismanagement under socialist rule. The efforts of Prime 
Minister Kostov and his pro-reform government have recently been 
praised by a variety of world leaders. It is the goal of the Bulgarian 
government to be admitted to the European Union by 2006.
    Major government accomplishments to-date include: reversing the 
country's economic decline; turning over 70 percent of the country's 
economic assets to private hands; and restoring 95 percent of the 
country's nationalized farmland under communism back to its original 
owners. Inflation in the country dropped from triple digits to 6.2 
percent in 1999 and the economy grew by 2.5 percent--with 4 percent 
growth targeted for 2000. The government has pledged to continue its 
tough anti-corruption and anti-crime programs, its judicial reform 
programs and to find new ways to help alleviate widespread poverty and 
unemployment in the country.
    The government has also committed to continue its focus on: 
privatization; attracting investment to Bulgaria's infrastructure 
sector; improving the country's overall business environment; and 
dismantling unnecessary licensing and regulatory barriers. In 1999, 
Bulgaria concluded 1,100 privatization deals, with payments totaling 
$587 million. Within the investment arena, Bulgaria's energy sector has 
been called one of the most attractive investment opportunities for 
foreign investors.
    The energy sector is undergoing major restructuring to comply with 
IMF targets and to meet the deregulation and environmental standards of 
the European Union. The reforms, which will begin in earnest this year, 
attempt to eliminate state subsidies, close inefficient production 
facilities and encourage investment. An IMF-approved plan, which calls 
for the separation of power generation, transmission and distribution, 
will be submitted for government approval this year. Experts have noted 
that a number of major safety and environmental upgrades and 
improvements still need to be made in a number of Bulgaria's energy 
facilities before the sector will be safe or ready for E.U. accession.

       THE BOTTOM-LINE IMPORTANCE OF THE MARITZA EAST III PROJECT
    The Maritza East III project is an important test case, as it is 
the first privatization in the energy sector. If successful, it can 
serve as a catalyst for attracting much-needed foreign capital to 
Bulgaria. Moreover, the project is fully consistent with the efforts to 
upgrade the energy sector in advance of E.U. accession, and helps the 
country achieve the targets for energy restructuring set forth by the 
IMF and the World Bank. Since the signing of the Entergy deal, another 
U.S. investor, AES, has announced its intention to construct a thermal 
plant of 600 MW.
    The implementation of the Maritza East III project will help ensure 
Bulgaria has sufficient, reliable electric capacity as it moves to 
close down the four oldest units of the Kozloduy nuclear plant. These 
four Soviet designed nuclear reactors have combined installed capacity 
of 1,760 MWs. Kozloduy 1-4 have been deemed unsafe by E.U. standards. 
As part of its commitment to join the E.U., Bulgaria has agreed to shut 
down the first two units by 2003 and the second two units by 2006.
    The project will also help bolster the Bulgarian economy in other 
ways, as the Improvement Works contract includes more than $75 million 
dollars worth of local goods and services and will lead to the creation 
of 600 construction jobs. Over the long term, the number of staff 
directly employed at the plant (currently 1,600) will be reduced. 
However, the project upgrades will play a key role in securing the 
future of the remaining workers at the plant and at the mines. To 
assist the employees, who will lose their jobs, the project has 
targeted $5 million dollars over a three-year period to assist in the 
area of employee transition.
    In addition to reductions in air emissions, the project will 
deliver other significant environmental benefits as well. These 
benefits include: reusing plant waste water and thereby substantially 
reducing water withdrawals from the Rosov Reservoir; cleaning up past 
land and water contamination; adding modern fugitive dust controls 
throughout the plant and plant site; treating plant domestic waste 
water; and improving treatment of plant oily waste water.
    During the development of the project, Entergy will use its vast 
experience to introduce international management techniques and 
practices, drawing from its experience in similar projects in the U.S. 
and the U.K.
    Entergy is working with the communities surrounding the power plant 
to identify priority projects for social investment and has set aside 
$250,000 per year for such efforts. The first project identified in 
this area is the installation of a central heating system in the 
primary school located in the village of Glavan. Entergy worked with 
the local municipalities to identify and fund this project which 
represents the first such partnership between an American company and a 
Bulgarian municipality.
    Entergy is committed to making its investment in Bulgaria 
successful and to continuing its efforts to make Bulgaria an important, 
reliable and efficient energy hub in the Balkan region. In turn, the 
Maritza East III plant was identified as one of four projects to move 
forward in the energy sector in the recently published Governmental 
Program ``Bulgaria 2001.''

        CHALLENGES THAT REMAIN FOR THE COMPLETION OF THE PROJECT
1. Governing Law and International Arbitration
    Bulgarian law requires that contracts between Bulgarian entities 
must be governed by Bulgarian law and be subject to Bulgarian 
arbitration. Such arrangements are not usually acceptable to lenders. 
Bulgaria needs to adopt a law that guarantees companies like Entergy 
the right to international arbitration as a dispute resolution 
mechanism. The adoption of such a law is also a requirement for 
accession to the European Union.
    This issue will be critical for all foreign investment projects 
undertaken on a ``project finance/limited recourse'' basis, and the 
government has recently stated that it will make the necessary changes 
to the law.
2. Ability of the Government to Provide a Government-backed Guarantee
    NEK, the electricity off-taker, is a state-owned entity and by 
itself does not have the credit capacity to stand behind this or other 
similar large projects. Under this circumstance, lenders to Entergy are 
insisting upon government support for project agreements. While the 
government has the capacity to offer such guarantees, this capacity is 
restricted by current budget commitments to the IMF. The process 
therefore is very competitive, as other major investors in the 
infrastructure sector may require similar commitments.
3. New Energy Law
    In July of 1999, the government passed a new energy law aimed at 
bringing the country in line with European Union electricity 
directives. The law introduces a new State Agency for Energy and Energy 
Resources and a new independent regulator. The law is now in force. 
However, the secondary legislation, which will define the detailed 
rules for the system's operation, is still being prepared. This task 
should be completed by April 2000. Entergy is thus initiating its 
project while the country's energy sector is still in a state of 
transition. The challenge for Entergy is to ensure that its contract 
agreements anticipate market changes.
4. Economy in Transition
    Since the Maritza III project is the first privatization in the 
energy sector, Bulgaria finds itself confronted with decisions it has 
not previously had to make. This is compounded by the fact that its 
political and decisionmaking structure is evolving. This is a difficult 
situation for both Bulgaria and for power development. Efforts to 
streamline decisionmaking processes and to boost the government's 
capacity to deal with these types of transactions are critical to 
Bulgaria's ability to attract the capital it needs.

                               CONCLUSION
    Entergy is proud of its investment in and partnership with 
Bulgaria--and believes that the work that the company is doing in 
Bulgaria now--will ultimately lead to better lives for many future 
generations of Bulgarians.
    Entergy looks forward to working with its Bulgarian government 
counterparts in coming months to resolve remaining project challenges 
and to ensuring that the Maritza East III project moves forward as 
quickly and as smoothly as possible.
                                 ______
                                 

    Prepared Statement of Mr. Paul Singer, Elliott Associates, L.P.

 ``UNFAIR TREATMENT OF AMERICAN INVESTORS BY THE GOVERNMENT OF POLAND''
    Mr. Chairman and Members of the Committee:
    Thank you for allowing me to present today for the Committee's 
consideration Poland's mistreatment of American investors in Poland's 
Mass Privatization Program.
    Let me say at the start that our company, as well as many American 
companies, has welcomed Poland's entry into the world economy. These 
are not mere words; Americans have invested heavily in Poland's future. 
Elliott Associates, L.P., on whose behalf I appear, is one of many 
American companies that have invested over $100 million in Poland's 
Mass Privatization Program alone.
    That is why we are particularly shocked by Poland's improper 
efforts over the past year to prevent American investors from receiving 
lawful profits on our investments. It is our hope--both that of Elliott 
Associates and that of other American investors in Poland--that efforts 
by the United States Government such as this hearing today will help to 
dissuade the Polish authorities from discriminating against American 
investors and interfering with lawful corporate activities. Poland's 
current course harms both American investors and the future economy of 
Poland.
    For purposes of this Committee's inquiry into the treatment of 
American investments throughout the new market economies of Central 
Europe, I should add that Elliott Associates, like many other American 
companies, has also invested elsewhere in the region. Although Hungary 
has also faced a difficult transition from a centralized, state-owned 
system to the free market, our investments in Hungary have not 
encountered the same improper and discriminatory efforts to control 
lawful corporate activity that have plagued our Polish investments. In 
the case of Hungary, American investors are reaping the rewards earned 
by their willingness to take on the risk of investing in a transitional 
economy. We are confident that such rewards could accrue to American 
investors in Poland, as well, if Poland will allow American investors 
to profit from their investments.

            BACKGROUND: POLAND'S MASS PRIVATIZATION PROGRAM
    In the mid-'90s, the Polish government launched its Mass 
Privatization Program to let free market forces reshape the face of 
medium-sized industry in Poland. Under this Program, the Polish 
government sought to privatize 512 medium-sized, grossly mismanaged 
Polish businesses that had previously been wholly owned by the Polish 
government. To this end, the Polish Parliament enacted a special law to 
create fifteen National Investment Funds (``NIFs'') that would hold 
shares in the 512 newly-privatized companies. The fifteen NIFs, which 
are in effect mini-mutual funds, would themselves be publicly traded on 
the Warsaw Stock Exchange.

         AMERICAN INVESTMENTS IN POLAND'S PRIVATIZATION PROGRAM
    To provide the capital and management skills needed to make this 
ambitious program work, the Polish government actively sought Western 
investors and managers. Attracting Western capital and bringing market 
discipline to the previously mismanaged companies was a primary goal of 
the Program. To encourage Western and Polish investors alike, the new 
law creating the NIFs guaranteed that the funds would, with a few 
exceptions not relevant here, be able to conduct business as normal 
joint stock corporations with all of the protections and powers such 
corporations normally have under the law.
    Elliott Associates was one of the many American investment 
companies that answered Poland's call and invested heavily in the NIFs. 
Elliott Associates and other American firms believed that Poland was 
truly committed to market reform. We saw investment in a free market 
Poland as a ``win-win'' situation--American investors could earn a 
profit, and the Polish economy would get a vital injection of foreign 
capital and expertise to speed Poland's transition to a free-market 
economy. As noted above, conservative estimates place American 
investment in Poland's Mass Privatization Program in excess of $100 
million.
 
  ACTIONS BY THE POLISH TREASURY TO PREVENT AMERICAN INVESTORS FROM 
                           RECEIVING PROFITS
    One of the NIFs in which Elliott Associates invested was ``NIF 
#8,'' known as ``Octava.'' Octava became one of the few NIFs to earn a 
profit. On September 1, 1999, Octava shareholders voted overwhelmingly 
to amend Octava's Charter to permit redemptions of its shares for 
remuneration--a corporate practice commonly used throughout the United 
States and Europe to enable companies to distribute profits to 
shareholders by buying back shares. The resolution was passed with a 
77% vote.
    The proposed change to the Octava Charter was fully consistent with 
Polish law. The Polish government's equivalent to our Securities and 
Exchange Commission, the body charged with regulating securities 
markets, recently ruled that the share redemption amendment was 
perfectly consistent with Polish law. This opinion is seconded by 
opinions of leading Polish legal counsel. The NIF law provides that 
NIFs have the same power as other joint stock companies, except as 
otherwise provided in the NIF law. Neither the NIF law nor other Polish 
statutes contain any restrictions that would prevent an NIF from 
amending its articles of incorporation to permit share redemption. The 
Polish Commercial Code permits share redemptions, and in fact share 
redemptions have been employed by several Polish companies traded on 
the Warsaw Stock Exchange. Even the Prospectus, the document by which 
the Ministry of the State Treasury officially offered shares in Octava 
for public sale, referred to the lawful possibility of share 
redemptions.
    Nonetheless, on September 9, 1999, the Polish Ministry of State 
Treasury moved to block Octava's steps to allow share redemptions. This 
is particularly disturbing, because the Treasury Ministry is the agency 
charged with leading Poland's privatization effort. Previously, the 
Treasury Ministry had proposed that Octava distribute its profits 
through a cash dividend. But the vast majority of shareholders, 
including many small Polish investors, realized that this would work to 
their disadvantage and voted to reject the Treasury plan. So the 
Ministry changed its position completely and sought to enjoin the 
distribution of profits, arguing for the first time that distributing 
profits would violate the NIF law.
    The primary reason for the Ministry's improper, anti-market 
position soon became apparent. On Thursday, September 9, 1999, Deputy 
Minister of the State Treasury Alicja Kornasiewicz stated that the MST 
was opposed to the buy-back plan because it would allow ``large 
shareholders, e.g. American investment funds, the possibility to 
withdraw their money from the NIFs at a profit'' (Quoted by the Polish 
Press Agency, 9/9/99).
    The inability of NIF investors to have their shares redeemed has 
been very damaging to the NIF shareholders and the value of their 
investments. Since the stock of the NIFs, including Octava, trade on 
the Polish market at a deep discount to their net asset value, this 
method of distributing profits is the only meaningful way for foreign 
investors to generate a significant return on their investment. 
Additionally, the mistreatment of investors in the NIFs has caused many 
investors to shun this asset class, leading to a distinct lack of 
liquidity in NIF shares. Hence, by preventing NIFs from redeeming 
shares, the Polish Treasury Ministry has effectively precluded large 
investors from exiting their investments in the NIFs and de facto 
confiscated their capital.
    Since last fall, Elliott Associates has been in repeated contact 
with the United States Embassy in Warsaw. Our Ambassador and embassy 
personnel have contacted the Polish government, all to no avail. 
Elliott is currently involved in settlement negotiations with the 
Ministry in an attempt to avoid a drawn-out legal proceeding that will 
itself serve Poland's improper--and ill-advised--purpose of tying up 
American capital in Poland. We are told that the working level 
officials in the Ministry are in full agreement with our current 
proposal. We hope that higher Polish authorities, despite the current 
governmental difficulties there, will see the wisdom of reaching an 
agreement that will enable the shareholders of Octava to proceed on 
their chosen, lawful course.

               LONG TERM EFFECTS OF POLISH ABUSES OF LAW
    Poland's clearly discriminatory action has the potential to do 
immense harm to both foreign investors and the Polish market as a 
whole. The Polish government, with American encouragement, established 
the NIFs to attract foreign capital to Poland and help the state-
dominated economy transition to an open, free-market economy. If 
American and other foreign investors cannot reasonably rely on Polish 
law to permit investors to have access to a fair return on their 
investments, all incentive to continue investing capital in Poland will 
disappear. It was in part with this in mind that the United States and 
Poland in 1990 agreed upon--and the U.S. Senate ratified--the bilateral 
Treaty Concerning Business and Economic Relations that seeks to protect 
each country's investments against discriminatory treatment.
    The transition of the Central European states to Western economies 
has not been without problems; nevertheless, the law creating the NIFs 
was a step in the right direction for Poland. The action by the 
Ministry of State Treasury, opposing the exercise of the legal rights 
of shareholders, sends an ominous signal to potential future investors. 
This harms Americans, but it will just as surely harm the future Polish 
economy.

                               CONCLUSION
    Elliott Associates hopes that this hearing, as well as continued 
efforts by the United States Government and other friends of Poland in 
other venues, will help to convince the Polish authorities to stop 
their obstructionism and allow American and other investors to reap the 
profits of their investments. If Poland will let the market work, the 
market will work for Poland.
    Thank you very much for allowing Elliott Associates to present this 
testimony today, and we look forward to working with the Committee 
further on this matter.

                                   - 
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