*._ i COMMISSION OF THE EUROPEAN COMMUNITIES 
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Brussels, 14.03.1995 
COMMUNICATION FROM THE COMMISSION 
TO THE COUNCIL AND THE EUROPEAN PARLIAMENT 
INDUSTRIAL COOPERATION WITH THE COUNTRIES OF 
CENTRAL/EASTERN EUROPE 
INDUSTRIAL COOPERATION WITH THE COUNTRIES OF CENTRAUEASTERN 
EUROPE 
Communication of the Commission to the Council and the European Parliament 
Executive summary II 
1. Industrial cooperation in the framework of the Union's 
pre-accession strategy: The European Union's main goals and role 1 
Priority objectives (1) - the European Union's role in industrial 
cooperation (2) 
2. Industrial situation in Central/Eastern Europe: a brief survey 4 
Industry privatisation and restructuring (4) - foreign direct investment (5) -
framework conditions for industrial development and investment (6) 
3. Past and present European Union action 6 
4. European Union initiatives for future cooperation 8 
A. The Europe Agreements and the Union's assistance policy 7 
Exploiting the institutional set-up of the Europe Agreements (8) 
development of regulatory framework and approximation of laws (8) -
quality management: standards/certification (9) - investment framework 
(9) - privatisation, restructuring, modernisation of industry (10) - business 
links and investment promotion (11) - cross-border cooperation (12) -
competition (13) - trade (13) - environment (14) - energy (15) - training 
(15) 
B. Scientific and technological cooperation 16 
Research and development (16) - information infrastructure and 
Information Society (16) 
C. Mobilisation of European industry 17 
Dialogue with European industry (17) - inter-industry dialogue (17) 
Annexes 
I - Industrial production and unemployment in Central/Eastern Europe 
- Foreign Direct Investment in Central/Eastern Europe 
- Steel industry: a case of successful cooperation 
- Information Society: a case for developing cooperation 
- Selective survey of EU assistance and RDT cooperation 
II - Financial Sheet 
e 
II 
EXECUTIVE SUMMARY 
The European Council in Copenhagen (June 1993) had agreed that the associated 
countries that so desire shall become members of the Union, as soon as they are able 
to assume the obligations of membership. In April 1994, Hungary and Poland introduced 
their application for membership. Other countries in Central/Eastern Europe have 
declared their intention to do so. 
The perspective of accession of the associated Central/Eastern European countries to 
the Union implies a qualitative shift in the relations with the region. The fundamental 
decisions taken by the European Council in Essen (December 1994) illustrate the 
dimension of the tasks ahead: It adopted the pre-accession strategy to prepare 
associated countries for membership. 
A main element of the strategy is to prepare these countries for integration into the 
internal market of the Union, and the Commission will present a White Paper on this 
subject to the next European Council. This strategy also deals with investment 
promotion, in which the need for an increased volume of foreign investment is 
acknowledged. The programme covers continued support for investment promotion 
agencies, the creation of a Business Advisory Council and continued support, through 
the PHARE programme, for initiatives such as the restructuring and modernisation of 
production capacities and the development of small enterprises, as well as contributing 
to the financing of infrastructure investments. In this context, industrial cooperation has 
a key role to play in the promotion of private investment. 
In April 1994, the Industry Council invited the Commission to prepare communications 
on industrial cooperation with certain third countries, and took note of the Commission's 
intention to present, in the first half of 1995, a communication on industrial cooperation 
with Central/Eastern Europe (further communications on industrial cooperation with 
other third countries are to follow). On two previous occasions, the Commission 
prepared communications on the subject1, and the Council adopted a resolution2 
supporting the Commission's general approach and orientations. 
The perspective of accession has changed the overall context fundamentally. In 
response, this communication intends to reflect upon the industrial implications of 
Central/Eastern Europe's progressive integration into the global European economy, 
and in particular, how industrial cooperation can contribute to the facilitation of this 
process. 
Therefore, this document focuses on those Central/Eastern European countries which 
have already concluded Europe Agreements with the Union or which are shortly 
expected to do so: Poland, Hungary, the Czech Republic and Slovakia, Romania, 
1 SEC (90) 1213 final of 13 July 1990 and SEC (92) 363 final of 13 March 1992 
2 OJC 178 of 15 July 1992 
3 
Ill 
Bulgaria, the three Baltic Republics and Slovenia. Although the stage of development, 
e.g. in terms of industry privatisation/modernisation, is very different from one country to 
another, overall the Central/Eastern European industry continues to have very 
considerable restructuring/modernisation needs, which are unlikely to be satisfied 
without foreign investment, transfer of technology and know-how in cooperation with EU 
industry, aiming at the development of an environmentally sustainable industnal sector. 
The European Union has already made an important contribution to the transition 
process through: 
- Europe Agreements with Central/Eastern European countries which inter alia aim at 
free trade and offer a broad platform for cooperation in virtually all areas affecting the 
economy 
- the Essen European Council conclusions, which notably aim to encourage the regional 
cooperation between the associated countries for the promotion of their economic 
progress: a programme has been adopted to stimulate cooperation e.g. in trade 
- European Union assistance and industrial and R&D cooperation which have been 
launched to help to exploit and develop the industrial and R&D potential of 
Central/Eastern European countries. 
The future strategy should continue to follow three priority objectives: 
• the improvement of framework conditions for industrial development 
• the privatisation, restructuring and modernisation of industry 
• the promotion of investment (e. g. through synergies with other operators, like 
EBRD and EIB). 
The proposed orientations start from existing instruments and consider useful 
adaptations and additional action. 
Three types of instruments should be used in priority to achieve these objectives: 
1. The Europe Agreements provide the basic orientation for the Union's assistance 
policy, within which technical and financial assistance under PHARE will increasingly 
be a major tool to pave the way for cooperation and ultimately integration. Main areas of 
action will include 
• the exploitation of the institutional set-ups of the Europe Agreements (e.g. the 
mixed committees) 
• the White Paper on the preparation of the associated Central/Eastern 
European countries for the integration into the internal market 
• quality management (standards/ certification) infrastructures 
• the legal/administrative framework for investments !,,, ^ ? •, 
• support to the privatisation, restructuring and modernisation of industry ^ 
• the promotion of business links, investment and cross-border/inter-regional 
cooperation 
• competition policy, trade, environment and training. \ L••: 
* 
IV 
2. Scientific and technological cooperation should be further promoted and 
Central/Eastern European countries should be encouraged to participate in the move 
towards the Gtobal Information Society. 
3. Stronger mobilisation of EU industry is considered to be another key element to 
achieve industry modernisation in Central/Eastern Europe. 
3 
1. INDUSTRIAL COOPERATION IN THE FRAMEWORK OF THE UNION'S 
PRE-ACCESSION STRATEGY: THE UNION'S MAIN GOALS AND ROLE 
The European Council in Copenhagen (June 1993) had agreed that the associated 
countries that so desire shall become members of the Union, as soon as they are able 
to assume the obligations of membership. In April 1994, Hungary and Poland introduced 
their application for membership. Other countries in Central/Eastern Europe have 
declared their intention to do so. 
The perspective of accession of the associated Central/Eastern European countries to 
the Union implies a qualitative shift in the relations with the region. The fundamental 
decisions taken by the European Council in Essen (December 1994) illustrate the 
dimension of the tasks ahead: It adopted the pre-accession strategy to prepare 
associated countries for membership. 
PRIORITY OBJECTIVES 
In response to this qualitative change, this communication intends to reflect upon the 
industrial implications of Central/Eastern Europe's progressive integration into the global 
European economy, and in particular, how industrial cooperation can contribute to the 
facilitation of this process. 
A brief survey of the industrial situation will show that Central/Eastern European industry 
is still facing considerable restructuring and modernisation needs. An additional 
challenge is the promotion of sustainable development, an important element of both 
the 5th Action Programme "Towards Sustainability" and the White Paper on Growth, 
Competitiveness and Employment, through, inter alia, the integration of environmental 
objectives and criteria into industrial cooperation activities. Furthermore, the 
development of a competitive industrial sector will need to include a high level of 
consumer protection, through appropriate quality and security standards. 
Therefore, three priority objectives need to be pursued: 
• the improvement of framework conditions for industrial development 
• the restructuring and modernisation of industry itself 
• the promotion of investment. 
Industrial cooperation will have to play a key role in all areas. Of course, a large 
part of the resources needed to accomplish the process of industry 
modernisation, has to be provided by the transition countries themselves. In 
addition, Western public financial assistance supports the transition. However, it 
must be recognised that the industry privatisation, restructuring and 
modernisation process cannot succeed without the broad mobilisation of EU 
industry, for investment and the transfer of technology and knowhow. This role of 
EU industry in the transition process will gain relative importance, compared to 
the other elements, the more the process advances. 
THE EUROPEAN UNION'S ROLE IN INDUSTRIAL COOPERATION 
In September 1994, the Commission has adopted a Communication on an Industrial 
Competitiveness Policy3, which develops further the key features of its industrial policy. 
The promotion of industrial cooperation - both inside the Union and with third countries -
is considered to be one of the priority action areas of the Union's industrial policy. 
Regarding Central/Eastern Europe, the promotion of industrial cooperation should 
serve the double purpose and interest of strengthening the economies of these 
countries with a view of integrating them into the Union and of strengthening the 
European industry's presence on expanding markets, thus enhancing the 
competitiveness of industry throughout Europe. 
It is clear that industrial cooperation has to be defined and carried out by the economic 
operators themselves, in ail the different forms it may take, ranging from distribution and 
licensed production arrangements to subcontracting, outward processing, joint ventures 
and equity stakes. 
The main role of public administration is to create favourable framework conditions and 
to facilitate the active participation of EU companies in the development of industrial 
cooperation, e.g. through 
- the creation of appropriate structures for horizontal support to business operations 
- the organisation of contact fora bringing together industry and administration and 
- concrete cooperation projects (example: the consumer electronics1 components project 
with Japan). 
Industrial-cooperation should also involve the social partners, according to the objective 
of promoting the social dialogue. 
The Commission's and the Member States' actions should be complementary. 
Furthermore, increased synergy should be achieved with the activities of other 
institutions such as the EBRD and World Bank. Thus, mutual information and - to the 
extent possible - coordination are essential. 
A major task for the Commission is to ensure that in the overall EU relations with third 
countries, action continues to be based on the respective industrial situation and 
national priorities, and is coherent with EU industrial cooperation and industrial policy 
purposes. This applies notably to commercial relations (e.g. cumulative rules of origin), 
technical assistance actions, and financial support including through the EIB and the 
EBRD, in which the Union participates. For example, in cases where the privatisation, 
creation, modernisation or conversion of production capacities in Central/Eastern 
Europe affects sectors where EU industry is itself in a restructuring process, the Union's 
concerns need to be taken into account, through e.g. a dialogue and exchange of views 
between the parties. 
3 COM (94) 319 final 
? 
This example refers to a broader issue: The integration process and the industrial 
transition in Central/Eastern Europe will certainly lead to new patterns of division 
of labour among Central/Eastern Europe and the Eli. This is already taking place, 
e.g. in the textiles sector for which Central/Eastern Europe is highly important as a 
market and as cooperation partner (outward processing trade - OPT). EU industry 
needs to be present on growth markets: this is one of the key objectives of EU industrial 
policy. The cooperation in the field of OPT which has started already some time ago 
between Central/Eastern European countries and certain Member States is now going 
to be extended and intensified by almost all Member States of the Union. 
Central/Eastern European countries have become the most important partners for the 
Union's clothing industry's production and are essential for its competitiveness. By 
granting duty-free entry of OPT imports from Central/Eastern European countries from 
January 1994 and the necesssary quota increases, the Union has further encouraged 
such cooperation. 
For certain industry sectors this process involves delicate issues of employment and 
ongoing restructuring in Western Europe. While support measures have to be based on 
the priorities and needs of the partner countries, these issues have also to be taken into 
account in the design of assistance, to ensure the overall coherence with other Union 
policies (e.g. in the field of competition). A main criterion should be the effect on 
industrial competitiveness. 
The integration process and industrial transition in Central/Eastern Europe should lead 
to the development of new economic activities based on complementary sets of 
competitive advantage. In order to ensure that these activities are mutually beneficial 
wherever possible, it will be necessary to identify those areas in which possibilities exist 
for repatriating to Europe activities which are wholly or partially sourced off-shore. 
Integration through the reconstitution of production chains has the added benefit of 
providing Central/Eastern European countries with both technology and a source of 
hard currency income with which to purchase the investment goods required for their 
development. Possibilities for combining the advantages of Central/Eastern Europe in 
highly qualified manpower and lower operating costs with EU technology, capital and 
managerial capacity to create competitive enterprises in new growth markets on which 
European firms are currently insufficiently represented should also be examined. 
Industrial cooperation represents an effective way of implementing such an 
approach, since it aims at a long term strategic partnership between economic 
operators based around the mutual interest of both sides. By actively identifying 
new possibilities and ensuring that potential partners are aware of these possibilities, 
but leaving actual implementation and a maximum of the financing of cooperation to the 
interested partners, public authorities can play an active role without intervening in the 
efficient allocation of resources by markets. 
2. INDUSTRIAL SITUATION IN CENTRAUEASTERN EUROPE: 
A BRIEF SURVEY 
Following decades characterized by state ownership of production means and by 
central planning, the transition countries of Central/Eastern Europe inherited an 
economic and industrial set-up which is generally characterised by serious 
weaknesses: First of all, this relates to badly maintained and obsolete capital 
equipment, as well as out-dated production techniques with low productivity, waste of 
energy and bad environmental performance. Distorted incentives resulted in resource 
mis-allocation in production and investment decisions, with for example, an over­
emphasis on heavy industries. While management was often inefficient, business 
support services have been weak, and the mandatory standardization and conformity 
assessment procedures inadequate. 
At the start of the reform process, industrial production, for the economies in transition 
as a whole, declined sharply by 30% during the period 1990-1993. The GDP contracted 
by roughly a quarter (1989-1993, weighted average for Central/Eastern Europe). The 
decline of production inevitably had negative consequences for the population in terms 
of a decrease in real income. Inflation devalorised savings, and unemployment which 
was almost unknown under the former central planning regime, increased in most of the 
countries (see table in annex). As from 1993, a certain stabilization or even slight 
growth took place in some of the countries, while others do not yet show significant 
signs of sustainable recovery. 
The Central/Eastern European industry can draw on some strengths, which have not 
yet been exploited to their full extent, mainly a good level of technical qualification in 
many sectors and relatively low labour costs. These strengths will have a stronger effect 
the more the governments realise their intentions to complete privatisation, to 
restructure industries and place companies on a sounder financial footing. 
Thus, privatisation, intense restructuring, investment (both domestic and foreign), 
stronger exposure to competition and training will be needed to address the inherited 
weaknesses of the industrial landscape and to penetrate highly competitive Western 
markets. 
INDUSTRY PRIVATISATION AND RESTRUCTURING 
Given the economic, social and political importance of the state-owned enterprise sector 
in most Central/Eastern European countries, privatisation and restructuring are among 
the authorities' top priorities for ensuring a durable transformation from a planned to a 
market economy. 
Major successes have been achieved in privatisation, with the private sector reaching a 
level of 55% to 65% of GDP in the most advanced transition countries (source EBRD). 
However, this overall success should not hide the remaining problems. While the 
privatisation and the restructuring of large state-owned enterprises (mainly in the 
energy, mechanical, metals, agro-food and chemical sectors) has been sometimes 
<? 
delayed, the transformation of smaller-scale companies (retail trade, agriculture, 
services to companies, tourism, etc.) has progressed well. 
There are great disparities between the Central/Eastern European countries in the 
degree to which they have created the base for a market economy, especially 
concerning the sequence at which privatisation and financial restructuring take place. 
Two broad alternative policy approaches to restructuring and privatisation can be 
identified: priority on early privatisation leaving most of restructuring to private owners, 
and priority on comprehensive financial restructuring before launching privatisation. The 
second strategy targets high-quality owners for enterprises through comprehensive 
financial restructuring before the sale takes place. The advantage of the first approach 
lies in its higher speed, compared to the second. However, both approaches might not 
always ensure high quality of corporate governance and the necessary modernisation. 
Apart from the degree of privatisation and restructuring achieved, further major 
differences concern the creation of the basic institutions which are necessary for the 
functioning of a market economy, the introduction of competition and the elimination of 
subsidies, the progress in price liberalisation and the development of an effective 
banking and financial sector. This implies that the instruments which should be used to 
promote transition, need to be adapted to the specific situation of the country 
concerned. 
FOREIGN DIRECT INVESTMENT 
The success of recovery in Central/Eastern Europe depends first of all on the countries' 
progress in macro-economic reform, but then needs to be supported by sustained high 
rates of investment (and, as a necessary corollary, "immaterial investment" - the 
transfer of technology, know-how and modern management techniques). Domestic 
savings will have to be the main source of investment, but they presently remain at a 
level that will not permit a rapid catch-up close to that of the EU. Foreign direct 
investment should thus be of considerable importance in the current reform 
phase. 
Inward investment flows have been on the whole disappointing in the region (see table 
in annex), despite of the particular importance given by the economies in transition to 
the establishment of favourable conditions to attract investment. Indeed, the legal 
framework has made considerable progress in some of the countries, while in others, it 
is far from congruent with the political statements of principle in support of the 
liberalisation of the economy. However, in all countries, a main shortcoming of the legal 
and institutional system are the difficulties of the administrations to apply the 
regulations. 
Experience in the past years has shown that decisions on the location of investment 
often follow and strengthen prevailing trends. This explains to a large extent the 
successes of Hungary, Poland and the Czech Republic (ie the early start-ups) which 
keep attracting a lion's share of ail inward investment in the region. 
FRAMEWORK CONDITIONS FOR INDUSTRIAL DEVELOPMENT AND INVESTMENT 
The success of industrial development relies very much on macroeconomic progress 
towards a full market economy. In this respect, the Central/Eastern European countries' 
reforms towards market-based pricing systems and exchange rates are particularly 
important for industrial development. 
Among the most important factors for investment are framework conditions such as 
adequate infrastructures (telecommunications, transport and energy) as well as 
business services (Insurance, banks, business consulting, accountancy, chambers of 
commerce, industry associations), which play an increasingly important role for the 
economy as a whole. Their availability and cost have a large horizontal impact on 
industrial activity. In the energy sector for example, the European Energy Charter is an 
important EU initiative to create a favourable investment climate for the sector, and 
signatories of the Charter Treaty include the Central/Eastern European countries. 
Prospering trade relations are another indispensible framework condition for industrial 
development, both in terms of input supply and export revenues. Moreover, the potential 
for trade is a major criterion for investment decisions. Traditional trade relations within 
Central/Eastern Europe and the Former Soviet Union have virtually collapsed, and 
supply-production chains have been disrupted. In fact, market reforms and economic 
transition in Central/Eastern Europe Were then supported by an unprecedented 
expansion of trade between the Union and these countries. Coinciding with the very 
rapid expansion of EU imports from the Central/Eastern European countries has been a 
radical trade liberalisation by the EU towards them, formalised in the signing of the 
Europe Agreements. One of the striking features of the trade between the Union and 
the associated countries is the high degree of intra-industry trade, which has been 
growing significantly in the recent years, indicating a greater convergence of industrial 
structures between the Union and the region: Associated countries are becoming 
mature for industrial cooperation. 
In conclusion, despite positive developments in macroeconomic reform, 
privatisation and investment growth (from low level), overall investment in the 
region still remains too low: It does not meet the persisting industrial 
restructuring and modernisation needs, and it does not permit the rapid growth 
necessary if these countries are to catch up at least partially with the EU. This 
situation cannot be overcome without further increased trade, foreign investment 
and industrial and technological cooperation with the European Union. The Union 
has thus an essential role to play in the process of privatisation, modernisation 
and integration of the Central/Eastern European industries. 
3. PAST AND PRESENT EUROPEAN UNION ACTION 
The Union has constantly and progressively improved contractual relations with 
Central/Eastern European countries, has developed comprehensive technical and 
financial assistance programmes and scientific & technological cooperation with the 
region (a more detailed description of assistance and S&T cooperation is given in 
annex). 
The Union's consistent policy of rapidly granting market access to imports from 
Central/Eastern European countries is a very substantial contribution to a favourable 
framework for industrial development. As far as industrial products are concerned, the 
process of liberalisation by the EU begun with the conclusion of the Europe Agreements 
in 1991/2 is nearly complete. The dismantling of EU tariff and quantitative restrictions 
was accelerated at the Copenhagen European Council in June 1993 and the terms of 
the Europe Agreements with Romania and Bulgaria were aligned with those of the other 
Central/Eastern European countries at the Essen European Council in December 1994. 
Consequently, for industrial products there remain only some tariffs on steel items until 
1 January 1996 and on textiles until 1 January 1997. The last quotas on textile products 
will disappear by January 1998. In the case of the Baltic States, under the terms of the 
Free Trade Agreements in force, all industrial imports into the EU except for textiles are 
already completely liberalised from 1 January 1995. 
The Union's assistance is first of all related to the development of framework conditions, 
such as the legal and administrative framework e.g. for investment and competition, 
through the approximation of laws. This also includes quality management: A 
normalisation/certification system may either constitute new trade barriers or facilitate 
exchanges: Without an appropriate normalisation/certification system, Central/Eastern 
European industry will be unable to ensure sufficient product quality, to develop its 
export opportunities and to launch cooperation with EU industry. The objective of mutual 
recognition of conformity assessment will also be harder to achieve. 
Furthermore, assistance has been provided to the process of privatisation and 
restructuring of companies, to the development of business links, investment promotion 
and training. In addition to the assistance, action has been started to bring industry 
representatives into direct contact to explore the cooperation possibilities (Round-Table 
conference in Riga 1994, with high-ranking industry and administration representatives 
from the EU and the three Baltic states). 
Scientific and technological cooperation has been developed with Central/Eastern 
Europe, to maintain the RDT potential of these countries as a source for industry 
modernisation. Activities have now been integrated into the 4th Framework Programme. 
4. EUROPEAN UNION INITIATIVES FOR FUTURE COOPERATION 
Past and present action have already provided a substantial contribution to the 
transition process. The proposed orientations for the future start from existing 
instruments and consider useful adaptations and additional action, to take 
account of the pre-accesslon context. The implementation of the overall horizontal 
approach will have to take into account the specific situation of the country and 
industrial sectors concerned on a case-by-case basis. A regional approach, to stimulate 
cooperation among the Central/Eastern European countries themselves, is important in 
many of the following areas of action (e.g. trade, cross-border cooperation, sectoral 
industry reviews.) 
A. The Europe Agreements and the Union's assistance policy: paving the way to 
cooperation and integration 
The Europe Agreements provide the overall framework for a very close cooperation 
covering practically all areas of economic activity including industrial cooperation, and 
they contain specific provisions which aim to improve the business environment. Thus, 
they provide a basic orientation for PHARE and other instruments. In the perspective of 
progressing transition and future membership, following the Essen European Council, 
the PHARE technical and financial assistance and other assistance measures will 
increasingly assume the role of a major tool to prepare associated Central/Eastern 
European countries for accession. 
EXPLOITING THE INSTITUTIONAL SET-UP OF THE EUROPE AGREEMENTS 
The Europe Agreements offer an institutional set-up (besides a general joint committee 
e.g. contact groups for steel, mining, raw materials; sub-committees on economic 
cooperation) which may serve as a vehicle for cooperation. 
STARTING AN INDUSTRIAL PQUCY DIALOGUE 
An industrial policy dialogue should be started with Central/Eastern Europe, using this 
institutional set-up. This would serve two purposes: 
• Administrations of the two sides should consider together which initiatives should be 
taken to better exploit the potential for industrial cooperation, and which solutions 
should be adopted to remove the obstacles which industry has experienced in 
cooperation projects. 
• The European Union has developed further its industrial policy in view of enhancing 
the competitiveness of its industry and, in the White Paper on Growth and 
Competitiveness, adopted an approach on how to promote change in the economy 
in order to face the future challenges, such as sustainable development and the 
information society. Central/Eastern Europe will very much be confronted with the 
same challenges. Thus, the dialogue should include the exchange of views on this 
adjustment process. 
DEVELOPMENT OF REGULATORY FRAMEWORK AND APPROXIMATION OF LAWS 
The White Paper on the preparation of associated Central/Eastern European countries 
for integration into the internal market is a core element of the pre-accession strategy, 
as endorsed by the Essen European Council. Its purpose is to provide these countries 
with a guide to those areas of the acquis communautaire which are essential to the 
maintenance of the integrity of the internal market to facilitate integration. It will propose 
a logical sequence of adaptation of internal market legislation, but without attempting to 
set a timetable for action. 
Not only will the White Paper list the legislative core acquis on the internal market, but it 
will equally describe the organisational and institutional structures and infrastructures 
needed to enable effective application of EU legislation. Technical assistance would 
then be provided under PHARE according to each country's specific needs. 
With these indications, the White Paper will facilitate future industrial cooperation. 
It will be tabled to the European Council in Cannes. 
QUALITY MANAGEI&LNT: STANDARDS/CERTIFICATION 
In principle, the Union could follow the assistance already given to some 
Central/Eastern European countries as a model for further action, ie a bilateral 
approach to satisfy the needs of the respective country, completed with a regional 
approach combining a number of countries to create a "regional quality management 
infrastructure", which would encourage intra-regional trade. 
Technical assistance should be based on two principles: 
• It should be linked to a political commitment of the beneficiaries to adopt norms, 
technical regulations and certification systems based on European and international 
models. 
• The participation of these countries in the European norms, certification and quality 
organisations (CEN, CENELEC etc.) should imply that they are subject to the same 
rights and obligations as their European partners. This would largely facilitate the 
conclusion of mutual recognition agreements. 
In this context, consideration should be given to strengthening cooperation, in particular 
in sectors where mutual recognition agreements would be appropriate. 
INVESTMENT FRAMEWORK (LEGAL AND ADMINISTRATIVE SYSTEM) 
As a corollary to the promotion of investment projects, the framework for investments 
needs improvement. This relates in the first place to the legal and regulatory framework 
which the Central/Eastern European countries have to develop themselves. While much 
progress has been achieved, this differs substantially from one country to the other, in 
particular in terms of more or less effective implementation and enforcement of laws 
and regulations. Other common problems are related to the need to consolidate legal 
decision-making and the existing legislation, and to the remaining inconsistencies (e.g. 
definition of responsibilities between administrations - from national to local level -
involved in foreign investment and the cooperation between them; complicated 
administrative procedures). A major effort will also have to be made to enhance the 
transparency and stability of the legislative and regulatory framework, e.g. potential 
investor's access to information. 
In the discussion on the investment framework, too many parallel efforts should be 
avoided. To achieve a certain homogenity, framework principles should be elaborated 
together with the Central/Eastern European countries, on the basis of the Europe 
Agreements. In addition, other fora should continue to play a role in this respect (such 
as OECD/lnvestment Advisory Group, World Trade Organisation). The Commission has 
adopted a Communication4 on the importance of establishing worldwide uniform rules 
on Foreign Direct Investment, to strenghten the levels of transparency of rules, and the 
liberalisation and protection of investment flows: Acceptance by Central/Eastern 
4 COM (95) 42 
yf(/ 
10 
European countries of multilateral rules would help to increas the confidence of 
Western investors. 
PRIVATISATION, RESTRUCTURING, MODERNISATION OF INDUSTRY 
Regarding further assistance to industry sectors, priority should be given to: 
Transparency of Central/Eastern European industries: Sectoral industry reviews 
should be done where important sectors have not yet been covered and where an 
operational value of such reviews is ensured. To avoid any duplication, Commission 
services have started to explore with industry sectors, Member States and other 
organisations (OECD, UN...) which data are already available. It is equally important to 
ensure, to the greatest extent possible, that much more than in the past, existing studies 
are made available to the industries concerned, so that they may base future action on 
this information. 
Feasibility/viability reviews of concrete sectoral projects: Within its privatisation/ 
restructuring branch, PHARE should also encourage Central/Eastern European 
countries to pursue projects designed to examine the feasibility and viability of 
restructuring and modernising Central/Eastern European companies, with an immediate 
operational value to facilitate investments and cooperation with EU companies 
(example: establishment of business plans, search for appropriate investors). Positive 
examples for such projects are the study (financed by the PHARE- COOPME facility) on 
the situation of the food, drink and tobacco industries in six associated countries and on 
potential cooperation with EU industry, and the viability reviews of some 15-20 
Central/Eastern steel companies made following the national restructuring programmes. 
As the example of the ECSC loan facility for Central/Eastern European countries shows, 
in some cases such technical assistance can be combined with specific loan 
instruments with a view to supporting the restructuring of particular sectors. 
Conversion into civil production is not only an important politicai goal, but in some 
sectors (such as aerospace) also a valuable cooperation tool. The information 
technology sector offers a considerable (R&D and industrial) potential for conversion, 
which should be Increasingly exploited (e.g. in the areas of microelectronics, 
optoelectronics and microsystems). 
Socio-regional accompanying measures, similar to RESIDER, RETEX, RECHAR etc, 
should be considered for industries characterised by excess supply of labour and strong 
regional concentration, in order to facilitate, as soon as possible, the creation of 
alternative employment opportunities. In fact, regional reconversion and development 
programmes are being implemented in certain countries (Poland, the Czech and Slovak 
Republics in particular). The Polish STRUDER programme, for example, is clearly 
based on EU programmes and experience, including a grant scheme for investments 
and a risk capital company. The Union has a large experience with structural 
programmes. Central/Eastern European countries should draw from the Union's 
experience in the design of such programmes supporting the building up of a 
competitive industry. 
11 
BUSINESS LINKS AND INVESTMENT PROMOTION 
Future action should consider the areas of partnering events and subcontracting. 
Regarding partnering events, the question arises in view of the interest expressed by 
Central/Eastern European countries in extending the participation of their firms in 
partnering events with those from the EU whether more such events should be 
organised in the Central/Eastern European countries. Merely extending existing 
schemes to Central/Eastern Europe would not appear an appropriate response to the 
specific needs for industrial cooperation of the region. 
A more productive approach could be to develop specific cooperation 
instruments with the Central/Eastern European countries based on existing 
formulas. A precedent already exists with the Med-lnvest and Al-lnvest schemes, 
which provide under their facility one for the organisation of PARTENARIATS and 
INTERPRISES in these countries. Bearing in mind the experience with the pilot action 
"Doing business with Central/Eastern Europe" and with existing EURO PARTENARIATS, 
which are becoming very large, an innovatory approach could be developed. For 
instance, it would be possible to conceive a new "CEEC PARTENARIAT". Such events 
could further specific models of regional integration between European regions. They 
could cover groups of inter-related industries, both manufacturing and services, instead 
of many different industries, as in the case of EUROPARTENARIATs, or narrowly 
defined ones, as in the case of regular INTERPRISES. 
In the area of subcontracting, with regard to participation in events organised in the 
EU, the technique of "Salons Inversés" where assemblers meet potential suppliers 
lends itself to participation from firms from Central/Eastern European countries. 
In addition to participating in existing actions, a specific action to develop sub­
contracting amongst the Central/Eastern European countries and with assemblers from 
the EU would be warranted. It could comprise four types of measure: 
1. interconnection of data bases/exchanges^established in these countries for sub­
contracting with those in the EU; 
2. evaluation of the current situation of sub-contracting in Central/Eastern Europe; 
3. pilot actions in specific sectors; 
4. training of technicians and enterprises in the principles of total quality 
management and implementation of certification procedures and accredited 
laboratories. 
As with the development of special partnering events, sufficient resources would be 
required to run such a specific programme. 
The Essen European Council has confirmed the increasingly important role of PHARE 
in the areas of investment support for both infrastructure and SME development. 
The JOPP programme has an important role to play, in particular for projects with 
smaller amounts of investment which are less likely to be considered by institutions 
such as the EBRD. An external evaluation of JOPP is currently underway, the results of 
which will be taken into consideration when considering any changes that need to be 
made to the programme. The evaluation will look at e.g. the use of facility three (support 
for productive investment), the response to investment needs and the appropriate size 
of companies to be supported. 
Further increased synergies shouid ...,'•:'.-...."'Î to be sought with organisations 
involved in investment, notably the EBRD and the EIB, as it is the case in existing 
PHARE operations where EBRD and PHARE finances are combined to provide 
technical assistance, training and capital for industrial restructuring. One example 
concerns the Project Preparation Committee, which has been set up (following the 
Ministerial conference "Environment for Europe" in 1993) to improve coordination 
between international financial institutions and donors in the area of environmental 
investments in Central/Eastern Europe. 
On the basis of the experiences made with the ECSC loan facility adopted in favour of 
Central/Eastern European countries in 1990, the possibilities of lending instruments 
which are linked to some sort of industrial cooperation between EU and Central/Eastern 
European companies should be explored further. 
CROSS-BORDER COOPERATION 
As the Essen European Council has confirmed, a regional approach is important to 
stimulate cross-border and inter-regional action among Central/Eastern European 
countries and among them and the Union. This will also help to ensure that in future 
investments, duplications and misuse of scarce financial resources are avoided. While 
current actions (PHARE-cross border cooperation, PHARE INTERREG and 
INTERREG) are already important contributions, a further strengthening should be 
considered. 
There is considerable scope for developing industrial cooperation between craft and 
small firms in border areas. The combination of INTERREG and PHARE programmes 
opens the specific dispositions of these programmes to cross-border cooperation. Since 
after the current round of enlargement all Central/Eastern European countries with the 
exception of Romania possess a common border with the EU, possibilities for this local 
integration can be pushed forward as the basis for subsequent wider internationalisation 
of firms and broader forms of cooperation. It will be necessary to ensure that cross-
border agencies be grouped in a network with other similar existing or planned agencies 
in the EU in order to ensure the transfer of best practice and to promote further 
transfers of business opportunities. 
The closure of missing links in the infrastructures will strongly promote cross-border 
cooperation. As the Essen European Council acknowledged, the integration of 
Central/Eastern European countries into the Trans-European networks is a key element 
in strengthening their ties with the Union. In the framework of EU work on Trans-
European Networks, concepts such as interoperability are being further developed and 
their impact on the transport industry assessed. In a context of progressive integration 
of the Central/Eastern European countries, the initiation of a dialogue with them to 
explore possibilities of industrial cooperation in transport would be particularly helpful in 
ensuring that their transport systems are compatible with developments in the European 
Union. 
13 
COMPETITION 
The establishment of a viable competition and state aid control system is an essential 
condition for the development of the market economy and a healthy industrial sector in 
the transition countries. The implementation of competition rules comprising rules on 
monopolies and undertakings with special or exclusive rights is needed to avoid public 
monopolies being replaced by private monopolies and to ensure that market structures 
will become pro-competitive, whereas obvious public finance reasons speak for a strict 
state aid control. Even more importantly, transparency in the field of state aids and their 
control are essential elements in the process of transition towards a market economy 
which is open to international competition. While state ownership should not be seen as 
inherently unacceptable, state-owned companies should be carefully scrutinised, e.g. 
regarding their way of investment financing, to ensure that normal private sector 
investment criteria apply. Hidden subsidies would lead to serious distortions of 
competition. 
The efforts of harmonisation of legislation undertaken so far under the Europe 
Agreements still need to be pursued further in order to ensure that competitors may 
operate under the same conditions without undue advantages for some, in a 
competitive environment. The White Paper will also include an analysis of the Union's 
competition rules which form an essential element of the basic fabric of the internal 
market. The Commission will set up a competition policy training programme which will 
draw on the experience and expertise of the Commission's and the Member States' 
competition authorities. 
in addition Central/Eastern European countries should be encouraged to adhere to 
relevant international disciplines aiming at normal competitive conditions such as the 
OECD agreement on shipbuilding. 
TRADE 
Not as a substitute, but as a complement to the Union's opening, increased efforts 
should be undertaken to multilateralize the region's trade. These efforts should be 
directed at two main areas. 
Promotion of intra-regional trade: Domestic markets of the Central/Eastern European 
countries are often undersupplied because of local production being exported to more 
accessible (infrastructures, networks) and better paying (hard currencies) foreign 
markets, normally in the Union, despite the establishment of intra-regional agreements 
such as CEFTA5. The closer economic integration of markets in the region therefore 
needs to be encouraged, in order both to strengthen and diversify the trading 
relationships and the division of labour between the countries themselves. 
Promotion of a convertible trading environment ("Aid for Trade"): Assistance 
should continue to be given, when needed, to the development of reliable and effective 
banking and payments systems in Central/Eastern Europe. In particular, aid should be 
3 CEFTA: Central European Free Trade Area, agreement concluded between the Visegrad countries in 
December 1992 
<12 
14 
directed towards the establishment of payment clearing systems and export credit 
mechanisms, in order to facilitate the growth of trade and to support the objective of 
closer economic integration already mentionned earlier. Export credit mechanisms 
would have to fulfil the same standards as those laid down in international rules (ie 
OECD) and those applied in the Member States, which are part of the EU state aid rules 
and are therefore applicable under the Europe Agreements. 
Rules of origin play an important role for growth and direction of trade flows. Following 
the decisions taken by the Essen European Council, the impact of the proposed rules of 
origin strategy6 wifi be carefully examined from an industry/trade point of view. 
Similarly, agreements on the mutual recognition of conformity assessment can 
stimulate trade. Efforts must therefore be made to identify areas where mutual 
recognition agreements could be feasible with individual Central/Eastern European 
countries, and within particular sectors, during the pre-accession phase. 
An initiative to promote intra-regional trade is being launched under PHARE, following 
the Essen European Council. This will include support for the introduction of modem 
trade legislation, transfer of know-how for export promotion and for the development of 
export insurance and guarantee schemes. 
ENVIRONMENT 
The envisaged accession of Central/Eastern European countries to international 
standardisation bodies (CEN, CENELEC) allows for adapting environmental 
requirements in this region. The creation of the Trade and Environmental Committee 
within the World Trade Organisation provides a platform to discuss the questions of 
environmental, technical and non-technical, standards in relation with trade. 
The situation of infrastructure in the field of environmental services (waste and waste 
water treatment, air pollution control) needs to be assessed. According to OECD, 
Central/Eastern European countries might reach growth rates up to 25% by the year 
2000. Industrial cooperation therefore would be an important instrument to 
ensure that essential requirements are introduced in this region with a view to 
both leading to better environmental performance and providing industry a level-
playing field. 
Action should also include practical measures to contribute to sustainable development: 
Industry holds a main responsibility to ensure a high level of environmental protection, 
and the industry active in Central/Eastern Europe should adhere to an environmental 
code of conduct on the basis of the "Guiding Principles on the Environment, Industry 
and Investment Decisions in Central/Eastern Europe" (Budapest 1991). In addition to 
the technical assistance provided under PHARE environmental programmes for clean­
up operations, priority action should also be given to cleaner industrial production in 
both the private and public sectors. In particular, there is a need to increase information, 
to those who can implement cleaner production solutions, about both the technology 
6 SEC (94) 1897 final. The strategy proposes (i) to extend diagonal cumulation with the Union to all 
Central and Eastern European countries, (ii) to integrate EFTA countries into this cumulation, (iii) to 
introduce full cumulation into all agreements 
Y<? 
15 
involved and the environmental tools which industry needs to make cleaner production 
assessments of its activities and products. The improved access to information should 
be complemented through technical assistance, demonstration projects and training. 
ENERGY 
Implementation of SYNERGY, the energy cooperation programme with third countries 
including Central/Eastern Europe, in coordination with other technical assistance is of 
considerable importance. It aims e.g. at the implementation of the European Energy 
Charter and transboundary projects. The THERMIE programme on the transfer of 
innovative energy technologies, has set up Energy Centers which play an important role 
as a link between EU and Central/Eastern European industries. 
TRAINING 
Investments and technology transfer will only achieve their objectives if at the 
same time, a massive effort will be undertaken to improve the managerial know-
how of Central/Eastern European company personnel in all areas of company 
operation under transitional and market economy conditions (such as organisation, 
cost planning and control, optimisation of production process, marketing/distribution, 
quality control). This should also include training of trainers, to facilitate dissemination. 
Training should as well include the environmental components, which are essential for 
the establishment of a sustainable market economy (e.g. cleaner production, 
environmental legislation). 
In the field of adult training and especially management training, the newly established 
European Training Foundation is considering specific measures to foster the 
cooperation between organisations and institutions responsible for training in 
Central/Eastern Europe and their counterparts in the Union. The aim will be further to 
encourage the development of local structures, to improve their links with the industrial 
world and to orient curricula towards professions and labour structures relevant to the 
new market conditions. The activities to be developed by the Foundation will draw on 
the experience with the Community action programmes FORCE and, in the future, 
LEONARDO. 
The dialogue with EU industry should be used as well to explore opportunities and to 
mobilise a broad range of EU host companies for traineeships offered to 
Central/Eastern European managers (e.g. in the Industrial Training Attachments 
Programme). Account should be taken of training initiatives set up by individual 
industries (examples: shipbuilding, clothing, chemicals, steel; energy) independently. 
Furthermore, more efforts should be taken regarding the training of Central/Eastern 
European administration officials, in particular those who deal with the legal framework 
conditions and restructuring programmes in their countries (e.g. traineeships in EU 
administrations and companies). This would help to enhance legal security and a stable 
framework, which are crucial for the attraction of investment. 
Finally, the experience acquired by the Union in the framework of industrial restructuring 
measures and redeployment of workers can also benefit the Central/Eastern European 
countries. The Union has established networks for the purpose-of identifying sound 
experience in these areas and disseminating it to other organisations in the Member 
<&? 
16 
States. Research and assessment work has led to recommendations widely publicised 
via these networks, to interested parties at local and regional level. 
B. Scientific and technological cooperation 
Future action should pursue the following priorities: 
RESEARCH AND DEVELOPMENT 
Industry modernisation relies, inter alia, on effective implementation of R&D results. 
Thus, industrial cooperation should build upon and valorise scientific and technological 
cooperation with, and where appropriate supported by, the Union. Cooperation between 
researchers and industrial companies should be strengthened by appropriate use of ail 
the available instruments, including the 4th Framework Programme and the agreements 
with Central/Eastern Europe, bearing in mind the ultimate objective of strengthening the 
scientific and technological base of the Union's industry, and the commitment to 
encourage its international competitiveness. In that context, the Union's efforts to 
promote RDT cooperation aim at a stronger relationship between EU and 
Central/Eastern European research communities to. their mutual benefit. 
Central/Eastern European researchers should be encouraged to stronger participate in 
EU RDT initiatives and programmes, particularly in areas where their expertise and 
know-how will add value to the results of cooperative work, and they should be helped 
to maintain contact with their EU partners after participation in joint projects. 
Dissemination and valorisation of RDT results, although not covered by "activity 2" of 
the 4th Framework Programme, should also be encouraged. 
INFORMATION INFRASTRUCTURE AND INFORMATION SOCIETY 
Europe and other major players are moving towards the Global Information Society. 
This implies to modernise the physical telecom infrastructure, to develop and 
disseminate new information services for business and individuals, to promote 
information technology applications and user skills and to enlarge the use of electronic 
data interchange (EDI). The Union will ensure that the process will indeed be global and 
will graduately extend all its relevant programmes to Central/Eastern Europe, to bring it 
into the realm of the Information Society. This will also help to assess the likely impact 
of the Global Information Society on Central/Eastern European industry. The G-7 
Ministerial Conference (Brussels, February 1995) has underlined the revolutionary 
impact of the Information Society on business and individuals, has recognised the 
necessity of worldwide cooperation for its achievement and has identified 11 pilot 
projects which should help to support the objective of an international consensus on 
common principles of the Information Society. The pilot projects will be open to third 
countries. 
The Commission plans to organise an informal Forum on the Information Society, at 
ministerial level, with 10 Central/Eastern European countries, in 1995. 
C. Mobilisation of European industry 
To stimulate the private sector's closer involvement in the transition process in 
Central/Eastern Europe, the Commission should envisage a partnership with the private 
Z( 
17 
sector as a complement to its assistance programmes. The objective would be to yield 
more complementarity and synergy for example in market development strategies, 
through an exchange of information and experience. 
DIALOGUE WITH EUROPEAN INDUSTRY 
To explore the opportunities of and the obstacles to industrial cooperation, the 
European industry needs to be more closely implied in a constant information and 
consultation process with the Commission. Most importantly, the Commission 
should continue to discuss with Community industry sectors, in a concrete country- and 
sector-specific way, which problems industry has encountered when launching 
cooperation projects, and which are the reasons behind the slow pace of investment in 
many Central/Eastern European countries. The "Maritime Forum" is an example of an 
instrument for permanent dialogue which could be used in other sectors. 
Dialogue with industry should also explore the usefulness of different forms of 
investment promotion. For example, consideration should be given to the possibility of 
improving existing instruments and seeking solutions which may partially guarantee 
investment, in order to stimulate specific projects for which there is demand in the 
partner countries (in Central/Eastern Europe) and which businesses in the European 
Union have the capacity to meet (energy saving, water purification, telecommunications, 
transport schemes, etc.). Such an initiative could be based on an analysis of existing 
guarantee schemes (e.g. Member State and other schemes such as the World Bank's 
Multilateral Investment Guarantee Agency), to ensure that action taken by the Union 
genuinely provides added value. 
INTERHNDUSTRY DIALOGUE 
Contact between Central/Eastern European and EU industries should be promoted in 
different forms and at various levels. 
- ADVISORY BUSINESS COUNCIL 
The pre-accession strategy adopted by the European Council in December 1994 
includes the establishment of an Advisory Business Council, to provide advice to the 
Commission and the associated Central/Eastern European countries' authorities on 
support to economic recovery and especially the promotion of foreign investment. 
- INDUSTRY ROUND-TABLES 
Apart from general macro- and microeconomic obstacles to investment and other 
cooperation, specific obstacles appear in individual industry sectors (example: specific 
importance of intellectual property protection in pharmaceuticals). Industry Round-
Tables are an effective instrument to identify and discuss them, and they can offer a 
useful informal complement to the official contact fora between administrations created 
under the Europe Agreements. 
The Commission should initiate further Round-Tables involving EU and Central/Eastern 
European industries as well as the appropriate interlocutors in the Central/Eastern 
European administrations, following the model of the Round-Table organised in Riga 
18 
with the Baltic states in 1994. In order to avoid duplication of other bilateral or 
international fora already in place (e.g. OECD Investment Advisory Group), these 
Round-Tables should avoid a too large and heterogenous participation and should rely 
on agendas of immediate operational value. They should not be perceived as 
permanent institutions: Organised on an ad-hoc basis when the two sides deem it 
useful, they can help to initiate a cooperation process which should then be carried on 
by the economic operators themselves. 
- INDUSTRY-SECTOR SPECIFIC ACTIVITIES 
Depending on specific opportunities and the state of mutual knowledge/cooperation 
already achieved, sector-specific inter-industry contacts should take the form that 
fits best: Examples include the agro-food industry trade fair envisaged in 1995 and a 
Round-Table on consumer electronics industries. 
Where appropriate, EU companies could conclude sponsorship (parrainage) 
arrangements with Central/Eastern European enterprises, e.g. in view of training, or 
further-reaching cooperation such as distribution arrangements. 
Another area should be the inter-industry follow-up to technical assistance actions: 
To increase the impact particularly of restructuring assistance, the establishment of 
inter-industry contacts could provide an operational follow-up. Such contacts could take 
the form e.g. of seminars to discuss the appropriate consequences of assistance 
actions/restructuring studies with Central/Eastern European and EU industries, including 
the design of cooperation projects. 
Finally, concrete cooperation projects should be developed where they meet demand 
from the industries of both sides. An example is the pilot programme to improve 
competitive subcontracting for the consumer electronics industry in the EU. This project 
has allowed in the past three years European suppliers of components to visit factories 
in Japan and then to design and implement improvement programmes in their own 
companies. Programme participants are in favour of extending participation to suppliers 
in Central/Eastern Europe, which is seen as an increasingly important market and 
production location. Consideration should be given to projects demonstrating that 
"pollution prevention pays", ie that no-cost or low-cost measures can reduce the use of 
resources and pollution while yielding economic benefits. 
- "INSTITUTION BUILDING": INTERLOCUTORS FOR INDUSTRY 
The creation of industry associations in Central/Eastern Europe should be further 
encouraged: This growing network - in addition to the other business services supported 
by PHARE - will provide the competent advice which EU industry needs for the 
development of cooperation. EU industry associations can help to broaden the process. 
?3 
19 
The financing of the envisaged actions relies first of all on PHARE, for the 
assistance part, on the 4th framework programme, particularly its international 
cooperation part, and on the Information Society budget line. In particular, 
existing actions under PHARE will be developed further and new initiatives 
launched to facilitate industrial cooperation with PHARE financing on the basis of 
the Central/Eastern European countries' own priorities and demand. Inter­
industry dialogue initiatives will be financed, to the extent possible, by both the 
PHARE-COOPME facility and through the industry budget for industrial 
cooperation. To that aim, a minimum of budgetary resources is envisaged in the 
industry budget line, in order to broaden both the dialogue with EU industry and 
the inter-industry dialogue (notably through the organisation of Round-Tables 
and other ad-hoc inter-industry contact fora), and in order to facilitate concrete 
inter-industry projects such as the extention of the consumer electronics 
programme described above. While any duplication with PHARE needs to be 
avoided and additionality ensured between these financing sources, the added 
value would be to facilitate accompanying actions directly involving industries of 
the two sides. 
<?(/ 
ANNEXES 
Table: Industrial Production and Unemployment in Central/Eastern Europe 
Bulgaria 
Estonia 
Hungary 
Latvia 
Lithuania 
Poland 
Romania 
Czech Republic 
Slovak Republic 
Slovenia Industrial Production (a) 
Unemployment rate in % (b) 
Industrial Production (a) 
Unemployment rate in % (b) 
Industrial Production (a) 
Unemployment rate in % (b) 
Industrial Production (a) 
Unemployment rate in % (b) 
Industrial Production (a) 
Unemployment rate in % (b) 
Industrial Production (a) 
Unemployment rate in % (b) 
Industrial Production (a) 
Unemployment rate in % (b) 
Industrial Production (a) 
Unemployment rate in % (b) 
Industrial Production (a) 
Unemployment rate in % (b) 
Industrial Production (a) 
Unemployment rate in % (b) 1992 
-7.0 
15.6 
-38.7 
1.5 
-9.8 
12.2 
-35.1 
2.3 
-51.6 
1.0 
4.2 
13.6 
-21.8 
8.4 
-11 
3 
-13 
1 
-13.2 
13.3 1993 
-8.5 
15.9 
- 28.4 
1.7 
4.0 
12.1 
-39.6 
5.3 
-46.0 
1.6 
7.9 
16.1 
1.3 
10.2 
-5 
3 
-14 
14 
-2.8 
15.4 1994 
- 4.8 (Jan - May) 
13.4 (June) 
2.1 (June) 
7.8 (Jan - April) 
11.0 (June) 
32.4 (Jan - June) 
3.2 (June) 
9.9 (Jan - June) 
16.6 (June) 
-1.8 (Jan - May) 
10.8 (June) 
4.6 (June) 
3.0 (June) 
3 (February) 
13.9 (May) 
5.8 (Jan - May) 
14.6 (April) 
(a) percentage change compared to previous year 
(b) end of period 
Source: European Economy 
No. 8/9 August/September 1994 
zr 
Table: Foreign Direct Investment in Central/Eastern Europe 
Foreign Direct Investment in transition countries 1990-1994: cumulative total 
(cash basis) 
Bulgaria 
Czech Republic 
Hungary 
Poland (cash) 
Poland (BOP) 
Romania 
Slovakia 
Slovenia 
Estonia 
Latvia 
Lithuania Level (million US$) 
1990 
4 
436 
512 
93 
218 
0 
28 
n/a 
0 
0 
0 1991 
60 
947 
1971 
210 
509 
40 
110 
41 
0 
0 
0 1992 
101 
1951 
3442 
494 
1187 
120 
210 
152 
58 
43 
10 1993 
157 
2519 
5781 
1074 
n/a 
207 
354 
263 
218 
82 
50 June 
1994 
182 
2820 
6316 
1365 
n/a 
323 
390 
292 
337 
112 
70 FDl 
per 
capita 
17 
242 
558 
28 
0 
9 
83 
130 
139 
30 
13 
Stocks of FDl (off. 
estimates) 
Czech Republic 
Hungary 
Slovenia 72 
569 
n/a 595 
2107 
n/a 1556 
3424 
n/a 2053 
5576 
762 2490 
6383 
792 n/a 
n/a 
n/a 
Source: UN/ECE; figures in italic are UN/ECE estimates; "0" means no or a négligeable amount of 
investment occured; per capita figures are in US S 
Ill 
STEEL INDUSTRY: A CASE OF SUCCESSFUL COOPERATION 
In many Central/Eastern European countries, the steel industry represents a major industrial 
sector which requires an enormous technical and managerial restructuring, in order to survive. At 
the same time, and considering the ongoing structural adjustment of this sector in Europe as a 
whole, steel trade is creating certain tensions which can best be solved through cooperation and 
better mutual understanding. 
Due to traditional contacts with the countries of Central/Eastern Europe in the steel sector and to 
internal EU restructuring experience, Commission services were able to help to establish rapidly a 
strategy and implement cooperation, with PHARE support. The approach has been worked out in 
close cooperation with both government representatives and the industry of the countries 
concerned and then been implemented by experienced consultants and with the assistance of 
experts from the EU-steel industry. The assistance usually starts with a steel restructuring study 
to provide an overview of the future of the steel industry in the country concerned. In parallel, 
training programmes are organized to transmit specific experience in such areas as marketing, 
cost accounting, personnel, etc. from the EU steel industry (for example, training programmes for 
Central/Eastern European managers in EU steel companies). Finally, exchange programmes 
were set up, pooling the experience of managers of steel companies from both regions. In 
addition, Central/Eastern European steel companies have the possibility to apply for loans under 
the ECSC Art. 95 loan facility adopted in 1990, provided that the project implies cooperation with 
a EU partner and does not have disruptive effects on the market of the product concerned. 
These types of programmes are successfully progressing in seven countries of Central/Eastern 
Europe and will be started in Russia and in the Ukraine, with a slightly different approach 
considering both the different industry size and the historical background. In Central/Eastern 
Europe, the cooperation will have to take account of future accession, requiring assistance in 
adapting to the rules and norms of the European Union and the ECSC, and exchange of 
experience with their counterparts in the European Union. 
The project Global Study Steel was set up in 1992. It brings together all steel producing countries 
of Central/Eastern Europe under the guidance of a Steering Committee composed of the 
European Commission, the EBRD, the World Bank, the United Nations and IISI. This regional 
approach ensures that the restructuring is not done on a purely national basis without taking 
account- of the Central/Eastern European and CIS regional implications and the world steel 
situation, and helps to favour foreign investments and possible joint ventures. Regular meetings 
allow an open exchange of experience, bringing together the people responsible for steel in 
Europe. A first study under this guidance looked at demand and capacity in the year 2000, thus 
helping in the individual restructuring concepts. A second study has just started, dealing with the 
possibilities, advantages and requirements for regional cooperation, synergies and opportunities 
in this sector. 
After five years of industrial cooperation in the steel sector, the first results are not only a better 
knowledge of the sectoral situation in this region, but also reasonable restructuring efforts. 
Secondly, an exchange of experience is taking place with direct cooperation between managers 
and government representatives from all over Europe, leading to the first joint ventures or other 
partnership arrangements and better mutual understanding. This has been possible due to the 
involvement of EU steel producers. In the future as part of the technical assistance programme, it 
should be possible to deepen the cooperation further. For this reason and in a period of growing 
steel trade, trade tension has lessened so that in fact nearly all barriers to imports from 
Central/Eastern Europe have been eliminated in steel. 
IV 
INFORMATION SOCIETY: A CASE FOR DEVELOPING COOPERATION 
Information and communication technologies are generating a new industrial revolution, critical to 
the future of European society. For Central/Eastern Europe, the emergence of the Information 
Society is one of the keys to industrial, economic and social renewal. These countries have highly 
qualified human resources and significant industrial equipment in the fields involved. The global 
nature of the issue calls for proper coordination mechanisms at an international level and for 
cooperation in the whole of Europe. 
Involving Central/Eastern Europe in the building of the European Information Society is crucial to 
reinforce social, economic and political cohesion in the whole of Europe, and to reach the critical 
mass which is going to allow the Union to compete more efficiently With the USA and Japan. Also, 
cooperation is essential for the achievement of key elements in the development of advanced 
information and communications infrastructure, in particular those related to standardisation, 
protection of intellectual property rights, interconnection of networks and interoperability of 
services and applications. Cooperation can play a fundamental role in favouring a rapid 
penetration of information and communication technologies and the dissemination of know-how in 
Central/Eastern Europe, and open at the same time opportunities for investment in this market by 
EU industrial and service companies. This involves the removal of obstacles related to a number 
of regulatory aspects. 
The European Commission is organising an informal Forum on the Information Society with ten 
Central/Eastern European countries in 1995, in order to start a joint reflection and to launch 
selected cooperation projects. The Forum will bring together the competent ministers and 
representatives of telecom industries and operators from Central/Eastern European countries 
interested in actively participating in the dialogue on the Information Society, which has been 
started notably in the G-7 Ministerial Conference organised by the Commission in February 1995 
Initiatives such as the trans-European public administration network, telematic services for SMEs 
etc. could greatly facilitate the integration of these countries into the Internal Market and the 
overall E.U. structures. 
In a side-look at Russia, Article 77 of the Partnership and Cooperation Agreement between the 
European Communities and their Member States and the Russian Federation mentions various 
aspects regarding possible cooperation in the area of communication, informatics and information 
infrastructure. The Commission and the Presidential Committee of the Russian Federation for 
Informatisation Policy will start a dialogue to exchange their views on the development of the 
global information society. 
A substantial effort is to be put on co-operative research and development, to share advances 
and expertise, to promote the interoperability of networks, services, systems and applications, to 
preserve the research excellency and human resources in Central/Eastern Europe, and to help 
creating small knowledge-intensive companies and revitalising larger enterprises. Several joint 
projects have already been undertaken under E.U. programmes such as COPERNICUS. More 
will certainly be initiated under the Fourth Framework Programme, since its specific programmes 
"Information Technologies", "Telematics applications of common interest", "Technologies for 
Advanced Communications Services" and "International Cooperation" are now open to the 
participation of Central/Eastern European organisations. Because of the strong reduction of funds 
available to Central/Eastern European countries under the 4th Framework Programme and 
because some expensive Information Society-related activities are not research-oriented, 
mobilisation of other Commission programmes and funds for this area should be considered. 
Selective survey of EU assistance and RDT cooperation 
Under the Europe Agreements, special working groups on approximation of laws have 
been established and are addressing, on a regular basis, priority areas. The PHARE 
general technical assistance facility also provides support to approximation of laws, 
notably for the regulatory framework for investment. Other specific programmes cover 
areas of importance to business development, such as customs and statistics. 
Adequate and effective protection of intellectual property is essential to encourage 
R&D and to stimulate foreign direct investment. In order to facilitate the compliance with 
the provisions of the Europe Agreements (legal obligation undertaken by the 
Central/Eastern European states to provide in five years time a level of protection 
similar to that in the Union), two specific regional programmes were set up in the 
framework of PHARE. RIPP (Regional Industrial Property Programme) started in 1993 
and will continue until the end of 1996. It concerns especially patents, marks and 
industrial designs. The second programme called "Intellectual Property" started in 1994 
and concerns copyright and neighbouring rights. 
Quality management covers certification and normalisation, which are of high 
importance for industrial development: Examples are pharmaceuticals (e.g. registration, 
recognition of testing), aerospace and motor vehicles (harmonisation of technical 
legislation to Western standards). 
The European standardisation bodies (CEN, CENELEC, ETSI) have granted the status 
of affiliated member or corresponding member to the national standardisation bodies in 
certain Central/Eastern European countries, without obliging them, when they adopt 
European standards, to withdraw their divergent national norms. 
The Union has developed assistance programmes under PHARE (programme of 
assistance for quality assurance) to help to adapt quality infrastructures to the new 
market environment, in the areas of approximation of legislation and of standardisation. 
Certain partner countries continue to adopt rules or standards which are not compatible 
with EU standards/regulations, which then lead to new trade obstacles. Ad-hoc groups 
on certification are being created, under the Europe Agreements, to help the 
Central/Eastern European authorities to align their certification system with the Union's 
and to avoid in future the creation of new trade barriers. 
PHARE provides comprehensive assistance for privatisation and enterprise 
restructuring (250 million ECU 1990-93). In the first phase of transition, characterised 
by macro-economic stabilisation and the establishment of a legal, regulatory and 
institutional framework, assistance concentrated on support to emerging (mainly public) 
institutions and on traditional instruments such as studies, training and provision of 
expertise. Major privatisation and restructuring programmes have been funded in almost 
all the countries, adapted to the governments actions and country needs. Support has 
been given horizontally (to privatisation ministries/agencies), to sectors and to individual 
companies being privatised. 
In addition to these actions, projects with strong cooperation components have been 
undertaken in a number, of industry sectors, such as steel (see separate text in this 
VI 
annex). Furthermore, some support has already been provided to facilitate the 
conversion of military companies into civilian production. 
In terms of the provision of information on possibilities for developing business links, 
the Commission will have completed the extension of correspondence centres for the 
Euro-Info centre network to the Central/Eastern European countries by the end of 1995. 
This network can act as the first point of contact for a EU firm interested in 
Central/Eastern Europe and for firms from this region wishing to internationalise towards 
the Union by direct exchange between members of the network without the need to 
pass through Brussels. 
The Commission is also in the process of extending its networks for industrial 
cooperation to Central/Eastern Europe. The non confidential Bureau de Rapprochement 
des Entreprises (BRE) has already been implemented in most of Central/Eastern 
Europe, whereas the more elaborate and fee-paying BC-Net has been extended to five 
countries. Experience with those countries where BRE is already operational shows that 
this non-confidential partner search network is well suited to many Central/Eastern 
European countries. Firms from Central/Eastern Europe also participate in the various 
partnering events organised by the Commission. These include the big 
EUROPARTENARIAT events held on a regional basis twice a year and smaller scale 
INTERPRISE events which bring together three or more regions usually on a sectoral 
basis. 
Regional cooperation is encouraged by PHARE-CBC (cross-border cooperation), by 
actions undertaken along the Union's external borders under INTERREG, as well as by 
PHARE-INTERREG and by the OUVERTURE/ECOS programme which aim at 
interregional cooperation between the Union and Central/Eastern European countries. 
Regarding investment promotion, PHARE has supported the establishment of 
investment promotion agencies in Central/Eastern Europe. Furthermore, financial 
assistance has been provided through JOPP (JOint ventures Phare Programme), which 
supports the creation of joint ventures among EU and Central/Eastern European (mostly 
small and medium-size) companies, from the feasibility to the operational stages. 
Considerable PHARE funds have been used to set up financial schemes (including 
regional investment companies, credit lines, guarantee funds and privatisation funds) 
and to co-financing with the EBRD. 
in view of regional trade promotion, the Commission has already taken measures to 
assist the creation of a private payment and settlement system in these countries. In 
April 1994 a new clearing and settlement system for payments in hard currencies 
among Central/Eastern European commercial banks (ABC ECU-linked Clearing and 
Settlement System) became operative in its first stage. 
Environmental degradation in many Central/Eastern European regions is severe. The 
Europe Agreements acknowledge the need for environmental cooperation. In the 
framework of PHARE, environmental programms were launched and an "Environmental 
sector strategy for Central/Eastern Europe" (adopted in 1991) identified the transfer of 
information and technology as one of the policy objectives and ' priorities. Moreover, 
50 
Vf? 
"Environment and Industry" is on the agenda of the Sofia iViinisterial Conference in 
October 1995, part of the "Environment for Europe" process. 
Through the Europe Agreements and PHARE, exchanges of views take place related to 
issues of environmental protection. 
Support to training activities is being provided under PHARE and other programmes. 
Apart from assistance to the education systems of beneficiary countries, many 
horizontal and sectoral privatisation/restructuring projects contain training elements: 
The "Industrial Training Attachments Programme" sets an example for cooperative 
training schemes: It supports professional traineeships for Central/Eastern European 
managers in EU companies, to provide insight into production and working methods of 
companies in a market economy environment. The TEMPUS programme (cooperation 
in higher education) provides support to Central/Eastern European universities to 
strenghten their links with enterprises, to develop degrees and courses which are in 
tune with the needs of industry and to increase their capacities to provide continuing 
education. The opening-up of the LEONARDO and SOCRATES programmes to the 
associated Central/Eastern European countries provides significant new opportunities to 
pursue constructive cooperation in these areas between them and the Union. 
Scientific and technological cooperation with Central/Eastern Europe mainly intends: 
• to help safeguarding the scientific and technological potential of these countries in 
order to redirect research towards social needs, restore their production system and 
improve the quality of life 
• to help solving major social, economic and environment problems specific to 
Central/Eastern European countries by means of targeted technical, scientific and 
socio-economic RDT. 
The earlier PECO and COPERNICUS schemes already aimed at industrial cooperation 
with Central/Eastern Europe in certain areas. The approach has now been integrated 
into the 4th Framework Programme (1994-98), which includes a new international 
cooperation programme. 43% of the budget of this international cooperation programme 
are devoted to finance cooperation projects with Central/Eastern Europe (and the Newly 
Independent States of the Former Soviet Union), representing less than 2% of the 4th 
Framework Programmes overall budget. 
Within the international cooperation programme, a substantial effort is put on applied 
research directed towards industry, particularly in the fields of information technologies, 
advanced communications and telematics, materials technology, biotechnology. The 
budget for this programme is significantly lower than the corresponding one under the 
previous schemes. Indeed, partners from all European countries may now participate in 
all programmes of the 4th Framework Programme, but the fact that only limited financial 
support by the European Union is available, constrains the potential of this cooperation 
policy. 
Action has been started to promote direct contact between EU and Central/Eastern 
European industries, for example through Round-Table discussions. A first Round-
Table has been held in Riga in May 1994. The conference gathered high-ranking 
representatives of EU companies and their Baltic counterparts in four sectors 
(telecommunication, food processing, wood/paper, maritime industry), high level 
vin 
representatives of the Commission and the governments of the three Baltic states, to 
discuss the conditions for foreign direct investment and industrial cooperation. Potential 
cooperation opportunities have been identified, and an appropriate follow-up agenda 
has been agreed. The occasion has also been used to start the Baltic Information 
Infrastructure Pilot Project, designed to close some of the bottlenecks in the current 
information infrastructure and to help to develop some business information services. 
The setting-up and the development of industry associations, chambers of commerce, 
SME business centers and similar institutions in Central/Eastern Europe has been a 
significant area of support under the relevant PHARE programmes. 
Z> 2 
COMMUNICATION FROM THE COMMISSION REGARDING INDUSTRIAL CO-OPERATION 
WITH THE CENTRAL/EASTERN EUROPEAN COUNTRIES 
FINANCIAL SHEET 
1. ACTION 
Industrial Co-operation with Central/Eastern European countries 
2. RELEVANT BUDGET LINE 
See point 7. (below) 
3. LEGAL BASIS 
- Treaty establishing the European Coal and Steel Community and its 
transposition in the protocol no. 2 of the association agreements with the 
Central/Eastern European countries 
- Treaty establishing a European Community and in particular its articles 3 and 
130, heading XIII (Industry), XV (Technological Research and Development -
130 F and ss) and XII (Trans-European Networks - 129 C) 
4. DESCRIPTION OF THE ACTION 
4.1. General objective of the action 
To develop in the frame of the pre-accession strategy, the industrial co­
operation between companies in the European Union and the 
Central/Eastern European countries with the aim of facilitating integration 
of these countries in the internal market, and for this purpose to: 
- improve the framework conditions for the industrial 
development of the Central/Eastern European countries; 
- encourage the restructuring and modernisation of the industry; 
- promote investments 
4.2. Period covered by the action and the procedures set for its renewal 
The actions proposed in the Communication are for the most part, in 
the frame of continuously pursued activities. 
V> 
5. CLASSIFICATION OF THE EXPENDITURE 
NOE;DA 
6. EXPENDITURE TYPE 
Expenditure mainly consists of: 
funding of actions aiming to facilitate partnerships with the different 
parties involved (co-ordination with the ministries of Industry, developing 
support services to industries in Central/Eastern European countries) 
funding of the operational actions aiming to gather the data needed for a 
thorough knowledge of the enterprises and the industrial sectors (punctual 
analysis leading to a concrete industrial co-operation action -
e.g. trade fair) 
funding of meetings between industrialists or between professional 
associations from both regions (industrial Round-Tables, sectorial 
information days...) 
financial contributions to the scientific and technological co-operation 
activities 
7. FINANCIAL INCIDENCE 
7.1. Launching of concrete industrial co-operation actions (B5-4110 
"Industry") 
Previsions for 1996 
Action : Ecus 
a) Information seminars, for example on the activities of the Agencies for the 
promotion of investments of the Central/Eastern European countries for support 
services of the EU industry 150.000 
(following Essen) 
b) Round tables/meetings at the time of trade fairs between EU 
industrialists and those of Central/Eastern European countries: 
multi-sectorial or uni-sectorial actions 350.000 
TOTAL 500.000 
- 2 -
These conciele industrial co-operation actions wil be developed in close relations or 
even as parineEships with the action funded in the framework of other financial resources 
and in particular of the PHARE programme (budget line B7-6000), the sectors covered 
by the 4th research and development framework programme (B6) and of the activities in 
the field of tfee Information Society (B5-722). 
7.2. PHARE (line B7-600) 
The general budget of the European Union forecast for the year 1995 the 
global amount of 930 MECU on the line B7-600. The comments on the 
budget allow for the development of industrial co-operation actions such 
as those suggested in the Communication and especially in the 
following fields: 
• Restructuring, privatisation; 
• support to the private sector, especially for small and medium size 
enterprises (e.g. JOPP); 
• promotion of private investments; 
• reforms linked to the rehabilitation of the fundamental infrastructure and 
especially in the sectors related to transport, environment, energy and 
human resources; 
• education, training and research, especially for the actions linked to 
industrial development. 
7.3 Activities within the 4th Framework Programme on 
research and technological development (B6-) 
Research and development activities closely related to industrial 
co-operation actions will be launched throughout specific programmes, 
implementing the 4th framework programme, open to Central/Eastern 
European countries. Activity 2 of the 4th framework programme 
concerning the international co-operation directly, forecasts a global 
amount of 208.98 MECU for the co-operation with the CEECs/NIS, that is 
14.64 MECU in 1995 and 59.25 MECU for 1996. The three important 
fields and objectives forecast in this region are "stabilisation of the 
research and technological development potential" (50 MECU), 
"environment and health" (79.49 MECU) and "RTD oriented towards 
industry" (79.49 MECU). The industrial co-operation actions suggested 
by the Communication envisage the development of close links between 
the researchers networks and industry which could certainly be part 
of the field "RTD towards industry". 
-3-
V~ 
7.4. Activities relating to the development of the Information Society (B5-
722) 
The global amount for this budget line is 10 MECU for 1995. Concrete 
projects linked to the development of the Information Society are forecast 
by the Communication in the following fields: 
- development of data exchange networks between administrations 
- telematic services for the small and medium enterprises 
- development of information and communication infrastructure 
concerning standardisation, protection of intellectual property rights etc. 
8. ANTI FRAUD PROCEDURES (AND RESULTS OF THEIR USE) 
The verification of the funding or of the reception of services and ordered 
preparatory, feasibility or evaluation studies is undertaken by the Commission 
services before payment, taking into account the contractual obligations and the 
economical and good financial or global management principles. The anti-fraud 
procedures (control, preparing reports, etc.) are included in all the agreements or 
contracts signed between the Commission and the payments beneficiaries. 
9. Cost efficiency analysis elements 
9.1. Specific quantifiable objectives, target groups . 
a) Specific objectives 
- Develop support services to the Central/Eastern European countries industry 
(professional associations, chambers of commerce...) 
- Promote investments (organisation of meetings, forums, sectorial round tables, 
information days with the Central/Eastern European agencies for investment 
promotion aiming at support services for the EU industry) 
- Improve exchange of expertise regarding the industrial implication of the 
technological research development actions (information seminars, use of the 
researchers networks) 
- take useful initiatives to promote the co-ordination between administrations 
responsible for industry (especially meeting with directors general of 
industry). 
b) Target groups 
-4 
V 
Industrial operators, professional associations, competent public 
administrations, international partners of the Community in the industrial 
field 
9.2. Justification of the action 
a) Cost 
The requested credit will be used to undertake in close collaboration with 
DGI/PMARE the Essen summit conclusions that forecast among others: 
- The establishment between the associated countries and the European Union 
institutions of "structured relations" that will favour mutual trust and that will 
provide a framework for the study of questions of common interest; 
- a programme to stimulate investments (use of the services of the agencies for the 
promotion of investment, the creation of a "Business Advisory Council") 
- the development of initiatives such as the modernisation of production 
capacities. 
The Member States will be informed of the actions launched either through the 
PHARE management committees or at meetings of directors general of industry. 
b) The following effects can be expected from the launching of such co-operation: 
- contribution to the development of a viable industrial structure in view of the 
accession of the Central/Eastern countries to the European Union 
- better synergy between industrial partners 
- development of competitiveness and investment, 
9.3. Follow-up and evaluation of the action 
A regular evaluation is foreseen according to the proper modalities of each 
concrete industrial co-operation project. Furthermore, the Commission has agreed 
to transmit to the Council an annual report on the competitiveness of the 
European industry; the industrial co-operation with Central/Eastern Europe will 
be one element of this report. 
-5-
TT 
ISSN 0254-1475 
COM(95) 71 final 
DOCUMENTS 
EN U 10 
Catalogue number : CB-CO-95-102-EN-C 
ISBN 92-77-86858-9 
Office for Official Publications of the European Communities 
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