country

I. Executive Summary

The Country Commercial Guide (CCG) presents a comprehensive look at Poland's commercial environment using economic, political, and market analysis. The CCGs were established by recommendation of the Trade Promotion Coordinating Committee (TPCC), a multi‑agency task force, to consolidate various reporting documents prepared for the U.S. business community. Country Commercial Guides are prepared annually at American Embassies through the combined efforts of several U.S. government agencies.

The Polish economy again recorded tremendous growth in gross domestic product (GDP) in 1997 at 6.9% percent, with over six percent growth predicted for 1998 and 1999. Other economic indicators continue to improve. The unemployment rate edged down from 13.2% at the end of 1996 to 10.5% at the end of 1997. The annual rate of inflation in consumer prices declined to 13.2% in 1997, down from 18.5% in 1996. The annual rate of inflation for 1998 is predicted to be between 9.5 and 10.5%. The Polish monetary and fiscal authorities have announced an 8.1% inflation target for 1999. However, some budgetary concerns remain. Poland’s current account deficit is widening; it was 1.0% of GDP in 1996, 3.2% in 1997, and is now around 5.0% according to a May 1998 forecast for the year. The Finance Ministry has set a goal of balancing the budget (excluding privatization revenues) by the year 2003; currently, that deficit runs at over 3.0% of GDP.

Poland has become the leader in Central Europe in attracting foreign investors, with Hungary falling to the second position and the Czech Republic maintaining its third place. In 1997, foreign and domestic investment, credit expansion, and wage increases constituted the engines of growth. The United States continues to lead with 22.5% of major foreign investments (totaling USD one million or more) in Poland in 1997. These investments reached USD 3,981.8 million in 1997, up from USD 2,965.6 million in 1996. U.S. exports to Poland in 1997 increased to USD 1.17 billion, up from USD 968 million in 1996. The manufacturing sector grew by almost 10% in 1997, and the construction industry has seen a boom with a 25% increase in production at the end of the first quarter of 1998 compared with the previous year. As of the first quarter of 1998 compared with the same quarter in 1997, the manufacture of televisions, radios, and communication equipment rose the highest (52%), followed by the manufacture of motor vehicles, trailers, and semi-trailers (49%), metal products (35%), business machines and computers (31%), and furniture (27%). According to a 1998 OECD report, the service sector in 1997 expanded less rapidly (4.4%) than the economy (6.9%) reflecting very uneven performance. Hotels and restaurants, financial services, and trade showed the most rapid increases among services in 1997, while health care and education trailed.

Poland's last parliamentary elections were in September 1997 when two parties with roots in the Solidarity movement, Solidarity Electoral Action (AWS) and the Freedom Union (UW), won 261 of the 460 seats in the Sejm and formed a coalition government. The platform of the AWS and UW supports privatization and welcomes foreign investment. Although all of Poland’s major political parties at one time or another have exhibited some reservations about allowing foreigners to acquire dominant positions in strategic firms and industries being privatized, the current government intends to allow foreign investors to compete for controlling interests in all or most of those strategic firms that are to be privatized.

Provincial and local government can play an important role in facilitating or hindering trade and investment in Poland. A key plank in the government’s ambitious reform program is the decentralization of public administration and finance. This reform will reduce the number of provinces from 49 to 16 and create local government bodies at the county and province level beginning January 1, 1999.

Opportunities for trade and investment continue to exist across virtually all sectors in Poland. The American Chamber of Commerce in Poland, founded in 1991 with seven members, now has more than 300 members in virtually every industry category and chapters in Poznan and Krakow. The prospect for real economic growth, the size of the Polish market, and political stability are the top reasons U.S. and other foreign companies do business in Poland. Most believe that Poland is the best market in Central and Eastern Europe for their products and investments and have continued to invest.

Although the private sector produces more than 70% of GDP, several key industries (energy, transportation, chemical, telecommunications, and steel) are still in government hands. Privatization plans for 1998 will include completing or at least beginning: the state-owned telephone company (TPSA), the largest banking group PEKAO SA Group, the national airline LOT, the oil and gas company NAFTA Polska, iron and steel works, the spirits sector, pharmaceuticals and a series of power generation plants. The Government also has a 52.1% stake in the copper holding company KGHM Miedz and plans to sell shares to a few institutional investors. In May 1998, the Government of Poland approved a new program for privatization of Polish refineries, calling for the merger of the largest Polish refinery Petrochemia Plock with the fuel distributing and retailing company CPN to create a national oil entity. The second largest refinery, Gdansk Refinery, will be privatized by the end of 1998. In 1999, Polish Oil & Gas Company, the insurance sector, and sugar plants are scheduled to be privatized.

The current Government of Poland has often expressed the view that foreign investment plays an important role in the development and modernization of the Polish economy and has shown the desire to cooperate with foreign and U.S. investors. These goodwill gestures, however, do not translate into specific policies designed to attract foreign investment. Foreign investment is occasionally criticized, mostly for political purposes. Successful U.S. companies have emphasized their contributions to the Polish economy. U.S. imports in many categories face significantly higher customs duties than their competitors from the European Union (EU). The most recent revision of the customs tariffs took place on January 1, 1998, adjusting Poland’s foreign trade regulations to meet World Trade Organization and EU standards.

Inconsistent public administration, e.g., tax administration and customs administration, continues to be the chief complaint of American investors. U.S. companies frequently cited inconsistent and nontransparent regulation and administration of all kinds of laws, including product standards and real estate permit processing, as barriers to business in Poland. Overall, there is a concern about a lack of consistency in all areas of business policy, administration, and legislation. Furthermore, getting the required rulings, decisions, or determinations necessary to do business in Poland from Government officials is often very difficult. Tenders and other bid procedures, particularly those performed in the private sector, often lack the transparency or clarity to which U.S. companies are accustomed. Tax rates are relatively high and considered burdensome by foreign investors. Piracy is a concern for audio and video recording and software manufacturers. Another disturbing trend is that Polish government and State owned enterprises have on several occasions contravened the spirit, if not the letter, of informal understandings or letters of intent with foreign investors.

U.S. companies doing business in Poland face strong European competition. Asian investment also, most notably Korean, is increasing. Poland's domestic industry continues to develop, and sectors that have already privatized are becoming more productive and competitive. The non‑durable consumer goods (or “white goods”) market is probably the most difficult to penetrate.

In 1994 the U.S. Government designated Poland as one of the top ten “Big Emerging Markets” (BEM) in the world for U.S. exports, with the likes of China, Brazil, Mexico, and Turkey (the only other European country selected). Poland, along with the other top ten countries, was predicted to double its share of world GDP by the end of the decade.

Country Commercial Guides are available for U.S. exporters from the National Trade Data Bank's CD-ROM or via the internet. Please contact STAT‑USA at 1‑800‑STAT‑USA for more information. Country Commercial Guides can be accessed via the World Wide Web at http://www.stat‑usa.gov and http://www.state.gov/. They can also be ordered in hard copy or on diskette from the National Technical Information Service (NTIS) at 1-800-553‑NTIS.

The CCG is prepared by the U.S. & Foreign Commercial Service, U.S. Embassy Warsaw. It is intended to provide general information on economic and political trends and guidelines for doing business in Poland. Trade regulations and legislation in Poland are subject to frequent change. Before making any decisions based on this information, specific agencies and organizations provided in the guide should be contacted.

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<NREC>Poland02 Poland: Economic Trends and Outlook <A>=Poland

II. Economic Trends and Outlook

A. Major Trends and Outlook

Poland has dramatically transformed its economy since the collapse of communism in 1989. From the ashes of a centrally planned economy, a vibrant free-market based economy has emerged. Overall, a dynamic and growing private sector now dominates the economy, though in certain sectors (e.g., heavy industry, utilities and financial sector) state-owned enterprises still play a decisive role. Both the unemployment rate and the inflation rate have been steadily declining from very high levels at the start of the transition.

A new two-party coalition with roots in the Solidarity movement of the 1980’s came to power after the fall 1997 parliamentary elections. Both the senior coalition partner, Solidarity Electoral Action (AWS), and the junior partner, the Freedom Union (UW), support free market economic principles, and they advocate acceleration of economic reforms and privatization. Since 1989, all of Poland's various governments (from across the political spectrum) have pursued economic reforms and generally sound fiscal and debt policies. Poland continues to liberalize its trade, foreign exchange, and investment policies in accordance with its international obligations to the World Trade Organization (WTO), the European Union (EU) (as contained in its Europe Agreement), the Organization for Economic Cooperation and Development (OECD), and its neighbors pursuant to numerous trade and economic relations agreements.

Since 1994, Poland has been among the fastest growing countries in Europe. Its gross domestic product (GDP) increased by 6.9 percent in 1997, and the government forecasts GDP growth of over six percent for 1998 and 1999. In dollar terms, Poland’s GDP in 1997 equaled USD 135 billion, or USD 3,500 per capita. The Governmental Center for Strategic Studies (RCSS) estimates that GDP per capita based on purchasing power parity was nearly USD 7,600 in 1997. The private sector accounts for an estimated 70% of GDP (including a large gray market), and almost 70% of the labor force. The official unemployment rate edged down from 13.2% at the end of 1996 to 10.5% at the end of 1997. The rate of inflation in consumer prices (on a December-to-December basis) declined to 13.2% in 1997 from 18.5% in 1996. As of June 1998, the government states it still may reach its 9.5 percent December-to-December inflation target for 1998; other economists predict a rate of around 10.5%. The Polish monetary and fiscal authorities have announced an 8.1% December-to-December inflation target for 1999.

Financial crises in the emerging markets (Asia, Russia, etc.) have buffeted the Polish financial market. However, the Warsaw Stock Exchange (WSE) and the value of the Polish zloty typically have fallen less and regained strength faster than those in most other emerging markets; in the first six months of 1998, the Polish zloty appreciated by about eight percent in real terms against the U.S. dollar. Edginess in financial markets has increased the attention paid by monetary and fiscal authorities, as well as investors and analysts, to Poland’s widening current account deficit (3.2% of GDP in 1997). Growth in foreign direct investment, credits for businesses and households, and real wages have fueled higher domestic demand and rapid growth in imports. The National Bank of Poland (NBP) has sought to cool domestic demand by keeping the real interest rates high (over 10%). The NBP’s restrictive monetary policy, however, has the negative side effect of attracting short-term foreign capital, which causes the Polish zloty to appreciate and also increases Poland’s vulnerability in case of shocks in the financial market. Fortunately, the level of official reserves far exceeds total short-term foreign investment in Poland. The government intends to tighten fiscal policies significantly, which should allow the monetary authorities to lower real interest rates; this process, however, will take place over several years.

In early 1998, Poland formally initiated accession negotiations with the EU, which should lead to membership sometime after 2002. Poland seeks to raise its average living standard closer to the EU average. In 1997, Poland’s GDP per capita on a purchasing power parity basis amounted to less than a third of the EU average. It will take decades to close that gap. How Poland deals with several major economic challenges will have a great impact on its rate of convergence with the EU's average living standards, as well as the pace of the EU accession process. The existing pay-as-you-go (PAYG) pension system requires massive budget transfers to stay afloat. The government seeks to enact and implement a new mixed PAYG and defined contribution system by the start of 1999. It also intends this year to implement health care reform and decentralization of political and economic power to regional and local governments. Moreover, the government plans to privatize 70% of its remaining assets, including the telephone company, financial institutions, and power sector, by the year 2001. Agriculture reform is needed: Poland’s agricultural sector only produces about six percent of GDP, yet more than a quarter of Poles lives in rural areas. While the government recognizes this problem, there has been little agreement on what to do. Finally, Poland clearly needs to improve its transportation infrastructure to cope with the rapidly growing demands from commercial and personal users.

B. Principal Growth Sectors

Growth was broad-based in 1997. There were some major exceptions, namely, the agriculture, energy, and utility sectors, which had no or negligible growth in 1997, and the mining sector, where production declined by 20%. In 1997, foreign and domestic investment, credit expansion, and wage increases constituted the engines of growth. Polish exports have begun to rise and for the first quarter of 1998 increased faster than imports, due in part to the real depreciation of the Polish zloty against the U.S. dollar in 1997. On the supply side, the manufacturing sector grew by almost 10% in 1997, and the construction industry has seen a boom with a 25% increase in production at the end of the first quarter of 1998 compared with the previous year. As of the first quarter of 1998 compared with the same quarter in 1997, the manufacture of televisions, radios, and communication equipment rose the highest (52%), followed by the manufacture of motor vehicles, trailers and semi-trailers (49%), metal products (35%), business machines and computers (31%), and furniture (27%). A fall 1996 OECD report showed that the services sector had soared to 53% of output in 1995, from 35% in 1989. According to a 1998 OECD report, the service sector in 1997 expanded less rapidly (4.4%) than the economy (6.9%) reflecting very uneven performance across types of services. Hotels and restaurants, financial services, and trade showed the most rapid increases among the types of services in 1997, while health care and education trailed behind.

C. Government Role in the Economy

The progress of Polish economic recovery has occurred in large part due to the sound monetary and fiscal policies maintained by a succession of governments since 1989. In 1997, the central government budget deficit was 1.3% of GDP (including privatization revenues of 1.4% of GDP). The government seeks a 1998 budget deficit for 1998 in at below the target of 1.5% of GDP (including privatization revenues of 1.4% of GDP). For next year, the Government plans simultaneously to reduce the budget deficit and implement expensive, but necessary, economic reforms (namely, pension reform, health care reform, decentralization of public finances to regional and local governments, and restructuring programs for the troubled coal mining sector). The Finance Ministry has set a goal of balancing the consolidated government budget (excluding privatization revenues) by the year 2003; currently, that deficit runs at over 3.0% of GDP. Central government expenditures in 1997 equaled 32 percent of GDP.

Taxes in Poland are relatively high: VAT rates are zero, seven, and 22%; the corporate income tax is 38%; personal income tax brackets are 20, 32, and 44%. Social program contributions for pensions, disability and unemployment benefits, and health care amount to 48% of net wages in aggregate. The employer pays these contributions, though starting in 1999 the employee is supposed to begin paying a portion. In 1998, the government plans to finance the budget deficit principally from domestic borrowing. The constitution prohibits the government from borrowing from the NBP.

After 1989, Poland quickly privatized almost all small enterprises and most medium-size state-owned enterprises. It has moved much more slowly in privatizing the large state-owned enterprises and those in so-called strategic sectors, such as the telephone company, the national airline, financial institutions, coal mines, steel companies, and utilities. The government plans to privatize 70% of the remaining firms by 2001. In 1998, it intends to begin the privatization of the largest banking group (PEKAO SA Group), the telephone company (TPSA), and the national airline (LOT).

D. Balance of Payments Situation

Since 1995, Poland has run a steadily rising current account deficit (1.0% of GDP in 1996, 3.2% in 1997, and around 5.0%, according to RCSS’s May forecast for 1998). Foreign direct investment (FDI) inflows cover most of the current account deficit. Poland has attracted over USD 20 billion of FDI since 1990, according to the Polish Agency for Foreign Investment (PAIZ). In the first quarter of 1998, Poland ran a current account deficit of USD 2.0 billion, of which FDI alone covered USD 1.7 billion. Large capital surpluses due to FDI and portfolio inflows have caused net official reserves to pile up this year, from USD 21.2 billion at the end of 1997 to USD 24.7 billion at the end of the first quarter of 1998. For now, the estimated USD 7 billion of short-term or portfolio investment finance only a small —- though growing —- portion of the current account deficit, and pale in comparison to the more than three times larger level of net foreign reserves.

The current account deficit derives from Poland’s trade deficit: USD 11.2 billion in 1997 and USD 3.2 billion through the first quarter of 1998. Exports rose 11.6% in 1997, but imports climbed by 19.7%. While RCSS predicts that the trade deficit for 1998 will widen to USD 13.4 billion, it also expects the trends to improve, with import growth weakening to 16% and export growth increasing to 15%. For the first quarter of 1998, exports actually increased at a faster rate than imports (24% versus 17%). The government points out that the high level of imports is in itself not necessarily bad because about 80% of the imports are for capital goods or intermediate inputs, rather than for consumer goods.

Poland greatly benefits from the 1991 Paris Club and the 1994 London Club debt-rescheduling agreements, which roughly cut in half Poland's foreign debt. In 1995, Poland paid back all IMF drawings.

E. Infrastructure Situation: Distribution

Communications, banking, insurance, accounting, and distribution systems are still developing in Poland. Companies establishing branch offices find office space and housing in short supply and very expensive -- class A office space rents are similar to those in Geneva. Foreign companies can acquire small parcels of land without obtaining government permission, but the government has moved slowly in granting permits to acquire large parcels and some companies have complained there still are unnecessary delays in acquiring small parcels. There is a shortage of personnel with training and experience in some fields, particularly in finance, marketing, and human resources. Well-trained engineers, technical specialists, and skilled labor are abundantly available, however.

After the privatization of two large banks in 1997, the private sector finally controls a majority of the banking sector's equity and assets and about 40% of deposits. Banks are well regulated by the NBP. They now set their own lending and deposit rates. Interest rates are relatively high (over 20%) and of short duration (no fixed rates over seven years) due to the high inflation rate and NBP efforts to dampen demand for credit.

The road system is inadequate for the increasing number of cars and trucks. The number of cars in Poland exceeded twelve million in 1997, more than double the number in 1990. There is especially a lack of adequate (four‑lane) highways between major cities capable of carrying the increased volume of trucks necessary to the growth of Poland's distribution systems. An extensive road network upgrade is planned over the next 10-15 years, but much of this is not even in the design phase. Rural road travel is particularly difficult and very dangerous at night. Poland's air and seaports are structurally adequate for receiving and shipping cargo. However, all are in need of expansion and modernization to facilitate the growth of Poland's economy. Airport cargo modernization is underway. A restructuring of the rail system is under examination. The existing rail network in Poland is relatively extensive.

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<NREC>Poland03 Poland: Political Environment <A>=Poland

III. Political Environment

A. Nature of Political Relationship with the United States

The United States and Poland have enjoyed warm bilateral relations since 1989 despite Poland's often tempestuous domestic political scene and a rapid succession of ideologically diverse governments. Every post‑1989 Polish government has been a strong supporter of a continued American military and economic presence in Europe, and has identified membership in NATO, the European Union, and other western security and economic structures as Poland's principal foreign policy priorities. The OECD invited Poland to become a member in July 1996. Poland has done a superb job as the formal protector of American interests in Iraq since the Gulf War and cooperates closely with American diplomacy on such issues as nuclear non-proliferation, human rights, regional cooperation in Central and Eastern Europe, and reform of the United Nations. Poland was invited to join NATO at the July 1997 NATO Summit in Madrid. Pending ratification in each NATO member state, Poland is expected to become a full member of NATO in April 1999.

Poland has been the largest recipient of U.S. assistance to Central and Eastern Europe, with more than USD 4 billion committed since 1989 to such areas as debt reduction, privatization, financial stabilization, financial institution building, entrepreneurial training, support for a free press and other democratic institutions, and efforts to improve Poland's environment. One of the Peace Corps' largest programs in the world is in Poland.

A graphic illustration of Poland's close cooperation with the United States has been the large number of high level visits exchanged between the two countries in recent years. In 1996, President Aleksander Kwasniewski visited the United States. In 1998, Prime Minister Jerzy Buzek visited Washington, as did Foreign Minister Bronislaw Geremek. High‑ranking U.S. visitors to Poland since 1997 include President Bill Clinton, Secretary of State Madeline Albright, Secretary of Defense William Cohen, and several Senators and Representatives.

Issues in the bilateral relationship are generally limited to economic matters. The most potentially significant is the widening differential between tariffs on products originating in the EU and those of non-EU origin (including U.S.). This differential results from the gradual reduction of Poland’s tariffs on EU products under its Association Agreement with the EU and the unchanging level of MFN tariffs. Most clearly affected thus far are automobiles and electrical generating equipment, which face tariff differentials that U.S. companies fear will price them out of the market. Another issue of considerable significance is the imposition by Poland of a 50 percent European content quota for television broadcasters, which Polish television regulators assert is necessary to meet requirements for EU accession. Poland also has delayed enacting 50-year IPR protection for preexisting sound recordings starting with recordings made in 1946, a commitment they made in TRIPS. In addition, Poland has in some cases applied phytosanitary standards to agricultural products in ways that effectively result in the creation of non-tariff trade barriers. In past years Poland seemed to apply product certification procedures with much the same result, but U.S. firms have complained less about this problem recently.

One domestic political problem that has occasionally spilled into the bilateral relationship has been the poor condition of Poland's defense industry following the loss of its markets at the end of the Cold War. Although a few Polish defense companies are already working with western partners and many others view linkage to U.S. or European defense manufacturers as essential to their survival, regulatory impediments are delaying broader cooperation. The Government of Poland is preparing a framework policy for the defense industry (to be unveiled summer 1998), which will envision privatizing some firms and closing others. Once in place, this policy, coupled with the need to modernize the Polish military as part of NATO membership, may help save a select few Polish manufacturers.

B. Major Political Issues Affecting Business Climate

Leaders of Poland's major political parties have repeatedly expressed strong public support for foreign and specifically U.S. investment. Substantial foreign direct investment is considered essential to Poland’s achieving its overarching goal of raising the standard of living to the levels of Western Europe. Factions in the current governing coalition’s senior partner, Solidarity Electoral Action (AWS), and several opposition parties, most notably the Polish Peasant Party (PSL) and the Movement for the Reconstruction of Poland (ROP), oppose the sale of land to foreigners, especially Germans. Although all of Poland’s major political parties at one time or another have exhibited some reservations about allowing foreigners to acquire dominant positions in strategic firms and industries being privatized, the current government intends to allow foreign investors to compete for controlling interests in all or most of those strategic firms that are to be privatized. This general consensus on foreign investment does not carry over to trade, however. Political parties’ support for reducing tariff and non-tariff trade barriers varies from the avowedly open-market stance of the Freedom Union (UW, the governing coalition’s junior partner) to the generally protectionist position of PSL; though, overall, Poland has been lowering trade barriers in accordance with its international obligations to WTO. While all major political parties are in favor of Poland joining the EU (which means Poland will have to adjust its laws and regulations to comport with the EU’s acquis communautaire), they differ in their level of enthusiasm.

Trade unions are also an element for foreign business to consider. The Polish trade union movement, the engine of communism's collapse in the 1980's, has occasionally been problematic for foreign investors, particularly when managers of newly privatized state enterprises have instituted management changes. Resistance, however, has also come from often‑bloated middle management. In recent years, strike activity has fallen off considerably and not threatened or noticeably compromised Poland's industrial infrastructure. Given the huge growth and magnitude of U.S. investment, few American investors have encountered severe difficulties with Polish Unions.

C. Brief Synopsis of the Political System, Schedule for

Elections and Orientation of Major Political Parties

Poland is a parliamentary democracy. A new constitution adopted in 1997 enhances several key elements of democracy including strengthened judicial review and a smoother legislative process, while continuing to guarantee the wide range of civil rights, such as the right to free speech, press, and assembly, which Poles have enjoyed since 1989.

Poland has a bicameral parliament, comprised of a lower house (Sejm) and upper house (Senate). Within the legislative branch of the government, the Sejm has most of the power; the Senate may only suggest amendments to legislation passed by the Sejm or delay it. Both bodies are democratically elected. Poland's last parliamentary elections were in September 1997 when two parties with roots in the Solidarity movement, Solidarity Electoral Action (AWS) and the Freedom Union (UW), won 261 of the 460 seats in the Sejm and formed a coalition government. The parliament is elected to a four-year term, which expires in September 2001, when new parliamentary elections will take place unless called earlier.

The Polish Prime Minister, whom the President nominates to constitute a government and win a vote of confidence in the Sejm, chairs the Council of Ministers and serves as Poland's chief of government. There are 23 cabinet ministers, two of whom serve as deputy prime ministers, drawn from the governing coalition parties.

Poland's president, who serves as the country's head of state, is Aleksander Kwasniewski, who defeated Lech Walesa in Poland's second post‑war free presidential election in November 1995. He has a five‑year term. The Polish president is the commander-in-chief of the armed forces and may veto legislation passed by the parliament. According to the new constitution, Presidential vetoes can be overturned by a three‑fifths vote in the Sejm.

The most influential political parties are:

Solidarity's Electoral Action (AWS): AWS is the larger of the two parties that form the governing coalition. AWS is itself a coalition of over 30 political groupings allied with the Solidarity trade union. AWS was the big winner of the 1997 parliamentary elections, winning 201 of the Sejm’s 460 seats. Its platform supports privatization and welcomes foreign investment. AWS is led by Solidarity trade union Chairman Marian Krzaklewski and Prime Minister Jerzy Buzek.

Democratic Left Alliance (SLD): the largest opposition party in the Sejm, the SLD is a coalition comprised mostly of successor parties to the communist-era Polish United Workers party (PZPR) and is headed by former Minister of Internal Affairs Leszek Miller. The party's leadership generally supports liberal economic policies but stresses the importance of cushioning the harsher effects of economic reform.

Union of Freedom (UW): UW is the smaller of the two parties in the governing coalition and, like AWS, has its origins in the Solidarity movement. UW pursues a mainly socially liberal, pro-free market course. Its membership is a diverse mix of liberal free market thinkers, intellectuals, social activists, feminists, and Christian nationalists. The party is led by Deputy Prime Minister and Minister of Finance Leszek Balcerowicz.

Polish Peasant Party (PSL): headed by former Deputy Prime Minister Jaroslaw Kalinowski, the PSL has grown from a communist-subordinated party into a classic European agrarian party.

Movement for the Reconstruction of Poland (ROP): a nationalist, statist party headed by former Prime Minister Jan Olszewski, ROP supports lower taxes, but the party's strong populist wing criticizes privatization and foreign investment.

Union of Labor (UP): UP is a social-democratic party that advocates a broad social safety net. It is the smallest of the major parties in Poland and has no representation in parliament.

Provincial and local government can play an important role in facilitating or hindering trade and investment in Poland. Poland is currently divided into 49 provinces (voivodships), each of which is headed by a provincial governor (voivode) appointed by the central government. There are also independent locally elected city and village governments. Local government elections are scheduled for October 11, 1998. A key plank in the government’s ambitious reform program is the decentralization of public administration and finance. This reform will reduce the number of provinces from 49 to 16 and create local government bodies at the county and province level beginning January 1, 1999. Party affiliations play an increasingly important role in local Polish politics, particularly in larger cities, but are not yet as significant as in the United States.

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<NREC>Poland04 Poland: Marketing U.S. Products and Services <A>=Poland

IV. Marketing U.S. Products and Services

A. Distribution and Sales Channels

(1). Regional Nature of Market and Review of Major Regions

Poland's population, and hence its opportunities for business, is dispersed throughout the country. Twenty-five percent of the population resides in rural areas, and urban dwellers are spread among a number of population centers.

The largest Polish cities include:

CITY POPULATION

Warsaw 1,635,100

Lodz 823,200

Krakow 745,000

Wroclaw 642,000

Poznan 581,200

Gdansk 463,000

Szczeczin 418,100

Lublin 354,600

Katowice 351,500

Source: “Rocznik Statystyczny 1996,” published by GUS

(A) Warsaw

The Warsaw Province is home to the capital of Poland and to 2.4 million people, 6.5% of the Poland's total population. The city of Warsaw proper has a population of 1.6 million, is a center of culture, science, education, and finance, and is a major junction of air, road, and railway lines within Poland. Warsaw's Okecie airport has direct connections to over 50 airports all over the world.

Poland's strong economic growth (GNP grew by 6.1% in 1997) is best seen in Warsaw. Average earnings in Warsaw are the highest in Poland. In 1997, they were 26.2% higher than the national average. The unemployment rate has decreased from 4.3% in 1996 to 2.8% in 1997 in Warsaw province and is 2.4% in the city of Warsaw. Industry within the Warsaw district is dominated by machinery and electronic equipment production. The most important products are televisions, computer hardware and software, tape recorders, passenger cars, and tractors. The capital has about 283,000 businesses.

In recent years, the Warsaw district has shown the highest levels of investment in Poland, receiving 14.5% of total investment. Over 30% of foreign businesses investing in Poland choose Warsaw as their headquarters. The investment programs implemented by foreign firms have created over 11,000 jobs. Investment by U.S. capital is represented by: PepsiCo (USD 180 million), Procter & Gamble (USD 93 million), Reynolds (USD 40 million), General Motors (USD 20 million), and Colgate (USD 17 million). Head offices of the largest U.S. consulting, law and auditing firms, as well as financial and insurance institutions, such as Pioneer, Amplico, Citibank, Amerbank, GE Capital, Bank of America, and Cigna, are also in Warsaw.

The investment boom in Warsaw can be seen all over the city, with an estimated 90% of investments in office space occurring in Warsaw. Currently, the total supply of office space in Warsaw is around 2.5 million sq. m. In 1998, about 30 new buildings will enter the market, with an additional 32 new buildings in 1999 (including the Daewoo Center, Centrum Gieldowe (stock exchange), and Reform Plaza). In 1997, modern (Class A) office space increased by 84,000 sq. m, bringing the total to 300,000 sq. m. (compared with 520,000 sq. m in Budapest and 13 million sq. m in Berlin). However, despite the annual increase in new, modern office space, there remains an annual shortage of about 150,00 sq. m, as only 10% of the office space in Warsaw was built in the last six years. This excess demand for modern office space provides opportunity for continued development.

The Centrum borough is investing USD 7.5 million (15% of its budget) in infrastructure improvements this year alone. Other boroughs will likely require similar investments. In 1997, many storage and distribution centers were built in Warsaw, among them the Warsaw Industrial Center, 45,000-50,000 sq. m, and the Warsaw Distribution Center, 45,000 sq. m. In the second part of 1997, the Diamond Business Park (100,000 sq. m) was started. The investors are the U.S. companies American International Group and Lincoln Property Company.

To attract potential investors to the least developed areas of Warsaw, the local government plans to establish a special economic zone in the southern part of the city very close to the international airport and cargo terminal.

For more information, please contact:

Warsaw Voivodship Office

Economic and Urban Development Department

Ms. Alicja Maciejczuk‑Bukowska, Director

Plac Bankowy 3/5

00‑950 Warsaw

tel: (48‑22) 695‑6046

fax: (48‑22) 695‑6047

(B) Lodz

The city of Lodz is located nearly at the geographical center of Poland. The Lodz province (voivodship) is inhabited by 1.125 million people. Seventy five percent of the inhabitants of Lodz province live within the city. Lodz is the second largest city in Poland and it is only 130 km from Warsaw. The combination of Lodz and Warsaw represents 10% of the total population of Poland.

Lodz is most commonly associated with the textile industry, although this sector went into decline beginning 12 years ago. Textile plants are still in operation here but the city has attempted to diversify its manufacturing base. The last five years have brought substantial change to this city’s industry. The major industries are now light industry (38%), food industry (28%), chemical industry (12%), and electrical engineering (12%).

Investors will find great opportunities in Lodz, the first city in Poland to receive a rating from Standard & Poor’s, which gave it a rating of BBB+ with a stable outlook. The planned construction of highways will place Lodz at the intersection linking the Warsaw-Poznan (A2) and the Gdansk-Katowice (A1) highways. Important academic centers in Lodz include the Institute of Technology, the University of Lodz, two Medical Academies, and the branch of the Polish Academy of Science, as well as industry research centers. Current investors include ABB, Coats Viyela, Coca-Cola, Gillette, Mercedes, PepsiCo, Shell, and Wrangler.

On April 15, 1997, the Government of Poland announced the establishment of the Lodz Special Economic Zone (LSEZ) for a duration of 20 years on land owned by the State Treasury and existing companies. Investors who receive permission from the authorities to operate in the LSEZ and who comply with the necessary conditions (either investment of ECU 2 million or employment of 100 workers during the 20 years of the LSEZ) will qualify for a 100% income tax reduction for the first 10 years and a 50% reduction for the next 10 years. Additionally, the Lodz Labor Office has incentives such as paying a company the first six months worth of welfare payments (326 PLN/month) plus a 45% social security payment for every unemployed person hired.

For more information about the region, please contact:

Urzad Wojewodzki w Lodzi

(Lodz Voivodship Office)

Biuro ds. Restrukturyzacji Regionu Lodzkiego

(Office for Restructuring of Lodz Region)

ul. Piotrkowska 104

90-004 Lodz

tel: (48-42) 33-38-19

fax: (48-22) 33 32 98

Contact: Mr. Tomasz Ciszewski, Deputy Director

The Province of Poznan in the mid-western part of Poland is one of the largest regions in the country, with a population of 1,350,000 people, including Poznan city which contains 600,000 people. Poznan is one of the major transportation junctions for rail and roads. The main route from Eastern to Western Europe through Warsaw and Berlin runs through Poznan; so does the transit route from Scandinavia to the Czech Republic, Slovakia, and the Balkans. Poznan’s airport at Lawica serves as both a domestic and international airport.

The unemployment rate in Poznan Province in 1997 was 3.6% and in the city of Poznan was 1.5%. This is a decrease of 58% from 1996, the largest decline in the unemployment rate in the whole country.

Poznan has become the second largest banking center in Poland after Warsaw, with 14 banks having headquarters there and a total of 76 banks in the province. Seventeen insurance companies operate there as well. Manufacturing plays a leading role in the economy as it employs one-fourth of professionally active people. Products produced in the region include: ship engines, passenger railway carriages, metal working and food industry machines, textiles, batteries, vehicles, telecommunication switchboards, teletransmission equipment, furniture, phosphoric fertilizers, and cosmetics. The food industry, especially soft drinks and tobacco, is also prominent in Poznan. The high quality and quantity of Poznan agricultural products creates a suitable basis for increasing exports. However, there are further needs for investment in food processing. Sixty-six percent of the total area of the province is devoted to agriculture focusing on cattle and hog production.

The Poznan International Fair has a 70-year tradition, and every year more than 20 trade fairs, promotional events, and exhibitions are held at its expansive fairgrounds.

Poznan is an important scientific and cultural center in Poland. In Poznan there are numerous research institutes, branches of the Polish Academy of Science, and 14 universities, including four recently founded private universities offering bachelor degrees in management, banking, and marketing and 10 universities offering masters and doctorate degrees in numerous fields. Nearly 60,000 students study at universities in Poznan.

In this province there are almost 1,000 companies with foreign capital participation. The most notable foreign investors are: International Food Corporation, CPC International, Amino S.A. (United States), Wrigley (United States), SC Johnson (United States), General Bottlers (United States), Alcatel (United States), Volkswagen (Germany), Alcan, Inc. (Canada), and Marbaise (Germany). An analysis carried out the by the Bonn based research firm Empirica showed that the Poznan region ranks fifth among 155 regions in Central and Eastern Europe considered to be up‑and‑coming with regard to attractiveness for investment.

For more information about the region, please contact:

Poznan Province Government Office

Urzad Wojewodzki

Wydzial Rozwojm Regionalnego

Mr. Janusz Meissner, Director

Al. Niepodleglosci 16/18

61‑713 Poznan

tel: (48‑61) 852-55-21

fax: (48‑61) 852-73-27

http://www.poznan.uw.gov.pl

http://www.man.pozn.pl/~wup/html-eng/wup_eng.html

(D) Southern Poland

The 17 provinces encompassing the lower third of Poland are home to half of Poland's population and represent almost half of national industrial output in terms of sales. The region boasts a well‑educated and relatively low‑cost work force. The three principal cities include Katowice, Wroclaw, and Krakow. One of the world’s largest copper ore deposits is found in the southwestern province of Legnica. In addition, there are special economic zones in the Rzeszow (Mielec), Katowice, Legnica, and Walbrzych provinces.

Katowice

Katowice province is the most urban (87% of the population living in 56 cities) and densely populated with 3.9 million inhabitants representing 10.1% of Poland's total population. The Katowice Agglomeration is located at the center of the province, combining 24 cities with 2.5 million inhabitants. The unemployment rate in the province was 6.5% at the end of March 1998. There are 13 schools of higher education and more than a dozen scientific research institutions in the Katowice province.

The region's main natural resource is coal. Ninety-seven percent of the country’s coal comes from this province. The Upper Silesian Coal Basin is one of the largest in the world. There are also deposits of natural gas, zinc, and lead ore with a mixture of silver. The industrial output of the province totals 16% of the national industrial output. Major industries in the region include mining, metallurgy, chemical and automotive.

Currently the center of Poland's coal industry, it is transforming into its automotive center as well, as several major automotive firms, including Fiat, General Motors, Isuzu Motors, Delphi, and Lear, are investing in the region. The main foreign investors in Katowice are Germany, Czech Republic, Italy, Ukraine, and Finland. Katowice province has excellent air and rail connections to Warsaw and other major European cities.

For more information, please contact:

Provincial Office in Katowice

Urzad Wojewodzki w Katowicach

Mr. Dariusz Gruszecki, Director

Department of Foreign Cooperation

ul. Jagiellonska 25

40‑032 Katowice

tel: (48‑32) 256‑5293

fax: (48‑32) 255‑3775

http://www.um.katowice.pl

Wroclaw

Wroclaw (pronounced “vrot‑suave”) province has a population of 1.14 million, with 650,000 living in the city. Wroclaw is one of the most important intellectual centers in the country. Over 64,000 students study at 13 state-owned institutions and several private universities.

Wroclaw is located at the intersection of important east-west and north-south roadways, with three international roads, the largest railway network of Lower Silesia, and direct rail links with several major European cities. Also, an international airport and two river ports are located in Wroclaw. The province has deposits of natural gas, stone, serpentine marbles and basalt, vein quartz, quartz sand, argillaceous resources, kaolin resources, stoneware ceramic clays, and gravel aggregate.

Together with other cities in the province, Wroclaw is one of the most important industrial centers in Poland. It ranks ninth in the country in industry employment. In 1997, the province had 7.7% unemployment. Wroclaw’s diversified industrial sector includes electromechanical, food processing, chemical, metallurgical, and paper. Electromechanical industry is represented by companies such as POLAR, Semens-Elwro, Dolmel-Drivs, Agroma-Pilmet, ABB Dolmel, and ABB Instal. The products of these companies include 58% of Polish washing machines, 74% of coolers and freezers, and 41% of gas stoves. Also they produce 40% of the nation’s machines for cultivation and protection of plants, as well as 34% of buses. Chemical firms include Rokita in Brzeg Dolny, Viscoplast, Polifarb Wroclaw, Herbapol, and Cussons Polska. The food processing industry has a variety of companies, including Brewery PIAST.

In Wroclaw province there are more than 1,700 companies that have been formed with foreign capital. In addition to the top two investing countries, the United States and United Kingdom, investors from Austria, Italy, France, Sweden, Vietnam, Taiwan, Libya, Guinea, and Algeria have found the province attractive. Eleven companies from the former Soviet Union invested USD 1.8 million in 1997. British Cadbury spent USD 50 million to build a chocolate factory outside of Wroclaw, the first investment of this company in Central and Eastern Europe. Others have followed the same path, including Ikea (Sweden), Castorama (France), Cargill (U.S.), General Bottlers (U.S.), and Coca-Cola (U.S.). Foreign banks opening branches in Wroclaw include Citibank (U.S.), Creditanstaldt (Austria), Raiffeisen-Centrobank (Austria), and Hypo-Bank (Germany).

Provincial authorities strive to create positive conditions for foreign investors. Property ownership issues are clearer in Wroclaw than in other parts of Poland, and a significant excess of production capacity is available to foreign investors, on the condition that new activity will be environmentally friendly.

For more information, please contact:

Provincial Office in Wroclaw

Urzad Wojewodzki we Wroclawiu

pl. Powstancow Warszawy

tel: (48‑71) 40-61-00

fax: (48‑71) 40-69-64

Economic Development Department

Ms. Maria B. Dytko, Director

tel: (48‑71) 343-28-27

fax: (48‑71) 343-46-04

http://www.wroclaw.pl

Krakow

Krakow province, with a population of 1.2 million, is home to 3.2% of Poland's total population. The city of Krakow is included on the UNESCO World Cultural Heritage list due to its historical and cultural value. It is the second largest research and academic center in Poland with 15 institutions of higher learning and 96 research institutes. Among the major state academies are the Jagiellonian University, founded in 1364, the Academy of Economics, the Academy of Fine Arts, and the Music Academy. Approximately 12.2% of the population have a higher education, while the national average is 6.8%.

In 1997, Krakow province had the third lowest rate of unemployment in Poland, which stands at 4.3%. Krakow has excellent rail and road connections to all major European cities. It is only two hours and 40 minutes from Warsaw by express train. In addition, the John Paul II Memorial International Airport provides direct connections to major cities in Europe, as well as New York and Chicago.

Krakow province has deposits of rock salt, limestone and marl, cement, magma rocks and dolomite, natural aggregate, clay (silts), and curative mineral water. Major industries in the region include food processing, pharmaceutical, metallurgy, electronic, health service, and research and technology. Ninety‑eight percent of Krakow's enterprises are in private hands.

The largest foreign investor is Philip Morris, which constitutes one‑third of total foreign investment in the region. Other significant investors include: Coca‑Cola (U.S., USD 59 million), Pilva (Croatia, USD 137 million), Polish‑American Enterprise Fund (U.S., USD 48 million), and Electricite de France (EDF) (France, USD 79 million). Other countries investing in the region include Germany, Turkey, Austria, and Netherlands.

For more information, please contact:

Provincial Office in Krakow

Urzad Wojewodzki w Krakowie

ul. Basztowa 22

tel: (48‑12) 61-60-208

fax: (48‑12)422-72-08

Economic Development Department

Mr. Tadeusz Trzmiel, Deputy Director

tel: (48‑12) 61-60-391

fax: (48‑12) 60-61-950

(E) Gdansk

The Gdansk province is situated in northern Poland on the Baltic Sea coast. In 1997, the city of Gdansk celebrated its 1,000-year anniversary and, as it has throughout its history, continues to be an important seaport. Sixty-two percent of the area's population of 1.4 million is concentrated in the Tri‑city area of Gdansk, Gdynia, and Sopot. The unemployment rate of the province in 1997 was 7.1% and an estimated 3.5% for the Tri-city region. The largest city, Gdansk, is 330 km from Warsaw and has the second largest international airport in Poland. In addition, three major highways connect this region to the European highway network. There are also plans to build a north-south highway, connecting the ports of Gdansk and Gdynia with Southern Europe.

Industry in the Gdansk district is dominated by energy, shipbuilding, transportation, food processing (mainly seafood), chemical, electrical, and electronics. It is also home to the second largest refinery in Poland, Rafineria Gdanska. Some main investors include Arall, GE Capital Bank, Ericsson, Ernst & Young, PepsiCo, and Shell. The list of major importers includes Rafineria Gdanska Co., Stocznia Gdynia Co., Stocznia Gdanska Co., and Elbrewery Co.

The Gdansk district, with its relatively developed infrastructure, skilled work force, and eight universities, has a potential for growth especially in industry and tourism. Favored investments include: development and modernization of the ports and transportation networks, extension of the hotel facilities and trade and service centers, housing construction, and environmental protection. Local authorities are interested in renting or leasing land to foreign partners. Updated local laws and regulations encourage foreign investment and trade with special attention on the seaports.

Important academic centers in the Gdansk district include the University of Gdansk, the Medical Academy, and the Technical University.

For more information, please contact:

Gdansk Voivodship Office

Economic Development and Privatization

Mr. Jaroslaw Zietkiewicz, Director

ul. Okopowa 21/27

80‑810 Gdansk

tel: (48-58) 307-7779

fax: (48-58) 301-1765

http://www.gdansk.gda.pl

(2) Consumer Goods Distribution

Competition for western consumer goods, particularly non‑durable consumer goods, is very intense in Poland, and the consumer goods market is currently one of the hardest to penetrate. Imports are still strong, but the previously insatiable demand for western goods has been replaced by more pragmatic attitudes about price and quality. Consumers as well as importers are more selective about the products they will buy. A western brand is no longer the sure sell it once was, as local brands have improved immensely in quality. Brand name recognition is important, and it is a great challenge for U.S. firms to develop brand images and loyalty, as the market is overwhelmed by hundreds of new western, and even local Polish, brands.

The roadblock to selling consumer goods in Poland is distribution. Poland's entrepreneurial spirit is evident in its retail sector and on nearly every street corner where small stores or stands have sprung up. The retail sector is dominated by these very small entrepreneurial, "mom‑and‑pop" stores, most of which have opened only in the past four or five years. There are hundreds of thousands of such small retail outlets across the country, posing major logistical problems for the distributor. Although in general these shops are product‑specific, many sell a wide range of goods, for example a toy store may also sell stationery and housewares.

Although only a small number of chains exist, large-scale retailing is developing very quickly. Large-scale retailing chains which operate near major population centers are dominated by foreign based retailers: IKEA (Sweden), Makro Cash and Carry (Netherlands), Tesco (U.K.), Billa and Julius Mainl (Austria), HIT (Germany), LeClerc, Auchan, Geant, Intermarche, (France), Rema 1000, and Office Depot (U.S.). Foreign companies have a great interest in investing in the large-scale retailing sector in Poland. The large stores are extremely popular and most are expanding rapidly. The few shopping malls that do exist are mainly filled with upscale boutiques.

Poland is also considered a very promising market in which to establish chains of specialty stores and department stores that cater to a more demanding clientele and that will be categorized as mid-level stores. There is only one local department store chain in Poland. Marks & Spencer, which established a local representative office in Warsaw in 1997, has announced that its first store will be opened in Warsaw by the end of the current year, with future stores scheduled to open in the largest Polish cities.

Importantly, Poland is still a cash economy. Banks are increasing issuance of credit cards but their use is extremely limited. Checks are almost unheard of. Most payments for regular transactions are made by wire transfer, if not by cash. Cash machine networks are growing.

Distribution networks do exist in Poland, although most are new and vary in their structure and scope. For consumer goods most have been pieced together over the past few years and are product specific with differing layers of agents, wholesalers or retailers. Regulations on developing sales and distribution networks do not exist beyond those needed to establish a business. Distribution is an extremely difficult task for consumer goods; it is very difficult, even for the large producers, to keep their products on the shelves of hundred of thousands of retail stores.

From the small company to the large multinational, many U.S. firms still find it necessary to create their own distribution networks for their products in Poland. Labor and warehousing are abundant, and trucks are available.

Smaller U.S. companies usually begin with a small, regionally located distributor and then develop a network from there. Larger firms may initially establish a regional warehouse system with a series of trucks and distributors to branch out to assorted markets across the country, which is a significant up‑front investment.

Poland is without a doubt a regional market. Not only is the population very spread out among Poland's major cities, but poor road conditions and inadequate local train service, bad local telephone communications, underdeveloped banking networks, and the still‑developing nature of the market itself make it difficult for one distributor (and extremely difficult for a foreign‑based distributor) to cover all of Poland.

(3) Industrial Goods Distribution

Imports of equipment and technology have increased tremendously as Polish industry modernizes and restructures to compete with the western world. What has been surprising to U.S. exporters in many industrial sectors is the familiarity among Poles with the technical parameters of their products prior to the actual introduction of those products on the marketplace. This is a combination of historical knowledge of some importers (who probably worked for a former foreign trade organization before 1989) and the fact that serious Polish importers do their homework.

Under the Communist regime all foreign trade was handled through a small number of foreign trade organizations; each industry was associated with an entity which handled its importing, exporting, marketing and distribution needs. Most of these organizations still exist in one form or another, many have been privatized and some, such as Elektrim and Ciech, have grown to become some of Poland's largest firms.

Industrial distributors may therefore be part of a network that developed from former foreign trade organizations, or may be individuals with significant connections to their industry (often former employees of the large foreign trade firms). As industries and companies continue to privatize in Poland, distribution networks will expand in scope and complexity.

Many distributors of industrial equipment are very specialized and have very specific technical expertise. Because of this some are better able to serve on a national level than consumer goods distributors, but exporters are still advised to carefully check out a company's claim that it can represent the whole country.

As with consumer goods, importers and other companies that represent foreign companies are becoming more sophisticated, and selective. Polish agents or distributors increasingly look to the foreign partner to provide marketing and promotion support, training and financing. Polish trade fairs, which have become more and more specific in scope, are a good place to look for possible distributors.

B. Use of Agents and Distributors; Finding a Partner

Polish companies tend to act more as distributors (importing, taking possession of, and reselling a good) than as agents. The exception to this is expensive equipment, since Polish companies generally do not have the financial wherewithal to make such purchases. However, there are no laws imposing roles for Polish importers and representatives for foreign products, and distributor agreements may take any form beneficial to the parties involved.

The ideal would be to find a distributor that is experienced, knowledgeable, and well connected to existing lines of distribution for the product. However existing lines of distribution for a particular product often do not exist, or may be brand new, so sometimes creativity or a leap of faith must be made in finding a partner. Polish companies tend to be much younger and less experienced than their western counterparts. They may not fully understand the product or how it is to be used and may need extensive training.

The Polish entrepreneurial spirit is evident in the distribution sector, and companies that are flexible may be able to take advantage of this. For example, an entrepreneurial Pole who lost his job in an automotive factory because of the company’s downsizing, may with training make an excellent candidate for a representative of a specialty machine manufacturer.

One good way to locate potential distributors in Poland is through the Commercial Service's (CS) "Agent/Distributor Service" (ADS) that finds and screens up to six potential partners, or CS’s "Gold Key" service that not only finds potential partners, but also sets up meetings with them in advance of a U.S. company’s business trip to Poland. Many business clubs and associations have been created in Poland, with thousands of company members. They too are excellent sources for potential business partners. And as mentioned before, trade shows in Poland are a good way to find or check out potential Polish partners.

C. Franchising

Poland, a country of nearly 40 million people, is ripe for the development of franchising. Poland has set a course towards a fast development of infrastructure, telecommunications and banking services. More importantly, the rapid expansion of the media and advertising sectors indicates that this is only the beginning of the development of the consumer market.

The most popular and largest U.S. franchises arrived first and introduced the concept here, and they now dominate Poland's franchise retail landscape. Their success over the last few years has proven the best advertisement for the promotion of franchising in Poland.

Although the total number of franchises is currently low (at the time of this writing, only about 30 exist), the Polish Franchising Association (PFA) believes the Polish market has considerable demand for new, internationally known franchise concepts. PFA estimates that only about 10 networks operate in a pure franchising system. Franchising is developing slowly in Poland because organizing a franchise network requires incredible effort. Very often, franchising companies operate their own establishments, expand through licensing operations and sell franchises at the same time.

Financing is the most critical element for successful entry and penetration by U.S. franchisers. Although it has generally been difficult for foreign companies to locate Polish investors able to be master franchisees, local candidates interested in master franchises are on the increase. American franchisers often locate a partner in the U.S. or Europe, willing to purchase a master franchise, and interested in entering the Polish market.

There are no Polish laws or regulations that specifically address franchising. A franchise is subject to general commercial law. The contract between two parties is therefore the sole legal platform for the franchise agreement. It usually contains not only elements of civil law, but also elements of intellectual property and trademark protection.

The best franchise concept prospects are in services, retail, mid‑range hotels, and fast food chains. For more information about franchising in Poland, please contact:

Polish Franchise Association (PFA)

Polskie Stowarzyszenie Franchisingu

Mr. Wojciech Kramarz, Secretary

ul. Koszykowa 54

00‑675 Warszawa

tel: (48‑22) 630 84 25

tel/fax: (48‑22) 630 84 67

D. Direct Marketing

Direct marketing of products and the techniques of directly promoting products to end‑users is still new to Poland, and so far mostly practiced by joint ventures or foreign companies which sell consumer products and services. Several years ago the first foreign companies began to sell a very limited assortment of products through catalogs. This form of marketing is growing rapidly, but one factor limiting the spread of direct marketing is the use of cash for most transactions. Although Poles still prefer traditional shopping, the Polish market is considered large and offers enormous possibilities especially for expansion of mail-order companies. Women are the biggest group of customers who take advantage of mail-order catalogs. Mail-order companies selling books, records and cassettes have become the most popular in Poland. Swiat Ksiazki (Book World), the biggest on the Polish market, has gathered more than 900,000 club members since 1994.

The Direct Marketing Association, Stowarzyszenie Marketingu Bezposredniego (SMB), was established in Poland at the end of 1995. Currently SMB has 30 members. Negotiations on possible membership are now underway with several, mostly foreign, companies. The members of SMB established a code of ethics to undertake effective methods of operation in direct marketing, protect customer's rights, and prevent illegal business practices. The organization has participated in drafting legislation on the protection of privacy, which was established on April 30, 1998. SMB has created a database of names and addresses of individuals who do not wish to receive direct marketing materials.

Direct Marketing Association

Stowarzyszenie Marketingu Bezposredniego (SMB)

Mr. Andrzej Miekus, President

ul. Marszalkowska 87 apt. 85

00-683 Warsaw

Tel/fax: (48‑22) 628 02 60

Fax: (48‑22) 828‑04‑66

E. Joint Ventures/Licensing

Joint ventures as a form of business are abundant in Poland, including those between Polish and western partners or between companies from two different countries. Many U.S. exporters and sales relationships in Poland are in the form of joint‑ventures with Polish companies set up to handle the trade, and share in the risks and rewards. As such, a joint venture, if feasible, is an excellent way to facilitate export sales on the Polish market. Many of the more than 300 members of the American Chamber of Commerce in Poland are joint‑venture companies.

Most joint ventures between Polish and American Partners are formed, at least initially, with the American partner holding a minority share. This allows the venture to avoid the need to obtain permission to acquire land.

In most joint ventures the American partner contributes capital and technology while the Polish side contributes the land, distribution channels, trained workers, access to the Polish market and introductions into the local government and local business environment that would take years to develop.

Licensing of products, technology, technical data, and services is less practiced in Poland, due to concerns about intellectual property protection. However, now that Poland has made major steps in intellectual property rights and copyright legislation it is probable that more U.S. firms will begin to license their products in Poland. Licensing is particularly prevalent in industrial manufacturing, consumer goods, and textile sectors.

F. Steps to Establishing an Office

Besides joint ventures, U.S. companies may establish a business entity in Poland through three types of legal forms.

(1) Limited liability companies (Sp. z o.o.) require at least one founder and minimum initial capital of 4,000 zlotys to be paid prior to registration. Reserves are not required to be taken out of after‑tax earnings, audits are only obligatory in certain situations, and assets can only be distributed 6 months after liquidation is announced.

(2) Joint stock companies (S.A.) require 100,000 zlotys minimum initial capital, of which 25% must be paid prior to registration. There are no maximum limits and in‑kind contributions are exempt from customs duty. After tax profits from the venture may be exchanged and repatriated without permission at the end of each fiscal year of the venture. Proceeds from the sale of shares in the venture, or liquidation of the venture, may also be repatriated. Twelve months must pass after the liquidation announcement before assets may be distributed. Polish law does not allow interim dividends. The minimum number of founders is three entities.

(3) Representative offices are permitted by law to engage in business activity under three variations: supervisory offices, technical offices and commercial branch offices. Permits for establishing an office are granted by the relevant Ministry upon application by the foreign firm. Permits are valid for the length of time granted by the Ministry, usually a maximum of two years. The foreign firm must reapply for renewal. Offices are by law treated as parts of the U.S. company and are considered an exporter of products from abroad. Therefore, offices may not engage in retailing or manufacturing activities and may hold inventory only for marketing and service purposes.

The Warsaw commercial market is characterized by a shortage of supply and increasing demand, which has created low vacancy rates and high rent prices. Rental fees are expected to remain high for the near term due to continued low supply and growing demand. Prices for premium office space are generally quoted per square meter per month. The current range is between USD 45 and USD 65 per square meter per month in Warsaw with prices at least 10% lower in Krakow and other cities. Modern telephones, copy machines, faxes, computers and office amenities are easily available and can be leased from a number of reputable Polish and western firms. The secretarial labor pool is reasonably abundant, although English speaking secretaries with modest secretarial skills are not easily found. Employees with western management or accounting experience are also difficult to find.

G. Selling Factors/Techniques

As mentioned in the "Distribution" section, the Polish market is in most cases regional, which applies to selling as well. In addition, people in cities, particularly the major cities in Poland, have more purchasing power than those in rural areas, as unemployment is significantly lower in the cities. The countryside is dotted with single‑factory (or formerly single‑factory) towns with high unemployment.

Letters, faxes and packages of product literature will introduce a Polish company to a product or service. Polish language communication is recommended for speediest response. U.S. companies should make an effort to make sure that the translation into Polish language is done by professional translators.

A Polish customer generally will not consider making a final purchase until he has met with someone face‑to‑face about the product. However, there are Polish companies that started their business through offers available on the Internet. American companies which are little known outside of the U.S. may need to make quite a bit of effort to convince the Polish side that they are “for real.” Demonstrations of the product are also effective, as Poles tend to be skeptical about claims until they are proven. Sponsored visits to the U.S. or other facilities around the world may help convince Polish buyers to purchase a U.S. product.

The decision making process, especially in large companies or government agencies, can be painfully slow, as every person or section involved in a decision usually must sign off before a decision is made. It usually takes several meetings, and many rounds of negotiations before a deal is closed. It is not unusual for a deal to take two or three years to be concluded.

This underscores the fact that success in Poland is extremely difficult without a representative in‑country, whether it is an agent, distributor, or representative office. The Polish customers will want to discuss the technical parameters of the product, explain their needs, and negotiate and renegotiate the price. In addition, the product may not be sold in the first meeting, as the customer will want some time to further consider the points discussed, and try to arrange financing. Small, single orders are usually the result, as major initial orders are unlikely due to limited amounts of working capital and high rates of interest on credit.

The American exporter should be aware of the Polish customer's main problem: access to capital. With inflation running at about 13% per year, bank loans are out of the question at 22% interest rates; most Polish firms are still too small to consider going public or issuing commercial paper. Therefore most business activities, including payment for imports, are still self‑financed. American companies that can guide their Polish customers to affordable financing will have an edge over their competitors. Many Polish importers also look for marketing support.

Polish customers are generally enthusiastic about U.S. products and, if seriously interested, will travel across the country to meet with a U.S. representative who may be visiting Warsaw. If a customer has driven five hours from Krakow to Warsaw to meet with a U.S. company, the potential for a sale is good. If the proposal is well thought out, the pricing is flexible (or assistance with locating financing is offered), promotion, servicing and customer support is part of the package, chances are good that a contract will ultimately be written. Doing business in Poland is built upon personal relationships and trust. U.S. companies still have an advantage in Poland, as the U.S., its people, and its products are held in high regard.

H. Advertising and Trade Promotion

The trade fair business in Poland has boomed over the past few years, from a single major event (the June Poznan International Fair) to a yearlong schedule of industry and product specific events in major cities around the country. Most industry specific trade fairs in Poland are newly emerged and still proving their worth. Some are better than others at attracting key Polish and international business. Fairs in computers, medical, environmental, automotive, agri-business, consumer goods, building products and mining have grown in popularity in recent years. Direct U.S. company presence at trade fairs in Poland is minimal, but many U.S. firms exhibit through their European or Polish distributor. Most U.S. firms find that exhibiting directly in a Polish fair is still less cost effective than many big European trade fairs.

Advertising in Poland is considered critical, not only in the consumer products field but also in developing company images for all kinds of goods. Television ‑‑ which reaches virtually every home in Poland via local channels and satellite ‑‑ is believed to be the most effective medium in Poland. Products advertised through TV commercials show the greatest sales growth of all advertised products. The bulk of advertising revenues goes to television. The price of TV spots on top rated shows has grown dramatically in the last few years as demand has soared. Radio is another means of advertising with more than 200 local radio stations as well as two national networks.

There is a ban on cigarette and alcohol (including beer and wine) advertising for broadcasters and alcohol for display and print media. There is also a ban on pharmaceutical advertising, except for over-the-counter drugs and in professional publications.

Print media advertising is sophisticated as the print media market itself has grown to include a full range of publications. Poland is wholly literate. Major newspapers circulate throughout the country and reach every corner of Poland. In addition, special interest magazines, business journals, niche publications, and specialized newspapers have proliferated. Classified advertising is quite developed, effective, and inexpensive. Most U.S. companies find print a highly effective means of reaching customers and candidates for jobs. Major dailies include Rzeczpospolita, Gazeta Wyborcza, Zycie, Trybuna. There are also three English‑language weeklies that cater mainly to foreigners both in and out of Poland.

Major international, as well as local, advertising and public relations agencies abound in Poland.

I. Pricing a Product

Pricing is the key to effectively selling a U.S. product in Poland. As mentioned above, working capital is limited in Poland even among the larger, more successful Polish companies. Polish businesses generally spend money wisely, after thoughtful and sometimes significant consideration. The most common complaint the Commercial Service Warsaw hears about U.S. products continues to be that “the price is too high.” Pricing U.S. origin products is complicated by the additional customs duties, VAT, and, in some cases, an excise tax which elevate the retail price dramatically.

Flexibility is the key, and initial market penetration to gain product knowledge among Polish consumers is the goal. Successful U.S. exporters work together with their Polish representatives to keep costs, particularly import costs, as low as possible (for example, some companies ship products unassembled when it results in lower duties). The Polish market for all kinds of products is huge and expanding, and U.S. companies that approach the market with a long‑term view of creating market share for their products will reap rewards.

J. Sales Service/Customer Support

After price, service is second on the list of the Polish customer's concerns. A manufacturer in the United States is seen by both the Polish distributor and customer alike as being very far away from a product exported to Poland. A potential customer may shy away from a U.S. product only because of a fear of ineffective servicing, simply due to distance, should the product break down.

Shipping a product back to the United States for repair or service, even if paid for by the U.S. company, is not generally a preferred option for Polish customers. Sending spare parts to Poland is easy to do. Some firms provide service for their exports to Poland through European representatives or firms licensed to repair their products. Even then some distributors worry that they may not get adequate support.

The ideal method is to provide service and customer support through a trained Polish representative or U.S. affiliate company. U.S. manufacturers with major export accounts in Poland may wish to periodically send a service representative to Poland to work with the local representative and visit customers.

K. Selling to the Government

Poland's public procurement law, in effect since January 1995 (January 1996 for local governments), applies to most acquisitions of goods, services, or construction by nearly all government agencies, including local governments, foundations, associations, and cooperatives. Procurements by the Ministry of Defense are also included, but are subject to special rules. Procurements by state-owned enterprises are excluded from the law.

All tenders for amounts above 30 thousand ECU are required to be officially announced. Tenders for lower amounts can be announced locally, in the local press or through local media. The law provides that tenders of very high value should be published in the Journal of European Economic Community. However, until Poland becomes a full member of European Union, this is not a requirement.

The Polish procurement law provides for domestic preferences. The price given in a tender is recalculated and no matter what price the Polish party suggests, this price is lowered for the purpose of the evaluation of the tender by 20%. Since the tenders are evaluated by assigning appropriate number of points to various parts of the offer, this lowering of price is done only for a better and more favorable evaluation of the offer. In reality, when the project is executed, the price is what the Polish offerer quoted. This 20% “discount” applies only in cases where 50% of raw materials used for completion of the project comes from Poland.

Unlimited tendering is the preferred method and other procedures are restricted. Tender documents must contain specifications, selection criteria and terms and conditions for the contract. Deadlines for the submission of offers must be at least six weeks from the announcement. Offers are publicly opened. Participation in tenders is open to all those legally, technically, and financially able to perform the contract (including foreign companies if applicable).

The Bulletin of Public Procurement (Biuletyn Zomowien Publicznych), which lists public procurement opportunities throughout Poland, is now published twice a week. Subscriptions are available through:

Wydzial Wydawnictw I Poligrafii

Gospodarstwa Pomocniczego Kancelarii Prezesa

Rady Ministrow

ul. Powsinska 69/71

09‑903 Warsaw

L. Protecting Your Product From IPR Infringement

Intellectual property laws are in place in Poland. Although the enforcement has been improving, it is still far from adequate. Foreigners, both resident and non‑resident in Poland, benefit from intellectual property ownership rights, whether as a result of Polish law or bilateral agreements. Poland is a signatory to a number of international IPR conventions, including the Berne and Paris conventions as well as the World Institute for Protection of Intellectual Property (WIPO). In 1997, Poland ratified the Rome Convention. Poland has yet to enact 50-year protection for preexisting sound recordings from 1946 on; protection is only provided for recordings made since 1974.

As a result of its uneven IPR performance, in May 1997 the United States Trade Representative placed Poland on the Watch List of its Special 301 report on IPR practices. Poland remains on the Watch List at the present time.

(1) Patents

The Polish Law on Inventive Activities protects inventions through patents and utility models. Applications are filed with the Polish Patent Office; Polish attorneys must represent foreign applications. Patents are granted based on novelty, non‑obviousness, technical character, and applicability and are product patents versus process patents. Applications are published 18 months from the application or priority date. Registered patents are valid 20 years from the filing date. Registered models, inventions, and industrial designs are valid for five years and may be extended for another five years. Annual fees must be paid for maintaining a patent. There are no regulations regarding license terms. Criminal penalties are possible for infringement.

(2) Trademarks

Poland's trademark law of 1985 stipulates that trademarks, service marks, or collective marks may be registered. Trademarks are also protected under the Law on Combating Unfair Competition of 1993. A trademark must define the goods and services that are to be marked by the registered trademark. Applications are filed with the Polish Patent office, and priority under the Paris Convention may be claimed. Polish patent agents must represent foreign applicants. A registered trademark is valid for 10 years from the date of filing, unless the mark is not used for three consecutive years. The registration may be renewed for 10-year periods. Trademarks may be licensed. Ornamental designs and integrated circuits are protected.

U.S. companies find, however, that despite the existence of adequate laws, Polish authorities often lack the knowledge and resources to enforce them. U.S. companies must often spend great resources protecting their own interests. Under the amended Code of Civil Procedure, a request for temporary injunction forbidding the infringer from using an item until a case can be resolved must be reviewed by a court within seven days, thus becoming a new tool in protecting trademark and intellectual property rights.

The Pro‑Marka Polish Association of Branded Goods Producers (PABGP) was established in 1996 with the goal of protecting trademarks, foiling pirates, and educating consumers and regulators alike about the value of brand names. Currently Pro‑Marka has about 25 international and Polish member companies and focuses on consumer products. For more information, please contact:

Pro‑Marka Polish Association of Branded

Goods Producers (PABGP)

Mr. Tomasz Gryzewski, Director General

ul. Trebacka 4, Room 453

00-074 Warsaw

tel: (48‑22) 630-9621, 630-9727

fax: (48‑22) 826-1399

(3) Copyrights

A new copyright law, in line with international standards, came into force in June 1994 and is now effectively in place. The copyright law introduced protection of not only literary, musical and graphic works, but also computer software, audio‑visual works and industrial patterns. It extends copyright protection from 25 to 50 years to comply with international standards, and protects not only authors, but also producers, artists, and performers for both commercial and personal rights. Generally, commercial rights expire 50 years after the author’s death.

U.S. companies find that enforcement of copyrights, like trademarks, is still inadequate despite huge progress made in the last three years. Since the beginning of 1998 the Polish customs authorities and police have been more actively protecting Intellectual Property rights by not only reacting to claims of interested companies or organizations but also being proactive. U.S. companies and trade associations have spent a great deal of resources informing the public as well as the legal community of the issue of copyright protection. The greatest problems are in the area of sound and video recordings and especially software. The local chapter of the Business Software alliance estimates that even though the situation is improving, almost 70% of software products on the Polish market are pirated.

(4) Trade Secrets

Trade sector technological secrets are protected under the law regarding protection against unfair competition of 1993.

M. Need for a Local Attorney

The legal environment in Poland is constantly changing. In general Polish law offices follow these changes closely, which may be critical to an American company doing business in Poland. This is particularly true when bidding on a major project, forming a joint venture, or untangling a trade dispute. Most Polish and U.S. law firms offer business counseling in addition to legal advice. Some are even experienced in helping their contacts find Polish business partners, investments, or projects to pursue.

U.S. accounting and consulting firms in Poland can also offer legal advice and business counseling. Most of the major international accounting firms have operations in Poland that focus on business formation, tax matters, and employee benefits. Many are also involved in the privatization process in Poland, including advising the Polish government. All can offer practical business counseling and assistance in establishing a representative office or incorporating a business.

A U.S. exporter new to the Polish market may not initially need specialized legal, accounting, or consulting advice as it pursues potential partners. It can, however, take comfort in knowing that expert advice is abundant and available in Poland through the offices of major U.S. law and consulting firms when problems arise.

INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND

THE UNITED STATES

<NREC>Poland05 Poland: Leading Sectors for U.S. Exports & Investments <A>=Poland

V. Leading Sectors for U.S. Exports and Investment

A. Best Prospects for Non‑Agricultural Goods/Services:

Best prospects are ranked by percentage of expected growth of U.S. exports over the coming year. All statistics shown are in U.S. dollars.

Sector Rank: 1

Sector Name: Computer Software

ITA Industry Code: CSF

Figures concerning the market size of the computer software industry (HS 852490) are calculated based on reported company sales. Software sold in Poland has to be adapted to local requirements. The role of domestic production is substantially increasing, and cooperation with local software companies is essential for successful sales.

The Polish software market grew by 40-50% in 1997, reaching approximately USD 330 million, thus becoming a remarkable segment of the whole sector. The software market is the fastest growing segment of the information technology sector. In 1997, almost 64% of sales were of Polish software, with over 25% of the market share held by U.S. manufactured software.

Horizontal breakdown of the software market shows tools software representing 38% of the market, office software 26%, system software 20%, and communications software 16%. The vertical breakdown shows that the enterprise management software represents 41% of overall software, CAD/CAM 35%, banking and financial software 11%, administration 10%, and education three percent. Dominant operation systems are DOS, NetWare, Unix and Microsoft Windows. C/C++, Progress, and Clipper are the dominant language tools.

Approximately 35‑50% growth is expected to continue for the next two years. Despite continued improvement, software piracy is still a problem, affecting mainly off-the-shelf software. Software infringement is usually done by individual users and is the focus of attention by both government officials and the private sector.

The increase in computer software sales is also due to the growth of computer networking in many companies and organizations and the upsizing of data base management systems. Special software opportunities exist in networking software and tools. The software distribution companies continue to experience a trend toward consolidation.

The statistics for the export and import of computer software are not available, as only the medium, not its content, is recorded.

USD Millions 1997 1998* 1999*

A. Total Market Size 330 462 693

B. Total Local Production 211 295 450

C. Total Exports 70 98 137

D. Total Imports 189 265 380

E. Imports from the U.S. 83 130 190

* The above statistics are unofficial estimates.

Sector Rank: 2

Sector Name: Computers and Peripherals

ITA Industry Code: CPT

The total information technology market in Poland has reached a value of approximately USD 2.5 billion, with at least USD 1.5 billion spent on computers and peripherals. The Polish computer hardware market (HS 8471) grew approximately 20% in 1997, and is expected to grow 15% a year in the next two years.

Personal computers sales represent approximately 65% of all computers sold in 1997, but have slowly been decreasing. Polish made and assembled equipment dominates the personal computer segment of the market.

The main buyers of computer equipment are: public administration, banks, industrial enterprises, and individual users. The growth of this sector correlates with the general improvement of Poland's economy, as well as Poland's aspirations to join the European Union. Both the Polish public and private sectors must adopt international standards to compete in the new market environment. In accordance with the International Technology Agreement, Poland has eliminated customs duties for most computer products but it negotiated the retention of a five percent customs duty applicable to the import of assembled computers until the year 2002. As a result, assembled computers that are imported into Poland will be subject to the 5% customs rate for two years longer than in other countries.

Statistical data is scarce and is not completely reliable. The total market size and local production is estimated from data provided by companies based on their financial reports. Polish import/export data is provided by the Central Statistical Office and U.S. export data is from the U.S. Bureau of the Census. Computer products manufactured locally are assembled from imported components and parts. Products imported from U.S. companies located outside the United States are reported as third‑country imports.

USD Millions 1997 1998* 1999*

A. Total Market Size 1,500 1,725 1,985

B. Total Local Production 700 805 966

C. Total exports 140 170 204

D. Total Imports 940 1,090 1,223

E. Imports from the U.S. 188.6 217 250

* The above statistics are unofficial estimates.

Sector Rank: 3

Sector Name: Electrical Power Machinery and Equipment

ITA Industry Code: ELP

The Polish market presents significant sales opportunities for U.S. companies, as Polish companies are familiar with and extremely receptive to U.S. equipment and services in the power sector. In addition, a new energy law, which came into force in December 1997, will ultimately force Polish power companies to operate under competitive conditions, requiring upgrades. U.S. companies excel at providing needed equipment including coal‑fired fluidized‑bed combustors, pollution control equipment, pumps and compressors, electrical systems, heat recovery systems, turbine generators and gas and steam turbines. The U.S. is particularly strong in cogeneration and clean‑coal technology, two primary areas of interest to the Polish power sector.

U.S. firms are facing competition from European firms, as well as Polish manufacturers of power generating equipment. Large international groups have been examining investment and sales opportunities in Poland. Three of them, ABB (Swiss‑Swedish), AEG (German) and Ahlstrom (Finnish) have made acquisitions in the Polish power generation equipment manufacturers industry and have acquired control over the market. The presence of the U.S. company Westinghouse in the market is also significant. Westinghouse has developed the strategy of engaging in several power plant refurbishment projects, as well as joint ventures with Polish manufacturers.

The power engineering sector in Poland is comprised of seven primary manufacturers, which are supplied by a wide range of engineering companies. There are three producers of industrial and utility boilers: Rafako, Ahlstrom‑Fakop and Sefako. ABB Zamech is Poland's sole producer of power station turbines, and ABB Dolmel is the country's only supplier of power station generators. In transformers, local production is dominated by ABB Elta and Mefta.

USD Millions 1997 1998* 1999*

A. Total Market Size 1,439 1,500 1,550

B. Total Local Production 1,211 1,300 1,400

C. Total Exports 260 350 450

D. Total Imports 488 550 600

E. Imports from the U.S. 15 25 30

* The above statistics are unofficial estimates.

Sector Rank: 4

Sector Name: Construction Materials and Equipment

ITA Industry Code: BLD

The growing demand for building materials has continued. With a shortage of housing units exceeding 1.5 million, the number of completed construction projects in housing is still insufficient and is expected to grow. However, with high inflation rates the housing loans offered by Polish banks are mostly addressed to people with higher incomes.

Demand for construction materials is expected to continue through the next decade for both housing construction and major projects. American companies constitute strong competition for construction companies from Germany, Italy, and Belgium. The domestic construction industry is also very competitive; however, imported construction materials and equipment are considerably more valued by Polish buyers. Foreign suppliers are opening factories in Poland to eliminate paying customs duties, which are less favorable for products imported from the United States than for products from the European Union. Currently, there are approximately 13,000 manufacturers of construction materials in Poland; although the majority of them are small, employing less than 50 workers.

With the increased demand for advanced technologies and more emphasis on ecology, domestic construction companies have to upgrade their technologies and modernize their equipment. Many are looking for foreign partners/investors. In exchange for funds they are able to offer good knowledge of the local market, a network of contacts, and experience with Polish regulations. The number of U.S. companies representing this industry sector in Poland is still very low compared to the U.S. presence in other industry sectors.

The size and shape of the building market in Poland is linked directly to key investment programs. These programs include housing construction, conversion to new energy‑saving heat systems, government programs for highways, a gas pipeline, and industrial privatization. Some of these programs will receive financing from the World Bank, which is helping to develop these industry sectors. As a result of these programs and the investment associated with them, the market for building materials and equipment in Poland is expected to grow in the next couple of years.

USD Millions 1997 1998* 1999*

A. Total Market Size 1,500 1,850 2,400

B. Total Local Production 1,700 2,200 2,300

C. Total Exports 600 650 800

D. Total Imports 800 900 1,100

E. Imports from the U.S. 80 100 120

* The above statistics are unofficial estimates.

Sector Rank: 5

Sector Name: Plastics in Primary Forms

ITA Industry Code: PMR

The current size of the market for plastics in primary forms is growing and will continue to grow significantly over the next few years. The per capita consumption of plastics in Poland is very low. It is very likely that it will grow tremendously as more‑advanced technologies are introduced and the demand for packaging materials increases. The total plastics market in Poland in 1997 is estimated at more than USD 1 billion. The market has been growing very fast over the last few years at an average rate of 15% per year. Imports are growing at an even higher rate. Imports from the U.S. grew from USD 7.5 million in 1994 to USD 23 million in 1997.

The most commonly used plastics in Poland include High Density Polyethylene (HDPE), Low Density Polyethylene (LDPE), Polystyrene (PS), High Impact Polystyrene (HIPS), and Acrylonitrile Butadiene Styrene (ABS), Polyproppylene (PP). HDPE, LDPE, and PP are used in toys, housewares, appliances, and consumer goods. PS and HIPS are used for toys and inexpensive housewares. For engineering, polycarbonate, nylon, and PET are the most common plastics. They are used in production of car parts, refrigerators, computers, fiber optics, and many other high‑tech products. The development of engineering plastics follows not only the improvement of their own technologies but also the development of other new and high‑tech industries. The future development of local automobile, electronic and electrical appliances will increase the demand for special plastics. Polyethylene terrephtalate (PET) is rated as one of the best prospects because of the projected growth of the production of bottles for beverages. PET bottles continue to be upgraded for carbonated beverages such as beer, alcohol, food products, and cosmetics in other countries ‑‑ this will also be the trend in Poland.

Extensive consultations with Polish companies involved in trade in chemical products and plastics show that the most promising products for import into Poland include:

HS 3901 10 Polyethylene having a specific

gravity of 0.94 or lower ‑‑ LDPE

HS 3901 20 Polyethylene having a specific

gravity of 0.94 or more ‑‑ HDPE

HS 3903 11 EPS

HS 3903 20 SAN

HS 3903 30 ABS

HS 3906 Acrylic Polymers in Primary Forms,

especially PMMA

HS 3907 60 PET

HS 3909 50 Polyurethane

USD Millions 1997 1998* 1999*

A. Total Market Size 1,252 1,370 1,510

B. Total Local Production 503 510 520

C. Total Exports 125 140 160

D. Total Imports 874 1,000 1,150

E. Imports from the U.S. 23 25 30

* The above statistics are unofficial estimates.

Sector Rank: 6

Sector Name: Automobile Parts and Components

ITA Industry Code: APS

The market in Poland for car parts and components has been growing significantly in the last several years. It is expected that this trend will continue as the number of cars registered in Poland grows. Investments by some of the world's major car manufacturers (General Motors‑Opel, Volkswagen, Ford, Peugeot, Daewoo) and planned future investments indicate the number of cars in Poland will continue to increase. Recent investments of major car parts producers in manufacturing facilities show that the market for spare parts in Poland is very promising.

There are more than 8 million passenger cars registered in Poland. This number is likely to grow to 10 million by the year 2000 and to 15 million by the year 2010. In the last few years the number of passenger cars annually registered in Poland has reached a total of 480,000.

1996 saw record high growth in the production and sale of passenger cars in Poland. Manufacturing and assembling increased by 20.3%, and sales of new cars jumped by 42%, the highest growth in Europe.

Experts estimate that the Polish car market is capable of absorbing some 330,000 to 400,000 new passenger cars annually until the end of the century. There is room for both domestically produced and imported vehicles.

One third of the cars registered in Poland were made five to ten years ago. More than two‑fifths are over 10 years old. Brand‑new cars account for about 6% of all registered cars. This means that there still is and will be a significant market for non‑original parts for the next five to seven years.

USD Millions 1997 1998* 1999*

A. Total market size 1,250 1,320 1,360

B. Total local production 480 520 550

C. Total exports 282 300 340

D. Total imports 1,052 1,100 1,150

E. Imports from the U.S. 8.16 8.5 9.0

* The above statistics are unofficial estimates.

Sector Rank: 7

Sector Name: Pollution Control Equipment

ITA Industry Code: POL

Poland, with a population of 39 million, is the largest single environmental market in Central Europe. Solving air, soil, and water pollution problems is a major priority for the Polish government. Since 1990, environmental investments have increased more than three times as a percentage of GDP, reaching 1.7% of GDP in 1997 (increasing from USD 580 million to USD 2 billion). Despite difficult economic conditions, Poland has been very successful in obtaining environmental financing through fees and fines based on “the polluter pays” principle.

The privatization process makes investments in environmental protection more attractive. Privatizing companies not only must evaluate their existing performance, assets, obligations etc., but also have to prepare business plans for future development. Vital to those business plans are issues concerning environmental protection which are enforced by high penalties for pollution.

The market for pollution control equipment (HS 8421) has grown steadily over the last few years and is expected to grow even more. U.S. exports of pollution control equipment to Poland have grown significantly more than expected in the last four years. While U.S. products are considered the best quality, they face strong competition from European suppliers, especially German (ranked 1st), Swedish (ranked 2nd), and Italian (ranked 3rd). The U.S. is ranked 4th when it comes to pollution control equipment exports to Poland.

Competitiveness of products offered by European producers is based on lower shipping costs and lower customs rates for EU suppliers. U.S. companies may take advantage of expanded duty‑free quotas for some of the products under HS 8421 introduced in 1996 and 1997.

USD Millions 1997 1998* 1999*

A. Total market size 430 458 514

B. Total local production 150 160 160

C. Total exports 39 42 46

D. Total imports 319 340 390

E. Imports from the U.S. 19.5 21 22

* The above statistics are unofficial estimates.

Sector Rank: 8

Sector Name: Food‑Processing Equipment

ITA Industry Code: FOD

In recent years, the food processing industry has contributed 7-9% of the annual gross domestic product growth, which is equal to the contribution made by the fuel‑energy and electric engineering sectors. This sector had higher growth than the agricultural, building, or chemical industries. In 1997, the food processing industry maintained a high rate of growth of production and increased by 11% in comparison with 1996. The largest subsectors are: meat and poultry processing (19.0%), spirits and yeast (18.0%), dairy products (12.0%), sugar and sweets (12.0%), tobacco products (10.0%), and breweries (7.0%).

The biggest investments target sugar companies, breweries, food concentrates and vegetable and oil producers, some sub‑branches of poultry processing as well as dairy, potato chips, french fries, and vegetable and fruit juices producers. The food industry is expected to see a growth rate of 5% in the coming years. This could translate into investments of USD 1.2‑1.5 billion per year, including the procurement of machines and technological equipment estimated at USD 0.8 billion. The Polish food industry has attracted increasing interest from foreign investors. In the entire food industry, the biggest share of foreign capital has been invested into confectionery branch, beverages, food concentrates, potato processing, dairies and flour mills.

In 1996, the domestic production of food‑processing equipment did not meet the overall market demand, and the majority of food processing equipment was imported. The largest share of imports was reported in the brewery equipment group (increasing by 131% in 1995). The second largest imports were installations and machines to make sweets, cocoa, chocolate, and sugar imports. The highest import growth rate occurred in the group of assorted equipment for processing fruits, vegetables, tea, and coffee. Poland’s approaching integration with the European Union will result in adjustments of its food processing industry to meet western quality, technology, sanitary, and ecological standards.

In 1996, total imports were USD 216 million and 43% of all food processing machines came from Germany. The other largest suppliers were Italy (13%), Switzerland, Great Britain (6% each), the Netherlands, Austria and the United States (5% each).

USD Millions 1997 1998* 1999*

A. Total Market Size 313 345 375

B. Total Local Production 110 125 140

C. Total Exports 35 40 45

D. Total Imports 238 260 280

E. Total Imports from U.S. 12 14 16

* The above statistics are unofficial estimates.

Sector Rank: 9

Sector Name: Health Insurance

ITA Industry Code: INS

Health insurance is considered one of the best prospects for major American insurers, especially ones experienced in emerging markets. Polish legislators have approved the final version of health reform legislation, and it is scheduled to take effect in 1999. The goal of the health care reform program is to create a new source of financing independent from the central budget. In the new system, health care would be financed partly from insurance premiums in addition to funding from the central budget. The mandatory, tax-deductible health insurance premium would amount to a 7.5-10% tax on individual income. Twelve regional health care funds would be created to administer the revenues and select local care providers through a competitive bidding process. This is expected to stimulate competition and create a market for medical services.

The insurance funds will cover the costs of medical consultations, diagnostic services, basic medicines, and regular hospital treatment. The insurance fund will cover all dependents of the employee. Pensioners will pay for themselves, and the Treasury will pay for the care of orphans, persons on permanent welfare, and the poorest farmers (about 1 million farming families). The central budget will continue to be administered by the Minister of Health. This money will be given to medical schools and the National Health Policy priority programs. Centrally planned purchases of medical equipment and hospital infrastructure investments will continue to be financed from the central budget.

Private health insurance will also play an important role in health care reform. At present there are no insurance companies that offer health coverage. Under Polish law, foreign companies are not allowed to provide health insurance until 1999, and Polish insurance companies do not offer health coverage. Reform is coming, as is the introduction of an insurance based system. In addition to being a real milestone in the transition process, this system would create a solid foundation for the development of private institutions offering attractive and differentiated packages for a significant part of the population. Once the reforms are implemented, domestic and foreign insurers are likely to find fruitful grounds for their operations.

Sector Rank: 10

Sector Name: Education and Training

ITA Industry Code: EDS

Poland’s economy is expanding, wide spread privatization is looming, yet the average employee in Poland still lacks key skills. This situation brings a stream of business to foreign and domestic training companies. According to the major training companies, the human factor and customer care become more and more important as companies compete with similar technology and products. There is a training boom in Poland and it is forecasted to continue to increase. Most foreign companies use outside trainers to work with their staff, and this is also becoming popular among state-owned companies and government agencies, as they too must compete. The future privatization of large sectors of the Polish economy, such as energy, will incite even more business. In addition, training companies are now trying to reach out to privately owned small firms, which are more resistant to outside training. For Poland’s participation in NATO, one of the major goals for the Polish army is an intensive English language training.

There is demand in all areas of training, including: management, leadership, customer service, communication, conflict solution, negotiations, selling techniques, team building, human resource management, time management, and foreign languages. Teaching methods vary from simulation games, through discussion groups to lectures, and some companies request tailored training programs. For example, some companies might need one training program (telemarketing), while others may be looking for a way to change the entire organization. Most training sessions are interactive and offer seminars outside the workplace. Polish companies have come to view personnel development as an important issue. They have started increasing budgets for external training and treat the cost as an investment resulting in more organized and better skilled staff.

Although various training companies find different ways to get their message out and capture new clients, all of them experienced hearty income increase in the last two years. Therefore many training companies are looking to increase their training staff, expand training methods, and steam their advertising campaign.

Sector Rank: 11

Sector Name: Telecommunications

ITA Industry Code: TEL

The Polish telecommunication sector (HS 8517) is a key industry and a major part of Poland's infrastructure. The Polish telephone network is estimated to grow 15% per year. There were 7.5 million telephone subscribers in Poland in 1997. Planned investments are estimated at USD 14 billion in the next 10 years.

Until the end of 1999, the switching and transmission systems for the public networks market are limited to the equipment designed and manufactured by three foreign companies which invested in Poland in the early nineties: Lucent Technologies, Alcatel, and Siemens. All equipment hooked to a public network has to be homologated in Poland. Most sales opportunities are in tele‑information products and radio communication products.

Telecommunications services are the most profitable sector of economic activity in Poland, with a 19.4% profit margin in 1996. Poland's agreement with WTO states that Telekomunikacja Polska S.A. will maintain its monopolistic position in international services until 2003. First tenders for long-distance services are expected in late 1998 for companies with a majority of Polish capital. Domestic public services are entirely open to foreign investors, subject to obtaining a license through a tendering procedure, in accordance with government policy currently allowing one independent operator besides TPSA in every local area of Poland. Internet, data communication and paging services are also open to foreign investors, upon obtaining a license.

Overall development of the telephone industry:

1997 1998* 1999*

Number of

subscribers (millions): 7.5 8.6 10

Growth in the number of

subscribers (thousands): 900 1,000 1,160

Rate of growth (%): 15% 16.0% 16%

Telephone density: 20 22 25

* The above statistics are unofficial estimates.

Sector Rank: 12

Sector Name: Financial Services

ITA Industry Code: FNS

Financial services have been developing rapidly since the political and economic changes started in 1989. The slow development and reorganization of the Polish banking sector has been an important catalyst for the development of private sector financial services.

The Mass Privatization Program boosted investment banking. This program has sold 163 state owned enterprises, and more are planned in the coming year. There are 19 investment banks and advisers in Poland owned mainly by foreign financial institutions. Venture capital firms have been attracted by the important private sector development through equity investment, loans and technical assistance. There are already 12 venture capital firms in Poland operated mainly by foreign investors. The value of invested capital into any one project ranges from USD 50,000 up to USD 5 million.

The Warsaw Stock Exchange was set up in 1991, and a futures market will be established in the second half of the current year. Trust funds have been attracted by the strong growth. So far, 39 trust funds operated by thirteen trustees with asset value estimated at USD 153 million operate in Poland, with monthly growth rates of 12% being recorded. Statistics show that Poles have a growing propensity to save.

Sector Rank: 13

Sector Name: Printing Industry

ITA Industry Code: PGA

The Polish printing industry has undergone privatization in the last eight years, and most of the enterprises are now in private hands. Small and medium-size enterprises prevail. Poland does not manufacture printing equipment; most of the machines and materials are imported. U.S. printing equipment is known in Poland and valued, and the Polish printing industry maintains good contact with U.S. printing organizations and companies. Polish buyers are interested in new technologies and modern equipment.

Second-hand machines, however, also sell well in Poland. A number of companies specialize in importing used equipment to Poland. German printing equipment prevails on the Polish market. Swiss, Italian and British machines are in the second tier of exports to this sector. There is no custom tariff for printing machines imported from the United States. The Polish printing industry is a fairly close community that maintains personal contacts on both a professional and a social basis. The Polish Printing Chamber is an organization that assists Polish companies in maintaining international contacts, finding foreign partners and lobbying.

Overall development of the printing industry:

(USD million) 1996 1997 1998*

Imports 142 130 150

Production 10 12 14

Exports 4 3 4

Market 148 139 160

Imports from U.S. 5 12 21

* The above statistics are unofficial estimates.

B. Best Prospects for U.S. Agricultural Products to Poland:

(In thousand tons, unless otherwise noted)

Sector Name: Poultry Meat

PS&D Code: 52

Poultry meat consistently remains the most important food and agricultural export from the United States to Poland. A tariff rate quota has limited the share of the domestic market available to imports. However, U.S. poultry, especially chicken leg quarters, remains an attractive commodity for Polish importers. In 1997, import demand was sufficient to make imports of U.S. poultry meat profitable even at the 60% tariff rate charged on imports above the tariff rate quota.

USD Millions 1997 1998* 1999*

A. Total Market Size 493 543 580

B. Total Local Production 430 470 490

C. Total Exports 25 28 30

D. Total Imports 61 65 70

E. Total Imports from U.S. 37 38 40

* The above statistics are unofficial estimates.

Sector Name: Beef, Veal & Offal

PS&D Code: 52

The United States continues to compete effectively in the Polish market for variety meat and offal. Local shortages of beef offer opportunities for U.S. beef. Choice beef may find a niche in premier restaurants, while hefty local prices are likely to provide openings for lower‑quality cuts as well.

USD Millions 1997 1998* 1999*

A. Total Market Size 410 420 430

B. Total Local Production 396 400 410

C. Total Exports 15 15 20

D. Total Imports 20 25 30

E. Total Imports from U.S. 5 5 7

* The above statistics are unofficial estimates.

Sector Name: Grapefruit

PS&D Code: 24

U.S. exports of grapefruit (primarily ruby red) to Poland have been increasing rapidly since 1992 to an estimated USD 10 million in 1997, including transshipments through Western Europe. U.S. grapefruit sales are handled almost exclusively through Dutch and German intermediaries who offer credit terms and increased flexibility regarding size and timing of shipments. However, imports from the United States are becoming large enough that large-scale direct purchases from the United States should be feasible.

(USD Millions) 1997 1998* 1999*

A. Total Market Size 16 17 18

B. Total Local Production 0 0 0

C. Total Exports 1.3 1.8 2

D. Total Imports 16 17 18

E. Total Imports from U.S. 8 10 10.5

* The above statistics are unofficial estimates based on trade reports including direct and indirect shipments from the United States.

Sector Name: Snack Foods

PS&D Code: n/a

Consumption of snacks is increasing in Poland, reaching an estimated USD 250 million. Imports of snack products from the United States in 1996 amounted to USD 1.6 million, with slightly lower imports during 1997 of 1.0 million. However, snack food sales are expected to double by the year 2000 promising increased opportunities. Potato chips are the most important product in this category, accounting for 40% of total snack sales. Sales of fried/extruded snacks (similar to Cheetos) are also important. Distribution is the key factor in sales volume. Poland has a substantial local production of snacks with many international producers on the market.

(USD Millions) 1997 1998* 1999*

A. Total Market Size 200 250 300

B. Total Local Production 172 200 240

C. Total Exports 10 20 25

F. Total Imports 18 30 35

D. Total Imports from U.S. 1 1.3 1.6

* The above statistics are unofficial estimates.

C. Significant Investment Opportunities:

Privatization has been slow, especially in what the Polish Government regards as “strategic sectors”: banking, insurance, telecommunications, mining, steel, defense, transportation, energy, and broadcasting. A bill passed by Parliament in the summer of 1995 gave much of the authority for privatization to the Parliament and emphasized “commercialization,” turning State enterprises into treasury‑owned joint stock companies before truly privatizing them.

New privatization plans for 1998 include: banks, the national airline LOT, the telecom monopoly TPSA, oil and gas company NAFTA Polska, iron and steel works, the spirits sector, and a series of power generation plants. The Government also has a 52.1% stake in the copper holding company KGHM Miedz and plans to sell shares to a few institutional investors. In 1999, Polish Oil & Gas Company, insurance sector and sugar plants will be privatized. Privatization of the chemical sector (from retailing group of Cefarms through pharmaceutical to synthetic fertilizers) and trade entities and distribution chains (Domy Centrum, Orbis, Ruch) started in 1996 will continue. In 1996 companies under the Mass Privatization Program moved closer to privatization, and in fact many of them were sold to strategic investors. The National Investment Funds, which manage the Mass Privatization firms, are listed on the Warsaw Stock Exchange as of June 1997.

The Government of the United States acknowledges the contribution that outward foreign direct investments make to the U.S. economy. U.S. foreign direct investment is increasingly viewed as a complement or even a necessary component of trade. For example, roughly 60% of U.S. exports are sold by American firms that have operations abroad. Recognizing the benefits that U.S. outward investment brings to the U.S. economy, the Government of the United States undertakes initiatives, such as Overseas Private Investment Corporation (OPIC) programs, investment treaty negotiations and business facilitation programs, that support U.S. investors.

Banking and Financial Services

The post‑1989 reforms of the banking and financial sector led to the Polish National Bank NBP being divided into nine medium size regional banks for eventual privatization. Five are already private, one is currently being privatized, and the other three should be privatized before the year

2,000. At the same time, changes in banking laws have allowed foreign investors to operate in this market. Currently 25 foreign banks are licensed to operate in Poland.

A logical trend towards consolidation of the banking industry began in the past year with mergers between Polish banks and some acquisitions of Polish banks by foreign banks. The consolidation has also involved insurance companies and will likely lead to major financial institutions being created. According to international financial experts, the Polish banking market is likely to be the fastest growing in Europe over the next five years. During this period, average real annual growth rates in Polish zloty terms are forecasted to be 13% to 15%, for the assets of Polish banks, and 16% to 18%, for retail deposits. According to international consulting firms, the number of permanent users of banking services is increasing at the rate of 2% yearly, and is already at 30% of households. However, by the end of the first quarter of 1998, Poland had only six million current accounts. That number is expected to explode in the next three years, with the number of current accounts growing 67-68% by 2000. It is still far from the approximately 80% usage rate of Germany, making this a promising market for those who enter.

Due to the rapid development and reorganization of the Polish financial market to meet international standards and competitiveness, investment in financial services is considered the best prospect.

Insurance

The Polish insurance market continues to be liberalized. As of January 1, 1999, insurance companies located outside Poland will be allowed to sell their policies directly in Poland. There are 53 licensed insurance companies including more than 20 with foreign capital. Of the 53, 23 are in the life‑insurance business and 30 in the non‑life business. In 1997, non‑life insurance companies collected USD 2.26 billion in premiums, while life insurance companies collected USD 1.14 billion, a 45% increase over 1996.

PZU S.A. (Panstwowy Zaklad Ubezpieczen) still dominates the Polish market with about a 65% share and collected premiums in 1997 totaling more than USD 1.5 billion. PZU is still state owned, and privatization is not expected to be completed before 1999.

Poland is the biggest insurance market in Central and Eastern Europe. Strong economic development, a decreasing level of inflation and the progressive adjustment of legal regulations to EU directives create a good climate for investment opportunities in the insurance sector. Competition from foreign investors and the preparation towards a fully open and free market has started a trend towards consolidation in which large banks are taking part.

Power Industry

The Polish electrical power sector consists presently of three subsectors: generation, transmission, and distribution. As a system it is the largest in Central and Eastern Europe.

Power is generated in 56 thermal power plants, of which 33 are combined power and heat plants. The installed generating capacity of the power stations is 33,000 MW. In 1997 the gross domestic production of electricity reached 144,000 gigawatts. The sector is currently undergoing significant changes as it prepares for demonopolization.

The Polish electrical power sector is in dire need of modernization and refurbishment in order to create an economically efficient industry capable of meeting national energy requirements. The cost of modernization over the next fifteen years is estimated at USD 50 billion. Modernization is needed to replace 16 gigawatts of obsolete installed capacity and to satisfy stricter ecological standards that are due to become effective between the years 1998-2001. Out of this amount, USD 15 billion is needed for the modernization of existing power plants. A substantial portion of the modernization cost will be covered by the income generated from privatizing the power enterprises.

The major trends in the power generation sector include liberalization of the electric energy market, demonopolization, and privatization of energy sector enterprises. In December 1997, a new energy law came into force. The law creates a solid legal framework for a competitive energy market based on third party access and a licensing system. The independent Energy Regulatory Agency was created to ensure competition within the energy sector.

The new energy law opens the way to privatization of power generation enterprises and places Poland's energy sector on equal footing with more liberal European countries. The law safeguards and facilitates foreign investment in Poland's energy sector, which over the next 5‑6 years will lead to the development of a privatized electricity market. Eventually, prices for power producers, distributors, and trading companies will no longer be set by the Polish government, but verified by the electricity exchange and contract market. The Energy Regulatory Agency will only supervise the compliance with license and market rules.

Multilateral lending institutions such as the World Bank and the European Bank for Reconstruction and Development are interested in investing in Poland's power sector. The EBRD is focusing on joint venture arrangements in large turbines, gas‑fired turbines, and hydro turbines as the best opportunities in the sector. The World Bank is also heavily involved in financing in the Polish power sector, including modernization projects within power generation, transmission, and distribution.

Oil and Gas Industry

In the 1980s the Polish oil and gas industries were combined into a single legal and economic entity, the Polish Oil and Gas Company (POGC). This was done in order to improve coordination and efficiency of gas supplies from domestic sources with imported supplies. In recent years, POGC has been undergoing an economic and legal transformation, which has caused a restructuring of the oil and gas industry's role within the Polish economy.

Currently, POGC is the only producer of oil (very marginal) and natural gas in the territory of Poland. The POGC holds a monopoly on the importation, transmission, storage, and distribution of natural gas. In order to reduce the overwhelming dependence on domestic coal and imported gas, Poland intends to develop exploration and production of methane gas from hard coal deposits in Silesia. In 1991, licensing was made available to foreign companies for oil and gas exploration and production in Poland. Several U.S. and foreign oil and gas companies are involved in the exploration of methane, natural gas, and oil in Poland.

According to government forecasts, by 2010 gas consumption will increase to 22‑27 billion cubic meters annually (USD 11 billion cubic meters today). To meet the increasing requirements for gas, Poland is participating in the construction of a transit gas pipeline from Siberia to Western Europe. On September 26, 1996, the Polish Oil and Gas Company and Russian Gazprom signed a contract for delivery of 250 billion cubic meters of natural gas over the next 25 years through the Yamal pipeline. Annual shipments will amount to 14 billion cubic meters of natural gas. The implementation of an investment of this type will create the need for distribution systems and gas‑storage capacity. The construction of two underground storage facilities is in the process. Several others are planned to be built according to the bid procedure opened to foreign companies.

The Polish Government has designated the oil industry as one of the sectors that is of strategic importance for national security. The domestic refining industry only partly meets the demand for oil products; approximately 20% of liquid fuels are imported. The oil sector, both production and distribution, requires substantial investments to be competitive with the rest of the world. Major problems faced by the petroleum industry in Poland include lack of capital, obsolete technology, poor energy efficiency, excessive use of raw materials, low utilization of existing capacity (below 80%) and burdens on the environment.

The majority of installations and refineries in use today were constructed in the 1960s and 1970s and need modernization. The two largest refineries, Plock and Gdansk, are embarking on modernization programs worth more than USD 1.5 billion. The Plock and Gdansk refineries are eager to use U.S. technology, which enjoys an excellent reputation among Polish specialists, in their modernization investments. In addition, there is a need for additional storage capacity for fuel reserves.

The government has signed agreements with the World Bank and the European Investment Bank on loans for the energy sector. A substantial part of the loans to Poland were allocated for technological development in the oil and gas sector. The gas extraction industry was recognized as a key element in the restructuring of the overall national economy and the protection of the natural environment. Out of a total USD 310 million allocated, some USD 200 million will be used for technical restructuring in the oil industry, including the purchase of new equipment for geophysics, drilling and production installations.

The Yamal‑Europe Transit Gas Pipeline Construction

The Yamal‑Western Europe transit gas pipeline, more than 4,000 km long, will carry natural gas supplies from the richest Siberian reserves to Germany and other Western European countries across the territories of Russia, Belarus and Poland. This enormous investment project is estimated at USD 35 billion.

The Polish and Russian governments signed an agreement for the pipeline construction in August 1994. According to this agreement, a tendering process will select construction companies and suppliers, primarily from Polish and Russian bidders, on a strictly competitive basis. Other international companies will be considered if neither Polish nor Russian companies qualify.

The Polish section of the gas pipeline is designed, constructed and managed by EuRoPol GAZ S.A., a joint‑venture founded in September 1993 between the State‑held Polish Oil and Gas Company (48%), Russian Gazprom (48%) and a Polish company, Gas Trading S.A. (4%). EuRoPol GAZ S.A. will be the owner of the Polish section of the gas pipeline.

The construction cost of the Polish section of the pipeline is estimated at USD 2.5 billion, making it the largest infrastructure investment in Poland to date. The Polish section of the pipeline will run from Kondratki, on the Polish border with Belarus, to the German border town of Gorzyca and will carry 65.7 BCM of natural gas. Additionally, two parallel gas pipelines are planned, each 665 kilometer long. The first pipeline will become fully operational in 1999, along with five compressor stations. The second line will be completed in 2010. The construction of both lines is divided into several parts.

The construction of the first 107-kilometer long stretch of the pipeline going from Gorzyca on the Polish‑German border to Lwowek near Poznan was completed in October 1996. The general contractor selected for this USD 400 million segment of the project was a consortium of five Polish energy and gas construction companies. EuRoPol GAZ selected the consortium through a tendering process. Construction of the second part of the pipeline, from Lwowek to Wloclawek, is in process and is being performed by the same consortium. The construction of the third 365-kilometer part of the pipeline running from Wloclawek to Kondratki will start in summer 1998. Four polish companies were selected to negotiate the contract for the third section. Although the general contractor has been selected, there are still opportunities for U.S. providers of relevant materials and equipment not available from Polish or Russian companies.

In November 1996, EuRoPol GAZ S.A. announced the tender for construction of the first two, out of a total of five, compressor stations for the pipeline. There was an invitation for submitting pre‑qualified bids for turn-key operations of the Wloclawek and Kondradki compressor stations. As a result of this announcement, a short list of eight qualified companies was prepared. Companies included in this list are currently negotiating with EuRoPol GAZ.

EuRoPol GAZ S.A.

Mr. Jerzy Adamczyk, President

Aleja Stanow Zjednoczonych 61

04‑028 Warsaw

tel: (48‑22) 813‑25‑85

fax: (48‑22) 813‑34‑75

Restructuring and Privatization of the Polish Oil Industry

The oil sector generates 8.5% of Poland's gross domestic product and over USD 400 million of profit. The petroleum industry needs restructuring in order to successfully face foreign competition that will result from the reduction of fuel import quotas and customs barriers. The total cost of restructuring is estimated at USD 3 billion. To pay for modernization, the Government of Poland plans to privatize two major Polish refineries in Plock and Gdansk.

In accordance with the government program for oil sector restructuring, the state‑owned joint stock company, Nafta Polska S.A., was created in 1996. Nafta Polska S.A. holds minority stakes in the strategic companies of the petroleum sector, including all seven refineries, the oil transportation company DEC, and the former gasoline distributor and retailer monopoly, CPN. Each of the relevant enterprises comprises an independent joint‑stock company, in which the Treasury holds a strategic block of shares.

Nafta Polska S.A. is responsible for the supervision and implementation of the government's program for oil sector restructurization and privatization. In May 1998, the government approved a new program for privatization of Polish refineries, calling for the merger of the largest Polish refinery Petrochemia Plock with the fuel distributing and retailing company CPN to create a national oil entity. This entity will be privatized through a public share offering on local and foreign stock exchange markets and the sale of a 25% stake to a strategic investor. The State Treasury would retain more than a 25% stake. The second largest refinery, Gdansk Refinery, will be privatized by the end of 1998 through the sale of more than 50% of its shares to a strategic investor. Gdansk Refinery is also negotiating to buy 200 gas stations from CPN.

The State Treasury will soon invite at least ten potential foreign investors to bid for the Gdansk Refinery shares. The privatization memorandum is scheduled to be ready in early July 1998 and will be sent to interested investors. Thirteen international oil companies have declared an interest in the privatization of the Polish oil refinery sector: Agip Petroli, British Petroleum, Conoco, Elf, Exxon, Koch Industries International, Lukoil, Maroil, Neste, Royal Dutch/Shell, Statoil, Texaco, and Total.

Nafta Polska S.A. is looking for an investor for Gdansk Refinery, a strong, international, vertically integrated oil concern with its own oil fields. Investors are expected to guarantee continuous oil shipments from their fields at a competitive price, to integrate the refinery distribution networks with their own, and transfer new technology and management techniques. Polish banks, financial institutions, and other domestic companies may enter the scene at a later date. However, they are welcome to participate in the privatization of the three smaller, southern refineries, Gorlice, Jaslo, and Czechowice.

The three remaining southern refineries will be privatized separately. In the case of Czechowice, the prospective investor is requested to expand the plant's processing capacity to 2 million tons and participate in financing for the petrochemical segment of the planned Poludnie complex.

Nafta Polska S.A.

Mr. Marek Foltynowicz, Board Member

ul. Jasna 12

00‑013 Warsaw

tel. (48)(22) 827‑08‑76

fax. (48)(22) 827‑31‑05

Tourism Development

According to the World Bank and International Monetary Fund reports, the Polish tourism industry has great potential to contribute to the restructurization of the national economy and Poland's competitiveness in the European market. PHARE TOURIN funds have been assigned by the European Community to support development of the Polish tourism sector.

Poland possesses adequate assets and tourist attractions as well as a sufficiently developed network of tourist services. Poland's diversified natural conditions provide potential for tourism in the mountain regions, at the seaside, in the lake districts, and in the country. However, tourism and hotel infrastructure is still underdeveloped. Approximately 40% of foreign loans rendered to Polish entities have been invested in tourism. The foreign capital engaged in the Polish tourism sector amounted to USD 1.2 billion in 1997. Visitors to Poland totaled almost 100 million in 1996. The privatization of the tourism industry is systematically increasing, as is the commercialization of the tourist accommodation base.

There is a strong demand for new hotels in Poland, especially in large cities. Orbis S.A., the leading Polish travel agency and owner of the largest hotel chain in Poland is in the process of privatization. The 1997 stock issue increased Orbis stock capital by 40% to USD 35 million. The Orbis S.A. management plans that the bulk of the new issue should go to a strategic investor. Currently, Orbis S.A. is a holding company, including Orbis Travel, Orbis Transport, and Orbis Hotels. Orbis Travel is Poland's largest foreign travel agency. Orbis Transport owns a fleet of buses and represents the Hertz car rental company in Poland. Orbis Hotels owns the largest chain of hotels in Poland, 54 in all. Orbis Hotels is valued at USD 250‑300 million and accounts for some 90% of Orbis profit. Orbis Hotels generates 60% of its income from 10 hotels located in large cities. The company needs to spend USD 150 million in order to upgrade its hotel facilities.

Several international hotel companies have recently developed high-class hotels in large Polish cities, such as Marriott and Sheraton. Holiday Inn Worldwide signed a franchise agreement this year with a Polish company, Global Hotels Development Group Poland S.A. (GHDG) to develop 20 hotels in Poland within 10 years. The total investment is estimated at USD 116 million and will include construction of four luxury Crowne Plaza hotels, ten Holiday Inn Express hotels at USD 5 million each, and four standard Holiday Inn hotels at USD 12 to USD 18 million each. GHDG also plans to modernize existing hotels and introduce them into the Holiday Inn chain. There is a tremendous need to develop moderate, standard, tourist accommodations in Poland to meet European and world standards. Moreover, investments in leisure activities, such as ski lifts, tennis courts, open and indoor swimming pools, golf courses, and bowling centers, is desperately needed.

Rail and Road Transportation

Poland's transportation network, suffering from years of neglect, is in dire need of upgrade and refurbishment. Only 15% of roads can be classified as good quality, some 50% of roads are not in satisfactory condition and need immediate upgrading work, and 35% are considered very poor.

To help meet this need Poland has planned a new system of toll roads operating alongside the already existing transportation infrastructure.

The program plans for approximately 2,500 km of highways to be built in Poland over the next 15 years at a total cost of an estimated USD 8 billion. The plan, approved by the Parliament in 1994, provides for the construction of four highways. They will channel traffic between Western Europe and Poland's eastern neighbors and connect the Baltic coast with the southern borders. Each segment of the highway will be built individually by prime contractors.

The highway routes were selected on the basis of traffic volume. Tollways were supposed to be built under a license, Build Operate Transfer (BOT), with both private and public investors as participants in forming a consortium. The financing arrangements of the consortium of highway owners were to differ, but the government was supposed to cover the costs of buying land. In early 1998 the BOT scheme was questioned, and the Polish government is now considering a Public Private Partnership plan. Significant financial contributions will come from international financial institutions (EBRD and World Bank). The first tenders have been announced, and the first concessions that allow contract negotiations have been granted.

The consortium consists of design offices and project managers, contractors, and subcontractors. Beyond direct involvement in highway construction, other opportunities are emerging. The program will have a snowball effect on the demand for hotels and motels, restaurants, service stations, and other road infrastructure.

The contracting authority is:

The Agency for Construction and Operation of Highways

(Agencja Budowy I Eksploatacji Autostrad)

Mr. Andrzej Urbanik, President

ul. Chalubinskiego 4/6

00‑928 Warsaw

tel: (48‑22) 624‑43‑65

fax: (48‑22) 830‑05‑84

The importance of railways in Western Europe has a significant effect on the development and modernization of rail transportation in Poland. Poland's location forces integration of a portion of the Polish railway network with the European transportation system. Its integration with the European network and competitiveness with international traffic requires a higher standard of service in both passenger and freight transportation. The share of railways in the transport of goods in Poland is now approximately 50%. The share of mixed, road and rail, transport is very low due to underdeveloped computer systems and lack of appropriate platforms, rolling stock for the transport of semi‑trailers or containers, and the lack of equipment for container handling. However, mixed transport has the best prospects for growth in Poland.

The Polish State Railways (PKP) is the third largest railway in Europe in terms of line length with 25,000 kilometers of rail, but in terms of quality of equipment and service it is far behind EU countries. About 60‑80% of PKP's rolling stock is outdated and needs modernization.

The Polish railway modernization project involves modernization of the main railway line from Warsaw to Kunowice (German border). The project will include the purchase of track rehabilitation machinery, signaling cables, power supply cables, signaling equipment, steel parts for standard turnouts, as well as hot and flat wheel detection equipment. The project’s estimated value is USD 580 million. A financial contribution of USD 60 million will come from the EBRD. Other international agencies will provide USD 275 million.

The agency responsible for this project and its contracting authority is:

PKP CBZIS "FERPOL"

Mr. Zbigniew Palczewski, Director

Wojciech Stroinski, Commercial Director

ul. Grojecka 17

00‑973 Warsaw

tel: (48‑22) 822‑14‑30

fax: (48‑22) 822‑26‑28

Chemical Industry

The chemical industry in Poland continued to grow in 1997, with production figures increasing in all branches of the industry and in all groups of chemical enterprises. The manufacturing of soaps and detergents increased by almost 49%. The production of rubber products rose by almost 35%, and explosives, photo‑chemical products, glues, products for clothing, and leather and textile industry products rose by 44%. Production rose significantly in artificial fertilizers, due to the introduction of quotas for ammonium nitrate and carbamide imports from ex‑Soviet countries, where it is much cheaper.

A new program for modernization and privatization of the Polish chemical industry calls for 105 investment ventures through the year 2005 for a total value USD 3 billion. It is expected that 30% of the financing will come from Polish chemical companies, 20% from a Polish investment consortium, and 50% from foreign investors.

Predictions of sales in the chemical industry in Poland in the next few months are also optimistic. Almost all Polish chemical firms expect sales to grow in 1998. Interested companies may wish to keep in contact with:

Polish Chamber of Chemical Industry

Mr. Konstanty Chmielewski, President

ul. Zurawia 6/12

Warsaw

tel/fax: (48‑22) 625‑3178

Environmental Industry

The environmental services sector has only recently emerged in Poland's growing market economy, and is in a stage of flux. The new Polish environmental strategy emphasizes the principle of sustainable development. It encourages firms to rely on clean technologies, pollution prevention, and waste minimization in designing their production process. It discourages “end‑of‑the‑pipe” control technologies.

Poland faces enormous environmental challenges, but this dilemma also represents opportunities for western companies with the equipment, advanced technology, and know‑how that Poland requires. The most promising areas are air pollution control, wastewater treatment, waste disposal, and recycling technology. The importance of the environmental sector is widely recognized by Polish authorities and strongly supported by international financial institutions. Credit lines are available for environmental protection investments on preferential conditions, thanks to funds provided by internal sources as well as the World Bank, European Bank for Reconstruction and Development, and others. Poland has adopted the “polluter pays” principle. Fees and fines for use and pollution of the environment are being collected by the National and Regional Funds for Environmental Protection and Water Management. These Funds offer preferential loans for environmental projects.

Total spending on environmental protection in Poland rose during the last six years from USD 580 million in 1990 to USD 1.4 billion in 1994 and to USD 2.0 billion in 1996 (1.6% of GDP).

Automotive Industry

Auto sales in Poland in 1997 saw a record high. Production increased by 30% and new car sales jumped to 477,960 units, up 27.59% from 1996. The automotive industry represents not only a great sales opportunity, but is also a very good investment opportunity. Several companies have already decided to take advantage of that by locating either production or assembly plants in Poland. Major investors include Fiat, Daewoo, GM‑Opel, Ford, Volkswagen, Peugeot, Scania, and Volvo. The auto parts industry is also very promising for potential investors, as the majority of investors in car production commit themselves to sourcing their parts in Poland, not from abroad.

Telecommunications

The Polish telecommunications sector is a key industry and a major part of Poland's infrastructure. Although the Polish telephone network is growing at 15% a year, the Polish infrastructure is far behind other European countries with approximately 20 telephones per 100 inhabitants. USD 14 billion will be invested in the next ten years.

The national telephone operator, Telekomunikacja Polska S.A. (TPSA), will continue to have a monopoly until the year 2003. As the Polish government has committed to opening long distance services by January 1, 1999, tenders will open in late 1998 with up to three licenses being granted. Foreign ownership is limited to 49%. The current estimated value of TPSA is USD 15‑25 billion.

Investment opportunities for foreign companies currently exist without limitations in local telephone services and value added services. The government is planning 18 tenders for local telephone services by the end of 1998 to complete the process of creating a telephone duopoly (TPSA and at least one more independent telephone operator in each local area). At the end of 1997, private operators served only 170,000 customers, compared with approximately 7.5 million telephone subscribers. The market share of private providers is expected to reach 25% in the year 2000, upon an investment of USD 3-4 billion.

A new telecommunications law that would comply with EU standards is currently being drafted. It is expected to reach the parliament in autumn 1998.

INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND

THE UNITED STATES

<NREC>Poland06 Poland: Trade Regulations & Standards <A>=Poland

VI. Trade Regulations and Standards

A. Trade barriers, including tariffs, non‑tariffs barriers

and import taxes

Poland complies with the Harmonized Tariff System. Tariff rates are subject to changes twice a year (January and July) as Poland adjusts to becoming a market economy. Depending on the country of origin, products are divided into three categories:

1. Developing nations

2. Members of the World Trade Organization

3. Countries with which Poland has a bilateral or multilateral customs greement (e.g., European Union-Polish treaty)

Customs duties apply to all products imported into Poland. Tariffs range from 0 (zero) to 45%, with the average between 15-20%. The customs duty code that is currently binding in Poland has different rates for the same commodities depending on their point of export.

In 1992 Poland signed an association agreement with the European Union that lowered or eliminated tariffs on many EU produced goods imported into Poland, while tariffs on U.S. products remained the same. At that time, the U.S. managed to negotiate more favorable rates for some product categories, but many U.S. products are still at a disadvantage compared to European competitors.

The most recent revision of the Polish customs tariffs took place on January 1, 1998. The average rate of duty in this new customs tariff is 7.73% for industrial products and 19.52% for agricultural and food products. The recent revision allowed Poland to adjust its foreign trade regulations to World Trade Organization and EU standards.

For some luxury and strategic products (e.g. alcohol, cosmetics, cigarettes, sugar confectionery, video cameras, satellite antennas, passenger cars, gasoline, and oil) excise tax is also applied. Excise tax is levied on top of the customs tariff.

As in much of Europe, a Value Added Tax (VAT) is also assessed. There are three VAT rates: 0%, 7%, and 22% depending on the product. VAT is levied on the CIF value of the product plus duty plus excise tax (if applicable).

Duty free quotas, or zero duty quotas, have been applied within certain industries including the automotive, computer, and pharmaceutical sectors in Poland. U.S. and foreign firms have benefited from these quotas. In some instances the quotas are targeted to products originating from specific export regions (e.g. cars from the European Union), and in others they have been assessed to help protect local industry (e.g. pharmaceutical), to help develop industries (e.g. computer parts and components), or to protect the environment.

Refunds are possible for customs duty paid on raw materials, semi‑finished goods, and products used in the manufacture of goods for export within thirty days, contingent on documentation certifying customs duty was paid on the goods when they were imported.

Agricultural Tariffs

Poland implemented its Uruguay Round requirements on July 1, 1995. This established for the first time bound tariffs for all products in the Polish tariff schedule and replaced variable levies for import-sensitive agricultural products with tariff rate quotas.

Tariff rate quotas represent significant import protection for products such as beef, pork, poultry meat, wheat and rye flours, rapeseed oil, some processed food products, yeast, sauces, alcohol, tobacco, and tobacco products. For U.S. agricultural trade, tariff rate quotas have had the largest impact on access for poultry meat. The tariff rate quota for poultry meat, which will be adjusted upward annually as Poland's domestic output expands, is estimated at 36,460 for 1998. The above‑quota tariff is presently set at 60%, which is one‑half the maximum rate that Poland may apply under the Agreement.

B. Customs valuation

Customs rates (duty) are based on the CIF value of the product. The import tax and excise tax, if applicable, are levied on CIF plus duty, and VAT is levied on CIF and the duty. Customs officials are extremely strict with regards to proper documentation. It is essential that exporters take care to fill out documents properly to avoid costly delays in customs clearance.

C. Import Licenses

In general, the trade of goods and services is not restricted in Poland. In some areas, including imports of strategic goods (e.g. police and military products, radioactive elements, weapons, transportation equipment, chemicals) a license or concession is required. Imports of beer, wine and strong alcoholic beverages, gas, and certain agricultural and food products (including dairy, poultry, and tobacco products) are also licensed. A permit is necessary to sell imported alcoholic products. A phytosanitary import permit issued by Plant Quarantine Inspection Service is required for the import of all live plants, fresh fruits, and vegetables into Poland. Several common weed seeds have quarantine status which hampers U.S. grain and oilseed exports to Poland.

Certain goods are subject to import quotas in Poland. These include: gasoline, diesel fuel and heating oils; wine and other alcohol; and cigars and cigarettes.

The Ministry of Economy issues import permits and concessions and regulates quotas. However, other Polish ministries have special jurisdiction over products such as tobacco (Ministry of Agriculture); permits related to air, sea, or road transport (Ministry of Transportation); industrial goods (Ministry of Industry); or natural resources (Ministry of Environmental Protection). The list of products requiring import certification in Poland is always subject to change, and appears to be growing. U.S. exporters should ascertain whether their product requires import certification before shipping.

In most cases, before an issuing ministry grants import permission on a product, the product must be reviewed and recommended for import into Poland by one or more inspectorates or technical associations, depending on the nature of the product. This can be a costly, lengthy, and confusing process for the U.S. exporter and the Polish importer alike. It is often necessary to submit samples of products or equipment for testing, regardless of the issuance of previous U.S. or international certificates. The presentation of detailed documentation on a product is a must, and all requests by relevant inspection agencies should be strictly adhered to in order to speed‑up certification procedures.

When satisfied, the inspecting agency will make a positive or negative recommendation for import to the appropriate Polish ministry. Once import is approved for a specific product, further imports of that product are free from additional regulation. U.S. companies with several lines of like products (e.g. pharmaceutical, food preparation, or chemical products) should begin the approval procedure on all products they anticipate they will export to Poland as early as possible.

Some products, once imported, also require registration. This is particularly true of products that come into contact with or can affect the health of the consumer. In the case of hazardous materials the importer must receive permission to use the product before applying for a concession to import the product into Poland.

Importers of meat, meat products, and offal must obtain a veterinary permit and each consignment must be accompanied by the health certificate issued by USDA's veterinary authorities. Veterinary permits are also required for the import of live animals, semen, and embryos. Veterinary permits for breeding livestock, semen, and embryos are not issued unless approval for the importation is received from the Central Animal Breeding Office.

Beginning in January 1997, a new Polish regulation went into effect requiring imported products, including food and agriculture products, to be inspected for compliance with Polish standards. The inspection agency, Centralny Inspektorat Standardyzacji (CIS), is charged with ensuring the “quality” of products offered on the Polish market. So far, the CIS inspection has not noticeably hindered trade in food products.

D. Export Controls

A U.S. export license is required on shipments of certain commodities to Poland, as provided under the U.S. Bureau of Export Administration's Commodity Control List. The government of Poland has established its own export control regime.

E. Import/Export Documentation

Import documentation in Poland is compiled under a “Single Administrative Document” (SAD) and includes a customs declaration and certificate of origin. The SAD contains 56 questions about the goods, importer, the place of origin, and method of payment. A completed customs value declaration is attached to the SAD. An original invoice or pro forma invoice proving the value of the goods is also required.

F. Temporary Entry

A license is also required for temporary import of goods, which takes place in Poland under Customs supervision. Written confirmation is required, stating that the goods will be sent out of Poland on specific dates. A deposit is required for the import of the goods subject to clearance, to equal the value of the goods to be exported or the total import customs duty and taxes. Commercial samples of zero or low value can usually be imported free of customs duty by means of a written statement to Polish Customs confirming the value of the sample and that it will stay in the possession of the importing entity. Temporary imports may also enter Poland under an ATA Carnet. Promotional materials must be clearly marked “no commercial value” in order to clear customs. A new Customs Law took effect January 1997 and harmonized Polish law with EU customs regulations.

G. Labeling, marking requirements

As noted above, certificate of origin documents are required for importation. Labeling and packaging requirements also vary depending on the product. Consumer goods require a product description in Polish somewhere on or inside the package. Packaging should clearly contain the country of manufacture. Packaged or canned food products require Polish language labels containing: the product composition, nutritional value, a “best before” date, the name and address of the producer, and the product weight. Some U.S. companies have found that using the English language somewhere on the packaging (e.g. product name, promotional slogan) helps give the product additional prestige or value in the eyes of the Polish consumer.

H. Prohibited imports

The import of some products is prohibited. These include: two‑stroke engine cars; automobiles, racing cars, and vans older than ten years; trucks older than six years; and automobiles with no proof of the year in which they were manufactured.

I. Standards

(1) “B” Safety Certificates

Beginning January 1, 1999, about 1,400 different products will probably require a “B” mark certificate (for “bezpieczenstwo,” “safety” in Polish) to clear customs (domestically produced products also require certification). This requirement was expected to be introduced beginning in 1995, 1996, 1997, and then 1998, but was postponed for each of the last four years. The list of goods that require the certification, originally published in 1994, has been modified every year since. Testing for the “B” mark is performed by the Polish Certificate and Testing Center (PCBC) or one of the fifteen specialized institutes authorized and supervised by the PCBC. Firms selling goods without the B mark or manufactured inconsistently with the mark are obligated to pay fines amounting to 100% of the value of the goods sold.

These new standards are intended to protect the Polish consumer, as there is currently no umbrella legislation in Poland covering product safety or product liability, although legislation is pending. The list of products is extremely diverse, from wire rods, steel pipes and castings to auto parts, bicycles, personal computers, fertilizers, cellophane, and shampoo.

Poland still does not have a product liability law. The Ministry of Justice is currently working on its draft, but it is expected that it still might be two years before the law is passed. The law is key to certification issues because it would provide for third party certification for a large group of products. This law would also allow a manufacturer’s self-certification of adherence to quality standards to be sufficient proof of product quality. Until the law is passed, however, it is not possible to rely on manufacturers' statements, and products must be tested in order to be certified.

Foreign certificates, such as the European C mark and ISO 9000 accelerate the current certification process. However, the law is not clear and guidance from the PCBC and testing centers is vague. Information regarding prices for testing products is also inconsistent and sometimes vague or unavailable. In most cases testing procedures are lengthy. The Commercial Service advises U.S. exporters to contact CS/Warsaw to determine whether or not their products would be subject to the requirements and for the latest information on the issue.

Poland is cooperating with the European Union to adopt similar standards and laws. The European Union will assist Poland with integrating Community legislation into the Polish legal system. The European Union and Poland have agreed that Polish testing laboratories and other institutions issuing certificates will be checked in view of their conformity with EU directives. After the testing bodies are checked and the results are positive, a list of these institutions will be published in the Official Journal of the European Community. All products then tested by these bodies will be automatically accepted in the European Union as well as in Poland without any additional procedures.

Poland will introduce changes into its legal system to achieve an EU‑compatible certification system. Before the new legislation is introduced all products originating from the European Union and subject to third party certification there will be admitted into Poland. The testing reports and certification documents produced by notified bodies in the European Union will be reviewed, and if the tests adhere to the tests obligatory in Poland, then the certification process will be considerably shortened.

Products which do not require any certification in the European Union and for which certifications are required in Poland, will be eliminated from the list of products subject to mandatory certification. This process will be introduced gradually and completed through the end of this year.

(2) Other Polish Standards: PN and BN

Polish standards describing a wide range of products have been developed by a central institution, the Polish Standards Committee (PKN), over the years. These standards have a PN prefix. The Government of Poland, through its ministries, decides which of them are obligatory. Also ministerial regulations clarify what standards a particular product must meet to be admitted into Poland. Standards developed by industry branches or industrial associations, were marked BN. They defined products of a particular industry branch and initially they were only valid for specialists in the particular branch of industry. Over the years they received national status and were listed together with the national standards. The prefixes PN and BN still exist. Descriptions of these standards are available at the central library of PKN.

Anyone interested can visit and review Polish standards at this library. It is located at the office of the Committee at ul. Elektoralna 2 in Warsaw and is open to the general public from 8:30 a.m. to 3:00 p.m.

The information in each standard includes data on product requirements and appropriate ways and methods of testing product quality. It also lists institutions that prepared the standards. It does not list, however, for what purpose the standards are required.

The library's Polish‑speaking staff is helpful with finding the standard number (which is important in any future references made to this standard), but is not knowledgeable about what standards would be required for different products, if they are not PN or BN standards. Safety standards are not listed separately, and it is not clear whether or not all PCBC standards can be found. Individuals interested in purchasing the PN and BN standards should visit the bookstore at ul. Sienna 63 in Warsaw. This is the only store that offers the standards for sale.

(3) Introducing Building Products: Technical Approvals

In the case of many building products new to Poland no standards exist. However, when introduced into the Polish market the products need to have documentation certifying that they are in conformity with existing standards. They must therefore receive technical approval, a document issued by designated research and development institutes.

The central institution performing these tests for a vast majority of building products and materials is the Institute for Building Technology (ITB) in Warsaw. It deals with products like siding, roof shingles, bricks, etc.

Some building products, after receiving technical approval, or when PN or BN standards can be applied in their case, may still require the “B” Certificate. They must then go through the certification process designed by PCBC. The standards for the “B” Certificate are available only at the PCBC. This certification process takes time. However, the official regulations specify that this process should not exceed 3 months.

With the new regulations requiring a large number of products to have a certificate, the work load of the institutes conducting the tests increased immensely. As a result these institutes are unable to meet deadlines. Since time is often one of the most important factors for a marketing organization introducing new products, this is one of the most important problems which needs attention from the Polish authorities.

Conformity with ISO 9000 is relatively rare although over 60 Polish

companies are in fact certified.

Useful contacts:

Instytut Techniki Budowlanej (ITB)

ul. Filtrowa 1

00‑950 Warsaw

tel: (48‑22)825‑04‑71

fax: (48‑22)825‑13‑03

Centralny Osrodek Badawczo‑Rozwojowy Przemyslu Izolacji Budowlanych

ul. Korfantego 193

40‑153 Katowice

tel/fax: (48‑32) 58‑35‑53

Centralny Osrodek Badawczo‑Rozwojowy

Technologii Instalacji

ul. Ksawerow 21 (COBRTI)

02‑656 Warsaw

tel: (48‑22) 43‑14‑71

fax: (48‑22) 43‑71‑65

Panstwowy Zaklad Higieny (PZH)

Zaklad Higieny Komunalnej

(Urban Hygiene Dept.)

ul. Chocimska 21

Warsaw

tel: (48‑22) 49‑40‑51

J. Free Trade Zones/Warehouses

There are currently six duty free zones (DFZ) in Poland under the government policy of a limited number of zones. Duty free zones are established by the Council of Ministers and managed by the authorities recommended by the Council, mostly the Voivodship governor who issues the operation permission. One zone is located at Warsaw's international airport, two of them are located on Poland's eastern border in Sokolka and Terespol, another in Gliwice (Silesia), and two on Poland's north‑western border in Szczecin and in Swinoujscie.

Bonded warehouses and customs and storage facilities are available. They are operated under permission issued by the President of the Central Office of Customs. They can be operated by commercial code companies.

Customs duties are repaid to the importer for re‑exports of products within 12 months of the date of customs clearance in full or partially, depending upon their length of time in‑country.

For more information, contact the Info‑line of the Central Office of Customs: tel: (48‑22) 694‑3194

K. Special Import Provisions

Other than the duty free quotas mentioned in section A, there are no special import provisions.

L. Membership in Free Trade Arrangements

E.C. Association Agreement: As mentioned before Poland implemented trade provisions of an Association Agreement with the European Community (now the European Union) in 1992, which lowered or eliminated duties on most EU exports to Poland.

EFTA and CEFTA: A trade agreement with “European Free Trade Association” (EFTA) countries (Iceland, Norway, Switzerland, and Liechtenstein), and a “Central European Free Trade Agreement” (CEFTA), including Poland, Hungary, Slovakia, and the Czech Republic, have allowed additional customs duty relief for Poland. The CEFTA agreement, signed in December 1992, allowed for a staged reduction of customs duties on three separate lists of products among the member countries through the year 2001.

The EFTA agreement, which came into force November 1993, allowed for duty free trade in manufactured goods, fish and fish products, and certain agricultural products between the EFTA countries and Poland. All trade barriers are expected to be removed between Poland and EFTA by the year 2000. Eighty percent of Poland's exports to EFTA countries are now duty free, as are about 25% of its imports. Poland's trade with EFTA countries constitutes about 15% of its foreign trade.

INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND

THE UNITED STATES

<NREC>Poland07 Poland: Investment Climate <A>=Poland

VII. Investment Climate

A. Openness to Foreign Investment

General Attitude: The Polish Government that came to power after the Fall 1997 elections has expressed the position that foreign investment is essential for the rapid development and modernization of the Polish economy. All the major political parties concur that Poland should maintain a free-market based economy and needs to attract substantial foreign investment. In particular, the parties share a common goal of attracting foreign direct investment in “greenfield” projects. However, factions within parties tend to differ about foreign investment over the extent of foreign ownership in certain strategic state-owned enterprises (particularly the banks, the insurance company, and the telephone company) and sectors (oil and energy) that are to be privatized and also over foreign ownership of agricultural land.

Major Laws and Regulations: Poland has developed a legal regime that protects property rights and investment, allows private business activity in almost every sector of the economy, provides generally equal treatment for domestic and foreign companies, and permits the repatriation abroad of profits and capital. Overall, the current legal regime comports with free-market principles and is supportive of foreign investment. The new Constitution protects the rights of private ownership and succession and it states that expropriation be allowed solely for public purposes and for just compensation. The pre-World War II Civil Code and the Commercial Code, as amended, set forth the rules on, among other things, the formation and enforcement of contracts, the creation, management and liquidation of companies, and the rights of shareholders. The Law on Companies with Foreign Participation of 1991 governs foreign investment in companies. The Foreign Exchange Act of 1994 regulates foreign exchange transactions. Moreover, the Economic Activity Act of 1988, as amended, specifies which economic activities require some form of prior governmental authorization. Together these laws open the Polish economy to foreign investment and generally have established a level playing field between foreign and domestic investors. After making substantial improvements in its foreign exchange, trade and investment regimes, Poland in 1996 joined the Organization for Economic Cooperation and Development (OECD). Moreover, Poland continues the process of implementing its trade and investment liberalization obligations to the OECD and the World Trade Organization (WTO).

A foreign investor may enter the Polish economy by means of a "greenfield" investment or acquisition of or merger with an existing Polish company. The Law on Companies with Foreign Participation permits any level of foreign investment up to 100 percent, with a number of sectoral exceptions discussed below. That law requires that companies with foreign investors be established as joint stock companies or limited liability companies. In a number of sectors -- foreign trade, transport, tourism and culture, banking and insurance -- a foreign enterprise may establish a representative office in Poland. In addition, Poland has committed to the OECD and to the EU that after December 31, 1998, foreign investors from OECD and EU member countries will have the right to establish branches, agencies and representative offices in any sector. Foreign investments can be made in the form of Polish zloty obtained from the sale of convertible currencies or in-kind, in which case an audited valuation of the contribution is required. Transfers made in connection with foreign direct investment do not require a foreign exchange permit.

In preparation for eventual membership in the European Union (EU), Poland has been harmonizing its laws and regulations with those in the EU’s acquis communautaire. In addition, it has been lowering tariff and non-tariff barriers for EU exports and investment. This process sometimes benefits U.S. and other foreign exporters and investors, such as when Poland decided to provisionally permit marketing of products that have EU product certifications while Polish product certification is pending. Some U.S. companies benefit from this policy because their goods already had EU product certifications. At other times, the preferential rules for EU companies work to the disadvantage of U.S. and other foreign firms, such as when Poland imposes higher tariffs on U.S. exports to Poland than on EU exports.

Screening: Since 1996, Poland has not had any general screening mechanism for entry and establishment of businesses by foreign firms. Authorization requirements and foreign equity limits do exist for a limited number of sectors. The Law on Companies with Foreign Participation requires a permit from the Treasury Ministry for certain major capital transactions, or lease of assets, with a state-owned enterprise. Further, that law allows restrictions on access to just Polish entities for considerations of "public security." Thus, only Polish entities can establish an airport, but licenses and concessions for defense production and management of seaports and airports will be granted on the basis of national treatment for investors from OECD countries.

Other sectoral laws establish ceilings on the share of foreign ownership: air transport (49 percent); certain fisheries activities (49 percent); radio and television broadcasting (33 percent); domestic long-distance telecommunications through 1999 (49 percent); international telecommunications through 2003 (0 percent); and gambling (0 percent). Furthermore, approval requirements are still in place for foreign investments above certain thresholds in the insurance sector.

The sale of agricultural land to foreigners has long been a sensitive issue for Poland. The 1920 Law on Acquisition of Real Estate by Foreigners prohibited a foreigner from acquiring real estate without permission. In 1996, Poland liberalized that law as part of its effort to join the OECD. The amended law allows foreign individuals and firms to own an apartment, 0.4 hectares (4000 square meters) of urban land, or up to one hectare of agricultural land without need of a permit. Also, foreign companies no longer need to obtain pre-approval for larger amounts of land before participating in bidding for a project or privatization. The acquisition of real estate above 0.4 hectares in urban areas and 1.0 hectares in rural areas, or the purchase of shares in a foreign-controlled Polish company owning real estate, still requires approval from the Ministry of Interior, with the consent of the Defense and Agriculture Ministries.

Foreign and domestic investors alike must obtain governmental concessions, licenses or permits to engage in certain activities. The Economic Activity Act provides, among other things, that: the National Bank of Poland (NBP) and the Finance Ministry issue banking licenses; the Finance Ministry provides permission to operate an insurance company; the Securities and Exchange Commission grants licenses for brokerage activities; the Communications Ministry provides licenses for telecommunication services and courier services; the National Broadcasting Council issues radio and television broadcasting licenses; the Economy Ministry gives permits for foreign trading in certain goods and services, processing of gems, precious metals and non-ferrous metals; the Health Ministry authorizes permits for the pharmaceutical and medical materials sectors; the Transport Ministry provides licenses for air, international road, rail and maritime transport, and the construction and exploitation of highways; local governments provide permits for buses and taxis, waste disposal, pharmacies, and extraction of minerals; the Interior Ministry licenses the arms industries and security services; and the Agriculture Ministry provides permits for alcohol and tobacco industries.

The processing and granting of these licenses and approvals generally has been routine and non-discriminatory, though often slow and bureaucratic. However, on occasion a licensing requirement has proven a significant impediment to investment. The best example involved the Communications Ministry’s handling of cellular telephone licenses, which led to a large American telecommunications firm withdrawing from the Polish market. (See A.4. Dispute Settlement below.) The government has pledged to deregulate the economy and significantly reduce the number of concessions and licenses required.

Privatization Program: As of mid-1998, Poland has privatized almost all small state-owned enterprises, most medium-size enterprises, and many large ones. The new government has announced its goal of privatizing seventy percent of the remaining state-owned enterprises by 2001, including the telephone company (TPSA), the national airline (LOT), the dominant insurance company (PZU), the banks, the steel mills, the oil sector, and the electrical energy sector. The government has declared its interest with almost every privatization in attracting foreign investors. The government has not yet decided whether to have strategic investors in the privatization of the Plock oil refinery and national distribution network and the privatization of some electrical energy plants. Even if foreign investors do not or cannot participate in the privatization, they can acquire equity interests later unless such foreign participation is restricted as discussed above. Some critics have expressed concern that the government might favor Polish investors over foreign investors when selecting a strategic investor for a state-owned enterprise. These doubts are often voiced in connection with the privatization of a large banking group (PEKAO S.A. Group) and the biggest insurance company (PZU).

Discrimination against Foreign Investors: Generally, foreign investors receive similar treatment as domestic investors both at the time of their initial investment and after the investment is made, such as tax treatment and obtaining approvals and licenses. However, foreign firms do face potential discrimination in public procurement contracts. Poland's 1994 Government Procurement Act, which is based on the United Nations model, allows for a twenty-percent price advantage for domestic firms. There also is a fifty-percent domestic material and labor content minimum required for all bids. Under that law, a joint venture between foreign and domestic firms, will qualify as "domestic" for procurement considerations.

B. Right to Private Ownership and Establishment

Rights of Ownership and Establishment: Domestic and foreign private entities have a general right to establish and own, as well as dispose of, a business and to engage in almost all forms of lawful economic activities. Article 64 of the Constitution provides: "Every person has the right to ownership, other property rights, and the right of inheritance. Ownership, other property rights, and the right of inheritance are subject to legal protection that is equal for all. Ownership may be restricted only by law and only to the extent to which it does not abridge the essence of the right of ownership." In addition to absolute, or private property, a second form of title in Poland for real estate is the perpetual lease, under which the lease holder generally controls the property for 40 to 99 years, and which can be extended for up to 99 additional years. Such a perpetual tenant has the right to dispose of the land by sale, gift, or bequest. As discussed above in Section A. (Openness to Foreign Investment), there are a few sensitive areas in which participation of foreigners is restricted, e.g., telecommunications and broadcasting; further, foreign ownership of other than a small amount of real estate requires a government permit. Apart from these limited restrictions, foreign entities can freely establish, acquire and dispose of interests in business enterprises.

The Civil Code, as amended, regulates property rights, between individuals or legal entities. The amendment of July 1990 reintroduced the basic standards of free market economy and ownership. The Civil Code regulations are based on the principles of equality of all parties, regardless of their ownership status, equivalency of obligations, discretion and freedom of contracts.

Competitive Equality: The private sector has expanded rapidly since 1989 and now dominates almost every sector of the economy. State-owned enterprises still dominate certain sectors, such as, telecommunications, coal, steel, insurance, energy and utilities. The private sector is estimated to employ over two-thirds of Poland's labor force and to produce about 70 percent of GDP, if the large gray market is included. The competition between privately owned and state-owned enterprises is steadily being replaced by competition among just privately owned entities. Generally, competitive equality is the standard applied to private enterprises in competition with state-owned enterprises. The telecommunications sector represents a rare instance where the government has been considering slowing the pace of liberalization (the sector must be fully liberalized by 2003 based on Poland’s WTO commitments) in order to benefit the state-owned telephone company (TPSA). By shielding TPSA from competition the government could increase the revenues from the privatization of TPSA. Moreover, government officials at various levels of government can, and occasionally do, exercise their discretionary authority to help state-owned enterprises. For example, tax authorities have not pressed some large, troubled state-owned enterprises to pay their taxes, in order to avoid putting them into bankruptcy.

C. Protection of Property Rights

Real Property: Poland’s legal system protects and facilitates the acquisition and disposition of property. Mortgages do exist, and the mortgage market is expanding as increasing numbers of single-family homes/townhouses are built. The new Mortgage Banking Act, which came into force on January 1, 1998, provides that a recorded mortgage by a licensed mortgage bank will take priority over subsequent tax liens and other secured and unsecured claims.

Chattel/Personal Property: On January 1, 1998, the Law on Registered Pledges and Pledge Registry entered into force. This new law provides protection for secured creditors and establishes a new registry system. Creditors will be able to place liens on assets and rights, both present and in the future.

Legal System: There is a functioning non-discriminatory legal system accessible to foreign investors that protects and facilitates acquisition and disposition of all property rights, such as land, buildings and mortgages. Foreign investors often voice concern about frequent or surprise issuance of or changes in laws and regulations. Foreign investors have complained about the slowness of the judicial system.

Intellectual Property Rights: Protection of intellectual property rights is provided by the 1994 Copyright Law, the 1985 Trade Mark Protection, and the 1972 Law on Inventive Activity. Poland is a member of the Berne Convention for the Protection of Literary and Artistic Works, as revised by the Rome Act, the Universal Copyright Convention of Geneva as revised in Paris, and the World Institute for Protection of Intellectual Property (WIPO). Also, in 1991 Poland signed the Madrid Agreement on International Registration of Trademarks. In its bilateral economic treaty with the United States, Poland has committed itself to providing adequate protection of intellectual property. Poland has taken some measures to implement the World Trade Organization (WTO) TRIPS Agreement, however, the issue of protection for sound recordings created before 1974 is still outstanding. Due to a lack of protection for such sound recordings and concerns about piracy, Poland was kept on the Special 301 "Watch List" in 1998. The Polish Government has made limited progress in combating piracy, especially that of computer software, but more remains to be done.

D. Foreign Trade Zones/Free Ports

The establishment and operation of foreign trade zones or "free customs areas" (WOCs) in Poland is regulated by the 1997 Customs Law. Business activities pursued within WOCs (formally, eight such areas have been approved as of January 1996) are based on the same principles as those applied in the European Union (EU) member countries. Foreign-owned firms have the same investment opportunities as do Polish firms to benefit from foreign trade zones, free ports, and special economic zones.

The eight free customs areas are located at:

WOC Gliwice (southern border)

WOC Malaszewicze/Terespol (eastern border)

WOC Przemysl-Medyka (eastern border)

WOC Warszawa-Okecie International Airport

(duty-free retail trade within the airport)

WOC Sokolka (north-eastern part)

WOC Szczecin (Baltic port)

WOC Swinoujscie (Baltic port)

WOC Gdansk (Baltic port)

Most of the existing free trade zones are involved in storage, packaging and repackaging. Bonded warehouses and customs and storage facilities are available, although it can be difficult for a company to obtain permission to build or buy its own facilities.

In October 1994, Poland enacted the Law on Special Economic Zones (SEZ). SEZs offer exemptions from income tax, local taxes and fees, and accelerated amortization of fixed assets. SEZs are intended for areas with significant unemployment. There are seventeen SEZs in Poland. This figure includes two technology parks, one in Krakow and the second one in Modlin near Warsaw. The largest number of SEZs can be found in southern Poland (6), in the Baltic coast region (5) and near the German border (4). The biggest number of investment offers come from the motor, building materials, food processing and plastics industries and furniture manufacture.

The first SEZ in Poland, called Euro-Park Mielec was established in September 1995. Up to date it has attracted 30 investors who will spend over USD 1 billion to create over 3,000 jobs. Even more (around USD 2 billion) is to be invested in the Katowice zone. The biggest magnet drawing other investors to that zone is the General Motors plant, which is to be open in Gliwice this fall (an investment of around USD 300 million). In the Krakow Technology Park as many as 1,200 jobs, including research and development ones, are to be created by Motorola.