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back to index backEUROtalk May,  2005

Romania: Under Scrutiny

Despite clearing one of the final hurdles in the EU accession process on April 22 by signing the EU treaty, Romania's entry on January 1, 2007 is not yet etched in stone. This was brought home last week when Brussels called on the Romanian government to respect provisions in the area of competition policy or risk a delay of one year.

The EU commissioner for competition, Neelie Kroes, reminded a gathering in Bucharest last week that the EU member state leaders can still invoke the so-called safeguard clause if Romania fails to demonstrate genuine reform efforts.

It is my responsibility and duty to make it very clear, in no uncertain terms, that should Romania's performance not improve, the commission would have no other option than to propose postponement, Kroes said last week.

Renewed pressure came on the back of fresh findings that Romania is not sticking to its commitments in the area of competition policy. Although the necessary laws have been adopted and a well-staffed competition council is in place, it is widely regarded as lacking in institutional capacity and experience to enforce the regulation on state aid.

Pure political engagement is insufficient, Commissioner Kroes added last week. The institutional network must be made to work.

She was, according to media reports, referring specifically to illegal subsidies in the steel industry, suggesting that the EU may order recovery of state aid already granted to companies if the authorities do not abandon these subsidies.

However, sounding a note of optimism, Kroes also said there was still time to implement the necessary reforms. In a press communiqué released last week, she stated Of course, we all hope, and I trust that we will not need to use the [safeguard] option.

Commenting on the latest development, one analyst told OBG this week that the new government had misjudged the commission's resolve to bring Romania to task on competition policy issues.

Until now, the most cited problem was the weakness of the judiciary and corruption, the analyst said. Perhaps in the run up to the French and Dutch referenda, the commission is keen to show it is not being lenient on acceding countries and has asked Romania to raise its game.

While some may interpret this shift in Brussels' criticism as an implicit acknowledgement that Romania is tackling the corruption and judicial reform issues, it is nevertheless proving to be insufficient to secure Romania's entry in 2007.

With less than 18 months left until the scheduled entry date, the commission is keen to make sure that Romania, second largest among acceding countries, is not going to distort the competition on the open market and that its industries are on a sound economic footing.

Romania has been criticised in the past for a deep-seated culture of state aid, with many of the sensitive industries - steel, coal, automotive, shipbuilding - kept afloat throughout the 1990s in the hope of finding foreign buyers.

Steel-makers, analysts say, were the main recipients of state handouts. According to a European Institute of Romania pre-accession study report, steel companies received some $1.362bn between 1993 and 2002. A large part of this amount was granted to Sidex Ispat, owned since 2001 by the giant Mittal Steel group. Now that 80% of the steel industry is in private hands, the EC is keen to stamp out the subsidies.

Despite the transposition of the aquis communautaire into Romanian legislation, the EC, according to analysts, wants to see an enforcement record. It wants to see the Competition Council demonstrate that it is able to hold state-aid granting bodies to account. Last year's report on Romania's progress towards accession found that out of 92 state aid decisions, only two were negative. Consequently, the last report called on the Competition Council to be more proactive and requested more transparency with regard to state aid in the steel sector. Yet criticisms last week seem to suggest that not enough has been done in this area.

However, responding to the most recent of Brussels' criticisms, Romanian Prime Minister Calin Tariceanu pledged last week to implement all the necessary reforms to stay on track for EU accession. According to local media reports, he told his cabinet that he was not going to accept any slowdown in reforms.

If I see delays in complying with the schedule for EU accession, he was reported to have told his cabinet on May 15, I will not hesitate to fire ministers from jobs.

Meanwhile, the crucial next step will be the final monitoring report due to be published this autumn, which will recommend to the EU Commission Council whether to trigger the safeguard clause, which would delay Romania's EU membership for one year. Although the process of Romanian and Bulgarian membership is irreversible, as European Commission President Jose Manuel Barroso famously put it, Romania remains under the watchful eye of Brussels, lest it should slip up on its reform commitments.

The Romanian government is well aware of this - in an interview with OBG on May 18, Minister of Foreign Affairs Mihai Razvan Ungureanu said, We are fully aware that the fulfillment of this final stage of the accession process depends on the progress on the ground, on the full and timely implementation of our commitments. Yet the next several months will be crucial. Meanwhile, it may yet prove to be too early to put the champagne on ice for January 1, 2007.

Source: Oxford Business Group

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