From radev@cs.columbia.edu Wed Jul 10 11:35:38 EDT 1996 Article: 34822 of soc.culture.bulgaria Path: news.cs.columbia.edu!mail From: radev@news.cs.columbia.edu ("Dragomir R. Radev") Newsgroups: soc.culture.bulgaria Subject: 1996 Country Commercial Guide: Date: 9 Jul 1996 16:11:06 -0400 Organization: Columbia University Department of Computer Science Lines: 6591 Sender: daemon@news.cs.columbia.edu Message-ID: <199607092010.QAA08339@age.cs.columbia.edu> Reply-To: radev@cs.columbia.edu NNTP-Posting-Host: lol.cs.columbia.edu Status: OR 1996 Country Commercial Guide: Bulgaria Prepared by the Country Team, American Embassy Sofia _________________________________________________________________ TABLE OF CONTENTS CHAPTER I. EXECUTIVE SUMMARY II. ECONOMIC TRENDS AND OUTLOOK III. POLITICAL ENVIRONMENT IV. MARKETING U.S. PRODUCTS AND SERVICES V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT VI. TRADE REGULATIONS AND STANDARDS VII. INVESTMENT CLIMATE VIII. TRADE AND PROJECT FINANCING IX. BUSINESS TRAVEL X. APPENDICES This Country Commercial Guide (CCG) presents a comprehensive look at Czech Republic's commercial environment through economic, political and market analyses. 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 U.S. Embassies through the combined efforts of several U.S. government agencies. _________________________________________________________________ I. EXECUTIVE SUMMARY Bulgaria is emerging on the regional scene and attracting increasing attention. At the crossroads of Europe and Asia, Bulgaria has numerous advantages in terms of not only proximity to neighboring markets but a growing internal market as well. Opport unities are being created on a daily basis. Bulgaria's private companies want to do busine ss with American firms. Still, Bulgaria faces a plethora of problems that cannot be glossed over. Amer ican business people need to be duly cognizant of the difficulties of doing business in Bulga ria. The Government of Bulgaria, while grappling with the situation, has not yet created a business-friendly market. Emphasis of this aspect is not meant to dissuade American companies fr om entering the market. On the contrary, U.S. companies should be establishing themselves in Bulgaria now. Our competitors are already present and successfully consummatin g business. During the latter part of 1995, I met with increasing numbers of interested and serious American companies exploring Bulgaria. Last year, the Bulgarian Socialist Party led by Zhan Videnov swept the parliame ntary elections and rode to power, punctuating five years of political infighting and fragmente d economic reform. The government has enumerated its priorities, among which are the need s to accelerate structural adjustment and stimulate foreign investment. The governm ent has proceeded slower than many would like on issues such as banking sector reform, nonetheless definitive progress is being achieved. The kick-off of the mass privatization program will result in the transfer of a size amount of industry to private ownership. The government appears to be examining new measures to stimulate investor interest. Even more surprising is the improvement of economic indicators at this stage in the transition for Bulg aria. The government is also demonstrating increased cooperation with other countries and international financial institutions. The Embassy is pleased to report on the decisive action initiated by the government over U.S. concerns on intellectual property rights. The government responded quickly, agreeing to strengthen protection and enforcement . Bulgaria has reaffirmed its desire to pursue integration with the European Union and is seeking to cooperate with other Central & East European countries to reduce barriers and t o jump-start intra-regional trade. Finally, difficulties with the IMF and the World Bank ar e slowly being overcome; resolution will lead to a long-term stand-by arrangement and addition al monies for structural adjustment. Country Commercial Guides are available on the National Trade Data Bank (NTDB) on CD-Rom or through the Internet. Please contact STAT-USA at 1-800-STAT-USA for more information. To locate Country Commercial Guides via the Internet, please use the following world wide web address: WWW.STAT-USA.GOV. CCGs can also be ordered in hard copy or on diskette from the National Technical Information Service (NTIS) at 1-800-553-NTIS II. ECONOMIC TRENDS AND OUTLOOK A. Major Trends and Outlook Having bottomed-out, Bulgaria's economy appears to be rebounding and is expecte d to gain momentum well into 1996. Between 1989-93, Bulgaria's GDP contracted more than 40 percent. But the economy turned around in 1994 with 1.4 percent real growth. Between January-September 1995, output of the manufacturing sector expanded 5 percent compared to the same period in 1994. Almost 500,000 private businesses are registered in Bulgaria. The private sect or is estimated to account for 25-30 percent of GDP. Two-thirds of the growth generated betwee n January-September 1995 is due to the private sector. Given the size of the "un official" economy, private sector contribution is most likely larger. The government forecasts re al growth of 2.4 percent for 1995. The economy's momentum should be sustained in 1996 with 3-4 percent growth predicted. Inflation exploded to 122 percent in 1994 fueled primarily by a price policy th at suppressed increases but raised inflationary expectations. The imposition of the value-ad ded tax precipitated further inflationary pressures, pushing the April 1994 monthly rat e to 21.7 percent alone. The Bulgarian National Bank (BNB) is pursuing a tight monetary policy t o combat inflation. By mid-1995, inflation dropped to an annual rate of roughly 50 perc ent. Since April 1995, monthly rates have been below 2 percent. September recorded the highest monthly inflation rate during 1995 at 4.8 percent (note: on September 1, the government increased energy prices 25 percent). The 1995 annual inflation rate will be approximately 35-40 percent. In 1996, assuming the continued adherence to strict monetary policy, inflation will decline to 20-25 percent. Official unemployment reached 12.9 percent in 1994 and unofficially was probabl y significantly higher. By the third quarter of 1995, unemployment dropped to 10 .9 percent. Unemployment is not likely to decrease significantly in the near future, as rea l transformation to a market-based economy has not yet occurred. Various factors conspired to worsen Bulgaria's terms of trade in the early 1990 s: the deepening domestic economic crisis, depreciation of the lev, U.N. sanctions against Serbi a, the loss of former eastern markets and restricted access to western (especially EU) markets . But Bulgaria is successfully reorienting its trade. As of mid-1995, 48 percent of trade is conducted with OECD countries. The European Union is the largest trading partner, consuming approximately 37 percent of Bulgaria's exports. Within the EU, Germany is the leading trade partner followed by Greece and Italy. Bulgaria is also recultivating ties within Central & Eastern Europe, Russia and the former Soviet republics. Exports to these countries continue to increase in 1995 afte r experiencing 13 percent growth in 1994. Thirty percent of Bulgaria's exports were destined to Central Europe in the first half of 1995. Russia is still Bulgaria's single largest export ma rket accounting for 25 percent of total exports. For the most part, positive economic trends are underscored. Yet inherent vulnerabilities exist in the economy. Failure on the part of government policy makers to take quick and decisive action with respect to the restructuring of industry and financial sector refor m could put an effective drag on the economy. Policy makers must focus on the emerging role o f the private sector as a major source of employment, output and income generation. The priv ate manufacturing and agricultural sectors require more nurturing along the lines o f ensuring access to credit (rather than being crowded-out through soft loans to large state-owned enterprises and private trading companies) and the dismantling of burdensome regulations and high taxes which strangle private entrepreneurial activity. B. Sector Performance The service sector of the economy continues to experience the highest growth. This segment of the economy generates approximately 55 percent of Bulgaria's GDP. According to the National Institute of Statistics, over 70 percent of private companies engaged in some form of trade during 1994. Only 11 percent of new companies were involved in manufacturing. Private sector growth is foremost in construction; the food sector (meat prepar ation, dairy, bread); maintenance and repair of electronic tools/equipment, household applian ces and automobiles; financial services such as insurance and lending; and some health care services. Tourism alone accounted for an estimated 2.3 percent in 1995. In 1996, this sh are is expected to rise 4 percent in 1996 with hard currency proceeds increasing 25 to 30 perce nt. Over the last six years, the agricultural sector has had a severe decline in pr oduction. The key factors accounting for this decline are the problems associated with land refor m and privatization (the break-up of the collective farms) basically removed the majo r source of supply from the market. An overall lack of inputs and credit also prevents the new private farmers from expanding their operations to take up the gap in the market create d by the loss of the collective farms. Nevertheless, the performance of crop agriculture in 1995 has been quite good. The livestock sector is also beginning to stabilize with a small increase in the number of li vestock. Agriculture has the potential to make Bulgaria basically self-sufficient in bas ic grains (wheat, corn and barley) but will require animal protein feed such as soybean meal for the foreseeable future. When the livestock sector recovers genetic material and animal feed ra tion components perhaps including corn, will also need to be imported. In 1994, exports of tob acco, cigarettes, wine, cattle/sheep, poultry meat, fresh/chilled/frozen vegetables increased. P rospects are excellent for further increases in hard currency earnings for wine and cheese. Manufacturing accounts for 31.5 percent of GDP. Industrial production grew mor e than 5 percent during the first half of 1995. Leading growth sectors were ferrous met als and chemicals. Consumer goods sectors exhibited signs of recovery: textiles/appare l, fur and footwear. Exports of chemicals, food products, non-ferrous metals and machiner y accounted for 70 percent of Bulgaria's exports. C. Government's Role in the Economy The BSP government advocates an active role for the state and intends to pursue active intervention in the economy. The state's presence remains sizeable in Bulgaria 's economy. Nearly 90 percent of industrial enterprises are still state-owned. The governm ent has been slow to move these companies towards privatization or to shut down nonviable enterprises. The acceleration of privatization, namely through a mass privatization program, envisages the transfer of a sizeable amount of state assets to private ownership. Neverthele ss, much remains to be done before the success of the initial phase of this program can be evalu ated. Under even the most optimistic forecasts, a very large percentage of enterprises will remain under state control and another large percentage will have a significant portion of s tate ownership. While most prices were liberalized, certain items are still subject to controls including: electricity and thermal energy; coal (briquettes); passenger railway fares; communication and postal services; state- and municipal-owned housing rents; liquid fuels and nat ural gas. In September 1995, enactment of the Law on Prices augmented the list of items subject to price regulation: potable water, wholemeal bread, mineral fertilizers, certain textbooks, bus fares, central heating in industrial/ commercial workplaces. Oversight for implementation of the Law on Prices is ve sted in the National Pricing Commission. The new pricing law was enacted to counter rapid price rises. Recent price increases for these goods and services outstripped the monthly inf lation rates. With wage increases subject to controls, the cost of basic necessities was clai ming a larger share of household expenditures. Wages are indexed to inflation. However, real wages fell during 1995. In 1991 , interest rates were liberalized. Commercial banks follow the lead of the Bulgarian National B ank which sets the base lending rate, tacking on an additional 10 points or more. Market Privatization: In 1992, Parliament adopted the Law on Transformation and Privatization of Stat e and Municipal-Owned Enterprises (TPSME). The Privatization Agency was established in October 1992 to develop the annual privatization plan and execute the sale of enterpris es whose book value exceeds BGL 70 million (approximately $1 million). Certain line-ministri es are assigned the responsibility for the privatization of enterprises valued below BGL 70 mil lion. Privatization involving more than BGL 500 million (26 companies) must be approv ed by the Council of Ministers. The privatization of municipal-owned properties is condu cted by the municipal governments themselves. To date, privatization in Bulgaria has stagnated. None of the post-transition governments has really implemented or supported privatization of the state enterprises. The cu rrent government has developed a plan to accelerate the process. Priority sectors for privatiza tion are: tourism, food processing, agriculture, heavy industry and engineering, textiles, and construction/ building materials. The government program which was formally accepted by the Parliament calls for the privatization of 618 enterprises (20 percent) -- tantamount to BG L 20 billion -- by year's end. Currently, approximately 1,300 privatization procedures have been "opened." This means that investor interest has been formally registered and the Agency i s updating information on the enterprises. The Agency could meet its target by eliminatin g some of this backlog. Still, progress through mid-year was slow with only 110 transactions completed although this was an improvement over 1994 when only 63 transactions were recorded during the same period. Overall, the "cash privatization" process remains slow, cumbe rsome, and difficult for foreign investors to participate in. In theory the government has stated that all state-owned companies were availab le for at least some degree of privatization in 1995 except 12: Bulgarian State Railways, Bulga rgas, Bulgarian Telecommunications Company, Bulgarian Posts, Education & Sciences, El Bi Bulgarikum (produces yogurt bacteria), National Cadastral Company, National Geodesy Company, Geopribor (geological equipment), Cartography Company, Geozashtita (geological protection), and Vodokanalengenir (water pipe engineering). Legislation mandates that the state retain at least a 51 percent interest in ce rtain enumerated companies: Balkan Airlines; the Rousse and Varna merchant and passenger marine fleets; the municipal airports; the ports of Bourgas, Lom, Varna and Rousse; Varna's aquati c ecological company; Transtroy road/rail/port construction company; and highway constructio n companies. To stimulate investor interest, the Agency is encouraging the use of Brady bond s (debt-for-equity swaps) in the privatization process. The Ministry of Finance reported in Augus t 1995 that nearly $120 million in Brady bonds were used largely by domestic investors . The largest Brady Bond deal involved the sale of the Vitosha Hotel. A German businessman purchased 80 percent of the shares valued at $42 million using Front Loaded Interest Reducti on Bonds (FLIRBs) with a face value of $80 million. Bradies also were used by the Austr ian Daru Group in its purchase of the Astika Brewery and Interbrew's (Belgium) acquisiti on of the Kamenitsa and Bourgas breweries. Three types of Brady bonds were issued as a result of the agreement with the London Club creditor banks. Only Discount Bonds (DSCs) and FLIRBs may be used in the privatization of state, but not municipal, assets. In February 1995, the new government imposed restrictions limiting the amount o f the purchase price payable in Brady bonds to 50 percent. The new regulations furth er stipulate that invested capital and profits can be repatriated after 10 years and 4 years , respectively. Bulgarian bad debt bonds (ZUNKs) also may be used as a payment instrument in th e privatization process. ZUNKs can be purchased on the local markets at a 30-35 percent discount and are an acceptable form of payment for privatization deals at a 40 percent premium on face value. The use of ZUNKs may be more attractive than Bradies to the government -- internal debt is three to four times larger than foreign debt ser vice. Mass Privatization: Bulgaria is moving towards a mass privatization program based on the Czech mode l. The Center for Mass Privatization (within the Council of Ministers) is charged with overseeing this program which will be conducted in two waves. In early October, the Council of Ministers approved a list of 1,227 companies slated for mass privatization: 695 in indust ry; 306 in agriculture/food-processing; 73 in transport; 70 in construction; 56 in tourism ; 21 in trade; five in energy; and one in culture. Total fixed capital is estimated to be BGL 211.3 billion of which 42 percent will be subject to privatization through investment vouchers. The volume of shares available for mass privatization in individual companies are divided int o three categories: (1) 25 percent for large enterprises such as the oil refineries, th e Kremikovtsi Steel Works, Devnya Chemical Works and tourism facilities such as the Black Sea resor ts and the Sheraton Hotel in Sofia; (2) up to 65 percent for medium-size firms in which th e state wishes to retain a controlling interest; (3) and up to 90 percent for most small and medium-size companies (especially the food processing industry). Coupon books are to be issued to an estimated 6.5 million eligible citizens at a cost of BGL 500 with a nominal value of BGL 25,000. The first sales are expected to commen ce in March/April 1996. The second wave, depending on results from the first, is sla ted for late 1996. In preparation for mass privatization, key legislation addressing the regulatio n of investment funds and amendments to the privatization law must be completed. The Law on Securities, Stock Exchanges & Investment Companies was passed in July 1995. Traditional investment funds are regulated by this law. Mass privatization investment companies are t o be regulated through a separate law which will probably require that they be transformed int o open-ended funds within three years. It remains to be seen how much of the state control over the economy will be eased by this process and whether in fact the end beneficiaries of the process will be individual citizens or private business groups who control the "investm ent funds" being established to manage the accumulated vouchers of individual citizens. D. Balance of Payments Situation In 1994, the current account registered a surplus of $145.7 million (1.5 percen t of GDP) compared to 1993 when Bulgaria incurred a $1.1 billion deficit. (Note: Discrep ancies exist between data reported by the Bulgarian National Bank and the National Institute of Statistics. Data cited here are from the BNB.) Bulgaria's capital account ran a $143.7 mil lion deficit in 1994 whereas Bulgaria had a $786.5 million surplus in the previous year. Expenditures of $716 million on external debt payment to the London Club creditor banks was the prime factor responsible for this result. In 1994, the overall balance reflected a $87 mill ion surplus -- a marked improvement over the deficit situation in 1993. Second quarter statistics for 1995 show that Bulgaria sustained its export perf ormance and imports contracted slightly. Between January-June, Bulgaria exported nearly $1 .8 billion worth of goods, a 14.6 percent increase over the same period in 1994. Imports amounted to $1.49 billion which was a 2.6 percent drop over last year. In mid-1995, Bulgar ia registered a $106.3 million surplus in its current account. Noticeable improvements similar ly occurred in the capital account with Bulgaria registering a $600.8 million surplus. Assumi ng a continued strong performance into the fourth quarter, Bulgaria will record a sizeable bal ance of payments surplus in 1995. Bulgaria's official external debt totaled $10.363 billion at the end of 1994. In June 1994, Bulgaria reached agreement with the London Club of creditor banks. Pursuant to this agreement, three types of Brady bonds valued at $5.137 billion were issued: o Discount Bonds (DSCs), Amount: $1.86 billion Maturity: 30 years Interest: 6-month LIBOR plus 0.8125% Servicing: Semiannual basis Principal: Paid one-off and secured by U.S. T-bills o Front-Loaded Interest Reduction Bonds (FLIRBs) Amount: $1.66 billion Maturity: 18 years; redemption after 8 years Interest: 2% (years 1-2); 2.25% (years 3-4); growing to LIBOR plus 0.8125% (years 8-18) Servicing: Semiannual basis o Interest Arrears Bonds Amount: $1.61 billion Maturity: 17 years; redemption begins after 7 years Interest: LIBOR plus 0.125% Servicing: Semiannual basis In April 1994, Bulgaria signed the third protocol on the rescheduling of debts with the official creditors of the Paris Club. The agreement addresses the settlement of princip al maturities and interest payments during the period March 31, 1993-April 30, 1995. In 1994, Bulgaria received $334 million from the International Monetary Fund (I MF) as a result of a stand-by agreement. Agreement was not reached on the terms of a fo urth stand-by arrangement in 1995. The IMF is seeking the reduction of Bulgaria's internal d eficit (Note: Bulgaria's budget deficit was expected to be 6.6 percent of GDP in 1995. In it s 1996 budget, the Ministry of Finance expects the deficit to decline to 2-3 percent of GDP.), acceleration of structural adjustment -- liquidation of non-viable enterprises and the accelera tion of privatization, promotion of safer banking practices along with stricter supervi sion and transformation (including bank privatization) of the sector. The IMF will also monitor Bulgaria's progress in reaching agreement with the World Bank on the Financial and Enterprise Sector Adjustment Loan (FESAL). IMF representatives met with government officials in September 1995 and began preparation of an economic report on the country. Discussions will be held with the World Bank following completion of the report. Prospects are favorable for the signing of a long-term agreement in early 1996 between Bulgaria and the IMF. There will also be a mou nting need for Bulgaria to reach agreement as external debt servicing payments rise sharpl y in 1996. H. Infrastructure Situation Telecommunications Bulgaria's telecommunications network is owned by the Bulgarian Telecommunications Company (BTC) which in turn is regulated by the Committee on Posts & Telecommunications. Bulgaria has undertaken a developmental program to supplement the installed base of nearly 3 million telephones and 2.3 million main lin es. Telephone service in Bulgaria is still poor -- call completion rate is less than 40 percent. The Digital Overlay Network (DON) Project, valued at $300 million, seeks to mo dernize the system. The World Bank, EBRD and European Investment Bank are providi ng financing for the project. Contracts have been awarded to Ericsson for the construction of trunk and local digital exchanges, Siemens for a new international digital exchange; Alcatel and N orthern Telecom for the installation of optical fiber trunk lines; and Satellite T ransmission Systems (USA) for the construction of an Intelsat ground station. The DON is to be completed by 1996 and will result in the inclusion of 150,000 new business subscribers. After the DON completion, BTC will focus on residential deve lopment which is expected to reach EU standards by 2008. In terms of services, Sprint Business Telecommunications Company, a local joint venture, established a regional data transfer network linked to SprintNet in 1993. In February 1994, Bulgaria's first cellular network (450MHz) was launched; Ra dio Telecommunications (or "Mobifon") is a joint venture between Cable & Wirel ess (49 percent), BTC (39 percent) and Radio Electronic Systems (12 percent). A G SM license, the Pan-European digital standard (900MHz), has been issued. Rad io Telecom also operates a national paging system. Highway/Motorways The Ministry of Transportation oversees the transport sector as a whole. The road network is administered by the General Road Administration. There are 37, 000 kilometers (km) of roads in Bulgaria -- 250 km is motorway. Regionally, only Romania has a lower road density than Bulgaria. Bulgaria is pushing ahead to complete various transport corridors, some of which form portions of the T rans European Motorway (TEM). The EBRD provided an ECU 86 million loan to Bulgaria for the transit road project which focuses on completion of the 32 km TEM span between Plovdiv and Orizovo. One bridge (located at Rousse) spans the Danube between Bulgaria and Roman ia. U.N. sanctions against Serbia have diverted traffic around the former Yugo slavia and in turn have created bottlenecks at the Romanian-Bulgaria border. Both co untries recognize the need for a second bridge but political controversy over the location of the bridge has slowed the project. The governments are hopeful that an agreem ent can be reached by the end of 1995. Several western companies are interested in t he project which would be constructed on a B.O.T. basis. Bulgaria currently has two border crossings with Turkey. Given steadily i mproving relations between the two countries, the government of Bulgaria has reques ted the reopening of a third crossing which is likely to be favorably considered b y Turkey. New crossings are expected to be opened with Greece. Railways The Bulgarian Railway Company (BDZ) oversees Bulgaria's railway system. T he infrastructure consists of 4,300 km of track. An estimated 61 percent is electrified (25 Kv and 50 Hz). In the late 1980s, rail freight reached nearly 80 million tons annually. Haulage dropped 60 percent to a current annual level of 30 million tons. The transport of passengers also declined steadily to 64 million in 1994. BDZ was profi table until 1991 when traffic reductions coincided with increased operating costs. Failure to perform routine maintenance combined with the inability to purc hase new equipment has resulted in a rapid and noticeable deterioration of the inst alled infrastructure. For example, an estimated 10,000 switches are worn. Near ly 85 percent of BDZ's maintenance equipment is obsolete. BDZ also requires new signaling equipment, aerial wires, a telecom system and radio equipment. The government's railway restructuring project will focus on the repair of 414 km of main tracks, construction of an automated locomotive system, the procureme nt of new carriages and repair of existing stock, and the improvement of information and technical services. Bulgaria has received funds from the World Bank, the EBRD, and PHARE totaling $158 million with the government contributing an additional $133 million. Bulgaria also plans to complete a two-kilometer link with Macedonia and to upgrade/electrify 80 kilometers of track between Sofia and the Macedonian border. This linkage is integral to the formation of the East-West Balkan Transpor t Corridor, which is endorsed by the governments of Bulgaria, Macedonia and Albania. Ports Bulgaria has two major ports on the Black Sea: Varna and Bourgas. Port fa cilities are generally adequate for bulk commodities, but lack facilities for special h andling. Rehabilitation of both ports is planned. Bourgas is pursuing the developm ent of its container facility while the EBRD has provided technical assistance to Var na concerning the container and cereals handling facilities. Rousse, a Danub e port, is also commissioning a feasibility study on development of its port facilities. Air Transport There are three major airports in Bulgaria supplemented by smaller, local airports. The Sofia Airport is the largest in the country and handles international traf fic. A tender was awarded to Compagne Bernard for development of the Sofia Airport. The French company was unable to assemble a financing package. The contract was late r awarded to a Bulgarian consortium. Work will focus on the repair and lengthening of the existing runway rather than the initial expansion proposal. Two other air ports are regional: Varna and Plovdiv. International carriers do not service Varna on a regular basis; Varna handles international charter flights during the summer touri sm season only. Plovdiv will extend its runway to handle more traffic. A contract has been negotiated with Lockheed to perform the feasibility work. III. POLITICAL ENVIRONMENT A. Synopsis of the Political System Bulgaria is a parliamentary republic ruled by a democratically elected governme nt. In 1991, a new Constitution was promulgated which lays out the basic rights and obligation s of citizens, and is the basis for Bulgaria's legal system. The Constitution allows for the freedom of association and the formation of political parties. The Constitution provides for the separation of powers among the executive, judicial and legislative branches, and a system of checks-and-balances. The president is the head of state. Zhelyu Zhelev, originally of the Union of Democratic Forces (UDF), was appointed President in June 1990 and directly elected to the position in January 1992 for a five-year term. The presidency is empowered to conclude international treaties, to schedule parliamentary (or National Assembly) elections, and to promulgate laws. The president is also the nominal commander-in-chief of the armed forces. In December 1994, the Bulgarian Socialist Party (BSP), heir to the communist party, and two nominal coalition partners won an absolute majority in pre-term parliamentary elections and formed a government in January 1995. BSP Chairman Zhan Videnov was appointed Prime Minister by the National Assembly. The National Assembly consists of 240 members which are elected for a term of four years. Following the removal of communist leader Todor Zhivkov in 1989, Bulgaria's pol itical situation has been fragmented. Between 1989-1995, there were six governments. In June 1990, Bulgaria -- unlike other countries in the region where the electorates vo ted out former communists -- installed a BSP government of Andre Lukanov. This government was shortly replaced by Dimitar Popov. After the October 1991 elections, the UDF assumed control of the government (in a coalition with the mainly ethnic-Turkish Movement For Righ ts and Freedom (MRF). Filip Dimitrov's government moved ahead with ambitious reforms. Disagreements within the coalition led to the withdrawal of the MRF; the govern ment fell at the end of 1992. President Zhelev's economic adviser, Lyuben Berov, formed a n ew technocratic government which proved to be ineffectual with respect to reforms. Splintering of the UDF occurred, leaving the party substantially weakened. The BSP also su ffered some internal splits. In September 1994, Mr. Berov stepped down and Ms. Reneta Indj ova was appointed by Zhelev to form a "caretaker government" until the elections in Dec ember 1994. In general, the political infighting left most Bulgarians disillusioned with re form. Failure to follow through on reform measures further precipitated, in some ways, the rapid downward spin of the economy which began to seriously affect the living standards of all Bulgarians. With the UDF involved in internecine squabbles, the BSP began to refocus its ef forts, drawing its support from the rural areas and those segments of the population hurt by t he economic transition. This particularly includes Bulgaria's very large group of pensione rs. The UDF, on the other hand, is strongest in large urban areas among more-educated younger voters. The focal point of the Videnov government is managing the economic situation. The new government has progressed slowly but important legislation has been promulgated : the Law on Securities, Stock Exchanges & Investment Companies; Law on Prices; Law on Concessions; amendments to the Law on Customs; amendments to the Penal Code; etc. The government has also pushed forward with the mass privatization program. Over some issues -- agricultural land reform, appointments of ambassadors, reorganization of the army and future NATO membership -- tensions have flared between Prime Minister Videnov and President Zhelev. In the October 1995 local elections, the BSP made another strong showing captur ing roughly 42 percent of the vote, increasing its number of mayors. The UDF followed with 24 percent. The BSP did not win the larger cities (Sofia, Plovdiv and Varna) where UDF cand idates prevailed. The BSP is expected to maintain firm control of the government through the end of 1998 when the next parliamentary elections will be held. Presidential elections are due in late 1996. B. The U.S.-Bulgarian Bilateral Relations U.S.-Bulgarian bilateral relations are steadily improving and have intensified over the last five years, reflecting a wide range of shared interests. A series of recent formal events has expanded relations. A U.S.-Bulgarian Bilateral Trade Agreement promotes trade between the two countries and grants Bulgaria most favored nation (MFN) tariff status. The Clinton Administration is recommending Bulgaria's full graduation from the requirements of the Jackson-Vanik amendment which will provide permanent MFN status to Bulgaria. Under the Trade Enhancement Initiative, Bulgaria became a designated beneficiary country under the U.S. Generalized System of Preferences (GSP) program permitting duty-free statu s on eligible products imported from Bulgaria. The U.S. Export-Import (Exim) Bank is open in principle for short and medium-term lending. On August 1, 1994, a new Exim program was launched which eased conditions for loans to Bulgaria. As a result, trade between the two countries has increased during the last few years. In 1992, total trade stood at $164.3 million. By the end of 1996, the total value of U.S.-Bulgarian trade could approach $500 million. On the investment side, Bulgaria has signed a Bilateral Investment Treaty (BIT) which guarantees national treatment for U.S. investments and creates a dispute settle ment process. Side letters to the BIT provided protections for intellectual property rights. In April 1995, responding to U.S. concerns, Bulgaria agreed to strengthen IPR protection in a government-to-government exchange of letters. In 1992, an Overseas Private Investment Corporation (OPIC) Agreement was signed. This is a major step in providing financing and insuranc e for U.S. investment. Bulgaria is also eligible for assistance from the U.S. Trade & Development Prog ram (TDA) which has financed feasibility studies in the energy, environment and transport sectors. Total U.S. assistance in FY1995 was $31 million with nearly $250 million appropriated since 1990. In February 1994, Bulgaria joined NATO's Partnership for Peace. U.S. Bulgarian defense relations are active and include regular naval ship visits to Bulgaria's Black Sea ports. C. Major Political Issues Affecting the Business Climate Political tensions persist over the pace and impact of reform. The Videnov government professes strong support for continued economic reform. The BSP's support is grounded in that segment of the population which has been hardest hit by the transition; th ese people seek mitigation of the painful aspects of the change. In this respect, the governme nt sees an ongoing role for the state in the economy. The government intends to accelerate the moribund privatization process by kicking-off the mass privatization program later in 1995/1996. The government also needs to ta ckle other structural economic problems such as stabilization of the banking sector and controlling the losses of some of the largest state-owned enterprises. The conflict in the former Yugoslavia has had a detrimental impact on Bulgaria' s economy and Bulgaria has incurred heavy losses from its enforcement of U.N. economic sancti ons on Iraq, Libya and Serbia/Montenegro. The government claims that these losses approach $10 billion. Resolution of the Yugoslav crisis would directly benefit the country's economy. Bulgaria has declared its interest in participating in any subsequent reconstruction project s in the former Yugoslavia and pressed for a regional focus to reconstruction programs. Crime has become a concern of both the government and ordinary citizens. The Prime Minister has declared this a priority issue. Violent crime against persons is extremely low but property crime -- car theft, pickpocketing, burglaries -- are widespread. Rack eteering and corruption are reportedly escalating. Among some state-owned companies, assets have been siphoned-off by unscrupulous management as the enterprises await privatization. Police morale is flat and salaries are low; some have second jobs to supplement income . The Ministry of Interior has demonstrated through employee dismissals that corrupti on will not be tolerated, though the problem persists. The U.S. Embassy has received reports of companies being approached by local groups offering "insurance." However, the companies have experienced no difficulties after rejecting the solicitations. Still, the government needs to take a firm stand on crime s o that Bulgaria does not develop a tarnished image. The government needs to divert more resour ces to crime prevention. IV. MARKETING U.S. PRODUCTS AND SERVICES A. Distribution and Sales Channels Bulgaria's distribution system is slowly being overhauled. Traditionally, the service-oriented supply chain was rigidly segmented: production; intermediate services (i.e., tr ansport, finance, insurance); wholesaling; and retailing. The economic changes are precipitating a blurring of these services demarcations. This is especially true in the food and non-food (consumer goods) market segments. The transformation of the industrial products and raw material market segments is much slower paced. The introduction of marketing concepts a nd information technology is not only accelerating but facilitating the transforma tion. Bulgaria's retail sector is still dominated by small-scale shops which are unde rgoing privatization. It is estimated that there are nearly 50,000 retail shops in Bu lgaria. Fifty percent are privately owned. Of the total number of existing food shops, an es timated 75 percent are privately owned. Typically, shops stock a bewildering assortment o f unrelated items. The shop owners have little experience or knowledge of modern marketing and sales promotion. Larger cities have one or two stores on the scale of a department store. The C entral Universal Store (TSOUM) is located in Sofia while in other cities there is a City Univers al Store (GOUM). These stores specialize in the retail of nonperishable consumer produc ts such as household appliances, furniture, apparel, personal care/hygiene items, consumer electronics, etc,. TSOUM especially is stocking more costly imported products which are of higher quality. The structure of the retail sector is slowly being transformed. Retail chains are beginning to emerge. For example, the Varna-based company of Lazur is developing a chain in the Black sea areas. Nova Denitsa, previously in a joint venture with a German company, has two large retail stores in Sofia and stores in several other large cities. In the food sector, Supermarket and Khali were the only real grocery-style stor es that maintained somewhat of a nationwide presence. Supermarket is still operating b ut Khali is no longer. There are some local supermarket groups developing. In Sofia, Dallas is a modern supermarket which retails mainly imported food products. The store uses contemporary shelving displays and point-of-sale promotions. The perishables departments us e the latest in counter refrigeration display cases. Dallas management is considering other st ore locations. Corecom and Transimpex have developed dollar and lev retail shops which special ize in luxury food items such as tobacco, alcoholic beverages, candies, delicacies, household appliances, electronics and apparel. Corecom's Metrocom (lev) shops number between 30-40 and are located in larger cities, the Black Sea coast and the border areas. Bulgaria's wholesale sector is characterized by fragmented development. Previo usly, wholesaling activities were overlooked with the manufacturers themselves distri buting products directly to retailers. Some wholesale operations were established in the consu mer sectors. For example, Narmag and Narkop both engaged in wholesale and retail simultaneously. Neither of these entities exist today. Bulgarplod maintained a monopoly position in purch asing fruits and vegetables from farmers and distributing the produce to retailers or canning fa ctories. The dominant market position of this sate-owned enterprise has been undermined by n ew private entrepreneurs. The wholesaling sector is increasingly composed of private companies. The focu s of many of these companies is the importation and distribution of imported products. Trad e liberalization encouraged many new companies to enter into trading activities. Many former state-owned monopolies such as Izotimpex (computers and parts) or Electroimpex (electrical goods and equipment) no longer dominate. An array of companies have entered these market niches and expanded the distribution/service capabilities. Transimpex and Corecom engage in both wholesale and retail activities. Similarly, the former Bulgarian-German joint venture, Askodenitsa, not only deals in the wholesale trade of household appliances, fur niture and other consumer items but has developed a retail chain. One interesting development has been the formation of Ilientsi. Located in Sof ia's northwest industrial zone, Ilientsi is a warehouse and storage facility that is being lea sed to a broad spectrum of wholesalers. Retailers (food and non-food) throughout the country purchase substantial quantities through Ilientsi. Increasingly there will be more vertical integration within the supply chain ca using further blurring of wholesale and retailing activities. Stambouli, for example, is one company emerging as a vertically integrated importer, retailer and wholesaler. Stambou li is a Cyprus-based company which began operating dollar stores in 1984. Stambouli now imports a l arge range of consumer products for wholesale through 11 distribution centers as wel l as for retail through its Bonjour chain which consists of 53 shops across the country. B. Use of Agents/Distributors - Finding a Partner U.S. exporters are finding it necessary to locate in-country partners in the fo rm of agents and distributors to penetrate the local markets. The Commercial Service offers a fee-based Agent-Distributor Service (ADS) to U. S. exporters seeking to obtain potential Bulgarian partners. Client companies provide the Commercial Service with 10 copies of product literature. The Commercial Service then perf orms a country-wide search for prospective partners. Full information on prospective companies and their objectives are forwarded to the client along with other pertinent information/comments. The ADS fee is $250. More information can be obtained from the local District Office, the Commercial Service (U.S. Embassy Sofia) or the Commercial Service Headquarters in Washington, D.C. C. Franchising Franchising is new to the Bulgarian market. Franchising is a good method for transferring technology and management expertise to Bulgarian entrepreneurs. Only a few franchises are operating in Bulgaria. As elsewhere in the region, f ast food franchises emerged initially. The Bulgarian company SAMEX obtained the franchi se rights for Kentucky Fried Chicken (KFC). There is a KFC restaurant in Sofia and in th e border city of Rousse. Based on market demand, SAMEX plans to expand KFC's presence in Sofia and to other cities in Bulgaria. In July 1995, the Bulgarian company EXCEL opened the first Pizza Hut in Sofia. At least two more restaurant franchises are being assessed for the Bulgarian market. McDonald's opened its first restaurant in Plovdiv (1994) fol lowed by one in Sofia (December 1995) with further Sofia locations planned for opening later in 1996. There is manifest potential in other service sectors. Choice International, a hotel chain with sites world-wide, has exhibited interest in the market. Other companies are lo oking for Bulgarian franchise partners in: printing/copying; car rental; retail; and home refurbishment. The International Executive Service Corps (IESC), a U.S. AID-funded organizatio n, works with Bulgarian companies, matching them with potential U.S. franchise owners. IESC representatives attended the 1995 International Franchising Show held in Washin gton, DC, and hosted a franchising conference during the summer. The primary problem in establishing franchises is obtaining sites. In urban ar eas, especially Sofia, it is sometimes difficult to locate and lease central properties at an a ffordable cost. There is a fledgling Bulgarian Franchising Association located in Varna. D. Direct Marketing Direct marketing is still new to Bulgaria. Some limitations to its broader app lication are poor telephone service (not everyone has a telephone) and unreliable mail deliveries . For the time being, direct marketing techniques may have more relevance to larger urban area s. According to industry professionals, in smaller towns the local population is suspicious of direct marketing to end-users. In less populated areas where contact between people i s infrequent, shopping is viewed as a way to socialize. Companies employ differing marketing techniques. Two Austrian companies are currently using television home shopping "infomercials" to sell kitchen tools and applian ces not available in local shops. Home demonstrations are not popular and have generat ed little success. The Swedish company Oriflame reports success in the direct sale of cosmetics. The company has signed-on 11,000 distributors (sales people); the company expects t his number to increase to 20,000 by the end of 1995. Direct Sales Promotion (DSP) is defined as the management of the physical conte xt in which the product is promoted or sold to the consumer. Bulgarian retailers often req uire assistance in designing point-of-sale promotions. Foreign companies may have to advise retai lers on shelving displays, product location, promotional campaigns and promotional lite rature. E. Joint Ventures/Licensing Joint Ventures: The definition of a joint venture (JV) is where two parties both contribute to create a third entity. There are several laws that govern joint ventures with foreign partici pation such as the Law on Foreign Person's Economic Activity & Foreign Investment Protection (hereinafter referred to as the Foreign Investment Law), and the Commercial Code. Joint ventures with state-owned companies must be approved by the relevant line ministry; in most instances, this is the Ministry of Industry. The "Regulations for the Reg ime of Exercising the State's Rights of Ownership in Enterprises" (amended), promulgat ed by the Council of Ministers in January 1994, provides the authority and basis whereby the line ministries have issued internal regulations for the negotiation and approval of joint ventures. The negotiation phase typically addresses the structure of the capital -- evalu ation of existing assets and contribution of the foreign partner. The foreign contribution can b e in cash, capital in-kind and/or know-how. The contribution of the local partner is usually long -term assets (i.e., existing equipment, facilities, etc.). Other issues usually discussed a re: labor issues (employment guarantees); future business and marketing plans; and, management contracts. Joint ventures with private companies do not follow the same procedures. Government involvement, even approval, is not necessary. Subsequent to the completion of negotiations, the entity must be registered with the courts. If a new legal entity is create d, an evaluation of the assets is performed by court-appointed experts. The expert's asset evaluat ion may not be satisfactory from the investor's perspective. If a foreign investor obtains a stake in an existing enterprise through an increase in the capital, the existing assets are already evaluated. Valuation is essentially negotiated by the parties rather than by appointed exp erts. In the absence of privatization laws in 1990-1991, a number of foreign companie s entered the market via the establishment of a joint venture. The Foreign Investment Agency has registered 83 joint ventures with foreign participation and is in the process of registeri ng another ten. Foreign companies participating in joint ventures report varying experiences bu t in general they appear to be successful. In April 1992, American Standard established the joint venture Vidima Ideal to manufacture bathroom fixtures. American Standard's contribution consisted of cash while th e Bulgarian partner provided the existing facilities. The cash contribution was used to pu rchase new equipment and to finance general upgrade of the facilities. American Standard extols the high quality of Vidima Ideal's products, stating that Vidima is one of its most succ essful international ventures. Currently, Vidima Ideal exports 30 percent of its outp ut to Germany, France, Italy and the UK. Exports are expected to account for 50 percent of to tal production in 1996 with a new product being marketed in the United States. Licensing: There are no specific laws addressing licensing other than the Law on Obligatio ns & Contracts. The contract governs the license -- rules for making a contract are set forth in this law. Typically, the contract should address intellectual property rights issue s (trademark, model, patent, or copyright), payments/royalties, the term of the contract, res trictions on using marks, etc, (see Chapter IV, Section H for a more detailed discussion of IPR la ws). A Bulgarian attorney should review the licensing agreement to ensure that provisi ons do not contradict Bulgarian contract law, making the agreement null and void. F. Steps to Establishing An Office The Commercial Code and the Foreign Investment Law define the forms of business organization which establish a legal presence in Bulgaria: o Partnership -- General (SD) This form is undertaken between two or more persons who bear joint and unlimited liability. The relations between the partners shall be defined in a deed of partnership, which shall be in writing with notarized signatures of the partners. The partner may participate in another company or conclude transactions relating to the partnership's activities only with the other partners' consent. Minimum required capita l is BGL 50,000. Foreign persons cannot participate directly in a SD. o Limited Partnership (KD) Formed between two or more persons for the purpose of carrying out busines s activities. One or more partners bear joint and unlimited liability; othe rs are liable only to the amount of the agreed contribution. The unlimited liability pa rtners shall contribute at least one-tenth of the partnership capital. Foreign persons cannot bear unlimited liability. o Company with Limited Liability (OOD) Formed by one (a sole proprietorship or an EOOD) or two or more persons wh o are liable for the obligations of the company to their contribution to the com pany's capital. Certificates for the contribution must be issued but shall not be deemed a s security. The law requires that the minimum authorized capital must be BGL 50,000, a nd stakes shall be at least BGL 500 each and divisible by 100. Stakes are transferr able. Transfers to a third party can be performed only after approval of the Gen eral Assembly. o Joint Stock Company -- Limited Liability Company Issuing Shares (AD) Formed between at least two persons, this is a company whose capital is di vided into shares and the company is liable to its creditors up to the value of its p roperty. The joint stock company may take two forms: (i) Privately-Held Joint Stock Company This company is formed without a public subscription. The minimum re quired capital is BGL 1 million. (ii) Publicly-Held Joint Stock Company The company is formed by making a public offer which includes the ran ge of business activity, authorized capital, the minimum of 25 percent of t he face value of the share required to be paid, the period of validity of the offer, etc. Cash contributions must be paid into a bank account and the share hol ders shall receive a provisional certificate. Stocks shall be issued in exchang e for the provisional certificate. Within two months of the closing of the pub lic offer, a Constituent Meeting must be convened. The minimum authorized capital is BGL 5 million. Public offerings are further regulated by the law on Securities and Stock Exchanges. o Partnership Limited By Shares (KDA) This entity is formed by a deed of partnership whereby the limited partner s, not fewer than three, are issued shares against their contributions of capital. The general (unlimited) partners draw up the Articles of Association. The general par tners' contributions shall not be less than one-tenth of the capital. There are no requirements regarding minimum authorized capital. Businesses may establish a representative office -- essentially an information marketing office. A representative office is not viewed as a legal entity in Bulgaria. Certain r estrictions are placed on the office's activities. Representative offices are required to regi ster with the Bulgarian Chamber of Commerce & Industry. The Commercial Code and the Foreign Investment Law define the various forms of economic associations and regulate their foundation, organization, and termination. The most common type of organization for foreign investors is a limited liability company (OOD) . Companies are required to register with the local municipal court. Registratio n documents must include: o Application o Articles of Association o Protocol of establishment o Specimens of the signatures of the members of the managing body o Declaration of the management o Bank receipt attesting to authorized capital on deposit in a Bulgarian ban k. The applicant is obliged to submit documentation from the country-of-origin of the investor: the court registration and the protocol of the meeting held by the foreign comp any's management where the decision was taken to invest in Bulgaria. These latter documents must be duly translated and legalized (consular certification). The local court rev iews the registration documents and provides approval. Within 30 days of the court decision, the company must register with sundry institutions: o Registration of the foreign investment must be declared with the Ministry of Finance. (The declaration form is in the annex of Instruction Number 1 of the Minis try of Finance on Registration of the Foreign Investment.) o The company books must be presented to and stamped by the local tax authorities. The tax authorities will issue VAT and corporate tax numbers to the company. o The local labor bureau of the Ministry of Labor for social security purpos es; the bureau issues social security books for employees. o The Institute of Statistics will issue a classification number to be enter ed on all invoices for Customs purposes. The number will be issued three days after registra tion. Registration with the Institute is a prerequisite to registration with the tax authorities. o Registration with the Bulgarian Chamber of Industry & Commerce is optional . This registration may be useful since the Chamber issues certificates-of-origin for products. Similar registration procedures as well as other statutory requirements apply i n establishing other legal entities such as joint stock companies (ADs), General Partnerships (SDs) and Limited Partnerships (KDs). The physical establishment of an office may not be as straightforward as the registration process described above. There is a shortage of modern office space which suit s the needs and requirements of western companies. In central Sofia, rental rates have risen s harply. Real estate firms will locate space on a commission basis. A few new office complex es are under construction but completion dates are well into 1996. Even the opening of thes e buildings will not alleviate excess demand. The American Chamber of Commerce in Bulgaria, in cooperation with the Commercia l Service of the U.S. Embassy and the World Trade Center of Sofia, has establishe d the American Business Center (ABC) as part of the Chamber's major objective to prom ote U.S. business and trade in Bulgaria. The Center is designed to assist American comp anies in exploring and entering the Bulgarian market for the first time. The Center off ers a "one-stop shopping" opportunity, especially for small and medium-size U.S. businesses. The ABC Menu-of-Services includes: o Short term office /desk space with computer and telecommunications equipme nt; o Appointment scheduling and travel/hotel arrangements; o Direct communications with the U.S. home offices through E-mail and Sprint Fax systems; o Rental of conference room facilities varying from a smaller room (6 person s) to a hall (100 persons); o Usage of the World Trade Center's Association Network; o Referral services to local resources (governmental organizations, local an d international consultants, local attorneys, tax advisors, etc.); o Access to commercial library with information about the Bulgarian economy and business climate; o Liaison with advertising businesses (express preparation of business cards , invitations, flyers, other representative materials) and tourist agencies; o Eurodollar Rent a Car services at 40% discount of the local tariff. The ABC is located in the prestigious World Trade Center of Sofia (WTCS). WTCS office complex also hosts numerous other businesses and international organizations su ch as the World Bank, the European Commission, British Gas, IBM, Panasonic, ING Bank, Texaco, and others. WTCS is a 15-minute drive from the downtown center. Numerous companies have utilized the ABC in the start-up phase of their operati ons in Bulgaria. Participants have included: Sprint Business Telecommunications Compa ny, US West, the Insured Savings Company of America, Amoco Petroleum Products, McDermott, and Southern Tel - Bulgaria. Contact Information American Chamber of Commerce in Bulgaria World Trade Center, Suite 201 - A 36, Dragan Tsankov Boulevard 1040 Sofia, Bulgaria Tel: (359)(2) 7146-3066 Fax: (359)(2) 70-71-12 E-mail: amcham@sf.cit.bg G. Selling Factors/Techniques The Bulgarian market can be complex and difficult to gauge given past market distortions. Market statistics are almost nonexistent. Available statistics are usually unr eliable and do not assist in predicting accurately market responses. Certain factors do stand out . Low disposable income directly affects consumer expenditures. Having said this, it is also cl ear that official statistics underreport economic activity. The unofficial market is very active and could be as high as 20-25 percent of the official GDP. This means that there is more money flowing through the economy than accounted for. Selling to state-owned companies and other state entities still depends on cult ivating contact relationships. Many foreign companies complain that state-owned company offici als usually request some form of kick-back which American companies should not offer, pursu ant to the U.S. Foreign Corrupt Practices Act. Public procurement financed by internation al financial institutions (IFIs) offer the best opportunity for transparent purchasing decis ions based on price and other competitive factors. (See this chapter Selling to the Government.) American companies are advised to focus on the emerging private sector. The gr owth of the private sector augers well for western businesses that are accustomed to sellin g products based on pricing, product quality and servicing ability. (See this chapter Pricing P roduct and Sales Service/Customer Support.) The private sector is believed to contribute betwee n 25-30 percent of GDP in 1995. In 1996, this percentage is expected to rise to 35-40 percent. To this private segment of the economy, marketing techniques will not vary greatly from western countries. Some techniques for developing greater product awareness include developing close relationships with institutes (e.g., pharmaceutical, health care and medical eq uipment sectors), sponsoring research, participating in trade shows and events, and placing advertisements or writing articles in professional journals. Some companies have chosen sponsors hip of game shows or events. H. Advertising and Trade Promotion Advertising is quickly becoming a key marketing tool in Bulgaria. Today, nearl y all companies in Bulgaria engage in some form of advertising. In terms of advertis ing mediums, the following are the most popular (in order of listing): press (both newspaper s and magazines), radio, outdoor billboards/signs, event sponsorship, trade shows and sales promotion literature, and, finally, television. Television is becoming more im portant but advertising time is simultaneously rising in price. Prime time costs $3,600 fo r 30 seconds while rates vary ($500-$2,500 per 30 seconds) for other times. While this is m ore than affordable for western companies, it is expensive for many Bulgarian companies. The leading users of advertisements are mainly foreign-affiliated companies esp ecially those specializing in consumer products. Greek companies seem to lead the way in advertising (given the large number of ventures in which they participate); although the ad agencies report that the majority of these advertisements appear only on a seasonal basis. The soft drink rivals, Coke and Pepsi, have year-round sizeable expenditures in all ad mediums . The Italian companies Indesit and Ariston which distribute white goods (refrigerators and w ashing machines) are also large users of advertising. Advertising is regulated by the 1991 Law on the Protection of Competition (amen ded in 1992). This law prohibits advertisements which disseminate misleading information to consumers or malign the reputation of competitors. Separate legislation regulates advertising for specific products. Article 35 o f the Law on Tobacco and Tobacco Products (amended in 1995) explicitly prohibits any adverti sing of tobacco products with the exception of point-of-sale promotions. This provisio n appears not to be enforced given ubiquitous advertising of cigarettes in all the media. The Pharmaceutical Law prohibits the advertisement of unregistered pharmaceuticals in Bulgaria. Advertising content for registered pharmaceuticals must be pre-approved by the National Ins titute for the Control of Pharmaceutical Products (the registration authority). Between 2,000-3,000 companies perform some advertising related services. There are only 20 companies which provide the full range of professional advertising services. T hese companies are trying to form an advertising association which is expected to be registere d by the end of 1995. Already loosely formed, they have tried to influence the media to pay at tention to international advertising norms and ethics. These firms persuaded the televisi on stations to broadcast cigarette advertisements only after 10pm instead of during prime TV v iewing hours when minors are watching. These companies are also in regular contact with the Parliamentary Committee on Television & Radio which is charged with proposing n ew regulatory legislation. Trade Promotion: There are two main trade events held annually in Bulgaria: the Plovdiv Spring F air (consumer goods) and the Plovdiv Autumn Technical Fair (capital goods). At 1995 Autumn F air 1,556 companies exhibited in 17 pavilions and adjacent open areas. Bulgarian compani es accounted for a little more than half of the participating exhibitors; the other half was comprised of companies from 37 different countries. Within the Autumn Fair, there were two specialized exhibitions: BITECH (information/telecommunication technologies and office equipment); STROYPAN (construction and building materials/technologies); and Trans-G-PAN (transport and auto service equipment). Specialty exhibitions were also mounted in 1995 a t the Spring Fair: textile production equipment (Tex-Pan), packaging and equipment (Packo-Pa n) and canning machinery (Can-PAN). Estimated attendance to both Fairs was 250,000 visitors. Visitors were predominantly representatives of private businesses. The U.S. Embassy organizes annually an American Pavilion at the Autumn Fair. Situated in Pavilion 7, there were 25 U.S. companies exhibiting including Amoco, Bell Helic opter, Lanier, Mobil, Southern Tel, Sprint, and Westinghouse. For information regardi ng the U.S. exhibit, contact Ms. Tsvetanka Kolarova, Commercial Specialist, U.S. Embassy-So fia. The Plovdiv Fair authorities are also developing various annual specialty exhib itions at other times during the year, focusing on sectors such as processed foods (GASTRO), be er (PIVO), dental equipment and services (DENTO), pharmaceuticals (GALENIA) and power engineering and ecology (ENECO). Plovdiv International Fair 37, Vazrazhdane Boulevard 4018 Plovdiv, Bulgaria Tel: (359)(32) 56-29 Fax: (359)(32) 26-54-32 List of Newspapers and Business Journals 24 Hours; 168 Hours; BBN-168 Hours (English Edition) 47, Tzarigradsko Shosse Boulevard 1504 Sofia, Bulgaria Tel: (359)(2) 46-52-74 Fax: (359)(2) 433-93-39 Bulgarian Business 73, Cherkovna Street Sofia, Bulgaria Tel: (359)(2) 46-70-23 Fax: (359)(2) 46-70-93 Bulgarian Economic Review (In English) 47, Tzarigradsko Shosse Street, 4th Fl. 1504 Sofia, Bulgaria Tel/Fax: (359)(2) 46-54-90 Cash 1, Angel Kunchev Street 1000 Sofia, Bulgaria Tel: (359)(2) 88-54-80 Fax: (359)(2) 89-49-45 Democratsia 134, Rakovski Street 1000 Sofia, Bulgaria Duma 47, Tzarigradsko Shosse Boulevard 1000 Sofia, Bulgaria Tel/Fax: (359)(2) 44-38-24 Kontinent 47A, Tzarigradsko Shosse Boulevard 1000 Sofia, Bulgaria Tel: (359)(2) 71-41-661 Fax: (359)(2) 44-19-04 Standard News 53, Antim I Street 1303 Sofia, Bulgaria Tel: (359)(2) 31-60-07 Fax: (359)(2) 46-50-09 Trud (Labor) 52, Donkikov Boulevard 1000 Sofia, Bulgaria Tel/Fax: 87-82-14 I. Pricing Product Price supports and state subsidies are being stripped away. Price competition is becoming more intensive. In many instances, the realignment of prices has already occur red. In 1994 inflation exploded to 122 percent. The 1995 rate of inflation has been slashed by more than half. Wages have not kept pace with inflation. The 1995 Law on Prices increased the number of items subject to price controls. The products affected are primarily basic necessities. Consumer demand is price elastic in Bulgaria. With low per capita income and reduced purchasing power, consumers are highly price sensitive. But quality is also an important selling feature. Consumers will spend more in return for higher quality. Impo rted products are typically higher priced than local produced goods. The price elasticity of demand for imports would seem to be lower given that the consumption of imports has increa sed as real income has dropped. Non-price factors (product quality) along with pent-up dem and for goods not previously available are responsible for the sustained demand for imports. J. Sales Service/Customer Support Bulgarian consumers expect after-sale service and customer support when purchas ing products. In practice, Bulgarian state-owned companies have failed to deliver in this res pect. However, new private companies understand the importance of customer support and are following through on promises. These companies are also demanding full service and suppo rt when purchasing imported products. Given that prices are generally higher and their limited budgets are already stretched, service and support are mandatory in their view. Emphas is on customer support is an initial step in developing customer loyalty. Some American companies operating in Bulgaria are insisting on full training of their distributors/agents. In many cases, agents and distributors are trained in the United States in order to communicate the firm's distinctive corporate policies, behavior and st andards. K. Selling to the Government There are no standardized government-wide regulations addressing public procurements. Each ministry has a government procurement office which is responsible for overseein g the process. Bidders complain that tendering processes are frequently subject to irregularit ies, fueling speculation that corruption is pervasive. Selling to state-owned companies can be even more difficult. Sellers report that many company managers expect kick-backs to be structured into transactions. In recent years, several government ministries and other state-owned entities h ave received financing from the World Bank, EBRD, EU's PHARE as well as other official donor agencies and IFIs. Pursuant to the loan guidelines, tenders must be open and transparen t. Results of the tender evaluation process are subject to the review and final approval of f inancing institution. Bulgaria is not a signatory to the GATT Government Procurement Code. Bulgaria is currently negotiating its accession to the World Trade Organization (WTO). Bulgaria will be encouraged to become a signatory to the Code. L. Protecting Your Product from IPR Infringement Bulgarian law protects the acquisition and disposition of property rights. Int ellectual property rights are treated in a series of individual laws that have been, for the most part, updated recently (see Protection of Property Rights). Production and trade secrets are addressed and protected under Article 14 of the Law on the Protection of Competition. The major concern with respect to IPR is the lack of effective enforcement. Deficiencies in manpower and training combined with nominal penalties, which do not deter infringement, hamper enforcement efforts. In early 1995, the International Intellectual Prop erty Alliance estimated total trade losses for the United States of $154.7 million due to pir acy. Consumer goods manufacturers report the most serious and pervasive problems. T he majority of infringing products are produced outside of Bulgaria. Some companies are wo rking with Customs officials to try to eliminate problems. In 1995, the Government of Bulgaria strengthened copyright protections and is focussing on enforcement efforts and cooperating with private, foreign and international organizations that have voiced concern about IPR problems. M. Need for a Local Attorney Foreign attorneys are not permitted to practice in Bulgaria. Bulgarian law sti pulates that representation in court or any official work requiring a legal review/opinion m ust be performed by a duly licensed member of the Bulgarian Bar Association. In terms of joint venture or privatization negotiations, foreign counsel should be used to review documents and to provide general advice. One Canadian law firm has established an office in Sofia. No American or Europ ean law firms have established representative offices in Bulgaria. Many Bulgarian law firms have already established or are forming relationships/associations with western law firms. Additionally, some of the larger international accounting and consultancy firms have established legal departments which perform the usual services offered by a law firm. V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENTS In using this section, readers should note the difficulty in collecting reliab le market data for Bulgaria. The statistics provided below are estimates. These estimates were arrived at using numerous sources and considering many factors. The figures below should not b e confused for hard data. A. Best Prospects For Non-Agricultural Goods and Services Rank of Sector: 1 Name of Sector: Computers & Peripherals Ita Industry Code: CPT Narrative: The Bulgarian computer and peripheral market continues to be robus t. Statistics >from IDG indicate that shipments increased by 11 percent in 1994. IDG expects further market expansion over the next couple of years. The bulk of demand appears to be for Personal Computers (PCs). Related to this is increased demand for creating integrated systems and LANs, etc. Name-brand suppliers are increasing their share of the market rapidly, though some demand is currently supplied from the local assembly of imported kits/components from East Asia. Although statistics below show limited growth potential, official statistics in both Bulgaria and the United States are not capturing much of the trade. Many prod ucts are shipped to warehouses in Europe and later shipped on to Bulgaria. 1994 1995 1996 A. Total Market Size 67.0 74.0 80.0 B. Total Local Production 18.0 15.0 14.0 C. Total Exports --- 2.0 2.0 D. Total Imports 49.0 61.0 68.0 E. Import From U.S. 6.0 6.0 8.0 Rank of Sector: 2 Name of Sector: Telecommunications ITA Industry Code: TEL Narrative: Though Bulgaria had one of the highest telephone penetration level s in the region, the infrastructure is dated. The Bulgarian Telecommunications Company (BTC) i s upgrading the system through the Digital Overlay Network (DON) program with assistance f rom the EBRD, World Bank and European Investment Bank. The $300 million program involves the installation of new switches, fiber optics and satellite communications. Wire less communication is also in demand as two cellular operations are already operati ng with a third license expected to be issued. Demand for telecom equipment and services is n ot expected to drop-off anytime soon. 1994 1995 1996 A. Total Market Size 120.0 160.0 210.0 B. Total Local Production 15.0 15.0 23.0 C. Total Exports -- -- -- D. Total Imports 105.0 145.0 187.0 E. Import From U.S. 4.0 8.0 10.0 Rank of Sector: 3 Name of Sector: Cosmetics/Toiletries Ita Industry Code: COS Narrative: The demand for cosmetics, perfumes and toiletries has increased dramatically during the last 4 years along with expansion of the market. All the major Eur opean suppliers are present in the market. Most imports are currently being sources from Germ any though France is a leading supplier of perfumes and shampoos and the UK is exporting some personal hygiene products and nail polish. U.S. products are penetrating other regiona l markets, such as Hungary; there is no reason why U.S. products would not be competitive in Bulgaria. Again, may U.S. product shipments to Bulgaria are not captured by official sta tistics in either the U.S. or Bulgaria because they are warehoused in Western Europe and later destined for Bulgaria. Imports of U.S. products are believed to comprise a market larger s hare of total products. Similarly, U.S. export potential is at least 10 to 15 times higher than statistics would lead companies to believe. 1994 1995 1996 A. Total Market Size 35.0 43.0 80.0 B. Total Local Production 15.0 17.0 20.0 C. Total Exports 4.0 5.0 9.0 D. Total Imports 24.0 31.0 69.0 E. Import From U.S. 0.2 0.2 1.0 Rank of Sector: 4 Name of Sector: Pollution Control Equipment Ita Industry Code: EPT Narrative: Bulgaria, like other countries in the region, pursued the rapid de velopment of its heavy industrial sectors at virtually any cost. These sectors are now respons ible for many of the environmental problems in the so-called "hot spots." Specifically, these industries are: cement, ferrous/non-ferrous metals, food processing, petrochemical, textiles a nd thermal power. The demand for environmental services and equipment is directly linked to the availability of funding. Little domestic funds are available for project fina ncing. Monies to undertake environmental projects are slowly being made available from donor countries and organizations (IBRD, EBRD, etc). Opportunities for American companies exist a cross the board: industrial waste treatment equipment; municipal wastewater and water treatment programs; consulting services; toxic and hazardous waste treatment materials a nd equipment; and, solid waste and landfill cleanup equipment; 1994 1995 1996 A. Total Market Size N/A 25.0 30.0 B. Total Local Production N/A 3.0 3.0 C. Total Exports N/A 0.0 0.0 D. Total Imports N/A 22.0 27.0 E. Import From U.S. N/A 1.9 4.0 Rank of Sector: 5 Name of Sector: Franchising Ita Industry Code: Narrative: Franchising is a proven method for transferring know-how and capit al. Franchising in Bulgaria has started taking off in the fast-food area. Kentuck y Fried Chicken and Pizza Hut franchises have been initiated. McDonald's has also entered the market but not on a local franchising basis. There are opportunities still in food/catering sector especially as it relates to the tourism sector. Other opportunities may exist in auto repai r/servicing, dry-cleaning, etc. 1994 1995 1996 A. Total Sales 5.0 8.5 17. 0 B. Sales by Local Firms 3.0 4.5 10.0 C. Sales by Foreign.-owned Firms 2.0 4.0 7.0 D. Sales by U.S.-owned Firms 0.3 0.5 1.5 B. Best Prospects For Agricultural Goods and Services Following is a listing of best prospects for agricultural goods. The beginnin g and ending stocks are not shown, therefore the numbers may not aggregate exactly in the columns. Market figures are provided in terms of quantity. Corn is measured in terms o f thousands of mega tons (1,000 MT) while the other commodities are simply mega tons. Corn Narrative: Like soybeans, corn is a primary component of animal feedstuffs. Unlike soybeans, when the crop is strong, Bulgaria is able to produce nearly enough c orn to meet its needs. However, under drought conditions -- a not uncommon occurrence -- ther e is a definite need for significant imports. Moreover, as the livestock sector recovers and as production is based on more careful economic calculations, numbers of animals will grow and rations will contain higher energy component content. Therefore, there are good prospects for imports. There is no reason why the United States should not be able to export corn to Bulgaria. 1994 1995 1996 A. Total Market Consumption 1,446 1,300 1,350 B. Total Local Production 1,362 1,300 1,300 C. Total Exports 0 0 0 D. Total Imports 84 0 50 E. Import From U.S. 47 0 0 Tobacco Narrative: Tobacco is a major agricultural crop in Bulgaria. However, the ty pe of tobacco produced is oriental and as a consequence not competitive with the flue-cured Virginia tobacco produced in the United States. The current trend is toward American t ype cigarettes which require blending U.S. type tobaccos. The Bulgarian state monopoly indus try has recently been broken up and there is considerable interest on the part of west ern firms to form joint ventures with individual enterprises which were part of the old monopoly . As the industry matures with the economic transition, there should be opportunities f or U.S. tobacco exports, provided they are competitive. 1994 1995 1996 A. Total Market Consumption 52,500 54,600 55,000 B. Total Local Production 31,959 27,300 25,000 C. Total Exports 22,066 25,000 22,000 D. Total Imports 5,798 5,100 8,000 E. Import From U.S. 481 400 450 Rice Narrative: Bulgaria is normally a net importer of rice. As income grows and eating habits become more diversified due to greater exposure to non-traditional foods, consumption should increase. There is no reason why the United States can't obtain a share of th e market if our products are competitive. 1994 1995 1996 A. Total Market Consumption 28,000 28,500 29,000 B. Total Local Production 2,000 2,000 1,500 C. Total Exports 10,000 11,000 15,000 D. Total Imports 54,800 56,000 55,000 E. Import From U.S. 0 0 0 Cotton Narrative: The U.S. has a potential market in Bulgaria. Traditional trade pa tterns with former Soviet suppliers such as Uzbekistan have been disrupted. Unfortunately , the Bulgarian industry does not have enough orders, especially from foreign countries to kee p its mills going at anything close to capacity. should the situation regarding hard currency c ustomers improve, there may be sales prospects. 1994 1995 1996 A. Total Market Size 34,100 38,000 38,000 B. Total Local Production 6,000 10,000 9,000 C. Total Exports 0 0 0 D. Total Imports 28,100 28,000 29,000 E. Import From U.S. 0 0 0 C. Investment Opportunities The government of Bulgaria is promoting investment in various sectors. Bulgar ian companies themselves are interested in opportunities with American companies. Following is a listing of prospective investment sectors: o Food Processing o Chemicals o Mining o Tourism o Electronics o Ceramics For more information on the investment environment, please see Investment Clim ate, Chapter VII. The Government of the United States acknowledges the contribution that outward foreign direct investment makes to the U.S. economy. U.S. foreign direct investment i s increasingly viewed as a complement or even a necessary component of trade. For example, roughly 60 percent 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 Gove rnment of the United States undertakes initiatives, such as Overseas Private Investment Corp oration (OPIC) programs, investment treaty negotiations and business facilitation programs, t hat support U.S. investors. VI. TRADE REGULATIONS AND STANDARDS Bulgaria's trade regime was liberalized in early 1991 when most import restrictions were dismantled and the number of items requiring import licenses was greatly reduce d. Bulgaria reduced duties shortly thereafter with the introduction of a new tariff nomencl ature. Bulgaria is currently engaging in negotiations to accede to the World Trade Organization . Bulgaria's accession to the WTO should lead to even greater market liberalization followin g a transition period. Government Decree Number 307 (December 1994) stipulates special provisions for the import and export of enumerated items between January 1 - December 31, 1995. This decree was subsequently amended during 1995. A. Tariffs and Import Taxes/Customs Valuation (i) Tariffs The 1992 Council of Ministers Decree Number 35 (amended) implemented a new tari ff schedule based on the Harmonized System (HS) adopted by the Customs Cooperation Council. Tariffs range between 5-40 percent on industrial products and 5-55 percent for agricultural products. The average tariffs applied to imported manufactured goods and agricultural products are 16.7 percent and 25.9 percent, respectively. Bulgaria's tariff schedules consist of two columns of rates. The column 1 rate applies to 118 countries which qualify for preferential duty rates. Column 2 is a "preferenti al" standard rate which is tantamount to the Most-Favored Nation (MFN) status. Forty-two countri es, including the United States, are subject to column 2. Approximately 80 percent of Bulgaria's total imports receive column 2 treatment. This rate, however, differs from tar iffs applied to goods sourced from the European Union (see this chapter, Membership in Free Tra de Agreements). Customs valuation is based on the negotiated purchase price denominated in the foreign currency. The dutiable value is CIF, consisting of the purchase price, transpo rtation costs, insurance fees and all other expenditures associated with the transport (e.g., loading and unloading). Decree Number 307 (December 1994) stipulates that certain items will enter duty free until December 31, 1995. Products Subject to Duty-Free Treatment Environmental pollution control and treatment equipment; alternative energy generation equipment/technology; nuclear safety equipment; nuclear fu el; human and veterinary vaccines/serums; mining equipment; production equipment for energy saving lamps; medical instruments/equipment and pharmaceuticals; modified baby milk; soya oil-cake; animal protein fe eds; radioactive elements and isotopes for medical uses; medical x-ray equipment/films; recording paper for medical devices; potassium iodat e, potassium iodide and iodized salt; pig-iron, iron or steel scrap/spli nters and steel ingots; nickel, copper, lead, and zinc scrap/splinters; equipment/dev ices for disabled or handicapped persons; magnetic tapes and film in rolls. In October 1995, Decree Number 192 permanently reduced the duties on approximately 200 products. In general cuts were made from three levels of column 1 and column 2 rates: (1) 7 and 10 percent; (2) 11 and 15 percent; (3) 20 and 25 percent. In all cases, ta riffs were reduced to 3 and 5 percent, respectively. Products affected by the decree incl ude: certain chemicals and allied products (new column 2 rate is 5.5 percent rather than 5 percent); ceramics; certain types of machinery (boilers, etc.,) and mechanical appliances ; certain iron/steel and related products; certain pigments/paints; glass/glassware; textiles/apparel; and, automotive and other transport vehicles and parts. (ii) Other Charges (Non-Tariff) All imported products are subject to a 1 percent customs processing fee. The f ee was reduced >from 3 percent in June 1995. The maximum amount of the fee cannot exceed $700. The 1993 Council of Ministers Decree Number 121 amended the customs regime and implemented a 3 percent import tax. The import tax has been progressively redu ced and is set at 1 percent for 1995. The tax is levied on all imported products. However, t he law provides a list of exceptions: petroleum; gas; coal; pharmaceuticals; wheel chairs; suga r cane; salt; steel, copper, lead, and zinc ores and concentrates; certain chemicals; pulp; w ool; cotton; steel products and aluminum. The import tax will be discontinued in 1996. All products are subject to an 18 percent Value-Added Tax (VAT). The Law on Value-Added Tax became effective on April 1, 1994. The VAT replaces the general turnover t ax. All goods and services are subject to VAT except those for export. A temporary three-year VAT exemption exists for 11 products: The Law on Excise Taxation imposes additional taxes on: beer, wine and spirits; cigarettes and tobacco; gambling equipment; leather products and fur coats; coffee and tea; VC Rs; matches and butane/gas pocket lighters; gasoline and diesel oil; and, automobiles. In June 1995, Parliament increased sharply the excise taxes on these products. B. Import Licenses (i) Registration Decree Number 307 stipulates that the importation of certain products must be "registered" with the Ministry of Trade. These products will receive an automatic license w ithin one day of the Ministry's receipt of the application. Applicants are required to prese nt certificates of court and tax registrations. Other substantiating documentation may be require d: contract, pro forma invoice, an order, tax number invoice, certificate of origin, and/or cert ificate of quality. Products Requiring Registration: Meat & dairy products; beer, wine and oth er alcoholic beverages; ethyl alcohol; coal and petroleum; flat glass; and ferrous/nonferrous metals. (ii) Authorization (Licensing) Decree Number 307 also requires that certain products must receive "authorizati on" prior to importation. This is a non-automatic licensing process. Authorization, in the form of an import license, should be issued within two days of the Ministry's receipt of t he application. Applicants are required to present certificates of court and tax registration a s well as substantiating documents (enumerated above). Imports of medicines will also re quire a copy of the license for wholesale trade. Appeals to the Ministry's denial of a lice nse must be made in writing to the Minister of Trade within five days after the issuance of the decision. The Minister is required to render a final opinion within five days of receipt of t he appeal. Products Requiring Authorization: Precious metals; sporting guns and ammun ition; endangered plant/animal species; wastes and other dangerous materials; pesticides; gambling machines; bulk alcoholic beverages; asbestos; tobacco and related products; natural gas; dry milk; refrigerators. (iii) Duty-Free and Reduced Tariff-Rate Quotas Decree Number 307 also states that certain goods are subject to quotas where th e tariff is reduced or waived completely. Quota allocations are distributed by the Ministr y of Trade through a tendering process or auction. No single applicant may receive a quot a allocation larger than 35 percent of the total. Quota recipients may be required to place a deposit or a performance bond issued by a bank. Quota allocations are not transferable. Products Subject to Duty-Free Quotas: Livestock; live fish and fish powder /meal; seed potatoes; wheat; lard and other animal fats; palm and coconut oil; non-can e molasses; calcium phosphates; iron ores and concentrates; coking coal; lead and zinc ores/concentrates; crude nickel and aluminum; potassium fertilizers; insec ticides, fungicides and herbicides; engines for farm machinery; certain farm equipm ent and spare parts; pharmaceutical preparations and materials; wool; animal hides ; paper and paperboard waste; raw cotton; safety equipment for mining; sunflower seed oil; therapeutic medicines; and, powdered milk. Products Subject to Reduced Tariff Rate Quotas: Vegetable fats and oils; a nd methanol. (iv) Quotas Bulgaria imposes quotas for which there is no tariff relief. The only product affected is ice cream (HS 2105.0000). C. Export Controls (i) Registration Decree Number 307 states that the export of certain products must be registered with the Ministry of Trade. As with imported products, the registration process results in an automatic license. Products: Animals; meat and dairy products; rye, oats and soybean; sunflow ers and oil by-products; fodder; processed tobacco and related products; coal, petrole um and other liquid fuels; textiles; ferrous/nonferrous metals. (ii) Authorization (Licensing) Certain exports will require an authorization or license by the Ministry of Tra de. Products: Precious metals, nuclear materials, guns and ammunition; endange red plant/animal species; art; corn seeds; flour; timber; steel scrap and othe r metals/ores. (iii) Quotas Bulgaria maintains quotas on the exportation of certain items: Wheat and animal feed barley. (iv) Export Taxes All exports are subject to a 1 percent customs clearance fee. Decree Number 307 levies an export tax on certain products: Livestock, grains, corn, flour, sunflower seeds and oil; animal hides; timber; paper and paperboard wastes; woo l; stainless steel scrap/splinters; copper articles. The export tax is quoted in U.S. dollar and ranges from $5/ton to $700/ton. Taxes collected on exports of livestock and wool are diver ted to the Agricultural Development Assistance Fund. Taxes collected from grains, maize a nd sun flower products are contributed to the Grain Fund. (v) Temporary Export Bans Bulgaria has imposed temporary export bans on the following products: barley fo r brewing; corn, ferrous and non-ferrous metal scrap/splinters; copper ingots and other prefabricated copper products; potassium iodate, potassium iodide and iodized salt. (vi) U.S. Exports of Sensitive Technology Regarding U.S. export controls on products destined for Bulgaria, COCOM export controls were eased in 1993 on selected technologies and products. Bulgaria was granted "favorable consideration status" which presumes approval for COCOM applications and a shor ter approval period. D. Import/Export Documentation and Temporary Entry Import/Export Documentation: The Regulations for the Application of the Law on Customs requires the followin g documentation for all imported and exported products: o Certificate of origin o Commercial invoice o Insurance invoice o Bill of lading o Packing list In some cases additional information may be required such as receipt of payment of customs processing fees, bill of health (depending upon products), and certificate of import/export (authorization of license). If imports are sourced from the European Union, a movement certificate (Form EU R 1) is necessary if the products are to qualify for reduced duties (pursuant to the te rms of the Association Agreement). Form EUR 2 should also be included if the shipment is valued below ECU 5,110. Products sourced from member countries of the European Free Trade Agreement (EFTA) -- Norway, Switzerland and Iceland -- require an exporter's declaration in order t o qualify for reduced tariff rates. Temporary Import: Products may be imported into Bulgaria on a temporary basis provided they are n ot prohibited by law. The rules on temporary imports are contained in the Regulation for Application of the Law on Customs. Article 58 specifically addressed samples and products for tra de exhibitions. The term of entry cannot exceed six months although a request for extension can be made. Customs duties will not be levied if a letter of guarantee from a Bulgarian org anization is presented vouching for eventual return of the goods or payment of duties. Bulgaria is a party to the Customs Convention on Carnet ATA for Temporary Impor t of Goods. Presentation of an ATA carnet, or TIR carnet, facilitates the process. An entry carnet can be obtained from a local chamber of commerce in the United States. Carnets are usually valid for 1 year and list the products to be entered on a duty-free basis. The carnet must be presented upon entry in Bulgaria. Customs will stamp the carnet thereby valida ting it. Upon departure, the carnet must again be presented for validation, confirming that t he product is being transported out of Bulgaria. Failure to re-export the goods results in a pplication of the duties. The Regulations also provide for the temporary import of products and equipment . Article 15 lists 15 categories. For example, equipment for repairs, finishing, processing and testing can be imported temporarily duty-free. Any goods intended for re-export (e.g., tex tile and apparel) are also permitted. Article 51 establishes time limits from 3 months to one year for re-export. While products cited in the previous paragraph enter duty free, in practice Cus toms has required a deposit tantamount to the assessed duties or a bank guarantee during the temporary import period. E. Labelling & Marking Requirements The 1995 Law on Prices regulates labelling and marking requirements. Labels mu st contain the following information: quality, quantity, ingredients, certification author ization number, and manner of storage (transport, use or maintenance). The product must be cle arly marked with the date of production, expiration date and the warranty period. The abov e requisite information must be printed in Bulgarian. F. Prohibited Imports Bulgaria does not maintain a list of prohibited imports. G. Standards The Law on Standardization & Metrology (amended eight times between 1964-1988) together with the Regulation for Implementation of the Law (promulgated in 1973 and amen ded in 1993) sets forth the legal requirements for product standards and quality contr ol in Bulgaria. The Committee on Standardization & Metrology is the designated authority for developing national standards. The Committee on Standardization reports bi-annually to th e Council of Ministers. In certain areas, product and sectoral-specific standards are issue d by other appointed ministries/agencies. Bulgaria is making an effort to create conformity between national standards an d international norms. Bulgaria is a participant in the International Organization for Standar dization (ISO) and the International Electro-Technical Commission (IEC). The Committee along with the corresponding ministry/agency are also responsible for the testing and certification of products to ensure compliance with Bulgarian stand ards. The Committee on Standardization & Metrology is the competent authority for all pro ducts except pharmaceuticals, food and telecommunications equipment. The competent authorit y for pharmaceuticals is the National Institute for Pharmaceutical Products in the Mi nistry of Health. The Institute not only establishes standards and performs testing and certifica tion but it is also responsible for drug registration. The Committee on Standardization shares responsibilities for food products with the Ministries of Agriculture and Health. Type approval for any equipment interconnected to Bulgaria's telecom network must be obtained from the Committe e on Posts & Telecommunications; the Committee on Standardization issues approvals attesti ng to electrical safety and functional characteristics. The Department for Certification & Management Quality Control, within the Insti tute for Standardization, handles all testing & certification. In addition to the appli cation, the Department requires a Bulgarian translation as well as certificate(s) of approv al from the corresponding home testing authority and a certificate identifying the testing protocol. The fee levied for the testing and certification process is at the daily rate BGL 360 p er person. The entire testing and certification process requires at least 2 months. H. Free Trade Zones/Warehouses There are 6 operational FTZs in Bulgaria: Rousse, Vidin, Plovdiv, Svilengrad, Dragoman, and Bourgas. Plovdiv, the only inland FTZ, is the most profitable with 24 inv estment projects. Plovdiv is investing in three more warehouses along with a petrol st ation. The Bourgas FTZ has the largest warehousing and automotive distribution facilities. Bourgas reports that it is utilized by more than 100 foreign and joint venture companie s including Samsung and Daewoo. Limited manufacturing is conducted in both the Plovdiv and Rousse FTZs. Svilengrad is expected to initiate production activities associated with packaging and soft drinks soon. I. Special Import Provisions Goods imported into Foreign Trade Zones are not subject to tariffs. Bulgaria applies a Generalized System of Preferences program to products import ed >from 42 developing countries. Column 1 rates are applied to 118 countries which qualif y for preferential tariff rates. Products imported from the European Union are subject to reduced duties or exem pt entirely in accordance with Bulgaria's Europe Agreement (see Item J). Customs allows for the temporary import of goods. Duties on these products may be temporarily deferred. Failure to take the equipment or goods out of the countr y prior to the predetermined deadline results in the imposition of the tariffs. J. Membership in Free Trade Arrangements In March 1993, Bulgaria signed a Europe Agreement (Association Agreement) with the European Union. The Interim Agreement covers the trade components that entered into force in January 1994. Pursuant to the Agreement, the EU and Bulgaria will eliminate tariffs asymmetrically over a 10-year period with the EU reducing tariffs at an acceler ated rate. Remaining trade barriers will be abolished by 1996 and textiles in 1997. Agric ultural concessions are applied on a reciprocal basis. The Europe Agreement also calls for the harmonization of Bulgaria's laws and institutions with those of the European Union in preparation for eventual full membership. Alread y, Bulgaria is making an effort to take into consideration the requirements of EU directives i n drafting new legislation. Bulgaria aspires to be a full member of the EU. Slow progress on the general economic front as well with privatization and structural adjustment will hinder quick entrance . Bulgaria's membership will not be considered with other countries such as the Czech Republ ic, Hungary or Poland. Full membership in the EU is unlikely to be realized till well afte r the year 2000. In July 1993, Bulgaria signed a free trade agreement with the European Free Tra de Agreement (EFTA). The provisions of the EFTA Agreement mirror those of Bulgaria's Europe Agreement. Since then, the majority of EFTA member countries has opted to join the EU. Bulgaria is negotiating a separate bilateral free trade arrangement with Austri a. Bulgaria is not a member of the Central European Free Trade Agreement (CEFTA). Discussions on a free trade agreement have started between Bulgaria, the Czech Republic and Slovakia. Negotiations are expected to be completed by the end of 1995. The successful conclusion of these talks could position Bulgaria for potential consideration i n CEFTA. During his visit to Bulgaria in the 1995, Turkish President Suleyman Demirel pr oposed a free trade agreement with Bulgaria. Bulgaria is currently negotiating its accession to the WTO. Accession to the W TO will entail signing on to the GATT's Uruguay Round Agreement, meaning that Bulgaria would become a signatory to the various agreements concluded in the separate negotiating group s on textiles and apparel, trade-related intellectual property rights (TRIPs), trade-related investment measures (TRIMs), etc. The United States concluded bilateral negotiations mark et access issues in the Fall 1995. As a result, U.S. exports to Bulgaria would enjoy mo re market access; conversely, Bulgarian exports to the United States would also enjoy mor e access. Accession negotiations are expected to be completed in early 1996. VII. INVESTMENT CLIMATE A. Openness to Foreign Investment Although Bulgarian officials agree in principle on the need to attract foreign investment, the government's attitude in practice is more ambivalent. Bulgaria has one of the most liberal foreign investment laws in the region. However, encouragement of foreign inves tment must progress beyond mere rhetoric to the promulgation of policies (including legisl ation, regulations and implementation standards) that will provide incentives for fore ign investors in Bulgaria. Nonetheless, as part of the ongoing transformation in Bulgaria there has been extensive reform of the laws relating to business activity and opening the door to foreign participation. Foreign investment typically assumes one of the following forms: establishing a joint venture with existing companies, state-owned or private; acquiring a company through privatization; setting up a new (greenfield) venture; and, making a portfolio investment. Som e companies such as American Standard have entered into joint ventures. Other foreign comp anies have participated in the privatization process such as Interbrew (Belgium), Heineken (Netherlands), Willi Betz (Germany), U.S. Polychrome Corporation (USA) and Kraft Jacobs Foods (Philip Morris, USA). Very few companies have gone the greenfield route. Portfolio investment is minimal given the relative lack of development and inefficiencies of the capita l markets. Portfolio investment may become more attractive as mass privatization begins. As of October 1995, foreign investment in Bulgaria was valued at nearly $800 mi llion: $526 million was direct investment, $120 million was through privatization deals and $150 million was portfolio investment. Germany has invested the largest amount of capital i n the country, about 40 percent, although Greek companies participate in many more ventures. In comparison to elsewhere in the region, especially the Visegrad countries, this level of foreign investment is low. The problems most often cited by foreign investors in Bulga ria are: poor infrastructure; no advance notice of new laws/regulations or amendments; tax bu rden (high profit tax rate and no tariff relief for imported capital equipment); banking s ystem; protracted privatization process; and government bureaucracy. In 1992, Bulgaria implemented the Law on Foreign Person's Business Activity & Foreign Investment Protection, or simply the Foreign Investment Law. Foreign companies are permitted to engage in various forms of business activity including the acquisi tion of shares in companies. The Law does not limit the extent or amount of foreign participatio n in companies. Foreign companies also have the right to open deposit accounts in h ard currency and Bulgarian lev. Article 3 extends national treatment to foreign investors w hile Article 10 guarantees compensation in the event of expropriation. Finally, Article 13 all ows the repatriation of profits. The Foreign Investment Law places certain restrictions on the activities of for eign companies: (1) Foreign persons cannot own land; (2) Local companies with foreign participation may not acquire lands desi gnated as agricultural; (3) Foreign persons may acquire ownership of buildings and limited proper ty rights in real property (Note: foreign persons cannot obtain ownership of re sidential buildings except through a building right exercised by such a person) ; (3) Local companies where foreign partners have controlling interests mus t obtain prior approval (license) to engage in certain activities: production or trading of arms/ammunition; banking and insurance; exploration, development and exploitation of natural resources; acquisition of property in certain designated geographic areas/zones. Licenses are granted by the Council of Ministers or, in the case of banking, th e Bulgarian National Bank (BNB). These institutions have published conditions for licenses which Bulgarian officials assert are nominal and routine. The Law on the Transformation & Privatization of State and Municipal-owned Enterprises (amended in 1994) governs Bulgaria's privatization process. Foreign companies are permitted to participate in privatization. The Law will be amended once more prior to th e start of the mass privatization program. The pace of a privatization transaction is often p rotracted. There have been complaints that the Privatization Agency unduly emphasizes price in t he negotiations. Uniform policies do not appear to be established with respect to employee maintenance, technology transfer and other issues such as environmental liabili ty. In some cases, controversies ensued in the post-privatization phase regarding the terms and conditions of sale. B. Conversion and Transfer Policies Article 13 of the Foreign Investment Law clearly stipulates that there are no restrictions on the transfer of investment-related funds. The U.S. Embassy has received no complaints from U.S. investors pertaining to transfers and remittances. Council of Ministers Decree Number 4 on the Adoption of a Regulation for the Ex port & Import of Currency Valuables prescribes that foreign currency in the amount of $1,000-10,000 may be exported with the presentation of funds transfer documentation issued by a bank. Transfers larger than $10,000 must have prior approval of the Bulgarian Nationa l Bank. The law also stipulates that payments abroad made by businesses (or self-employed business people) may be executed only through bank transfers. Violations of this decree are prosecutable under the provisions of Article 37 of the 1961 Law on Transaction With Currency Valuables & Currency Control (amended). In February 1995, restrictions were enacted on the repatriation of profits/divi dends related to privatization transactions involving Brady bonds. Specifically, if Brady bonds were used for half the purchase price, profits and initial capital may not be repatriated for a period of 4 years and 10 years, respectively. In the event that Bulgarian lev accepted by OPIC would be made available to the U.S. Embassy, the Embassy and other U.S. institutions could use up to $11 million annually. The Embassy purchases lev at the official buying rate set by the Bulgarian National Bank. C. Expropriation and Compensation Property can be expropriated by order of the Ministry of Finance "for exclusive ly important state purposes," according to the Foreign Investment Law (Article 10). Owners are required to be indemnified with nearby property of equal value at current prices. Monet ary compensation is also possible but the consent of the foreign person is required . Expropriation can occur only after the owner has been compensated. Expropriation actions are appealable to the Supreme Court regarding the basis for the expropriation action, property ap praisal and method of compensation. There have been no cases of expropriation since enactment of the Foreign Investment Law. D. Dispute Settlement Arbitration: Pursuant to its Bilateral Investment Treaty with the United States, Bulgaria ha s committed to a range of dispute settlement procedures starting with notification and consultat ions. As a final step, Bulgaria accepts binding international arbitration in disputes with forei gn investors. In 1990, the Bulgarian Chamber of Commerce & Industry (BCCI) established the Co urt of Arbitration (Regulations for the Application of Decree 56 on Business Activity, Articles 144-151.) Arbitration is voluntary and regulated by the 1988 Law on Internatio nal Commercial Arbitration which essentially conforms to the U.N. Commission on International Trade Law (UNCITRAL) Model Law. Contracts with Bulgarian companies typically call for di spute settlement at the Court though arbitration in a third country is also possible. According to BCCI, the Court resolved 890 international and domestic disputes between 1990-1 994. Arbitral decisions may also be executed through the legal system. The party mu st petition the Sofia Municipal Court for a writ of execution. Foreclosure proceedings can be initiated (see below for discussion of execution of judgments). Bulgaria is a member of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the 1961 European Convention on International Commercial Arbitration. Bulgaria is not a party to the Washington Convention -- the Inter national Center for the Settlement of Investment Disputes (ICSID). Legal System: Bulgaria's Constitution (1991) serves as the foundation of the legal system and creates an independent judicial branch. The judicial system consists of three levels of c ourts. On the first level, regional courts exercise jurisdiction over administrative, civil a nd criminal cases. There are 20 regional courts in the country. Cases are brought before one judg e and two jurors. District courts have original jurisdiction in civil cases where claims exceed BGL 100,000 or in serious criminal cases. The district courts are also vested with the authority of appellate review for regional court decisions. There are 22 district courts, t he largest being the Sofia Municipal Court. District courts are presided over by three judges. The Constitution called for the reorganization of the court system. While the laws have been passed, the reorganization has not been executed. The reorganization would cre ate an appellate court level and modify the structure of the Supreme Court. Currently , the Supreme Court is the highest court in Bulgaria. The constitution and the Law on the Ju dicial System (1994) replace the Supreme Court with two new courts: the Supreme Court of Cassation and the Supreme Administrative Court. The Supreme Court of Cassation would have jurisdiction over all civil and criminal cases, and hear appeals on issues of law. The Supr eme Administrative Court would rule on the legality of acts by the Council of Minis ters and the ministries. In the absence of these two courts, all functions are administered by the existing Supreme Court. However, within the Supreme Court there is de facto separation of responsibilities. Decisions by the Supreme Court are final and binding. The Law on the Judicial System establishes the independent Supreme Judicial Cou ncil to determine the composition and organization of the judicial branch. The Council has 22 members, who are nominated by the Parliament and other judicial branch bodies, plus three ex-officio members -- the two chairmen of the supreme courts and the Chief Prosecutor. The constitution also established the Constitutional Court which stands apart f rom the supreme courts. This court issues binding interpretations of the constitution; rules o n challenges regarding the constitutionality of laws and acts passed by the Parliament as we ll as the President; rules on international agreements prior to Parliamentary ratificatio n; and reviews domestic laws to determine consistency with international legal norms. The Constitutional Court ruled that, in the absence of the Supreme Administrative Court, the juris dictional responsibilities will be performed by the present Supreme Court. Any law or ac t found unconstitutional ceases to apply as of the date the ruling comes into force. T he Constitutional Court consists of 12 judges: one-third elected by Parliament; one-third appoint ed by the President; and one-third appointed by judges in the supreme courts. Execution of Judgments: To execute judgments, a final judgement must be obtained so that the court can: order payment; make a judicial request to perform an act or abstain from acting; or, order the surrender of possession of property/goods. To obtain payment, foreclosure proceedings must be initiated. (Note: Reportedly, foreclosure is not a simple procedure.) The court of first instance must be petitioned for a writ of execution (based on the judgment). T he issuance of a writ enables seizure of assets. If the party is seeking a judicial request to act or abstain from acting, the final judgement must be brought before an executive judge (head of a district court). The executive judge has the authority to issue penalties. However, th is authority is limited to a fine of BGL 20-200. The judge possesses the authority to resort t o the police in instances such as the vacating of property and, possibly, for the surrendering of possessions. Foreign judgments can be executed in Bulgaria. Execution depends on reciprocit y -- execution of Bulgarian judgments in a particular country. All foreign judgments are hand led by the Sofia Municipal Court. If the court determines that the court system of the co untry in question recognizes Bulgarian decisions, the judgment can be executed. If the foreign c ourt does not recognize Bulgarian judgments, the Sofia Municipal Court must determine if the judgment violates public decrees, standards or morals before the foreign judgment can be executed. Bankruptcy Law The Law on Bankruptcy was passed in 1994 and incorporated into the Commercial Code. Previously, bankruptcy was not adequately addressed legislatively. The Commerc ial Code simply addressed liquidation procedures. Proceedings were initiated by banks a nd the process tended to discriminate in favor of large creditors. The new law introduces the concept of reorganization or rehabilitation of the company, attempts to maximize asset rec overy, and provides for fair and equal distribution among all creditors. The law applies to all commercial entities, except banks, insurance companies, public monopolies or state-owned companies established by a special act of government. Bankruptcy proceedings can be initiated by the debtor or creditors. The debtor is obliged to declare bankruptcy within 15 days of being insolvent. Where insolvency is determined, the court appoints an interim receiver. The receiver is responsible for representing and managing the company, taking inventory of property and assets, identifying the creditors, co nvening the creditors and developing a recovery plan. At the first meeting of the creditor s, a trustee is nominated; in most cases this is simply a reaffirmation by the creditors of the court-appointed receiver. Creditors must declare the debts owed to them within one month of the start of bankruptcy proceedings. The trustee then has 14 days to compile a list of debts. A rehab ilitation plan(s) or a scheme of distribution (in cases of liquidation) must be proposed no later than the date the court approves the list of debts. Article 700 specifies the content of propose d plans. The court must rule on admittance of the plan within seven days (if the plan does n ot comply with Article 700, the proposer has seven days to modify the plan). The Law establishes the priorities of claims (classes) according to creditors w ith: debts secured by pledge or mortgage; debts with regard to foreclosure rights; bankruptcy cost s; debts involving employment; social security obligations; tax and other charges obliga tions to government; unsecured debts; and other debts. The plan is deemed accepted if approved by a simple majority in each creditor class. A court confirmation of the accepted p lan is requisite. In cases where partial payment is being proposed, the plan must have been accep ted by at least two creditor classes. If agreement is not reached in cases of rehabilitation, the court can order liquidation. The Law on Bankruptcy is not being duly applied. There are 100 cases pending under the old law and 350 cases pending under the new law. No reorganizations have been completed. Given the interwoven relationships between banks and many large state-owned companies, banks are hesitant to initiate proceedings against these companies; the value o f the banks' loans could be impaired and has significant adverse impacts on their balance sheets. The probability of a domino effect on other companies is equally high. Finally, judges and cou rts have no prior experience in company reorganizations. More importantly, there is an abs ence of trained professional trustees. The American Bar Association's Central & Eastern European Law Initiative (CEELI ) is working with the legal branch regarding application of the law. CEELI is also working to improve access to proceedings by developing standard forms that can be filled i n by business people allowing them more easily to initiate bankruptcy proceedings. Concession Law: In October 1995, the Law on Concessions was enacted. Essentially, the state is authorized to give "a particular right of using projects, public and state property, as well as giving permit to carry out activities for which a state monopoly is established by law." Articl e 4 of the Law lists areas eligible for concessions. There are thirteen areas in which the st ate may, on the basis of a concession agreement, grant private investors a partial monopoly in activities normally reserved for the central and/or local governments. These include the construction of roads, ports and airports; power generation and transmission; mining; petroleum exploration/drilling; telecommunications; forests and parks; and nuclear instal lations. Concessions are awarded on the basis of a tender and are issued for 35 years. Concessions can be extended but shall not exceed 50 years although the former concession holder can legally be preferred in issuing a new concession for the same project/activity. The Law is somewhat vague regarding the rights of existing ventures prior adopt ion. The transitional and provisional clauses "grandfather" rights acquired for mineral exploration/extraction, pursuant to Article 5 of the Foreign Investment Law, on ly through expiration of the contract. In theory, the rights could be awarded to another entity, thereby incurring losses for the current investor. Regarding other activities enumerat ed in the Law, companies must declare their rights within three months. The Council of Minist ers is directed to take decisions regarding these activities in terms of compliance to the Law. Again the Law is indeterminate regarding long-term rights in this instance. E. Performance Requirements/Incentives Bulgaria does not impose any performance requirements as a condition for establishing, maintaining or expanding an investment. F. Right to Private Ownership and Establishment The constitution (Article 19) states that the Bulgarian economy "shall be based on free economic initiative." The government has created the legal framework in which private entities can establish and own business enterprises engaging in profit-making a ctivities save those expressly prohibited by law. Bulgaria's Commercial Code guarantees and regulates the free establishment, acquisition and disposition of private business enterprises (see Chapter IV). Competitive equality is the standard applied to private enterprises in competit ion with public enterprises with respect to access to markets, credit, and other business opera tions, such as licenses and supplies. State enterprises sometimes enjoy preferential treatmen t. This is especially true regarding access to credit. G. Protection of Property Rights Bulgarian law protects the acquisition and disposition of property rights. Int ellectual property rights are treated in a series of individual laws that have been, for the most part, updated recently (production and trade secrets are addressed and protected under Articl e 14 of the Law on Protection of Competition). Bulgaria adopted the new Law on Patents (hereinafter referred to as the Patent Law) in 1993. Bulgaria grants the right to exclusive use over inventions and utility models f or 20 years and 10 years, respectively, from the dates of patent application filings. Inventio ns eligible for patent protection must be new as a result of innovation and have industrial applications. Article 6 lists items not considered inventions. Utility models are defined as "objects with structural and technological features relating to an improved construction, for m and spatial combination of elements of articles, tools, mechanisms, equipment and parts the reof, materials and other items for industrial or home use..." Although semiconductor chip lay out design is not specifically mentioned in any of Bulgaria's intellectual property rights' l egislation, it should be subject to protection in general under the Patent Law. Future amendi ng of the Patent Law is likely to state explicitly that semiconductor chips are protected . The independent Patent & Trademark Office is the competent authority with respe ct to patent matters. Chapter IV, Articles (34)-(53) describe the application procedures an d the examination process. Applications are submitted directly to the Patent & Trade mark Office whereas previously they were presented to the Bulgarian Chamber of Commerce and Industry. Compulsory licensing may be ordered under certain conditions: a patent has not been used within four years of filing the patent application or three years from the date of issue; the patent holder is unable to offer good justification for failing to sufficiently supply the national market; or a declaration of a national emergency. Patent infringement is punishable with the imposition of fines ranging from BGL 5,000 to 50,000. Disputes are reviewed by specialized panels convened by the President of the Patent Office. Parties dissatisfied with the outcome must initiate action in the Sofi a Municipal Court within three months of the panel's decision. The 1993 Law on Copyright & Neighboring Rights protects literary, artistic and scientific works. Article 3 provides a full listing of protected works including computer programs. The Law distinguishes between moral and economic rights. The use of protected work s is prohibited without the authorization of the author except in those instances enumerated in Article 23. Copyright protection is granted during the author's full life-span and an additional 50 years after the date of death. For films and other audio-visual works, copy right protection is granted for 50 years from the date of disclosure. Part II of the Law address es neighboring rights for performers and producers of sound recordings and radio/television programs. Part III of the Law focuses on enforcement aspects. The Law eliminated the Copyrigh t Agency and reassigned competence for copyright issues to the Ministry of Culture which established the Copyright Office. Remedies for violations are provided in civil law. However, under the Penal Code, copyright infringement was originally considered only a misdemeanor subject to nominal fines. In April 1995, following a government-to-government exchange of letters with th e United States, Bulgaria agreed to strengthen copyright protection and enforcement. Si nce then, Bulgaria has become a signatory to the 1961 Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcast Organizations (September 1995) and the 1973 Geneva Phonograms Convention (August 1995). Bulgaria also amended its Penal Code to criminalize pirating activities and make them punishable with imprisonment. The government is creating an interministerial committee to address copyright enfor cement issues and working with private international IPR organizations. The U.S. Embassy wil l continue to monitor Bulgaria's enforcement efforts. The registration and protection of trademarks is governed by the Law on Tradema rks & Industrial Designs which dates back to 1967, though it was subsequently amended as recently as 1993. The law addresses the "coming into being, use, cession, suspension an d protection of the rights of trademarks, service marks, industrial designs and designation of origin." Foreign enterprises, organizations or persons are permitted to register trademarks. Applications for registration must be submitted to the Patent & Trademark Office (also referred to as the Institute of Inventions and Innovations). The law stipulates application requi rements. The Institute will notify applicants of incomplete applications. Applications must be completed within three months of receipt of the Institute's notice; otherwise, the reques t is rejected. Right of priority, with respect to trademarks or industrial designs which do no t differ substantially, is determined based upon the request filed earliest and in compl iance with information required in Article 12(a). Right of priority is also established b ased on the timing of a request made in one of the member countries of the Union for the Protectio n of Industrial Property. To exercise the right of priority, the applicant must file a request with the Institute within six months of the date of original filing. Approval of the registration request should be granted within three months of a complete application having been filed. Refusals can be appealed in the Sofia Municipal Court within three months of the notification of the decision. Protection is extended with entry of the trademark to the applicant's name in the Register of Trademarks or the Register of Service Marks. The right of exclusive use of a trademark is granted for 10 years. Req uests for extension of protection must be filed during the final year of validity but not less than six months from expiration. The Law in essence automatically protects "signs...alr eady known in the country as world-famous trademarks" by disallowing registration. Failure t o use a mark during a five-year period results in protection being terminated. A deficiency of the law is the absence of private right of action. The Patent & Trademark Office may initiate action for infringement, but private companies cannot. The law also needs tightening in terms of consistency of terminology so as not to create ambiguity . CEELI is working with the Patent & Trademark Office and has written an assessment of the current law. A revision of the current law is expected during 1996. The U.S. Embassy is aware that the infringement of trademarks and trade dress i s a problem in Bulgaria for many U.S. consumer products manufacturers. While the law allows f or confiscation of offending products, infringement is deemed a misdemeanor under the Penal Code and subject to a nominal fine which does not act as a deterrent to illegal activities. Bulgaria is a member of the World Intellectual Property Organization (WIPO) and a signatory to the following agreements: the Paris Convention for the Protection of Industr ial Property, the Madrid Agreement for the Repression of False or Deceptive Indications of Source of Goods, the Madrid Agreement on the International Classification and Registration of Trademarks, the Patent Cooperation Treaty, the Universal Copyright Convention, the Bern Convent ion for the Protection of Literary and Artistic Works, the Lisbon Agreement for the Protect ion for Appellations of Origin & Their International Registration, the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purpose of P atent Protection, and the Nairobi Treaty on the Protection of the Olympic Symbol. H. Regulatory System: Laws and Procedures Commercial Code and Contract Law: The Commercial Code defines the various forms of economic associations and regulates their foundation, organization, and termination. The most common type of organizatio n for foreign investors is a limited liability company. Other commonly used forms are compan ies limited by shares (joint stock companies), joint enterprises, business associations, gener al partnerships, limited partnerships, and sole proprietorships. (see Chapter , Section for more detailed information on incorporation.) The Commercial Code governs commercial transactions while the Law on Obligations & Contracts regulates private transactions. Bulgaria has no separate secured transactions, or pledge, law. Pledges (movabl e property) and mortgages (immovable property) are addressed in the Law on Obligations & Contracts. This law requires the lender to take possession of pledged property. Often, the onl y collateral local companies, especially smaller firms, possess is equipment. This requirement ma kes it more difficult for companies to borrow. The Foreign Investment Law (Article 12) provides an exception where foreign per sons are involved (Note: the Law on Banks & Credit Activity (Article 36) grants a simila r exception for banks). The Law does not demand transfer of the pledged property to the lender . Instead, the law requires a duly written and dated contract between the parties. Leasing is not specifically addressed in either the Commercial Code or the Law on Obligations & Contracts. However, equipment leasing contracts are regulated by the general lease provisions of the Law on Obligations & Contracts and, therefore, must comply wi th requirements of this law. Protection of Competition: The Law on the Protection of Competition (referred to as the Competition Law), issued in 1991 and amended in 1992, is a comprehensive law intended to foster the establishment and maintenance of a competitive market. The Competition Law forbids trade restric tive practices, abuse of a dominant market position, and unfair competition, and seeks to promo te consumer protection. Chapter II, Articles 3-10 explicitly define the abuse of monopoly position and regulates restraints of trade. Chapter III addresses unfair competition and th ose unfair practices such as disparagement of competitors, fraudulent claims regarding pro duct performance, suppression of product defects, dissemination of misleading inform ation to consumers, illegal use of trademarks, disclosure of trade secrets, falsificatio n of product origin, etc,. The Competition Law created the Commission for the Protection of Competition, a n independent institution responsible for investigating and eliminating anticompe titive practices. The Commission consists of a chairman, two deputy chairmen and eight members appointed by Parliament. Besides the activities listed above, mergers or acquisitions wh ich lead to monopolistic market positions must be notified to and approved by the Commissio n in advance. The Commission can only recommend fines up to BGL 1 million. Imposit ion of pecuniary sanctions are imposed by a district court after the determination and recommendation have been forwarded to the court for review and a ruling. The law may not provide sufficient protection for disputes between private part ies. Complaints may be brought to the Commission but actions may only be initiated b y the Commission. In the United States, a company may bring an administrative action while concurrently pursuing civil action in the courts. In early 1995, the Commissio n forwarded to the Council of Ministers draft legislation that would amend the Law and provide the Commission with more authority to investigate complaints and to enforce violati ons directly. The Council of Ministers has not yet acted on the proposal. Taxation: Bulgaria's tax regime is governed by a series of laws: 1950 Law on Personal Inc ome Tax (amended), 1951 Law on Local Taxes & Duties (amended), and Decree Number 56 on Economic Activity. The Law on Tax Administration established the Office of Tax Administration, along with local offices, which are vested with the authority t o assess liabilities and to collect taxes. The Law on Tax Procedures provides the rules for tax registration as well as the procedures for imposing penalties for violations of tax legislation. Personal income tax rates increase progressively from 20 to 50 percent. The ba sic corporate or profit tax rate is 40 percent while a tax rate of 30 percent is applied to p rivate companies where annual profits do not exceed BGL 1 million. The profit tax for commercia l banks and other financial institutions is 50 percent. A withholding tax of 15 percent is assessed on dividends paid to foreign legal persons; a withholding tax of 10 percent is app lied to dividends >from shares of companies with foreign participation. (Note: If foreign compani es reinvest profits, the withholding tax is not applied.) Employers are required to contri bute 35 percent of employees' gross salaries for social security insurance. These payments are ma de on a monthly basis. With respect to foreign employees, employers must contribute 20 percent of the gross monthly salary on behalf of the employee. Companies are also require d to contribute 7 percent of the total wage bill to an unemployment fund. Bulgaria levies indirect taxes. In April 1994, the general turnover tax was re placed by an 18 percent unified-rate value-added tax (VAT). All goods and services are subject to VAT except those for export. (Note: Leasing payments have created some confusion regardin g taxation. The 1995 Ministry of Finance Directive Number GDU-18 attempts to clarify taxati on issues related to leasing transactions. Installment payments are viewed as separate transactions which are subject to VAT.) A temporary three-year exemption is provided for eleven products. Article 9 exempts: transfer of land ownership; financial services; insurance se rvices; rents; educational services; health services; transactions of non-profit organizations ; gambling games; transfer of enterprises through the privatization process; legal services; and tickets for certain cultural activities. Additionally, the government enacted excise taxes on luxu ry products such as automobiles, spirits, and tobacco products; these taxes were increased in mid-1995. Bulgaria offers little tax relief for either foreign or domestic investors. Co mpanies with more than 50 percent foreign participation are exempt from the requirement to pay 10 percent of taxable profits to the municipality. Earlier tax incentives such as corporate tax relief to ventures operating in Foreign Trade Zones were later repealed through amendment s to Decree Number 56 on Business Activity (Transitional & Conclusive Provision, Clause 16) . Since then, Bulgaria has failed to implement any new tax incentives to stimulate inve stment. Decree Number 56, Article 118, provides duty relief to foreign legal persons th at are importing capital equipment or raw materials in the production of exports. Thi s provision does not apply to a foreign investor that has incorporated the venture into a l egal Bulgarian entity. The Ministry of Finance is adamant in its refusal to expand coverage o f this duty exemption to capital equipment designated as contribution-in-kind by foreign i nvestors to any venture. Policies such as this only increase the cost of doing business in Bul garia while at the same time undermining competitiveness. Foreign investors assert that massive tax evasion combined with the failure of the authorities to enforce collection from large, often financially-precarious, state-owned compan ies places foreign investors at a real disadvantage. Another problem underscored by inves tors is the frequent revision of tax laws with little advance notice. The Bulgarian tax system requires more reform. Bulgaria currently has one of t he highest corporate tax rates in the region yet revenues, as a percentage of GDP, are wel l below levels collected in OECD countries. Between 1989-1993, total tax revenue eroded by mo re than half to approximately 20 percent of GDP. The authorities need to broaden the tax ba se while stepping up collection enforcement. Tax reductions are likely to increase reve nues, particularly if penalties are such that tax evasion becomes more costly. I. Efficient Capital Markets and Portfolio Investment The mechanism for raising long-term capital is currently absent from Bulgaria. Capital markets are typically the vehicle whereby various entities, both public and pri vate sector, raise long-term capital to finance activities and/or investments. The companies norm ally supplying funds to the markets are insurance companies, pension funds, banks and private investors. In Bulgaria, however, while there are some newly formed issuing houses and quasi-merchant banks, there is not only a lack of financial investment instruments but of inve stment capital. Banks and insurance companies are financially precarious; and there are almost no pension funds in Bulgaria. Up until mid-1995, there were more than 20 stock exchanges operating in Bulgari a, the largest being the First Bulgarian Stock Exchange and the Sofia Stock Exchange. These exchanges are currently unregulated. For the most part, the exchanges are riddled with insid er trading. Some exchanges are operated by brokers; others were established by companies trading their own shares. The trading volume of these exchanges is negligible. The inchoate development of Bulgaria's capital markets is expected to progress later in 1995. In July 1995, the government passed the Law on Securities, Stock Exchanges & Investment Companies. Essentially, the Law engenders one main stock exchange. It is not clear if an existing exchange will become the primary stock exchange or a new entity will b e created. Not one of the existing exchanges has sufficient minimum capital to satisfy the Law's requirements. Shortly following passage of the new legislation, a consortium o f existing stock exchanges formed the National Stock Exchange: First Bulgarian Stock Exchange, Plovdiv Stock Exchange, Dounav Free Exchange (Rousse), the North Exchange (Veliko Turnovo) and the Sofia Stock Exchange. The combined financial strength of the consortium members should enable fulfillment of the legal requirements. The Government does dip into the market to finance government expenditures. On a weekly basis the Ministry of Finance holds an auction of Treasury bills. The bills ar e typically short-term (3-, 6-, or 9-month and 1- or 2-year maturities) and low interest bearing. Com mercial banks are the primary purchasers of these instruments. Foreign banks can parti cipate in the treasury market only through a Bulgarian bank or the branch of a foreign bank w hich is duly licensed in Bulgaria. The foreign bank transfers the money which is then conve rted into lev to make the purchase. The foreign bank must open a lev account (referred to as a "custody account") for the financial operation. This lev account cannot be used as a st andard deposit bank account. A hard currency account can be opened but it is not obligatory. The purchase of treasury bills is considered an investment. The purchase must be registered with the Ministry of Finance. Investments in treasury bills are subject to a 15 percent tax. Repatriation of profits is possible after presenting documentation that the taxes have been paid. J. Political Violence There have been no incidents in recent years involving politically-motivated da mage to projects or installations. Bulgaria has pursued a policy of strict noninvolvement in th e conflict in the former Yugoslavia. The loss of trade with the former Yugoslavia -- due to Bulg aria's enforcement of U.N. economic sanctions -- has had a detrimental impact on Bulga ria's economy. K. Bilateral Investment Agreements Bulgaria has investment protection treaties/agreements in force with the follow ing countries: Belgium Luxembourg China (PRC) Malta Denmark Netherlands Finland Poland France Slovak Republic Germany Switzerland Italy United States Bulgaria has negotiated investment protection treaties/agreements with the foll owing countries (Note that these agreements still await ratification and entry into force): Denmark Portugal Georgia Republic of Korea Ghana Russia Greece Ukraine A reciprocal investment protection agreement is being negotiated between Bulgar ia and Great Britain. The agreement is expected to be signed by December 1995. Bulgaria has avoidance of double taxation treaties in force with the following countries: Austria Hungary Poland Belgium India Republic of Korea China Indonesia Romania Cyprus Italy Russia Denmark Japan Spain Finland Luxembourg Sweden France Malta Switzerland Germany Netherlands Turkey Great Britain Norway Zimbabwe Bulgaria is in the process of negotiating avoidance of double taxation treaties with the following countries: Armenia Portugal Canada Sri Lanka Greece United States Morocco L. OPIC and Other Investment Insurance Programs Bulgaria has been eligible for assistance from the U.S. Overseas Private Invest ment Corporation since 1991. OPIC offers American investors insurance against polit ical risk, expropriation of assets, damages due to political violence, and currency inconvertibility. OPIC can also provide specialized insurance coverage for certain contracting, exporting, licensing, and leasing transactions undertaken by U.S. investors in Bulgaria. Political risk insurance is also available from the Multilateral Investment Guarantee Agency ( MIGA), which is a World Bank affiliate. M. Labor Bulgaria's working-age population consists of around 4.74 million highly educat ed and skilled men (53 percent) and women (47 percent). The literacy rate in Bulgaria is 93 p ercent. A high percentage of the workforce has completed some form of secondary, technical, or vocational education. Bulgarians excel in engineering, medicine, economics, and the scien ces. Foreign investors agree that Bulgarian employees generally are hard working, honest, ea ger and quick to learn. These same investors also point to the shortage of mid- and senior-l evel managers with western-style management skills. Labor has been severely affected by the economic transition. Unemployment peak ed at 13 percent in 1994 and now stands at 10.9 percent. Regional discrepancies exist. Unemployment is lowest in urban areas such as Sofia, Plovdiv and Varna but surpasses 20 perc ent in less populated rural areas. Labor representatives complain that real income has dro pped despite the indexing of wages to inflation. They believe that the government underestimate s the rate of inflation. A new minimum monthly wage was established as of July 1, 1995 at BG L 2,555. At the same time, the average monthly wage for Bulgarian workers was BGL 7,812. Bulgaria's Constitution (Article 49) recognizes workers' right to organize. In theory, the National Tripartite Cooperation Council (NTCC) provides a forum for dialogue am ong government, management, and trade unions. It is in the context of the council, for example, that the cost-of-living adjustment (COLA) mechanism for compensating incomes wa s negotiated. However, unions remain vocally disaffected by the government's inattention to the council. Bulgaria has two large trade union confederations, the Confederation of Independent Trade Unions of Bulgaria (CITUB) and Podkrepa. CITUB is the successor to the t rade union integrated with the former communist party whereas Podkrepa is an independent confederation. A third confederation, the Community of Free Trade Union Organizations in Bulgaria, was admitted to the NTCC in 1995. There are few restrictions on trad e union activity and both confederations operate freely, but the workforce in smaller f irms and elsewhere in the emerging private sector is often not represented by trade unio ns. In 1993, a new Labor Code was promulgated. Essentially, employer and employee relations are regulated by employment contracts which may be agreed upon through collecti ve bargaining. The Code extends what some complain are excessive protections for workers. For instance, maternity and post-natal child care requirements dictate that emp loyers hold positions for nearly three years while the employee continues to draw some form of pay albeit >from the social security fund. The Code also addresses worker occupational saf ety and health issues, establishes a minimum wage (determined by the Council of Ministers) and prevents exploitation of workers, including child labor. The Code clearly delineates em ployer rights, strengthening management's hand in disciplining the workforce. Unresolved disp utes between labor and management are handled by the courts. The aptitude of workers and the relative low cost of labor are considerable inc entives for foreign companies, especially those which are labor intensive, to invest in Bul garia. Investors should be aware that employer obligations regarding taxes (35 percent for socia l security and 7 percent for unemployment) plus additional benefits (clothing allowance, bonuses , etc.,) can add up to nearly 80 percent of the total wage. Future wage increases may quick ly offset some benefits for investors derived from the current low wages. Foreign companies or Bulgarian companies having majority foreign-control are no t exempt >from the requirements of the Labor Code. Article 14 of the Foreign Investment Law also places some labor requirements on foreign investors. N. Foreign Trade Zones/Free Ports The 1987 Decree Number 2242, subsequently amended in 1991, provides for the establishment and regulation of Foreign Trade Zones (FTZs). FTZs can be established by the Council of Ministers upon request from state or municipal bodies. Only foreign-owned or j oint venture companies are permitted to operate in FTZs. A full range of activities includi ng manufacturing can be conducted. Imported goods are not subject to duties unles s they are re-exported into domestic commerce. In 1993, amendments to Decree Number 56 eliminated many of the FTZs' tax benefi ts. Companies no longer receive corporate tax abatements or holidays but are exempt >from the 18 percent value-added tax (VAT). Foreign companies also have difficulties obtain ing titles or a limited right to land. An interministerial committee on foreign investment has developed draft legisla tion that proposes to reinstate corporate tax benefits for companies, domestic and foreig n, operating in FTZs. Companies would be eligible for a tax holiday for the first two years fo llowed by a 50 percent reduction for three additional years. The bill also proposes to impart a 20-year building right to companies that invest a minimum amount of capital. Presumabl y, new legislation along these lines would also entail stricter enforcement of FTZs to prevent abuse. O. Capital Outflow Policy Relevant statutes controlling capital outflows are the 1991 Decree Number 15 on Changes in the Foreign Exchange Regime, the Law on Transactions with Currency Valuables & Currency Control (amended) and Council of Ministers Decree Number 4 on the Adoption of a Regulation for the Export & Import of Currency Valuables. Decree Number 15 stipulates that a permission from the Bulgarian National Bank is required for outward investment, indirect or direct. Permits are issued in consultation with the Ministry of Finance. Payments must be made through bank transfers. Transfers over $10 ,000 must have prior approval of the BNB. In 1995, the government issued an Instruction on Registration & Control of Bulg arian State-Owned Overseas Subsidiaries. The Ministry of Trade is directed to mainta in a Register of Overseas Subsidiaries which contains pertinent information on the subsidiaries' operations. The Law states that acquisitions, dissolution of the state's interest, etc., sh all not occur without explicit authorization from the shareholders, namely the state. Authorizations must also be obtained from the relevant line ministry or committee. The government has encountered various difficulties with the U.S. subsidiary, Pont Peripheral, of the state-ow ned electronics producer DZU (Stara Zagora). This law might be interpreted as a response to th at situation. P. Major Foreign Investors Following is a list of major foreign investment through privatization: o Bulgarian Company: Tsarevichni Produkti Activity: Food Processing Investor (Country): Amylum Group (Belgium-UK-USA) Sale Price: $20 million Additional Contracted Investment: $20 million o Bulgarian Company: Republika Svoge Activity: Food Processing (Confectionery) Investor (Country): Kraft Jacob Foods (USA) Sale Price: $2 million Additional Contracted Investment: $10 million o Bulgarian Company: Hidro Probivna Technika Activity: Construction Equipment Investor (Country): Brakers A.C. (Denmark) Sale Price: $0.35 million Additional Contracted Investment: $0.35 million o Bulgarian Company: Gazobeton Activity: Construction/Building Materials Investor (Country): Ytong (Germany) Sale Price: DM 5 million Additional Contracted Investment: DM 5.6 million o Bulgarian Company: S.H.Z.I. Sofia Ltd Activity: Food Processing Investor (Country): Nestle S.A. (Switzerland) Sale Price: $2.1 million Additional Contracted Investment: $7 million o Bulgarian Company: SO MAT Activity: Freight Forwarding Investor (Country): Willi Betz (Germany) Sale Price: $5.5 million Additional Contracted Investment: $48 million o Bulgarian Company: Escos Dograma Activity: Construction/Building Materials Investor (Country): Gibu (Italy) Sale Price: DM 0.7 million Additional Contracted Investment: DM 7 million o Bulgarian Company: Zagorka Brewery Activity: Beverage Production (Beer) investor: Brewinvest (Greece-Netherlands) Sale Price: $21.7 million Additional Contracted Investment: $41.4 million o Bulgarian Company: Vamo-Varna Engine Co. Activity: Motor Vehicle Assembly foreign Investor (Country): Rover (UK) Sale Price: $1.4 million Additional Contracted Investment: GBP 3.5 million o Bulgarian Company: Vitosha Hotel Activity: Hotel Service Investor (Country): Ivan Zografski (Germany) Sale Price: DM 65 million Additional Contracted Investment: N.A. o Bulgarian Company: Kamenitsa Brewery Activity: Beverage Production (Beer) Investor (Country): Interbrew (Belgium) Sale Price: $4.88 million Additional Contracted Investment: $31.9 million o Bulgarian Company: Astika Brewery Activity: Beverage Production (Beer) Investor (Country): Daru Invest (Bulgaria-Austria) Sale Price: $5 million Additional Contracted Investment: $16.6 million Source: Privatization Agency Q. Direct Foreign Investment Statistics Foreign Direct Investment by Year ($ millions) Year Value 1991 38.4 1992 55.8 1993 171.4 1994 196.4 1995 52.3 Total 514.3 Foreign Direct Investment by Country Value Percent Country ($ mil) (%) Germany 202.9 39 Switzerland 39.8 8 Greece 36.4 7 Belgium 35.7 7 Netherlands 31.2 6 USA 29.7 6 Austria 25.7 5 UK 23.4 5 CIS 13.2 3 France 11.6 2 Others 64.8 13 Total 514.3 100 Foreign Direct Investment by Sector: Sector Percent Manufacturing 34.3 Construction 19.8 Transportation 19.3 Trade 17.9 Services 3.6 Telecom 2.4 Mineral extraction 1.8 Agriculture 0.1 Other 0.8 TOTAL 100.0 Source: Foreign Investment Agency (Jan-Sept, 1995) VIII. TRADE AND PROJECT FINANCING A. Bulgaria's Banking System A two-tier banking system was created with the promulgation of the Law on the Bulgarian National Bank (1991) and the Law on Banks & Credit Activity (1992). The Bulgarian National Bank (BNB) operates independently of the government and reports directly to Parliament. The BNB is charged with developing and executing monet ary and credit policy. Specifically, BNB maintains currency stability, regulates the m oney supply and financial markets, manages balance of payments and the national debt, and regul ates banks. Bulgaria is a cash economy. Check are seldom used and credit cards and automat ic teller machines are only just being introduced. Interbank transfers are reliable but can take a long time to be executed. Cash management is almost unknown. Development of that a nd other services for corporations plus services for consumers, such as debit cards, wou ld be desirable but will be impeded by preoccupation of most banks with credit services and lac k of capital. There are approximately 45 commercial banks in Bulgaria: o 17 are fully licensed and authorized to engage in international transactio ns (minimum capital requirement: BGL 800 million); o 9 are licensed only to engage in settlement of accounts abroad (minimum ca pital requirement is BGL 450 million); o 16 are licensed only for Bulgaria (minimum capital requirement BGL 450 mil lion). Various foreign banks have established branches/representative offices in Bulga ria: o ABN AMRO (Netherlands) (Rep Office) o BNP-Dresdner Bank (France-Germany) o Creditanstalt (Austria) (Rep Office) o ING Bank (Netherlands) o Ionian Bank (Greece) o National Bank of Greece (Rep Office) o Raiffeisen Bank (Austria) o XiosBank (Greece) Approximately 15 banks are fully or majority privately-owned. In its June 1995 report, the BNB wrote that the banking systems as a whole continued to suffer credit losses , that capital adequacy is impaired, and that a new, "hospital" bank should be created to mana ge bad debts. The government's shares in the banks are managed by the Bank Consolidation Company (BCC) which was created in 1992 to consolidate Bulgaria's banking sector throug h the merging of banks for the purpose of shoring up their balance sheets and prepari ng them for privatization. Seven consolidated banks have been established: o Balkanbank o Bulbank (formerly the Foreign Trade Bank) o Corporate Commercial Bank o Expressbank o Hebrosbank o Sofia Bank o United Bulgarian Bank Five banks were untouched by consolidation. Despite the mergers, most banks ar e still undercapitalized. It appears that a second wave of consolidations will be laun ched. In September 1995, the structure of Commercial Bank Biochim was modified as a resu lt of the consolidation of Biochim with Sofiabank and Serdika Bank. By Bulgarian law, state-owned banks are not permitted to raise capital through new share issues -- this is viewed as indirect privatization. As of yet, the government has not offered any of the state-owned banks for privatization. As elsewhere in the region, central planning and the lack of solid commercially -based lending policies have spawned a large number of substandard, doubtful or bad loans. Th e bad loans of enterprises at the end of 1990 were converted, by law, into state bonds with lo w interest rates for the first 6 years. But bad loans continue to pile up. This situation, combined with restrictions by the BNB, has created a credit-cru nch. Banks are risk-averse in their lending activities, engaging only in short-term deals -- g enerally, trade finance transactions involving companies which are generating export earnings. Some banks continue to provide soft loans to large state-owned entities thus crowding-out financing for the private sector. Beginning in April 1995, the Central Interest Rate (CIR) which serves as a reference rate has been reduced by the BNB from 72 percent to 34 percent by October 1995. B. Foreign Exchange Controls Affecting Business In February 1991, a new exchange rate system was introduced whereby the lev was permitted to float freely against other convertible currencies. The Bulgarian National B ank sets an indicative daily U.S. dollar rate but commercial banks trade on an interbank ma rket thereby setting an "internal convertibility" level. In general, there are no restrictions on the repatriation of profits/dividends or other international financially related remittances. Bulgarian corporations must how ever provide documentation when transferring funds overseas such as invoices, certificates, transport documents, etc., to the transferring bank. Pursuant to the U.S.-Bulgarian Bila teral Investment Treaty, Bulgaria pledges to permit free and prompt transfers including returns, compensations, payments, capital gains, and contributions to capital maintenance or developmen t of an investment. In February 1995, new legislation was enacted which restricts repatriation of profits/dividends in privatization transactions involving Brady bonds. Specifically, if Brady bo nds have been used for half the purchase price, profits/dividends may not be repatriated for a period of 4 years. Council of Minister's Decree Number 4 on the "Adoption of a Regulation for the Export & Import of Currency Valuables" prescribes that foreign currency in the amount of $1,000-10,000 may be exported with the presentation of funds transfer documentation issued by a bank. The transfer of amounts larger than $10,000 must have prior approval of the Bulgarian National Bank. The law also stipulates that payments abroad made by businesses (or self-employed business people) may be executed only through bank transfers. Violations of this decree are prosecutable under the provisions of Article 37 of the 1961 Law on Transaction With Currency Valuables & Currency Control (amended). Individuals attempting t o exit the country exceeding the statutory threshold and without proper permits will be de tained, the money confiscated and court proceedings initiated. C. Availability of General Financing The cost of borrowing locally is high. Though nominal interest rates have slow ly moved downward, the BNB's CIR for lev, 34 percent, still places the cost of credit ra ther high. Banks typically follow the lead of the BNB and tack on 10 or more percentage po ints in lending to their customers. Local banks are often resistant to lend on a long-term basis. Many factors are responsible for constraining commercial bank credit to the private sector: ongoing close ties w ith state-owned clients -- maintenance of soft loan subsidies; safer profits available from inv esting in state securities; inadequate bank reserves; and, unfamiliarity with loan application evaluation procedures. Credit availability is usually related to the amount of collateral , often real property. D. How to Finance Exports/Methods of Payment Trade financing options for Bulgarian importers are limited. There is no offic ial Bulgarian import/export credit facility and borrowing from banks is somewhat costly. In most instances, Bulgarian companies assume the full financial burden and pur chase products and/or equipment. Some companies use Letters of Credit (LCs). The Bulgarian National Bank has issued Bank Unified Standards (BUS) regarding various financial transactions. BUS 5294 describe the process when using a LC. Other companies prefer to make dire ct bank transfers. Again, certain procedures will have to be followed (BUS 5194, Payme nt By Direct Transfer). In trying to make sales in Bulgaria, U.S. companies may have to develop some creative payment schemes. New schemes, of course, may increase the riskiness of the transactions. To reduce that risk, it is necessary to develop a strong client relationship. E. Types of Available Export Financing and Insurance The U.S. Export-Import Bank is the primary source issuing export financing and insurance for U.S. transactions in Bulgaria. In 1994, Exim modified its cover policy for Bul garia. Previously, Exim accepted only a sovereign risk guarantee. Exim's cover policy requires a public/state risk guarantee for projects above m edium term (project value over $10 million with a repayment term of 5 years). Exim must b e able to determine its credit worthiness through the analysis of financial statements (a n audited annual report). State-owned banks, such as BulBank, are potential candidates for obta ining state risk guarantees. However, the balance sheets of many Bulgarian state-owned banks ar e in disarray and unlikely to withstand Exim examination. Another option might be available. Public guarantees might also be issued by other non-financial state-owned entities alr eady transformed into share-holding companies that issue annual reports audited by western accou nting firms. On a case-by-case basis, Exim might consider exceptions to its current cover po licy. A guarantee could be obtained from a privately owned and operated commercial bank , assuming the bank is financially viable and able to satisfy strict Exim criterion. Trad itionally, Exim does not pre-approve banks in countries. Rather, bank approval is transaction- driven. Since Exim has not yet financed any transactions in Bulgaria, no banks are currently approved. The Small Business Administration (SBA) provides financial and business develop ment assistance to encourage and help small U.S. companies in developing export mark ets. Export loans are available under SBA's guarantee program. Contact information is as f ollows: Mr. Sheldon Snook, Office of International Trade, 409 3rd Street, SW, Washington, D C, 20416, Tel: (202) 205-6720, Fax: (202) 205-7272. F. Project Financing Available International financial institutions such as the World Bank and EBRD have contr ibuted nearly $700 million to Bulgaria since 1990 in public sector projects. Two-thirds of a ll infrastructure assistance (those related to investments, technical assistance, sectoral assist ance mainly in transport, communications, energy, the environment and manufacturing) was provi ded by these institutions. The remainder comes from bilateral official donor assistan ce or other official and private funding, such as the U.S. Trade & Development Agency (TDA) , U.S. AID, the EU PHARE Program and the British Know-How Fund. Much of the major project funding is done in co-financing agreements as has occurred for the energy, tran sit roads, and telecommunications projects. G. Major Sources for Financial Assistance (i) The European Bank for Reconstruction and Development (EBRD) The EBRD has been involved in a wide scope of activities. However, EBRD assistance to date has emphasized the public sector as opposed to private sector projects. The EBRD's financing of projects includes: Digital Overlay Netw ork (DON) project with the Bulgarian Telecom Company; Maritza East II Power Plant; Eurovision; transit roads; BNP-Dresdner (Bulgaria) AD, the Bulgarian Inves tment Bank; Danone-Serdika; Euromerchant Balkan Fund; Caresbac - Bulgaria AD; De lta Dairy; and, General Insurance Company. Contact: Mr. Timothy J. O'Neill Resident Representative and Senior Banker 17, Moskovska Street 1000 Sofia, Bulgaria Tel: (359)(2) 87-66-12 Fax: (359)(2) 80-30-36 (ii) The International Bank for Reconstruction & Development (World Bank) The World Bank is involved in some projects jointly with the EBRD and fund ing others separately. Examples of funding are: restructuring of the water co mpanies; agricultural development (technical assistance); educational assessment an d reform. The Bank suspended its energy loan and has not approved a Financial & Enterprise Sector Adjustment Loan (FESAL) because of the government's failure to incr ease electricity rates. On September 1, 1995, the Bulgarian government raised electricity prices 25 percent, the first step to unblocking the loans. Contact: Mr. Alberto Mussalem Resident Representative 36, Dragan Tsankov Street World Trade Center 1040 Sofia, Bulgaria Tel: (359)(2) 73-00-75 (iii) The Bulgarian-American Enterprise Fund (BAEF) BAEF is a $55 million bilateral assistance fund to promote the development of the Bulgarian private sector and to promote joint ventures between small and medium-size Bulgarian firms and Western companies. The Fund is designed to provide lo ans, grants, equity investments, feasibility studies, and technical assistance. Contact: Mr. Frank Bauer President 333 West Wacker Dr., Suite 2080 Chicago, Illinois Tel: (312) 629-2500 Ms. Virginia Rollins Managing Director 3, Shipka Street Sofia 1504, Bulgaria Tel: (359)(2) 44-18-62 (iv) CARESBAC - Bulgaria AD CARESBAC is an investment company which takes equity positions in small an d medium size companies. The targeted sectors are agriculture and agribusin ess although not strictly limited to these sectors. The size of CARESBAC's in vestment fund is approximately $12 million. CARESBAC's shareholders include the Sm all Enterprise Assistance Funds, the Bulgarian government Agency for Internati onal Assistance and the EBRD (non-voting shareholder). Contact: Mr. Gregory Robison 45, Oborishte Street, Floor 1 1000 Sofia, Bulgaria (v) Global Finance SA Global Finance is a Greek venture capital firm which manages the Euromerch ant Balkan Fund (EBF). Capitalized at $27.3 million, both the EBRD and the International Finance Corporation (IFC) have contributed monies. EBF is p ermitted to invest from $500,000 to $4 million for up to 10 years in any single projec t and assumes a minority position (less than 50 percent). EBF may give preferen ce to projects in food production, retailing, construction, media, product distr ibution and financial services. Contact: Mr. Mirolyub Voutov Director Sofia Representative Office 39, Vitosha Boulevard, Floor 1 1000 Sofia, Bulgaria Tel: (359)(2) 81-00-36, 49-20-487 Fax: (359)(2) 80-59-00 (vi) The U.S. Trade and Development Agency (TDA) TDA is an independent U.S. Government agency which promotes U.S. exports f or major development projects. TDA funds feasibility studies, consultancies, training programs, and other project planning services related to U.S. exports. Co ntracts funded by TDA grants must be awarded to U.S. companies. U.S. involvement in project planning helps position potential U.S. suppliers at the project implementation stage. TDA has been active in Bulgaria with projects in energy, environme nt, transport, air traffic control, and telecommunications. Contact: Mr. Geoffrey Jackson, Regional Director Ms. Ann Lien, Project Officer SA-16, Rm. 309 Washington, D.C. 20523-1602 Tel: (703) 875-4357 Fax: (703) 875-4009 (vii) The Overseas Private Investment Corporation (OPIC) OPIC is a self-sustaining U.S. Government agency which promotes growth in developing countries by encouraging U.S. private investment. OPIC's key programs are its loan guarantees, direct loans, and political risk insurance. OPIC also offers an Eastern European Growth Fund, designed to match OPIC funds with private venture capital to finance new business; the Small Business Loan Guarantee Program ; and an environmental investment fund. To date, OPIC has not financed any project s in Bulgaria. Contact: Ms. Barbara Brereton, Manager of CEE Investment Promotion 1100 New York Avenue, NW Washington, D.C., 20572 Tel: (202) 336-8617 Fax: (202) 408-5145 Program Information: Tel: (202) 336-9700 Fax: (202) 408-5155 (viii)The Multilateral Investment Guarantee Agency (MIGA) MIGA is part of the World Bank Group. Its purpose is to encourage foreign investment in developing countries by providing investment guarantees agai nst the risk of currency transfer, expropriation, war, civil disturbance and breach of contract by the host government. Contact: MIGA 1818 H Street, N.W. Washington, D.C. 20433 Tel: (202) 473-6168 Fax: (202) 477-9886. (ix) PHARE Program The European Union's PHARE Program delivers financial and technical assist ance in key sectors of the beneficiary governments' efforts to restructure their e conomies toward a market-oriented system, and contribute to creating the administra tive, regulatory, financial and commercial framework. Some American companies m ay qualify for PHARE-funded contracts if they have subsidiaries in Europe tha t qualify as European companies pursuant to EU definitions. Contact: Amb. Thomas O'Sullivan PHARE 55 Khristo Botev Blvd 1000 Sofia, Bulgaria Tel: (359)(2) 87-24-55/88-51-98. H. List of Banks with Correspondent Banking Arrangements Listing of Bulgarian Banks with Full Licensing for Domestic and International A ctivity (Code: S=State; P=Private; CB=Corresponding U.S. Bank) Balkan Bank (S) 18, Vitosha Boulevard Sofia, Bulgaria Chairman: Mr. Ivan Angelov Tel: (359)(2) 80-22-33 Vice-Chairman: Ms. Nadezhda Apostolova Tel: (359)(2) 88-12-21 CB= Bankers Trust Bank for Agricultural Credit (P) 55, Khristo Botev Boulevard Sofia BULGARIA Chairman: Mr. Atanas Tilev Tel: (359)(2) 51-06-87 Executive Directors: Mr. Michail Zeliazkov Mr. Pavel Daskalov Mr. Doncho Quchukov CB= American Express Bank, Credit Lyonnais (NY) Biochim (S) 1, Ivan Vazov Street Sofia, Bulgaria Chairman: Mr. Valentin Tsvetanov Tel: (359)(2) 54-46-04 Executive Directors: Ms. Anna Subeva Mr. Ivan Dimov CB= American Express Bank, Bank of New York, Bankers Trust, Citibank Bulgarian Foreign Trade Bank (S) 7, Sveta Nedelia Square Sofia, Bulgaria Executive Directors: Mr. Chavdar K. Kunchev Mr. Dimitur N. Atanasov Tel: (359)(2) 88-17-03, 84-91 CB= Credit Lyonnais (NY) Bulgarian Post Bank (S) 1, Bulgaria Square Sofia, Bulgaria Executive Directors: Mr. Vladimir Vladimirov Mr. Reni Petkova Ms. Vania Vasileva Tel: (359)(2) 65-67-80, 65-91-06, 65-92-14 CB= American Express Bank Express Bank (S) 6, Shipka Street Varna, Bulgaria Chairman: Mr. Ivan Konstantinov Vice-Chairman: Ms. Maria Dobreva Tel: (359)(052) 23-18-64, 24-50-79 CB= American Express Bank First East International Bank (P) 15, Lege Street Sofia, Bulgaria Executive Directors: Mr. Evgeni Uzunov Ms. Pena Stefanova Tel: (359)(2) 87-31-22, 54-24-81 CB= Bankers Trust, Swiss Bank Corporation, Citibank First Private Bank (P) 2A, Suborna Street Sofia, Bulgaria Executive Directors Mr. Ventsislav Josifov Mr. Michael Stefanov Mr. Emilian Krumov Dimitrov Tel: (359)(2) 65-93-88 CB= American Express Bank Hebros Bank (S) 37, Vazrazdhane Plovdiv, Bulgaria Chairman: Mr. Juli Popov Executive Directors: Mr. Ivan Zlatarev Ms. Stoyanka Apostolova Tel: (359)(2) 22-18-70 CB= American Express Bank, Credit Lyonnais (NY) International Bank for Investment and Development (P) 10, Graf Ignatiev Street Sofia, Bulgaria Chairman: Mr. Bozhidar Bozhinov Tel: (359)(2) 888-81 CB= IBJ Schroder Bank & Trust Co. (NY) Mineral Bank (S) 17, Lege Street Sofia, Bulgaria Executive Directors: Mr. Vladimir Tashkov Mr. Asen Zapranov Mr. Rumen Kasabov Tel: (359)(2) 80-20-80, 80-20-70, 80-27-27 CB= American Express Bank Stopanska Banka (Economic Bank) (S) 8, Slavianska Street Sofia, Bulgaria Executive Directors: Mr. Plamen Petrov Mr. Denko Damianov Mr. Konstantin Kotsev Tel: (359)(2) 80-35-24, 88-53-06, 52-20-39 CB= American Express Bank United Bulgarian Bank (S) 70, Maria Luiza Boulevard Sofia, Bulgaria Executive Directors: Mr. Stilian Vutev Mr. Oleg Nedialkov Ms. Radka Toncheva Tel: (359)(2) 31-81-92 CB= American Express Bank, Citibank Foreign Banks - Fully Licensed: BNP - Dresdnerbank 11, Narodno Sabranie Square 1000 Sofia, Bulgaria Tel: (359)(2) 86-09-51 General Director: Mr. Xavier de Beausse Raiffeisen Bank 14, Serdika Street Sofia, Bulgaria Tel: (359)(2) 86-08-11 Executive Director: Mr. John Palmroth Branches of Foreign Banks: Xiosbank 3, Vitosha Boulevard. Sofia, Bulgaria Tel: (359)(2) 80-86-10 Executive Directors: Mr. Christos Catsanis Ms. Ionka Kinova ING Bank World Trade Center - Sofia (Interpred) 36, Dragan Tsankov Boulevard Sofia, Bulgaria Tel: (359)(2) 70-92-41 General Director: Mr. Jos de Wit Ionian Bank 20, Alexander Stambouliiski Boulevard Sofia, Bulgaria Tel: (359)(2) 87-82-18 IX. BUSINESS TRAVEL A. Business Customs Bulgarians are less formal, from dress to manner, in their business habits. Me etings along with lunches or dinners are used as an opportunity to gain knowledge of their g uests and as a basis for developing a trusting relationship. Some potential partners may avoi d aggressive posturing and wait for you to initiate or advance the relationship. Bulgarians work a 40-hour week with businesses opening around 8:30 or 9:00 am. During the summer months, scheduling meetings late on Fridays may be difficult as workers tend to leave early for weekend getaways. As in the rest of Europe, business activity grinds to a near halt during the latter part of July and most of August when many Bulgarians take the ir extended summer holidays. B. Travel Advisory and Visas U.S. citizens do not require a visa for stays up to 30 days, however, visitors will be charged a passport control processing fee of $20 at the border (this can be paid in advan ce by obtaining a visa in the United States). Business representatives staying more than 30 days should obtain a visa in advance from the Bulgarian Embassy although visas may also be obtained at the border but at considerably more cost. Upon entry into the country, all travellers are required to fill out a statistical card. Foreigners staying more than 48 hours must register with the local police. Hot els automatically perform this service on behalf of their guests. Individuals stay ing in private lodgings are required to register with the local police who validate the statis tical cards with a stamp. The cards must be presented to passport officials upon departure from t he country. Failure to produce a validated statistical card will result in a fine. Recent regulations have tightened the requirements for obtaining a work permit. Full documentation of credentials such as diplomas, certificates, training, etc., wi ll be requested by Bulgarian labor authorities. Documents should be verified in advance by the U. S. State Department's Authentication Office (Tel: 202-647-5002) in order to be accepted. There are no U.S. Government travel advisories issued for Bulgaria. Pickpocket ing (especially in prime tourism areas) and car theft are high. Baggage may be sub ject to pilfering at the Sofia Airport. While crimes against persons are generally low throughou t Bulgaria, visitors should exercise caution when approached by strangers or before walking in unfamiliar neighborhoods. C. Holidays Bulgaria celebrates January 1st (New Year's Day); March 3rd (Liberation from th e Ottoman Yoke Day); May 1st (Labor Day), Easter Sunday; Orthodox Easter and Monday; May 24th (Cyril and Methodius Day), December 25th (Christmas Day) and December 26th (Christmas Holiday). D. Business Infrastructure Sofia is served by major international airlines (Air France, Alitalia, Austrian Air, British Airways, Lufthansa, MALEV, Swiss Air). Balkan Airlines, the national carrier, provides direct service between New York and Sofia as well as with many European and Mid dle Eastern capital cities. Balkan Airlines also offers domestic service between S ofia and the Black Sea coast (Varna). Destinations in other parts of the country must be re ached by either car or train. Bulgaria is criss-crossed by railway lines which connect most ci ties. Sofia has a comprehensive bus, tram and trolley system. Tickets cost BGL 10 an d can be purchased in newspaper kiosks or special transport shops. Passengers are on th e "honor system" and expected to validate their own tickets after boarding. Occasionall y, inspectors make impromptu searches, imposing fines on those travelling without tickets. Sofia is developing an underground transport system. Under construction for ne arly 15 years, one section of the underground between the center and Lyulin will become operat ional in the Spring 1996. Taxis are more than affordable -- most destinations around the center can be re ached for little more than $1. Taxis have inflated their prices considerably on the route from the airport to the city-center. Visitors should expect to pay $20 for this ride. The majority of hotels in Bulgaria are at the 2- and 3-star levels. In Sofia, there are two 5-star hotels: Sheraton Balkan Hotel (Sofia) and the Inter Continental Sofia (formerly the Vitosha Hotel). Other hotels include the recently built Ambassador Hotel (15 minutes f rom the city-center), the Pliska and the Grand Hotel Sofia; the latter three are lower in price but vary substantially from the top tier hotels in terms of services, comfort and qualit y . Telephone service in Bulgaria is still poor -- call completion rate is less tha n 40 percent. Obtaining a line can sometimes be difficult. In Sofia, the service is the most reliable. The large hotels are being connected to digital switches with fiber optic cable. F rom the hotels, foreign guests may also access international direct calling services such as Sp rint or AT&T. Outside Sofia, telephoning can still be difficult given that many rural areas s till have only manual switches. Bulgarian is a Slavic language that uses the cyrillic alphabet. In business, E nglish usage is rising. Nearly all Bulgarians have some level of Russian language comprehensio n though many prefer not to use Russian. German and French are also widely spoken. Visitors should be aware that the head movements indicating agreement or disagreement are reversed in Bulgaria. The nodding of the head from left-to- right means "yes" while up-and-down indicates "no." But this is only the beginning of confusion. With foreign lan guage fluency growing, some Bulgarians will use head movements in typical western fas hion. Therefore, it is best to clarify the situation by asking for a direct answer. This may save you >from believing you have an agreement when you don't or vice versa. X. APPENDICES A. Country Data: Population: 8.43 million Population Growth Rate: 0.0038 % Religion(s): Bulgarian Orthodox 85.0% Muslim 13.0% Jewish 0.8% Roman Catholic 0.5% Protestant 0.5% Government System: Constitutional Parliamentary Democracy Language: Bulgarian Work Week: Monday - Friday (8:30am - 5:00pm) B. Domestic Economy 1994 1995* 1996* Nominal GDP ($ mil) 10,981.0 11,200.0 12,000.0 Real GDP Growth Rate (%) 1.4 2-2.5 3.0 GDP per capita ($) 1,194.0 950.0 1,075.0 Government spending (% of GDP) 35.9 35-40.0 20-25.0 Inflation (%) 122.0 35-40.0 20-25.0 Unemployment (%) 12.9 10.5 10.0 Foreign Exchange Reserves ($ bil) 1.0 1.6 1.9 Average Exchange Rate ($1) 54.0 66.7 80.0 Foreign Debt ($ bil) 10.4 10.3 10.0 Debt Service Ratio (%) 14.0 17.1 12.0 U.S. Assistance 45.9 43.7 N/A _____________________ Sources: National Institute of Statistics Bulgarian National Bank International Monetary Fund *Estimates: U.S. Embassy C. Trade: ($ million) 1994 1995* 1996* Total Exports of Bulgaria 4,156.0 4,600.0 5,00 0.0 Total Imports of Bulgaria 4,316.0 4,468.0 4,700.0 U.S. Exports to Bulgaria 110.0 155.0 200.0 U.S. Imports From Bulgaria 212.0 195.0 205.0 ____________________ Sources: Bulgarian National Bank *Estimates: U.S. Embassy D. U.S. and Bulgarian Contacts 1. U.S. Embassy - Sofia Ambassador: Mr. William D. Montgomery Deputy Chief of Mission: Ms. Rose Likins Political-Economic Counselor: Ms. Ruth Hansen 1, Suborna Street Sofia, Bulgaria Tel: (359)(2) 88-48-01 Fax: (359)(2) 132-8934 Foreign Agricultural Service Agricultural Counselor: Mr. William Huth Agricultural Attache: Ms. Jamie Rothchild Agricultural Specialist: Ms. Mila Boshnakova NDK Administrative Building - 5th Floor Sofia, Bulgaria Tel: (359)(2) 65-00-59 Fax: (359)(2) 80-35-68 U.S. Agency For International Development (USAID) AID Representative: Mr. John Tennant Private Enterprise Officer: Mr. Skip Kissinger Project Development Officer: Mr. Brad Fujimoto Program Officer: Mr. John Babylon NDK Administrative Building - 5th Floor Sofia, Bulgaria Tel: (359)(2) 54-30-21 Fax: (359)(2) 54-31-11 U.S. Commercial Service Commercial Attache: Mr. Patrick C. Hughes Senior Commercial Specialist: Ms. Oulianna Kanelli Commercial Specialist: Ms. Tsvetanka Kolarova Commercial Specialist: Mr. Georgi Minkov NDK Administrative Building, 5th Floor Sofia, Bulgaria Tel: (359)(2) 65-03-64 Fax: (359)(2) 80-38-50 Local Mailing Address: 1, Suborna Street 1000 Sofia, Bulgaria APO Mailing Address: Unit 1335 APO AE 09213-1335 U.S. Information Service Public Affairs Officer: Mr. Lawrence Plotkin 18, Vitosha Street Sofia, Bulgaria Tel: (359)(2) 88-00-05 Fax: (359)(2) 80-06-46 2. Washington-based USG Country Contacts Office of the U.S. Trade Representative Deputy U.S. Trade Representative: Ms. Cathy Novelli Executive Office of the President Washington, DC 20506 Tel: (202) 395-4620 Overseas Private Investment Corporation (OPIC) Insurance: Ms. Meryl Burpoe Finance: Mr. Gene Pohren Investment Promotion: Ms. Barbara Brereton 1100 New York Avenue, NW Washington, DC 20572 U.S. Department of Commerce 14th & Constitution Ave, NW Washington, DC 20230 Bulgaria Desk Officer: Mr. Brian Toohey Tel: (202) 482-4915 Fax: (202) 482-4505 USCS Regional Director: Mr. George Knowles Tel: (202) 482-1599 Fax: (202) 482-3159 USCS Deputy Director For Non-EU Europe: Mr. Keith Curtis Tel: (202) 482-1599 Fax: (202) 482-3159 Acting Director for CEEBIC: Ms. Naomi Warbasse Tel: (202) 482-2645 Fax: (202) 482-4473 U.S. Department of State Bulgaria Desk Officer: Mr. William Mozdziercz EUR/SEC 2201 C Street, NW Washington, DC 20520 Tel: (202) 647-3191 U.S. Trade & Development Agency Bulgaria Project Manager: Ms. Ann Lien Room 309 SA-16 Washington, DC 20523-1602 Tel: (703) 875-4357 Fax: (703) 875-4009 3. U.S.-Based Multipliers For Bulgaria Michaela D. Platzer Director of International Division U.S. Chamber of Commerce 1615 H Street, N.W. Washington, D.C. 20062-2000 Tel: (202) 463-5480 Fax: (202) 463-3114 The Embassy of Bulgaria 1621 22nd Street, N.W. Washington, D.C. 20008 Tel: (202) 387-7969 Fax: (202) 462-8051 4. Bulgarian Government Agencies Ministry of Agriculture 55, Khristo Botev Boulevard 1000 Sofia, Bulgaria Tel: (359)(2) 51-89-45 Fax: (359)(2) 80-06-55 Minister: Mr. Vassil Chichibaba Ministry of Culture 17, Alexander Stamboliiski Street 1000 Sofia, Bulgaria Tel: (359)(2) 86-111 Fax: (359)(2) 87-73-39 Minister: Mr. Georgi Kostov Ministry of Defense 1, Aksakov Street 1000 Sofia, Bulgaria Tel: (359)(2) 54-60-01 Fax: (359)(2) 62-45-36 Minister: Mr. Dimitar Pavlov Ministry of Economic Development 1, Vasil Levski Street 1000 Sofia, Bulgaria Tel: (359)(2) 88-82-69 Fax: (359)(2) 87-64-39 Minister: Mr. Roumen Gechev Ministry of Education, Science and Technologies 2, Dondukov Boulevard 1000 Sofia, Bulgaria Tel: (359)(2) 87-12-89 Fax: (3590 (2) 87-72-49 Minitser: Mr. Ilcho Dimitrov Ministry of Environment 67, William Gladstone Street 1000 Sofia, Bulgaria Tel: (359)(2) 87-61-51 Fax: (359)(2) 52-16-34 Minister: Mr. Georgi Georgiev Ministry of Finance 102, Rakovsky Street 1000 Sofia, Bulgaria Tel: (359)(2) 86-95-74 Fax: (359)(2) 80-11-48 Minister: Mr. Dimitar Kostov Ministry of Foreign Affairs 2, Al. Zhendov Street 1000 Sofia, Bulgaria Tel: (359)(2) 87-09-36 Fax: (359)(2) 70-34-83 Minister: Mr. Georgi Pirinski Ministry of Health 2, Sveta Nedelia Square 1000 Sofia, Bulgaria Tel: (359)(2) 88-08-01 Fax: (359)(2) 80-00-31 Minister: Mr. Mimi Vitkova Ministry of Regional Development & Construction 17, Kiril and Methodius Street 1000 Sofia, Bulgaria Tel: (359)(2) 83-53-29 Fax: (359)(2) 87-25-17 Minister: Mr. Doncho Konakchiev Ministry of Industry 8, Lavianska Street 1000 Sofia, Bulgaria Tel: (359)(2) 88-55-33 Fax: (359)(2) 89-76-05 Minister: Mr. Kliment Vuchev Ministry of Interior 29, Shesti Septemvri Street 1000 Sofia, Bulgaria Tel: (359)(2) 82-25-74 Fax: (359)(2) 87-79-67 Minister: Mr. Liuben Nachev Ministry of Justice 2, Dondukov Street 1000 Sofia, Bulgaria Tel: (359)(2) 867-32-09 Fax: (359)(2) 67-32-26 Minister: Mr. Mladen Chervenkov Ministry of Labor 2, Triaditsa Street 1000 Sofia, Bulgaria Tel: (359)(2) 867-27-37 Fax: (359)(2) 80-06-09 Minister: Mr. Mincho Koralski Ministry of Trade 12, Battenberg Street 1000 Sofia, Bulgaria Tel: (359)(2) 87-42-62 Fax: (359)(2) 87-20-41 Minister: Mr. Kiril Tsochev Ministry of Transport 9, Levski Street 1000 Sofia, Bulgaria Tel: (359)(2) 88-56-50 Fax: (359)(2) 88-50-94 Minister: Mr. Stamen Stamenov Bulgarian National Bank 1, Batenberg Sq. 1000 Sofia, Bulgaria Tel: (359)(2) 88-62-37 Governor: Mr. Todor Vulchev Foreign Investment Agency 3, Sveta Sofia Street 1000 Sofia, Bulgaria Tel: (359)(2) 85-01 President: Dr. Daneilla Bobeva Privatization Agency 29, Aksakov Street 1000 Sofia, Bulgaria Tel: (359)(2) 88-41-04 Executive Director: Mr. Vesselin Blagoev Mass Privatization Center 1, Dondoukov Street 1000 Sofia, Bulgaria Tel: (359)(2) 88-72-056 Fax: (359)(2) 88-11-83 Executive Director: Mr. Kalin Mitrev Committee on Energy 8, Triaditza Street 1000 Sofia, Bulgaria Tel: (359)(2) 88-59-32 Fax: (359)(2) 87-58-26 Acting Chairman: Mr. Konstantin Roussinov Committee on Geology & Mineral Resources 22, Kniaginia Maria Luiza Boulevard 1000 Sofia, Bulgaria Tel: (359)(2) 83-52-60 Fax: (359)(2) 83-35-68 Chairman: Mr. Simeon Kalaidjiev Committee on Posts & Telecommunications 6, Gurko Street 1000 Sofia, Bulgaria Tel: (359)(2) 88-93-29 Fax: (359)(2) 80-25-80 Chairman: Mr. Lyubomir Kolarov Committee on Standartization and Metrology 21, Shesti Septemvri Street 1000 Sofia, Bulgaria Tel: (359)(2) 88-58-98 Fax: (359)(2) 80-14-02 Chairman: Mr. Ventzislav Gavrailov Committee on Tourism 1, Sveta Nedelia Square 1000 Sofia, Bulgaria Tel: (359)(2) 88-18-96 Fax: (359)(2) 88-20-66 Chairman: Mr. Vassil Velev Bulgarian State Railroad 3, Ivan Vazov Street 1000 Sofia, Bulgaria Tel: (359)(2) 843-45-15 Director: Mr. Angel Dimitrov Bulgarian Telecommunications Company 8, General Totleben Street 1000 Sofia, Bulgaria Tel: (359)(2) 88-94-38 Fax: (359)(2) 87-58-85 President: Mr. Mihail Danov General Customs Directorate 1, Aksakov Street 1000 Sofia, Bulgaria Tel: (359)(2) 80-402 Fax: (359)(2) 79-10-72 Director: Mr. Georgi Kulishev National Electric Company 9, Triaditza Street 1000 Sofia, Bulgaria Tel: (359)(2) 88-19-12 Chairman: Mr. Dianko Dobrev Patent & Trademark Office 52-B G.M. Dimitrov Street 1000 Sofia, Bulgaria Tel: (359)(2) 71-131 Fax: (359)(2) 70-83-25 5. Bulgarian Trade Associations/Chambers of Commerce: American Chamber of Commerce in Bulgaria Mr. William Colletti, Executive Director Ms. Velislava Grudkova, Project Manager Ms. Magda Tasheva, Manager - American Business Center World Trade Center, Office 201 36, Dragan Tsankov Boulevard Sofia, Bulgaria Tel: (359)(2) 7146-3066 Fax: (359)(2) 70-71-12 Bulgarian Chamber of Commerce and Industry 11-A, Suborna Street 1000 Sofia, Bulgaria Tel: (359)(2) 87-25-28 Fax: (359)(2) 87-32-09 President: Mr. Bojidar Bojinov U.S. Desk Officer: Ms. Maria Petrunova Confederation of the Independent Trade Unions in Bulgaria 1, Makedonia Square 1000 Sofia, Bulgaria Tel: (359)(2) 86-81 Chairman: Mr. Krusiu Petkov Bulgarian Industrial Association 16-20, Alabin Street 1000 Sofia, Bulgaria Tel: (359)(2) 54-50-66 Fax: (359)(2) 87-26-04 Chairman: Mr. Bojidar Danev Podkrepa Trade Union 2, Angel Kunchev Street 1000 Sofia, Bulgaria Tel: (359)(2) 85-61 Chairman: Mr. Konstantin Trenchev Union for Private Economic Enterprise 2a, Suborna Street 1000 Sofia, Bulgaria Tel: (359)(2) 65-93-71 Fax: (359)(2) 65-94-11 Chairman: Mr. Petko Bluskov 6. Market Research Firms Advertising International Network Ltd. 36, Dragan Tzankov Boulevard, Suite 613-B Sofia, Bulgaria Tel: (359)(2) 70-33-28 Fax: (359)(2) 70-45-77 Expocenter 37, Ekzarch Jossif Street 1000 Sofia, Bulgaria Tel: (359)(2) 80-36-03 Fax: (359 3) 80-12-01 Institute for Marketing and Research MBMD 26 A, Sabi Dimitrov Street 1111 Sofia, Bulgaria Tel/Fax: (359)(2) 73-99-19 KAPITAL Consult Ltd 9, Ivan Vazov Street 1000 Sofia, Bulgaria Tel: (359)(2) 87-69-07 Fax: (359)(2) 81-04-07 Trade Institute 165, 3A Street Liv. Quarter "Izgreva" 1797 Sofia, Bulgaria Tel: (359)(2) 70-01-00 Fax: (359)(2) 70-03-46 7. Schools American College of Sofia (Secondary School) Director: Dr Art Charles Floyd Black Alley Mladost 4 Tel: (359)(2) 77-84-84 Anglo-American School Director: Mr. Eugene Vincent 8, Studen Kladenetz Kniajevo, Bulgaria Mailing Address: 1, Suborna Street Sofia, Bulgaria Upper School Tel: (359)(2) 76-31-55 Lower School Tel: (359)(2) 57-02-67 8. U.S. AID-Supported Organizations American Bar Association - Central & East European Law Initiative (CEELI) Ms. Jerri Stewart, Ms. Sandra Mitchell Tel: (359)(2) 70-20-25 Fax: (359)(2) 72-05-09 American University of Bulgaria (AUBG) 2700 Blagoevgrad, Bulgaria Ms. Julia Watkins, President Tel: (359)(2) 7-32-09-68, 7-32-09-51 Fax: (359)(2) 7-32-24-17 Bulgarian Energy Efficiency Foundation Mr. Zdravko Genchev, Director 1B, Strumitza Street 1000 Sofia, Bulgaria Tel: (359)(2) 87-41-64 Fax: (359)(2) 80-62-52 Citizen's Democracy Corps Ms. Susan Berger, Director 15, Julio Curie Street, Bl.3 Sofia, Bulgaria Tel: (359)(2) 73-80-25 Fax: (359)(2) 73-29-70 Free Trade Union Institute Mr. Daniel O'Brian 2, Shishman st. Sofia, Bulgaria Tel: (359)(2) 87-75-92, 80-28-38 Fax: (359)(2) 49-20-112 Harvard Institute for International Development Dr. Paul Dax, Advisor 1, Ljuben Karavelov Street 1000 Sofia, Bulgaria Tel/fax: (359) 46-65-05, 43-78-11 Institute for Sustainable Communities/Democracy Network Programs Mr. Aaron Bornstein, Country Director 47, Gourko Street 1000 Sofia, Bulgaria Tel: (359)(2) 81-60-19, 80-84-88 International Executive Service Corps Mr. James Donley, Director 7-9, Ferdinand Kozlovski Street Sofia, Bulgaria Tel: (359)(2) 73-19-69 Fax: (359)(2) 73-60-98 International Republican Institute Mr. Scott Carpenter, Director 5, Dondukov Boulevard, 2nd entr. Ap.8 1000 Sofia, Bulgaria Tel/Fax: (359)(2) 87-48-62 Land O'Lakes, Inc. Mr. Tom Goetz, Manuela Russeva 75B-2, #7, Cherkovna Street Sofia, Bulgaria Tel/Fax: (359)(2) 44-69-94 Medical Service Corporation International Dr. T. Savov 149A, Rakovski Street, Apt. 10 Sofia, Bulgaria Tel: (359)(2) 80-04-59, 80-61-69 Fax: (359)(2) 80-78-03 National Park Services Mr. M. Sakalian, Coordinator 27B, Stamboliiski Street Sofia, Bulgaria Tel: (359)(2) 89-33-43 Fax: (359)(2) 80-16-70 Opportunity International Mr. Kenneth van der Weele, Regional Director (based in Vienna) 19, Dobri Voinikov Street Sofia, Bulgaria Tel: (359)(2) 65-58-07 Partners for International Education & Training (PIET) Ms. Sandra McCollum, Country Director 38, Ivan Vazov Street 1000 Sofia, Bulgaria Tel: (359)(2) 88-14-76 Fax: (359)(2) 81-36-28 Pragma Consortium Mr. Philip Stoyanovich, Park Hotel Moskva 1000 Sofia, Bulgaria Tel: (359)(2) 65-67-71, 73-78-19 Fax: (359)(2) 73-84-98 United States Department of the Treasury Ms. Antonina Crumbie 31, Aksakov Street Tel: (359)(2) 86-09-17 University of Delaware Ms. Christine Donnolo, Management Program Coordinator 4, Slaveikov Square 1000 Sofia, Bulgaria Tel: (359)(2) 86-41 x337 Fax: (359)(2) 88-45-98 University of Minnesota/Institute for Sustainable Communities Ms. Krustina Mandova 27B, Stamboliiski Boulevard Tel: (359)(2) 80-93-92 Fax: (359)(2) 80-16-70 The Urban Insitute/University of South Carolina Mr. Michael Hoffman, Advisor 47, 6th September Street 1000 Sofia, Bulgaria Tel: (359)(2) 88-56-44, 88-56-45 Robert Maffin, Advisor Volunteers in Overseas Cooperative Assistance (VOCA) Mr. Donald Olsligle, Regional Representative Hertzelina Pinkas, Country Director 14, Suborna Street 1000 Sofia Bulgaria Tel: (359)(2) 87-17-51, 81-53-59, 81-54-98 Fax: (359)(2) 87-30-59 E. MARKET RESEARCH 1. List of Available ISAs/IMIs Computers & Peripherals ISA Mar 1995 Motor Vehicles, Parts & Service Equipment ISA Apr 1995 Bulgaria's Beer Sector IMI Mar 1995 Use of Brady Bonds in Privatization IMI Mar 1995 Bulgaria's Courier Services Market IMI Apr 1995 Update: Foreign Investment & Trade Statistics IMI May 1995 Bulgaria's Perfume/Cosmetics/Toiletries Market IMI May 1995 2. List of Upcoming ISAs/IMIs Aircraft & Parts ISA Jan 1996 Bulgaria's Cellular Telephone Market ISA Jan 1996 Selling to the Bulgarian Telecom Company ISA Feb 1996 Electrical Generating Equipment ISA Feb 1996 Solid Waste Mangement ISA Feb 1996 Heavy Electrical Equipment ISA Mar 1996 Computer Software ISA Apr 1996 Medical Equipment ISA May 1996 Safety & Security Equipment ISA Aug 1996 Air Pollution Control Equipment ISA Jul 1996 Heavy Electrical Equipment ISA Jul 1996 Computer Hardware/Software Markets: Update IMI Jan 1996 Mass Privatization Program IMI Jan 1996 New Government Trade Measures for 1996 IMI Feb 1996 National Electric Company IMI Feb 1966 Footwear Sector IMI Feb 1996 Housing & Construction IMI Feb 1996 Pharmaceuticals Market IMI Mar 1996 AmCham Update IMI Jun 1996 Update: New Laws/Policies Affecting Business IMI Jul 1996 3. List of USDA/FAS Commodity Reports and Market Briefs Annual Seed Report Nov 1995 Annual Forest Products Report Feb 1996 Annual Grain & Feed Report Apr 1996 Annual Sugar Report Apr 1996 Annual Oilseeds & Products Report May 1996 Annual Tobacco Report Jun 1996 Annual Cotton Report Jun 1996 Annual Poultry Report Jun 1996 Annual Market Information Report Jul 1996 Annual Livestock Report Aug 1996 Annual Deciduous Report Sep 1996 Annual Agricultural Situation Report Sep 1996 F. Trade Event Schedule Plovdiv Fall Fair (Capital Goods) USG Sep 1995 COMDEX Fall Fair IBP Nov 1995 Builders' Show IBP Jan 1996 Hotel, Restaurant and Catering IBP May 1996 Ameritech '96 Hi-Tech Show USG Apr 1996 Global Soft IBP May 1996 Plovdiv Spring Fair (Consumer Goods) May 1996 Supercom IBP Jun 1996 Plovdiv Fall Fair (Capital Goods) USG Sep 1996 --------------------- *USG -- U.S. Government supported and/or organized events. *IBP -- International Buyer Program show that the Embassy will recruit a B ulgarian business delegation.