Expansion anxiety
Excluding any major hiccups between now and January, two new countries - Bulgaria and Romania - will enter the EU at the beginning of 2007, casting Poland in the role of the experienced member state welcoming newcomers just two and a half short years after joining the bloc itself. Though Poles relish the new role and generally support EU expansion, they also wonder whether the entrance of Romania and Bulgaria could curtail the economic benefits Poland gained by becoming a member of the bloc, and are unsure about what new opportunities for Polish business the expansion will create.
Poles are some of the most pro-expansionist members of the European Union. A recent survey by pollster TNS Obop found that 72 percent are in favor of EU enlargement against only 49 percent of all EU citizens advocating expansion. Just over seven months before Romania and Bulgaria are set to join the club, three quarters of Poles would greet the newcomers with open arms in spite of concerns over organized crime, wealth redistribution, and a loss of foreign investment.
Culture of corruption
One major concern is that the candidate countries' weak judicial systems aren't tackling corruption and organized crime well enough, and that upon entry these problems could spill into other EU members, including Poland. Bulgaria in particular has been singled out for its sluggishness in reforming its judiciary. In his evaluation of the progress the country has made toward fulfilling EU membership criteria, Olli Rehn, the EU's Commissioner for Enlargement, recently said that Bulgaria needs to "seriously intensify its efforts to crack down on organized crime and corruption." If it doesn't, the country could be rejected for membership when the Commission makes its final decision in October.
"We encourage Romania and Bulgaria to prove by all possible means that they are ready to join even though it collides with our deep conviction that they are not because of corruption problems or organized crime," said Janusz Lewandowski, head of the EU Parliament's budget committee.
The Ambassador of Bulgaria to Poland, Latchezar Petkov, told WBJ that the fight against corruption and organized crime was a "great challenge" for his country, but was optimistic that his government would be able to bring the system up to snuff. "All possible capacities of the state will be mobilized in the next few months in the fight against corruption and organized crime," he said.
For his part, Lewandowski maintains his skepticism, but says he still favors expansion: "We still support them because of Poland's previous experience - we understand them better than anyone else."
Needy newcomers
But solidarity between nations is one thing and arithmetic is another. The 2007-2013 budget already provides for the two new members, but according to Lewandowski the cost of enlargement - evaluated by the Accession Treaty at EUR 15 (zł.58.9) billion - has been underestimated.
"The EU earmarked R15 billion until 2009. After that, Bulgaria and Romania will be treated as regular members, so by 2013 they will both have had some EUR 45 [zł.179] billion," Lewandowski says. "The problem is the level of poverty in Romania and Bulgaria doesn't fit any standards. With 27 percent employment in the agricultural sector, Romania outpaces even Poland, so far the biggest agricultural member state. This issue, I believe, has been overlooked in accession negotiations."
Bulgaria's per capita GDP measured in purchasing power parity amounts to 30 percent of the EU average, while for Romania the figure is 32 percent. Up to now, Poland has held the second-worst position in the EU in this field, and as a result had been the biggest beneficiary of EU aid in the 2007-2013 budget. Some 10.5 percent of the bloc's entire budget for that period will make its way to the country. But will the focus change after the new enlargement?
Secure funds
"When it comes to structural funds, Poland doesn't lose out on anything in the 2007-2013 perspective. We'll get our EUR 91 [zł.361] billion, of which EUR 59.6 [zł.236.2] billion [will come in the form of] cohesion funds," says Artur Bartoszewicz, an EU funds expert for PKPP Lewiatan.
Thereafter, however, some of Poland's regions could lose out. "Some hitches may appear in the future," says Bartoszewicz. "Structural funds are designed for the regions with GDP per capita below 75 percent of the EU average. So, in the next budget, some of Poland's regions may not qualify for subsidies, such as Wielkopolska, Mazowsze and Silesia, because with the accession of new countries the average will change."
Yet Bartoszewicz isn't altogether pessimistic. "During the last enlargement some of the regions in old EU member states lost the right to subsidies. However, they still get them according to the 2007-2013 budget, and Poland is hoping that the same practices will be continued in the following financial perspective," he says.
A different cup of soup
European Union membership has contributed to a renewal of interest from foreign investors in Poland. A recent survey by AT Kearney listed Poland as the fifth-most attractive destination in the world for investment, up from 12th place just a year ago. But Bulgaria and Romania present significant competition with more favorable tax environments.
With a flat 16-percent tax rate in Romania and a 15-percent corporate tax in Bulgaria (as compared with Poland's 19 percent), combined with minimum wages some 50-66 percent lower than Poland's, EU entry could be the key to convincing foreign companies that investing in the Black Sea pair is more profitable than putting their money to work in Poland.
Wojciech Szelagowski, Deputy President of the Polish Information and Foreign Investment Agency, is not too worried: "We shouldn't treat this enlargement as a danger - the EU market will expand and there will be more space for business activity. As for the cheap labor force, Poland will remain an attractive investment target. If companies only cared about labor costs, they would all have moved to China by now. In Europe, the UK is the leader in attracting FDI and its labor is not the cheapest. Potential investors don't just compare tax rates, what they are looking for is the best return on their investment," he says.
Ambassador Petkov agrees, saying Poland and Bulgaria won't even be competing for the same investors. "Companies coming to Bulgaria are concentrated in the fields of light industry, tourism, food processing, and that has nothing to do with the Polish market. It's a different cup of soup. Those investors who are here in Poland will stay in Poland and there will be other investors coming to Bulgaria," he says.
Already there
Indeed, instead of fearing competition from the Romanian and Bulgarian markets, Polish businesses have stepped up their activities there. In the years 2003-2005 Polish exports to Bulgaria rose by 58 percent to EUR 239 (zł.945) million and imports jumped 69 percent to EUR 103 (zł.407) million. The interest of Polish companies in the Romanian market is also growing. Currently, there are 300 companies with Polish capital operating in Romania, 70 of which started their activities there within the last two years.
"The market is becoming more and more attractive for Polish investors - the best proof is that within the last five years Polish-Romanian trade turnover rose from $300 (zł.927) million to $1.5 (zł.4.6) billion," says Tomasz Suprowicz, First Economic Counselor at the Economic and Commercial Section of the Polish Embassy in Bucharest.
Open for agriculture
One sector that will greatly benefit, particularly from the accession of Romania, will be agriculture. "The biggest change will of course be doing away with borders and all formalities related to border crossing. The system of freight permits will disappear and access to the market will generally be much easier. Currently, duties on agricultural products can reach up to 45 percent and that will no longer be the case after the country joins the EU. The rest of the trade is already free," Suprowicz explains.
According to Suprowicz, the moment is ripe for Polish companies to enter Romania, as demand is strong while big multinationals haven't yet entered the market. He says the agriculture, finance and construction sectors in Romania all present highly profitable opportunities for Polish business. Though expansion may mean there are a few bumps in the road for Poland and the EU, the doors it will open for Polish business could make the trip worth taking.
