Negotiators closer to solutions for EU membership

Poland is expected to close the European Union accession talks on taxes and free movement of capital this week, but the government now has to step up efforts to avoid a delay in the negotiations on special economic zones (SSEs). Guenter Verheugen, the European Union (EU) enlargement commissioner said earlier this month that talks on competition policy may take longer than until the planned June 2002 due to a disagreement over Polish steel industry restructuring plans and tax breaks granted to investors in the country's 14 special economic zones. The 700 companies that have invested in the SSEs were granted 100% income tax breaks for 10 years and 50% during the next 10 years. The EU competition rules allow for state aid to companies in depressed areas amounting up to 50% of the initial investment. While the former government, voted out of office last fall, asked for a transition period until 2017, the new government is now trying to accelerate the process and find a solution that would be acceptable both to investors and the European Commission. "We're working on a compromise and it will be ready soon," said Ewa Freyberg, vice minister at the Economy Ministry.

Meanwhile, the EU is waiting for details. "Poland will have to come up with an exact list of firms (that have invested in SSEs) and we will treat it case by case," said Jean-Christophe Filori, Verheugen's spokesman. "We're waiting for the list." But despite mounting concerns among investors in the SSEs, most of them should incur no losses due to the transition from tax breaks to a system of direct aid, Filori and Polish officials said. "According to our estimates, two-thirds of those companies will not be affected," Filori said. "Most of them are SMEs (small- and medium-sized enterprises) and others make little profit." SMEs, according to EU regulations, enjoy a higher state aid limit (65%), and those firms that generate small profits save little from their income tax exemption. Polish officials, though, said that smaller firms may fall outside the EU's 65% rule. In many cases, SMEs pass their 65% limit, said Teresa Korycińska, deputy director for the Economy Ministry's department of economic promotion. "An overwhelming majority of big concerns will not pass the 50% threshold," she added. "The change in the system will not affect their financial situation." The government is looking for ways around the rule, though. Korycińska noted that smaller firms deserve lenient treatment because they operate on local markets only and usually don't distort competition - a major EU concern. But this didn't convince Filori. "Even on local markets, there can be competition between companies that offer the same kind of products," he said.

Tax, land compromises While the talks on competition policy continue, Polish and EU officials declared earlier this month that they reached a compromise on taxation policy and the free movement of capital so that the two chapters will be closed during the next official negotiation session March 21-22. An agreement on the free movement of capital was possible after the EU accepted Poland's moderated request for a 12-year ban on unrestricted land acquisition. The last obstacle was removed earlier this month when Poland agreed to allow land sales to EU farmers who have leased Polish land for seven years in western provinces or three years in the east. The period of lease will run from the beginning of the contract and not, as Poland initially requested, from the date of Poland's accession to the European bloc. Negotiators also plan to close taxation policy talks next week following a decision by the EU to accept a transition period for Poland's excise tax on cigarettes. Poland argued that a one-time tax increase up to EU levels would cause cigarette prices in Poland to surge. The taxation chapter may be re-opened at a later point, as Poland wants to change the former government's consent to raise the VAT tax on housing to 22% from the current 7%. The tax increase on construction companies would be a "lethal blow to the government's plan of economic recovery," according to Infrastructure Minister Marek Pol. A government plan envisages some 140,000 dwellings to be built in Poland annually starting from 2004.