Business, Government, and EU Accession: Strategic Partnership and Conflict

Business, Government, and EU Accession

Business, Government, and EU Accession Strategic Partnership and Conflict

Elena A. Iankova

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LEXINGTON BOOKS A division of Rowman & Littlefield Publishers, Inc. A wholly owned subsidiary of The Rowman & Littlefield Publishing Group, Inc. 4501 Forbes Boulevard, Suite 200 Lanham, MD 20706 Estover Road Plymouth PL6 7PY United Kingdom Copyright © 2009 by Lexington Books All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of the publisher. British Library Cataloguing in Publication Information Available Library of Congress Cataloging-in-Publication Data Iankova, Elena A. (Elena Atanassova) Business, government, and EU accession : strategic partnership and conflict / Elena A. Iankova. p. cm. Includes bibliographical references and index. ISBN 978-0-7391-3055-1 (cloth : alk. paper) — ISBN 978-0-7391-3057-5 (electronic) 1. Industrial policy—European Union countries. 2. Industrial policy—Bulgaria— Case studies. I. Title. HD3616.E8I16 2009 338.7094—dc22 2008055650 Printed in the United States of America

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For my son Atanas, with love

Contents

Acknowledgments 1 2

ix

Introduction: EU Accession and the Changing BusinessGovernment Relationship in Postcommunist Europe

1

Dynamics of the Business-Government Consensus on EU Accession in Bulgaria

31

Trends in the Business-Government Relationship in Bulgaria: Postcommunist Reform and EU Accession

53

4

Adjusting to the Legal Conditionalities of Accession

79

5

Cooperation and Conflict on the Sensitive Issues of Legal Approximation

105

6

The Challenge of Financial Aid

141

7

The Capacity-Building Imperative: Partnerships for Learning

173

8

Europeanization of Business-Government Relations at the Regional Level

215

Conclusion: Europeanization of the Business-Government Relationship

249

3

9

References

269

Index

283

vii

Acknowledgments

This book could not have been completed without financial support from a variety of sources: the National Council for Eurasian and East European Research, the German Marshall Fund of the United States, the U.S. Department of Education International Research and Studies Program, the American Councils for International Education, the International Research and Exchanges Board (IREX), and the Johnson Graduate School of Management and the Institute for European Studies at Cornell University. I am thankful to all government officials and experts, and corporate executives from Bulgaria who provided in-depth information and personal interpretation of the impact of Bulgaria’s accession to the European Union on the business-government relationship in the country. I am grateful for the institutional help provided by various Bulgarian government ministries and organizations, such as the Bulgarian Ministry of Finance, the Ministry of Labor and Social Policy, the Ministry of Environment and Waters, the Ministry of Agriculture and Forestry, the Ministry for Regional Development and Public Works, the Ministry of Foreign Affairs, and the InvestBulgaria Agency. I am also thankful to the representatives of the European Integration Council at the Bulgarian Parliament with whom I conducted interviews. I am further thankful for the institutional support and information provided by the major business organizations in Bulgaria: the Bulgarian Industrial Association, the Bulgarian Chamber of Commerce and Industry, the Union for Private Economic Enterprise, the Vazrazhdane Union of Private Producers, the Bulgarian International Business Association, and the Confederation of Employers and Industrialists in Bulgaria. ix

x

Acknowledgments

I also appreciate the help provided by various representatives of the EU institutions, specifically its Economic and Social Committee. I am also thankful to the representatives of BusinessEurope (former UNICE) and ERT, the European Roundtable of Industrialists, with whom I held interviews in Brussels. I am grateful to the MBMD Institute for Marketing and Social Research in Sofia, and particularly to its executive director, Dr. Mira Yanova, for organizing a national representative survey and several discussion forums through focus groups on the opinion of Bulgarian business leaders about the impact of Bulgaria’s accession to the European Union on their business operations and strategies. I am also grateful to the Bulgarian Charities Aid Foundation for providing full access to their surveys on corporate citizenship in Bulgaria. Additional information was secured through presentations and publications of a variety of Bulgarian research institutes and organizations, such as the Center for the Study of Democracy, the Institute for Market Economics, the European Institute, the Center for Economic Development, and the Center for Liberal Strategies. Many scholars and colleagues have provided valuable comments on various parts of this book. I am particularly thankful to Peter Katzenstein, Ronald Linden, Liliana Andonova, Jan Katz, Snejina Michailova, Tanja Boerzel, Laszlo Bruszt, Ivan Nejkov, Boyan Belev, Grisha Gradev, Zdenka Mansfeldova, Arieh Ullmann, Rumyana Kolarova, Milena Stefanova, and many others for their helpful comments. I am also thankful to the participants in several seminars and conference meetings, at which parts of the book design and results were presented: the Institute for European Studies 2007 Lecture Series at Cornell; the Workshop on Public-Private Partnerships for Sustainability in Europe and Beyond at the Robert Schuman Center for Advanced Studies, European University Institute, Florence, Italy (June 2008); the 2008 Annual Meeting of the International Studies Association in San Francisco, California; the 2007 Biennial Conference of the European Union Studies Association in Montreal, Canada; and the Third International Workshop on “Transition and Enterprise Restructuring in Eastern Europe” held at the Copenhagen Business School, Denmark, in August 2002. The Johnson Graduate School of Management and the Institute for European Studies at Cornell provided all the institutional support I needed to bring this book project to its final stage. I would like to express special thanks to Susan Tarrow and Syd van Morgan from the Institute for European Studies, and to Joe Thomas, dean of the Johnson School, and Douglas Stayman, associate dean of the Johnson School at Cornell, for their enormous support in bringing this project to its completion. The warm encouragement and love of my family helped me overcome the numerous challenges of this project. Special thanks go out to my par-

Acknowledgments

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ents Nadka and Atanas and to my sister Hristina, who have always helped me, through joyful times and sorrowful ones. And it is undoubtedly through the persistent encouragement and immense support of my son Atanas that this book has come to its successful completion. I dedicate this book to him—a scholar in the making. January 2009 Vestal, New York

Elena Iankova

1 Introduction EU Accession and the Changing Business-Government Relationship in Postcommunist Europe

The introduction of state ownership during communist rule eliminated the organizational boundaries between government and business. The state became the sole employer—private employers were nonexistent, and the business function of state enterprises was highly politicized. The party-state controlled those enterprises through central planning and the nomenklatura system of recruitment and appointments. A central plan meant direct bureaucratic management of the economy by institutions of the state. The plan, rather than market mechanisms, determined what enterprises should produce and at what cost. It further designated the suppliers and customers for enterprises, developed the general framework for pay scales, and established terms of employment. Investment was provided primarily by the state, which in turn had the right to income earned by enterprises and organizations under its ownership. The abundance of administrative orders for sales, marketing, and distribution resulted in a lack of initiative and entrepreneurship. Competition was considered wasteful and unnecessary in a system of soft budget constraints (Kornai 1980; 1992).1 Managers were thus not decision-makers, but merely implementers of decisions taken at a higher political level— the main function of enterprise directors was the fulfillment of plan targets. Through the nomenklatura system, managers were appointed on the basis of political, not professional, criteria. The appointment of party secretaries in all major workplaces further secured total party control over enterprises and the economy.

1

2

Chapter 1

Not surprisingly, it took years for the transformation of this highly rigid bureaucratic system of corporate activity into a new promarket, procompetitive corporate performance system and for the emergence of a new type of business relations with the state based on the organizational and political independence of the former from the latter. As many observers of the region have noted, in the initial years of postcommunist transformation, business success continued to be dependent on political connections, and political, rent-seeking strategies of obtaining special privileges from state bureaucracies were a common practice. Furthermore, for a long time, enterprise managers retained paternalistic corporate goals rooted in the extensive social welfare functions of enterprises under communism. The overwhelming priority was to maintain and create secure employment rather than reduce it in the name of promarket goals such as economic efficiency, competitiveness, and growth (Iankova 2008). How did the accession of Central and Eastern European (CEE) countries into the European Union (EU) affect these legacies of the businessgovernment relationship? Did the emerging postcommunist businesses see EU membership as a means of securing a faster transition toward a more Western, promarket type of business strategy and operation, or as an additional threat to the survivability of enterprises? What was the impact of accession-driven adaptation pressures on business organization and strategy, and especially on its relationship with government? To be sure, there is already an abundance of literature on EU accession and domestic adaptation (see, for example, Linden 2002; Jacoby 2004; Schimmelfennig and Sedelmeier 2005a), especially on EU conditionality (Grabbe 2006; Hughes et al. 2004; Schimmelfennig et al. 2005) and individual policy cases such as the transfer of policy models and state administration’s capacity-building to implement the EU common law, or environmental transformation (Andonova 2004; Vachudova 2004; Hertier 2001; Grabbe 1999; Krenzler 1998). However, very little systemic study has been devoted to the businessgovernment relationship and to business per se (Evans 1997; Haggard et al. 1997; Cox 1996a; Graham 1996; Maxfield and Schneider 1997), especially as an agent in the EU accession process (Farkas 1998; Lado 2002). Even for EU member states, research has paid little attention to the Europeanization of the business-government relationship. There are some works that point to EU-level business-government relations (Gorges 1996; Mazey and Richardson 1993) or the actions of national groups in Brussels (Van Schendelen 1993) and some that focus on the Europeanization of business or business functioning in the European Union (Kassim and Menon 1996; Coen 1997; Cowles 1996), but only a few studies focus on the businessgovernment relationship per se (Cowles 2001; Schmidt 1996a, 1996b; Lavdas 1997). This is surprising given the fact that business has always been a

Introduction

3

champion of European integration2 and that specific configurations of business-government relations at the EU level and at the domestic level of member states have largely determined the outcome of integrative processes across Europe. More specifically, business has persistently regarded the deepening and widening of integrative processes in Europe as the major means of increased corporate competitiveness in the global economy. While national governments of member states worried about possible loss of sovereignty, it was business, through its organizations in Brussels, that persuasively lobbied them to overcome national sovereignty issues and embrace the ideas of a common market and increased liberalization (e.g., the removal of barriers to the free movement of goods, capital, services, and labor in Europe). European business further argued that the single market must be completed with a single currency and lobbied for the signing of the Maastricht Treaty, which led to the creation of an economic and monetary union and the introduction of a single currency, the euro. Persistently, European business has also promoted the widening of the union and has supported its enlargement rounds, including the most recent one to the east. Using an institutionalist approach grounded in the comparative Europeanization literature, this book explores institutional change in the business-government relationship in the EU-acceding countries from the postcommunist region, on the example of Bulgaria. Similar to the neopluralist (societal) approach (see Nowell 1996), the institutionalist approach emphasizes the importance of business-state alliances in determining political and policy outcomes and the fulfillment of strategic business objectives. Unlike the neopluralist approach, however, which emphasizes primarily the desire of business to control the state (Gibbs 1991; Cox 1994; Ferguson 1983, 1984, 1995; Ferguson and Rogers 1986; Frieden 1988; Abraham 1986), the institutionalist approach supports the goals of business but regards those goals as significantly constrained—defined and shaped—by institutions.3 Institutions have always played a vital role in the EU integrative processes, including EU accession, as the European Union is a polity heavily grounded in institutions (Katzenstein 1997). What matters most in European integration are the European common law (the acquis communautaire) and the EU common policy content and procedures. As Christopher Preston observes, the requirements that EU candidate countries adopt, implement, and enforce the entire acquis communautaire with no permanent derogations allowed, and that the accession negotiations concentrate exclusively on the practical aspects of the adoption of the acquis by the applicants, head the list of principles applied in all EU enlargement rounds (Preston 1997). These requirements consequently define EU integration and, more specifically, the EU enlargement process as a highly institutionalized one.

4

Chapter 1

By focusing on the business-government relationship in the CEE accession countries, this book addresses the question: In what way and to what extent does the European Union exercise its influence on this relationship? The book has two intertwined goals in that regard: on the one hand, to broadly outline and explain the specific pattern of the Europeanization of the business-government relationship as a result of the adaptational pressures of EU accession, and, on the other, to trace the effectiveness of this relationship in facilitating the preparedness of an EU-acceding country for EU entry (see figure 1.1). It is important to emphasize the methodological difficulty in trying to disaggregate European integration as an independent source of change in the business-government relationship in the CEE accession countries. In practice it has always been difficult to isolate European effects and to untangle the effects of European arrangements from global, national, and subnational sources of change (Olsen 2002, 14; Risse et al. 2001, 4). For the CEE countries specifically, EU conditionality went hand in hand with the efforts of other international organizations to link transformation incentives with the fundamental political principles of the Western world, such as the norms of human rights and liberal democracy and the institutions of the market economy. The methodological difficulty becomes even greater when one considers the interwoven processes of postcommunist transformation and EU accession. The borders between EU accession and postcommunist transformation were not clear from the very start of the integration efforts because EU membership was regarded as both a means and a goal of postcommunist transformation. Even if we accept that much of the adaptational pressures

Figure 1.1.

Introduction

5

came from the European Union in various forms and channels, such pressures did not necessarily target the goal of EU membership per se. They built on the conditionality of foreign aid for the smooth postcommunist transition toward democratic institutions and market economies. The three Copenhagen conditions for accession elaborated in 1993 were equally important for the development of democracy and a market economy in the CEE region.4 Perhaps important domestic changes in the direction of political democratization and the creation of functioning and internationally competitive market economies would have occurred in any case, without the prospect of EU accession. Yet the scope and speed of these changes might have been significantly different.5 Similarly, during the southern enlargement of the European Union in the 1980s, the theme of modernization had been considerably interwoven with the political discourse of EU accession. In Greece, Spain, and Portugal, modernization was often equated with an approximation to western European norms and practices (Featherstone 1998; BorrasAlomar 1999). To overcome these methodological difficulties while addressing the questions above, I organized research and analysis around an in-depth case study of the business-government relationship in one accession country—Bulgaria. Examining patterns of interdependencies and causalities in one particular country—industry by industry, region by region, and company by company—was essential in identifying the key elements of the pattern of change and the intervening factors that affected the business-government relationship. The selection of several subnational case studies of industries, local regions, and companies permitted research into the complex interactions between business and government at local, regional, and national levels. It is precisely these detailed analyses of linkages and networks that allow for the elaboration of a model of accession-driven institutional change in the business-government relationship, or a model of its Europeanization. The Bulgarian case6 has many features in common with the changing business-government relations in the other CEE countries—new EU members—because EU accession has evolved into a highly uniform process. The EU conditionality requires the introduction of the same laws and regulations in each country that aspires to EU membership. At the same time, as noted above, permanent derogations are not allowed. Changing the “rules of the EU club” is possible only after accession, when new members can express their individual preferences in the decision-making process of the European Union and try to change the rules through the accepted decision-making principles and procedures of the European Union (Preston 1997). That is why the findings of this book provide general insights that are also applicable to other new members of the European Union from the formerly communist region.

6

Chapter 1

Bulgaria also differs from the other CEE applicants for EU membership due to the individualism of its postcommunist transformation and its insufficient preparedness for EU membership. As some authors have observed, the uniformity of integration contrasted with the individualism of the transformations (Widmaier 1999). In contrast to the entrants in 2004, Bulgaria lagged behind in its economic restructuring and transformation and, hence, in fulfillment of the EU economic conditions for accession. Although the country was not directly involved in the Balkan conflicts of the 1990s, its economy and emerging businesses suffered the consequences of political instability in the region, causing reduced investor confidence, postponement of needed structural reforms, and general economic malaise. However, important domestic factors such as the lack of political and legal transparency and the proliferation of corruption and clientelism due to close relations between political and economic elites also played a role in Bulgaria’s poor economic performance. Overall, Bulgaria’s prolonged preparation for EU membership in the economic/business realm makes it an excellent case study of the evolving changes in the business-government relationship as a result of EU accession.

TOWARD A MODEL OF ACCESSION-DRIVEN INSTITUTIONAL CHANGE IN THE BUSINESS-GOVERNMENT RELATIONSHIP How do we understand deliberate, accession-driven institutional change in the business-government relationship in EU accession countries? Obviously, the starting point is its potential source, which is well known—accession to the European Union. However, accession is a very broad process encompassing a variety of situations, factors, and interactions. Hence, it is necessary to identify those elements of the EU accession process that act as determinants (independent variables) of the changing businessgovernment relationship in the acceding countries (dependent variable). EU Accession as a Determinant of the Business-Government Relationship in Acceding Countries The effect of EU accession on CEE countries’ domestic politics, policies, and institutions including business organization and business-government relations, has often been called Europeanization. That term is used very broadly, however, often as a synonym for European integration. Olsen outlines at least five different meanings of Europeanization that, as he concludes, are after all rather complementary and not exclusive (Olsen 2002).7 The focus of this study is on one of these meanings—Europeanization through enlargement, or as a process of institutionalization that takes place

Introduction

7

when the European Union expands its boundaries. Europeanization through enlargement focuses on the relationship between the expanding organization—the European Union—and its prospective members from the perspective of the domestic institutions and actors of the latter. Thus, the questions that inform this study are under what conditions would the accession process provoke change in the business-government relationship in the EU-acceding countries and in what direction—toward greater collaboration or greater divisions and adversities, greater or lesser institutionalization, and greater or lesser actor involvement in the relationship on both sides? Crucial to this study is the focus on preparedness for EU membership. To outline the degree of domestic change as a result of EU accession, the concepts of goodness of fit and policy misfits have been widely applied (Cowles et al. 2001; Börzel 1998, 1999; Risse and Börzel 2003; Cowles and Risse 2001). The claim is that a misfit between European-level and domestic processes, policies, or institutions constitutes the necessary condition for expecting any change. There must be some degree of misfit or incompatibility between European-level processes, policies, and institutions, on the one hand, and domestic-level processes, policies, and institutions on the other. The degree of fit or misfit constitutes adaptational pressures. Adaptational pressures alone are not sufficient for expecting change; there must be some facilitating factors (actors or institutions) that respond to the adaptational pressures. Those mediating factors enable or prohibit domestic change. However, because of the strong mixture of postcommunist transformation with integration efforts to meet the complex set of EU accession criteria, the goodness of fit approach is generally less applicable to the wouldbe EU members from central and eastern Europe. The concept degree of preparedness seems to be more suitable in exploring domestic change in the course of CEE countries’ accession to the European Union. Similar to the concepts of policy misfits and goodness of fit the concept of preparedness also looks at the degree of fit between the various levels of the institutionalization process (Sjöstrand 1993, 13–14). It identifies potential gaps, mismatches, tensions, and frictions between the micro, or national, level of applicant countries and the macro, or EU supranational, level. The gap is the distance between the experiences of the many single individuals at the micro level (applicant countries) and the regulations embedded in the moreformalized institutions at the macro level (the European Union) (Börzel 1998; Risse et al. 2001). However, with the concept of degree of preparedness, the starting point of change is of less analytical importance, compared to the goodness-of-fit and policy-misfits approach. The focus is on the end goal—that is, EU membership. In the case of CEE applicants for EU membership, the domestic institutions and structures cannot be taken as “givens.” In the course of postcommunist transformation, CEE countries experienced considerable pressures

8

Chapter 1

for adaptation and adjustment. Even fifteen years after the 1989 revolutions, their domestic structures remain much less stable than those of the other EU member states. In addition, processes of institutionalization ab ovo (or from the very beginning) emerged in many ways, shaped by international conditionalities on granting postcommunist financial aid to the region. Adaptational pressures from the European Union (mismatches between EU requirements and domestic conditions) are thus undoubtedly very substantial, and the degree of preparedness reflects the level of harmonization of domestic institutions and structures with the EU standards, norms, and procedures. This study identifies the sources (or mechanisms) of change in the business-government relationship as these three aspects of the process of EU accession: first, the legal conditionalities and harmonization efforts for EU entry; second, the pre-accession and anticipated post-accession financial assistance with its specific priorities and requirements; and third, the capacitybuilding and learning that ultimately stem from the efforts to adapt to the EU conditionalities of membership. The first two accession factors reflect a logic of consequences, while the third demonstrates a logic of appropriateness. The first two thus assume strategic, instrumentally rational actors who seek to maximize their own power and welfare (the rational choice institutionalism), whereas the third assumes actors who are motivated by internalized identities, values, and norms (the sociological institutionalism). Thus, the logic of consequences, or the sanctions (conditionality) and rewards (financial assistance) of the European Union, drive the actors. The logic of appropriateness, or an EU-specific collective identity and an EUspecific set of common values and norms, also drives them (March and Olsen 1989, 160–162).8 What Is to Change in the Business-Government Relationship? The model of business-government relations in general is often constructed as a model of interdependence and reciprocity (Samuels 1987; Chick 1990; Moran and Wright 1991; Lavdas 1997). The assumption is that governments and businesses are bound in a relation of interdependence by virtue of some of the most profound characteristics of the social systems in which they are embedded. Yet the relationship has clearly identifiable components such as character, structure, and composition. The character of the business-government relationship is rooted in the conflict-collaboration continuum and is determined by the extent of substantive interpenetration of business and government. That is, on the one hand, the extent to which governments intervene in industry or limit themselves to macroeconomic policies intended to promote economic growth, and, on the other, the extent to which business is involved in the policy-

Introduction

9

making process. There are three distinct modes of a business-government relationship that are based on the degree of state involvement in the economy and the degree of business involvement in the policy-making process. They have virtually defined three distinct types of capitalism—neoliberal, statist, and corporatist (Katzenstein 1984, 1985). In the neoliberal, Anglo-American model (typical of the United Kingdom and the United States), market forces primarily determine the allocation of investment and the coordination of different factors of production. The role of the state is to secure a business environment conducive to business’s success by maintaining the institutional infrastructure needed for commercial activity (such as a system of law) and by steering the economy at the macro level to avoid recessions or inflations (Wilson 1990). The character of business-government relations is more adversarial than cooperative. The major political task for business in that model is to lobby for the reduction of taxes or regulations that cost business money. Under the statist model (as practiced in Japan, but also France), the state itself fulfills extended functions and takes a keen interest in the strategies and activities of corporations. The greater government involvement in the economy is based on its leadership role—that is, identifying markets and products that are likely to grow in the future.9 Advocates of such a major, direct role of government in making investment decisions argue that government is capable of taking a longer-term, more-informed view of the prospects for growth and investment than is the individual corporation (Wilson 1990). The state also has a mediating role between business and labor to promote consensus on the measures needed to achieve growth. Under the corporatist model, the state also exercises an extensive involvement in the economy but in tandem with business and other organizations of civil society. It seeks partnerships with interest groups such as business and labor by promoting their growth; interest groups, in turn, have a say in government policy and assist government by promoting and helping to implement government policies among their members. Through such partnerships the most promising prospects for future economic growth are identified and resources are steered to those sectors. A variation in the business-government relationship along the lines of the conflict-cooperation continuum stems also from variation in policymaking patterns across policy areas—regulatory, distributive, and redistributive (Lowi 1964, 1972). Regulation constitutes an arena of pluralist politics and pluralist competition over outcomes. By contrast, distribution concerns the allocation of public funds in accordance with log-rolling coalitions among various actors with often disparate interests, leading to distributive bargains. Finally, redistributive policies concern the redistribution of social income among social groups (social policy) or territorial units (regional policy) and are associated with more stable interest coalitions.

10

Chapter 1

The structure of the business-government relationship refers to the degree of formalization and institutionalization of the channels of communication between business and government, such as consultation procedures, councils, commissions, and others. The degree of institutionalization is the major dimension along which government-business relations vary in different contexts. The more institutionalized the government-business relation, the more it will involve encompassing organizations and formalized channels of interaction governed by elaborate rules and norms. The relationship between business and government is structured or institutionalized differently under each of the three major models of capitalism. In the neoliberal model, the business-government relationship is less institutionalized. Government conducts dealings with business either with numerous competing business organizations of uncertain status or directly with individual corporations. The highest levels of institutionalization characterize the model of neocorporatism, although close consultation between business and government also occurs in the statist model of France and Japan, but this consultation is generally routed through highly developed business organizations (Wilson 1990, 23). The business-government interaction could also be realized through less formal institutional channels, especially networks of personal relationships. The literature describes implications for policy, including economic policy, as typically negative. Rent-seeking, clientelism, and collusion among politicians, interested bureaucrats, and organized constituencies typically permit policies that favor narrow interests over the common good. But, as Haggard et al. note, expectations about the consequences of personal networks are not uniformly negative. It has long been recognized that formal organizations and institutional hierarchies are intertwined with informal networks that strongly affect their performance. The positive light on networks is that they can promote the two-way flow of information between government and the private sector, which in turn enhances policy design and subsequent adjustment. To the extent that networks build reciprocity and trust, they benefit the economic policy process by lowering transaction costs between government and business and minimizing the likelihood of policy stalemates. Networks are also beneficial to the extent that they increase transparency because this raises the costs of individual rent seeking (Haggard et al. 1997, 54). The composition of the business-government relationship refers to the concrete actors that are involved in the relationship on each side. Neither the state nor business is a homogenous entity, but they comprise a multiplicity of subunits. In the business-government relationship the state is regarded not just as a forum in which competing or conflicting social forces contend for control so that they can use state powers for their own purposes, but as a relatively independent actor with its own objectives and interests that can-

Introduction

11

not be reduced to those of any interest group, even one as important as business (Skocpol 1985). In the business-government relationship, the state acts as a legislator, an executive, and a judiciary. The political party dimension of the state is also important in that regard. Nor is business a homogeneous unit, but has two important dimensions: on the one hand, it can be segregated into capital, sector, and firm (or possessing common, industry-specific, and firm-specific needs and interests) and, on the other, into political organization. Businesses as factors of production or capital emphasize common interests vis-à-vis the state such as the protection of property rights and the creation of a favorable business climate (Lindblom 1984; Hirschman 1978).10 However, businesses also have divergent interests when it comes to particular public policies and sectors. In this case, rent-seeking can become an important aspect of the businessgovernment relationship (Olson 1982; Krueger 1974). In the business-asfirm case, the characteristics of corporate structure, including size, internal organization, ownership, and patterns of financing, seem to affect both business preferences and the leverage that firms have in relation to government actors. Two organizational dimensions—the relative size of major firms and the extent of diversification within particular firms or groups— can have especially important implications for relations between government and business.11 In the case of business as a political organization, the focus is on the institutions that mediate business interests or on how business associations and interest groups aggregate, reconcile, and intermediate business interests (Silva 1997; Doner and Ramsay 1997; Biddle and Milor 1997; Thorp and Durand 1997; Schneider 1997), as well as on how they influence policy-making through lobbying, and policy implementation through private-interest governance, where business associations assume governmental functions. Dimensions of the Accession-Driven Pressures for Change EU accession (legal conditionalities, financial assistance, capacitybuilding) has an important effect on the three major aspects of the businessgovernment relationship: its character, structure, and composition (see figure 1.2). The following subsections will look into these dependencies in a greater detail. Legal Conditionalities and Harmonization The greatest challenge to domestic actors and institutions posed by EU accession is the full harmonization and adjustment of national legal systems to accept and respect the supremacy of European law and the adjudicatory primacy of the European Court of Justice. Membership conditionality

12

Chapter 1

Figure 1.2.

is the most important mechanism through which the European Union exerts influence on accession countries and their domestic actors.12 Conditionality denotes deliberate efforts to determine process outcomes through external pressure. This is achieved through specifying conditions or even preconditions for support, involving either promise of material aid or political opportunities. The historical experience with European integration reveals that during all enlargement rounds the question of EU accession has revolved around the fundamental requirements for the acceptance of the supremacy of the EU common law (the acquis communautaire) over domestic legislation, the creation of mechanisms for its transposition into national legislation, and its subsequent practical implementation and monitoring. Compared with previous enlargements, specific for the conditions of CEE countries’ accession was the higher threshold of conditionalities. The eastward expansion of the European Union toward the formerly communist countries reflected conflicting pressures among and within member states. On the one hand, in light of political and security benefits, the European Union favored prospective membership for the CEE countries. On the other hand, conscious of the great diversity of the CEE countries, especially in economic levels, the European Union was highly hesitant in making more concrete and detailed commitments to enlargement. Notable in that regard were the concerns of the poorer members of the European Union such as Spain, Portugal, and Greece, that important EU structural funds that were going to them might be diverted to the CEE candidates. As a result, the Eu-

Introduction

13

ropean Union committed itself to an eastward expansion only within the framework of a complex set of conditions whereby the CEE countries would be committed to adopting certain fixed and core democratic, economic, and constitutional principles of EU governance. The accession criteria for CEE applicants included, first, the basic democratic and free-market-oriented principles and primary provisions of the internal market acquis, which form the core of the EU law (as stipulated in the Europe Agreements, although these agreements did not discuss accession); second, the three basic criteria for membership that were outlined by the Copenhagen European Council (1993) in the areas of political democratization, market reform, and judicial and administrative adaptations (the 1995 White Paper on the Single Market strengthened economic conditions with more detailed provisions on the internal market); and third, individually crafted aims for each CEE applicant country through the reinforced preaccession strategy and the accession partnership agreements concluded in 1998. The 1998 agreements extended the requirements not only by making further negotiations conditional upon the CEE countries’ ability to adopt and implement each EU goal as it was stipulated, but also by making financial assistance under the PHARE program conditional upon such progress. Despite the persistent eagerness of the CEE governments to qualify as quickly as possible for EU membership, these countries faced a much greater challenge and greater difficulties in adapting to the acquis than candidates in previous enlargements. The acquis has considerably expanded over time. In legal-administrative terms, the EU common law comprises the entire body of European Community legislation that has accumulated, and has been revised, over the past forty years. Standing at almost one hundred thousand pages, it includes the founding Treaty of Rome as revised by the Single European Act and the Maastricht Treaty, the numerous regulations and directives passed by the Council of Ministers and the European Parliament, and the judgments of the European Court of Justice (European Commission 1998). The CEE applicants’ preparatory effort was further augmented by the fact that—although the primary body of internal market legislation was largely settled—important areas of the acquis had become “moving targets” that grew concurrently with the CEE countries’ efforts to transpose them into domestic legislation. These included finance, agriculture, and the structural funds. The Association or Europe agreements, signed between December 1991 and the spring of 1993, proposed not accession but association. Specifically, they laid down a variety of conditions for better association. These included “the stability of institutions in the candidate country guaranteeing democracy, the rule of law, human rights and respect for minorities” (European Commission 1999). The agreements were also designed to reaffirm

14

Chapter 1

the commitment of the CEE countries to the principles of the market economy and social justice as the basis for association, and to make their economies competitive with the western European economies. The association agreements turned out to be considerably below the expectations of the CEE countries, however. The European market was opened asymmetrically to them, that is, the opening did not include the sensitive sectors of the European Union such as coal, steel, textile, and agriculture, which are actually the sectors where the CEE economies have some competitive edge. Besides, the European Union rejected financially binding commitments in the agreements (Agh 1996b, 9–10). Despite the absence of any commitment to accession and the clear intent to impose protectionist policies, the association agreements provided international political approval for processes of postcommunist transformation. Policy-makers and the public at large in the CEE countries heralded the agreements as an act of high politics, “a dictate of the times,” and a political acknowledgment of the end of the Cold War. The Copenhagen Council decisions of June 1993 provided that the Europe Agreement countries could become members of an enlarged European Union as soon as they fulfilled certain general criteria for accession. The European Union set three main criteria for beginning accession talks with the CEE applicants for membership: stable political institutions guaranteeing democracy, the rule of law, human rights, and the protection of minorities; a functioning market economy that could withstand competitive pressure from other EU countries; and the ability to take on the obligations of membership, including adherence to the aims of political, economic, and monetary union, implementation of the European Union’s common law (or acquis communautaire), and administrative and judicial capacity.13 There were a lot of analytical difficulties in interpreting the EU accession conditionality. The three main conditions were extremely broad, highly debatable, and slippery concepts. In addition, they were a moving target, an evolving process, and the linkage between fulfilling particular tasks and receiving particular benefits was not clear because the tasks were complex and many of them were not amenable to quantitative targets that showed explicitly when they had been fulfilled (Nello and Smith 1997). The year 1997 marked a turning point in the evolution of EU conditions. The European Commission’s blueprint for enlargement, “Agenda 2000,” and the commission’s opinions (avis) of the ten CEE applicants for EU membership opened the negotiation process and further outlined the conditions for accession to the European Union (European Commission 1997). Those documents also differentiated between two groups of applicant countries: fast-track (Poland, Hungary, the Czech Republic, Slovenia, Estonia, plus Cyprus) and slow-track (Bulgaria, Romania, Latvia, Lithuania, and Slovakia). In an attempt to soften the impact of accession and differ-

Introduction

15

entiation, and as a concession to the slow-track applicants, in 1998 the commission drew up contracts for EU membership known as “accession partnerships.” They proposed further strengthening of the pre-accession strategy for each applicant country, whatever stage it had reached in the transition process. The reinforced pre-accession strategy had two main objectives. The first was to channel some portion of financial assistance funds from all available sources—that is, from PHARE and the international financial institutions— into the implementation of national programs to help prepare the applicant nations to meet the requirements for membership. Among the objectives and necessary commitments were reinforcement of democracy and the rule of law, protection of minorities, macroeconomic stabilization, enhancement of institutional and administrative capacity, preparation for full participation in the internal market, attention to justice and home affairs, agriculture, the environment, transport, employment and social affairs, adjustment (as necessary) of regional policy and cohesion, adherence to nuclear safety guidelines, and the adoption of the acquis communautaire within a precise timetable, focusing on the priority areas identified in each opinion. The second broad aim of the strategy was to familiarize the applicants with union policies and procedures by inviting them to participate in community programs. Membership conditionality further included the mechanism of monitoring the progress of preparedness for EU membership. Monitoring was exercised through the cycle of accession partnerships and regular reports published by the European Commission on how prepared each CEE applicant was in different fields. The regular reports judged the performance of lowerlevel officials within the ministries, but also of other societal actors including business. This process provided the European Union with a subtle and highly effective route of direct influence on domestic policy-making (Grabbe 2006, 83). Similarly to the Europeanization of EU member states, which refers predominantly to the emergence and development at the European level of distinct structures of governance, and their impact on the domestic institutions and actors of member states (Ladrech 1994; Olsen 1995a, 1995b; Andersen and Eliassen 1993; Rometsch and Wessels 1996; Mény, Muller, and Quermonne 1996; Forder and Menon 1998; Risse et al. 2001),14 the Europeanization of accession countries through legal conditionalities recognizes the existence of important interactions among several levels of governance (European supranational, national, and subnational). Unlike the Europeanization of member states, however, the Europeanization of candidate countries and their domestic actors and institutions through legal conditionalities and harmonization is characterized with interactions and linkages between national and European levels that are not so close and

16

Chapter 1

continuous. If for EU member states the causal processes ultimately go both ways—activities at the domestic level affect the European level and vice versa (Risse et al. 2001; Goetz 2002)15—for EU candidate countries the levels are much less interdependent, and they contain in fact a lot of power asymmetries because of the non-negotiability of the acquis communautaire. However, it is understood that possible reforms to reflect the individual preferences of new members would take place after enlargement. Overall, Europeanization through legal conditionalities and harmonization changes nation-states and their domestic actors and institutions by exerting adaptational pressures. In that regard, the major questions that inform this study are: How have the pressures stemming from the harmonization of domestic law with the EU common law affected the character of the business-government relationship in EU-acceding countries? Has the latter become more corporatist-collaborative or neoliberal-conflictual? What formal/informal channels of communication and institutions of interaction have emerged to help with the harmonization of legislation? Has the legal harmonization effort changed the composition of the relationship—that is, the internal constituencies of both business and government, and in what direction and at what levels? Financial Aid Financial assistance from the European Union to the CEE applicants dates back to the late 1980s, as a response to the revolutions in the region. In July 1989, the group of twenty-four Western industrial countries16 decided to assist reforms in Poland, Hungary, and throughout the region, with EC coordination. The European Commission held a special informal summit of heads of governments in November 1989 to discuss the challenge of revolution in the east. The summit agreed to support reform through the creation of the European Bank for Reconstruction and Development (EBRD) and the opening up of EU programs in education, training, and technology. In December 1989, the council adopted the PHARE Program. Until 1997, PHARE was oriented toward a broad range of goals connected with transition toward pluralist democracy and market economy, largely through technical assistance. PHARE was demand-driven, allowing CEE governments to formulate their own requests in the fields of institutional reform and infrastructure development. Projects were awarded to consultants under a competitive tendering process, but without a policy framework, so there was little opportunity for consistent and persistent influence from the European Union. Besides, foreign financial aid, including PHARE, while viewed as crucial for the adjustment periods, has proven marginal to the needs of the transition process (see in Wedel 1998; Bideleux 1996; and Mayhew 1998, 135).

Introduction

17

With the advancement of the accession process, the European Union has committed itself to an unprecedented pre-accession financial assistance of more than three billion euros per year to help the candidates duly prepare for membership. The money was channeled through three pre-accession instruments. In addition to PHARE, in 2000 the European Union created the Instrument for Structural Policies for Pre-Accession (ISPA) and the Special Accession Program for Agriculture and Rural Development (SAPARD). PHARE’s two main priorities became institution-building, with an emphasis on the training of public servants (30 percent of funds), and the development of infrastructure (70 percent of funds) particularly transport and environmental projects. Investment support was given to strengthen the regulatory infrastructure needed to comply with the acquis, and also for economic and social cohesion measures similar to those supported in the member states through the European Regional Development Fund and the European Social Fund. ISPA provided structural funds money to contribute to accession preparations specifically in the area of economic and social cohesion, which covered environmental measures and transport infrastructure measures. SAPARD funds contributed to the implementation of the acquis concerning the common agricultural policy and related policies, and could also be used to solve specific problems in adapting the agricultural sector and rural areas to EU membership. Half of the overall pre-accession assistance per year during the 2000–2006 period was allocated to PHARE. The precise appropriation for 2001 were 540 million euros for SAPARD, 1.08 billion euros for ISPA, and 1.62 euros for PHARE, amounting to an overall budget of 3.24 billion euros (European Commission 2002a, 7). Meanwhile, the European Union deepened its cooperation with the international financial institutions. The latter and especially the World Bank became actively involved in the preparations of the CEE countries for accession. As Grabbe observed, however, aid money to the candidates was disbursed through an inflexible bureaucratic process. It was thus hard to use it as a carrot to get the countries to move in a particular direction (Grabbe 2006, 81–82). In addition to the pre-accession financial instruments, post-accession financial instruments become also available once an applicant country is accepted into the European Union. Post-accession financial aid can be received through the Structural Funds and the Cohesion Fund of the European Union. These are the main financial instruments for achieving the main objective of the EU regional policy—reduction of regional development disparities within the EU regions. The Structural Funds comprise the European Fund for Regional Development, the European Social Fund, the European Fund for Agricultural Guidance and Guarantees—Section Orientation, and the Financial Instrument for Fisheries Guidance. The European Regional Development Fund is the most important mechanism for

18

Chapter 1

carrying of the common regional policy of the European Union, with the goal to reduce regional disparities in the union in the field of development and living standards. The major goal of the European Social Fund is the provision of financial support in the fight against unemployment, mainly through financing measures for education and training of unemployed, easy access to the labor market, creation of equal opportunities at the labor market, development of skills and professional qualification, and encouragement of job creation. The European Agricultural Guidance and Guarantee Fund facilitates the implementation of the Common Agricultural Policy. It finances measures for the development of rural regions and support of farmers. And the Financial Instrument for Fisheries Guidance is designed to help for the restructuring, adaptation, and modernization of the fisheries industry. The Cohesion Fund of the European Union targets environmental improvement and development of transport networks. As a condition for EU membership, all candidate countries had to develop the necessary capacity to administer, manage, and utilize the enormous financial resources that would be available from these EU funds after accession. In the case of Europeanization through financial aid, the major questions that interest this study are: How are the provisions, requirements and procedures of pre-accession financial assistance and anticipated post-accession financial aid inducing change in the character of the business-government relationship in EU acceding countries—has the latter become more collaborative or more adversarial, especially in regard to the redistribution of financial resources? Have any formal and informal channels of communication and institutions of interaction emerged in regard to the administration and management of the EU funds? Have the procedures of pre-accession and post-accession financial assistance affected in any way the composition of the business-government relationship—that is, the internal constituencies of both business and government, and in what direction and at what levels? Capacity-Building Europeanization is further fostered through capacity-building and a learning process of how to operate as a future member, how to upload domestic preferences once EU membership is achieved. More specifically, Europeanization through capacity-building and learning is a process in which European institutions and political elites devote resources to enticing important domestic actors to learn to get involved in EU-level decisionmaking. The process of learning how to take part in the EU-level policymaking activities would actually become a process of uploading of domestic preferences to the European level after accession is achieved. At the accession preparatory stage this process included learning about represen-

Introduction

19

tation at the EU level and participation in the EU common policies, building capacity to influence the EU policy-making process, as well as building capacity to manage the EU structural and cohesion funds. All this involves major changes in the internal administrative structures of applicant states and preparation of domestic actors such as business for EU membership. In the case of Europeanization through capacity-building, several questions inform this study: Has the process of learning how to operate in the EU multilevel governance system and how to participate in EU-level policymaking altered in any way the character of the business-government relationship, making it more collaborative or more conflictual? Have any specific channels of business-government communication emerged related to the learning process, such as learning committees and networks, across business and government, and within their segments? And what specific segments or internal constituencies of business and government have been included in the learning process?

DIMENSIONS OF THE EUROPEANIZATION OF BUSINESS-GOVERNMENT RELATIONS In the course of eastward enlargement, the European Commission and the EU requirements and conditions for accession have designed and promoted a general model of the business-government relationship in an EUacceding country that would be suitable for meeting the challenges of accession and membership. The actual effects of EU accession on the businessgovernment relationship in an accession country could thus be traced along the lines of three major developments: (1) character of the relationship— greater collaboration through endorsement of the partnership principle; (2) structure of the relationship—greater institutionalization and multilevel interaction; and (3) composition of the relationship—a notable embeddedness of the business-government relationship in organized civil society. Character: Endorsement of the Partnership Principle Legal Conditionalities The most notable effect of the EU legal conditionalities for membership was the endorsement of the partnership principle and the accent on shared social governance. The European Union insisted from the very start of the accession negotiations that business and labor—the two major “social partners” to the government—be included in the elaboration of the government positions on each negotiation chapter of the acquis. Based on the stipulations of the 1997 Amsterdam Treaty over the role of social dialogue as a

20

Chapter 1

means of transposing community directives at national level, in the process of accession negotiations with candidate countries the commission actively promoted a new understanding of social dialogue not as a means for mediation and conciliation, but as a new form of policy-making, as a collaborative governance mechanism. Overall, the message from Brussels was for the encouragement of the cooperation between the social partners in order to be able to participate in the self-regulation of the integrated European market and the achievement of greater competitiveness of the national economies. The commission encouraged the active engagement of the social partners in consultations over the harmonization of domestic legislation with the EU common law (Lado and Vaughan-Whitehead 2003, 78). Financial Aid The partnership principle was further reinforced through the design and use of pre-accession and post-accession financial instruments—such as building partnerships on strategic programming and absorption capacity for utilization of the funds, for joint monitoring and control of the funds, public-private partnerships, and business clusters with the participation of governments and other important stakeholders—for increasing the international competitiveness of domestic businesses. In this specific context, the partnership principle implies close cooperation between the European Commission, central and subnational governments, the business sector, and NGOs in order to achieve common development objectives. The principle of partnership requires that plans (strategies) and operational programs for the utilization of EU funds have to be presented to the European Commission only after consultations with the social partners, including business. Partners also have to be involved in the monitoring committees of the various operational programs. The principle of partnership requires the partners to present their opinions and proposals in a transparent way during the preparation, financing, monitoring, and assessment of projects. Resources from the EU funds have to be spent only on projects that have been mutually approved by the social partners. Even more broadly, partnership is increasingly perceived as a value, a method of work, and even as a special “culture” underpinning the structural funds. Furthermore, the need to include the social partners in the management of the EU structural funds (especially the European Social Fund) is seen as an important milestone in securing their capacity to participate in social dialogue as a meaningful mechanism of shared social governance. Capacity-Building The capacity-building imperative further strengthened the partnership principle and expanded it to the EU level. With European integration, busi-

Introduction

21

ness and other segments of civil society no longer look at their national governments as the sole source of economic and social policy; governments share this function with the European Union’s policy-making institutions. Hence a multidimensional approach is emerging as a major change in the business-government relationship. Business and government have to learn how to operate at multiple levels of governance, and how to incorporate the European context even when dealing with very specific micro-issues at the local level. Structure: Multilevel Institutionalization Legal Conditionalities As part of the legal harmonization efforts, business became directly involved in the accession negotiations through participation in most of the institutional structures that were specifically established in order to facilitate negotiations. These were the thirty working groups that were formed on the basis of the sections of the EU common law. The working groups comprised representatives not only of the state ministries but also of the social partners, civil society and political institutions. They formed the extended negotiation team of each accession country, with the task to handle the entire preparation of the negotiation process on a sector-by-sector basis. More specifically, the groups’ tasks focused on the preparation of draft negotiation positions by sectors, as well as the preparation of general positions on the conformity of draft laws with the acquis, and on the national priorities in the respective industry/field. In addition, business had to participate in newly emerged institutions and structures of interaction, such as consultative councils on European integration at the various ministries where the various challenges of the acquis were discussed on a sector-by-sector basis. Another institutional development was the creation of public-private partnerships to meet the EU legal requirements of accession. The public-private partnership is a long-term contractual relationship among persons from the private and the public sector for the financing, construction, reconstruction, management, and maintenance of infrastructure with the goal of achieving a better level of services. Those partnerships were especially promoted in the area of environmental protection, where a lot of financial resources were needed for the harmonization of domestic legislation with the EU environmental acquis. Financial Aid In regard to the utilization of EU funds, joint working groups and commissions were also created for the joint monitoring and control of the preaccession funds (SAPARD, ISPA, and PHARE), and for preparation for

22

Chapter 1

utilization of the EU post-accession financial instruments (the Structural Funds and the Cohesion Fund). This included the formation of joint working groups over the preparation of all programming documents for the 2007–2013 programming period for the development of the accession country as a whole and its regions. Public-private partnerships were also developed in regard to the utilization of EU funds. The commission recommended them for attracting the cofinancing needed to utilize the structural funds. Capacity-Building In regard to state officials, the learning process was realized through the formal institutional, policy, and financial links between the European Union and the CEE applicants, which were aimed at facilitating the institutionalization and domestic preparation of government officials and public administration, the judiciary, and parliaments for EU membership. These were, first, the intergovernmental institutional structures of association and accession that developed on the basis of the Europe agreements (association councils, association committees, and association parliamentary committees), and were specifically created to ease and facilitate the process of accession and domestic adaptation. Second, the European Union provided a wide range of policy advice to CEE applicants through the technical assistance offered by the PHARE program from 1989 to 1997 and through the twinning program that started in 1999. TAIEX (the Technical Assistance Information Exchange Office) also provided experts to give short-term advice. The twinning program used PHARE funds to pay for the secondment of officials from EU member states to work in CEE ministries and other parts of the public administration (that is, institutions, professional organizations, agencies, and European and regional bodies). The EU servants worked alongside their CEE counterparts and taught them how to do things the EU way although the advice and expertise offered by the twinning agents was not controlled centrally by the European Union (Lohan 1998; Grabbe 2006, 85–86). By 2001 the twinning instrument covered the whole body of the acquis in all its diversity. During the 1998–2002 period, a total of 684 twinning projects were programmed (European Commission 2002a, 8). The learning process in regard to public interest groups, including business, involved the creation of joint consultative committees on economic and social issues between the European Union and each candidate country. Members of these committees represented, respectively, employers’ organizations, chambers of commerce, trade unions, and organizations of farmers, consumers, and women from both an acceding country and EU member states. The committees were set up to pave the way for enlargement of

Introduction

23

the European Union by promoting dialogue and supporting the professional organizations in acceding countries. Another task was to promote dialogue and cooperation between the economic and social interest groups in the EU member states and those in acceding countries. Membership in European-level business organizations, broad interaction with the respective counterparts from EU member states, and participation in Europeanlevel structures became another important learning component for businesses in accession countries. In addition, a network of Euro-Info Centers was established in each accession country, with the major goal to provide logistical support to the local businesses and help them better prepare for the challenges of EU accession and membership. Furthermore, the EU-level business organizations provided training and educational assistance for the effective participation of business in the process of utilization of EU funds. Training also focused on the development of skills for the creation of partnerships and partnership mechanisms. The learning process thus involved the formation of both purely business networks—domestic and transnational—on capacity-building, as well as mixed ones, comprising business and governance structures from the various levels of the EU multilevel governance system.

Composition: Embeddedness in Organized Civil Society Legal Conditionalities and Financial Aid On the government side, the legal harmonization effort as well as the mechanisms for management of the EU funds clearly endorsed the dominance of the executive vis-à-vis the parliament. The role of parliament in the accession process naturally increased with the opening of accession negotiations, as only the parliament has the authority to change legislation in a way that makes it compliant with the EU common law. However, business lobbying continued to target predominantly the executive rather than the parliamentary commissions, because in the majority of cases the draft laws were submitted to parliament and its commissions in an almost accomplished form. On the business side, legal harmonization and EU financial aid requirements strengthened business as political organization (that is, as organized interests rather than individual companies). Thus the role of business associations vis-à-vis the state increased, both at the national level and the branch level. Individual companies did participate in the accession negotiations as derogations and transition periods referred mostly to individual companies, not to whole sectors. However, business organizations, not individual companies, were the major participants in all working groups on accession. Furthermore, business organizations, not individual companies,

24

Chapter 1

are also the major participants in all programming and monitoring institutions that emerged in response to the utilization of EU funds. Individual companies can participate in the utilization of EU funds with their own projects on a competitive basis. Most important, the legal requirements of EU accession endorsed the embeddedness of the business-government relationship in organized civil society through the system of social dialogue. In the course of its eastern enlargement, the European Union insisted on the broadening of the scope of participants in social dialogue, for the inclusion not only of the organizations of employers and employees but also all other formations that have an economic or a social role. In that regard, an accession requirement was added for the creation of permanent economic and social councils in each candidate country before accession. The idea was to transform the existing forms of tripartism at the national level into broader forums of civic dialogue, by including—in addition to the social partners (employers and labor unions)—other interests from the third sector. Economic and social councils were created in each accession country. They have been modeled on the European Economic and Social Council, as consultative organs representing the views of civil society on the economic and social development of an acceding country. The councils are structured into three groups—employers, employees, and various interests. Their task is to develop opinions on draft laws, national programs, and plans regarding the economic and social development of the country, opinions on legal acts of the national parliaments regarding issues of economic and social development, opinions on strategic issues of the government’s economic and social policy, and annual memorandums and analyses of the economic and social development of the country. In addition to traditional social dialogue and consultations through the Economic and Social Committee, all working groups and consulting bodies over the negotiation chapters comprised not just government and business representatives but also representatives of the wider civil society. The working groups and committees that were further created for consultations over strategic programming documents on national, sectoral, and regional development also included not just government and business but a lot of other civil society organizations. Capacity-Building The capacity-building imperative endorsed the expansion of the businessgovernment relationship to also include actors from the EU level as well as individual actors from EU member states, in a joint effort to prepare business and government for EU membership. The learning process thus strengthened the multilevel governance mechanism, as well as the transna-

Introduction

25

tional business organization. More or less formalized ties emerged between businesses of EU member countries and those of an acceding country. Links also intensified between the supranational, EU-level business organizations such as UNICE (BusinessEurope) and ERT, on the one hand, and national businesses and business organizations on the other. Furthermore, as part of the capacity-building efforts, domestic business organizations developed a new role as facilitators of the adaptation of individual companies (predominantly SMEs) for EU membership. National governments targeted not just businesses in their communication strategies but a wide variety of actors from civil society.

THE BULGARIAN CASE: STRUCTURE OF THE BOOK The remaining chapters of the book trace the level of applicability of this EU-endorsed and accession-shaped model of business-government interaction to one applicant country—Bulgaria. They reveal the level of endorsement of the model and the general attitudes and major difficulties encountered in the course of its application. More specifically, chapter 2 traces the dynamics of the businessgovernment consensus on EU accession in Bulgaria. It reveals high levels of support for the process of European integration and Bulgaria’s accession to the European Union from the political elites, the population at large, and the business community. Despite the existing fears and criticisms over the sensitive issues of European integration, especially the Kozloduy nuclear power plant and the potential closure of many Bulgarian companies from the SME sector, the European perspective retained the importance of a national political consensus and the nationalistic-protectionist sentiments did not lead to Euro-skepticism as a political reality in Bulgaria. Chapter 3 discusses the major trends in the business-government relationship in Bulgaria before the country embarked on an accelerated road of EU accession in the late 1990s and early 2000s. It reveals that before Bulgaria’s active engagement with the EU accession project, the major goal of both business and government was to build a relationship based on the organizational differentiation and independence between them by reducing the considerable dependence of business on the political environment, eliminating illegal and grey economic activities and practices of rentseeking, general improvement of the business environment by reducing the tax and administrative burden, eliminating the existing political-economic conglomerates, and establishing a legitimate and sound businessgovernment relationship. Chapter 4 focuses on the impact of legal conditionalities and legal approximation on the business-government relationship, and reveals the

26

Chapter 1

establishment of business-government partnerships on the elaboration of the national interest in the accession negotiations with the European Union. The chapter also traces the interaction between business and the Bulgarian parliament in the formulation of the national interest. The interaction between business and government is revealed in a greater detail on the basis of a case study of Working Group 22 on the Environment. The chapter further reveals the extent to which individual firms versus business organizations are involved in the working groups, and the technical aspects of business-government tensions. The chapter also demonstrates the embeddedness of the business-government partnership in organized civil society by tracing the creation and functioning of the Economic and Social Council. Chapter 5 deals in a greater detail with one of the most contentious substantive issues of legal approximation—establishment of a favorable and transparent business environment, environmental protection, and food safety and hygiene requirements. It discusses the establishment of businessgovernment partnerships for the reduction of licensing and regulatory regimes, increasing the flexibility of labor markets and whitening of business, the reform of the judiciary, and transparency and the fight against corruption. In terms of the environmental acquis, the chapter discusses the case of the metallurgical industry, with a more detailed look at the adaptation strategies of two companies—Umicore Med, a foreign subsidiary, and the KCM smelter, a domestic company. Business adaptation in the area of food safety and hygiene requirements is demonstrated on the basis of case studies of two companies from the meat-processing sector. Chapter 6 focuses on the challenge of financial aid, and reveals the reinforcement of the partnership principle in the management and control of the pre-accession financial instruments SAPARD, ISPA, and PHARE, as well as in the actors’ preparation for utilization of the EU post-accession financial instruments. The chapter reveals in a greater detail the emergence of four distinct types of partnerships for the utilization of the EU structural and cohesion funds: on strategic programming and planning, for joint management and control of the funds, public-private partnerships for the development of community projects with EU funds, and development of business clusters with the participation of government and other important stakeholders for increasing the international competitiveness of Bulgarian business. Chapter 7 addresses the challenges of the capacity-building imperative, and reveals several major applications of the partnership principle in that area, such as dissemination of the communication strategy of the government and reducing the information barriers on the European Union, the Euro-Info Centers Network in Bulgaria, a variety of partnerships for increasing the competitiveness of Bulgarian companies on the European mar-

Introduction

27

ket, and various transnational capacity-building networks. The chapter reveals a general issue of preparedness of both the state administration and the business community in meeting the challenge of adaptation, adjustment and restructuring for EU accession and membership. Chapter 8 reveals the application of the partnership principle to the business-government relations at the level of municipalities. Several specific forms of partnerships are discussed, such as partnerships on strategic programming and regional development, the Job Opportunities through Business Support Project, public-private partnerships for regional development, and development of regional business clusters for increasing the international competitiveness of local companies. These trends are demonstrated on the basis of detailed case studies of the business-government relationship in the municipalities of Sofia and Sandanski. And, finally, chapter 9 draws conclusions about the general Europeanization trends in the business-government relationship in Bulgaria, and examines the level of efficiency of this relationship in achieving the national goal of EU accession.

NOTES 1. The Hungarian economist Janos Kornai identifies a set of mechanisms in the socialist economy, all of which lead to a softening of a firm’s budget constraints: (1) soft subsidies mean that firms operate in an environment in which they expect that negotiations with planning authorities will yield additional funds; (2) soft taxation indicates that bargaining can reduce tax burdens for specific firms or industries; (3) soft credit denotes firms’ abilities to plead with the state bank for additional loans or alter the terms of existing debt; and (4) soft administrative pricing refers to the practice of altering administratively set prices to provide funds to a given branch of industry or producer of a specific good. These practices are a matter of degree but together they point to an environment in which firms tend not to be responsive to price shifts nor are they profit maximizers. In Kornai’s classical theory, the main “softening” action is a two-step process: in step 1, the firm has a fixed budget and a target quantity of output; in step 2, the firm overspends the budget—using a greater quantity of inputs or excessive labor (costs)—and the state clears the debts through a subsidy or budget reconciliation. 2. See, for example, the Web pages of BusinessEurope, the Confederation of European Business (www.businesseurope.eu/Content/Default.asp), and ERT, the European Roundtable of Industrialists (www.ert.be/home.aspx)—the two major business formations at the EU level. 3. In this study we understand institutions to be the structures that human beings impose on their interactions, or as coherent systems of shared (enforced) norms and rules that regulate individual interactions in recurrent situations. They comprise formal rules and informal constraints. The formal rules refer to legislation, court decisions, and regulations of the executive and various regulatory agencies.

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Formalized institutions provide written norms and procedures prescribing behavior. The informal constraints are norms of behavior, conventions, and self-imposed codes of conduct that are combined with the enforcement characteristics of both. Informal aspects of institutions usually encompass informal collective understandings and beliefs, and informal networks among executives and interest groups (March and Olsen 1989; Sjöstrand 1993, 9; North 1993, 36). 4. Schimmelfennig and Sedelmeier made an attempt to differentiate these influences by distinguishing two main contexts of Europeanization in CEE countries: democratic conditionality and acquis conditionality. Democratic conditionality refers to transition pressures concerning the general EU rules of liberal democracy applied in the very first years of postcommunist transformation. Acquis conditionality refers to EU accession pressures applied at a later stage, when enlargement became a goal of the European Union, roughly from 1995 onward (Schimmelfennig and Sedelmeier 2005c, 211–212). 5. Some observers see the speed and scope of transformation as strongly correlated with successful preparation for accession. The more a country is advanced in liberalization, efficient privatization, restructuring, and international competitiveness, the better it is able to face the challenges of adjustment to conditions of EU membership (Inotai 1999a, 3). Others tend to assume consecutive processes, and to view integration as the crowning moment, the final stage of the economic and political transformation of CEE applicants for EU membership—not merely a process of adapting to external conditions (Kolarska-Bobinska 1999). Still others point to existing tensions between the transformation of the political, economic, and social structures and the process of integration with the European Union. Membership in the European Union (together with NATO membership) became the primary goal of the postcommunist transforming countries, which put much pressure on the institutional and organizational capacities and value orientations of potential new members (Widmaier 1999). 6. During state socialism, more than that of any other nation in the Soviet Bloc, Bulgaria’s economy was patterned closely after the Soviet system, with a massive heavy-industry sector, huge agro-industrial complexes, and ever-increasing urban concentrations and depopulation of the countryside (McIntyre 1988). Observers called it the “most Soviet” of the Eastern European states (Pickles et al. 1998). 7. First, Europeanization is considered to be a process taking place when the European Union expands its boundaries through enlargement and it concerns third countries or applicants for EU membership. Second, Europeanization is understood as the adaptation of national and subnational systems of governance of member states to a European political center and Europe-wide norms. Third, Europeanization is regarded as the development of institutions of governance at the European level. Fourth, the term Europeanization has been used to point to exporting forms of political organization and governance that are typical and distinct for Europe beyond the European territory. And, finally, Europeanization is regarded as a political project aiming at a unified and politically stronger Europe (Olsen 2002). Another definition is offered by Schimmelfennig and Sedelmeier, who regard Europeanization as a process of rule adoption (a process in which states adopt EU rules) (Schimmelfennig and Sedelmeier 2005b, 7).

Introduction

29

8. Similarly, H. Grabbe describes five categories of mechanisms that effect change through EU conditionality: (1) models: provision of legislative and institutional templates; (2) money: aid and technical assistance; (3) benchmarking and monitoring; (4) advice and twinning; and (5) gatekeeping: access to negotiations and further stages in the accession process (Grabbe 2006, 76–89). 9. For details on the statist perspective, see more in Zysman 1983; Johnson 1982; Dyson and Wilks 1983; Wilks and Wright 1987. 10. See Winters 1994, 1996; Cohen 1996; and Haggard, Lee, and Maxfield 1993 for full reviews of the literature on business as capital. It is important to note in this regard the structural aspects of business power. Authors such as Lindblom (1977) stress that business leaders are not just another interest group; in market societies they dispose of real power because they have been entrusted with the power to decide whether and where to invest in the new processes that are vital to the future prosperity of the whole community. If business leaders feel that the conditions are not right for investment, then that investment will not be made (Wilson 1990, 11). States compete with each other to attract industry by having the lowest corporate taxes and by creating a favorable business environment in other ways. 11. On the rising role of firms in business-government relations, see Grant 1987 and Cowles 2001. 12. Typically EU conditionality is seen as a formal instrument for the transposition of EU rules, norms and institutional templates to the CEE countries. Hughes et al. developed a process-based model of conditionality; they define conditionality by the process of its application rather than by an ideal-type assumed power relationship, typical for the conventional model of conditionality. According to their model, conditionality is the interaction between multilevel actors, perceptions, interests, different rewards and sanctions, temporal factors, and institutional and policy compliance (Hughes et al. 2004). 13. European Council in Copenhagen, June 21–23, 1993, cf. Conclusions of the Presidency, SN 180/93, 13. 14. In their influential book Transforming Europe: Europeanization and Domestic Change, Cowles, Caporaso, and Risse, for example, understand Europeanization as the emergence and the development at the European level of distinct structures of governance, that is, of political, legal, and social institutions associated with political problem solving that formalize interactions among the actors, and of policy networks specializing in the creation of authoritative European rules. Political institutionalization involves the development of formal and informal rules, procedures, norms, and practices governing politics at the European, national, and subnational levels (Cowles et al. 2001, 3). 15. As some authors have noted, for member states it is hard to even speak of levels in a system in which European and domestic influences are so thoroughly melded (Risse et al. 2001, 2; Rometsch and Wessels 1996). 16. The twenty-four were the EU-15 and the United States, Canada, Australia, Turkey, New Zealand, Switzerland, Japan, Norway, and Iceland.

2 Dynamics of the BusinessGovernment Consensus on EU Accession in Bulgaria

European integration has become the common confession and commitment of almost all political and societal groups in the CEE region. There was a widespread support for accession from the business community as well (Inotai 1999b). Domestic businesses have not seen any viable alternative to EU membership, while foreign investors in the region have based their investment strategies on the assumption of quick integration with the European Union. The “return to Europe” movement was based on a vision of Europe as an anchor of security and democracy. Another strong incentive for joining the European Union, as emphasized by the literature on accession, was financial aid and modernization assistance from the European Union, as well as increased trading opportunities from unrestricted access to a larger market. Initially the existing arguments on Europe in the domestic policy-making process overemphasized and overestimated the positive economic incentives and financial benefits from joining the European Union. On the cost side, as several researchers have noted, the potential negative implications of accession for the fragile transitional economies and business in particular were overlooked or deliberately underestimated (Inotai 1994; Csaba 1996; Kawecka-Wyrzykowska 1996). In the second half of the 1990s, with the fading away of the idea of an easy and quick “return to Europe,” and as negotiations with the European Union on accession had reached the most sensitive issues such as agriculture, the environment, transportation, and free movement of labor, the domestic actors have been forced to deal with the European issues more closely and more professionally. The contours of arguments in favor and against accession have become much clearer in 31

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party politics and in the public debates of organized interests, especially business (Agh 1996a, 18; Inotai 1999a). Bulgaria clearly demonstrates these common trends in the political and public consensus on Europe.

DYNAMICS OF THE BULGARIAN POLITICAL CONSENSUS ON EUROPE Bulgaria’s integration in the European Union was assigned a central place among the country’s foreign policy priorities beginning in 1989, and was not politically disputed until the end of 1997. All major political parties represented in Parliament at that time—the Union of Democratic Forces (UDF), the People’s Union (PU),1 the Bulgarian Socialist Party (BSP), the Movement for Rights and Freedoms (MRF),2 the Bulgarian Euro-Left (BEL),3 and the Bulgarian Business Bloc (BBB)—were in favor of the country’s accession to the European Union. Only some marginal political parties on the extreme left (the Bulgarian Communist Party, and the Committee for the Protection of National Interests) and the extreme right (the Bulgarian National-Radical Party) were against European integration for the country. The Bulgarian parliament’s decision of December 22, 1990, declared the willingness of the country to become a full member of the European Union and to undertake the necessary initiatives toward the achievement of this goal. The ratification of the Europe Agreement on April 15, 1993, was unanimous (214 votes in favor, 0 against, and 0 abstentions at second reading) (Shikova and Nikolov 1999, 10–11). As the discussions over the Europe Agreement demonstrated, the Bulgarian parliamentary consensus was based on purely political and security arguments. Specifically, proponents argued that it was in the nation’s interest to ratify the basic principles of democracy, human rights, and the rule of law, as well as the common European values shared by EC member states and Bulgaria; to obtain the national security guarantees provided by the agreement; and to take advantage of opportunities opened up by the agreement for Bulgaria to become part of the European economic space. At the same time, several controversial points emerged in the debates. For example, parliament members argued that the opening of Bulgarian markets to foreign competition, which the agreement entailed, would deliver a much greater shock to the Bulgarian economy than had the collapse of COMECON. Furthermore, the agreement did not establish free movement of people. Liberalization of trade in some of Bulgaria’s most competitive sectors, such as wines and textiles, had encountered great difficulties and was left for an additional agreement. The restrictive way in which agriculture was treated in the Europe Agreement provoked additional serious con-

Dynamics of the Business-Government Consensus on EU Accession in Bulgaria

33

cerns among farmers and the society at large (Shikova and Nikolov 1999, 10–11). The parliamentary vote on December 1, 1995, on Bulgaria’s application for EU membership was also unanimous (213 in favor, 1 against, and 0 abstentions). It reflected the existing broad national consensus on EU accession not only in the area of politics and security, but also in regard to the main parameters of the economic reform. To a large extent, the consensus on the basic areas of economic policy and the economic parameters of accession was achieved on the basis of the currency board arrangement (established in 1997) and the three-year agreement concluded in September 1998 between Bulgaria and the IMF.4 At the end of 1997 a new, more critical political debate emerged in Bulgaria regarding European integration issues. It was provoked by the accelerated accession process, and more particularly by the recommendation of the European Commission, in its July 1997 “Agenda 2000” document, to start accession negotiations with only five of the ten applicants from CEE, assigning Bulgaria to the “slow-track” group. An equal start was supported by virtually all political parties in Bulgaria at all stages of discussion with EU representatives in 1995/1996.5 After the European Commission’s 1997 conclusion that Bulgaria was not prepared to start accession negotiations with the European Union, the national political consensus on “Europe” weakened. Some called this malaise “Euro-fatigue” (Krasimirov 1998, 12), while others referred to it as a “negative consensus” (Mezhdunarodni otnoshenia 1998, 39). It is important to note, however, that the pre-1998 consensus on European integration was not a really meaningful consensus but “only a consensus in principle,” “formal,” “verbal,” and “declaratory” one—in other words, a shared view that was not based on a realistic perception and understanding of what EU membership meant (Mezhdunarodni otnoshenia 1998, 5–55). The period before 1997 was one of relative inaction; the hard work really started only after 1997. In 1998, the Kostov government became increasingly criticized over issues directly related to European integration, especially by the Euro-Left. Criticism focused on the concentration of power and responsibilities in the hands of the central government administration vis-à-vis the parliament, local governments, or private businesses. The slow pace of adoption and implementation of the acquis communautaire produced further dissatisfaction with the government’s European integration policy. Increasingly, the debates and criticisms over European integration policy reflected the evolving structural transformation of the Bulgarian political system along the divides characteristic for the European political model. Thus all Bulgarian political parties underwent a process of identifying and aligning with their western European counterparts—in individual member states and European party formations (Shikova and Nikolov 1999, 25).

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With the advancement of the accession process, especially after the opening of accession negotiations in February 2000, the debates over European integration intensified. They evolved around the sensitive issues of negotiations, such as the competitiveness of the Bulgarian economy in the single European market, the financial burden of the environmental acquis, health and safety at work, and food safety, among others. Most of these issues concerned the business community and are discussed in a separate chapter of this book (chapter 5). The issue that provoked the biggest nationalist protectionist tendencies among the Bulgarian political elites per se was the case of the Kozloduy nuclear power plant. The plant is the largest electricity producer in Bulgaria. It was plugged into the electricity network of the country in 1974, and generates around 45 percent of the country’s electrical energy. The energy satisfies not only the domestic market but is also exported to other Balkan countries. The power plant had six nuclear reactors, of which units 1–4 were of the oldest type of Soviet-designed pressurized water reactors. The European Commission insisted on the closure of the four non-upgradeable reactors at the earliest practicable dates. The main concern was of a possible incident— an environmental nuclear disaster similar to Chernobyl—that would affect the whole region. Closure of the reactors became a sensitive issue in Bulgaria, as any shutdown was likely to worsen the capacity of the Bulgarian economy to satisfy the country’s domestic needs, and would raise electricity prices for impoverished Bulgarians. Many politicians voiced the argument that reducing the Bulgarian energy production with 30 percent would slow considerably the economic development of the country. In the parliamentary control session of the National Assembly on February 21, 1998, the Bulgarian vice premier Evgeni Bakurdjiev announced that the government was not planning to close units 1–4 before the end of their designed lifetime (2005, 2012). Some members of Parliament even voiced concerns that mostly Western commercial, rather than environmental, interests stood behind the pressures for the decommissioning of the old reactors. However, in November 1999 the Kostov government signed a Memorandum of Understanding with the European Commission over the future of Kozloduy. In the memorandum, the Bulgarian side agreed to definitively close the non-upgradeable Kozloduy blocks 1 and 2 before the year 2003, and units 3 and 4 earlier than their scheduled end of life, in response to the EU insistence that they could not be upgraded to acceptable safety levels. The EC pledged a multi-year financial aid package for maintaining the competitiveness of Bulgaria’s energy sector after the decommissioning of those blocks. With the closing date for units 1 and 2 approaching (end of 2002), the political debates over Kozloduy further intensified. Because there was no al-

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35

ternative to Kozloduy in sight, Bulgaria’s politicians—regardless of their party affiliation—supported the extension of the lifespan of all blocks as long as possible. The population lined with the politicians as the latter had convinced them that Kozloduy was the only producer of clean and, what was more important, inexpensive energy in the country.6 The peak of the drama around units 3 and 4 of Kozloduy started at the end of September 2002, when Foreign Minister Passi, European Integration Minister Kuneva, and Energy Minister Kovachev argued publicly for the first time that Bulgaria should commit to the closure of the two reactors in 2006 according to the EC request, but only under the condition for a joint examination of their safety. The ministers further argued that based on the results of that examination, Bulgaria could demand the renegotiation of the closure date for the two reactors, and an overall change in the EC position. The government adopted a decision for that on October 1, 2002. The decision, however, was criticized by the Union of Democratic Forces, the Bulgarian Socialist Party, and President Parvanov, and shattered the consensus on accession among Bulgarian politicians. A focused debate over the Kozloduy nuclear power plant took place in parliament on October 2, 2002. On that day, the parliament unanimously adopted a decision that reactors 3 and 4 of the Kozloduy plant should not be decommissioned before Bulgaria achieved full membership in the European Union. With this decision the parliament actually revised the government position about the closure of the two blocks in 2006, as envisioned by the 1999 memorandum with the EC. On the next day after the unanimous adoption of the parliamentary decision on Kozloduy, the political consensus on Europe disappeared. The ruling coalition government of the National Movement Simeon II and the Movement for Rights and Freedoms argued that there were no substantial differences between the parliament’s decision and the government’s own stance. UDF, on the other hand, declared that it would initiate a noconfidence vote against the government if the latter did not revise its decision in accordance with the parliamentary decision. The Socialist Party threatened to attack the government position in court. On October 4, 2002, the Socialist Party appealed in court—the Supreme Administrative Court—and asked that the court ruled out the government decision as illegitimate. Bulgarian President Georgi Parvanov also supported the parliament decision. In November 2002, the UDF proceeded with the initiation in parliament of a no-confidence vote against the government. Three days later the same was done by the BSP. The UDF attacked the cabinet on the grounds that the latter, by not fulfilling the parliamentary decision of October 2, 2002, was in violation of the constitution. The BSP was concerned with consequent electricity price hikes and the introduction of a regime for electricity blackout if the two reactors were closed in 2006. On November 28, 2002, the

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Bulgarian government survived two parliamentary no-confidence votes. The ruling coalition defeated the two motions with 134 votes and 132 votes, respectively, while one hundred opposition deputies backed the former and ninety-eight backed the latter. Bulgaria thus agreed to close reactors 3 and 4 of its only Soviet-era Kozloduy nuclear plant by 2006. The concrete commitment about the closure of reactors 3 and 4 of the nuclear power plant by the end of 2006 was the signal that Brussels waited for to go ahead and adopt a concrete date for Bulgaria’s accession to the European Union—the year 2007—at the Copenhagen summit in December 2002.

BUSINESS AND THE PUBLIC AT LARGE ON EUROPE High consensus on EU accession was also characteristic for the Bulgarian public at large. Public approval for Bulgaria’s EU entry was at 50 percent in 1997, three percentage points higher than it had been in 1990. In 2000, according to a survey conducted by the MBMD Institute for Marketing and Social Surveys, 72 percent of the Bulgarian public assessed the opening of accession negotiations with the European Union in a positive way, while the negative assessment was only 13 percent. Asked about the impact of accession on Bulgaria’s development, 71 percent of respondents viewed it as positive, while 12 percent thought that the impact would be negative.7 According to surveys conducted by BBSS Gallup International Bulgaria, even in the later years of the accession process (between 2001 and 2003), the supporters of Bulgaria’s accession to the European Union varied between 67 percent and 74 percent, while the opponents were about 5–11 percent, and could be found only among those who were least integrated in society (Georgiev 2004). While public support for EU membership continued to be very high in Bulgaria, the surveys clearly showed that it was at the same time rather abstract. Public debate on European integration was weak and superficial, focusing mainly on Bulgaria’s candidacy for EU membership, not on the future membership and the ensuing commitments of the country. Citizens were not aware of many of the real problems stemming from actual membership. The surveys also revealed that Bulgarians were not particularly concerned with the prospect of any loss of national sovereignty in a united Europe—a concern that as a rule generates Euro-skepticism everywhere. The confidence that Bulgarians had in the EU institutions by far exceeded their confidence in the Bulgarian institutions (see table 2.1). Any restriction of national sovereignty, which by default is restriction of the powers of the national institutions such as the parliament, the government, the courts, and the prosecutors’ offices, was not regarded as a threat or a problem.

Dynamics of the Business-Government Consensus on EU Accession in Bulgaria

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Table 2.1. Public Confidence in Bulgarian and International Institutions (% approval)

Domestic and International Institutions Parliament Central government Local government Prosecutors Courts Police President Armed forces Banking system Currency board EU NATO

March 2001

March 2002

March 2003

March 2004

15 19 37 16 17 33 56 49 26 31 46 —

18 26 35 16 16 43 50 52 29 32 50 41

14 17 30 13 13 43 51 43 28 27 54 37

15 19 40 17 16 45 60 51 34 28 55 42

Source: Data from BBSS Gallup International Bulgaria.

More specifically, according to public opinion polls,8 the signing of Bulgaria’s Accession Treaty on April 25, 2005, provoked feelings of joy and optimism among 48.8 percent of the Bulgarian population. One-third was indifferent to that event, and only 11 percent of all surveyed were feeling doubts, pessimism, and fears from Bulgaria’s entry into the European Union. The enthusiasm was bigger among men, people with higher education, citizens of big cities, people with higher incomes, and people of up to thirty-nine years of age (Oncheva 2005). A year later, in May 2006, on the eve of Bulgaria’s EU membership, 66 percent of the Bulgarian population approved of Bulgaria’s accession.9 The process of EU accession was assessed realistically, with estimates of both benefits and challenges.10 While the attitudes of the Bulgarian public at large toward EU accession were relatively well-known and documented by numerous public opinion polls, the attitudes of businesses as one segment of civil society were an almost unexplored area. For the first time in 2004, the UNDP-sponsored monthly edition Bulgaria Beyond Facts started monitoring the attitudes of small and medium-sized businesses vis-à-vis EU integration by conducting nationwide surveys of SMEs through BBSS Gallup International Bulgaria. The initial data—covering a sample of four hundred companies—indicated a very high support for accession to the European Union among the Bulgarian SMEs (87 percent), higher than among Bulgarians in general (67 percent) (UNDP 2004b). The SMEs saw the major benefits of EU accession in the area of economic growth (47 percent of surveyed companies). The most frequent benefits

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mentioned were “more foreign investment” (19 percent), and “access to external markets” (17 percent). The major risks were also seen in the economy (according to 49 percent of companies). Bulgarian SMEs were mainly concerned with increased competition on the domestic market, and on foreign markets just as well. In brief, the survey found out that the Bulgarian business community perceived economic risks and benefits of EU accession as balanced. Moreover, quite realistically, businesses saw EU integration as a factor for serious change of the economic environment in Bulgaria (UNDP 2004b, 8). Two parallel surveys targeting the attitudes of Bulgarian citizens in general and the business community in particular were designed by the author in collaboration with the MBMD Institute for Marketing and Social Surveys, and conducted in the period November 2004–January 2005. The first survey was nationally representative for all Bulgarian citizens who were at the age of eighteen years or more, and covered 1,216 citizens. Of all these respondents, 5.3 percent were employers, freelancers, selfemployed, top management cadres, or farmers; 1.9 percent—managers; 11.6 percent—employees/staff; 26.8 percent—workers; 5.3 percent— students; 17.3 percent—unemployed; 2.6 percent—housewives; and 29.1 percent—retired. Hereafter this survey will be called the MBMD Citizens’ Survey ’05. The second survey covered 292 firms and was nationally representative in terms of industry/sector and size of enterprise (number of employees). The distribution of respondents among subcategories was as follows: 11.6 percent—owners; 48.3 percent—presidents of managing boards; 15.4 percent—CEOs; 4.8 percent—vice presidents of boards; 13.7 percent—economic directors; and 4.8 percent—directors of sales departments. Hereafter this survey will be called the MBMD Business Survey ’05. The method of data collection for both surveys was a direct semistandardized interview, conducted with citizens in their homes, or with owners/employers and managers. The following subsections are based on these two surveys and reveal a more detailed picture of the general attitudes toward EU accession and expectations from EU membership among the Bulgarian business community. General Vision of the European Union and Attitudes Toward Bulgaria’s Accession to the European Union The MBMD surveys showed that two different perceptions of Europe were mixed: on the one hand, Europe as a symbol of civilization, democracy, and humanity; on the other, Europe as a perception of a new demanding reality—economic, political, and administrative—that has emerged after the end of World War II. The surveys further showed clearly that the symbolic, idealized perception of the European Union was eroding, while the

Dynamics of the Business-Government Consensus on EU Accession in Bulgaria

39

challenging or negative one had not gained impetus and mass support, and had not grown into Euro-skepticism. As table 2.2 indicates, the positive vision of Europe was perceived predominantly in general/neutral terms by the surveyed population at large (34 percent), rather than in beneficial terms (personal or for Bulgaria—24 percent). Only 6 percent of the respondents had a negative vision of Europe. Those distributions were higher for the business segment of the polled population. Thus the general/neutral positive vision of the European Union was higher among owners/employers and freelancers (41 percent), and even higher among managers (77 percent). The managers were least inclined to think of the European Union in beneficial terms (16 percent), compared with owners/employers (29 percent) and the population at large (24 percent). At the same time the Bulgarian owners/employers and freelancers expressed higher negative perceptions of the European Union (10 percent), compared with the average for the population at large (6 percent) and for managers (also 6 percent). The MBMD Citizens’ Survey ’05 also revealed that 71 percent of the surveyed population expressed positive attitudes toward Bulgaria’s membership in the European Union and approval for the accession process. Only 15 percent of the respondents were against Bulgaria’s membership in the European Union. At the same time about 11 percent of the respondents declared that the question of Bulgaria’s membership in the European Union was not of interest to them. Among the business community, the general approval rate of EU accession was much higher—86 percent for owners/employers and those with freelance professions, and 99 percent for managers. The disapproval rate was 11 percent and 1 percent, respectively. The MBMD Business Survey ’05 confirmed that trend. Thus among the surveyed business representatives the positive attitude toward Bulgaria’s accession to the European Union was dominant—86 percent supported the efforts in that direction, and more than half (58 percent) fully approved the process. Those who disapproved of Bulgaria’s accession to the European Union were only about one-tenth (11 percent). The non-engagement with the European idea among the public at large was more common among the low-status social groups such as retired people, unemployed, people with low educational levels, and ethnic minorities, as well as among women, the elderly, and the citizens of small towns and villages. Support for European integration was much higher among the younger people, people with higher education, the citizens of bigger cities, and people with higher social status. Overall, the socio-demographic characteristics of respondents had a direct impact on their attitudes toward Bulgaria’s membership in the European Union. Those social groups had fears that they did not possess the necessary qualities and characteristics to find their own place in the changing situation.

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Table 2.2. What is the meaning of the EU for you personally? (% of surveyed respondents)

Business

All citizens

Employers/ owners, freelancers

Managers

Positive general/neutral Union of the peoples in Europe Security Higher incomes Democracy, order, justice Financial stability Better future for the world Mutual economic assistance Development of culture Planning and coordination of the economy

34.2% 14.9% 4.7% 4.5% 4.2% 2.7% 1.4% 1.3% 0.3% 0.2%

41.0% 13.0% 2.0% 3.0% 9.0% 7.0% 0.0% 5.0% 0.0% 2.0%

77.0% 25.0% 2.0% 14.0% 15.0% 19.0% 2.0% 0.0% 0.0% 0.0%

Positive beneficial (personal or for Bulgaria) Better chances for personal realization Hope for Bulgaria Important alliance, useful for Bulgaria Better life Better future for the young people

23.9%

29.0%

16.0%

7.1%

7.0%

6.0%

6.6% 5.7%

8.0% 10.0%

8.0% 2.0%

3.6% 0.9%

4.0% 0.0%

0.0% 0.0%

6.2% 2.2% 1.7% 0.7% 0.5% 0.5% 0.4% 0.2%

10.0% 5.0% 3.0% 1.0% 0.0% 0.0% 1.0% 0.0%

6.0% 0.0% 2.0% 0.0% 0.0% 4.0% 0.0% 0.0%

37.7%

21.0%

5.0%

Negative Taking more responsibilities Low incomes and difficult life Enslaving of Bulgaria Alliance of the rich Restrictions Something like COMECON Danger from terrorists No answer Source: MBMD Citizens’ Survey ’05.

In terms of the business community, the size of the firm had a visible impact over the attitude of business toward Bulgaria’s membership in the European Union (see figure 2.1). Thus the highest share of supporters of integration (94 percent), and the lowest share of opponents to integration (3 percent) were to be found, respectively, among the representatives of big companies (those with more than 250 employees). The supporters decreased in

Dynamics of the Business-Government Consensus on EU Accession in Bulgaria

41

the next groups, and were with twenty points less (74 percent) among the representatives of micro-enterprises (with up to five people personnel) compared with the big firms. At the same time the opponents to integration among micro-enterprises were eight times more, or one-fifth (24 percent). The negative and indifferent attitudes toward Bulgaria’s membership in the European Union were also rooted in the perception of the effects of accession through the lenses of personal interests. There was a common thinking: “EU membership is a good thing, but what is its importance for me personally?” The MBMD surveys showed that Bulgaria’s accession to the European Union was perceived in a more general and abstract plan, referring to a greater extent to the country as a whole rather than the individual. While 71 percent of respondents generally approved of accession, less people (63 percent) declared that accession was important to them personally. A similar trend was characteristic for the business community—while 86 percent of employers/owners and freelancers approved of EU membership, less (79 percent) declared that accession was important to them personally. The managers showed the greatest optimism and personal engagement with EU membership, compared with both the population at large and the group of owners/employers and freelancers. Thus, while 99 percent of the surveyed managers approved of Bulgaria’s entry in the European Union, almost the same percentage (95 percent) declared that EU membership was important to them personally.

Figure 2.1.

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Similarly, table 2.3 shows the perception of the personal impact of EU accession on the respondents. It reveals that among the public at large, only 28 percent saw themselves as winners of the process of accession to the European Union, while 11 percent perceived themselves as losers. For 51 percent of the population the personal impact of accession would not be significant. The business community as a whole saw EU accession as more personally beneficial. Thus 40 percent of the owners/employers and freelancers and 28 percent of the managers perceived themselves as winners of EU integration. At the same time a higher percentage of owners (14 percent) saw themselves as losers, compared with managers (only 5 percent). Obviously the higher responsibilities stemming from personal ownership of a business establishment acted as a restraining factor for the positive perceptions of EU accession. Advantages and Disadvantages, Costs and Benefits of EU Membership The majority of Bulgarian citizens (57 percent) thought that the benefits of Bulgaria’s accession to the European Union would be more than the accompanying restrictions and responsibilities. Almost one-third (31 percent) of the respondents realized that Bulgaria’s accession to the European Union would lead to responsibilities and restrictions, which would be more than the anticipated advantages of membership. At the same time this opinion did not necessarily lead to rejection of accession per se—more of those who shared it (47 percent) were for European integration anyway, compared with those who were against it (41 percent). Obviously a considerable part of Bulgarian citizens were inclined to accept restrictions in regard to Bulgaria’s membership in the European Union as necessary. That was due to a considerable extent to the widely held opinion that Bulgaria’s membership in the European Union would accelerate the resolution of national problems. The MBMD Business Survey ’05 revealed that, compared with the population at large, Bulgarian businesses had higher expectations for positive

Table 2.3. What will be the impact of Bulgaria’s accession to the EU for you personally?

Business

I will win No significant impact I will lose No response

All citizens

Employers/owners, freelancers

Managers

28.0% 50.9% 11.0% 10.1%

40% 42% 14% 4%

28% 63% 5% 4%

Source: MBMD Citizens’ Survey ’05.

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43

changes both for the country as a whole, as well as for their individual companies. Thus three-fourths (78 percent) of the respondents—company leaders—held the opinion that European integration would bring more benefits than restrictions to the country. Generally, the hopes with EU membership were centered on the improvement of the situation in spheres that affected directly human rights and the satisfaction of basic human necessities (see table 2.4). Thus twothirds (67 percent) of the interviewed pointed that there would be a positive change in regard to the protection of human rights. There were also high expectations in regard to the personal, domestic, and national security, work conditions and the opportunities for work, the protection of consumer rights, and the overall business climate in the country. In contrast, the share of respondents with optimistic expectations about the improvement of economic conditions of small and poor regions, and of small and medium-sized enterprises, was two times lower. Thus, 19 percent thought that the conditions of small and poor regions would worsen, and the pessimistic views were even higher in regard to the SMEs—more than one-fourth (27 percent) thought that the conditions of SMEs would worsen after Bulgaria’s accession to the European Union. The pessimism in regard to small regions and SMEs was surprisingly high, given the fact that both spheres are a priority policy for the European Union. As the surveys revealed, the negative expectations were mostly due to lack of information on the EU policies in these spheres. The pessimism was also based on the everyday experience and observations of people in their residences and workplaces. As a whole, more pessimists in regard to the fate of SMEs and small and poor regions after accession were to be found among the groups of those who rejected European integration and Bulgaria’s accession to the European Union. In regard to the business sector in general, the major worries were that with the opening of markets the Bulgarian firms would not be able to compete with west European firms—that was the view of 39 percent of respondents, while less (36 percent) thought that the Bulgarian SMEs would be competing successfully on the single European market (see table 2.5). The pessimistic views in regard to the competitiveness of Bulgarian companies were in sharp contrast to the opinions on the quality of workforce in Bulgaria. Thus, more than two-thirds (71 percent) of respondents thought that the Bulgarian workforce was of the same quality as that of EU member states’ employees. The Bulgarian citizens’ assessment of the negative problems of businesses in Bulgaria was based on other business characteristics, such as technological and technical base, assets, organization of work, and others. In terms of perception and approval of the EU common policies, the surveys showed some distinct protectionist and nationalistic sentiments. Thus

Table 2.4. What are your expectations for each of the following spheres after Bulgaria’s accession to the EU?

Business All citizens

Employers/owners, freelancers

Managers

Business climate in the country Will improve No change Will worsen Cannot say/No opinion

54.8% 16.1% 10.0% 19.2%

63.0% 16.0% 13.0%

90.0% 6.0% 4.0%

Living standards in the country Will increase No change Will decrease Cannot say/No opinion

46.3% 24.2% 16.2% 13.3%

56.0% 19.0% 20.0% 4.0%

83.0% 16.0% 1.0% 0.0%

Economic conditions of small and poor regions Will improve No change Will worsen Cannot say/No opinion

36.4% 28.4% 18.6% 16.6%

47.0% 32.0% 17.0% 4.0%

42.0% 36.0% 17.0% 5.0%

Economic conditions of SMEs Will improve No change Will worsen Cannot say/No opinion

30.6% 23.8% 27.3% 18.4%

31.0% 26.0% 35.0% 8.0%

31.0% 23.0% 36.0% 10.0%

Work conditions Will improve No change Will worsen Cannot say/No opinion

60.6% 19.2% 5.0% 15.2%

84.0% 9.0% 2.0% 6.0%

88% 7.0% 0.0% 4.0%

Protection of the rights of consumers Will improve No change Will worsen Cannot say/No opinion

60.6% 17.1% 3.7% 18.6%

82.0% 7.0% 2.0% 9.0%

84.0% 16.0% 0.0% 0.0%

Protection of human rights Will improve No change Will worsen Cannot say/No opinion

67.4% 15.0% 2.4% 15.1%

73.0% 16.0% 0.0% 11.0%

84.0% 13.0% 3.0% 0.0%

National security Will improve No change Will worsen Cannot say/No opinion

59.4% 19.7% 5.9% 15.0%

69.0% 23.0% 5.0% 3.0%

78.0% 18.0% 0.0% 4.0%

Dynamics of the Business-Government Consensus on EU Accession in Bulgaria

45

Business All citizens

Employers/owners, freelancers

Managers

Fight with crime Will improve No change Will worsen Cannot say/No opinion

56.9% 26.8% 5.4% 10.8%

65.0% 29.0% 2.0% 4.0%

78.0% 22.0% 0.0% 0.0%

Order and abiding by the rules Will improve No change Will worsen Cannot say/No opinion

63.6% 17.1% 3.9% 15.3%

78.0% 10.0% 3.0% 9.0%

75.0% 17.0% 0.0% 7.0%

Personal feelings of security for tomorrow Will improve No change Will worsen Cannot say/No opinion

47.7% 27.5% 10.1% 14.8%

63.0% 17.0% 7.0% 13.0%

66.0% 17.0% 7.0% 9.0%

Source: MBMD Citizens’ Survey ’05.

the majority of the interviewed citizens in general (41 percent) did not agree with the supremacy of the EU common law over the Bulgarian national legislation. Also, more than half (53 percent) did not agree with the possibility for citizens of the European Union to have the right to buy Bulgarian land. At the same time, the euro as the common European currency was well received by the Bulgarians—63 percent of the surveyed citizens approved of it. The approval rate for the euro was even higher among the business community—78 percent of the owners and freelancers, and 84 percent of the managers approved of it. Half of the respondents (51 percent) also approved of the common security policy of the EU member states. Less approval was given to the common foreign policy of the European Union— 44 percent. Around one-third of the Bulgarian people supported the adoption of an EU constitution, and the adoption of school subjects on the European Union. For the business community in general, the approval rate of all those policies was considerably higher compared with the average approval rate of the Bulgarian population at large. Winners and Losers of EU Integration The MBMD Citizens’ Survey ’05 revealed a widely held view that Bulgaria’s accession to the European Union would not have any direct impact on the life of the individual. Half of the respondents (51 percent) declared that

Table 2.5. Regarding Bulgaria’s membership in the EU, do you rather agree or disagree with each of the following statements?

Business All citizens

Employers/owners, freelancers

Bulgarian companies will manage with the competition in the single European market I rather agree I rather disagree No opinion

36.3% 39.0% 24.7%

42% 46% 12%

46% 45% 10%

As a quality of workforce, Bulgarians are like the EU citizens I rather agree I rather disagree No opinion

70.9% 15.4% 13.7%

66% 31% 3%

70% 27% 3%

All restrictions for the import of goods from the EU have to be dropped, and markets with the EU have to be opened I rather agree I rather disagree No opinion

67.4% 15.8% 16.7%

68% 23% 9%

72% 25% 3%

Bulgaria will become a leading factor in the Balkans I rather agree I rather disagree No opinion

29.7% 44.4% 25.9%

31% 50% 19%

35% 47% 17%

Bulgarians will lose national identity I rather agree I rather disagree No opinion

25.2% 52.6% 22.2%

31% 61% 7%

21% 72% 7%

Bulgarians will be on an equal basis with the rest of the Europeans I rather agree I rather disagree No opinion

42.3% 38.8% 18.8%

46% 45% 9%

67% 30% 3%

The European common law should have superiority over the Bulgarian national law I rather agree I rather disagree No opinion

34.0% 40.8% 25.2%

43% 51% 5%

48% 33% 19%

Foreigners from the EU should have the right to buy Bulgarian land I rather agree I rather disagree No opinion

32.0% 53.1% 14.8%

47% 43% 43%

59% 33% 7%

Source: MBMD Citizens’ Survey ’05.

Managers

Dynamics of the Business-Government Consensus on EU Accession in Bulgaria

47

there would be no change for them personally. More than one-fourth (28 percent) thought that they would win from Bulgaria’s accession to the European Union, while 11 percent believed that they would lose. At the same time, the respondents clearly identified the social groups which would win and which would lose from the change. Distinct cleavages emerged in that regard between poor and rich, and politicians and businessmen versus the population at large. Most often people identified the winners of Bulgaria’s accession to the European Union as the rich or big business (35 percent). Some respondents (7 percent) additionally identified employers and businessmen in general as winners. Further behind, but still at the second place in the winner/loser ranking, came the political elite (10 percent). In addition, around 7 percent of respondents thought that accession would be beneficial for everybody; about 6 percent pointed to the young people as the winners of accession, while another 5 percent identified the intellectuals and people with higher education as the winners of integration. The unemployed were most frequently referred to as being the losing group—pointed by 29 percent of respondents. SMEs and the ordinary people were further identified as the losers of EU accession—each pointed by 10 percent of respondents. Another 5 percent of respondents saw negative consequences for the elderly and retired people, while 3 percent thought that the high demands toward the workforce would increase the problems of people with lower education and those with no education at all. The MBMD Business Survey ’05 revealed similar trends in terms of winners and losers of EU accession. Thus, according to 71 percent of the surveyed businessmen, Bulgarian business would win to a greater extent than lose from accession (see table 2.6). The survey further revealed that the size of the firm had a clear impact on the expectations from EU membership. A widely held opinion (88 percent—as with the public at large) was that big companies would win much more from Bulgaria’s accession to the European Union, compared with SMEs. Furthermore, according to the majority of respondents (74 percent), the changed market situation would benefit to a greater extent foreign companies than Bulgarian ones. Bulgarian businesses also believed that EU membership would inevitably lead to changes in the sectoral structure of the economy—88 percent agreed with the statement that some economic branches would win more than others from integration. Generally, the manufacturing sectors and especially heavy industry were perceived as being the losers, with services emerging as the winning sectors (see table 2.7). Tourism was expected to be the ultimate winner—the difference between the positive and negative opinions was forty-nine points. Positive was also this value for trade (ten points), financial intermediation (six points), transport (four points), and communications (three points).

Table 2.6. To what extent do you agree with these statements after Bulgaria’s accession to the EU?

EU accession brings more benefits than restrictions for Bulgaria Business in Bulgaria will win more than lose from Bulgaria’s accession to the EU Foreign companies in Bulgaria will win more than Bulgarian businesses Big firms will win much more compared with SMEs Some economic sectors will win much more than others

Agree

Disagree

No answer

78.0%

16.4%

5.5%

71.3%

23.3%

5.5%

74.3%

18.8%

6.8%

87.7%

9.2%

3.1%

87.7%

8.2%

4.1%

Source: MBMD Business Survey ’05.

Table 2.7. Which sectors of the Bulgarian economy will win, and which will lose from Bulgaria’s accession to the EU?

Tourism Big firms Trade and Repair Construction Financial Mediation Light Industry Transport Communications Real estate and business services Services Production of coke and refined oil products Metallurgy and production of metal products without machines Processing industry, supply with electricity, gas and water Production of electrical, optical and other equipment Food-processing sector (production of foods, beverages and tobacco) Textile and apparel Industry Production of chemicals Production of rubber and plastic materials Heavy industry Production of machines and equipment without electrical and optical Agriculture Small and medium-sized business Source: MBMD Business Survey ’05.

Losing

Winning

Difference

0.5% — 4.0% 0.5% 0.5% 4.5% 1.0% — — 1.5% 1.5% 2.0%

50.0% 13.4% 13.8% 9.4% 6.7% 8.9% 4.9% 3.1% 1.8% 2.2% 0.4% 0.9%

49.5 13.4 9.8 8.9 6.2 4.4 3.9 3.1 1.8 0.7 –1.1 –1.1

5.5%

4.0%

–1.5

2.0%

—

–2.0

7.0%

4.9%

–2.1

4.5% 6.0% 4.5% 4.5% 10.0% 10.0%

1.8% 3.1% 0.9% — 0.9% 0.4%

–2.7 –2.9 –3.6 –4.5 –9.1 –9.6

33.0% 23.5%

22.3% —

–10.7 –23.5

Dynamics of the Business-Government Consensus on EU Accession in Bulgaria

49

Heavy industry was at the opposite axis. Thus, 10 percent of the business respondents identified the sector as a loser, and only 1 percent as a winner. The most pessimistic expectations were in regard to the fate of machine building (minus ten points’ difference). The opinions that agriculture would lose from accession were also higher, by eleven points, than the opinions that this sector would win. The light industry sector as a whole was listed as a winning one (four points), although two of its branches— the food-processing and the textile sectors—were listed more frequently as losing (with -2 and -3 points, respectively). The survey further revealed that the generally positive attitudes of Bulgarian businesses toward the process of EU accession were most often rooted in expectations for the improvement of the macroeconomic situation in the country—increased solvency of Bulgarian consumers and increased investments in infrastructure and the economy (see table 2.8). Half of the respondents (50 percent) pointed that accession would increase living standards and, as a result, their company’s revenues would also increase. Another 41 percent of respondents expected that the financial resources provided through the EU structural and cohesion funds would improve infrastructure and boost regional development. More than one-third (36 percent) believed that their company would be able to take advantage of the increased access to foreign capital, technologies, and experience. The access to a larger market with opportunities for bigger profits was listed with the same frequency. However, difficulties were also recognized in tandem with benefits (see table 2.9). Those emerging as the most serious ones were: competition from Western firms (63 percent), increases in labor costs (58 percent), and increases in costs for environmental protection, work conditions, and education Table 2.8. What are the biggest benefits/advantages for your company from Bulgaria’s accession to the EU? Enlargement will boost growth and raise living standards, and as a result the company revenues will also increase Access to EU funds will contribute to the upgrading of infrastructure, and will boost regional development Access to a larger common market with opportunities for bigger profits Bigger inflows of foreign investment will secure capital, technologies, and skills The full implementation of the EU common law will improve the business climate in the country Customs costs and other administrative barriers will decrease The competitiveness of the company will increase Higher environmental standards will be introduced Other Source: MBMD Business Survey ’05.

49.8% 40.8% 36.1% 35.7% 34.3% 30.7% 30.7% 28.2% 1.4%

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Table 2.9. What are the biggest difficulties for your company in regard to Bulgaria’s accession to the European Union? Competition will increase and companies will survive with greater difficulties under the new conditions Labor costs will increase Costs for environmental protection, health and safety at work, employee training, and unemployment contributions will increase Labor turnover will increase because of the greater mobility of workforce Other No answer

62.5% 58.3% 51.9% 23.7% 4.9% 3.1%

Source: MBMD Business Survey ’05.

(52 percent). Concerns were lower in regard to a higher labor turnover (24 percent). Other more recent surveys revealed a gloomier picture of business expectations from EU membership. Thus, the 2006 version of the Business Barometer survey carried out on an annual basis by an association of university professors revealed that Bulgarian businesses were afraid of a wave of bankruptcies once the country joined the European Union. Some 30 percent of the surveyed one thousand senior managers from various economic sectors declared that they did believe in the enlarged business opportunities from joining the EU common market, but a total of 37.3 percent feared that Bulgarian business would not be competitive with its European peers. The percentage of optimists believing in the equal competitive potential of Bulgarian companies stood at only 4.2 percent. Nearly half of the respondents (44.6 percent) believed that the EU entry of the country would produce a wave of enterprise bankruptcies.11 *

*

*

The Bulgarian case demonstrates high support for the process of European integration and Bulgaria’s accession to the European Union, from both the political elites and the business community. The support was rather abstract initially but with the advancement of accession negotiations the political elites, the business community, and the population at large became increasingly aware of many real problems stemming from actual membership. Despite the existing fears and criticisms over the sensitive issues of European integration, especially the Kozloduy nuclear power plant and the potential closure of many Bulgarian companies from the SME sector, the European perspective retained the importance of a national political consensus and the nationalistic-protectionist sentiments did not lead to Euro-skepticism as a political reality in Bulgaria.

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51

NOTES 1. A coalition between the Bulgarian Agrarian People’s Union and the Democratic Party. 2. The party representing the Turkish minority in the country but trying to occupy the liberal niche. 3. A newly established social-democratic party. 4. “Izpylnjava li Bulgaria ikonomicheskite kriterii za chlenstvo v ES” (Is Bulgaria Fulfilling the Economic Criteria for Membership in the EU), Kapital (July 24–30, 1999). 5. Contribution of Mr. Assen Agov, chairman of the Standing Committee on Foreign and Integration Policy of the Parliament (Thirty-Eighth Ordinary National Assembly). 6. Dnevnik Daily (June 4, 2002): 7. 7. MBMD archive data. 8. In May 2005 the National Center for Public Opinion Research surveyed 980 Bulgarians in eighty-eight cities and villages. 9. According to a survey conducted by the Market Link polling agency. 10. Mediapool (May 19, 2006). 11. Sofia Morning News (February 2, 2006).

3 Trends in the BusinessGovernment Relationship in Bulgaria: Postcommunist Reform and EU Accession

In the initial years of transition, the legacies of the state socialist planned economy (Spenner et al. 1998; Jones and Miller 1997) and the practices of non-differentiation of the business establishments from the state played a significant role in shaping the business-government relationship in Bulgaria. In addition, the political process in the country was very unstable, with frequent changes in government—eight during the first ten years of transition—and fragile political arrangements. Those processes determined an extensive state involvement in economic and business activities (Stanchev 1999), a high dependence of business emergence and consolidation on the political environment in the country (IME 1996a; Bogdanov 1998; FED 1999), and favored the growth of illegal economic activities, corruption and extortion (Bogdanov and Stanchev 1997; Stanchev 1996), and the possibilities of coalitions of rent-seeking elite obtaining political power (Kabakchieva and Dimitrov 1998; IME 1996a). The dependence of the business sector in Bulgaria—both state enterprises and emerging new businesses—on the political environment in the country was manifested in several major ways. First, in the very first years of transition there were waves of politically motivated campaigns against directors of the still state-owned companies, often carried out with the support of labor unions. With time this approach set in motion a carousel of replacements mounting to open purges of hundreds of managing directors within the first couple of months of a new government in office. Those frequent dismissals of top corporate executives created turbulence in companies being readied for privatization (Gradev 2000). Second, Bulgaria further experienced the rise and decline of politicaleconomic conglomerates. This corresponds to what Ivan Szelenyi has 53

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termed “managerial capitalism” in Hungary (Szelenyi 1995). Close relations between political and economic elites were a common structural feature of the CEE polities and societies (Agh 1996c). For Bulgaria in particular, the formation of such political-economic conglomerates was the dominant mechanism of capitalism building and emerging entrepreneurship until the early 2000s (Ganev 2007). The process started in the first years after the Zhivkov era, when some of the emerging private actors effectively usurped the state authority to restrict destructive economic activity. Those actors included racketeers descended from the old system, increasingly uncontrolled banks, and large economic groups. In the early 1990s the criminal and near-criminal segments of the private sector included three types of the former regime: members of the communist party nomenklatura, former state-supported athletes, and employees of the various police forces (Nikolov 1997). The close relations of those former apparatchiks with the political elites enabled them to develop transfer-pricing schemes with stateowned enterprises, produce credits from banks and not repay them, and evade trade restrictions. Close relations between political and economic elites were typical for all government cabinets, starting with Multigroup around Prime Minister Lukanov, followed by the Orion business circle favored by Prime Minister Videnov, and the Olimp business circle around Prime Minister Kostov. Although the Saxe-Coburg government did not favor any particular business circle and more competitive business-government relations were established since 2001, the practice of specific business circles as supporting structures of particular political parties was not eliminated. Most recently, another business circle—Frontier—was formed around the leading BSP in its coalition government with NDSV and the Movement for Rights and Freedoms.1 In contrast to past practices, the economic circles that have formed around the Bulgarian governments since 2001 stay in the shadows and are not in such proportions as with previous governments. Some analysts attribute this positive development to the influence of the European Union, especially to its persistent pressure against corruption.2 Third, the dual role of the state as a regulator of the economy and a shareholder in new privately traded companies often led to the politicization of purely economic issues. Public servants participating in company-governing bodies tended to exert a dominating and, sometimes, unsuitable influence on managers. Important decisions, such as election of boards, amendments of bylaws, and management of assets, were often affected by the state through this particular channel. This lowered corporate efficiency and induced decisions determined by non-economic factors. And fourth, the political dependence of business resulted in attempts for the establishment of tight links with the political institutions. A 1995 survey of Bulgarian business organizations conducted by the Institute for Mar-

Trends in the Business-Government Relationship in Bulgaria

55

ket Economy revealed that more than 80 percent of business leaders believed that “in Bulgaria a business association should be committed to a political party, in order to achieve its goals” (Bogdanov and Stanchev 1997; IME 1996b). For that reason, Bulgarian businesses not only supported different political parties and politicians but were also constantly attempting to promote their own political parties, or to get a seat in the legislature or in the executive administration. However, about 70 percent of the surveyed businessmen did not think that this was normal.

THE BUSINESS ENVIRONMENT: FROM UNCERTAINTY AND BUSINESS ILLEGALITY TO GENERAL ECONOMIC CONSOLIDATION A typical feature of the transition period was the frequent change in legislation. Outdated laws had to be eliminated and replaced by new ones. However, the adoption of new laws typically lagged behind the pace of abolition of old legislation. For example, the Personal Income Tax Law of 1950 was abolished in 1997, although a new law was not completed until 2000 (FIAS 2000, 4–5). In addition, in the period of 1991–1998 major tax laws have been changed sixty-six times, and the rules for their implementation forty-three times. The average was between 8.25 and 5.38 changes per annum, respectively. The annual number of changes (or new adoptions) in tax legislation was, on average, 13.63. Further, the administration failed to provide help in the interpretation of new legal provisions, although since the beginning of reforms the Council of Ministers had issued forty-nine ordinances and instructions for clarification of tax legislation (FIAS 2000, 4). Such processes were to a certain extent inevitable in a country in transition, and created a lot of uncertainty in the business environment (Stanchev 1999). Companies were left on their own to gather information and determine the means of compliance with the changing legislation. This made longterm decision-making for firms impossible or too risky and costly. As a consequence, compliance costs became higher than non-compliance costs. Thus an IME survey conducted in 2000 among Bulgarian businessmen revealed that the costs of non-compliance with regulatory regimes were 2.4 times less (in terms of money) and 3.4 times less (in terms of time) compared to costs of compliance (IME 2000). The survey further revealed that on some occasions the problems lied in regulations themselves, while in other cases in implementation. Government institutions often discretely expanded their competence and tried to regulate activities that were entirely out of their prerogative. For example, they could introduce new requirements, demand documents that were not mentioned in the law, and the like

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(IME 2000). The existing court system remained inefficient and not in a position to handle the caseload and administrative tasks it was charged with. As one investor had pointed out, going to court would be his last choice to fight for his rights (FIAS 2000, 5). A survey of the judicial system in Bulgaria conducted by the World Bank revealed several inherent weaknesses such as understaffing, low salaries, potential corruption, insufficient training mechanisms, and overly complex legal procedures (The World Bank 1999). The privatization process created further uncertainty in the business environment (Detchev 2003). The lack of transparency was clearly manifested in the Bulgarian privatization process. Thus, 48 percent of the privatization deals concluded between 1997 and 2000 were management-employee buyouts (MEBOs), which were entitled to a ten-year deferred payment scheme with a grace period. Initially MEBOs were intended to provide private investors when there was a lack of traditional investor interest. Over time, however, MEBOs have increasingly been used as a cover for third-party interests—political/business networks—to buy public assets inexpensively and with little initial capital investment (CSD 2001). Overall, after its start in 1992, the privatization process in Bulgaria evolved very slowly, and by the end of 1996 only 10.84 percent of the state-controlled assets subject to privatization were transferred to private owners (Gertchev 2006). Given the frequently changing regulations, the weak implementation control, and the frequent instances of corruption, illegality became pervasive in the Bulgarian business environment. Tax violations and informal/ grey economic activities proliferated in the country. According to official estimates, in 1994 the private sector accounted for 25 percent of GDP, but when activities outside of the government tax base were included by the International Bank for Reconstruction and Development (IBRD), the private sector was seen to contribute 50 percent of GDP. IBRD data further indicated that at least 90 percent of profits in the economy accrued to the informal private sector (UNDP 1997). As a consequence of all these developments, Bulgaria experienced a decade-long delay in its postcommunist reforms, which left it far behind other CEE countries. Most notably, in early 1997 the economy collapsed and the country entered into a severe economic and financial crisis involving a sharp decline in GDP and per capita incomes, the collapse of the banking sector, and a major foreign exchange crisis. The general elections in April 1997 led to the formation of a government of the right-wing Union of Democratic Forces (UDF). This government introduced a wide-ranging reform program including the introduction in July 1997 of a Currency Board Arrangement, major trade and price liberalization, social-sector reform, and restructuring of the financial, enterprise, agriculture, and energy sectors, as well as the divestiture of state-owned enterprises. The implementation of the reform program lowered inflation,

Trends in the Business-Government Relationship in Bulgaria

57

improved investor confidence, and helped transform Bulgaria into a market economy (World Bank 2001, ix; World Bank 2006a). When Bulgaria started negotiations toward EU membership in February 2000, its economy was largely stabilized and growth had resumed. More specifically, by the mid-2000s, Bulgaria made impressive progress toward long-term stability and sustained growth (see tables 3.1, 3.2, and 3.3). Average growth reached close to 5 percent per year in 2000–2005, while the private-sector share of gross value added to the economy reached 79 percent in 2005. Growth was led by the private sector, which at that time accounted for 75 percent of the economy—on par with the average for the eight Central European and Baltic countries that joined the European Union on May 1, 2004. In 2005, Bulgaria achieved a gross national income per capita of $3,450 (GNI, Atlas method). Unemployment was reduced substantially to 11.3 percent in 2005 from 18.1 percent in 2000 (World Bank 2006a). However, despite the overall positive performance at the turn of the new millennium, Bulgaria remained significantly poorer than the eight new EU member states from CEE (see table 3.4) (World Bank 2005). The country’s per capita income in 2005 at purchasing power parity was just 32 and 56 percent of the average level of EU-25 and EU-8 countries, respectively (World Bank 2006a). There were also considerable issues with the business environment in the country (Stanchev 2005). According to a statement by Bulgarian foreign minister Ivailo Kalfin, prices in Bulgaria are 55–58 percent of the average prices in EU member states, while the incomes are only 34–35 percent of the average incomes in the EU member states. The most widely purchased goods and services in Table 3.1.

Bulgaria’s Basic Economic Indicators, 2005

2005 Population, total (millions) Population growth (annual %) Life expectancy at birth, female (years) Life expectancy at birth, male (years) Poverty headcount ratio at $2 a day (PPP) (% of population) GDP (current US$) (billions) GDP growth (annual %) GNI per capita, Atlas method (current US$) Inflation, consumer prices (annual %) Foreign direct investment, net inflows (% of GDP) Unemployment, total (% of total labor force) Time required to start a business (days) Internet users (per 1,000 people) Source: World Bank 2006c.

7.7 –0.3 76.0 68.9 6.4 26.65 5.5 3,450 5.0 8.3 13.7 32 283

Table 3.2.

Bulgaria’s General Economic Indicators, 2000–2005E

GDP (EUR bn) GDP growth (%) GDP per capita (EUR) Population (m) Unemployment (%) Average monthly gross wage (avg. EUR) Export (EUR m) Import (EUR m) FDI (EUR m) FDI (% of GDP) Inflation (avg. %) Budget deficit (% of GDP) Government debt (% of GDP)

2000

2001

2002

2003

2004

2005E

13.7 5.4 3,274 8.2 18.0 115

15.2 4.1 3,704 8.0 17.9 123

16.5 4.9 4,109 7.9 16.3 132

17.6 4.5 4,398 7.8 13.5 140

19.4 5.6 4,901 7.7 12.2 154

21.1 5.2 5,329 7.7 10.6 162

5,253 6,533 1,103 8.1 10.3 –1.0 85.8

5,714 7,493 903 5.9 7.4 –0.9 69.9

6,063 7,755 980 5.9 5.8 –0.7 55.9

6,668 8,868 1,851 10.5 2.3 0.0 48.4

7,994 10,712 2,278 11.7 6.1 1.7 43.5

9,611 13,010 2,200 9.5 4.4 –.3 41.0

Source: InvestBulgaria 2006.

Table 3.3.

Comparison between Bulgaria and Europe GDP (USD bn), 2004

Bulgaria Italy Turkey Russia Romania Greece EU-15

Average GDP Average Corporate Labor costs Average labor growth, inflation, tax rate, (USD/hour), cost growth, 2003–2005E 2003–2005e 2005 2005E 2004–2006E

24 1,678 302 582 70 206 12,094

5.3% 0.5% 6.5% 6.9% 6.2% 4.1% 2.0%

4.3% 2.3% 14.0% 12.5% 12.0% 3.4% 1.8%

15% 33% 33% 24% 16% 30% n/a

1.1 21.4 2.4 1.7 1.4 13.7 28.3

2.33% 0.65% 0.85% 5.70% 5.59% 1.46% 0.90%

Source: InvestBulgaria 2006.

Table 3.4.

Country Bulgaria Czech R. Estonia Hungary Latvia Lithuania Poland Romania Slovakia Slovenia

Macroeconomic Indicators for CEE Countries (2001)

Population GDP GDP per (millions) Euro billion head Euro/ 2001 PPP 2001 PPP 2001 7.9 10.2 1.4 10.2 2.4 3.5 38.6 22.4 5.4 2.0

51.5 136.0 13.4 121.3 18.1 30.3 355.5 132.2 59.7 31.9

Source: European Commission 2002b, 96–98.

6,500 13,300 9,800 11,900 7,700 8,700 9,200 5,900 11,100 16,000

GDP per head as % of EU average (PPP) 2001

GDP growth (%) 2001

Inflation rate (%) 2001 annual average

28 57 42 51 33 38 40 25 48 69

2.0 1.1 5.2 4.5 6.1 3.6 4.2 –1.0 3.3 4.2

7.4 4.5 5.6 9.1 2.5 1.3 5.3 34.5 10.8 (2000) 8.6

Trends in the Business-Government Relationship in Bulgaria

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Bulgaria, however, are at European prices—and those are goods and services that even the poorest Bulgarian cannot avoid.3

DEVELOPMENT OF BUSINESS INTEREST ASSOCIATIONS In the late 1940s, assets of all business associations in Bulgaria were confiscated and their activities were abolished. In the early 1950s and later, some business organizations, such as the Bulgarian Chamber of Commerce and Industry (BCCI), were reestablished. The chamber functioned during state socialism to develop international economic cooperation for its members. It united managers of state enterprises from industry. Since 1967 the chamber represented the employers in the Bulgarian delegation to the annual meetings of the International Labor Organization. Other organizations were established anew under state socialism, such as the Bulgarian Industrial Association (BIA), by splitting from the BCCI in 1980. Its major task was the creation of incentives for the development of SMEs. As part of the state economic machinery, these two organizations had a rather artificial status—they clearly represented the interests of the state and were restricted in their activities by the command economy. With the start of postcommunist reforms, important organizational restructuring processes occurred on the business side, driven by three dynamics: liquidation of loss-making state-owned enterprises, privatization of state-owned enterprises, and emergence of new enterprises (Thirkell and Tseneva 1992). The combination of those processes led to a significant increase in the number of economic entities in Bulgaria. However, the statistical data show that more than 95 percent of all enterprises have a workforce of fewer than ten employees. It was mostly larger enterprises and those aiming at sustainable development of their business that could seek protection of their interests through joining existing business organizations or establishing new ones. At the same time the postcommunist transformations have been business-friendly and have not challenged businesses in a way that would provoke the formation of organizations for the defense of their common interests vis-à-vis government institutions. The CEE governments have had the general political will to “design” capitalism with its market institutions and some of those measures have resulted in a structural privilege for business (Agh 1996c, 19). However, the threat posed by the large informal sector in the initial years of transition has pushed newly emerging legitimate businesses to seek higher-level representation (Vaughan-Whitehead 2003, 258–261). After the collapse of the regime, BCCI and BIA underwent a process of organizational restructuring and reform. Initially, they organized only stateowned and cooperative enterprises because many of the newly emerging private enterprises sought separate venues for the defense of their private

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interests, and formed the Union of Private Economic Enterprise and the Vazrazhdane Union of Private Producers in December 1989. With the advancement of economic reforms and the privatization of nearly 70 percent of state-owned enterprises, BCCI and BIA started to also represent the interests of private businesses. BCCI was reorganized in April 1990, after a General Meeting adopted a statute and other program documents. The chamber comprises twenty-eight regional chambers and ninety-five branch chambers, unions and associations, and has almost forty-four thousand firms as members. Of them, 91.4 percent are SMEs. All members employ around eight hundred thousand workers.4 In addition, the chamber has more than forty-seven thousand associated members. The major goal of the BCCI is to defend the interests of its members through the establishment of a favorable business climate in the country, more specifically by fostering foreign trade activities and assisting in the preparation of all necessary documentation for such activities. The chamber further participates in the activities of a number of international and European organizations. It is a member of the International Chamber of Commerce (ICC), the European Chambers of Commerce and Industry (Eurochambers), the World Trade Center, the International Organization of Employers, and other organizations (BCCI 2005b). Following the events of November 1989, BIA reshaped itself as an autonomous entity with the major goal to defend the interests of its members (Brankov 1999). BIA has ninety-two branch organizations and thirty-one regional associations as members, uniting more than fifteen thousand trade, industrial, and service companies from the private, public, municipal, and cooperative sectors in Bulgaria, as well as banks, universities, economic and scientific bodies, pension and health insurance funds, and other organizations and establishments (BCCI 2005c). Of the three hundred biggest firms in Bulgaria, 263 are members of the association. However, the majority of its members are SMEs. The BIA members provide employment to approximately 1.5 million workers (Dechev and Gladicheva 2003). BIA is committed to assisting start-up entrepreneurs and businesses through consultations, training and information services. BIA is a member of the Union of Industrial and Employers’ Confederations of Europe (UNICE), now BusinessEurope, the International Chamber of Commerce, the International Organization of Employers, the World Environment Center, and other international organizations. The Union for Private Economic Enterprise (UPEE) was established in December 1989 as an organization protecting the freedom of enterprise and private entrepreneurship. The union has over two thousand firms as members, all of them SMEs. They provide employment to over eighty-seven thousand people. The union has twenty-seven branch and seven regional structures, where one regional structure covers two–three districts.5 It is ori-

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ented toward the defense of the economic interests of its members—entrepreneurs or organizations with less than 50 percent state property. The union is a member of the European Council for Small Business and the International Council for Small Business. The Vazrazhdane Union of Private Producers was established in December 1989 as an organization of private entrepreneurs from different sectors of the economy. It has more than seven thousand firms as members from twenty-five sectors and branches of the economy, of them six thousand are SMEs. Its members provide employment to more than one hundred thousand people (Dechev and Gladicheva 2003). The union’s major goal is to defend the interests of Bulgarian SMEs. It provides information and consultation services to them, and organizes training seminars on various aspects of the economy and business climate in the country. It further helps its members establish business contacts with foreign companies. Meanwhile, most of the enterprises bought through privatization or established by foreign investors formed their own organization—the Bulgarian International Business Association (BIBA). It was founded in April 1992 as an organization bringing together many of the largest foreign investors in Bulgaria. BIBA’s membership has grown steadily, from seven founding members in 1992 to more than two hundred fifty members in 2004. In 2001, the association opened its doors to Bulgarian-owned companies that were involved in international activities. BIBA’s objectives were to promote the common interests of its members in an effort to achieve international standards and business practices; to provide its members with general legal, accounting, and administrative information on all aspects of the local economic conditions, to represent the interests of the international business community vis-à-vis the Bulgarian authorities, to improve the business and investment climate in Bulgaria, to function as an information exchange tool for its members, and others (BIBA 2000, 3). In the late 1990s and early 2000s, the largest Bulgarian private enterprises established two new organizations—the Association of Industrial Capital in Bulgaria and the Union of Employers in Bulgaria. The Association of Industrial Capital in Bulgaria was established in December 1996 with members drawn from the enterprises privatized under mass privatization. It unites more than five hundred companies, which employ more than seventy thousand people. The association has a well-developed network of regional structures, covering more than fifty municipalities in Bulgaria. The association focuses on the defense of the interests of its members by improving the business climate and corporate governance in the country. The Union of Employers in Bulgaria was created in April 2000 as a spinoff from BIA. It was established by sixty-two of the biggest companies in the country, both local and foreign, claiming to produce 20 percent of the country’s GDP and to employ between 5 and 10 percent of the workforce.

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The union thus became the umbrella organization of the major Bulgarian private companies with more than one hundred employees. In 2005, the union had more than ninety members—branch organizations, holding groups, and individual companies. The total membership figure exceeded three thousand, taking into account the actual membership through the branch organizations and the holding groups. Together the union’s members employed more than two hundred thousand employees, and covered virtually all sectors of the Bulgarian economy, with a combined turnover exceeding $2.8 billion. The main aims of the union are to protect the interests of Bulgarian employers by strengthening of the Bulgarian economy and improving its global competitiveness. The process of organizational consolidation of big business in Bulgaria was accomplished in 2006 with the conclusion of a framework agreement for cooperation between the Bulgarian Industrial Association and the Association of Industrial Capital in Bulgaria, and the merger between the Union of Employers in Bulgaria and the Bulgarian International Business Association (to form the Confederation of Employers and Industrialists in Bulgaria). In April 2006, a Framework Agreement for Cooperation between the Bulgarian Industrial Association and the Association of Industrial Capital in Bulgaria was signed. The agreement established a long-term cooperation between the two organizations, with the goal to coordinate their positions on common issues related to the improvement of the business environment, the creation of better conditions for investments in the country, and assistance in the preparedness of member companies to meet the economic, labor, social, environmental, and other requirements of EU accession. Cooperation between the two organizations focused on the preparation of joint legislative proposals and coordination of positions on draft laws that have an impact on the business community, preparation of joint analyses on the development of different sectors of the Bulgarian economy and industry, coordination of joint positions in regard to the wage policy of the Bulgarian government, and the utilization of the EU structural funds. The agreement further envisaged cooperation between the regional structures of the two organizations, and the establishment of a joint representative office in Brussels. In June 2006, the Confederation of Employers and Industrialists in Bulgaria (CEIB) was created as a result of the merger of the two influential business organizations representing the interests of big business in the country—the Union of Employers in Bulgaria and the Bulgarian International Business Association. The two organizations had long-term contacts and cooperation. Thus, after the Union of Employers in Bulgaria acquired the statute of a nationally representative employers’ organization in 2004 and began to participate in the work of the National Tripartite Council, BIBA was also represented on the tripartite talks through the union’s representa-

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tives. The two organizations also jointly participated in other major discussions in the country. The anticipated EU membership of the country and the ambition for UNICE membership were also an important factor for the merger between the two business organizations. The new confederation’s major goal is to protect the interests of its members and to contribute to the establishment of a favorable business environment, with constantly improving productivity and competitiveness for Bulgarian companies. Other goals are to assist in the development of market principles in the process of Bulgaria’s integration in the European and global markets, to contribute for the modernization of the Bulgarian educational system, and to promote economic partnerships with foreign organizations. The confederation unites 353 members—all big European and global companies, producing two-thirds of the country’s GDP, securing more than three-fourths of the national exports, and providing jobs to over four hundred thousand people. The formation of the confederation, however, was met with opposition from the other five nationally representative business organizations in Bulgaria. They disputed and protested the claim of the confederation to represent two-thirds of Bulgarian business, and worked out a joint protest position at the Association of Organizations of Bulgarian Employers. All business associations offer a wide spectrum of services to their members, such as legal, information, and certification services; advertising and marketing services; economic and investment analyses and consultations; mediation in the resolution of conflicts with business partners and labor unions; consultations on the conclusion of collective labor agreements; training of members in various areas; defense of intellectual property; and others. In the context of Bulgaria’s accession to the European Union, all business associations put a special accent on membership in international and European structures, as well as on the preparation of members for meeting the challenges of the EU membership requirements (Joujou 2000).

NATIONAL REPRESENTATIVENESS OF BUSINESS ORGANIZATIONS After the collapse of the regime, three major types of business interest associations were established and/or consolidated across the CEE region— chambers of commerce, economic associations for the defense of purely business economic interests, and employer organizations that are labororiented. The lack of clear functional differentiation between them was a characteristic weakness of the early transition years (Agh 1996c). While national representativeness refers only to employer organizations, all business associations in Bulgaria—including BCCI—aimed at acquiring this status despite their orientation (FED 1999).

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The status of a nationally representative employer organization secures the right to participate in the established structures of social partnership or dialogue with the government and labor organizations. According to the 1993 Bulgarian Labor Code, the state has to regulate the terms and conditions of employment, living standards, and social insurance “after consultations and in partnership with the representative organizations of employees and employers.” These consultations are institutionalized and take part on a regular basis at the National Council for Tripartite Cooperation. Projects of draft laws concerning labor relations, living standards, social security, health care, and education are part of the tripartite dialogue. The opinions of employer organizations and labor unions are not mandatory for the government institutions. However, if a certain draft regulation does not pass the discussion in the Tripartite Council, the court would overturn it in most of the cases. That is what happened with the proposal for increase in the prices of electricity, central heating, and gas, which were contested by labor unions in 2004.6 In addition, only nationally representative union and employers’ organizations can participate in social dialogue and collective bargaining at lower levels (branch, industry, region). The status of a national representativeness further guarantees to employer and labor organizations participation in the monitoring of the National Social Security Institute and the Health Insurance Bank, as well as participation in other institutions created on the basis of tripartite cooperation, such as the Social Investment Fund, the Fund on Working Conditions, and the National Conciliation and Arbitration Institute. The 1993 Labor Code introduced complex criteria for representativeness of employer and union organizations at all levels, including official registration of nationwide organizations and a certain number of branch and regional structures.7 For an employers’ organization recognition required coverage of at least five hundred member companies with at least twenty employees each, developed branch organizations in at least two branches with at least fifty employers in each of them, and regional organs in at least 50 percent of the district cities, each regional structure comprising at least ten employers. In January 1993, four business associations were recognized by the government as nationally representative “employer” organizations: the Union for Private Economic Enterprise, the Bulgarian Chamber of Commerce and Industry, the Bulgarian Industrial Association, and the Vazrazhdane Union of Private Producers (Iankova 2002, 69–70). In 2004, two new associations were recognized as nationally representative by the government: the Union of Employers in Bulgaria—with 828 affiliated employers—and the Association of Industrial Capital in Bulgaria—with 862 affiliated employers (according to census data).8 In the 2004 census, the Bulgarian Industrial Association reported 2,481 affiliated employers; the Bulgarian Chamber of

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Commerce and Industry reported 2,262; the Vazrazhdane Union of Private Producers reported 873; and the Union for Private Economic Enterprise reported 660.9 Debates among the Bulgarian business associations in regard to the criteria for representativeness of employer organizations emerged with the discussions over the draft law on branch organizations.10 While the principle of closer cooperation of the state with business is part of the European practice, the elaboration of such law was not fostered by the EU requirements for membership but by some business organizations such as the Bulgarian Chamber of Commerce and Industry and the Union of Employers in Bulgaria. The Union of Private Economic Enterprise and the Vazrazhdane Union of Private Producers—whose members are mostly SMEs—were against such a law, and rejected its two draft versions—one prepared jointly by the BCCI and the Union of Employers in Bulgaria, and another prepared by the Bulgarian Industrial Association. Tensions rose, mostly along the lines of big versus small business. The Vazrazhdane Union and the Union for Private Economic Enterprise requested that the criterion for national representativeness “at least five hundred firms as members with no less than twenty employed and insured” be replaced with “at least seven hundred fifty firms with no less than ten employed and insured.” The argument was that the overwhelming majority of Bulgarian companies are small companies, even micro-firms with less than twenty employees. The criteria for national representativeness of branch organizations also became a hotly debated issue in cases of more than one branch organization in the respective branch—should only one of them be recognized as nationally representative of the whole branch, or more than one could be granted this status? The debates were complicated by the difficulties in differentiating the branches or subsectors of a particular sector, which made it very difficult to determine how many professional organizations actually existed in a particular sector. The overlapping membership of branch organizations was another complicating factor. The Parliamentary Commission on Economic Policy proposed a rather neutral or financial criterion for the representativeness of branch organizations, that is, their financial assets. Thus, if a branch organization could accumulate more than one hundred fifty thousand leva per year from membership fees and other assets (of them fifty thousand coming from membership fees), it could be granted the status of being a nationally representative branch organization. However, most of the employer associations did not approve of this criterion, because of the great diversity among the different branches of the economy.11 They insisted on the introduction of differentiated criteria, in accordance with the specifics of each branch. Additional debates in regard to the criteria for representativeness of business and labor organizations arose from the European Commission’s

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monitoring report on Bulgaria from October 2005. In that report, the commission included a new requirement that participation in the tripartite dialogue needs to be restricted to social partner organizations with a social mandate. This wording led to waves of anxiety among the Bulgarian social partners.12 The term social mandate was seen as contradictory, meaning in its narrow sense that organizations of social partners were delegated the right to represent subjects who were not their members. The business organizations argued, in contrast, that the requirement should be interpreted as restricting social dialogue to only “pure” social partners, or those with a clear profile of an employer or a labor organization.

JOINT REPRESENTATION AT THE INTERNATIONAL LEVEL In 1995, the Association of the Organizations of Bulgarian Employers (AOBE) was established to promote and defend the interests of Bulgarian employers at the international level, particularly in the work of the International Labor Organization, through membership in the International Organization of Employers (IOE)—Geneva. Its creation was in response to the IOE’s requirement that only one business formation from a given country could become its member. The AOBE became a union of all employers’ organizations in Bulgaria that are officially recognized by the government as nationally representative. Regular members of the association are thus the nationally representative business organizations in the country—the Bulgarian Chamber of Commerce and Industry, the Bulgarian Industrial Association, the Union for Private Economic Enterprise, the Vazrazhdane Union of Private Producers, and the Association of Industrial Capital in Bulgaria. The Union of Employers in Bulgaria was also a member of the Association but it was excluded from it because of the signing of a controversial collaborative agreement with the Confederation of Independent Trade Unions in Bulgaria. The regular members have the right to a vote in the decision-making process during the sessions of AOBE’s general meeting. AOBE has also adopted the rotation principle of presidency, and the rotation principle in nominating a delegate to the annual International Labor Conference in Geneva. AOBE has also members, observers, and associate members who have the right of a consultative vote in the decision-making process of the association. AOBE aims at the consolidation of the representative employers’ organizations in Bulgaria not only at the international, but also at the national level. Thus one of its major goals is to assist in the preparation of common positions of the nationally representative business organizations on issues of common interest to them. The association further plays the role of a me-

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diator and discusses conflicts among its member organizations, such as the conflict between the Union of Employers in Bulgaria and BIBA, on the one hand, and the remaining five nationally representative organizations on the other. The general meeting of the association also discusses and selects representatives of the business side for various consultative organs established by the government, such as the Consultative Council on Waste and Packaging at the Ministry of Environment and Waters (June 2006) and the National Council on Tourism (May 2006).

BUSINESS LOBBYING Political leaders in Bulgaria are always under pressure to support various business interests. The business requests toward the government are simple: in the preparation of any normative act, the government has to take into consideration how this act would impact the business sector, or whether it would hamper or facilitate business activities. As a rule, all business organizations engage in preparing proposals for draft laws that improve the business climate in the country, including the “lightening” of business, or getting it out of the grey economy. They would discuss those proposals first with the government, and if their lobbying were not successful, the parliamentary commissions would be approached as a second step in lobbying. Some of the business-lobbying initiatives are institutionalized, while others are more informal. Informal lobbying includes meetings between public officials and private companies at fairs and seminars that are organized by both business organizations and the ministries and state agencies. An example of a business-initiated lobbying that has become institutionalized is BIBA’s White Paper. In 1996, BIBA started a new lobbying initiative—to prepare on an annual basis a White Paper on the state of the business climate in Bulgaria, and distribute it among government offices, the parliament, international organizations with offices in Bulgaria, and the whole business community. The document represented an assessment of policy developments in Bulgaria. It rendered an in-depth analysis of the investment and business climate in the country and set out recommendations for improvement of the national legislation initially in the areas of financial services, tax regime, privatization, manufacturing, logistics and distribution, IT and telecommunications, and personnel. The structure of the White Paper followed the traditional approach. There was a first part of “horizontal issues” that were of common interest, such as legal reform, human resource management, and tax policy. The sectoral chapters covered banking and finance, industry and environment, information and communication technology, agriculture and food, and energy and

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trade. For the first time in 2003 BIBA also included an assessment of the health care system and education. BIBA’s Policy Committees prepared the chapters of the White Paper (see table 3.5). The government has increased its response to the White Paper (table 3.6). In February 2001 the Prime Minister Ivan Kostov presented the president of BIBA with an official set of answers to all problems identified in the 2000 BIBA White Paper. The fifty-five-page document contained positive answers to about 55–60 percent of all issues raised in the White Paper, according to BIBA’s then President John Munnery. Thus according to BIBA information out of a total of 153 proposals, the government’s response was “Yes”—67; “No”—57; “Yes, but”—17; “To be discussed”—2; “Already in place”—1; and “No comment”—9.13 A more detailed account of the proposals and the

Table 3.5.

BIBA Committees

Committee Name

# of Members

Personnel Management

42

Tax and Duty

33

Banking and Finance

29

Trade and Distribution

23

Industrial

16

Privatization

15

Source: Iankova and Katz 2003.

Tasks Maintain relations with the Ministry of Labor and Social Affairs Discuss legislation on social and health contributions Prepare the BIBA Salary Survey Prepare the personnel chapter of the annual White Paper Maintain relations with the Ministry of Finance Discusses issues related to the national tax regime Prepare the tax section of the annual White Paper Discuss banking, capital markets, insurance, pension fund issues Prepare the financial services chapter of the annual White Paper Discuss legislation in regard to trade, distribution, marketing, and advertising Prepare the logistics and distribution chapter of the annual White Paper Focus on internal (e.g. economic stability) and external (e.g. EU accession) issues that affect the manufacturing sector Prepare the manufacturing chapter of the annual White Paper Discuss issues related to privatization Prepare the privatization chapter of the annual White Paper

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government response reveals a very similar picture (see table 3.6). The highest acceptance rate was in the area of manufacturing (81 percent of all proposals) followed by financial services (62 percent). The sensitive issues of tax regimes and privatization had a low acceptance rate—16 percent and 26 percent, respectively—but many of these proposals were accepted with some reservations (29 percent of the privatization proposals and 22 percent of the tax regime proposals). Accordingly, the proposals rejected at the highest rate were in the areas of advertising (83 percent), tax regime (62 percent), and information technology and telecommunications (50 percent). BIBA’s political lobbying, then, occurs at the highest national level and does appear to affect national legislation of relevance to member firms. Actions are not firm-specific, however, so only general political issues can be mediated through this mechanism. It is possible that committee members develop useful ties with government officials during their regular meetings and that those ties may be used to defend firm-specific interests. Member companies have also the opportunity to ask BIBA to arrange direct meetings with government officials if necessary. With the advancement of the process of Bulgaria’s accession to the European Union, BIBA focused explicitly on the preparation of the Bulgarian economy and the business sector for joining the European Union. As its 2003 White Paper stated, the experience and know-how of BIBA members would be exclusively used for supporting the implementation of the newly

Table 3.6.

BIBA 2000 White Paper on Foreign Investment in Bulgaria

Government Response Issue Areas Financial Services —Banking —Capital markets —Insurance —Pensions funds —Accountancy and corporate governance Tax regime Privatization Manufacturing Advertising IT and Telecommunications Personnel TOTAL Source: Iankova and Katz 2003.

BIBA Recommendations

Accept

Accept with reservations Reject

29 –3 –11 –5 –6 –4

18 (62.1%) –3 –7 –2 –3 –3

4 (13.8%) — — –2 –1 –1

7 (24.1%) — –4 –1 –2 —

32 35 16 6 12

5 9 13 1 5

7 10 1 — 1

20 16 2 5 6

14 144 (100%)

7 (50%) 58 (40.2%)

(15.6%) (25.7%) (81.3%) (16.7%) (41.7%)

(21.9%) (28.6%) (6.2%) (8.3%)

2 (14.3%) 25 (17.4%)

(62.5%) (45.7%) (12.5%) (83.3%) (50%)

5 (35.7%) 61 (42.4%)

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adopted legislation, preparing the economy to stand the competitive pressure of the common market, and safeguarding the interests of the legitimate business in Bulgaria. A new important development in that regard was BIBA’s decision to engage NGOs and think tanks in the work of its committees, to provide qualitative assessment and position papers on Bulgaria’s way to accession and its implications for business. BIBA also realized that it would be necessary to change its approach and relations with representatives of the executive and the legislative power. As is stated, “the requirements and conditions for the functioning of business, which EU membership entails, call for a different format, other than the White Paper, in communicating with the government.”14 It became necessary to synchronize its White Paper with the European Commission’s “Road Map for Bulgaria”—the document by means of which the European Commission monitored Bulgaria’s progress and level of meeting the membership criteria. As a result, in the spring of 2004 BIBA embarked on a new project and came up with a new policy document—a “Road Map for Competitiveness of the Bulgarian Economy on the Road to EU Accession.” The structure of BIBA’s road map followed the structure of the European Commission’s road map for Bulgaria, yet it involved only those parts of the EC road map that were a priority for business in Bulgaria. While the commission’s road map focused on what had to be achieved, BIBA’s road map for business raised the question, how to achieve it in the best possible way.15 The project as a whole was under the auspices of Minister of European Integration Meglena Kuneva, and was a step further in formalizing the collaboration between the Ministry of Foreign Affairs and the government as a whole and BIBA. BIBA collaborated with the government on this project by providing guidelines with regard to: how to structure enterprises, how Bulgarian business can take its place on the new expanded map of Europe, how to standardize the production process and prepare for a new competitive environment, and how to succeed in it.

GOVERNMENT CONSULTATIONS WITH BUSINESS Initially the communication between the government (Berov) and the business community was channeled only through the broader tripartite talks (the National Council for Tripartite Cooperation and its regional and branch structures); there was no direct bipartite business-government communication. Later, the government introduced various institutionalized channels and specialized councils for consultations with business and other segments of civil society on all major aspects of the social and economic reforms. These include the Council for Economic Growth at the Council of

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Ministers, the Consultative Council on Foreign Investment, the Advisory Council of the Agency for the Promotion of Small and Medium-Sized Enterprises, the Council on Tax Policy at the Ministry of Finance, the Supervisory Board of the National Institute on Conciliation and Arbitration, the Managing Board of the National Agency for Professional Training, the Higher Statistical Council at the National Statistical Institute, the Consultative Commission for Support of the Development of Customs Administration, the National Council on Metrology, the Bulgarian Council for Voluntary Certification, the National Agency for Vocational Education and Training, the National Tourism Council, the National Council on Consumer Protection, the Social and Demographic Council, the Ethnic and Demographic Council, and others. In addition to these formal consultative organs at the all-national level, government consultations with business occur at the lower industry and branch levels. Thus some ministries have introduced the practice to publish draft laws and to seek feedback from business and other interests from civil society. Working groups and task forces are also created under the initiative of some ministries, where business organizations can send opinion letters for the preparation of a certain government normative document, such as a decree or regulation. Most ministries take into consideration those opinions (Mandova 2001). Business representatives could even participate directly in the sessions of these working groups. Business-government dialogue also exists at the local level. In 1999, the government adopted the Law on Regional Development, which aimed at improving the conditions for sustainable regional development. Under the law, district governors and district councils (non-elected officials) were obliged to recognize business needs and set priorities in regional and national plans. The government also approved financial sources for such policies and investment priorities. However, such practices were not developed (Mandova 2001). The level of business involvement in these formal consultative bodies varies widely. Thus in some of them businesses are just informed about the regulations that are at the drafting stage. For example, the Consultative Committee at the Ministry of Economy convenes each month to inform its participants of upcoming legislation. In most cases, the proposals for regulatory changes are thoroughly discussed with the affected businesses. In some of the committees businesses are not only consulted, but also actively involved in a joint elaboration of rules on product standards and formal principles of financial and quality control activities. In that regard, in June 2000 the Consultative Committee on Wheat was established, and three task forces within the committee were organized to discuss production and trade problems. Such meetings are even organized to develop control standards in practice. After the establishment of a consultative committee in the cereal

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sector, public officials and branch representatives conducted several joint activities to control the informal participants on the market (Mandova 2001). Most of the discussions in the formal dialogue structures at the national and industry/branch levels are mainly focused on improving and enforcing the legal regulations in the country, such as tax regimes, licenses, social security and health care reforms, modernization of the administrative system, restriction of unfair competition, and establishment of competitive business environment. For example, at the May 2000 meeting between representatives of milk producers and traders, and representatives of the Council of Ministers, activities to limit informal operations on the milk market were discussed. Since 2001 roughly 50 percent of the communication to the government by the major business associations in the country (BCCI, BIA, and BIBA) concerned taxes, social welfare contributions, and related procedures.16 Overall, the business demands aim at the creation of a more attractive business climate in the country. However, businesses do not find the developed forms of government consultations to be effective. The problems are partly due to unclear procedures for the involvement of interested businesses in the government decision-making process. Besides, not all affected businesses are involved in the consultation process. It is a common practice for respective ministers to select the participants in task forces and working groups (Mandova 2001). However, the consultations of the government with the business community have been improving with each successor government, according to some business statements.17 The National System of Social Partnership The tripartite social partnership system—that is, the National Council for Tripartite Cooperation (NCTC) at the national level, and various sectoral and regional councils for tripartite cooperation—is the most well-established mechanism for government consultations with business and labor. The nationally representative employers’ organizations participate in the main body for national-level social partnership, the National Council for Tripartite Cooperation, established in April 1990 and reinstated in 1993. The council is a forum for cooperation and consultation over issues of employment, social security, and living standards. The six business organizations that are recognized as nationally representative participate in the sessions of the council. Naturally, the Tripartite Council focuses much of its attention on wages (Iankova 2002). The social partners have to agree on the minimum wage, as well as on other protected payments—monthly supplemental children’s payments and unemployment benefits—that are calculated as a percentage

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of the minimum wage. The goals, principles, criteria, and mechanisms of incomes policy are also a major area of discussion within the tripartite forum. Strategies and policies in the area of employment and unemployment are also regularly discussed, and important laws and normative documents issued by the government have been prepared in the council. The council has also concerned itself with the creation and effective functioning of labor market structures, and the development of national and regional employment programs and measures against unemployment. The council also discusses amendments to legislation on collective labor disputes, the mechanisms of social insurance, pensions, social aid, and the methods for privatization of the state sector (Bankov 1994). Most aspects of the economic reforms also were discussed in the council. These included price controls on selected basic goods produced by state monopolies, legislation concerning the financing of small and medium-size enterprise development, and privatization and industrial restructuring, among others. Eight additional institutions of tripartism and five specialized social funds, governed with the broad participation of the social partners, were created on the basis of the social legislation adopted during 1997 and 1998.18 These included the National Council for Tripartite Cooperation, the Supervisory Board of the Vocational Training and Unemployment Fund (at regional levels, similar tripartite consultative committees were established as part of the National Program on Temporary Employment), the National Council on Unemployment Protection and Employment Promotion, the National Council on Vocational Training, the Supervisory Board of the National Employment Office, the National Council on Working Conditions, the Managing Board of the Work Conditions Fund; the Council on Social Assistance, the Managing Board of the Social Assistance Fund; the Supervisory Board of the National Social Security Institute, the National Council on Rehabilitation and Social Integration, the Managing Board of the Rehabilitation and Social Integration Fund, and the tripartite Meeting of Representatives as a governing body of the National Health Insurance Bank. Many of the tripartite organs departed from their classical tripartite character and became multipartite, including nongovernmental organizations and various professional organizations (Iankova 2002). An overall good indication of the importance of social dialogue in Bulgaria since 1997 is the fact that all draft laws that have been discussed in the tripartite councils and then introduced in Parliament have been adopted with almost no changes and almost unanimously. Another indicator is the social partners’ own assessments of social dialogue which are generally positive.19 The social partners still argue, however, that their opinion is not well-heard. They cite, in particular, cases in which they have been invited to participate in the preparation of draft laws, without being given any chance to influence the philosophy underlying these laws. Furthermore, the

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institutional pluralization and decentralization of social dialogue has to some extent diminished its importance at the top level—within the National Council for Tripartite Cooperation. Moreover, given the presence of thirteen civic-tripartite structures, inevitably there are problems in function and coordination, as well as shortages of experts to represent each of the social partners at the many meetings and forums (Iankova 2002). Council for Economic Growth at the Council of Ministers The Council for Economic Growth at the Council of Ministers was created in 200220 as a mechanism for consulting only the business community on issues related to economic growth and the competitiveness of the Bulgarian economy. The council emerged as a result of the Bulgarian business associations’ initiative to institutionalize the consultative process with the government authorities. The council grew into a flexible mechanism for the synchronization of the interests of the state and the business community over national economic policy. It prepares recommendations and consults the prime minister on issues of the economic development of the country, develops economic and legal regulations for the promotion of investment activities in the country, and organizes, analyzes, and controls the interactions and cooperation among the organs of the executive and the business representatives. The minister of economy and energy chairs the council. The ministers of finance, labor and social policy, transport and telecommunications, and regional development also represent the Bulgarian government in the council. BIBA, the Bulgarian Chamber of Commerce and Industry, the Bulgarian Industrial Association, the Union of Employers in Bulgaria, the Association of Industrial Capital in Bulgaria, and the Bulgarian Business Club Vazrazhdane21 provide feedback to the government on the effectiveness of its economic policies. The council meets regularly at least once a month. Highlevel working groups were created within the council that would assist policy and legislation development. The general improvement of the business climate in Bulgaria is chiefly discussed at the council, including the development of technical infrastructure, improvement in the quality of workforce, promotion of investments for the achievement of sustainable and balanced regional development, support of investments in innovation and high-tech industries (as well as in the economically underdeveloped regions), investment marketing, and others. Furthermore, the Ministry of Economy and the business associations jointly developed an investment-promotion strategy. The ideas for innovation strategies and involvement of science and education in the economy were also a shared effort. The council further dealt with the coordination of activities among government institutions and employer organizations in

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the area of professional training and promotion of programs for professional training, opportunities for the development of public-private partnerships, and others.22 A special emphasis was put on the creation of economic clusters as a positive strategy development and an effective form of public-private sector cooperation. More specifically, since 2002 the council has discussed a lot of draft laws and government regulations concerning business, such as drafts of the Law on Energy, the Law on Regional Development, the Law on Investment Promotion, the Law on Public Procurement, the Law on Private Insurance Activity, the regime of public procurement at the Ministry of Interior, a set of measures of the Ministry of Finance for reducing the grey economy in Bulgaria, measures for restricting illegal trade, amendments in the Tax Procedure Code regarding the avoidance of double taxation, regulations on energy prices, the government strategy for infrastructure development, and others. Within the council, business organizations thus exercise a preliminary evaluation of draft laws and government regulations.23 The goal is to estimate the impact of potential normative documents on business, or to conduct an assessment of all regulations that affect the business community. The regulatory impact assessment is part of the government attempt to introduce the principles of good governance adopted by the government in August 2006 at the proposal of the Council for Economic Growth.24 The goal is to determine which regulatory regimes have the most negative impact on the business activities, and to identify the origin and character of the problems, such as inadequate normative basis, poor administration of regulative regimes, and others.25 According to business estimates, the Council for Economic Growth has been a very successful institutional form of government consultations with business. The business organizations represented in the council were able to make important comments on a variety of draft laws and regulations of the government; their concerns were discussed and resolved in the council.26 Meetings with the Supreme Council of the Bulgarian Socialist Party Starting in February 2006, under the initiative of the ruling Bulgarian Socialist Party (BSP), regular monthly meetings are organized between representative of the BSP Supreme Party Council and the business circles—the five business organizations that are members of the Association of Organizations of Bulgarian Employers. Members of the Bulgarian Parliament from the BSP caucus also participate in those monthly meetings. The goal of the meetings is to discuss the current state of the Bulgarian economy, and the economic policy of the government, including the legislative programs of the Council of Ministers and the parliament, and the policies of the ruling party that are incorporated in them. A series of draft

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laws were discussed at those meetings and amended before their official discussion in parliament.27 Overall, however, the business side estimates that there are no significant consequences of this form of institutionalized dialogue with the BSP Supreme Party Council.

CONCLUSION The 1990s were in many ways formative years for the business sector in Bulgaria. Private business enterprise emerged, as well as business association at the national, branch, and regional levels. Before Bulgaria’s active engagement with the EU accession project, the major goal of both business and government was to build a relationship based on the organizational differentiation and independence between them. The state-socialist practices of non-differentiation of the business establishments from the state, as well as the general political instability in the country, were major constraining factors in that regard. The business sector continued to be dependent in many ways on the political environment in the country, and the businessgovernment relationship was built on practices of rent-seeking, illegal economic activities, corruption, and extortion. Ironically, business-government interactions were either missing in regard to the great majority of emerging businesses in Bulgaria (SMEs) or were in many ways cooperative and collaborative, but in the form of vicious and destructive political-economic conglomerates. The business-government relationship was put on sound grounds with the emergence and consolidation of business interest associations, aimed at legitimate lobbying with the government for the defense of the interests of their members in the difficult years of transition and transformation. An important facilitating factor in that regard was the general business-friendly character of postcommunist transformation, that is, the achievement of one of the major transformational goals—establishment of private property and a market economy—would not be possible without important restructuring and consolidation on the business side and the emergence of an internationally competitive business sector. This structural privilege of business has in many ways determined the commitment of all Bulgarian governments to support the consolidation of business interest associations and to actively engage in dialogue with them over the major issues of postcommunist restructuring and reform. The granting of a status of “nationally representative” business organization for participation in the emerging tripartite system of social partnership was an important milestone for the establishment of a legitimate and sound business-government relationship. It provided the business sector with an incentive to organize, and created a viable opportunity for the de-

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velopment of legitimate lobbying channels for the elimination of illegal economic activities and the establishment of fair market competition and favorable business environment. While the business sector had a general structural privilege in the course of postcommunist transformation, it still remained underdeveloped organizationally, which hindered the establishment of purely bipartite businessgovernment institutions of communication. The business-government relationship became embedded in the tripartite system of social partnership, where the state held consultations not just with business but with labor as well, over the major aspects of the employment relationship, incomes and living standards, and general economic reforms in Bulgaria. The improvement of the business climate in the country and the criteria for national representativeness of business organizations were two more specific substantive areas that were discussed within the framework of the national tripartite system. Later, with the consolidation of business organization and association, purely bipartite business-government communication emerged and was structured in several specialized bipartite institutions, such as the Council for Economic Growth at the Council of Ministers, and the Consultative Council on Foreign Investment. Business representatives became also involved in numerous working groups created at each ministry for consultations with civil society—predominantly business—over draft regulations. All these consultative bodies and institutionalized channels of interaction were not very effective, however, according to business assessments. A big issue was the selective process of inclusion of business in the consultations with government—the respective ministries developed a common practice to select the participants in task forces and working groups on the basis of unclear procedures and preferential treatment. On the business side a big issue was the fact that most of the business organizations that were involved in the government consultative bodies were lacking the capacity to properly disseminate the reached agreements to their constituent members. However, the consultations of the government with the business community have been improving with each successor government, according to some business assessments.

NOTES 1. 2. 3. 4. 5.

168 Chasa 29 (July 21–27, 2006): 18–19. Interview data, Bulgarian Industrial Association. Dnevnik (October 2, 2006). BCCI website. UPEE data (July 2006).

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6. Dnevnik (October 10, 2004). 7. Council of Ministers Decree No. 7 of January 22, 1993, on Regulation of the Principles, Terms and Order of Recognition of Workers’ and Employers’ Organizations as Representative at the National Level of Tripartite Partnership. 8. Dnevnik (October 10, 2004). 9. Data from the Ministry of Labor and Social Policy. 10. The law was still in a draft form in early 2005, passed on a first reading in the economic commission of the parliament, and waiting for plenary session. As of October 2008, however, the draft law was still under public discussion. 11. Biznes Vesti 1 (January 7, 2005). 12. Interview data. 13. BIBA News (March/April 2001): 2. 14. BIBA News (March/April 2004): 4. 15. BIBA News (March/April 2004): 2. 16. See the respective sites of BCCI—www.bcci.bg/bulgarian/law/apendix.htm (in Bulgarian), of BIBA—www.biba.bg/Publications.asp (in Bulgarian and English), and of BIA—bia-bg.com (in Bulgarian). The growing public attention to taxes is linked to consolidation of revenues and tax reforms in the late 1990s. The incumbent government increased expenditures while claiming that it is going to introduce different tax incentives. 17. Interview data. 18. “Social Dialogue Reality in Bulgaria,” From Guidelines to Action, Bulgarian Ministry of Labor and Social Policy Bulletin, vol. 2 (November 1998). 19. Opinion of the Bulgarian Industrial Association on the Fulfillment of Part VIII.1 “Social Policy” of Program “Bulgaria 2001.” 20. Ordinance of the Council of Ministers No. 150 from March 18, 2002. 21. Bulgarian Business Club Vazrazhdane is different from the Vazrazhdane Union of Private Producers. It was established in 2001. This club was the subject of controversy in the media because of some of its members. One was Ilia Pavlov, the president of Multigroup, who was shot and killed in 2003. One of its cofounders, financier Emil Kjulev, was also shot in 2005. Vazrazhdane’s founders said that the goal of the club was to “establish an official contact” between business and the country’s leadership. The club members succeeded in meeting with Saxe-Coburg in 2001 after he became prime minister, and were engaged in the discussions at the Council for Economic Growth. 22. Data from the BIBA webpage, www.biba.bg/Activities.asp. 23. BIBA News (January/February 2004). 24. Kapital 32 (August 11, 2006). 25. Kapital 32 (August 11, 2006). 26. Interview data. 27. Interview data.

4 Adjusting to the Legal Conditionalities of Accession

ON THE ROAD TO THE EUROPEAN UNION In December 1990 the seventh Grand National Assembly adopted a decision on Bulgaria’s willingness to become a full member of the European Communities. In 1993, the Association Agreement (“Europe Agreement”) was signed in Brussels, together with an Interim Agreement on Trade and Trade-Related Matters. It created a free trade zone between Bulgaria and the EU member states, and also envisaged substantial financial and technical assistance. Bulgaria submitted its application for EU membership in December 1995, following the Copenhagen Council meeting. The European Commission replied with an opinion about Bulgaria’s membership in July 1997, under Agenda 2000. Consequently, the EU-Bulgaria mega-institutions of accession were created—the Association Council, the Association Committee, and the Joint Parliamentary Committee. Accession negotiations were opened in February 2000, and were successfully closed in December 2004. The Treaty of Accession was signed by the twenty-five member states and Bulgaria in April 2005, and Bulgaria acceded to the European Union on January 1, 2007, with continuing monitoring from the European Commission in several areas of concern in the adoption and implementation of the EU legal order: freedom to provide services, company law, agriculture, regional policy, and justice and home affairs. The government emerged as the main actor in Bulgaria’s accession process—it proposed EU membership, concluded the Europe Agreement, elaborated national accession strategies, and created the institutional structure for accession preparations at the national level. Later, especially with the opening of accession negotiations in 2000, the parliament became 79

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more actively involved in the legal approximation process. In addition to parliament, various domestic actors such as business became increasingly involved in the accession process. European integration departments and offices were also established in the administrative structures of many political parties and interest groups. A two-level institutional structure was established for coordination of Bulgaria’s preparation for EU membership. First, at the political level, a committee on European integration—later renamed as Council on European Integration—was established. The committee/council functioned at the level of the central government. Its major goals were to develop the policy of the country toward the European Union, to monitor and control the development of the process of Bulgaria’s integration with the European Union, to assess the impact of the process of European integration on individual sectors of the Bulgarian economy, to discuss draft positions and mandates for conducting negotiations with the European Union, to monitor and assess the negotiation process, to consult the economic and social partners on all government positions on EU integration within the competences of these partners, to coordinate the relations of the state administration with the EU organs and institutions, and to coordinate the EU aid for Bulgaria. In addition, specialized units on European integration issues—European Integration Departments—were created at all ministries and agencies represented in the Council on European Integration. At the level of each ministry an undersecretary was appointed who became directly responsible for the accession talks and networks to meet the needs of legal approximation and for monitoring the structural adjustments needed in the particular sector as part of the effort to fulfill the accession criteria. Second, at the expert level a Coordination Council for the Preparation of the Republic of Bulgaria for Accession to the European Union and thirty working groups were created for the preparation of the screening process and for the anticipated negotiations with the European Union. The working groups were established on the basis of the sections of EU law that were under negotiations. The major task of the council was to provide guidelines for the activity of the working groups. It also had to monitor and assess the negotiation process between Bulgaria and the European Union, to discuss European integration issues of cross-sectoral character, and to coordinate and harmonize the interministerial activities aimed at promoting effective dialogue with the European Union. Members of the Coordination Council became the heads of the thirty working groups. The specialized units on European integration at the various ministries and state agencies were also represented in the Coordination Council. Representatives of business, labor, and various NGOs also participated in the meetings of the Coordination Council.

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In March 1998, in anticipation of the signing of Bulgaria’s Accession Partnership—which, together with the Europe Agreement, became the major document and instrument of Bulgaria’s preparation for membership—the Kostov government adopted three major documents about the process of Bulgaria’s integration into the European Union: a “National Strategy for the Preparation of Bulgaria for Accession to the European Union,” various sectoral programs as part of the strategy, and a “National Program for the Adoption of the Acquis Communautaire.” The national strategy outlined the processes and activities that needed to be accomplished in order to accede to the European Union, and created the basis for the practical process of law harmonization. It outlined the material, financial, information, and human resources of the country (already existing or needed to be established), and the organizational and governmental changes that had to be accomplished (Genov and Panusheff 2001, 289). The National Program for the Adoption of the EU Common Law identified the national legislation that needed to be adapted to the requirements of membership, and the measures necessary for its implementation. It further made an assessment of the costs for carrying out these activities, and a timetable for them. The program served as Bulgaria’s national position during the accession negotiations. The coordination of the accession process was decentralized to other ministries as well, beyond the Ministry of Foreign Affairs. Following the unfolding of the EU enlargement process and in anticipation of the opening of accession negotiations, the Ministry of Justice was transformed into a Ministry of Justice and Legal Euro-Integration with the task to coordinate the implementation of the National Program for the Adoption of the Acquis Communautaire (however, it went back to Ministry of Justice with the government reshuffle at the end of 1999). The ministry played a crucial role in the process of legal integration with the European Union, exercising supervisory functions with respect to the compatibility of any new legislation with the acquis. It became responsible for the preparation and maintaining of a national harmonogram of the level of compliance of Bulgarian legislation with the EU common law. A National Documentary Center was created at that ministry as well, with the task to technically aid the state administration and the administration of the National Assembly on all issues of EU legislation. The minister of state administration became responsible for the training of civil servants on all EU-related issues. At the Ministry of Regional Development and Public Works a Central Coordinating Unit was created for the organization of the activities related to the inclusion of Bulgaria in the EU pre-accession funds and programs. At the Ministry of Finance, a Central Contracting and Financing Unit was also created with the task to organize the tenders, contracts, and financial management of all PHARE-related

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programs. A National Fund as a central treasury institution was also established at that ministry, responsible for the financial management of the resources through the EC programs. With the formation of a new government of Simeon Saxe-Coburg after the June 2001 parliamentary elections, the institutional structure of accession was preserved in principle. In May 2002 the deputy-minister of foreign affairs who was responsible for European integration—Meglena Kuneva— was elevated to the rank of minister of European affairs. The appointment of a special minister for European affairs—although without a separate ministry—was a signal to the European Union that Bulgaria was very much committed to the integration process.

BUSINESS, GOVERNMENT, AND LEGAL APPROXIMATION: TOWARD A MODEL OF SHARED SOCIAL GOVERNANCE Back in 1993, with the formulation of the Copenhagen criteria for entry, the European Union did not specifically raise any requirements in terms of the development of a corporatist model of capitalism, or regular government consultations with business and other organizations of civil society, especially labor, known as social partnership or social dialogue. Social dialogue has always been a central element of the European social model, one that has accompanied European integration from the very beginning. With the advancement of the accession negotiations, some experts and advocates of the European social model began labeling enlargement as the “Trojan horse” against Europeanization, for the Americanization of Europe (Meardi 2002). According to them the idea of the European social model would be seriously challenged after enlargement because the candidate countries from the formerly communist region had developed more liberal regimes in the course of their postcommunist transformation, and were practicing a rather different brand of social partnership. Thus on many issues (privatization, pension systems, taxation, working time, the welfare state, wage differentials, and so on), postcommunist countries were found to be following a “North American” road rather than that of the European social market economy. These actual policies increased Western fears that Eastern Europe would become a “Trojan horse” of deregulation for the enlarged European Union (Meardi 2002, 79–80). Based on such concerns, the commission included an additional requirement toward the acceding countries for the development of social dialogue and the strengthening of the role of their social partners in the preparation for accession. This requirement became a basic element of the commission’s recommendations and annual regular reports toward the candidate countries. However, the initial formulations in terms of social dialogue

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were very broad and unspecified. Acceding countries were to pay “necessary attention” to social negotiations and social dialogue (European Commission/DG Enlargement 2002). The vagueness was largely due to the fact that the European Union has no official definition about the concrete content of social dialogue in member states—it is subordinated to their national specifics, and varies widely across them. For example, with the preparation of the first position on Bulgaria’s candidacy for EU membership in 1997, the commission emphasized the necessity of encouraging social dialogue among government, business, and labor in the country, especially in the processes of ownership restructuring, but without providing concrete guidelines about the way and forms of how to conduct and practice social dialogue. The establishment of joint consultative committees on economic and social issues between the European Union and each candidate country was an important practical step at strengthening the social partners in the accession countries. Members of these committees represented, respectively, employers’ organizations, chambers of commerce, trade unions, and organizations of farmers, consumers, and women, from both an acceding country and EU member states. The committees were set up to pave the way for enlargement of the European Union by promoting dialogue and supporting the professional organizations in acceding countries in their efforts to create a functioning civil society, one in which their consultation by the government would be an integral part of the decision-making process. Another task of the joint consultative committees was to promote dialogue and cooperation between the economic and social interest groups in the European Union and those in acceding countries. The dialogue covers all economic and social aspects of the relations between the European Union and acceding countries in light of the Association/Europe Agreements and the Accession Partnership Agreements between the European Union and each of them. However, the social partners complained of lack of meaningful participation in the joint consultative committees. A new philosophy of social dialogue as shared social governance emerged in May 1998, when the European Commission adopted a communication on adapting and promoting social dialogue in the context of strengthening social policy. Most important, with the entry into force of the Amsterdam Treaty social dialogue became a means of transposing community directives at national level. As stipulated in the treaty, a lot of community directives may be implemented in the member states by means of either legal harmonization or agreements between the social partners. As a result, the social partners in the European Union have become key actors in what some experts define as “shared social governance” (Vaughan-Whitehead 1999, 2). In the process of enlargement and accession negotiations the commission actively promoted this new understanding of social dialogue not so much

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as a means for mediation and conciliation but as a new form of policymaking, as a collaborative governance mechanism. Overall, the message from Brussels was for the encouragement of the cooperation between the social partners in order to be able to participate in the self-regulation of the integrated European market and the achievement of greater competitiveness of the national economies. The implementation of community legislation through agreements between the social partners rather than national legislation requires strong social dialogue and collective bargaining structures, and representative employer and employee organizations to ensure the effective implementation of national agreements at lower levels. The lack of these conditions in candidate countries predetermined the transposition of EU common law through national legislation rather than through agreements between the social partners (Vaughan-Whitehead 2003, 237).

BUSINESS PARTICIPATION IN THE ACCESSION NEGOTIATIONS The European Union further began to actively encourage the involvement of the social partners in consultations over the harmonization of domestic legislation with the EU common law. There was a belief that the participation of the social partners in the accession process would help at a later stage for the effective and qualitative implementation of the European common law—the acquis communautaire—at firm, branch, and regional levels. The necessity for active participation of the social partners in accession negotiations also stemmed from the fact that many EU directives specify such involvement of the social partners at national level, especially those directives that are focused on health and safety issues in the European Union (Lado and Vaughan-Whitehead 2003, 78). A special institutional structure was created in 1999 for the inclusion of the social partners in accession negotiations. Thus, as already mentioned above, thirty working groups were established in 1999 on the basis of the chapters in which the EU common law was broken down for applicant states to adopt and implement. These chapters formed the basis of accession negotiations. In 2002 the working groups were increased from thirty to thirty-one—the chapter on administrative capacity was added. The working groups formed the extended team of the government for holding accession negotiations with the European Union. They included representatives of government institutions and organizations, business, labor, and various NGOs. The working groups had the task to handle the entire preparation of the negotiation process on a sector-by-sector basis. They had to prepare draft

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negotiation positions. Each of the applicant countries had to prepare its negotiation position—formulated in a so-called Position Paper—on each of the thirty-one chapters of the European common law. Each negotiation position represented a statement of the applicant country’s level of preparedness to transpose the acquis communautaire in domestic legislation, and to monitor its implementation upon accession. It also identified potential difficulties in that regard and, if necessary, could ask for derogations and transition periods. All draft negotiation positions were submitted to the Coordination Council for further discussions and consideration. Another important function of the working groups was the elaboration of general positions on the conformity of draft laws with the acquis, and on the national priorities in the respective industry/sector. In that regard, tables of compliance of all draft laws with the EU common law were to be prepared. The Compliance Table reflected the full texts of the EU common law and the national draft law, as well as assessment of the degree of compliance between the two. In the case of lack of full compliance, the Compliance Table would fix a date for the achievement of such compliance. In addition to the working groups, consultation and information structures were created at the various ministries. Importantly, the new consultation institutions were not purely bipartite business-government structures but also included other segments of civil society, such as trade unions. Thus, at the Bulgarian Ministry of Economy and Energy, a special Consultative Council on European Integration was formed, where representatives of employers and trade unions meet with government officials from the ministry to discuss the various challenges of the economic acquis.1 Furthermore, representatives of economic and social partners such as business were able to attend the meetings of the Coordination Council. Bulgarian business was considered to be the major partner of the government institutions in the process of European integration, and the elaboration of negotiation positions in particular (MLSP 2004). The Bulgarian government publicly stated that all positions in the accession negotiations with the European Union were written with the participation of civil society.2 One of the most active participation of civil society was in the two working groups coordinated by the Ministry of Labor and Social Policy—on the free movement of people, and social policy and employment. In these groups, all representatives of the social partners—the Confederation of Independent Trade Unions in Bulgaria and Podkrepa Confederation of Labor on the union side, and the Bulgarian Industrial Association, the Bulgarian Chamber of Commerce and Industry, the Union of Private Economic Enterprise, and the Vazrazhdane Union of Private Producers on the business side, as well as a variety of NGOs—were represented and consulted at all stages of the preparatory work. The social partners were actively involved in

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the elaboration of a Joint Action Plan with the Ministry of Labor and Social Policy.3 Most of the discussions in the working group on social policy and employment at the Ministry of Labor and Social Policy concerned the conditions for the transposition of the EU social legislation and the institutional changes that needed to be done in order to properly implement the acquis in the social field (Ribarova 2001, 106). As far as companies were concerned, many of them, domestic and foreign-owned alike, faced the issue of how to increase competitiveness while adjusting to the legal requirements in the field of social policy, especially issues of health and safety at work. Representatives of the business community were also involved in the elaboration of the government position papers on the economic chapters of the acquis—such as the chapters on agriculture, the free movement of goods, and all those concerning the foundations of the EU single market. However, participation in some of the working groups has not been particularly useful because the social partners and NGOs had not been invited to all meetings of these groups (Ribarova 2001, 104). The involvement of business in the working group over one of the most difficult negotiation chapters—that on the environment—is revealed in a greater detail below. The Case of Working Group 22 on the Environment The Working Group on the Environment was formed in 2000, and was seriously restructured in 2002. The Ministry of Environment and Waters was the leading state organ that coordinated the activity of the group. The working group comprised more than seventy experts from different ministries and state agencies, as well as representatives of civil society, including business organizations—all those that were expected to be affected by the changing legislation in the area of the environment. Of them, twenty-two were from the Ministry of Environment and Waters, seven from the Ministry of Healthcare, and a variety of government ministries and agencies had from one to three representatives each—such as the Executive Agency on the Environment, the Council of Ministers, the Ministry of Foreign Affairs, the Ministry of Energy and Energy Resources, the Ministry of Defense, the Ministry of Economy, the Ministry of Regional Development and Public Works, the Ministry of Tourism and Sport, the Ministry of Agriculture and Forestry, the Ministry of Justice, the State Agency for Civic Defense, the State Agency on Metrology and Technical Monitoring, the Bulgarian Institute for Standardization, the Agency for Energy Effectiveness, the National Statistical Institute, the Agency for Nuclear Regulation, the Customs Agency, and the Executive Agency “Bulgarian Accreditation Office.” The business sector was represented by a total of ten experts. The Bulgarian Industrial Association had three representatives; the Bulgarian Chamber

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of Commerce and Industry, BIBA, and the Vazrazhdane Union of Private Producers had two representatives each; and the Union for Private Economic Enterprise had one representative. Trade unions comprised a third group of representatives on the working group, with two experts from Podkrepa Confederation of Labor, and one from the Confederation of Independent Trade Unions in Bulgaria. The working group met to discuss issues that were raised in the course of accession negotiations. The rule was to meet at least once a month, although the group had met more often when necessary. Most of the discussions focused on draft laws and draft regulations—actually these were all the documents that had to be submitted to the European Union and that reflected the Bulgarian position in the accession negotiations on the environment. More specifically, these included a draft law amending the Law on Environmental Protection, a draft Law on Noise Protection in the Environment, a draft Regulation for the Classification of Waste, a draft Law on Public Health, a draft Regulation about the Order of Issuing Permits for the Building and Exploitation of New and Exploitation of Existing Enterprises and Facilities, and many others. In the course of discussions, the business representatives were able to present their own positions on the draft documents. Actually according to the chair of the working group—an official from the Ministry of Environment and Waters—all Bulgarian positions in the area of environmental regulation had been coordinated with the business representatives in the working group before their submission to the European Commission, and the ministry had taken into consideration their critical comments.4 Despite that, the business sector was disappointed by the fact that only a few transition periods had been negotiated for the introduction of some European directives in the area of the environment.5 However, Bulgaria negotiated a total of eight transition periods in the area of environmental regulations, coming second only after Poland (with ten) among all new members from central and Eastern Europe. An acute conflict of interest in regard to some of the EU environmental regulations emerged in the spring of 2006, such as packaging waste management. In 2003 a new Law on Waste Management was adopted, and a government ordinance for packages and packaging waste. According to the law, the producers and importers of packaged goods are responsible for the divided recycling of waste accumulated with the use of packaged goods. The packages in principle pollute the environment and are difficult to dissolve. More than four hundred thousand tons of packaging waste is generated annually in Bulgaria. Due to commitments Bulgaria has made to the European Union, a fraction of that quantity has to be recovered and recycled. This quantity has gradually increased, the percentages for the years 2006, 2007, and 2008 being, respectively, 35 percent, 39 percent, and 42 percent.6

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According to the law, the producers and importers of packaged goods become responsible for the packaging waste management, specifically for the introduction of recyclable products on the market, the creation of environmentally friendly technologies for the reduction of the quantity of waste, and the usage of recycled material in the production process. The legislation imposed taxes on the production and import of plastic packaging of products that need secondary processing after the usage of the product. One important change that had to enter into force from 2004 was the so-called product packaging tax. It would be paid by all entrepreneurs who introduce products on the market after the usage of which a lot of waste is left. The business side was disappointed because the new regulations led to cost increases in the production of their goods—additional funds were necessary for the special treatment of packages so that the latter could be dissolved or recycled after the usage of the product. The Ministry of Environment and Waters claimed that the product packaging tax would lead only to 0.17 percent inflation, while the business organizations disputed that number. They argued that the major competitive advantage of Bulgarian products was their low price, while product packaging was predominantly imported, and hence expensive. That is, packaging would significantly increase the cost of Bulgarian products. If in some European countries the cost of packaging is 1 percent of the whole price of the product, in Bulgaria that figure would be 10 percent.7 In addition, for 2005 the producers and importers of packaged commodities had to utilize at least 25 percent of the packaging waste of all products that they had released on the market. That was actually a 5 percent increase in comparison with 2004. The initial position of the minister of environment and waters had been that the additional product packaging tax had to be paid by all companies, regardless of whether or not they had already introduced secondary processing of packaging waste. In March 2006 the minister issued an ordinance obligating Bulgarian businesses to pay retroactively more than one hundred fifty million leva (seventy-five million euros) as a product packaging tax for 2005. The six nationally representative business associations as well as BIBA opposed the ordinance. According to the seven business organizations, the ordinance of the minister unfairly obliged more than three thousand firms, members of these organizations, to pay retroactively the cited amount by March 24, 2006, despite the fact that these responsible companies had already made considerable investments and had achieved the goals as determined in the Law on Waste Management—that is, at least 25 percent utilization of the packaging waste of products that they had released on the market in 2005. The business sector argued that these companies operated in the light part of the Bulgarian economy, and were paying regularly taxes to the state. The tax on product packaging (especially plastics) was the most burdensome one for firms and their consumers (Yakimova 2006). A compromise

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was finally reached between the business organizations and the Ministry of Environment and Waters. Facing the facts, they adopted an approach that had proved to be working in other EU countries. The solution was called “recovery organizations” and it actually implements the “responsible producer” principle in a practical manner.8 Those companies who had become customers to such a company—specifically created by them—for the secondary processing of packaging waste, especially plastics, would not pay the product packaging tax to the state. Four licensed recovery organizations have taken over the utilization of packaging waste on behalf of business— Ecopack Bulgaria AD, Ecobulpack AD, Repack, and Recopack.9 On its part, the business community took the obligation to increase the quantity of packaging waste that they submitted for recycling to those enterprises.10 In order to provide more time to business for adaptation to the new packaging waste requirements, Bulgaria negotiated transition periods: for the recycling of plastic packaging—until 2009—and for the utilization of waste from packaging—until 2011. Bulgaria also negotiated transition periods for the implementation of some specific requirements of the European Union in the sectors of air quality, waste management, water management, and industrial pollution control. The critics on the business side, however, claimed that the business side was not well informed about the outcome of negotiations with the EC on the issue of packaging waste. According to the Ministry of Environment and Waters, such critics were not warranted because business representatives had to be present at the sessions of the working group where the issue was extensively discussed. They had to report later all discussion outcomes to their constituencies. Actually the government blamed the business side for not having adequate channels for dissemination of information related to the accession negotiations. Another contentious issue during the discussions in Working Group 22 emerged in 2006, with regard to a related government regulation about the production requirements for electrical and electronic equipment and the treatment and transportation of electrical and electronic scrap, adopted in April 2006. According to the ordinance, starting from July 1, 2006, the producers and importers of electronic equipment would have to pay a product tax for the electronic equipment that they would release on the market. According to some estimates of the Ministry of Environment and Waters, this tax would increase production costs by 3–5 percent. According to estimates of the business sector, however, the tax is about 10 percent of the market price of the electrical equipment, and would increase the prices of products (Ivanova 2006). The business organizations (the five nationally representative without the Union of Employers in Bulgaria, plus the Chamber of Electrotechnics in Bulgaria, and the Bulgarian Association for Information Technologies) insisted in a letter from June 21, 2006, to Prime Minister Sergey Stanishev,

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Minister of Environment and Waters Dzevdzet Chakyrov, Minister of Economy and Energy Rumen Ovcharov, and Chair of the Parliamentary Commission on Environment and Waters Georgi Bozhinov on the postponement of the introduction of this regulation from July 1 to December 31, 2006. They argued that the time period given to them for the organization of the collection and secondary processing of scrap from electronic and electrical products (from April to July 1, 2006) was too short. The producers, the state, and the consumers were not ready to start the recycling of electrical and electronic scrap in such a short period of time. The business side emphasized that there were no authorized organizations for the utilization of electronic and electrical waste, and no readiness for individual fulfillment of the regulation by the Bulgarian producers and importers of electrical and electronic equipment. The state had not created a system for the divided collection and disposal of such scrap. In raising their collective opinion on the postponement of the government regulation, the business organizations argued that the European Directive concerning the waste from electrical and electronic equipment (WEEE)—on the basis of which the government regulation was issued—was at different stages of implementation in different member states, and that its implementation in the United Kingdom was still postponed, while in the Netherlands alone the organization of such a system had taken five years. The directive was adopted by the European parliament in the beginning of 2003. It takes into consideration the increased utilization of electrical and electronic equipment and the drastic reduction in its life cycle as a result of dropping prices and increased purchasing power of the population. As a result, there is a process of accelerated dumping of used electrical and electronic equipment. The directive aims at the organization of new accompanying activities by the European producers and importers of electrical and electronic equipment, which should be environmentally friendly and would increase the efficiency of the industry. The directive envisages the financing of these activities directly by the producers and importers; it did not envisage any participation of the state in the management of the financing. As a result, the legislative organs and the business community, both at European and at national levels, worked closely for many years before the development of the directive for the specification of its practical implementation, so that the latter should be working without any negative effects on the economy. Overall, Bulgarian businesses emphasized that at least 1.5 years were necessary for the organization of this system in Bulgaria. They insisted on the creation of a system of permanent dialogue between government and business similar to that in European countries, and on the multistage practical implementation of the regulation. The business organizations emphasized that “the Bulgarian business should not have been isolated from the dis-

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cussion of norms that increase its financial burden and are not in harmony with the goals of the European directives. Now Bulgaria has negotiated with the European Commission stronger norms from the average EU norms and from what is required in that regard. Bulgaria also has shorter transition periods for which it has to comply with these norms. This requires more financial resources on behalf of business, which otherwise would have been invested for productivity increase. Overall, this would generally decrease its competitiveness” (Ivanova 2006). Thanks to the dialogue with the government, the deadline for the introduction of the tax regulation was postponed by six months—from July 1, 2006, to January 1, 2007. More specifically, the resolution happened through dialogue in Working Group 22 on the Environment, in the Council for Economic Growth, and the meetings with the Supreme Party Council of the BSP, where a deputy minister of environment and waters was also present.11 Meanwhile the Ministry of Environment and Waters issued a separate but related ordinance, based on the Law on Waste Management. According to this ordinance the product tax would be waived for those firms that have invested in the recycling of the electrical equipment, or have established an organization for that same purpose. The five nationally recognized business organizations together with the branch associations from the electronics and electrotechnical industry (the Chamber of Electrotechnics in Bulgaria and the Chamber of Electronic Industry and Informatics), the Bulgarian Association for Information Technologies, and a lot of big companies from these sectors became the founders of the El Resource Association for the Utilization of Electronic Strap, for the secondary processing of scrap from electronic and electrotechnical products. The companies were thus able to come up with a collective scheme for the collection and transportation of such scrap. The establishment of the association would reduce the costs for the collection and treatment of scrap, and would create conditions for full transparency of these activities. Participation of Individual Firms in the Accession Negotiations Government consultations with business over Bulgaria’s negotiation positions addressed business as organization, not as individual firms or networks. Thus the formalized consultation process in the thirty-one working groups included the peak national organizations of business that were nationally representative and participated in the tripartite social dialogue. Individual companies were also invited for participation in the discussions of the working groups, but only if the issues to be discussed concerned them directly. For example, several big companies were privatized in the Bulgarian cosmetics sector in 1999–2000, such as Alen Mak and Aroma AD. When Bulgaria

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started accession negotiations with the European Union, the Ministry of Economy organized a round table on a draft regulation concerning cosmetics products and the introduction of good management practices in the cosmetics industry, which had to reflect the requirements of the EU common law. The ministry invited the directors of the major cosmetics enterprises in Bulgaria to participate in the round table. They reacted very critically to the proposed regulation, because compliance with it required a lot of investments on the business side. As a result of those active consultations, the Bulgarian government was able to reach an agreement with the European Union for the introduction of a transition period of two years in regard to the regulation on cosmetics products. Overall, individual companies participated in the accession negotiations on the basis of the fact that derogations and transition periods for the implementation of some EU directives referred to individual companies, not whole sectors. In the negotiations over these derogations, the companies participated on their own, rather than being represented by business organizations. The individual enterprises were very active in the negotiations, especially companies like Neftohim and Lukoil in the negotiations over the environmental chapter, where big companies are more affected than smaller ones. In contrast, the chapter on the free movement of goods affected mostly small enterprises such as those from the cosmetics industry. Furthermore, the participation of individual companies in the accession negotiations was more important in specific industries, such as oil. Business organizations, in contrast, were more important in the discussions over the new regulations in sectors such as agriculture and food processing. For example, as already discussed above, business organizations participated in the sessions of Working Group 22 on the environment, but individual firms were also active in this group, especially in the final stages of finalization of transition periods. Part of the transition periods were negotiated on the basis of business requests and lobbying, while others were negotiated on the basis of government discretion. The transition periods were negotiated only for specific enterprises (or regions), not for whole industries and sectors. For example, three-year transition periods were negotiated for 653 gas stations and 466 roadtransport tankers; an eight-year transition period was negotiated for the various machineries in four thermal electrical plants, a transition period of one year and two months was negotiated for five installations, a transition period of two years and two months was negotiated for one installation, and a transition period of five years and two months for thirty-five installations. In terms of transition periods, the state collaborated directly with individual enterprises, rather than the business organizations.

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Business Versus the Government: The Technical Aspects Draus (2000) has argued that in the accession negotiations, social partners such as business tend to express their countries’ official positions, rather than represent and defend the particular interests of their constituent members vis-à-vis both their own countries’ governments and the European Union. In fact, as Draus observed in regard to the social partners in Poland, Hungary, and the Czech Republic, “they act more as additional representatives of the national interest, the primacy of which they have to and do recognize” (Draus 2000, 7). However, problems in the working groups, in particular between the government institutions and the business community, generally arose and were of two types—substantive and technocratic/technical. The substantive conflicts centered on the substance of the negotiations— the sensitive regulations that required a lot of adjustments and monetary commitments on behalf of business. Three areas of particular difficulty emerged in that regard—the environmental regulations, health and safety at work, and the safety of food products. The business climate in general was an additional area of hot debates and discussions. All those substantive issues are separately discussed in chapter 5. A lot of technocratic clashes between government and business emerged in the process of accession negotiations, most notably involving competition on the basis of who is the better expert on the issues under negotiation with the European Union. The technical problems were of several types. First of all, clashes emerged when in the course of accession negotiations the government would not defend positions that were mutually agreed upon in the working groups. Normally after discussions in each working group at the respective Bulgarian ministry, the government administration, business, and NGO representatives would reach a common position. However, often the state bureaucrats would defend a different position during the actual negotiations with the EU representatives. Thus, according to BIBA’s chairman Kirko Kirkov, the most significant problem for business and its participation in the working groups was the fact that the state administration did not take into consideration the positions of the business community that were discussed and agreed upon in the working groups.12 A notable example in that regard was the discussions over a government ordinance about the level of maximum allowable concentrations of hazardous substances. After a request from the government side, the Bulgarian Chamber of Commerce and Industry prepared an opinion about the allowable concentrations of hazardous substances, on the basis of expert assessments of their member companies and the experience of companies with the same type of activities in EU member states. The civil servants,

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however, rejected the chamber’s opinion, because allegedly it contradicted the European directives. As a result, in the accession negotiations with the European Union the Bulgarian delegation negotiated the lowest possible values of allowable hazardous substances, not all of which are applied in the EU member states. Furthermore, according to the business side the state administration did not take into consideration how realistic the practical implementation of the new norms was. They also did not take into account the low technological and financial ability of business to implement the negotiated positions that had actually been signed between the state administration and the EC delegation. According to business, the state did not conduct regulatory impact assessments about the costs and financial consequences of the negotiated positions sector by sector. The lack of information flows between the state administration and the business community was another technical problem that arose in the course of accession negotiations. As the business representatives complained, they were not well acquainted with the final negotiated arrangements between the Bulgarian government and the European Union, once the negotiations had been completed and the chapters had been closed. A related common and widespread disapproval on the business side was in regard to the lack of transparency of the negotiation process with the European Union. In a joint press conference in March 2004, the Bulgarian International Business Association, the Bulgarian Chamber of Commerce and Industry, the Union of Employers in Bulgaria, and the Bulgarian Industrial Association criticized the lack of transparency of the accession negotiations and alerted that Bulgaria could lose one-third of its exports in metallurgy, chemicals, cement production, and the cellulose-paper industry, if the lack of transparency over the negotiation process continued (Gelovska 2005). According to those business organizations, the problem was hidden in the fact that the state administration was not disclosing information to the business community about the final negotiated positions, and the deadlines and costs for their practical implementation. Without such information businesses would not be able to actually carry out the practical implementation of these new obligations.

EMBEDDEDNESS OF THE BUSINESS-GOVERNMENT RELATIONSHIP IN ORGANIZED CIVIL SOCIETY In the course of eastern enlargement the European Union insisted on the broadening of the scope of participants in social partnership, for the inclusion not only of the organizations of employers and employees but also of all other formations that have economic or social role (European Commission 2002c). In that regard, an accession requirement was added for the cre-

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ation of permanent economic and social councils in each candidate country before accession. The idea was to transform the existing forms of tripartism at the national level into broader forms of civic dialogue, including— in addition to the social partners (employers and labor unions)—other interests from the third sector, and at the same time providing to business and labor a separate arena for negotiations without the participation of the state, in the form of so-called bipartite or autonomous social dialogue. Economic and social councils were created in each accession country. They have been modeled on the European Economic and Social Committee, as consultative organs representing the views of civil society on the economic and social development of an acceding country (Atanassova 2004; Dimitrova 2004). The councils are structured into three groups—employers, employees, and various interests. The councils became a constant institutional form of social dialogue in the area of economic and social policy between the government and the structures of civil society. Their task is to develop opinions on draft laws, national programs, and plans regarding the economic and social development of the country, opinions on legal acts of the national parliaments regarding issues of economic and social development, opinions on strategic problems of the government’s economic and social policy, and annual memorandums and analyses of the economic and social development of the country. The Bulgarian Economic and Social Council The Bulgarian parliament adopted the Law on the Economic and Social Council in 2001, and amended it in 2003. The council was officially formed in December 2003, when its first plenary session took place. According to the law, the council is the permanent institutionalized form of social dialogue and consultations between the state—the Council of Ministers and the parliament—and organized civil society in the area of economic and social policy. The council thus aims to establish itself as the voice of Bulgarian organized civil society, and to take an active part in the process of integration of the country into the European Union. More specifically, the role of the council is to express the views of the social partners and other representatives of civil society on Bulgaria’s main economic and social problems. By law, the council has to develop opinions on draft laws, national programs, and plans regarding the economic and social development of the country, opinions on legal acts of the national assembly regarding the economic and social development, opinions on strategic problems of the economic and social policy, annual memorandums for the economic and social development of the country, and analyses on the problems of economic and social policy (as they are included in the council’s annual work plan). The council can also develop opinions under its own initiative.

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Three major state institutions seek the council’s opinions: the presidency (when the president has to decide whether or not to sign a particular law); the National Assembly (the program of the Bulgarian parliament has a lot of social and economic problems for discussion that have to be also discussed at the Economic and Social Council); and various ministries on the government side, primarily the Ministry of Labor and Social Policy and the Ministry of Economy and Energy. The council comprises a chair and thirty-six members, structured into three groups—employers, employees, and various interests. The chair of the council is nominated by the Council of Ministers after consultations with the three groups represented in the council, and elected by the National Assembly. The National Assembly elected the chairman of the council, Professor Lalko Dulevski, on September 17, 2003, with full consensus of all political forces represented in parliament. The first group of employers comprises twelve members designated by the executive organs of the nationally representative organizations of employers. The Bulgarian Industrial Association, the Bulgarian Chamber of Commerce and Industry, the Union of Private Economic Enterprise, and the Vazrazhdane Union of Private Producers have three representatives each. The second group of employees comprises twelve members designated by the leaderships of the nationally representative organizations of workers and employees. The Confederation of Independent Trade Unions in Bulgaria and the Confederation of Labor Podkrepa have six representatives each. And the third group of various interests comprises twelve members representing various nongovernmental organizations and guilds. They include representatives of the organizations of agricultural producers, producer cooperatives, craftsmen, professional guilds, consumers, women, environmental organizations, organizations of disabled people, organizations of pensioners, social aid organizations, and two independent scholars—specialists in the area of economic and social policy, designated by the Council of Ministers on the proposal of the minister of economy and the minister of labor and social policy. Permanent and ad hoc commissions are created to assist the work of the council. They prepare draft projects for discussions in the plenary sessions. There are five permanent commissions at the ESC: Commission on Economic Policy; Commission on Budget, Finances, Insurance, and Security; Commission on Social Policy; Commission on Labor, Incomes, Living Standards and Industrial Relations; and Commission on International Cooperation and European Integration.13 In contrast to the National Council for Tripartite Cooperation, the state is not represented directly in the Bulgarian Economic and Social Council. The latter does not negotiate and does not reach agreements with the gov-

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ernment, while the Tripartite Council negotiates directly with the government on a variety of issues related to the employment relationship, living standards, and incomes of the population. Another big difference between the two institutions is that the Economic and Social Council gives opinions on crucial aspects and problems of the economic and social development of the country, while the Tripartite Council discusses less general and strategic issues, or many day-to-day issues. As government institutions are not directly involved in the activities of the council, its purely consultative status is seen by business as a disadvantage that reduces the overall public impact of their opinions. According to some business representatives, the council’s official statements and opinions do not lead to any significant impact on the government policymaking process. Besides, many times the contentious issues—where there are conflicts of interest between employers and labor unions, for example— have to be avoided, so that the council members would be able to take decisions with a qualified majority vote and prepare joint opinions. The contentious issues are resolved by other means and through other channels. Despite that, all draft laws have to be submitted beforehand to the Economic and Social Council for review, which turns the council into an organ with a certain authority. Despite that, there are no guarantees that the opinions of the council would be taken into consideration by the government and parliament.

BUSINESS, PARLIAMENT, AND LEGAL APPROXIMATION The role of parliament in Bulgaria’s accession to the European Union gradually increased in the course of accession, and became much more prominent after the European Union opened accession negotiations with Bulgaria in 2000. This was due to the fact that no matter what actual agreements have been reached in the working groups, only the parliament has the authority to change legislation in a way that makes it compatible with the EU common law. The Bulgarian parliament faced two major tasks in the accession process: first, harmonization of domestic legislation with the European common law; and second, definition of the national interest during EU negotiations, by aggregating the interests of various social groups. Thus the parliament developed as an important intermediary between the government and the population at large (including business) in the process of accession negotiations. Overall, however, the lack of a well-developed model of interaction between the parliament and the executive contributed to the lower level of involvement of the Bulgarian parliament in the accession process (Dimitrov et al. 1998, 23).

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Law Harmonization While the parliament did not prepare the Harmonogram for the Compliance of Bulgarian Law with the EU common law—the Council of Ministers’ Directorate on European Integration and Links with the International Financial Institutions did it—the parliament had nonetheless to prepare an opinion on each draft law regarding its level of compliance with the EU common law. In 2002 a special directorate “Legislative Activity and European Law” was created at the parliament, based on the merger between directorate “European Integration” (created in 2000), and directorate “Legislative Activity.” The directorate comprised ten experts—lawyers with an expertise on the level of compliance and harmonization of Bulgarian law with the EU common law. To reduce the time for debates, the parliament adopted a so-called advanced procedure for the harmonization of Bulgarian law with the EU common law. However, the Thirty-Eighth National Assembly (1998–2001) had used it only one or two times, and the ThirtyNinth National Assembly (2001–2005) did not use it at all.14 Another important institutional development was the creation of a specialized parliamentary committee devoted to European affairs. In 2000, after the opening of accession negotiations between Bulgaria and the European Union, the Council on European Issues was created by the Thirty-Eighth National Assembly, with its chair being the chair of the National Assembly.15 The council had two major goals: preparation of opinions on the level of compliance of Bulgarian legislation with the EU common law, and monitoring and control over the government activities in the process of accession.16 The council held regular sessions at least twice a month. All parliamentary groups—the UDF, the People’s Union, the Democratic Left, the Bulgarian Euro-Left, and the Movement for Rights and Freedoms (the Turkish Minority Party)—were equally represented in the council, each one with three representatives. The Bureau of the EU-Bulgaria Joint Parliamentary Committee had also three representatives in the council. The council could take decisions only if representatives of all parliamentary groups were present at its sessions. Its decisions were formed on the basis of a consensus of all parliamentary groups, while each parliamentary group had one vote. If consensus among the five parliamentary groups could not be achieved, the chairman of the National Assembly had to send the draft law for consideration in the respective permanent commission or in plenary session. In its activities, experts of the parliament, external experts, and representatives of various nongovernmental organizations assisted the council. It could form permanent and ad hoc working groups, which prepared and presented opinions, reports, and suggestions on particular problems. The Thirty-Ninth National Assembly of the Republic of Bulgaria (formed after the parliamentary elections in June 2001) renamed the Council on European Issues into a Committee on European Integration. The committee

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became one of the twenty standing parliamentary committees. Its activities and functions were in two major areas: assessment of the level of compliance of the Bulgarian legislation with the EU common law, and parliamentary control over the accession negotiations. In the EU member states, those commissions perform mainly the control function. The committee comprised twenty-four deputies: twelve from the parliamentary group of the ruling National Movement Simeon II (NMSS), five from the parliamentary group of the United Democratic Forces, five from the parliamentary group of Coalition for Bulgaria (the Bulgarian Socialist party with several small allies), and two from the parliamentary group of the Movement for Rights and Freedoms. Various citizens and judicial persons can participate in the sessions of the committee if the discussions concern their particular interests.17 The decisions of the Committee on European Integration have to be taken by unanimity of all parliamentary groups. Each parliamentary group is allocated a single vote. The idea behind this rule has been that a political consensus is needed on European integration among all political parties and alliances represented in parliament. However, it is very difficult to reach such a consensus.18 The seven parliamentary groups are first of all difficult to get together to convene a session. And if a debatable issue is at stake, then it is even harder to reach consensus. In the case of lack of consensus, the chair of the National Assembly has to send the draft law for discussion in the leading parliamentary committee or in plenary session. The committee met regularly once a week. It had discussed approximately eighty draft laws and three draft decisions of the National Assembly, and adopted opinions for first reading. According to interview data, the Thirty-Ninth National Assembly had 160 draft laws on which the opinion of the Committee on European Integration was sought. These draft laws were important for the harmonization of Bulgarian legislation with the EU common law. A special initiative emerged in 2002—the Civic Forum, after the Committee on European Integration began to invite representatives of civil society to its sessions. The latter were given the opportunity to raise their opinions and concerns in regard to the discussed draft laws. Such representatives were invited especially in cases when ministers had to report to the commission as part of the parliamentary control on EU integration. However, by 2004 the initiative faded away, mostly because of lack of interest on the part of civil society organizations. For business in particular, this was mainly the result of the secondary importance of the committee in the legislative process. If business organizations wanted to raise accession-driven issues, they would not approach the Committee on European Integration because it was not a leading commission on draft legislation—basic decisions on draft laws are taken in the other commissions. The task of the

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committee was only to monitor the compliance of a draft law with the EU common law. Definition of the National Interest in Accession Negotiations Another major function of the Bulgarian parliament in the process of accession negotiations was to define the national interest in the negotiations with the European Union by aggregating the interests of various social groups. The parliament needed to obtain information about the European policies of various interest groups, in order to be able to form a unified national policy and define the national interest in accession negotiations. In aggregating the interests of various groups of civil society on EU enlargement, the parliament, and more specifically its Committee on European Integration, organized so-called visiting sessions. They were held in a provincial city where the commitments and responsibilities that Bulgaria had taken on some of the chapters of the EU common law were discussed with the broader public. The idea was to popularize the process of EU integration and Bulgaria’s accession to the European Union. For example, a special session on SAPARD had been organized in Targovishte. The minister of agriculture as well as representatives of the SAPARD program attended. At the session, very concrete questions were raised. Another session was devoted to the environment and held in another city (Bourgas). In 2002, a special session was organized in Plovdiv on issues of energy policy with the participation of the minister of energy and energy resources. However, these parliamentary initiatives were rarely attended by businesses. In addition, business representatives and other representatives of civil society could send their opinions to the basic parliamentary commissions for consideration in the discussions of a particular draft law. Businesses could also request separate meetings with leaders of the parliamentary commissions, and this had evolved as a regular channel of communication. Besides, business representatives could participate directly in the discussions of all parliamentary commissions. Each Tuesday the parliament publishes the itinerary of all sessions of the parliamentary commissions for the coming week, including draft laws that would be discussed. Any person or organization—including business organizations—can participate in the discussions after a request. Some parliamentary commissions have even established a routine practice to invite business representatives and representatives of nongovernmental institutions to the discussions of draft legislation. Thus good communication developed between the business community and the Economic Commission of the parliament. An agreement was reached that business representatives could contact directly the commission to discuss issues that are of concern to them. The parliamentary Commis-

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sion on Labor and Social Policy has also been active in aggregating the interests of the business community in regard to the process of Bulgaria’s accession to the European Union. A special Consultative Council for Legislative Initiatives was created at that commission, with the participation of business and labor organizations on a regular basis. More specifically, the Consultative Council was created in October 1997, with the goal of guaranteeing transparency of public debates on the most important areas of social legislation: social reforms and harmonization of Bulgarian social and labor legislation with the European common law. The council became an organ for spurring involvement of, and exchange of opinions among, all legitimate groups in society. It comprised representatives of the Standing Parliamentary Commission on Labor and Social Policy, chairs of all standing parliamentary commissions, representatives of all parliamentary groups, and representatives of the government, the presidency, all employer organizations, all trade unions, and all NGOs that have a say in the specific aspects of legislation that are under discussion in the council. On average, seventy to eighty people participated in each of the sessions of the council. Many of the proposals made at the council were later considered by the Standing Parliamentary Commission and were included in the final draft laws before their discussion in Parliament. As a result of these discussions, the draft laws proposed by the commission were accepted in Parliament with less dissent and fewer debates.19 In addition to participation in the discussions of the parliamentary commissions, business leaders can also get elected as members of parliament on the ballots of the major political parties in the country. Thus there are at least ten new deputies in the current parliament with a very serious business experience, some of them being leading figures among the business community.20 Overall, however, according to a survey conducted in August 2006 by the National Center for Public Opinion Research among 411 firms, only 17 percent of respondents claimed that the interests of their branch were represented in parliament, and most often that was the opinion of big firms. Unanimously the business representatives thought that the most important new law that they would propose in parliament would be a law for the defense of small and medium-sized businesses. They would also propose a special law on anti-corruption. If the people from the business circles had the right to legislative initiative, they would propose about sixty new laws, according to the survey results.21 Direct Political Representation of Business: Development of Business Parties In the initial years of postcommunist transition concrete political orientations of business organizations were hard to identify because the left and

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right were mixed, and the political divide was not along the lines of left or right, but along the lines of communism or anticommunism. Despite that, some warmer links of business organizations with political parties could be identified. For example, the chief secretary of the Union for Private Economic Enterprise Mincho Koralski became minister of labor and social policy during the socialist government of Zhan Videnov. The Bulgarian Chamber of Commerce and Industry has often been accused of having very warm relations with the Bulgarian Socialist Party, especially with its Videnov government. The Bulgarian Industrial Association actively supported the Kostov government of the right-wing Union of Democratic Forces. The Vazrazhdane Union of Private Producers has been leaning toward the Bulgarian Socialist Party—its leader Dobromir Gushterov publicly declared that the union would participate in the 2003 local elections in partnership with the Bulgarian Socialist Party. The Union of Employers in Bulgaria cherished a lot of expectations from the more centrist government of Simeon II (Gladicheva 2004, 22–24). The first attempt at forming a separate political party to represent business interests in Bulgaria was made in the early years of postcommunist transition, with the formation of the Bulgarian Business Bloc (BBB), led by George Ganchev. The BBB was founded in November 1990 on the initiative of the Union for Private Economic Enterprise. The BBB statute defined it as a political organization of the free and initiative people, believing in the values of liberalism, economic freedom, and technical progress. However, at its second congress the organization was split, and part of the governing body and members founded a separate party, which retained close links with the Union for Private Economic Enterprise—the Bulgarian Business Party, renamed later to Party “New Bulgaria” (Partiya “Nova Bulgaria”). In September 1997, the BBB members split again, as two congresses were held at one and the same time. BBB participated independently in the parliamentary elections in 1991, 1994, and 1997. In the 1991 parliamentary elections, it gained 1.32 percent of the total votes and was not able to pass the 4 percent threshold. The Bulgarian Business Party was also not able to enter the parliament, with its 0.93 percent of the total vote. However, BBB was successful in the 1994 parliamentary elections. It gained 4.73 percent of the total vote, and received thirteen seats in the Thirty-Seventh National Assembly. By the end of 1996, however, the Parliamentary Group of BBB was left with only nine MPs. After the split within the party, in September 1997 the Parliamentary Group of the BBB was dissolved. In the 1997 parliamentary elections, the BBB won 4.91 percent of the total vote, and gained twelve seats in the Thirty-Eighth National Assembly. BBB also participated in the presidential elections in 1992 and 1996. In 1992, it nominated its chair George Ganchev for presi-

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dent, and Petar Beron as vice president. They gathered 2.24 percent of the total vote in the first round, and finished fourth. In 1996, George Ganchev competed with Arlene Antonov, and they won 21.87 percent of the total vote in the first round, ending third and again not making it to the second round. BBB was often labeled as “populist” rather than defending real business interests. The BBB phenomenon could largely be explained with its charismatic leader George Ganchev. Born in Bulgaria, he emigrated from the country in the early 1960s, and graduated from the British Fencing Academy and the Hollywood Theatrical Institute. In the period 1973–1988 he was engaged in directing, playwriting, and film- and play-producing in Great Britain and the United States. In 1970 and 1974 Ganchev became world champion in professional fencing. He also performed as an actor. After the dissolution of the BBB in 2001, Ganchev formed Ganchev’s Political Bloc, which got only 0.38 percent of the vote in the 2001 parliamentary elections. More recently, some business circles in Bulgaria—mostly those around financier Emil Hyrsev—also argued that business should have direct representation in parliament.22 A new political formation was founded in April 2005—the Federation of Free Business. Its major goal was participation in the 2005 parliamentary elections. The federation claimed that political representation of business was necessary in order to secure favorable economic and business environment. An additional goal of the new business party was to prepare the Bulgarian economy for EU membership, and to participate in shaping Bulgaria’s position in the European debate for economic development—should it be more liberal, with increasing competitiveness, or still more social-market-oriented.23 The federation claimed to contribute for greater economic freedom and less bureaucracy in the country, as well as greater access to the Eurofunds for business.24 However, only two weeks after its creation, the federation split into two separate sections—pure businessmen and pure politicians. The pure businessmen left and created their own political party, called Federation for Active Civil Society. The federation united businesses from the light and food industries, construction, architects, notary publics, doctors, dentists, craftsmen, drivers, and taxi drivers. It further claimed to represent the interests of both business and civil society.25 The founders of the Federation for Active Civil Society wanted “the state to work as one well-managed private enterprise, and its citizens to receive honorable salaries, insurance, and rest and recreation.”26 According to the formation, the achievement of higher standards of living in society was possible only with the direct participation of business in the legislature.

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NOTES 1. Interview data. 2. Interview data. 3. Statement of Ivan Neikov, minister of labor and social policy of the Republic of Bulgaria, at the Informal Meeting of EU and Applicant Countries’ Ministers of Labor and Social Affairs (Brussels, Belgium, March 9, 1999). 4. Interview data. 5. Interview data. 6. “Packaging Waste Recovery Organizations: The Responsible Solution.” American Chamber of Commerce in Bulgaria Magazine 77 (March 2007): 22–24. 7. Interview with Lukan Lukanov, vice-chairman of the Union of Employers in Bulgaria, Kapital 18 (May 5, 2006). 8. “Packaging Waste Recovery Organizations: The Responsible Solution.” American Chamber of Commerce in Bulgaria Magazine 77 (March 2007): 22–24. 9. Kapital 1 (January 8–14, 2005): 22. 10. Interview data. 11. Interview data. 12. Interview data. 13. Republic of Bulgaria, Economic and Social Council, Sofia, May 2004. 14. Interview data. 15. Archive data from the Thirty-Eighth National Assembly of the Republic of Bulgaria—protocols of the sessions of the Council on European Issues. 16. Thirty-Eighth National Assembly of the Republic of Bulgaria, Permanent Commission “Council on European Issues,” Regulations for the Organization of the Work of the Council on European Issues, adopted on March 29, 2000. 17. Internal Rules of the Organization of the Activities of the Committee for European Integration at the Thirty-Ninth National Assembly, Sofia, National Assembly, August 2001. 18. Interview data, secretariat of the commission. 19. Interview with Svetlana Djankova, vice president of the Parliamentary Group of the UDF, chairman of the Permanent Parliamentary Commission on Labor and Social Policy, and chairman of the Parliamentary Consultative Council for Legislative Initiatives, Sofia, July 30, 1999. 20. Biznes Vesti 26 (86) (July 1, 2005). 21. Dnevnik (August 28, 2006). 22. Pari 96 (May 20, 2005). 23. Mediapool (March 29, 2005). 24. “Drugijat pogled kym krizata,” Kapital 6 (February 11–17, 2005). 25. Mediapool (April 6, 2005). 26. “Biznesyt sam reshava problemite si,” Biznes Vesti (April 11, 2005).

5 Cooperation and Conflict on the Sensitive Issues of Legal Approximation

The harmonization of Bulgarian legislation with the EU common law led to several major challenges to the business community, and subsequent strains in the business-government relationship at national and sectoral level. According to research on “Bulgarian Business and EU Accession” carried out in November 2003 by Alfa Research Ltd., the EU ecological standards were recognized as the biggest problem for Bulgarian enterprises on the road to the European Union (according to 41 percent of the interviewed companies). Next came the standards for safety and quality of production (38 percent), occupational health and safety (32 percent), the product itself (31 percent), and the requirements for research and development (12 percent).1 This chapter focuses on some of the most sensitive issues of legal harmonization: the establishment of a favorable, transparent, and noncorruptive business environment; environmental preservation (the EU requirements in the environmental field were one of the hardest to comply with, with a lot of funds needed on the business side); and food safety.

ESTABLISHMENT OF A FAVORABLE AND TRANSPARENT BUSINESS ENVIRONMENT As already discussed in chapter 2, in the early years of transition Bulgaria was dominated by bogus insurance companies and racketeering, financial fraud (financial “pyramid” schemes and siphoning of banks), and various extortion practices with regard to prices and/or suppliers. These parasite practices were largely the result of the political instability and institutional 105

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weakness of the government and the law enforcement authorities in particular. After 1997, due to the efficient functioning of the currency board arrangement, businesses gradually came out of the dark and the private sector went to normal through the improvement of the overall institutional framework of the market. The business climate in the country continued to improve after Bulgaria opened accession talks with the European Union in 2000 (Coalition 2000 2005). Still, many problems remained. They were mainly in two directions, according to a survey of 611 SMEs (employing up to one hundred persons) conducted by Vitosha Research in 2002. The first group included administrative and financial difficulties existing at the state and legislative level, such as tax responsibilities, problems with the financial and banking system of the country, as well as with the considerable degree of state involvement in the economic processes. The second type of problems stemmed from the day-to-day management of enterprises and the individual orientations of businessmen, such as the spread of corruption, administrative procedures and bureaucratic obstacles, and problems related to the interpretation, fulfillment, and validity of the separate laws (see table 5.1) (Vitosha Research 2002). Very slowly and hesitantly, sectoral organizations and business associations began to change from sheer lobbyists insisting on privileges for individual members or the sector as a whole to self-regulators—that is, improving the business environment through intolerance to unethical companies, and actively partnering with the government for improvements in the business climate as a whole. Table 5.1.

Major Problems for the Development of Private Business in Bulgaria

1. 2. 3. 4.

High taxes; complicated and demotivating tax system and collectibility Difficult access to credit for the financing of business activities Insufficient state incentives for SMEs (start-ups and growth) Complicated and time-consuming procedures for the issuing of licenses and permits 5. Arbitrary changes in law which impact business (registrations and others) 6. Complicated regulations and long, time-consuming procedures for the start-up of a firm 7. Unpredictable judicial system (vague laws, problematic fulfillment, etc.) 8. Rights of owners not guaranteed 9. Corruption and bribery along the supply chain 10. High value of capital 11. Unequal opportunities in the privatization process 12. Other 13. Don’t know/No answer Source: Vitosha Research 2002, 5.

60.6% 43.5% 37.5% 26.4% 23.6% 19.3% 15.1% 11.9% 9.0% 6.1% 4.9% 3.9% 2.6%

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Partnerships for the Reduction of Licensing and Regulatory Regimes, and the Tax Burden The regulatory problems that had to be resolved in the context of the harmonization and implementation of the acquis communautaire could be summarized as follows: (a) existence of many licensing and permit requirements, which create prerequisites for corruption and over-regulation; (b) duplicate, overlapping, or conflicting municipal and central procedures which posed an additional obstacle to the efficient implementation of law; and (c) weak enforcement and control over the implementation of regulations, and, respectively, punishment of violators (Popova 2002, 54). Respondents pointed to three major problems when they applied for obtaining administrative permits: the duration of the procedure, the large number of documents to be presented and requirements to be met, and the requirement to present documents that had already been submitted to public registries (Coalition 2000 & 2005). In addition, companies had to deal with overlapping and often conflicting requirements. An example of this was the sanitation permits for commercial entities required by both central and local governments, or land registration procedures requiring submission of duplicate documentation to multiple agencies. The excessively complicated and cumbersome parallel procedures instituted by local governments (that is, issuance of a license to trade) raised additional barriers and obstacles to business (Popova 2002, 53–54). Under pressure from business and as part of the consultations in the working groups related to the economic and single market chapters of the acquis, the state undertook initiatives for the relaxation of the administrative regulations since 1999. A program for the optimization of administrative procedures in regard to licensing, permit, and registration regimes was adopted. As a result, reduction of market entry barriers has become a policy, and gradually it began to be carried out in tandem with business organizations. Thus in January 2000, the Ministry of Economy set up an Interministerial Working Group for Further Improvement of the Business Climate. Its major goal was to conduct a full assessment of the licensing, permitting, and registration regimes, and to propose measures for amendments in the normative acts, with a timetable for their implementation. The working group reviewed the existing rules and their impact on markets. It analyzed 526 licensing, permitting and registration regimes, presented by thirty ministries and government agencies. More than 330 regimes, which were closely related to the development of entrepreneurship, were reviewed in detail. Proposals were issued for the abolition or amendment of 192 licensing, permitting, and registration regimes. By June 2005, according to an assessment of the Ministry of Economy, of these 192 regimes, 163 had been

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abolished or amended (Stanchev 2002, 85). The working group further made a proposal to the Council of Ministers for the adoption of a law for the reduction of administrative regulation and administrative control over economic activity. The working group also emphasized the necessity for the conduction of a preliminary Impact Assessment of the Policies and Regulations of the European Union by the Council of Ministers on any of the draft laws, parallel to their preparation. A regulatory impact assessment includes government consultations with affected parties to review all proposed new regulation— that is, the government informs, discusses, and assesses benefits and costs for the affected groups (Mandova 2001). The assessment normally refers to the public administration, although business impact also has to be considered. However, as the business community in Bulgaria complained, the European directives were harmonized and implemented without a systemic analysis of their impact on the business community.2 Based on the recommendations of the Interministerial Working Group for Further Improvement of the Business Climate in the country, a Law on the Reduction of Administrative Regulations and Administrative Control over Economic Activity was adopted by parliament in 2003. It regulates the reduction of administrative regulation and administrative control. Furthermore, the State Administration Act, the Public Servant Act, and the Administrative Service Act target the elimination of the “human” factor in state-business relations. This means that permits would be issued on the ground of clearly formulated and verifiable criteria, listed in the law or other regulations. As a result, registration of companies in Bulgaria has become relatively easy. For example, registration of a limited liability company requires the presentation of eleven documents to the Commercial Register of the local District Court, takes one to two weeks, and costs around 125 euros. Registration of a trade representative office of a foreign person requires producing eight documents, takes three days, and costs 100 USD (Gertchev 2006). The government Strategy for the Modernization of State Administration (2003–2006), and the Plan for its Implementation were adopted in 2003. They contained measures for the elimination of barriers of administrative character for the improvement of the business climate in the country. Importantly, the strategy was based on the principles of good management, including the principle of participation. This meant the maintenance of structured dialogue with the economic and social partners, including business—at the national, district, and municipal level—for the development of national policies and relevant legislation. The strategy envisaged financial decentralization of state governance and the creation of an electronic government. The strategic goal of an e-government is the electronic provision of qualitative, economically effective, and easily accessible administrative services to citizens and business, and the creation of a relevant

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organizational, communications, and information environment for the effective and transparent functioning of state administration in accordance with the EU principles, norms, and best practices. The e-government would cover four basic venues for communications and services: administrationcitizens, administration-business, administration-administration, and interministerial effectiveness and efficiency. The business registration reform continued with the adoption of a new Commercial Register Law in March 2006. The law foresees that business registration be taken out of the courts and turned into a purely administrative procedure. It also regulates the Bulgarian applicability of international accounting and audit standards established in the European Union. With the adoption of the new accounting law in 2003 these standards became mandatory for banks, investment and insurance companies, and from January 1, 2005, these standards became mandatory for all firms. The business-government collaboration for the reduction of regulatory regimes was further strengthened with the creation of a new interministerial working group in January 2006, for the elaboration of proposals for changes in the normative acts that impede the investment process. In addition, a special working group was created at the Council for Economic Growth for the optimization of the business environment by the audit of existing initiatives for the improvement of administrative regulation and analysis of the administrative basis in that regard. There were even debates over proposals for the delegation of the management of some of the regulatory regimes from the state organs to the branch business organizations. The business sector insisted that certain activities related to the licensing procedures be delegated to the branch organizations, and that state institutions would only control the process. This would mean more rights and responsibilities for the branch organizations. The draft law on branch organizations actually envisaged such delegation of responsibilities3 but it was delayed in Parliament. Despite the concerted efforts for the reduction of the regulatory burden on business, some surveys actually revealed that the EU requirements and the harmonization of Bulgarian legislation with the EU common law had not decreased but increased the regulatory burden of Bulgarian companies (Dimitrov 2006). In addition, even if legislation had been harmonized according to the EU standards, the level of its practical implementation remained low. Thus a 2006 survey of the Bulgarian Industrial Association revealed a significant discrepancy between the number and type of the regulatory regimes according to the Bulgarian legislation, and their number according to the Public Administrative Register (see table 5.2). While part of this discrepancy was due to the lack of actualization of the official register, another significant part stemmed from the lack of implementation of the regulations of the Law on the Reduction of Administrative

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Table 5.2. Regulatory Regimes According to the Bulgarian Legislation (BL), and to the Public Administration Register (PAR)

Licensing Regimes

Central organs of executive power Local organs of executive power Total for administration

Registration Regimes

Permitting Regimes

Coordinating Regimes

BL

PAR

BL

PAR

BL

PAR

BL

PAR

54

53

47

234

260

245

—

128

Should not administer 54

60

11

379

20

767

—

69

114

68

613

280

1,012

—

197

Source: BIA Survey (Dimitrov 2006).

Regulations and Administrative Control over Economic Activity. The law firmly states that the local government administration has no legal power to introduce licensing regimes. In terms of the remaining regimes, they are as a whole much more than the law regulates (Dimitrov 2006). The fiscal burden on enterprises also began to gradually decrease as a result of the tax legislation reforms, as well as improvements in tax and customs dues collection (Eurochambers 2005). The value-added tax is currently established at 20 percent. Corporate income tax has fallen from 23.5 percent in 2003, to 19.5 percent in 2004, 15 percent in 2005, and 10 percent in 2007. Besides, it became a flat tax. One of the biggest reforms of the Bulgarian tax system was the creation of a National Revenue Agency, which unites the functions of the tax administration and the National Insurance Institute—that is, taxes and insurance contributions will be paid at one and the same place. The National Revenue Agency became operational in January 2006, and has the sole responsibility for the collection of central government taxes and social security contributions. Labor Costs, Labor Market Flexibility, and the Whitening of Business In addition to the decreasing regulatory regimes and tax burden, labor costs in Bulgaria were the lowest in the region by the end of 2005, despite the high cost of the Bulgarian social security system. Namely, they were 1.1 USD/hour, compared to 1.4 USD/hour in Romania, 2.4 USD/hour in Turkey, 13.7 USD/hour in Greece, and an average in the European Union of 28.3 USD/hour (Gertchev 2006). However, a special concern in regard to the Bulgarian labor market and the general business environment in the country was the continuing existence of grey and hidden economy. To combat undeclared work, a new hid-

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den economy monitoring system was developed, including an Index of Hidden Economy. The index comprised the following subcomponents: general assessment of the size of the hidden economy, and specific manifestations of the hidden economy, such as labor relations (hidden employment), turnover (hidden revenues), and redistribution (tax evasion) (Coalition 2000 2005). The measures for the whitening of the grey sector included, first, the introduction of a requirement for a minimum insurance level for each job position, for nine categories of personnel. That is, for each category of employees in a given sector a fixed minimum insurance level was introduced. The minimum insurance level is centrally negotiated on an annual basis by the branch organizations of employers and employees, after the social partners at the all-national level reach an agreement. This eliminated the widespread practice of officially declaring about two-thirds of all Bulgarian employees to be working at the minimum wage. The employers could still declare that an employee was paid the minimum wage, but the insurance of that employee had to be done according to the newly adopted differentiated minimum levels. Second, the social insurance contributions for their employees were also considerably reduced under the insistence of business, and in negotiations with government. Interestingly, despite the reduced insurance contributions, the absolute insurance contributions to the state budget were not reduced, but remained the same. Third, mandatory registration of all employment contracts with the National Social Security Institute was introduced in 2003. There was also a subsequent increase of the supervision checks by the General Labor Inspectorate in the beginning of 2003. The inspectorate can impose a fee of one thousand leva (five hundred euros) for each employee with an unregistered labor contract. Finally, the government policy to reduce the regulatory and tax burden and to improve the efficiency of some basic public services, such as social security and health care, also contributed to the reduction of the grey sector. These measures brought about a considerable reduction in the number of employees hired without any contract—from 25 percent at the end of 2002 to 16.7 percent in March 2003. The new employment contracts registered as a result of the measures reached some 162,500. But due to their administrative nature, these measures were costly and short-term in nature (Coalition 2000 2005). Generally, the public-private actions undertaken to reduce the hidden economy and the corruption pressure it generates have been quite successful, bringing its share from about one-third of GDP to approximately onequarter. Still, its size is substantial for a developed market economy (Coalition 2000 2005). In addition to the whitening of business, a very specific issue emerged over the abolition of the mandatory wage bonuses for length of work that comprise 0.6 percent of the nominal wage for each additional year in service.

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The Bulgarian government took the commitment to abolish the wage bonuses for length of service in 2004 in an agreement with the IMF, while the labor unions opposed the abolition of the wage bonuses for length of service (Mladenova 2006a). A working group was formed at the Ministry of Labor and Social Policy with the task to resolve the dispute. It included business and labor union representatives. The issue concerned not only the wage bonuses for length of service but also the principles of wage bargaining and wage formation, in line with the European practices. A proposal of the Ministry of Labor and Social Policy was discussed in the working group, which envisaged changes in the normative regulations on these issues to take effect from January 1, 2007. The proposal included the preservation of the mandatory wage bonuses for length of service. The position of the business organizations was explicitly expressed in a joint declaration on February 27, 2006, signed by the five members of the Association of Organizations of Bulgarian Employers. The business sector was firmly in favor of the abolition of the transferability of length of service from one employer to another, not for the abolition of wage bonuses for length of service in general. They argued that the abolition of transferability was a requirement both of the IMF and the European Commission. Thus, the EC’s Monitoring Report emphasized that labor mobility continued to be endangered by the transferability of additional payments based on length of service. From the perspective of employers, older employees would be discriminated in the case of preservation of the mandatory wage bonuses for length of service. They would not be attractive to new employers, who would be legally obliged to pay an additional bonus to them for “length of service.” At the same time, according to the business side, the younger workers would be also discriminated by the mandatory wage bonuses for length of service because they would be paid less for one and the same work despite their generally higher qualifications. The business organizations raised a unified voice that wage increases should depend mainly on work results, qualification, production experience, labor specifics, and not so much on the age of employees. However, in March 2006 the government decided to postpone by one year the abolition of the mandatory wage bonuses for length of service. According to Minister of Labor and Social Policy Maslarova, the wage bonuses for length of service were a half-century tradition in Bulgaria and should not be discussed for at least a year. As a reaction, the business side threatened in a public declaration to freeze its participation in the negotiations over the conclusion of a Social and Economic Pact; to withdraw from the National Council for Tripartite Cooperation and its organs, from all commissions and working groups at the Ministry of Labor and Social Policy, and to call their branch organizations and members not to sign collective agreements until January 1, 2007.

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Business and the Judicial Reform A survey of 611 SMEs conducted by Vitosha Research in 2002 showed that business confidence in the judiciary was extremely low. Thus, 81 percent of respondents declared that they had no confidence, and only 12 percent had confidence in the judiciary. The major reason for this low confidence was, according to the respondents, the low efficiency of the institutions of the judicial system. Thus for 68 percent of the respondents in cases of law abuse the controlling organs either did not interfere or were not effective. The same was true for the punitive system and criminal jurisdiction. Another large group of entrepreneurs (56 percent) did not trust the judicial system because of ambiguity and bad practical implementation of the laws regulating business. Another 55 percent thought that the new laws regulated business activities but in practice did not lead to business growth (Vitosha Research 2002). In 2003 a Council of Ministers regulation increased judicial taxes for businesses, and made them two to forty times higher than the taxes existing in other candidate countries for EU membership. Thus, for one revision act with a fee of thirty leva, businesses had to pay a tax of two thousand leva to dispute it. The business community considered this to be a new channel of corruption because when taxes were high, the legal honoraria and the corruption taxes would also become high in order to accelerate court rulings or the registration.4 In 2003, representatives of business and the judiciary met for the first time in a formal discussion—“Judicial System and Business in Bulgaria.” The topic of discussion that brought together representatives of the Bulgarian International Business Association, the Bulgarian Business Leaders Forum, the American Chamber of Commerce, and the Ministry of Justice was the Act on Commerce, to be adopted in parliament by the closing of its 2003 session (BIBA 2003). The business position on the Act on Commerce was that, regardless of all amendments, the act still had many gaps in the norms regulating bankruptcy proceedings, and it contained norms creating paradoxical situations within the proceedings. Inadequacy of the legal definition of insolvency, failure to define how many bankruptcy proceedings against an entity may be carried out at a time, and lack of regulation of how to deal in cases of competition for launching of bankruptcy proceedings were among the criticisms. The situation did not improve much in the following few years, though. Thus, some polls of the business community conducted in 2004 revealed that almost one-fifth of respondents (17 percent) claimed that if they had to go to court, they could rely only on their luck for a good outcome of the case (Stoilova 2004b). Furthermore, in answering the question about whether they had been able to collect in a forced manner their money from debtors after a court ruling, 45 percent of respondents had given a negative

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answer. Another 10 percent had declared that the problem had not been with the court but with the debtor. As a reason not to get what was owed to them the respondents pointed to the lack of good laws, the slow reaction of the courts, and the unscrupulousness of bailiffs. Overall, only one-fourth of the respondents had used the court or an arbiter in order to get back the debts owed to them. The major reason here lies in the fact that Bulgarian businessmen were not used to consulting with a lawyer about the necessity of a judicial resolution of their problem. At the same time according to different sources the inter-firm indebtedness was for more than forty billion leva (twenty billion euros). Overall, Bulgarian entrepreneurs would take the decision to address the courts or the arbitrage system for the resolution of disputes with a lot of difficulty. Half of the respondents thought that specialized courts should exist for a certain type of cases—for example, labor cases. Overall, the criticisms toward the courts could be summarized in three words—lack of competence (Stoilova 2004b). One particular area of collaboration between business and the judicial institutions was in regard to the acceleration of civil proceedings. Six discussion sessions were held between representatives of business (the Bulgarian Industrial Association), judges, corporate legal advisors and lawyers in each of the planning regions of the country. At these sessions, proposals were raised toward supplementing and perfecting the draft of the new Civil Proceedings Code (USAID and BIA 2006). The Civil Proceedings Code had been approved in 1952 under the conditions of a planned economy, socialist ownership of the means of production, and a ban on any form of economic activity by the citizens. Its range did not cover the disputes between the socialist economic subjects—state economic organizations, agrarian-economic complexes, and others—which were treated by the State Arbitrage according to the State Arbitrage Act. Following the democratic changes in 1989 and the approval of the Commerce Act (1991), the State Arbitrage Act had been abolished. Thus, the lawsuits between the new economic subjects—the traders, related to their commercial relations—have come under the jurisdiction of the courts as regulated by the Civil Proceedings Code. The range of people seeking protection of their rights before the civil courts has thus considerably increased, putting to a test not only the cadres and material capacity of the courts but also the procedural rules they use. The Civil Proceedings Code has been changed thirty-six times since 1991 to answer the requirements of the day but, as the BIA argued, the positive effects that were expected have not been achieved. For instance, the introduction of the three-instance proceedings resulted in prolonging the process and increasing its ineffectiveness while the work of the first instance court had to a great extent been made pointless. A great number of norms had been introduced without being supported by sanctions, which had become a precondition for their misapplication. There were multiple possi-

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bilities in the Civil Proceedings Code for a deliberate and unpunished drag out of the court cases and also for their postponement, including for insignificant reasons. A survey of one hundred companies—BIA members—was conducted in 2006 in regard to their practice in conducting lawsuits. The survey showed that only 13 percent of the respondents had not conducted a lawsuit while for 41 percent of the rest, the duration of their suits had been more than five years. About one-third (29 percent) of the suits had been brought to an end in a period of one to three years but they had most often been related to disputes of small financial interest and had been terminated or ended by an agreement between the parties (USAID and BIA 2006, 26). Another serious problem faced by the companies was the extremely long-time limit within which the court had enacted its decision after having considered the suit solved. Hardly one-third of the respondents had received the act of the court in one month’s time following its inaction. But most often the period exceeded three to six months. The inability of the court system to address properly the high intercompany indebtedness in Bulgaria was another serious restraint on business activities. At the beginning of 2005 the inter-company overdue indebtedness amounted to approximately nine billion leva—that is, goods produced and services provided to the clients amounted to the abovementioned sum but the latter had not been paid within the time agreed upon. In fact, the state was also indebted to businesses.5 One of the reasons for the high inter-company indebtedness is the low confidence in the effectiveness of the court system. In fact, 55 percent of the surveyed companies indicated that they had overdue collectibles to receive from counteragents (versus 45 percent not having such), but hardly 9 percent would come to the court to get their collectibles. And only 19 percent of those who had decided to make use of the court system had succeeded in getting their judged collectibles, while 81 percent of the surveyed companies indicated that they had collectibles judged but not collected from counteragents. Part of the surveyed had particularly pointed out that they had not received any money as of any writ of execution although they had succeeded to sentence more than one debtor. Others pointed out that because of the long court procedures, the collectibles might be depreciated until the judgment of the court was read and that made such lawsuits useless. At such a situation, it was no surprise that the companies were looking for alternative methods of getting their collectibles—36 percent of them relied on pre-court agreements with the debtor, another 25 percent were willing to sell their collectible, and another 30 percent would transform the collectible into ownership (USAID and BIA 2006, 30–39). Overall, the business organizations in the country, and BIA in particular, publicly raised their voice for a radical change of the basic proceedings law

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for the achievement of effective and quality justice guaranteeing at the same time protection and exercising the proceedings rights of the parties in the process. The BIA has made a number of official proposals for legislative changes in that regard. The proposals were grounded on the draft of the new Civil Proceedings Code deposited at the Ministry of Justice. Partnerships on Transparency and Fight Against Corruption Will the business environment become more transparent and less corrupt once Bulgaria joins the European Union? Indirectly, the pre-accession process has improved the situation by focusing attention on the existence of corruption, and forcing the government to develop “clean-hands” policies (The Economist Corporate Network 2002). Corruption—and the conditions for fighting it—was for the first time incorporated in Bulgaria’s EU Accession agenda with the 1999 Accession Partnership. A National AntiCorruption Strategy was finally adopted in October 2001, thus fulfilling the Accession Partnership requirement. Nevertheless, anti-corruption is not part of the acquis, and is a new issue for both applicant countries and the European Union. Corruption evaluation did not have a natural place in the structure of the acquis to be negotiated with the applicant countries, so it was included in the regular progress reports under the political criteria section (Todorov 2002, 33). Special methods to combat corruption were adopted, such as developing national programs and assuming national commitments by the government, and drafting and implementing codes of conduct for public officials such as the Code of Conduct of Civil Servants adopted in 2000. Through such codes, public officials are obliged to declare their property. Anticorruption measures also comprised the development of relevant legislation and law-enforcement institutions aimed at halting the expansion of corrupt practices. Such institutions are the National Service for Combating Organized Crime at the Ministry of Interior, the Financial Intelligence Unit at the Ministry of Finance, the Agency for State Receivables established under the Code of Tax Procedure, the public prosecution, and others (Karadjov 2001, 35). In addition, an Interministerial Commission for the Coordination of the Fight against Corruption was created at the Council of Ministers. A new Law on Political Parties was further adopted in March 2005, setting out a number of anti-corruption measures to guarantee the transparency and accountability of political party funding, including a complete ban on anonymous donations, and better mechanisms for monitoring the activities of political parties. Businesses in Bulgaria were somewhat weak to voice clearly their anticorruption position. In 2003, only 17 to 18 percent of companies were firm in their opinion that they would not pay a bribe under any circumstances.

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In 2004, their share went farther down to 13.4 percent. Despite that, a considerable number of companies adopted codes of ethics and standards for socially responsible conduct. Many local business associations also introduced codes of conduct. Compliance with those codes remained an outstanding problem, however (Coalition 2000 2005). For the first time in 2005, more than four hundred Bulgarian companies signed up a common declaration against corruption, and distributed it to the prime minister and all other cabinet members. The document suggested eleven specific steps that would enhance the fight against corruption. The implementation of the e-government project, the set up of an anti-corruption state body at the Council of Ministers, and special education programs for public officials were among the measures recommended by the signatories. The Bulgarian business elite further pledged to assist the government’s efforts in the fight against corruption.6 The business community also proposed the establishment of a transparent management of the public procurement procedures, concessions, taxes, and financial resources from the European Union, optimization of the control and monitoring activities, clear rules for public-private partnerships, equal treatment of economic subjects, and a working judicial system (Vulov 2006a). In fact, the seriousness of punishments for corruption, police actions, and the use of special espionage means were determined by business as the most effective measures in the fight against corruption. Based on the partnership principle, a Consultative Civic Council at the Parliamentary Commission for Fight Against Corruption was created in December 2005. It comprises members from various NGOs such as the Center for the Study of Democracy, Association Transparency Without Borders, Club “Journalists against Corruption,” Foundation AKSES-Sofia, and trade unions, as well as business organizations such as the Bulgarian Industrial Association, the Bulgarian Chamber of Commerce and Industry, the Union for Private Economic Enterprise, the Union of Employers in Bulgaria, and the Bulgarian International Business Association. The council is chaired on a rotational principle. In 2006, major priorities in the work of the parliamentary Commission for Fight Against Corruption and of the Consultative Civic Council, respectively, were forgeries with the value-added tax and the corruptive environment in health services. Special attention was paid to the price formation of medications. Under the insistence of businesses, corruptive practices with public procurement were also discussed. Internationally and historically, public procurement is one of the spheres that are most susceptible to corruption, as by definition it refers to the allocation of public resources to the private sector. From 1998 to 2005, corruption in Bulgaria’s public procurement retained its high levels with one out of two or three contracts being accompanied by graft payments. The corruption price for awarding public procurement typically ranges from 3

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to 10 percent of the contract price (Coalition 2000 2005). Over the period from 2000 to 2003, the typical violations included using the direct negotiations method of contracting without having valid legal grounds to do so, as well as awarding of contracts at prices lower than the bid. It was not until 2003 and 2004 that the government undertook legislative and administrative measures to reduce the corruption potential of the public procurement system. A new Law on Public Procurement was adopted in 2004, harmonized with the EU acquis in this field. The law is a precondition for enhancing the standards of transparency and accountability and for reducing the opportunities for abuse and corruption in public procurement (Coalition 2000 2005). The development of public-private partnerships between business associations and the government was further seen as an untapped opportunity to restrict corruption in the public procurement process. Business associations could serve as guarantors of transparency and integrity by participating in the whole process from preparing the tender documentation and establishing criteria for assessment and monitoring to offering arbitration in cases of disputes. Furthermore, in June 2006 the government adopted measures for the preparation and submission to parliament of a draft law on lobbying. The goal of the law is to eliminate existing political favoritisms toward certain firms, and the practice of lobbying as rent-seeking, clientelism, and corruption. In low-income economies such as Bulgaria, lobbying, especially informal lobbying, can easily transform itself into rent-seeking. Noncompetitive companies—mostly those with survival and subsistence strategies— tend to put political institutions under pressure to support them at the expense of competitive companies. While competitive companies rely on market forces to take advantage over rivals (e.g., offering special services, improving the quality of their products, and so on), the survival companies try to improve their positions on the market through special government privileges (Mandova 2001). Some business representatives call this type of collaboration with the government institutions “corruptive lobbying.”7 In addition, lobbying favoritism exists. That is, all Bulgarian governments have been prone to the so-called quiet lobbying (Iliev 2006, 9). The law on lobbying requires that all persons occupying high state positions submit a declaration of interests on a legal basis. It also addresses and tries to eliminate the concerns of the European Union over corruptive tendencies that might accompany the utilization of EU funds. The draft law defines lobbying as any participation or influence on the decision-making process in the creation of laws and in the state institutions. The issues are public procurement and concessions that can still remain in the grey zone or “under the table” (Konstantinova 2006).

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The law on lobbying is thus actually a law on transparency, which is new for the Bulgarian legal system. The law per se was not part of the EU accession requirements. However, as the European Union was very strict on the issue of corruption, it recommended the adoption of such a law as an instrument for fighting high-level corruption among the political elites. A public discussion on the draft law was initiated. It also included consultations with representatives of employers and businesses. A special working group was formed at the Bulgarian Ombudsman. There were also meetings and discussions within the Commission for Fight against Corruption at the National Assembly, where all representative business organizations and labor unions participated, as well as journalists and NGOs such as Transparency International Bulgaria. They all formed the so-called Civic Council at the Commission for Fight against Corruption at the Bulgarian parliament.8 The law is expected to increase trust in the public institutions and decrease manipulations. Council for Cooperation with Employer Organizations at the Bulgarian Ombudsman Under the initiative of the first ombudsman of the Republic of Bulgaria Ginyo Ganev, in March 2006, on the eve of Bulgaria’s accession to the European Union, a Public Council for Cooperation with Employer Organizations was established at the ombudsman institution. The introduction of the latter in 2005 sought to provide institutional guarantees for the defense of the rights and liberties of Bulgarian citizens in regard to instances of maladministration. More specifically, the establishment of the council stemmed from the need to reform the Bulgarian judicial system, reduce corruption, and apply the European standards for administrative services. The basic goal of the council, as defined by its statute, is to assist the institution of the ombudsman for effective defense of the rights of entrepreneurs and employees in different economic organizations, firms and enterprises, and to contribute for the reduction of bureaucracy, instances of maladministration and related corruption; to contribute for the abolition of cases of maladministration and corrupt practices in regard to economic subjects—physical and judicial persons; to bring to the attention of relevant executive organs cases of maladministration, administrative arbitrariness, corruptive activities; to assist the ombudsman in addressing the institutions having legislative initiative with legislative proposals related to the defense of the rights of economic organizations and the free economic initiative; to assist the formation and maintenance of good practices in the administrative services of firms; and to encourage the activities of enterprises in defense of their legal rights and interests before the administration.

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Participants in the council from the business side are the nationally representative organizations of employers, as defined by the labor code, united in the Association of Organizations of Bulgarian Employers. These are the Association of Industrial Capital in Bulgaria, the Bulgarian Industrial Association, the Bulgarian Chamber of Commerce and Industry, the Vazrazhdane Union of Private Producers, and the Union for Private Economic Enterprise. The council comprises one member representative of each of the five business organizations. The council meets at least once in two months. The ombudsman, or a person appointed by him, chairs its sessions. The council takes its decisions with consensus. The sessions of the council could be attended by other experts on the side of the ombudsman or the business organizations, but each organization has the right to one vote. Technically, the council is serviced by the administration of the ombudsman.

ENVIRONMENTAL PROTECTION In the late 1980s, many areas in central and eastern Europe were affected by severe environmental problems. Overcentralized bureaucracies, massive and inefficient agricultural and industrial enterprises, an ideology that prioritized production over other social goods, and weak civil societies led to poor ecological practices (Paskaleva et al. 1998). During the communist era Bulgaria was noticeably inefficient in its use of energy and had relatively high pollution levels compared with other developed economies (Solomon and Ahuja 1991; Georgieva 1993). Across central and eastern Europe, the fall of communism was universally hailed as an opportunity for the region to clean up its environmental problems. However, the depth of the economic and financial crisis that soon engulfed the region was a big obstacle to environmental clean up (Pickles et al. 1998). Indeed, in some instances, there has been a worsening of environmental pollution and public health (Jabbra and Dwivedi 1995; Koulov 1996). Individuals and institutions, having to scrape to make ends meet, have diverted their attention from environmental to economic concerns. As a result, the environment became one of the areas where the accession countries most needed to catch up with EU standards. The EU environmental legislation and standards are among the strictest in the world, and the candidates for EU membership had to implement dramatic environmental policy reforms and include around three hundred pieces of EU environmental laws into their national legislation, as well as implement and enforce these laws (Christiansen and Tangen 2002). In 2004, Bulgaria completed the harmonization of its environmental legislation with the EU environmental law, based on a National Strategy on the Environment and an Action Plan for the period 2001–2006, which was adopted in May 2001. Many laws have been adopted in conformity with the

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directives of the European Union, such as the Environmental Protection Act, the Underground Resources Act, the Water Act, the Biological Diversity Act, the Waste Management Act, the Ambient Air Protection Act, the Herbal Plants Act, and others. Secondary legislation on the application of the environmental laws (decrees and regulations) was also adopted. The appropriate administrative structures with regard to the application of the approximated Bulgarian legislation were established on the base of the new laws. To help candidate countries comply with the environmental regulations, the European Union assisted them technically and financially. In terms of technical support, the European Union’s main tool was the twinning system, part of the PHARE program. It helped the candidate countries develop modern and efficient administrations with the structures, human resources, and management skills needed to implement the EU legislation to the same standards as in the member states. In terms of financial assistance, through its pre-accession programs the European Union had doubled its annual assistance from 1.5 billion euros to 3 billion euros for the period 2000–2006. Since 1990, the PHARE program had provided nearly one billion euro for assistance in this area. In 2000, the European Commission put in place additional support in the form of the Instrument for Structural Policies for Pre-Accession (ISPA), which financed major environmental and transport infrastructure with an annual budget of 1.04 billion euro (DG Environment 2002). Resources for environmental investments had increased substantially: five hundred million euro from ISPA per year and important shares of both SAPARD and PHARE (DG Environment 2002, 16). The aid focused on wastewater treatment, drinking-water supply, solid-waste management, and reduction of air pollution. Bulgaria in particular received financial aid in the amount of fifty million euro annually from the pre-accession funds, for projects and investments for the introduction of the European requirements for environmentally friendly production and nature protection. The ISPA program financed the most expensive investments on projects related to the preservation of the environment—those beyond five million euro in the areas of management of hard and dangerous substances, purification of wastewaters, sewerage systems, provision of drinking water, and reduction of air pollution. In 2005 the funds increased by 30 percent, and in 2006 by another 50 percent. After the act of accession on January 1, 2007, financing in the area of environmental protection was expected to increase some five times.

THE CHALLENGE OF THE ENVIRONMENTAL ACQUIS FOR BULGARIAN BUSINESSES Implementing the EU environmental legislation meant considerable costs for the candidate countries, including Bulgaria. They had to update, extend,

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or build installations and infrastructure, such as wastewater treatment and waste incineration plants, drinking water networks, or landfills. Thus in a relatively short time candidate countries needed to make many big and often different kinds of investments. The commission had estimated that for full implementation, candidate countries needed to spend an average of between 2 and 3 percent of their GDP on environmental investments in the coming years (DG Environment 2002). The investments needed to conform to the EU environmental legislation would be around 80–110 billion euros, or around 1,057 euro per capita (European Commission 2002d). Investment needs differed considerably among countries—a World Bank study estimated that the proportion of GDP needed ranged between 2 percent for the Czech Republic and 11 percent for Bulgaria (World Bank 2000, 8). For Bulgaria in particular, according to government estimates some nine billion euros had to be invested by the state and businesses in order to apply all EU environmental regulations.9 The EU financial assistance, however, was only a fraction of the overall needs of the country and the other candidates as well. To overcome the financial challenges, candidate countries had to also consider other sources of funding. These included loans from the World Bank, the EBRD, bilateral grants and credit schemes, foreign direct investments, and revenue generated from consumer charges, fees, or taxes. Private investments became also important, in line with the polluter-pays principle. Thus a World Bank study on Bulgaria showed the importance of private investment for introducing the EU environmental standards. According to the bank’s estimates, 46 percent of the responsibility for environmental investment lay with the private sector, 43 percent with municipalities, and only 11 percent with the central government (World Bank 2000). As a result, the achievement of the European environmental regulations was seen by Bulgarian businesses as one of the most difficult tasks of accession, and certainly the most expensive challenge of EU accession for business. Of the nine billion euros needed for the full application of the EU environmental standards in Bulgaria, about 50 percent have to be invested by the business community until 2015, when the last transition period negotiated under the chapter on the environment would expire. The majority of this amount was necessary for meeting the requirements of the so-called investment-heavy directives, related to the reduction of the emissions of hazardous substances released in the air, and to the complex elimination and control of industrial pollution. If the necessary ecological investments were distributed for a period of ten years (2004–2014), it meant that each year after 2004 the business sector had to secure 460 million euros in order to meet the environmental requirements until 2014, while in 2004 its annual spending on the environment was about 150–180 million euros. This became a serous challenge for the Bulgarian business

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sector, which had to invest not only in the environmental protection but also in the modernization of production and health and safety at work in order to meet the EU criteria and to secure EU-wide competitiveness of its production.10 Most intensive investments were required for chemical and biological treatment of wastewater; waste disposal, separation, composting and recycling, and incineration; reconstruction and modernization of central heating systems; reconstruction of existing facilities in the metallurgy sector; and installation of filters for the reduction of heavy metal and persistent organic pollutants emissions (BCCI 2004, 22). Thus, most of the burden was expected to fall on the mining, chemical, metallurgical, energy, and food processing sectors, where the greatest part of companies were not in compliance with the environmental norms of the European Union. A complex ecological permit—an Integrated Prevention and Pollution Control Permit—was required for the functioning of the firms in most of these sectors, as stipulated by Bulgarian legislation. To receive it, the companies had to declare what type of environmental investments they were going to make in the future within a certain time schedule in order to comply with the norms. They also had to declare the financial sources of these investments. The Ministry of Environment and Waters would grant the permits after the enterprise would present a program for the installment of purifying equipment. The Ministry of Environment and Waters controlled the process, and the final measure for noncompliance with the EU norms was the shutting down of enterprises.11 The problem became particularly huge for the big chemical and metallurgical companies, where most of the technical equipment was outdated, and significant additional investments were necessary for technological renovation. However, most of these companies did not have the resources for that. For example, only for the Lukoil Neftohim refinery near Bourgas the necessary amounts to comply with the EU acquis in the area of the environment were estimated at one billion euros. The Bulgarian Industrial Association tried to lobby the government on behalf of these companies. It proposed the introduction of a tax relief as a compensation for these investments, for example reduction in corporate tax if the company invests in ecology. However, the proposal did not meet the government approval. The latter claimed that such an approach would create problems with the European Union in regard to the negotiations over the chapter on competitiveness, because under this chapter tax reductions would be treated as a state subsidy.12 The Case of Metallurgy Metallurgy is one of the sectors with the biggest challenges in meeting the environmental standards—the metallurgical companies are one of the

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heaviest polluters of the environment. The annual production of the sector is for 2.5 billion leva, more than 80 percent of which is exported. This comprises 7.4 percent of the GDP (2003 data, National Statistical Institute). The sector has more than thirty companies with more than twenty thousand employed in each of them. As part of the accession requirements, big polluters in Bulgaria had to bring their production in line with the EU environmental norms that were negotiated during the accession talks. However, according to statements of the Bulgarian metallurgical enterprises, the government experts who participated in the accession talks with the European Union on the environment chapter negotiated much lower thresholds for the allowable dangerous emissions, compared with the existing practice in the EU member states. To meet the threshold, considerable additional amounts of financial resources were needed. Only Kremikovtsi near Sofia— the biggest metallurgical company in the country—was granted a transition period until 2011 for the fulfillment of an investment program in the area of the environment. The owners of Kremikovtsi—the Indian company Global Steel—envisaged investments of 321 million leva by the end of 2011 for that purpose. The remaining ferrous metallurgy plants were not granted transition periods for compliance with the EU norms, and had to find resources urgently.13 Financial resources would be mostly needed for the modernization of technical equipment (Stoilova 2004a). The majority of the metallurgical plants were built in the 1950–1960s, and were still operating with outdated equipment from that time. The metallurgical plants had to invest in technologies that would reduce the levels of pollution, in order to receive the so costly “ecological permit” by the end of 2006. Otherwise they had to be shut down. The elimination of old pollution created additional problems for the metallurgical sector. The firms were provided some financial support from the state in that regard. Thus, in 2003 an expert Ecological Council at the Ministry of Environment and Waters approved a Program for the Elimination of Past Ecological Damage, with funds available for that activity in the amount of about 280 million leva. However, the granting of complex permits remained a serious challenge for the metallurgical companies. While the total number of installations for exploitation that required the issuing of a complex permit by the Ministry of Environment and Waters was about 250, more than fifty of them were in the metallurgical branch. The deadline for issuing such permits was October 2007. By 2006, though, only the Plovdiv-based Kombinat for NonFerrous Metallurgy (KCM) was able to acquire such permit, while the Belgian subsidiary Umicore Med was in a procedure for obtaining one.14 Overall, the metallurgical sector has invested two billion leva (one billion euros) to fulfill the EU criteria, and have to spend additional 1.5 billion leva in 2007–2009 for environmental protection, health and safety at work,

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reduction of dangerous gas emissions, and increasing the competitiveness of the sector.15 The biggest investments in restructuring were done by Umicore Med—almost two hundred million euros. The company first accomplished a program for the liquidation of old pollution in the amount of $25,000,000. The non-ferrous metals smelter KCM Plovdiv invested over $100,000,000 in ecological projects. Kremikovtsi was fulfilling an ecological program in the amount of two hundred million leva. A whole reconstruction for eighty million leva was also done in Stomana Industry; $80,000,000 were invested in new production of another enterprise from the group Viohalko-Sofia Med; ten million leva was the cost for the new equipment of the Alkomet aluminium plant. Adaptational Strategies of Foreign Investors: The Case of Umicore Med Adaptation was easier for the subsidiaries of foreign companies, such as Umicore Med and Viohalco, which were able to use the financial resources of their parent companies for ecological projects. In addition, they successfully developed partnerships with the central and local governments. The MDK Copper Smelting and Refining complex is situated between the cities of Pirdop and Zlatitsa, some eighty kilometers northeast of Sofia. It was built in the 1960s as an integral part of the country’s socialist industrialization program. In 1997 the Belgian company Union Miniere16 invested nearly $300,000,000 in Bulgaria for the acquisition of 56 percent of the MDK complex. At present Umicore owns almost 100 percent of the MDK complex. The company was able to totally modernize the technological process of the plants, and to increase twice their production capacity. During socialist times MDK had been a big polluter of the soil, air, and water in the surrounding communities of Pirdop and Zlatitza. In fact, the smelter and its surroundings were identified by a 1993 World Bank study as one of the worst environmental hot spots in Bulgaria. The greatest hazard was a sludge pond containing arsenic and other heavy metals—ironically called the “blue lagoon.” Almost full, unstable and leaking, it was a disaster waiting to happen. An overflow could easily contaminate the drinking water for more than one million people. In fact, until 2002 townspeople were advised to use a gas mask before taking a deep breath. As a result, the newly privatized company became the target of various environmentalist organizations—it is much easier and more efficient to protest against a definite owner rather than the state as the owner of most of the assets. The company responded by completing, in 2003, a $25,000,000 environmental remediation program. The project was financed and controlled by the Bulgarian government in collaboration with the National Trust Ecofund and the World Bank. The remediation measures included the construction of an intermediate effluent treatment plant, storage facility for dry

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calcium-arsenite cakes, encapsulation of the slime settling pond “The Blue Lagoon,” cleaning the area of the plant from abandoned old buildings and equipment, covering and recultivation of the old slag dump, construction of temporary waste storage, and investigation of soil contamination on the territory of the plant, excavation of contaminated soil, and backfilling with clean soils.17 As a result, the environmental conditions around the plant have improved substantially. By the time the project was completed in 2003, the contaminated waste had been cleaned up. The company has also radically improved its production technology. Water consumption and toxic air emissions have been reduced, and an automated environmental monitoring system introduced. At the site of the blue lagoon today, the first blades of grass are taking root on a small hill. In consideration of all these continuing efforts, in 2001 the Bulgarian Ministry of Environment and Waters granted Umicore Med the Integrated Prevention and Pollution Control Permit. Umicore further received the Belgian Environmental Award 2003–2004 in the category of “best international partnership for sustainable development” for the cleanup of the polluted site in Pirdop. Dr. Vania Grigorova of the Bulgarian Ministry of the Environment and Waters observed that: “This project is a fine example of cooperation between the government and a private company.”18 Umicore’s adaptational strategy to the EU environmental requirements was thus built up on the basis of the partnership principle and its commitment to create dialogue and maintain transparency with the various stakeholders impacting or being impacted by its business operations, especially the local communities of Zlatitsa and Pirdop. The model of partnership with local communities is characteristic for the Umicore plants on a global scale; the company has important traditions in that regard. However, the public-private partnership model varies across different countries, depending on the specific local conditions. Umicore Med’s public-private partnership approach in Bulgaria was to develop long-term contractual relations with the municipalities of Zlatitza and Pirdop, where a three-year contractually defined fixed budget would be guaranteed to the local communities, in the amount of $595,000, for sustainable development projects. At the end of 2000 a so-called Program for Joint Projects between the company and the two municipalities was launched, with the funds going directly to the winning projects. A permanent company personnel assistance was made available to the municipalities for the selection, approval, and implementation of projects. The priorities of the program are jointly defined by the municipalities and the company team, and are the product of regular dialogue and open discussions. The company proactively participates in the community projects from their very beginning until their completion, by providing know-how, expertise, materials, financing, and the like.19

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With EU accession at the country’s doorstep, the public-private partnership focused on logistical support and training of the local government administration on how to apply for funding from the EU pre-accession programs PHARE, SAPARD, and ISPA, and the EU post-accession funds, and how to successfully implement projects under these programs. While a lot of money was available from these funds for local community development, there were also a lot of bureaucratic requirements that had to be met in order to qualify for these funds. A new practice emerged in the publicprivate partnership between Umicore Med and the municipalities of Zlatitsa and Pirdop, where they would establish ad hoc joint partnerships for the purpose of applying for particular funds from the EU financial instruments. In the cases where cofinancing was required for some of the projects financed through the EU programs (such as a 20 percent participation of another partner), the company would cofinance the project. The municipalities allegedly use Umicore’s public influence and reputation to secure financing of local projects from the European funds. An example of such jointly developed projects is the building of a solid waste depot at the Zlatitsa municipality. Umicore Med provided technical support for the preparation of the documentation for application. In addition, in the process of preparation of the project documentation, the municipalities would request logistical help from the company. Thus sometimes for part of the projects under PHARE a special project documentation is necessary, which can be expensive ($2,000 to $30,000, depending on the scope of the projects), especially if construction is required. In such cases it is the company who would pay the costs of preparing the project documentation. Adaptational Strategies of Domestic Companies: The Case of the KCM Smelter A lot of the domestic companies could not rely on help from abroad, and had to find money for meeting the environmental requirements on their own. In the Czech Republic, for example, half a year after accession about 40 percent of the metallurgical plants went bankrupt. The biggest Bulgarian companies from the ferrous and non-ferrous metallurgy appealed to the government to develop a new complex policy for the industry, which would allow them to better adapt to the environmental requirements negotiated with the European Union. The companies pledged for institutional support from the state in order to meet the financial burden and secure the necessary investments for meeting the environmental acquis, including support in the search of potential partners and the creation of partnerships. To meet the competitive pressures and become part of the world system of business consolidation, the Bulgarian companies had to look for partners (Stoilova 2004a). The problem was raised at the Council for Economic Growth in May 2004. A decision was reached that the Ministry of Environment and

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Waters would take into consideration the requests for corrections in the norms for dangerous emissions for the firms from the sector. The KCM SA non-ferrous metals smelter in Plovdiv developed a successful strategy in meeting the environmental acquis, mainly through partnerships with the central government and the local stakeholders. The smelter is the biggest producer of non-ferrous metals, lead, and zinc alloys in central and eastern Europe. The plant was opened in 1961, as part of the government program for accelerated industrialization and development of mining output. In 2000 the company was privatized, with 80 percent of the capital transferred to the Bulgarian private company KCM 2000 SA, as an employee-management buyout. KCM’s share in the world zinc production in 2003 was 0.73 percent, and that of lead was 0.92 percent. The company exports more than 86 percent of its zinc metal products, and more than 85 percent of its lead metal products.20 KCM became exemplary in its efforts to comply with the EU environmental acquis. In 1991 the company embarked on a new policy—to settle the heavy ecological problems, and develop an ecologically friendly production. Thus it was able to invest over $100,000 in projects for the protection of the environment, by taking credits with a twenty-year period of down payment. The company had to invest additional one hundred million leva to meet its obligations and receive the complex ecological permit. The development of the new ecological strategy was carried out on the basis of close collaboration with the Regional Inspection on the Environment in Plovdiv, the Ministry of Environment and Waters, and the Executive Agency on the Environment. KCM’s program for an environmentally friendly production process comprises several important steps toward environmental preservation. Thus the company conducts periodic monitoring of the dynamics of soil contamination in the vicinity of the plant. The company also implements an automated system for point sources emissions monitoring, recording and processing of the incoming data. Furthermore, in 2003 the company obtained an accreditation of the state Ecology and Work Conditions Laboratory, which allowed self-monitoring, and guaranteed the validity of sampling before the competent authorities. The corporate program also contained a waste management component; more specifically, a divided collection and treatment of wastes was introduced as a new management concept. The company had to further deal with the elimination of past ecological damages. Its depot project amounted to eight hundred thousand euro granted by the World Bank. The company also constructed a hazardous industrial wastes disposal site. The total value of the past remediation project amounted to 2.2 million leva. The company also created a Dust and Gas Monitoring Laboratory equipped with modern devices for sampling and analysis. Under a special

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certificate issued by the Executive Agency “Bulgarian Accreditation Office” in 2002, the laboratory measures the emissions of hazardous substances issued to atmospheric air by objects of stationary sources, the emissions of hazardous substances to atmospheric air, industrial waters, and the parameters of the work environment. The laboratory registers any deviation from the limits of allowable concentrations and undertakes timely measures for its elimination. A central wastewater treatment plant was also built at KCM. The construction of the plant ensured the achievement of the restrictive emission norms of the Bulgarian legislation. In 2004 the company was the first one to be granted the complex ecological permit for the construction and commissioning of new and running of operative industrial installations and equipment by the Executive Agency on the Environment at the Ministry of Environment and Waters. Members of the European Commission, the Bulgarian Ministry of Environment and Waters, and the Regional Inspection for Environment Protection, Plovdiv visited the company and concluded that the conditions and procedures of issuing a complex permit for the construction and exploitation of new and existing industrial installations and equipment had been met. The permit acknowledges that the industrial operations of the company protect and improve the surrounding environment.

CONSUMER PROTECTION: FOOD SAFETY AND HYGIENE REQUIREMENTS In the process of accession negotiations, Bulgaria took the obligation to harmonize its legislation with the EU common law in the area of food safety and hygiene requirements. Directive 93/43 on food product hygiene requires the sector’s enterprises to describe any phase of their activity that may be decisive in terms of guaranteeing the safety of the food products and the updating of adequate safety procedures. This meant implementation of good production practices (the horizontal measures for food safety), and introduction of the Hazard Analysis and Critical Control Points (HACCP) system (vertical measures for food safety). The Ministries of Economy, Healthcare, and Agriculture and Forestry became responsible for the transposition of the European requirements for food safety into the Bulgarian legislation. The food safety regulations were incorporated in the Law on Foodstuffs (1999, amended in 2003) and some more specialized laws such as the Law on People’s Health (1977, amended in 2003), the Law on Veterinary-Medical Activity (1999, amended in 2003), the Law on the Defense of Plants (1997, amended in 2001), and the Law on Fishery and Aquacultures (2001). These normative acts regulate the requirements toward foods, the obligations of food producers, food processors,

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traders of food, and the order and procedures of exercising state control over the whole food chain. According to the Law on Foods, the producers and traders of foods are obliged to comply with the regulations and requirements for food hygiene, and to take into consideration the good practices in the production and trade with foods. The hygiene of foods is a sum of all necessary measures for guaranteeing the safety and conservation of the nutritional quality of foods, which are taken at each stage of the production and trade with foods. The good production practice is a system of basic hygienic and technological rules for work, which is applied in the production and trade with foods, in order to reduce the risk of food contamination through production or human activity to an acceptable minimum. The rules concern the projection, state, and maintenance of buildings, offices, equipment, apparatus, the acceptance and conservation of raw materials, of the basic, supplementary and packaging materials, the hygiene and training of personnel, the quality management systems and systems for control of the technological process, and the process of bookkeeping. The Law on Foodstuffs further regulates the development and introduction of the HACCP system, in full compliance with the European Union and other internationally acknowledged HACCP principles for the management of food safety. HACCP comprises all organizational measures that are done in one company to secure the safety and quality of the foodstuffs.21 The system is used in the food industry to identify potential food safety hazards, so that key actions, known as Critical Control Points, can be taken to reduce or eliminate the risk of the hazards being realized. The critical points of the HACCP system are those points from the production cycle of foods, in which the possible biological, chemical, and physical hazards for human organism could be eliminated. If control in these critical points is not sufficient, then the health and even lives of consumers could be endangered. The goal of the HACCP system is to prevent this from happening. HACCP is used at all stages of the food production and preparation processes. It is normally developed as a set of documents, including a HACCP plan, and HACCP procedures. The organs of the state sanitary and state veterinary-sanitary control exercise state control of food safety. These organs can have free access to all production facilities in the enterprises and trading agencies, can request all necessary documentation related to the production and trade with foods, can take samples for laboratory testing and research, can issue mandatory prescriptions for the implementation of hygienic and other measures, can forbid the usage of production facilities when they violate the hygiene of foods and the rules for good production practice for production and trade with foods, can stop the realization of foods which directly or indirectly pose risk to human health and order their destruction, and can issue fines in cases of violations (Ministry of Economy 2004).

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Challenges to Business The Bulgarian food and beverage industry has been doing well, with a 16.2 percent share in the GDP of the country, and 3.6 percent share of employees in the total workforce (2004 data) (InvestBulgaria 2006, 53). The EU standards for quality of production and animal welfare, food safety, and hygiene requirements of production became one of the biggest challenges to the processing enterprises (Ministry of Economy 2004). The challenge arose from the fact that the responsibility for the production and offering of safe foods to the market was transferred from the state control organs to the food producers and traders (Ministry of Economy 2004). As a result, those who could not restructure and introduce the EU requirements for food safety by the time of accession—January 1, 2007—had to be shut down. More specifically, the meat and mincemeat producers had to introduce the HACCP system by the end of 2005, while all other enterprises for the production and trade with foods had to introduce it by the end of 2006. This requirement referred as a whole to more than 168,000 establishments (agricultural producers, fish farms, companies from the food-processing industry, hotels and restaurants, factory canteens, catering companies, and school and kindergarten canteens).22 From January 1, 2007, firms that do not have HACCP and are not in a procedure of its introduction would be sanctioned with a fee of between 3,500 and 7,000 leva, after which their activities would be terminated.23 Time, effort, and investments were needed in order to implement HACCP. The HACCP system requires a sequence of organizational measures that cannot be accomplished from one day to another but require three to five months implementation time. For owners of restaurants and other establishments that offer food to the public, the challenge was to install the necessary refrigerator equipment, and also to cover all interior rooms with materials that facilitate cleaning. Changes in the organization of the establishment’s infrastructure and the introduction of new work rules, as well as changes in employee mentality, were also needed. Many specialists have warned that the majority of enterprises—mostly the small ones—would not be able to comply because a lot of financial resources were necessary to implement the HACCP system and the phytosanitary requirements in the production process. The majority of Bulgarian businesses are small and with limited resources. Thus, 92 percent of all Bulgarian enterprises are micro-enterprises with personnel of up to ten people. At the same time 98 percent of the Bulgarian enterprises have a personnel of up to fifty people. They provide employment for 50 percent of all employed, or for about one million people. About 640,000 of the total of 760,000 actually performing firms in Bulgaria (total number of registered firms in Bulgaria is 1.35 million) deal with the production and trade with

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foodstuffs. According to the latest data from Bulgaria’s Public Register, the firms/units that have to be registered under HACCP are 142,000. According to unofficial data, only 13 percent of them had introduced HACCP by 2006. Although a transition period has not been negotiated, there were active talks that a two-year grace period would be granted because the problem exists not only for Bulgaria. The ten new member states would be given such a transition period, in which the enterprises with compliance problems would be able to sell on the domestic market without being able to export to the EU market. If the enterprises do not comply with the phyto-sanitary requirements during the two additional years, they have to be shut down. Branch organizations insisted for state support for small enterprises in regard to the introduction of the hygiene requirements. They emphasized, for example, that many small enterprises for the production of bread and breakfast meals had not even introduced the rules of best practice. The bread producers and dessert producers could not rely on support from SAPARD nor from the Agriculture State Fund. An additional old big problem for the sector was the existence of a large number of firms operating in the grey economy. The latter, with their low prices, typically created unfair competition and did not allow the eligible enterprises to accumulate enough funds for renovation and modernization. The Federation of Bread Producers lobbied aggressively for the provision of a state subsidy for the introduction of the HACCP system in the branch. It also organized threeday courses about the introduction of the HACCP system for entrepreneurs from the branch. The federation tried to help them by providing HACCPrelated consultations at reduced rates. Generally the consulting fee for introducing the system is rather high, in the amount of 5,000–6,000 leva (2,500–3,000 euros) (Georgieva 2006). As a result of the active lobbying campaign on behalf of the Federation of Bread Producers, the Ministry of Economy and Energy started a new project for the support of micro-enterprises from the bread and pastry production branch for the introduction of the HACCP system. The project was financed by the state budget, and was realized in cooperation with the UNDP project “Employment through the Support of Business” (JOBS). The project would support companies with up to ten employees and with limited financial resources. Those companies could receive half of the necessary amount for the introduction of the HACCP system in the form of a grant, and have to secure the other half by themselves. Selected enterprises would be assigned to a consulting firm that would help them introduce the system.24 There are about fifty consulting firms in Bulgaria that consult on the introduction of HACCP.

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HACCP also concerns hotels, restaurants, and all businesses that offer food—there are more than twelve thousand such establishments of the Bulgarian hospitality industry. By 2006 only a few of them had introduced HACCP, however, according to information from the National Hotel Management Club. The club organized two conferences for entrepreneurs from the branch, in order to reduce their consulting fees on the introduction of the system. For example, an establishment from the hotel and restaurant branch with thirty to fifty employees would have to pay 5,000–8,000 leva in consulting fees for the introduction of HAPP (Georgieva 2006). Owners of hotels and restaurants could not apply for grants from the PHARE program for the introduction of HACCP. The program was oriented only toward producers and excluded firms from the service sectors.25 The Union of the Processors of Fruits and Vegetables also demanded financial support from the state for the introduction of the HACCP standards in the branch. According to data from the union, the production of processed fruits and vegetables in 2005 dropped to around 70,000 tons, from 101,404 tons in 2003. That was largely due to the lack of raw materials, resources and labor force. At the same time in 2006 only 6 percent of the tin-food enterprises had introduced the HACCP system, and 30–40 percent were in a process of introducing it. Only 40 such enterprises had completely complied with all EU requirements, and could export their production to the EU markets (Georgieva 2006). As the union argued, the orientation of the sector toward the competitive EU markets would not be possible without support from the state. According to estimates from the union, the introduction of the EU standards in the branch would cost from five to seven million leva, mostly for the purchase of new equipment and machinery. The food-processing enterprises that were producing food products with animal origin (in the meat, milk, and fish sectors) also encountered numerous problems with the introduction of the new EU standards and regulations. Back in 2003, during accession talks on the agricultural chapter Bulgaria had negotiated December 31, 2005, as the deadline for the modernization of these three branches. In early 2005 it was estimated that of all 733 establishments working in the meat, milk, and fish sectors some one hundred would have to be closed in December 2005–January 2006 (Mladenova 2006b).26 In comparative perspective, the EU standards proved to be too hard not only for the Bulgarian enterprises from the food-processing sector, but also for a variety of enterprises in other accession countries. The EU hygiene norms had been changed in 2004, and the new ones created serious challenges for the companies in accession countries. According to a study of the EC, before accession in 2004 around 25 percent of the milk processors and

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40 percent of the meat processors in Poland were not in compliance with the EU standards. In Latvia the percentages were around 50 percent for the milk sector and 90 percent for the slaughterhouses. In the Czech Republic, 991 enterprises in the food-processing sector were closed (Mladenova 2006b). In light of the general delay in the restructuring of firms from the meat, milk, and fish sectors in Bulgaria, Minister of Agriculture Nihat Kabil proposed that the country requests from the European Union a six-month postponement of the introduction of the hygiene requirements for 651 firms from these three branches. The firms in the meat-processing, milk-processing, and fish-processing branches divided into two camps over the proposed postponement, along the lines of big companies versus small producers where the first did not want to wait for the second to catch up. For example, about 80 percent of the firms in milk processing were against the postponement of the deadline (Stoilova 2005). The two branch associations—of the meat processors and the milk processors—were against the introduction of another transition period. They argued that a new enterprise could not be built for half a year, and that the small firms’ request for a postponement was actually an attempt to hide grey economic activities in the branches. According to the chair of the Association of Milk Producers, Simeon Presedashki, the process of restructuring in the branch had started in 2001, and four years had been a sufficiently long period for those companies to respond to the EU requirements. The Bulgarian Association of Food and Drink Industry also argued that the time for the introduction of the EU standards in the processing enterprises had been sufficient (Mladenova 2006b). Many of the enterprises, however, could not accomplish their restructuring and modernization on time because they relied on funding from the SAPARD program, which had been blocked for almost two years (Stoilova 2006). A six-month postponement of the shutting-down of noncomplying processing enterprises from the milk-, meat-, and fish-processing sectors was actually negotiated between the Bulgarian government and the European Union.27 At the end, the National Veterinary and Medical Service ordered the closure of 208 enterprises producing foods of animal origin over the absence of progress in achieving the EU standards. Inspections were conducted in 641 such enterprises as part of the sector’s restructuring.28 Increased Responsibilities of the Branch Organizations of Foodstuff Producers The Law on Foodstuffs from October 1999 (revised 2003) regulated the rights and responsibilities of the professional organizations of foodstuff producers. These rights focused on: representation and defense of the common interests of their members; development of rules for best production

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practices within each branch, as well as models of risk analysis and control of the critical points; participation in the elaboration of strategies, analyses, programs, and opinions for the development of the respective branch; maintenance of a network of experts in the respective branch to assist the food producers and the state organs; development of codes of ethics that regulate professional ethics and the prevention of unfair competition among the food producers in the subsectors of the food industry; informing the competent organs for violations in the production and/or trade with foodstuffs; participation in the preparation of normative acts concerning the respective branch or provision of opinions on such draft normative documents; organization of training courses for people engaged in the production of foodstuffs; and development of branch standards for the different types of foodstuffs. On the basis of the Law on Foodstuffs, a National Council on Food Safety was created in 1999, with four representatives from the state and four from the business community. On the government side, the deputy ministers of health care, agriculture and forestry, trade, and the director of the National Veterinary Medicine Office participate in the work of the council. On the business side, the four representatives are from the organizations of the fruits and vegetables processors, milk processors, meat processors, and the producers of mineral water and beverages. The leading ministry is the Ministry of Healthcare, the chair of the council being a deputy minister of health care. The Bulgarian Association for Food and Drink Industry actively participated in the 2003 amendments of the Law on Foodstuffs. Specialized working groups were created on the various problem areas of the law, and an enlarged working group was created to prepare a general opinion on the draft law, with representative of each ministry and each of the fourteen branch organizations members of the Bulgarian Association of Food and Drink Industry. The association’s representatives were also present at the discussions of the draft law in the specialized parliament committees.29 The 2003 amendment of the Law on Foodstuffs regulated the establishment of the National Inter-Professional Organization of Foodstuffs Producers. Its goal is to defend the interests of its members and assist the state institutions for the creation of a favorable economic and social climate, and the development of a competitive food industry. The organization fulfills its goals on the basis of participation in the preparation of strategies and programs for the development of the production and trade with foodstuffs; assistance to the Ministry of Agriculture and Forestry and the Ministry of Healthcare in the preparation of reports on the state of foodstuffs production and processing; participation in the elaboration of, and consultations on, draft normative acts in the area of food industry; creation and maintenance of a register of the sanctioned persons; maintenance of up-to-date

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information on the registered branch organizations of foodstuffs producers; and coordination of the activities of the branch organizations of the foodstuffs producers. When more than one branch organization is registered in a certain branch of the food industry, all can participate in the general meeting of the National Inter-Professional Organization of the Foodstuffs Producers. The branch organizations of foodstuffs producers were further given the right to assist the work of the state organs and the organs of local selfgovernance and local administration in the fulfillment of their policy and strategy for the development of the food industry. The district governors and the municipal councils have to provide office space to the national inter-professional organization of the producers of foodstuffs and the branch organizations of the foodstuffs producers necessary for fulfilling their activities; they also have to provide all necessary information for the fulfillment of the activities of the latter. On the basis of these regulations, a much better dialogue on accession issues was established between government and business since 2001. A lot of branch representatives have been included in the work of different commissions at the Ministry of Agriculture, such as the Commission on SAPARD, the Commission on Environmental Agriculture, and the Commission on Animal Breeding. In addition, the branch organizations were allowed to participate in the parliamentary debates on the Law on Foodstuffs. Corporate Strategies for Meeting the EU Requirements on Food Safety Compared with the ecological requirements, the investments needed for compliance with the EU hygiene requirements are much smaller. Still, considerable financial resources are needed on the business side to comply with the EU food safety and hygiene requirements, given the fact that the overwhelming majority of enterprises in the food-processing sector are SMEs with very limited resources. Bank loans and SAPARD funds were available for that purpose. The SAPARD credits, as already discussed, were actually 50 percent grants paid back by SAPARD once the investment had been realized. However, a lot of bureaucratic requirements accompanied the 50 percent grant, especially the obligation for buying only new machinery with SAPARD funds. That is why some companies found it more beneficial to buy secondhand machinery with a bank loan, as this would be considerably cheaper than buying new machinery with a SAPARD grant. However, the risks of working with old machinery are always higher than working with new machinery. Nonetheless, as many businessmen asserted, avoiding SAPARD funds would actually mean avoiding huge bureaucratic requirements. In contrast, bank loans were easy to obtain, given the fact that the Bulgarian banks were also in a process of restructuring and adjustments to meet the EU requirements in

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the banking sector. Part of these requirements concerned the relaxation of conditions on granting commercial loans to the business sector. The Case of GIVIS: Utilizing SAPARD Funds for Meeting the Accession Requirements30 Givis is a small Bulgarian enterprise for the processing of chicken meat. The firm was initially registered in 1997 as Pongo and Bendzhi, for the production of pet food. The production was organized with nineteen employees in a rented old building belonging to a former producer cooperative. With the advancement of the EU accession process the company had to take into consideration the EU requirements for hygiene and food safety. The old building where the company operated could in no way meet the high hygiene requirements of the European Union. That is why the two owners of Pongo and Bendzhi decided to build their own factory in order to meet the EU standards and be able to continue their business operations after Bulgaria’s accession to the European Union. In December 2001 they bought the land, with the idea to build the new plant step by step. Meanwhile the owners decided to apply for funding from SAPARD. Several considerations motivated their decision. First, 50 percent of the investment would come back as a SAPARD subsidy. Second, from their previous experience with bank loans they knew that the latter were providing credits much easier to companies that already had a contract with SAPARD. Third, the label “Project under the SAPARD Program” was quite appealing to them as a “label for a European enterprise in Bulgaria, and a Bulgarian enterprise in Europe.”31 The label would be a public demonstration that the enterprise had responded to all EU standards, and could export its products to the EU common market. This was thought to lead to greater business opportunities for the company. Pongo and Bendzhi was a small enterprise not well known by potential customers, and SAPARD would create a new image of the company among them. However, the SAPARD program did not finance projects that were using only parts of whole agricultural and animal products such as chicken. For the production of its pet food products, especially the canned food products, the Pongo and Bendzi company was using only parts of the chicken, such as necks, wings, and skins. Meanwhile the market for canned animal food had shrunk considerably as a result of the import of dry animal food. That is why the owners of Pongo and Bendzhi decided to apply to the SAPARD program with a project for the building of a factory for the processing of chicken meat for the production of human food rather than pet food. They envisaged a separate department for the production of pet food from the waste chicken parts. To qualify for a SAPARD grant, the owners had to first register a new company for the production of human food from chicken—GIVIS. That was

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done in April 2003. GIVIS applied for SAPARD funds in December 2003, and its project for the construction of a plant for the processing of chicken meat for the production of human food in the amount of three million leva was approved that same month. In January–March 2004 a process of banking, that is, looking for a bank credit, was underway. The First Eastern International Bank was selected to finance the project. In February–August 2004 the factory was built and fully equipped with new machinery. Meanwhile the owners soon realized that it was important to strictly follow all clauses of the contract with SAPARD. Any deviation in the construction of the factory or the type of machinery selected (that is, different from the one specified in the contract) could result in SAPARD’s refusal to pay back the 50 percent subsidy once the project was accomplished. According to the program’s operating rules, after the project would be fully accomplished—that is, the construction of the factory building and the installation of its machinery—an audit has to be carried out by the program. On the basis of this audit, the subsidy would be approved and paid directly to the bank that is financing the whole project. There was a lot of concern on the owners’ side that if some elements of the construction or machinery were changed—that is, deviated from the original contract—the subsidy of 1.5 million leva would not be granted. For example, the contract stated that four-hundred-liter boilers would be used as one of the operating machinery. However, the producer of these boilers, Elprom Varna, had stopped their production after the signing of the contract between GIVIS and SAPARD, and was producing only two-hundredliter boilers. In order to replace one four-hundred-liter boiler with two twohundred-liter boilers, the owners had to officially inform SAPARD, and also secure an explanatory letter from Elprom Varna that the production of fourhundred-liter boilers had been stopped. Furthermore, if the 2003 contract had listed one particular supplier, but after a year the company would decide to go with a different supplier who was offering materials and equipment under better conditions, SAPARD had to be informed again, and asked for approval of the supplier change. Additional detailed information on the new supplier had to be provided, including annexes on its activities. Obviously the bureaucracy accompanying the SAPARD grant scheme was huge and burdensome, as the owners wasted a lot of time in unnecessary paperwork and documentation hunting. Overall, however, they were pleased with the decision to use SAPARD money, as a “European passport” for the company. The Case of Tandem: Restructuring with Non-EU Funds32 Tandem was registered in December 1993 as a meat-processing company. It started its operations in a company-canteen rented space, with six em-

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ployees and an old equipment for the production of salami, bought secondhand from one of the state-owned companies at that time. In the early 2000s the company built its own factory, at the cost of four million euros. A bank credit was used for that purpose, with a 30 percent down payment from the two brothers—owners of the company. At the time bank privatization was underway in the country, and the Bulgarian banks were reluctant to provide credits. The owners were able to secure credit from the Bulgarian branch of a German bank—bank HVB. The company did not apply for a SAPARD grant for the construction of the factory, although one of its owners was a member of the Commission for SAPARD Project Approval at the Ministry of Agriculture. Their concern was that EU programs were generally very bureaucratic and prone to corruption. They did not want to waste time by dealing with the SAPARD bureaucracy. Corruption was also an issue for them. Furthermore, the owners did not like the SAPARD requirement that the project had first to be completely accomplished before it would be refinanced with a 50 percent grant from SAPARD. The owners also did not like the SAPARD condition to buy new technical equipment, without using secondhand machines—such secondhand equipment could be bought for 50 percent of the value of the new ones. At the same time the SAPARD beneficiaries have no right to sell or lease the new equipment for five years after its purchase. Overall, the owners thought that it would be very difficult to secure sufficient financial resources to fully realize the project before the 50 percent reimbursement from SAPARD would be granted. The owners had also figured out that the use of secondhand equipment would not create problems with the implementation of the EU requirements. Another consideration was the fact that, unlike Pongo and Bendzhi, Tandem was already an established meat-processing company on the Bulgarian market, with its products being well known by the Bulgarian consumers. Tandem thus did not need the “European logo” to attract customers. Actually in March 2003 the company was granted a European certificate, with the right to export its products in the EU member states. With no doubt, that was an indicator that Tandem had achieved the European standards without the need to buy much more expensive new equipment, as required by SAPARD.

NOTES 1. Support for Increasing the Competitiveness of Bulgarian Enterprises Project. BG 2004/016–711.11.04. 2. Euro Info Bulletin (July 2005): 4.

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3. Biznes Vesti 19/75 (May 13, 2005). 4. Interview with Bozhidar Danev, “Legislative Reform and Business,” Pari 236 (December 8, 2003). 5. Interview with Bozhidar Danev, “Legislative Reform and Business,” Pari 236 (December 8, 2003). 6. Sofia Morning News (February 24, 2005). 7. Interview data. 8. Interview data. 9. Interview data. 10. Mediapool (May 11, 2005). 11. Kapital 1 (January 8–14, 2005): 22. 12. Interview with Vikran Tebeian, vice president of the Bulgarian Industrial Association, Summer 2004. 13. “Tezhkata bitka za spazvaneto na normite na ES,” Focus-news.net (October 8, 2006). 14. Pari 62 (March 31, 2005). 15. “Tezhkata bitka za spazvaneto na normite na ES,” Focus-news.net (October 8, 2006). 16. Union Miniere changed its name to Umicore in 1992. The new name of the company Umicore reflects the elements of the company philosophy: Union Miniere at the core, but flexibility, innovation, and willingness to change for the better. The company core values in this respect are: openness and transparency, team spirit and team work, creativity and innovation, respect for the environment, safety and health, and commitment to results. 17. Data from Umicore Med Bulgaria; Euronext Brussels Press Release, February 2004. 18. Euronext Brussels Press Release, December 17, 2003, and February 2004. 19. Interview data. 20. KCM SA Plovdiv 2003 Annual Report. 21. Business Information and Consulting Center Sandanski, Info Panorama (December 2005): 2. 22. Biznes Vesti 21 (81) (May 29, 2005). 23. Darik (November 2, 2006). 24. Business Information and Consulting Center Sandanski, Info Panorama (October 2005): 3. 25. Business Information and Consulting Center Sandanski. Info Panorama (April 1, 2006). 26. Novininte.com (December 5, 2005). 27. Mediapool.bg (October 12, 2005). 28. Sofia News Agency (February 23, 2006). 29. Interview data. 30. Interview with Galina Mitova, executive director of GIVIS, Summer 2007. 31. Interview data. 32. Interview with Kiril Vytev, executive director of Tandem, Summer 2005.

6 The Challenge of Financial Aid

JOINT MONITORING AND CONTROL OF THE PRE-ACCESSION FUNDS To help candidate countries meet the accession criteria, the European Union provided financial assistance through its pre-accession funds— PHARE, SAPARD, and ISPA. The total volume of pre-accession assistance available to Bulgaria through these programs was substantial, at around 545 million euros in 2006 (European Commission 2005). The financial assistance of the European Union led to increased interaction between government and business. On the one hand, it required the creation of mechanisms for joint monitoring and control of the pre-accession funds, especially SAPARD and ISPA. On the other hand, the PHARE program emphasized institutional development in the accession countries, and paid special attention to improving the business environment in Bulgaria through a specialized project for the development of entrepreneurship. The program was coordinated and administered through several Bulgarian ministries and provided grants for improving the competitiveness of Bulgarian enterprises. Joint Monitoring and Control of the SAPARD Program The goal of the SAPARD Program is to assist with the implementation of the EU common law in the area of the Common Agricultural Policy. There were two conditions for launching the SAPARD program in Bulgaria: first, the elaboration of a National Plan for the Development of Agriculture and 141

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Rural Regions, approved by the European Commission; and second, existence of an accredited payment agency and well-developed system for implementation, monitoring and control of the program. In 1999, the Ministry of Agriculture and Forestry adopted a National Plan for the Development of Agriculture and Rural Regions. It outlined the strategy and priorities for agriculture in the period 2000–2006, in accordance with the Association Partnership, and the National Program for the Adoption of the European Common Law. On the basis of the National Plan, concrete schemes for the development of agriculture and rural regions were launched in October 1999. The SAPARD program was officially launched in June 2001, when a central administration servicing the SAPARD program, as well as twenty-eight district agencies, were established. The partnership principle was one of the several principles applied in the preparation and implementation of the National Plan, the others being programming, concentration, and complementarity. Partnership meant development of the plan and implementing it in close cooperation with the European Commission, on the one hand, and, on the other, with the regional and local authorities, the organizations of agricultural producers and distributors, the regional development agencies, and other civil society organizations. Indeed, the plan was adopted only after a broad public discussion and a series of meetings and seminars with the participation of regional and local authorities, organizations of agricultural producers and processors, and other partners. Based on these broad discussions, the strategic goals and priorities of the National Plan for the Development of Agriculture and Rural Regions were specified as: (1) development of an effective agricultural production and competitive food-processing sector, through improvements in the market and technological infrastructure, and strategic investment policy targeting the achievement of the European standards; and (2) sustainable development of rural regions in accordance with the best environmental practices, through the creation of alternative employment, diversification of economic activities, and creation of the necessary infrastructure for the improvement of the living conditions and welfare of people living in the rural communities (BCCI 2005a). SAPARD’s total annual budget for Bulgaria was 52.124 billion euros in grants for a seven-year period (2001–2007). The program provided for a 50 percent subsidy for investment projects in agriculture, the remaining 50 percent were to be financed by the candidates for grants. The State Fund “Agriculture” was to secure the necessary state cofinancing for the projects under SAPARD. Both agricultural producers and municipalities were eligible to apply under the program. Project grants varied from 1,000 euro to 1.5 million euro. In the seven-year period, candidates could receive grants up to five times.

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According to SAPARD’s administration, very few applications were rejected, and if a rejection did occur, it was because of some cardinal flaws in the project that could not be avoided.1 The total number of approved projects under SAPARD from the start of the program in 2001 until June 2005 was 1,910 for a total value of 1.503 billion leva (see table 6.1).2 On the basis of a decision of the European Commission for the improvement of Bulgaria’s National Plan for the Development of Agriculture and Rural Regions for the Period 2000–2006, as well as on the basis of the Multiyear Financial Agreement on the SAPARD Program signed by the Republic of Bulgaria and the European Commission, a Monitoring Committee on the Implementation of the SAPARD Program was created. The committee had the task to monitor the effectiveness and quality of implementation of the National Plan, approved as a Program for the Development of Agriculture and Rural Regions in Bulgaria, with a decision of the European Commission from October 2000. The SAPARD Agency and its managing board carried out the operational monitoring of the implementation of the program. The goals of the monitoring committee more specifically were to review the achieved progress in the fulfillment of the program; issue opinions and approve amendments in the physical and financial indicators of the system for monitoring and assessment, created at the SAPARD Agency, as well as on the criteria for assessment and selection of projects, financed under each measure of the program before their transfer to the European Commission for approval; review the results of the fulfillment of the program at least twice a year; review the intermediary assessment of the program before its transfer to the European Commission; discuss and approve the annual reports on the assessment of the fulfillment of the program before their transfer to the European Commission; discuss and approve each proposal to the European Commission for amendments in the program; and secure coordination of the monitoring of SAPARD, ISPA, PHARE, and aid from other international financial institutions. The monitoring committee comprised thirty-two institutional members. Some of them had a voting right, while others acted as observers with consulting rights. The members with the right to vote on the government side were the Ministry of Environment and Waters; the Ministry of Agriculture and Forestry; the Ministry of Finance; the State Fund “Agriculture,” representing the SAPARD Agency; the National Fund at the Ministry of Finance; the Ministry of Regional Development and Public Works; the Ministry of Labor and Social Policy; and the Ministry of Education and Science. On the business side, two nationally representative organizations had the right to vote: the Bulgarian Chamber of Commerce and Industry and the Bulgarian Industrial Association. Other organizations with voting rights were the

703,841.00

117,020,147.92

48,038,616.79

48,082,532.17 409,340.00

5

291

30

17 5 1,910

Total

745,837,588.52

408,900.00

39,001,968.00

44,979,369.00

52,562,863.92

416,398.00

333,498,686.60 274,969,403.00

Approved public subsidies, total (in BG leva)

559,398,636.03

327,120.00

29,251,476.00

33,734,526.75

39,422,147.92

312,298.50

250,124,014.69 206,227,052.17

Approved public subsidies, EU share (in BG leva)

Sanctioned projects (not approved for payment, annulled projects and non-signed contracts) until May 1, 2005: 136; Amount of subsidy for them: 38,059,049.07 leva. Note: 1 Euro = 1.95583 leva; 1 lev = 0.511292 Euro. Source: SAPARD Bulgaria.

1,503,617,270.88

713,774,100.26 575,588,692.74

Total approved costs (in BG leva)

1,324 238

Number of approved projects

Approved projects under SAPARD until June 1, 2005

Investments in agricultural farms Improvement of processing and marketing of agricultural and fishery products Forestry, afforestation of agricultural land, investments in wood farms, processing and marketing of wood products Development and diversification of economic activities and creation of opportunities for multilateral activities and alternative approaches Revitalization and development of villages, preservation and conservation of rural heritage and cultural traditions Development and improvement of inter-village infrastructure Technical assistance (Program)

Measures

Table 6.1.

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Federation of Independent Trade Unions in Agriculture at the Confederation of Independent Trade Unions in Bulgaria, Federation “Land” at Podkrepa Confederation of Labor, the National Alliance of Municipalities in Bulgaria, and nongovernmental organizations in the area of environmental protection with one joint vote. Furthermore, the farmer organizations—the Bulgarian Agricultural Chamber, the Bulgarian Association of Farmers, and the National Union of Agricultural Cooperatives in Bulgaria—had the right to one joint vote. Member organizations with consultative votes were the European Commission; the Ministry of Economy and Energy; the Ministry of Agriculture and Forestry; the State Fund “Agriculture,” representing the SAPARD Agency; the World Bank; the European Bank for Reconstruction and Development; the Association of Commercial Banks; the Ministry of Finance; the National Statistical Institute; and the district administrations. On the business side, three more organizations participated in the work of the monitoring committee with consultative votes: the Vazrazhdane Union of Private Producers, the Bulgarian International Business Association, and the Union of Employers in Bulgaria. A deputy minister of agriculture and forestry chaired the monitoring committee. It met at least twice a year and took its decisions on the basis of consensus of attending members with voting rights. The first session of the committee took place in May 2001, and by the end of December 2004 a total of eight sessions had been held. The secretariat of the monitoring committee was provided by the SAPARD program unit of directorate “Development of Rural Regions” at the Ministry of Agriculture and Forestry. The monitoring committee was assisted by subcommittees and working groups for the preparation of reports on a variety of issues discussed at its plenary sessions. Seven permanent working groups were created in that regard: (1) for measures 1.1—Investments in agricultural farms, and 1.5— Creation of organizations of producers; (2) for measure 1.2—Improvement of the processing and marketing and agricultural and fisheries products, and submeasure 1.2.1—Markets of producers and stock exchanges; (3) for measure 1.3—Development of agricultural activities for the protection of the environment; (4) for measure 1.4—Forestry, forestization of agricultural land, investments in forestry farms, processing and marketing of forestry products; (5) for measure 2.1—Development and diversification of economic activities, creation of opportunities for multivariate activities, and alternative incomes; (6) for measures 2.2—Revitalization of the development of villages, preservation of rural heritage and cultural traditions, and 2.3—Development and Diversification of the Inter-village infrastructure; and (7) for measure 3.1—Improvement of professional training. A lot of representatives of business and agricultural farmers participated in the seven permanent working groups. These professional organizations

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were the National Vine and Wine Chamber—Sofia, the Bulgarian Agricultural Chamber, the Federation of Credit Cooperatives, the Bulgarian Association of Farmers, the National Union of Agricultural Cooperatives in Bulgaria, the Association of Poultry Breeders in Bulgaria, the Association of Swine Breeders, the Association of Grain Producers, the National Association of Rabbit Breeders, the National Association of Milk Producers, the Bulgarian Association of Herbalists and Mushroom Growers, the National Union of Gardeners in Bulgaria, the Association of Meat Processors, the Union of the Processors of Fruits and Vegetables, the Bulgarian Association of Food and Drink Industry, the National Association for Fisheries and Aquacultures in Bulgaria, the Federation of Foresters in Bulgaria; the Bulgarian Association of Farmers, the National Association of Horse Breeders, and many other branch organizations. Overall, a total of thirty branch organizations, as well as the nationally representative business organizations such as the Bulgarian Industrial Association, the Bulgarian Chamber of Commerce and Industry, the Bulgarian International Business Association, the Union of Employers in Bulgaria, and the Vazrazhdane Union of Private Producers, participated in the work of the Monitoring Committee. Joint Monitoring and Control of the ISPA Program The goal of the ISPA program is to support the economic and social development of the country. The major areas of activities under this program are improvement of the transport infrastructure (with beneficiaries—railroad companies, road, port, and airport authorities) and environmental protection (with beneficiaries—municipalities, municipal companies, and state enterprises). The organizations-beneficiaries under the ISPA program can hire private companies as subcontractors. In the area of transport infrastructure, the funds are directed toward measures that connect the national transport networks (railroads, highways) with the trans-European ones, as well as for reconstruction and building of airports and ports. In the area of environmental protection, the measures aim at improving the quality of drinking water, the purification of wastewaters, air purification in industrial regions, and utilization of hard waste substances (BCCI 2005d). A Committee for Monitoring and Control over the Implementation of the ISPA Program was created, where business representatives also participated. The members of the committee comprised executives from the government agencies involved in the implementation of the program, and representatives of the executive agencies for projects under ISPA. Executive agencies under ISPA are the Ministry of Transport and Communications, the Ministry of Environment and Waters, the Executive Agency “Roads,” and a joint unit between the Ministry of Regional Development and Public Works and the Ministry of Environment and Waters. The Sofia municipal-

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ity also had representatives on the committee. Importantly, representatives of individual companies also participated in the work of the committee. These were mostly companies whose activities were directly linked to ISPA’s priorities, such as Sofia Airport, National Company “Bulgarian State Railways,” and other beneficiaries of approved projects under ISPA. PHARE’s Project “Support for Increasing the Competitiveness of Bulgarian Enterprises” With the advancement of the accession process, aid under PHARE focused on two major areas: institution building for the implementation of the achievements of the EU common law; and support of the investment process by improving the administrative, financial, and infrastructure environment in the country. The major areas where funds were envisaged under the program were development of the private sector, restructuring and privatization of state enterprises; modernization of financial services, development of capital markets, insurance, credit, tax and accounting systems; development of labor markets; development of infrastructure (energy, transport, communications); environmental protection and safety of the Kozloduy nuclear power plant; development of agriculture; reform of higher education and the judiciary system; institutional consolidation of state administration; and further development and consolidation of civil society (BCCI 2005d). The program’s different areas were coordinated through several Bulgarian ministries, such as the Ministry of Regional Development and Public Works (Directorate “Executive Agency-PHARE Program”), the Ministry of Economy (Directorate “Pre-Accession Programs and Projects”), the Ministry of Environment and Waters (Directorate “EU Funds for the Environment”), the Ministry of Transport and Communications (Directorate “Coordination of Projects and Programs”), the Ministry of Labor and Social Policy (Directorate “Pre-Accession Funds and International Programs and Projects”), and the Ministry of Agriculture and Forestry (Department “Execution of PHARE Program”). In 2004, PHARE launched a multidimensional project “Support for Increasing the Competitiveness of Bulgarian Enterprises,” managed by the Bulgarian Ministry of Economy and Energy. The project aimed at assisting the small and medium-sized enterprises in the areas that were considered to be the main challenges of EU accession. The measures included consultation assistance for raising awareness and developing comprehensive understanding of the accession-related requirements toward the Bulgarian business community, as well as assistance for the elaboration and implementation of corporate strategies and programs aimed at complying with these requirements; investment support to SMEs, serving as an incentive for

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further investments by SMEs in upgrading their production technologies and promoting innovation; and training measures aimed at enhancing the vocational qualifications of the SME staff. The project had three related grant schemes: Competitiveness Support Grant Scheme, Consultancy Grant Scheme, and Public-Private Partnership Grant Scheme.3 The funding under the Competitiveness Support Grant Scheme reflected the difficulties faced by Bulgarian SMEs in the process of adapting to the EU requirements, and the obstacles to the competitiveness of the SME sector. Funding thus centered on assistance and improvements in three major areas: outdated machinery and limited investments in modern technologies, difficulties with meeting the quality standards and other EU requirements, improving occupational safety and health conditions, and developing an environmentally friendly production. According to research carried out for the Agency for SMEs in Bulgaria in 2002, the majority of surveyed companies had out-of-date machinery and equipment, while only 28 percent of them invested in new equipment in 2001. The relative share of SMEs with production equipment not older than two years was around 13 percent; SMEs with production equipment between five and fourteen years old accounted for almost 43 percent of the total, while those with equipment of over fifteen years old accounted for 14 percent. The Bulgarian SMEs continued to rely on the temporary advantages of low labor costs and had not started a fast process of modernization. The lack of sufficient financial resources was also emphasized as a big obstacle to the restructuring of companies.4 Furthermore, the requirements for quality management, standardization, and quality certification posed additional challenges to the enterprises. In 2004 many Bulgarian products still did not meet the EU quality requirements. The low level of standardization (ISO, QMS, GMP, GLP, etc.) of the Bulgarian SMEs negatively influences their competitiveness. A certificate for world quality would enable Bulgarian enterprises to export their production to international markets. However, the cost of acquiring such certification was so high that even the relatively successful firms could not obtain it. The project further concentrated on the need to invest in improving occupational safety and health conditions, and in environment-friendly production. The outdated machinery and technologies used by the majority of Bulgarian SMEs caused not only low productivity and inefficiency but had also a serious negative influence on the occupational health and safety conditions in the enterprises, and on the environment. The resources that had to be invested in both areas were estimated as a serious burden for the enterprises.5 Under the PHARE project for increasing the competitiveness of Bulgarian enterprises, thirty million euro are to be distributed among five hundred SMEs in the period 2005–2009. The project has three schemes. The first one targets projects of municipalities, nongovernmental organizations, and re-

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gional alliances for the support of business. The maximum grant under this scheme is twenty-five thousand euros (for projects that focus on the development of local business infrastructure and public-private partnerships). Activities that are financed include analyses of the needs for training, development of a concept for business data collection at the regional level, and improvement of the capacity of already existing networks that offer such services. The second scheme under the project targets directly the SMEs. It finances projects for the development of consulting services in regard to the assessment of the conditions of individual firms, and strategic preparation of medium-term and long-term marketing projects. The task of consultants would be to assess the state of enterprises, to help them develop business plans, as well as concrete projects with which they can apply for funding under the PHARE program. The maximum grant distributed under this scheme is five thousand euros, with 35 percent cofinancing on behalf of enterprises. The third scheme of the project had to start at the end of 2006, targeting the competitiveness of enterprises. The latter could apply with projects for up to fifty thousand euros, for meeting the environmental requirements of accession, health and safety at work, and for the introduction of best practices related to meeting various market requirements. Priority areas for financing focus on investment support and consulting services for the introduction of the European production certificates. Again, a 35 percent cofinancing on behalf of enterprises was required under this scheme.6 Overall, the Bulgarian SMEs could receive up to fifty thousand euros in grants from the European Union’s PHARE program for investments related to the fulfillment of the EU norms and requirements.7 Furthermore, under PHARE 2005 a separate project was developed in support of Bulgarian business and, more specifically, for the creation of an Innovation Fund and centers for technology transfer. Such centers are envisaged under the Innovation Strategy of the government, and individual grants are distributed for up to fifty thousand euros.8 The Innovation Fund started work in the beginning of 2005 with a budget of five million leva. Of them, about one million leva are to be distributed for small projects that explore the possibilities for market realization of a certain business idea, and four million leva for support of research and development of new products and services. For 2006, the budget of the Innovation Fund was eight million leva, and for 2007 thirteen million leva. About fifty to sixty projects have been already financed under this fund.9 Misuse of Funds and Corruption Issues A total of forty-four cases of general misuse of the pre-accession funds were registered in Bulgaria by October 2006. Of them, twenty were in regard to ISPA, twenty-two to SAPARD, and two to PHARE.10 The major instances

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of misuse included cases where businessmen used the money from the preaccession funds for personal benefit rather than developing the winning project. For example, 623,000 euros had been drowned in a shallow project for fruit drying where the money had been spent not for the purchase of relevant equipment and machinery for fruit drying but for an aggregate installation for the distillation of alcohol.11 Firm clonings had also proliferated around the SAPARD program. However, at a hearing at the Parliamentary Commission on Fight with Corruption it was emphasized that there were no rules to prohibit the participation of firms with more than one project, and a company could win more than one investment project. There were also four court cases for money draining from the European preaccession funds. They all referred to document cheating, where money had been drained from the EU funds with falsified documents. Corruptive practices also emerged around consulting companies hired to assist with the preparation of applications for funding from SAPARD (called “consultants with limousines”). As Minister of Agriculture and Waters Nihat Kabil reported, there were signals for racketeering of potential SAPARD program beneficiaries by mediators offering their services for the approval of SAPARD projects.12 The racketeering was mostly due to the lack of sufficient knowledge about the complicated application procedures, as well as to the over-restrictiveness of the SAPARD regulations. Corruption also involved representatives of the state administration— that is, civil servants from the State Fund “Agriculture” and the SAPARD Executive Agency, the agencies authorized to approve the winning projects. Thus the deputy-chair of the State Fund “Agriculture” Krasimir Nedelchev has been dismissed because of allegations for taking bribes in the amount of 357,000 leva.13 Overall, a report of the European Commission issued on July 13, 2006, for fight with financial mismanagement in Bulgaria, concluded that the signals for mismanagement with the SAPARD program had decreased. A specialized unit in the SAPARD Agency was created to investigate potential corruptive schemes. Most of the financial cheating in regard to the absorption of pre-accession funds was with the PHARE program. The commission reported that in terms of the structural funds, most vulnerable were the European Fund for Regional Development, and the European Social Fund.14

SETTING THE INSTITUTIONAL FRAMEWORK FOR UTILIZATION OF THE STRUCTURAL FUNDS AND THE COHESION FUND OF THE EUROPEAN UNION One of the most desired benefits and at the same time one of the biggest challenges of EU membership is the access to the large-scale financial sup-

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port from the Structural Funds and the Cohesion Fund of the European Union, which constitute about one-third of the EU budget. The magnitude of the funds is significant—roughly double the size of the pre-accession assistance. If the structural funds and the cohesion fund are well used, they could allow unparalleled opportunities for economic growth, social cohesion, and human development. More specifically, the goal of the Structural Funds is to bring about social cohesion of all regions of the European Union by overcoming regional disparities within each member state. They support the implementation of three objectives. Objective One secures support mostly for the least developed regions (NUTS II regions), where the GDP per capita is below 75 percent of the EU average. Objective 2 supports the development of economically and socially challenging regions that suffer under structural difficulties. It includes those industrial areas (NUTS III regions)15 where the number of unemployed exceeds the EU average. Objective 3 aims at modernizing the education, training, and employment system and its policies in the regions outside the first objective.16 Almost all regions of the new member states have per capita GDPs that are below 75 percent of the EU average, and therefore qualify for the EU structural funds. The Structural Funds comprise the European Fund for Regional Development, the European Social Fund, the European Fund for Agricultural Guidance and Guarantees—Section Orientation, and the Financial Instrument for Fisheries Guidance. The European Regional Development Fund is the most important mechanism for carrying out the common regional policy of the European Union. Its goal is to reduce regional disparities in the union in the field of development, and improve the standard of living of local citizens. The fund mainly supports national programs for local economic growth, through the provision of grant subsidies. It also finances production investments, modernization of infrastructures, job creation, local development projects, SME development, and investments in education and health care in less developed regions. The major goal of the European Social Fund is the provision of financial support in the fight against unemployment, mainly through financing measures for education and training of unemployed, provision of easy access to the labor market, creation of equal opportunities at the labor market, development of professional skills and qualifications, and job creation. The European Agricultural Guidance and Guarantee Fund facilitates the implementation of the Common Agricultural Policy. It finances measures for the development of rural regions and support of farmers. The fund has two sections—Section Guarantees, which is the bigger part of the fund and the major instrument for price guarantees of agricultural production; and Section Guidance, which is used for the implementation of structural policy in agriculture through subsidies for the adaptation of production to the market, quality improvement, and others.

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And finally, the Financial Instrument for Fisheries Guidance is designed to help the restructuring, adaptation, and modernization of the fisheries industry. The Cohesion Fund finances major environmental and transport infrastructure development projects in the less developed member states of the European Union. The main fields of the Cohesion Fund are within transport—railway transport, road traffic, inland waterways, civil air transport, and combined transport; and within environment—reduction of air pollution, protection of surface and groundwater, securing drinking water supply, wastewater maintenance, and disposal of refuse. Member states are eligible for the Cohesion Fund if their per capita GNP is below 90 percent of the community average. All new EU member states are below this threshold. The rate of support granted by the Cohesion Fund varies between 80 percent and 85 percent of expenditures.17 On becoming an EU member, Bulgaria can receive significant postaccession financial support. With its new budget for the period 2007–2013, the European Union designated 11.1 billion euros to Bulgaria. Of them, 2.3 billion euros are for the development of rural regions, 2.5 billion euros are for direct payments for agriculture, and 6.5 billion euros are for structural and cohesion activities. According to a statement of Prime Minister S. Stanishev, only in the period 2007–2009 Bulgaria will receive a total of 4.6 billion euros for investments in four major areas: agriculture—1.562 billion euros; structural activities—2.3 billion euros; internal policies and administration—498 million euros; and budget compensations and support for the implementation of the Schengen agreement—240 million euros (Yotova 2006). In order to have access to the funds, Bulgaria had to fulfill five basic requirements until 2007: (1) programming—to put in place relevant legislative framework through several programming documents (that is, to have clearly developed program documents specifying the utilization of the funds); (2) relevant institutional structures—to have a functioning judicial and institutional framework able to exercise preparation, assessment, and monitoring of plans and projects; (3) management, monitoring, and control—to have established effective functioning mechanisms and procedures for management, monitoring, and financial control of those funds; (4) creation of public-private partnerships for the absorption of the funds; and (5) clusterization—that is, development of business clusters for better absorption of the funds and increased competitiveness of the national economy. Bulgaria’s preparation for the EU structural and cohesion funds has been a long-term process that started back in 1998–1999. A number of structures and processes for planning and absorption of the financial support were established (see figure 6.1). A Strategy for the Participation of the Republic of Bulgaria in the Structural Funds and the Cohesion Fund of the European

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Union was developed. Supporting documents of the EU funds at the national level include a National Strategic Reference Framework and six operational programs stemming from it. Three strategic program documents were developed on the basis of the framework: the National Development Plan, a National Strategic Plan for the Development of Rural Regions adopted by the Council of Ministers in June 2003, and a National Strategic Plan for the Development of Fisheries and Aquacultures (see figure 6.1). At the regional level, regional development plans (NUTS II) had to be developed. At the local level, district development strategies (NUTS III) and municipal development plans (NUTS V) had to be developed. An institutional framework for the management of the structural instruments had to be further established. The National Strategic Reference Framework of Bulgaria for 2007–2013 outlines the major goals of the development policy, and the priority projects that would be cofinanced with funds from the EU structrual instruments for the period 2007–2013. The framework thus presents the national development priorities through the prism of the EU common policies. It is a document at the strategic level that unites the different government policies in the area of development. The thematic areas of the framework are known as operational programs (OPs). They are the instruments for the realization of the policies outlined in the framework and serve as the basis for approval and financing of concrete projects. The six OPs are “Developing the Competitiveness of Bulgarian Economy (productive sector),” “Human

Figure 6.1.

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Resource Development,” “Transport,” “Environment,” “Regional Development,” and “Administrative Capacity.” OP Development of the Competitiveness of the Bulgarian Economy 2007–2013 targets the development of a knowledge-based economy and innovation activities; increased efficiency of enterprises and the development of a business-friendly environment; provision of financial resources for developing enterprises; strengthening the international links of the Bulgarian economy; and technical support. The Ministry of Economy has been nominated as a managing authority for that operational program. The already discussed project “Support for Increasing the Competitiveness of Bulgarian Enterprises” is part of this OP. It aims at improved competitiveness at industry-, company-, and human-resource levels. The objectives of the project are to improve the business environment in Bulgaria; assist the Bulgarian enterprises in complying with the EU requirements and standards in the field of production, management, quality, and so on; assist in the modernization of technical equipment of the Bulgarian enterprises; and promote a demand-driven research and development activities. OP Human Resource Development aims at the promotion of sustainable employment and creation of conditions for the development of the labor market; securing increased adaptability and competitiveness of the workforce, improving the quality of education and the conditions for access to education, achieving social integration and employment through the development of a social economy, increasing the effectiveness of labor market institutions, providing social and health services, and technical support. The priorities of OP Transport are for the development of railroad infrastructure on the national and trans-European transport corridors, road infrastructure on the national and trans-European transport corridors, improvement of navigation and development of a combined transport, and technical support. The priorities of OP Environment are: building the necessary infrastructure for the collection and purification of wastewaters, development of the necessary infrastructure for solid waste treatment, improving the quality of air, shutting down of nonregulated waste depots and recreation of polluted areas, preservation of biological diversity, creation of an information system for management and monitoring of the environmental sector, and technical support. The priorities of OP Regional Development are focused on city revival and restoration, development of tourism, development of local and regional transport schemes, support of integrated initiatives for regional and local development, and technical support. The priorities of OP Administrative Capacity are good management, human resource management in state administration and civil society, improving the quality of administrative services and the development of egovernment, and technical support. The concrete distribution of funds from the Structural Funds and the Cohesion Fund of the European Union by operational program is presented

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Table 6.2. Distribution of Funds from the Structural Funds and the Cohesion Fund by Operational Programs

Operational Programs OP Development of Competitiveness OP Human Resource Development OP Transport OP Environment OP Regional Development OP Administrative Capacity TOTAL

Structural Funds 22.6% 22.6% 8.35% 8.35% 34.6% 3.5% 100.0%

Cohesion Fund

50% 50%

100.0%

in table 6.2. Evidently, most resources from the EU structural funds would go to OP Regional Development (34.6 percent), while the Cohesion Fund would equally finance OP Environment and OP Transport. On the basis of the National Strategic Framework, in 1998 a National Plan for Economic Development of the Republic of Bulgaria for the period 2000–2006 was adopted. The actual programming process for the 2007–2013 programming period started in the second half of 2004. The National Development Plan for the Period 2007–2013 was approved by the Council of Ministers in December 2005. It clearly defines the direction of development of the country after the accession year 2007. It also takes into consideration the general financial framework of the European Union for the period 2007–2013, approved in mid-December 2005 in Brussels. There are several important new principles in it. For example, the unified budget of the European Union for the following period will reduce the cofinancing of projects under the Structural Funds and the Cohesion Fund from 30 percent to 15 percent. Another new moment is the principle that cofinancing could be covered not only by the state budget but also in the form of public-private partnerships (Kuneva 2005b). The EC was not satisfied, however, with Bulgaria’s plan for the absorption of EU funds after accession. The commission requested greater specifics in the identification of problems and priorities.18 In its 2006 Monitoring Report on Bulgaria’s progress toward accession, the commission pointed to the lack of focus and strategic vision in these documents, and expressed concerns about the coordination of their implementation (European Commission 2006).

THE PARTNERSHIP PRINCIPLE IN THE UTILIZATION OF THE EU POST-ACCESSION FINANCIAL INSTRUMENTS The Strategy for Participation of the Republic of Bulgaria in the Structural Funds and the Cohesion Fund of the European Union, and all programming

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documents for the utilization of the funds, are based on several underlying principles, such as partnership, coordination, decentralization, and complementarity (Bulgarian Government 2002). The partnership principle implies close cooperation between the European Commission, the central and subnational governments, NGOs, and the private sector, aimed at achieving common development objectives (Marinov et al. 2006). The essence of the partnership principle is that plans (strategies) and operational programs have to be presented by the member states to the European Commission only after consultation with important stakeholders, called partners. The partnership concept is understood in different ways—from a narrow view as consulting to a broader meaning as certain “culture,” value, and method that underlies the operations of the structural funds and the cohesion fund.19 The narrow meaning of partnership as consultation requires the establishment of consultation processes and structures at the national and regional levels to ensure the involvement of regional and local authorities, social and economic partners (employer organizations and trade unions), business associations, and NGOs in joint activities. Most often, partnership is interpreted as the participation of stakeholders in the national public cofinancing of the structural funds and/or their participation in the implementation of projects financed from the structural funds (Marinov and Malhasian 2006). When used correctly, partnership can improve the effectiveness and efficiency of the absorption of EU funds. The principle of partnership requires the partners to present their opinions and proposals in a transparent way during the preparation, financing, monitoring, and assessment of projects. All money from the EU funds should be clearly defined, in terms of to whom, and for what purpose they are going to be utilized. Importantly, they should be spent for activities for which a consensus among the social partners exists. The Partners With time, the partnership principle has evolved in terms of scope of partners. During the 1988–1993 programming cycle, the partners in the member states who were explicitly specified in the structural fund regulations included the national, regional, and local authorities. The economic partners were added in the next 1994–1999 programming period, while in the following 2000–2006 period, the regulations indicated (vaguely) the need to include organizations responsible for the environment and for the promotion of equality between men and women. For the 2007–2013 programming period, the commission’s draft regulations further enhanced the partnership principle by adding explicitly civil society, environmental partners, NGOs, and gender organizations (Marinov and Malhasian 2006). The concrete partners in Bulgaria for the utilization of the post-accession funds

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thus are the government ministries and agencies, the organs of local authorities, the representative organizations of employers and unions, nongovernmental organizations (more than three thousand registered but really functioning only two hundred to three hundred), the educational and research units of the Bulgarian Academy of Sciences, leading universities and professional schools, business associations, branch unions, and leading companies. Problems with terminology in regard to the definition of “partners” for the utilization of the post-accession funds emerged—should partners for the utilization of the EU funds be understood as the social and economic partners (that is, the nationally representative organizations of business and labor) or as the “structures of organized civil society” (that is, involving not only business and labor, but other organizations of civil society)? The nationally representative business organizations insisted on the terminological clarification between “social and economic partners” and “structures of organized civil society” in the texts of the National Strategic Reference Framework, the National Development Plan for 2007–2013, and the respective operational programs and strategic plans. According to them, an actual substitution of the term “social and economic partners” with the term “structures of organized civil society” had occurred in the abovementioned documents. This had led to “unclear definition of the beneficiaries under different programs, and had secured access to the funds for nonrepresentative organizations created with the sole purpose to utilize EU funds.”20 The business organizations also insisted that the social and economic partners be included as a separate quota in the management mechanism of the operational programs. As they argued, social and economic partnership in the European Union is realized on the basis of a dialogue between the European Commission and the representative organizations of employers and employees. The civic dialogue is a separate one, and is realized through the European Economic and Social Committee, where representatives of organized civil society also participate, in addition to the representative organizations of employees and employers. Partnerships on Strategic Programming for Utilization of the EU Post-Accession Financial Instruments An important role of the partners is to participate—together with representatives of the European Commission—in the process of development, selection, management, and monitoring of the future projects that are to be financed through the EU funds. Such participation is realized through working groups and commissions. The latter can be permanent or temporary according to the tasks that they fulfill. The working groups would take decisions for the utilization of the structural funds and the cohesion fund,

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and would determine the development of regions and the country as a whole.21 In the early stages of Bulgaria’s preparation for participation in the utilization of the structural and cohesion funds (1998–1999), the partnership principle was not a priority task. One of the few exceptions in that regard was the National Agriculture and Rural Development Plan under the SAPARD Program (1999–2000), which was devised with the direct participation—in working groups—of all affected ministries, more than sixty sectoral, municipal, and farmer associations, as well as NGOs, especially environmental ones. In 2000–2001, another example became the partnership-based commissions on economic and social cohesion within the planning regions, and their working groups on the regional development plans and the Regional Operational Program. At the later, more intensive stage of Bulgaria’s preparation for participation in the EU cohesion policy, the government declared commitment and a strong will to apply the partnership principle in the utilization of EU funds. Building partnerships was considered to be “part of the strategic process aimed at preparing Bulgaria to participate in the EU structural and cohesion funds” (Marinov and Malhasian 2006). The partnership principle became an underlying principle of all political, normative, and methodological documents and materials about the utilization of the structural funds and the cohesion fund of the European Union. In 2004, the Ministry of Finance (in charge of the overall coordination of the structural funds) prepared a “Roadmap for Partnership.” The partnership requirement further underpinned the methodological guidelines on the National Development Plan and the six operational programs. The working groups on the specific operational programs were actually formed along the partnership principle. Starting in early 2005, public consensus-building forums were periodically held for the preparation of the National Development Plan. More specifically, the Strategy for Participation of the Republic of Bulgaria in the Structural Funds and the Cohesion Fund of the European Union, adopted in 2002 by the Council of Ministers, emphasized the necessity of following the principle of partnership. Government Regulation No. 171 from August 2, 2002, laid out the basic rules for the organization and coordination of the process of preparation of the program documents for the participation of Bulgaria in the structural funds and the cohesion fund of the European Union. Working groups at different levels were created—for the preparation of the National Development Plan, and for each of the six operational programs for the planning period 2007–2013. Beyond the process of planning, special monitoring committees were created over the implementation of the plan. They also included business organizations, together with trade union organizations and other nongovernmental organizations.

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The regulation also determined the key social-economic partners to be included in the working groups on the National Development Plan and the operational programs. Because of the high number of partners, an associated membership was introduced for some partners in the working groups. A total of twenty-six organizations of social and economic partners participated in the development of the National Development Plan for the Period 2007–2013 and the six operational programs. Furthermore, regional groups were created for the elaboration of the National Development Plan and the Operational Programs, such as six Regional Development Councils, and twenty-eight Oblast/District Development Councils. Within the regional development councils, three basic partners were included—the administration (from the national, regional, and local level), social and economic partners, and NGOs. Representatives of the state administration and the nationally representative organizations of business and other civil society groups worked together to outline the priorities and measures under each operational program before negotiations over them started with the European Commission at the end of 2006. Thus OP Development of the Competitiveness of the Bulgarian Economy was prepared and realized on the basis of broad consultations with the social and economic partners. In August 2004, the official process of consultations for the development of OP Competitiveness started, following a decision of the Coordinating Council of the National Development Plan from August 6, 2004. The Working Group on OP Development of the Competitiveness of Bulgarian Economy comprised representatives of the Ministry of Finance, the Ministry of Labor and Social Policy, the Ministry of Regional Development and Public Works, the Ministry of Environment and Waters, the Ministry of Agriculture and Forestry, the Ministry of Transport and Communications, and the Ministry of Culture, as well as representatives of directorates in the Ministry of Economy and Energy. Representatives of state executive and budget agencies also participated in the work of the working group, such as the Executive Agency for Economic Analyses and Forecasts, the Bulgarian Investment Agency, the Bulgarian Standardization Institute, the Executive Agency for the Promotion of SMEs, and others. The Bulgarian Industrial Association, the Bulgarian Chamber of Commerce and Industry, the Union for Private Economic Enterprise, the Vazrazhdane Union of Private Producers, the Bulgarian International Business Association, the Union of Employers in Bulgaria, and the Association of Industrial Capital in Bulgaria represented the partners on the business side. The two union confederations, the Confederation of Independent Trade Unions in Bulgaria and Podkrepa Confederation of Labor, as well as various NGOs, were also members. Based on assessments coming from the business sector and other sectors of civil society through the working groups, each ministry had to offer

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strategic areas where the EU funds would be utilized. The Ministry of Economy and Energy thus offered five priority areas in that regard: development of a knowledge-based economy, an economy based on innovation technologies, improvement of the access to financing, development of a business-friendly environment, and strengthening of the international links of the Bulgarian economy. Among the measures on how to achieve these priorities are the creation of guarantee funds and risk capital funds, development of e-administration for business support, and promotion of research and development trends and innovations. The Ministry of Environment and Waters determined as priority areas the purification of waters and air, noise reduction, liquidation of nonregulated dung-hills, preservation and restoration of biological diversity, and development of an information and monitoring system for the environment. In January 2006 the five business organizations—members of the Association of Organizations of Bulgarian Employers—expressed their general opinion on the National Development Plan and the operational programs, raising concerns about several problem areas and requesting discussions in order to resolve them before the finalization of the documents.22 The problems were discussed in the working groups that were formed for the preparation of the OPs, as well as in the general working group and Coordination Council on the National Development Plan. More specifically, the business community was concerned that the planned funds for the realization of operational program Development of the Competitiveness of Bulgarian Economy—847 million euros of a total of 11.112 billion euros of the EU funds—were not sufficient. According to them, the Bulgarian economy needed serious investments in order to achieve competitiveness that is on an equal basis with the other EU member states. Another serious problem, according to the business organizations, was the lack of priorities in the operational programs related to the development of information society. The business organizations supported the efforts of the State Agency on Information Technologies and Communications to create a new operational program within the National Development Plan, on Development of Information Society. Environmental protection was another issue raised by business. According to the business organizations, Bulgaria’s obligations in that area—as specified in the negotiations with the European Union—were “extremely and unnecessarily ambitious,” and required serious investments both on behalf of the state as well as on behalf of business. Besides, the business sector was concerned that SMEs were not listed as potential beneficiaries in OP Environment. The position of the Ministry of Environment and Waters was that as the funds were not sufficient, only state and municipal projects should be funded under this program. The business sector argued that the exclusion of business from access to European funds for a project related to

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the improvement of the environment would challenge the competitiveness of enterprises, as well as their survival per se. For comparison, in the new EU member states (2004) the business sector had been granted access to funds for environmental improvements under the operational programs. Furthermore, the business community raised serious concerns about the lack of information about the negotiations between the Bulgarian government and the Delegation of the European Commission in Bulgaria, in regard to the concrete procedures and order of utilization of resources from the EU funds. The business organizations insisted for the inclusion of their representatives in the government working group that held negotiations with the Delegation of the European Commission in Bulgaria. The business side also insisted for the introduction of adequate regulations about the conditions of cofinancing in the process of utilization of the Structural Funds and the Cohesion Fund, and the creation of equal opportunities in the cofinancing of projects developed by the state administration, the social-economic partners, SMEs, and the structures of organized civil society. Another issue raised by the business organizations concerned OP Administrative Capacity. Bulgaria was actually the first country where such operational program had to be developed. The European Commission recommended that 30 percent of the funds under this program be directed toward increasing the capacity of the social and economic partners for the utilization of the Structural and the Cohesion Fund. The business side insisted that the state take clear responsibility for the provision of these funds.23 Overall, the business organizations demanded an increased role for business in the utilization of the structural funds and the cohesion fund of the European Union. They lobbied publicly with the state for the creation of the necessary conditions for that (Handzhiev 2005). However, consensus over these issues was not reached. Joint Management of the EU Funds A decentralized management system of the EU structural and cohesion funds had to be introduced and implemented. The idea was to demonstrate that Bulgaria could manage the EU money by itself, similarly with the management of SAPARD funds. The essence of the decentralized management system is that all projects for funding have to be approved in Bulgaria through the intermediation of the so-called paying authority, without any preliminary control on behalf of the European Commission (Bulgarian Government 2002). A general concern with the decentralized management system of the EU funds is the emergence of corruptive tendencies that might accompany their utilization. Thus financial control was one of the five “red” or problematic areas in the EU monitoring reports before Bulgaria’s accession to the European

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Union. According to a 2006 report of the European Commission about the defense of the financial interests of the European Union, Bulgaria was one of the major offenders of the utilization of EU funds. In terms of the structural funds, most vulnerable are the European Fund for Regional Development, and the European Social Fund.24 The first symptom in that direction was the delay in the accreditation of the agencies that have to manage the EU funds. The accreditation would be a guarantee that Bulgaria can effectively manage the EU funds without the direct help of Brussels. One of the reasons for the delay was the lack of coordination, planning and communication between the Bulgarian ministries, the Coordination Unit at the Ministry of Finance, and the Delegation of the European Commission in Bulgaria. The lack of well-trained administrative personnel at the national and local levels also contributed to the delay. Furthermore, there is generally lack of capacity and experts at the smaller municipalities to deal with these decentralized projects (Simeonova 2006, 14). Besides, it would be practically impossible for the European Commission to monitor the utilization of the funds under such a decentralized system. The EC audit is organized on an accidental basis and the probability to reveal certain wrongdoings is very small if the country does not report it (Stanev 2006, 13–14). One of the options to decrease corruptive tendencies accompanying the utilization of the EU funds would be the authorization of an external firm by the European Commission to do full audit of the different programs in Bulgaria. Another option for increasing the transparency of the management of the EU funds is the stricter implementation of the EU requirement for the social and economic partners to get involved in the planning, distribution, and management of EU funds. According to this requirement, the business organizations, especially those operating on a sectoral base, have to become important players in the management of the structural funds and the cohesion fund of the European Union. However, according to the business sector, the Bulgarian institutions so far are not willing to grant such role to the business sector. The business side continues to insist on direct participation in the management of the funds, in order to increase the transparency of the process.25 Public-Private Partnerships for Utilization of the EU Post-Accession Funds The term public-private partnership is not defined in EU law, although it has been extensively discussed in the past ten years. An important initiative for the development of this process is the 2004 “Green Paper on PublicPrivate Partnerships,” and the Community Law on Public Contracts and Concessions. The Green Paper and the Eurostat rules refer to the publicprivate partnership as a long-term contractual relationship among persons

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from the private and the public sectors for the financing, construction, reconstruction, management, and maintenance of infrastructure with the goal of achieving better level of services. Thus a public-private partnership is most often defined as a partnership between the public and the private sector for the purpose of delivering a project or service traditionally provided by the public sector. The public-private partnership recognizes that both the public sector and the private sector have certain advantages relative to the other in the performance of specific tasks. By allowing each sector to do what it does best, public services and infrastructure can be provided in the most economically efficient manner.26 Public-private partnerships can be realized with the participation of national or branch business organizations, as well as individual companies. The Ministry of Finance had the task to prepare all necessary regulatory documents for the models of public-private partnerships that had to be developed in Bulgaria for the better utilization of the structural and cohesion funds of the European Union. It had to determine the priority sectors for public-private partnerships, select pilot projects for public-private partnerships, and improve the administrative capacity of the state, through training of experts from the central and local authorities. In 2004 a special sector “Public-Private Partnerships” was created at directorate “Management of EU Funds” of the Ministry of Finance. The sector has the task to prepare guidelines for the fulfillment of projects cofinanced through public investments, assist in the development of a strategy for the utilization of publicprivate partnerships in the country, develop criteria for the selection of projects suitable for implementation through the public-private-partnership model, and coordinate, monitor, and control the realization of investment projects cofinanced through public-private partnerships. In December 2005, Guidelines for the Process of Realization of PublicPrivate Partnership Projects were developed. A methodology for the assessment of projects that are to be fulfilled through the method of publicprivate partnerships was also developed. Methodological guidelines and models for the distribution of risks between the public and the private partners, as well as criteria for the assessment of projects based on publicprivate partnerships, were also developed. Under the PHARE program, a special project for the institutional strengthening of the public-privatepartnership sector was also developed. The government further created a system for publicity of its policy on public-private partnerships. Based on these guidelines, various public-private partnership projects were developed. Thus a project on the participation of the private sector in the public infrastructure in Bulgaria was launched, financed by the Federal Financial Ministry of Germany, for exploration of the opportunities for realization of a public-private partnership in Sandanski’s municipal water and sewerage company. Furthermore, at the Ministry of Public Administration

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and Administrative Reform, a PHARE project was launched on increasing the capacity of the Bulgarian public administration, which also comprised a public-private partnership component. In addition, a joint project of UNDP, the British Embassy, and the Ministry of Regional Development and Public Works was launched for the development of public-private partnerships at the regional level. It is implemented in one hundred Bulgarian municipalities, with the participation of branch organizations and NGOs. These local projects are mostly in the area of tourism and municipal cooperation. In the preparation of infrastructure projects with national importance, the possibilities of their realization through the schemes of publicprivate partnerships are also considered. These include mostly concessions for the construction of highways, port terminals, and airports. Publicprivate partnerships are also implemented in the water and sewerage sector and the social sphere (school infrastructure, and health clinics). Furthermore, in January 2006 the Ministry of Economy and Energy launched a grant scheme for the development of public-private partnerships as the first phase of the PHARE project “Support for Increasing the Competitiveness of Bulgarian Enterprises.” The goal of the grant scheme is to secure financial support for the improvement of the business environment in Bulgaria through fostering the development of public-private partnerships. The total budget of the grant scheme is one million euro. The scheme supports two areas of activities: development of projects for publicprivate partnerships (component A), and creation or modernization of existing local centers for the support of potential investors (component B). The scheme envisages support in the amount of seven hundred thousand euros for component A, and three hundred thousand euros for component B. The grant for each project is in the amount of 5,000–25,000 euro, provided by the PHARE program and the state budget. This would be a maximum of 75 percent of the budget of the project, while the beneficiaries provide the remaining 25 percent by means of co-financing. The approved projects have to be accomplished for a period of six to twelve months.27 The grant scheme emphasized that a potential field for applying the public-private partnership model is the so-called Pro-Investment PublicPrivate Partnership, to offer coherent local support and create an attractive environment for investors on a local level. The establishment of these types of public-private partnerships would lead to a better provision of services to investors at the local level. The services would include a diversified range of information upon which investors could base their investment decisions, such as available premises, land, workforce profile, schools, and local legislation. The activities financed under the grant scheme are focused on training of potential local public and private partners; development of training modules on a variety of topics related to public-private partnership activities; creation of a concept for data collection, processing and monitoring of

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business information at the regional level; development of web-based database that would provide information to potential investors and the public authorities; and upgrade of existing business centers to act as Investment Centers in order to serve as a contact point for various partners (both public and private) who are involved in business development at the local level.28 Beneficiaries of the grant scheme are municipalities, business centers, NGOs, and existing regional business support structures such as JOBS business centers, regional development agencies, business incubators, and others. A total of 167 projects were proposed for financing from the Grant Scheme for Support in the Area of Public-Private Partnerships. Of these projects, 109 were submitted by municipal administrations, and the remaining 58 by NGOs. Clusterization for Better Absorption of the Funds and Increased Competitiveness of Bulgarian Companies The EU financial instruments and programs encourage the development of business clusters for better absorption of the funds and increased competitiveness of the business sector and the national economy as a whole. This is done through the provision of financial support for their formation. The cluster approach stems from the propensity of industries to cluster in certain locations. The clusters are interrelated companies, geographically concentrated, which could successfully develop competitive advantages and improve their competitiveness and innovation activities. The clusters have been further interpreted as self-reinforcing networks comprising not just firms from one and the same branch, but a range of other organizations as well—including research institutes, universities, financial bodies, and public sector agencies. Cluster policies generally aim at facilitating the development of a network rather than promote the growth of individual agents within that network (Raines 2001; Vulov 2006b). The goal of the cluster of interrelated companies is the achievement of greater effectiveness and successful entry into foreign markets. Separate individual entry into foreign markets, especially beyond the Balkans, is not possible for the Bulgarian small firms for a variety of reasons, including lack of contacts, lack of proficiency in foreign languages, and lack of capacity for the fulfillment of the requested quantities. The interfirm alliance guarantees the necessary quantity, quality, and deadline of the supply. That is why more and more often the producers in all sectors consider the creation of clusters as a way to fight competition and survive. Survivability in this sense means technological innovation, introduction of the European quality standards, high efficiency, and overall competitiveness of the companies and their products on the European and world markets.

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In 2005 the Ministry of Economy and Energy started an eight-hundredthousand-euro project under a PHARE grant scheme, for the creation of two pilot models of clusters. The two pilot clusters focused on the production of furniture in Troyan (“Furniture–Made in Troyan”), and on tourist services in the Rhodopes mountains in Smoljan (“Tourism The Rhodopes BG”). The two pilot clusters received institutional and technical support in the amount of seventy thousand euro each. The Midyorkshire Chamber of Commerce and Industry (United Kingdom), the IAGO European Consultants (United Kingdom), and TECA Consultores SP (Spain) provided consultations on how to develop tourist services in the Rhodopes, and the furniture production in Troyan.29 Representatives of the Ministry of Economy and the Ministry of Finance participated in the formation of the two clusters by providing technical assistance (Vulov 2006b, 61). The Rhodopes cluster has thirty-seven members—hotel owners, tour operators, tourist organizations, and alliances on the territory of the Smolyan and Chepelare municipalities. They were united under the idea to assist in the development of tourism in the middle Rhodopes, by jointly advertising the region. The seventy million euro subsidy was used for computerization, reconstruction of the cluster’s website, and the purchase and installation of an automatic meteorological station in Pamporovo. The branch Association of Timber and Furniture Production initiated the cluster in Troyan for the production of furniture. The alliance comprises the branch Association of Timber and Furniture Production, the municipality of Troyan, the professional school for mechano-electrotechnics in the city, and about ten local companies for the production of wood furniture. The subsidy of seventy million euro was used for the purchase of computers and for some woodprocessing activities (Vulov 2006b, 61; Puncheva 2006). In May 2006, the government developed a National Strategy on Clusters. It envisaged the formation and support of up to thirty cluster formations in Bulgaria by 2013, with financial assistance from the European Union in the amount of five million euro. These clusters were aimed at increasing the competitiveness of more than 1,500 companies in key subsectors of the economy. At least fifteen clusters have to be developed in the period 2007–2009, each in the amount of up to 250,000 euros.30 They are to be financed under a PHARE grant scheme “Introduction of the Cluster Approach and the Creation of a Pilot Cluster Model.” The total amount of the grant scheme is three million euro. SMEs working in one of the fifteen priority sectors of the economy are given the right to apply for the subsidy. The priority sectors are: fruits and vegetables processing, information and communications technologies, apparel and textiles, wine production, general machine building, energy, milk production and processing, tourism, timber and furniture production, ferrous metals and minerals, auto parts and electronics, high tech and science, transport and logistics, perfume and cosmetics, and creative industries (Vulov 2006b).

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According to the grant scheme regulations, the cluster of companies has to secure 50 percent of the financing of the project, if the whole cluster is applying for a subsidy. It is also possible to provide financing to just one firm from the cluster. However, the self-financing on behalf of the company has to be 75 percent of the total cost of the proposed project. The grants are to be distributed to existing clusters or clusters in the process of formation that comprise SMEs without the dominance of a big company in them. After the utilization of funds from the PHARE grant scheme on clusters, the cluster formations can rely on funding from the EU Cohesion Fund and the Structural Funds.31 According to data from the Ministry of Economy and Energy, twelve clusters have been registered in Bulgaria since 2004, and three more were in the process of creation—“Ecoindustrial cluster” (Pernik), “Bulgarian Media and Press” (Plovdiv), and “Golden Valley–Tourism” (Stara Zagora). In September 2006, another cluster was expected to emerge as an alliance of producers of rubber products. Its initiators are the Volta company in Dimitrovgrad and the Zebra company near Sofia. The cluster would most probably unite all forty rubber enterprises that are members of the Association of Rubber Industry. The cluster has two goals: creation of a training center for cadres in the branch, and creation of an accredited laboratory for measurement and control of the compliance of rubber products and raw materials with the EU norms. At the moment such testing is done abroad, which increases the costs of Bulgarian rubber producers. The cluster would rely on funding from the EU structural funds. The business community was very glad with the development of the cluster principle. They see a lot of benefits from the clusterization approach, even without any state financing. The Bulgarian Industrial Association alone participated in the formation of several such clusters—the energy cluster in Maritza-Iztok, cluster “Srednogorie,” and the textile cluster in Rousse.32 Furthermore, the Bulgarian International Business Association carried out a project on the development of SME clusters in the milk, fruit, and vegetable industry, with the support of the European Commission’s Delegation in Bulgaria.33 BIBA also participated in the creation of the cluster on Information and Communication Technologies, as an alliance of SMEs in the IT sector.

ISSUES WITH THE PRACTICAL IMPLEMENTATION OF THE PARTNERSHIP PRINCIPLE AND THE ABSORPTION OF EU FUNDS Despite the available legislative and institutional prerequisites, the process of practical implementation of the partnership principle in the planning of regional and local development, and in structural funds programming

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remains weak and to a large extent taken as a formal requirement. As Marinov and Malhasian conclude, the working groups on the preparation of the National Development Plan partly serve informative functions, and very rarely operate as an actual tool to consult the partners and reach consensus. An extremely negative example for prevalent “informing” is the National Regional Development Strategy, the public discussion of which took place a month after it was officially accepted by the government (Marinov and Malhasian 2006). There were also a number of criticisms directed at the more general dialogue between the authorities and the business and NGO sectors, especially in regard to the selection of participants in the various working groups, the effectiveness of procedures, the influence of the partners on the decision-making process, the final results, and others (Mandova 2001). The unsatisfactory implementation of the partnership principle in the planning and programming spheres was due, first, to the inadequate understanding of the importance and purpose of partnership. The public administration staff frequently perceived partnership as a “necessary evil.” Inadequate capacity, contribution and responsibility of the partners, and difficulty in reaching consensus were other factors for the poor implementation of the partnership principle. Furthermore, partnership structures usually included participants with a substantially different level of preliminary information and competence. Poorly prepared participants either “did not participate” or contributed inadequately (unjustified criticism, unrealistic proposals). The lack of effective mechanisms for partnership, including criteria and procedures to nominate and involve representatives of various interest groups, was another factor in that regard. In addition, the complicated system of planning documents and processes brought about situations when the same actors were frequently engaged in various processes that ran simultaneously. This put pressure on the partners and led to “planning fatigue” (Marinov and Malhasian 2006). Furthermore, in order to take advantage of the benefits and minimize the risks in using the resources of the EU funds, national absorption capacity was needed. The capacity for absorption of EU funds is defined as the degree to which the member state is able to spend the financial resources designated to it from the Structural Funds and the Cohesion Fund in an effective way. Effective absorption requires solid preparation of the central administration, in the form of strong national policy frameworks, interministerial coordination, well-designed national programs, and implementation capacity. It further requires the articulation of stakeholder needs and priorities, as well as partnerships among central governments, municipalities, the business community, and NGOs (Marinov et al. 2006). In comparative perspective, effective absorption of the structural and cohesion funds has posed major challenges for new member states. These

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challenges reflect both the magnitude of the funds and the strict and often complex requirements for their utilization. Data of the European Commission’s DG Budget revealed that the non-absorption of funds by the ten new members was between 78 percent and 82 percent. The best utilization of structural funds was done by Estonia (41 percent), Latvia (40 percent), and Lithuania (40 percent). From the Cohesion Fund, most new members had not absorbed even a single euro, and the best performers in the utilization of Cohesion Funds were Lithuania with 3.7 million euros, Poland with 2.5 million euros, and Slovakia with 1.6 million euros (Yotova 2006).34 Bulgaria’s administrative capacity to utilize EU funds was also poor, according to a statement by Prime Minister Stanishev. Thus Bulgaria had planned to utilize only 20 percent of the EU funds in 2006–2007. According to him, the problem with the administrative capacity was an issue not only for the government administration but for business as well (Yotova 2006). The concept of absorption capacity refers to an all-national capacity, or capacity of all actors to formulate and implement development policies and programs. A general area of concern in that regard was the limited capacity of the business community for the utilization of EU funds. The Bulgarian companies and specialists who are interested in applying for projects and win them are still only a few. Thus the majority of winning projects went to foreign firms. According to a survey of the Center for Economic Development conducted in 2004, about 30 percent of the small firms were not at all interested in EU programs and projects in support of business, and 45 percent of the SMEs had not taken any measures related to preparedness for EU accession. Hence, the capacity to utilize EU funds was at a very low level among them. The reason for the low interest in the EU programs and projects was mostly lack of information on them. Obviously the state had not informed the business sectors about the financial opportunities stemming from the EU funds.35 In addition, a particularly big concern for Brussels was that the money from the EU funds given to Bulgaria could be diverted to criminal business groups or lost to corruption schemes or tax evasion (Kuneva 2004b). The MBMD Business Survey ‘05 revealed that businesses were generally skeptical in relation to the transparency of the procedures for selection and approval of projects under the EU programs. Only one-quarter of the employers/ owners surveyed found these procedures to be transparent; the managers were more positive—39 percent of them found the procedures to be transparent. Compared with the general public’s opinion, both owners and managers seemed to be more optimistic, as only 18 percent of the general public found those procedures to be transparent (see table 6.3). UNDP Bulgaria and the Ministry of Regional Development and Public Works conducted a series of assessments in regard to the capacity of domestic

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Table 6.3. Are the procedures for selection and approval of projects under the EU programs sufficiently transparent?

Business

Yes No No opinion

All

Employers/owners, freelancers

Managers

17.8% 40.9% 41.3%

25% 49% 27%

39% 47% 15%

Source: MBMD Business Survey‘ 05.

actors to participate in the absorption of the structural funds and the cohesion fund of the European Union—for municipalities and districts in 2004, and for NGOs and businesses in 2006. The UNDP expert evaluation on the preparedness of businesses to use efficiently resources from the EU funds was based on a survey carried out among 474 companies across the country. The survey identified a range of barriers to good EU funds absorption. The main problems according to the survey arose from unrealistic expectations, difficulties with the provision of funding and cofunding, difficulties in securing financing and cofinancing, differences in the capacity of participants, inadequate communication, ineffectiveness of the training seminars, and lack of long-term vision for development.36 As the expert evaluation revealed, all businesses wanted to participate in structural and cohesion funds absorption, and 37 percent of them expected to have a very active participation. Against the background of this strong desire, the private sector was only partially ready to participate in the structural funds. The survey showed that in the past few years much had been done to sensitize organizations from the business sector for the opportunities of the structural funds. However, the survey revealed a paradox where those who were more eligible were less prepared than those who under the regulations were assigned a smaller role in the direct absorption of the structural funds. The least developed regions, which most needed the funds for development, had at the same time the weakest absorption capacity. They were also potentially most eligible for structural funds interventions. The survey further revealed that businesses’ weak capacity in those regions was coupled with weak capacity of local authorities. Overall, compared with the NGO sector, businesses were more skeptical and more realistic, but also less informed and less prepared for participation in the structural funds (UNDP Bulgaria 2006). A special operational program was developed by the government for the strengthening of the capacity of the business sector to participate in the utilization of the EU funds. The funds for capacity-building are directed only toward organizations of businesses, not individual firms. Individual firms could apply individually under other programs of the European Union but

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for capacity-building in particular they can benefit only as members of a business organization that applies for funding on their behalf.

NOTES 1. Interview data. 2. Data from SAPARD Bulgaria Agency. 3. Support for Increasing the Competitiveness of Bulgarian Enterprises Project, BG 2004/016-711.11.04. 4. Support for Increasing the Competitiveness of Bulgarian Enterprises Project, BG 2004/016-711.11.04. 5. Support for Increasing the Competitiveness of Bulgarian Enterprises Project, BG 2004/016-711.11.04. 6. Biznes Vesti 19/79 (May 13, 2005). 7. Business Information and Consulting Center Sandanski, Info Panorama (March 2005): 4. 8. Business Information and Consulting Center Sandanski, Info Panorama (March 2005): 4. 9. Biznes Vesti 19 (79) (May 13, 2005). 10. Mediapool (October 10, 2006). 11. 168 Chasa 29 (July 21–27, 2006). 12. Dnevnik (May 18, 2006). 13. Mediapool (May 18, 2006). 14. Banker 28 (July 15, 2006). 15. Three levels of Nomenclature of Territorial Units for Statistics (NUTS) are defined. NUTS II refers to regions belonging to the second level, which is largely used by Eurostat and other EU bodies. In general, NUTS is a geocode standard developed by the European Union for referencing the administrative division of member states for statistical purposes. 16. EU Center, EU Funding in Brief (June 2006). 17. EU Center, EU Funding in Brief (June 2006). 18. Dnevnik (July 26, 2006). 19. Council Regulation (EC) No. 1260, Article 3.8, 1. 20. Letter from April 24, 2006, to Minister of Finance Plamen Oresharski, and Minister of State Administration and Administrative Reform Nikolaj Vasilev. 21. Biznes Vesti 24 (84) (June 17, 2005). 22. Letter to Minister of Finance Plamen Oresharski (January 31, 2006). 23. Letter from April 24, 2006, to Minister of Finance Plamen Oresharski, and Minister of State Administration and Administrative Reform Nikolaj Vasilev. 24. Banker 28 (July 15, 2006). 25. Interview data. 26. Support for Increasing the Competitiveness of Bulgarian Enterprises Project, BG 2004/016-711.11.04. 27. Dnevnik (March 27, 2006).

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28. Support for Increasing the Competitiveness of Bulgarian Enterprises Project, BG 2004/016-711.11.04. 29. “Klasturite u nas shte mogat da razchitat na 5 milliona euro pomosht ot ES,” Dnevnik (June 14, 2006). 30. Business Information and Consulting Center Sandanski, Info Panorama (March 2005): 4. 31. Biznes Vesti 19 (79) (May 13, 2005). 32. Interview data. 33. BIBA Bulletin (March/April 2003). 34. “On EU Doorstep,” Novinite.com. 35. “Biznesyt se nuzhdae ot pomosht za evroparite,” Biznes vesti 24 (84) (June 17, 2005). 36. Dnevnik.bg (June 21, 2006).

7 The Capacity-Building Imperative: Partnerships for Learning

ADDRESSING THE CHALLENGE OF CAPACITY-BUILDING The act of importing union laws into national legislation cannot guarantee the carrying out of those laws. Both institutions and citizens of accession countries had to create administrative and judicial capacity for the adoption, implementation, and enforcement of the acquis. Capacity was also needed for the efficient absorption of increased EU financial support. The preparedness for EU membership through capacity-building thus became a primary task requiring high qualification, good experience, and foreign languages proficiency from both the public administration and the major agents of civil society, such as business. At that time the Bulgarian administration faced both quantitative and qualitative problems. The central administration employed around sixty thousand people, while the local administrations employed around twenty thousand, according to a report of the Council of Ministers issued in May 2004. Although the public administration was about eighty thousand, they were insufficient for tackling the new, European tasks.1 Thus according to analyses of experts at the Council of Ministers, the central and municipal administrations would need 1,500 new jobs in order to address professionally Bulgaria’s obligations toward the European Union as they were set up during the negotiation process. The new jobs had to be secured by 2007, before Bulgaria’s entry to the European Union. In terms of quality, quite often the services rendered by the administration were of low quality, which created the impression for overstaffed administration as citizens had to deal with more civil servants from the administration in order to get their problems resolved. Another general 173

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problem was the inefficiency of the public administration, due mainly to the lack of experience and necessary skills, as well as low salaries in the sector, which diverted the skilled experts toward the private sector. The depth of political appointments within the public administration was also high. The corruption of civil servants was a related major issue. On the business side, there was also a distinct need of education and training for effective participation in the processes of strategic planning and programming, and development and execution of projects. Special attention had to be paid to the business capacity for partnership (in planning, development, and fulfillment of projects) as a basic precondition for the achievement of development impact. The business entities had to develop a vision and skills for the creation of strategic and sustainable partnerships at the national and regional level as a key factor for the success of projects. This also included the development of skills for communication and negotiations with the state institutions, local authorities, civil organizations, and scientific centers. In response to the challenges of capacity-building, a number of strategic programming, educational, and financial channels emerged for building state administration’s and business’s capacity for EU accession and membership. They were provided by the major actors in the process—the European Union, the EU-level business organizations, the Bulgarian government, and the Bulgarian business associations. In addition to these major actors, learning assistance was provided by USAID, universities and institutes of higher education, the American Chamber of Commerce , and a variety of NGOs and consulting entities. The Communication Strategy of the Government: A Partnership for Learning To address these challenges and needs, the government developed a special communication strategy as part of the European Commission’s Communication Strategy for Enlargement. Adopted in May 2000, the latter aims to inform and generate dialogue with citizens in the member states as well as candidate countries on the enlargement process, and dispel any misapprehensions they might have about it. The strategy ran from 2000 to 2006, and had a budget of nearly 150 million euros. Of them, nearly sixty million euros were designated for the candidate countries, of which 50.05 million for eastern European countries, 5.8 million for Turkey, 1.5 million for Malta, and 1.8 million for Cyprus.2 The communication strategies in candidate countries had the objective to improve public knowledge and understanding of the European Union, to explain the implications of accession for each country, and to explain the link between the pace of preparations for membership and the progress in

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negotiations. As a priority, the communication strategies addressed political institutions (the European Parliament and other European institutions, governments, national parliaments, and regional assemblies), business and industry (business organizations, trade unions, professional associations), and civil society (the press, nongovernmental organizations, religious and intellectual bodies, and universities and teachers in secondary and higher education). The Communication Strategy for the Preparation of Bulgaria’s Accession to the European Union was adopted by the Council of Ministers in January 2002. The major goal of the strategy was to prepare all professional circles in Bulgaria for successful integration in the EU policies from the very start of Bulgaria’s accession, to improve the public knowledge and understanding of the pre-accession programs of the European Union, and to motivate all partners for a more active participation in the processes of program implementation, monitoring, and evaluation (Bulgarian Government 2002, 9). The strategy had two parts: a national plan, directed inward to the Bulgarian society with the aim of explaining and bringing Bulgarian citizens closer to the “European idea”; and an international plan, directed to the citizens of the fifteen EU member states, as well as to the nationals of the countries from the first wave of enlargement, with a view of increasing the supporters of Bulgaria’s candidacy for EU membership (Council of Ministers 2002, 10–11). On a national plan, the Communication Strategy pursued two major aims. This was, first, a provision of information and awareness about the European Union: to explain what the European Union is, what the benefits of membership are, what changes would occur upon acquiring full membership, and to explain the results of the accession of Bulgaria to the European Union, both for society as a whole and for concrete groups in it. A second goal of the strategy was preparedness: to prepare all professional circles in Bulgaria for successful integration in the EU policies from the very start of Bulgaria’s accession, to improve the public knowledge and understanding of the pre-accession programs of the European Union, and to motivate all partners for a more active participation in the processes of programming, implementation, monitoring and evaluation of the preaccession instruments of the European Union. The implementation of the Communication Strategy was financed with funds from the national budget and the PHARE Multi-Country Information and Communication Program, managed by the EC Delegation in Sofia. Financial support from individual EU member states and private donors was also sought (Council of Ministers 2002, 8). The communication techniques of the strategy at the national level included a network of information centers on European problems; publications on the European theme (books, brochures, newspapers, magazines and journals, bulletins and newsletters, the Internet); radio and TV broadcasts; and meetings and discussions with

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representatives of the major target groups, such as government, parliament, presidency, and employees in the state administration, representatives of regional and local authorities (PR specialists from regional governments and from municipalities, officials responsible for international activities in the municipalities, municipal councilors, etc.), leaders of public organizations, representatives of the mass media, social and economic partners, the academic and educational community, business circles, farmers, young people (high-school students and university students), groups in a disadvantaged position, and the broad public (Nikolov 2002, 57–59). The social partners (business, unions) together with other actors—NGOs, the presidential institution, the European Integration Committee of the National Assembly, and the Council on European Integration at the Council of Ministers—were designated to be partners to the Bulgarian government in implementing the strategy (Council of Ministers 2002, 11–12). As the strategy indicated, “It is of enormous significance for this strategy to be conducted in close cooperation with the nongovernmental organizations and social partners in the country.” For the implementation of the strategy, a special institutional structure was created—a Council on European Communication (CEC)—on the basis of the partnership principle. The council comprised representatives of state institutions and NGOs, social and economic partners, municipalities, academic circles, and experts. The main responsibility of the council was strategic planning on issues of the communication strategy, and permanent monitoring and evaluation of the implementation process, with the obligation of undertaking the necessary measures in the event of a change in the situation (Council of Ministers 2002, 12–13). The CEC met at least four times per year. The communication strategy of the government was assessed by the business sector and the Bulgarian Industrial Association in particular as not being very effective, however. It was viewed as predominantly oriented toward emphasizing the positive sides of EU membership, rather than toward the challenges of accession. Some training courses were organized for the big companies of the food industry, for example, but for the small businesses and the farmers training was barely provided; they were left to wait and see what would happen after accession.3 Public Administration Reform A strategy and an action plan for carrying out the administrative reform were launched in Bulgaria. A number of fundamental pieces of legislation initiated by the government were passed by the National Assembly, including the Law on State Administration, and the Civil Service Law. Steps were taken to improve salary structure and incentives, and raise transparency and

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accountability in the civil service. The PHARE program allocated financial resources for the improvement of the quality and quantity of Bulgarian public administration. The restructuring process resulted in the elimination of unnecessary or duplicating functions and associated units. In addition to new appointments, the task of administrative capacity also required making the administration more mobile. For example, when the European Union adopts a new directive, the ministry that is responsible for its implementation could either hire additional personnel, or address administrators and experts from other ministries. However, there were recruitment problems, such as lack of sufficient interest, or candidates that did not have the necessary skills, such as a higher education degree, computer proficiency, and proficiency in one or two foreign languages. In order to train the state servants in higher mobility from one ministry to another, Bulgaria declared the need for 193 training seminars during accession negotiations with the European Union—from more general seminars on the functioning of the European Union to more specialized ones. A special program of the European Union—TAIEX—financed the training. The regular training sessions became an inherent part of the life of civil servants. The extent to which the civil servants attended training courses became part of their annual job review. Overall, in 2004 there were around 1,140 servants in the different ministries who were working exclusively on issues of European integration.4 The regional administrations also increased with one hundred employees to meet the requirements of the EU structural and cohesion funds and the goals outlined in the Law on Regional Development. In the six planning regions on the territory of Bulgaria—Vidin, Rouse, Varna, Bourgas, Plovdiv, and Sofia—regional councils and directorates were created for technical assistance in regard to the regional administrations’ capacity-building for planning and management of the resources from the EU structural and cohesions funds.5 Addressing Businesses’ Capacity for EU Membership: The Euro-Info Centers Network in Bulgaria Created under the aegis of the European Commission in 1987, the EuroInfo Centers (EIC) have grown from thirty-nine to a network of three hundred contact points in forty-two countries. Coordinator for the EIC Network is the European Commission’s Directorate General “Enterprise.” The Euro-Info Centers operate as joint ventures between local, regional, or national organizations, and the European Commission. Host organizations are selected according to the quality of their contacts with companies in their regions. They also provide significant financial and logistical support, as well as access to their databases and information sources (European Commission 2004b).

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The Bulgarian National Network of Euro-Info Centers was established in August 1999 as an integral part of the European network. It is hosted by the Bulgarian Chamber of Commerce and Industry. A total of eight Euro-Info Centers comprise the Bulgarian network—six of them hosted by regional chambers of commerce and industry (Sofia, Plovdiv, Stara Zagora, Vratsa, Yambol, and Dobrich), and two by agencies for regional development and business centers (Sandanski and Rousse). The major task of the Euro-Info Centers network in Bulgaria is to provide information on all questions related to the European Union—its common law, programs, projects, and initiatives for the support of SMEs; sources of financing from the European Union; opportunities for training; opportunities for business contacts and business cooperation; and others. The centers also provide consultations to SMEs in regard to the preparation of business plans, application for funding from programs and projects of the European Union, and all questions related to their everyday activities, such as customs procedures, product certification, implementation of the EU environmental standards, and others. In addition, the centers organize different forms of education, training, and public discussions (seminars, courses, round tables, and others) in regard to the EU requirements toward entrepreneurs. Another major activity of the centers is to assist SMEs in their entry into the EU common market through different forms of support of business cooperation and partnerships. On a monthly basis, the Euro-Info Centers serve between fifty and three hundred companies. Most often they help the companies establish business contacts with partners from the European Union, and provide assistance for their inclusion in EU programs for the support of business. The centers further organize on a regular basis different forms of education and training for the business community on various European issues. They provide consultations and offer other specialized services related to the Europeanization of Bulgarian entrepreneurship (BCCI 2005e, 5–7). Under the aegis of the European Commission and with its financial assistance, the Bulgarian Chamber of Commerce and Industry set up a Euroclub in February 2000. The goal of the Euroclub is to increase the level of information among Bulgarian SMEs, and those in Sofia in particular, on the process of EU integration and its challenges to SMEs in their entry to the EU common market. Members of the Euroclub became SMEs, business branch organizations, agencies for regional development, and other NGOs whose activities are directed toward the assistance of business, politicians who are directly involved in the process of European integration, journalists, diplomats from the old EU-15 member states, and representatives of the Delegation of the European Commission to Bulgaria. The Euroclub organized training seminars, roundtables, and discussions on a variety of EU topics. For example, a specialized seminar was organized for journalists about the role of the

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Euro-Info Centers for the adaptation of Bulgarian business to the requirements of the internal European market. Addressing the Information Challenge: The Information Campaign for the Preparedness of Business Up until 2004 there was not any active campaign for informing the business circles on EU accession. In 2004 a wide-ranging information campaign was launched in that regard. The government institutions, especially the Ministry of Economy and Energy and the Ministry of Finance, organized a lot of training seminars for the business community, with money from the EU pre-accession funds and post-accession financial instruments. Thus in May 2006 the Ministry of Finance organized education of the social and economic partners in regard to the structural funds of the European Union. Participants included representatives of the Bulgarian Industrial Association, the Bulgarian Chamber of Commerce and Industry, the Union for Private Economic Enterprise, the Association of Industrial Capital in Bulgaria, the Vazrazhdane Union of Private Producers—a total of fifty. In July 2006 the Second National Seminar for Cluster Development under the European Union’s PHARE program on the Introduction of the Cluster Approach and Establishment of a Pilot Cluster Model took place. Presentations featured experts from Bulgaria and the European Union, and covered issues of cluster management, cluster development, and cluster initiatives. The government further involved the business sector in international programs. The participation of producers, risk insurers, banks, and other financial institutions was seen as essential for the implementation of such programs. In these cases, public officials not only informed the business community of international financial sources but also trained them to apply for subsidies. For example, in the case of the SAPARD Program, public institutions (such as regional departments of the State Fund “Agriculture”) and businesses (growers, bankers, insurers, agricultural consultants, branch organizations, and so on) took part in more than thirty seminars organized by the Ministry of Agriculture. In addition, a considerable part of the money under PHARE’s program on Competitiveness of the Bulgarian Economy and Business are in fact money not only for the development of new productions, but also for education and training. In that regard, the government organized roundtables with business, including SMEs. Former EU Competition Commissioner Mario Monti and former Social Policy Commissioner Ana Diamantopoulu were invited to participate in these seminars, and discussed venues for increasing the competitiveness of Bulgarian businesses (Kuneva 2005b). In March 2004, a Joint Consultative Council for Informing the Business Community on EU Accession was created at the Ministry of Economy for

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informing the business community about Bulgaria’s responsibilities in the course of accession. Members of the council included the nationally representative business associations BIA, BCCI, the Association of Industrial Capital in Bulgaria, the Union of Employers in Bulgaria, the Bulgarian Business Club Vazrazhdane, the Vazrazhdane Union of Private Producers, and the Union for Private Economic Enterprise, as well as BIBA. The creation of the council was part of the government measures for informing the business community and assisting it in the EU preparation efforts. In addition to informing the companies about the obligations that Bulgaria had taken in the course of accession negotiations, the goal of the council was to discuss arising problems in the preparation of entrepreneurs for the fulfillment of the EU requirements and standards; and to assist their applications for funding from the European programs. The ministry further organized regional roundtables with business representatives, to discuss the responsibilities of the country and the problems arising in the course of EU accession. This specific training was aimed at the faster and more accessible clarification of the major responsibilities of accession that the Bulgarian firms have to face. Sixteen roundtables were organized, in which almost eight hundred firms participated. The roundtables focused on the EU requirements and membership obligations that Bulgaria took in different sectors, the requirements of the EU technical law and standardization, the trade aspects of accession, the pre-accession instruments of the European Union, and opportunities for participation in public procurement. Sectoral working groups were created at the council. The council also created an information database of enterprises that were successfully adjusting to the requirements for EU membership. Two draft laws in that regard were discussed at the council meetings—the Law on the Bulgarian Standardization Institute, and the Law on Accreditation. In the course of fulfilling the Communication Strategy for the Accession of Bulgaria to the European Union, in September 2004 a special phone line—Call Center on European Integration—was established at the Ministry of Economy as a more flexible way of informing the business community about the obligations that Bulgaria had undertaken in the course of accession negotiations. Through this phone line specially trained experts on European integration answered questions related to the requirements under the negotiation chapters, including sectoral specifics in foodstuffs, textile, cosmetics, drugs, chemicals, machines, and others. The interest of firms in these issues was increasing after the opening of the Call Center. Thus from September 15 to December 31, 2004, the Call Center received 1,402 inquiries on EU-related issues. Furthermore, a related special section on Business-2007 was included on the web page of the Ministry of Economy. It provided full information about Bulgaria’s positions over the negotiation chapters, as well as about the EU requirements toward the various sectors.

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The call center grew into a Center for Business Information and in 2005 it answered not only questions related to European integration, but also any questions related to the government economic policy, including new normative acts that affected businesses and were initiated by the Ministry of Economy, opportunities for financing businesses from the Ministry of Economy, regulatory regimes of the Ministry of Economy, trade agreements of the country, tourism, and others. Despite these numerous educational and training channels, however, the impression of business was that the process of training and general capacitybuilding was rather disorganized and chaotic. Overall, according to Bulgarian Minister of European Integration Meglena Kuneva, the Bulgarian business was more prepared and informed about EU accession than the Bulgarian public administration. That was in large due to the branch unions and associations that were very active in offering services to their members in that area (Kuneva 2004c). Financial Instruments for Training Through its pre-accession financial instruments—specifically through the PHARE program—the European Union has contributed for the education and training of both civil servants and civil society to meet the challenges and needs of EU membership. The PHARE program thus had a special emphasis on the development of civil society, where Bulgarian organizations could apply for funding to finance training and educational initiatives that targeted preparedness for EU membership. This also included training of business representatives. Furthermore, the twinning projects had aspects that targeted businesses as potential beneficiaries. The Bulgarian ministries also had the obligation to organize training for both public administration servants and the business sector. Additionally, many NGOs organized such training seminars funded by the European Union and invited business representatives to participate. Those were more generalized trainings about the basic conditions for EU entry. The structural funds and the cohesion fund of the European Union became an additional powerful instrument in educating civil servants and segments of civil society (including business) about the basics of EU membership and the utilization of EU funds. Under the recommendation of the European Commission, one-third of operational program “Administrative Capacity”—or about sixty million euros of the total of 196 million euros allocated to this program for the period 2007–2013—are envisaged for the education of business and labor unions on how to apply for financing from the structural funds and the cohesion fund of the European Union. Business and union organizations are eligible to compete for financing. According to the rules of the European Commission those whose projects win funding cannot implement their own projects at the same time. Specialized

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training organizations, higher education organizations, professional schools, advertising agencies, hardware and software suppliers, consultants, and others can compete for the implementation of winning projects. Preferred organizations for the provision of such training became the consulting companies and the central administration. Business organizations also provided consultations and training to their members. They claimed that they best knew the needs of their members, and could offer the best training services (Gelovska 2006). The Role of Business Organizations for Capacity-Building The role of business organizations for capacity-building of their members was increasing with the advancement of the accession process. Serving as the link between the state administration and their member companies, the business associations assumed new responsibilities for the preparedness of their members for EU membership. They had to create a network of experts for lobbying in Brussels; set up or improve effective channels of communication with member federations, companies, and other concerned organizations to inform them about impending changes in regulations; explain the effect of such changes and propose ways of adapting to the new conditions; develop or improve cooperation and continuous dialogue with the government, to ensure that decisions made in the negotiations take account of the business point of view; and build or expand bilateral links with EUbased federations (sectoral and horizontal) in order to encourage and facilitate networking, partnership programs, and joint initiatives. A lot of training and education was offered by the national and branch business organizations. The training seminars of the national business organizations concerned more general and common issues, such as how to prepare and submit a project proposal for funding from the EU financial instruments. The branch organizations organized training of their members on more specific issues, such as the specific requirements of the EU directives toward the respective branches. One of the major priorities in the activities of the Bulgarian Chamber of Commerce and Industry was to prepare the business community for Bulgaria’s membership in the European Union. Especially through the EuroInfo Center that it was hosting, the chamber offered a wide range of specialized services, whose goal was to increase the awareness of Bulgarian entrepreneurs about the EU requirements in regard to product quality and safety, environmental impact, and other aspects of business activities. The chamber offered the full text of EU directives, regulations, decisions in all available languages of the European Union, the concrete requirements of the European Union toward companies/producers in different sectors, information about and/or the full text of Bulgarian national laws that had al-

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ready been harmonized with the EU common law, specific national legislation for each EU member state, customs and quotas for export of goods to the European Union, information about the programs and financial instruments of the European Union in support of business, and others (BCCI 2005b, 8–11). The chamber further assisted the Bulgarian businesses in their preparedness for EU membership through the creation and maintenance of a specialized website with an interactive discussion forum. It serves as a guide to firms that are about to start export activities or are already trading on the EU market. The website features an International Trade Guide, a practical guide for Bulgarian companies that are involved in international trade and trade with the European Union in particular. The guide provides information about customs tariffs, import regulations, and VAT and excise duties in the European Union; the EU common law; e-commerce; eco-labeling; European standards, patents, and trademarks; and procedures for registering a company in another European country. The chamber also organized different seminars and courses for the preparation of entrepreneurs for EU membership related to the European requirements in regard to the different aspects of their activities. It also provides consultations for the preparation of projects seeking financial assistance from European programs. It further assists in the registration of firms and representative offices in the European Union, and the establishment of trade contacts between Bulgarian and EU firms and organizations. More specifically, in August 2006 the chamber organized an information seminar for SMEs, explaining to them how to prepare project proposals for financing under PHARE’s grant scheme Support for Increasing the Competitiveness of Bulgarian Enterprises. SMEs from the manufacturing sector with an annual revenue of more than 100,000 leva for 2005 were eligible to participate in the competition for the grant.6 Furthermore, the chamber organized a seminar in Vratza on European Standards as Bridges for the Free Movement of Goods in the European Union, for SMEs from the region. Four standards for quality management systems—ISO 9001-2000, ISO 9000-2000, ISO 9004-2000, and ISO 1911-2002—and their application in the food and food processing, textile, construction, and furniture industries were discussed. The representatives of local companies were advised on the procedures for acquiring exclusive rights over industrial properties. The seminar also promoted the advantages of the European eco-label in marketing and sales on the common European market.7 The Bulgarian Industrial Association also assists its members on a variety of issues related to European integration, such as social dialogue, development of free entrepreneurship, development of SMEs, creation of joint ventures, and others. The association’s Center on International Organizations

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and Programs participates in the work of several interministerial councils on issues of European integration. In May 2006, BIA organized a seminar “Preparation of the Economic and Social Partners for the Utilization of the Structural Funds in Bulgaria” in partnership with TAIEX. More than eighty representatives of the social partners, local administrations, and experts from state institutions participated in the seminar. Training seminars with the Bulgarian Customs Agency on customs export and import rules, and the customs aspects of Bulgaria’s accession to the European Union were also organized. BIA further organized joint seminars with the Association of Specialized Accounting Enterprises in Bulgaria. In addition, BIA organized a series of training seminars on health and safety at work. For the past five years, about fifteen thousand experts from individual member companies were trained on issues of health and safety at work. On its part, the Bulgarian International Business Association also organized training seminars for its members to prepare them for the challenges of EU accession. Such seminars were organized on issues of competitiveness, human resource development, public procurement, continuing education, environmental education, and EU standards. All training seminars were organized on a monthly basis and financed both by BIBA and through the pre-accession programs. About fifty to sixty BIBA members attended each of the seminars.8 The Association of Industrial Capital in Bulgaria also assisted the Bulgarian entrepreneurs in their efforts to get prepared for EU membership by organizing workshops and roundtables. In June 2004, in partnership with the Ministry of Economy, it organized a roundtable titled “Are We Ready to Meet the Competitive Pressure of the European Union?” The association also prepared thematic brochures, explaining to firms the requirements and standards of the European Union in the different branches of the economy. The Union of Private Economic Enterprise also organized EU-related training of its members and helps in general for the development of projects for participation in EU-funded activities.

PARTNERSHIPS FOR INCREASING THE COMPETITIVENESS OF BULGARIAN COMPANIES ON THE EUROPEAN MARKET The partnership model is viewed as one of the most successful ones for the integration of the national economy into the European one, and increasing the competitiveness of Bulgarian companies on the European markets. Those companies that were able to engage in partnerships with companies from the EU member states became the most successful ones. The development of partnerships with European counterparts thus became a major task for both the business sector and the government.

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Executive Agency and Advisory Board for the Promotion of SMEs On the government side, the Ministry of Economy and Energy started a special initiative, “Bulgarian Companies on the European Market,” with the goal to create a data set for best Bulgarian practices. Another opportunity was provided by PHARE’s grant scheme on increasing the competitiveness of Bulgarian enterprises. SME representatives were invited to participate in seminars organized by the Ministry of Economy and Energy in regard to the preparation of projects under this grant scheme.9 All these efforts were an integral part of the EU Multiyear Program for the Development of Enterprises and Entrepreneurship (2001–2005) (BCCI 2005d). The major goals and priorities of the program are: support for the development and increase in the competitiveness of enterprises, promotion of innovative business approaches, development of new technologies, introduction of European standards, promotion of entrepreneurship through training, simplification and improvement of the administrative framework, and creation of a better environment for the development of business. The budget of this program is 450 million euros. In April 2002 the Council of Ministers adopted a decision about the participation of Bulgaria in the 2001–2005 multiyear program of the European Union for the development of enterprises and entrepreneurship, in particular SMEs. A National Strategy for Promotion of SME Development for the Period 2002–2006 was adopted, with the major goal of creating a favorable environment and conditions for the development of a competitive SME sector. The priorities of the strategy included simplification of the administrative and legislative environment for SMEs. The government emphasized the need to create a stable and transparent legislation through increased transparency in state administration activities; introduction of regulatory impact assessment for SMEs; creation and support of an information system for business-related administrative procedures; introduction of “one-stop shop”; and provision of maximum publicity, transparency, and free competition for the participation of SMEs in public procurement tenders and the privatization process. The new financial support tools for SMEs included the creation of conditions for micro-credit schemes development, establishment and development of a National Loan Guarantee Fund, and support for the establishment of regional loan guarantee funds. The Executive Agency for the Promotion of SMEs under the minister of economy became responsible for the implementation of the strategy. The agency’s services are designed to meet the broad needs of Bulgarian business by providing general information and consultancy about legal regulations, foreign trade and customs regulations, foreign exchange and investment regimes, tax regimes, employment relations and income taxation, international agreements, business supporting programs, crediting, insurance, and others. Competitiveness and entrepreneurial skills development

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is another important area of agency activities. The promotion of Bulgarian goods and services abroad became a priority area of the Bulgarian government in regard to the internationalization and Europeanization of Bulgarian business. The participation of companies in major specialized exhibitions and the organization of bilateral business meetings have been shown to be one of the most effective promotional instruments in terms of achieved business results. An Advisory Board for the Promotion of Small and Medium-sized Enterprises was set up under the minister of economy. The advisory board is a consultative body comprising representatives of government ministries, the National Alliance of Municipalities in the Republic of Bulgaria, NGOs, associations providing support to small and medium-sized enterprises, industry chambers and other business organizations, and labor unions, as well as scholars specializing in economic policy issues. The minister of economy chairs the advisory board. It discusses the status and policy of promoting the establishment and development of SMEs, assesses analyses of the status and development of SMEs by area and by sector, proposes amendments in the laws and regulations on SMEs, ensures public access to information and participation of entrepreneurs and their associations in the discussion of laws and secondary legislation, discusses results and makes recommendations regarding the implementation of the national strategy for promoting small and medium-sized enterprises, and the annual programs for its implementation. The Innovation Relay Center Furthermore, in 1997 an Innovation Relay Center (IRC) was created in Bulgaria as part of a Europe-wide network of seventy-one Innovation Relay Centers in thirty-three countries. The mission of the center is to foster the development of the Bulgarian industry through inward flow of technologies and know-how stemming from European industries and EU research and development programs, and thus to enhance the competitiveness of the industrial companies and their ability to respond to market challenges. The basic role of the center is to popularize and facilitate the technological cooperation between European and Bulgarian scientific and business circles through technology and know-how transfer. The center thus acts as an intermediary between Bulgarian and European organizations for the creation of joint ventures, access to financing, and others.10 The center is hosted and coordinated by the Applied Research and Communications Fund, in partnership with the Bulgarian Industrial Association and the Bulgarian Academy of Sciences. Key services offered to the Bulgarian firms include technology audits and company visits, technology watch, commercialization of innovative products, elaboration of technology re-

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quests and technology offers, transnational technology transfer missions, transnational technology transfer brokerage events, technology transfer event representation, company-oriented dissemination of information (Automatic Matching Tool), national innovation forums, and others. Standardization and Financial Assistance for Achieving the European CE (Conformité Européne) Mark With Bulgaria’s accession to the European Union the European standardization requirements have to become an inherent part of the activities of Bulgarian companies. Standardization is a voluntary process based on consensus among different economic actors (industry, SMEs, consumers, workers, environmental NGOs, public authorities, etc.). It is carried out by independent standards bodies, acting at national, European, and international level. The European Union has, since the mid-1980s, made an increasing use of standards in support of its policies and legislation. The “New Approach,” defined in a council resolution of May 1985, represents an innovative way of technical harmonization. It introduces, among other things, a clear separation of responsibilities between the EC legislator and the European standards bodies CEN (the European Committee on Standardization, which works in all areas except electrotechnics and telecommunications), CENELEC (works in the area of electrotechnics), and ETSI (European Institute for Telecommunications Standards). On the one hand, EC directives define the “essential requirements”—for example, protection of health and safety—that goods must meet when they are placed on the market. On the other hand, the European standards bodies have the task of drawing up the corresponding technical specifications in meeting the essential requirements of the directives. Such specifications are referred to as “harmonized standards.”11 The success of the European standardization system in removing technical barriers to trade has played a vital role in ensuring the free movement of goods between member states. Since 1987 some twenty-five directives have progressively come into force. These directives have the dual purpose of ensuring the free movement of goods through technical harmonization of entire product sectors, and of guaranteeing a high level of protection of public interests. Overall, before a certain product can get access to the European market, an assessment has to be made about its compatibility with the EU requirements. As a result, a special mark for compliance is granted, the so-called European CE (Conformité Européne) mark. The CE mark (“Trade Passport to Europe”) verifies that all important requirements have been taken into consideration and the product has been assessed under certain procedures at the stage of development and production. The CE mark is thus not a quality mark and does not indicate conformity to a standard; rather, it

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indicates conformity to the legal requirements of the EU directives. With the CE marking, the manufacturer or his representative within the European Union declare that the individual product is in compliance with the general safety regulations in the CE marking directives. The CE mark allows manufacturers and exporters to circulate products freely within the EU members. In Bulgaria the activities on the technical regulation, standardization, accreditation, certification, and market control are separated. The competent institutions in this sphere are the Bulgarian Standardization Institute as the national standardization organ which issues standards, manuals, rules, and procedures related to standardization; the State Agency on Metrology and Technical Monitoring; the National Consultative Council on Standardization, the role of which is to balance the interests of producers, consumers, scientists, and representatives of state administration in the process of standardization; the Executive Agency “Bulgarian Office for Accreditation” at the Ministry of Economy as an independent national organ on accreditation with participants from ministries, associations of the certifying organs, laboratories, the industry, and consumers; the Executive Agency “Certification and Testing” at the Ministry of Economy; the National Veterinary Medicine Office; and a network of independent certifying organs, control organs, and laboratories. In the process of Bulgaria’s accession to the European Union numerous obstacles emerged that hampered the practical implementation of the EU standards and the CE mark system. First of all, the EU standards were adopted as Bulgarian state standards but they were introduced in English. The reading of technical standards in English created especially acute problems in the testing laboratories. Furthermore, the standardization terminology is very specific and its inadequate translation created problems in the resolution of disputes. Another big problem was the lack of accredited laboratories where products would be tested.12 There are sixteen such laboratories in Bulgaria but they do not cover all products that have to get certification. At the same time these products cannot be sold on the European market if their compliance with the EU standards is not marked. As these standards are already in effect, labs outside the country could be used but not all certifying organs could rely on this. As an alternative, non-accredited laboratories could be used, as well as company laboratories under the control of the certifying organ. Big producers typically create their own laboratories. Testing can be conducted in such labs, and it is recognized as valid in the EU member states. These company labs undergo a mandatory screening once a year from specialists of the Agency for Technical Control. As a whole, however, the laboratory equipment for the assessment of materials for their compatibility

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with the EU regulations is very expensive, and not particularly attractive to these big investors. Because of the high costs, the creation of their own labs is at the same time not possible for the smaller producers. For example, the testing equipment for machine building products costs some three hundred thousand euro. For a carpenter machine, for example, the price of the CE mark reaches ten thousand euros. Furthermore, carpenters have to wait more than nine months to get the Euro-mark for a certain door model that they would like to export. About ninety-six standards for doors and about one hundred more for windows are necessary to be covered in order to realize export in European Union. This creates serious problems for SME growth.13 In early 2005, a special project was launched under the PHARE program that provided financial support for the purchase of equipment for testing laboratories, with a value of three million euros. Under this project, the labs can receive subsidies for new technical equipment. The project is coordinated by the State Agency on Metrology and Technical Control. Its realization would help exporting companies to reduce considerably the costs for technical testing of their products for the purpose of receiving the European CE mark.

TRANSNATIONAL CAPACITY-BUILDING NETWORKS In anticipation of EU accession, interest organizations no longer looked at their national governments as the sole source of economic and social policy; governments began to share this function with the European Union’s policy-making institutions. The business organizations had thus to learn how to operate at multiple levels of governance, and how to incorporate the European context even when dealing with very specific micro issues at the local level. That was a rather difficult task, having in mind that most of the business organizations in candidate countries were involved in internal restructuring while struggling with a lack of human and financial resources. Because of that, membership in European interest organizations, broad interaction with the respective counterparts from EU member states, and participation in European-level structures became an important learning component for business organizations in all accession countries. European interest group organizations, in particular the Economic and Social Committee of the European Union, the Union of Employers’ Organizations in Europe (UNICE) (renamed to BusinessEurope, the Confederation of European Business in January 2007), the EU-level branch organizations, and the European Roundtable of Industrialists (ERT) have implemented special enlargement strategies to prepare their respective partners in applicant countries for successful operation under the conditions of membership.

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The Role of the Economic and Social Committee of the European Union: Capacity-Building for Participation in European Social Dialogue Among the more than two hundred advisory bodies to the major EU institutions, the Economic and Social Committee (ESC) of the European Union plays a special role in the accession process. Established under the Treaty of Rome (1957), it comprises national representatives of economic and social groups in member countries, such as employers, workers, and particular interests including agriculture, transport, local government, and consumer groups. The role of the committee is to represent the general viewpoint of such groups, and act as a liaison between national and European decision-making bodies. Seeing an integrated Europe with improved living and working conditions as its fundamental aim, the committee became closely involved in EU action to forge closer ties with the countries of CEE in line with the EU social acquis (Economic and Social Committee of the EC 1998a and 1998b14). The committee insisted that a broader public within the applicant countries should be involved in the accession process, not just political, economic, and legal experts; that the European Union should cultivate closer and more effective relations, both bilateral and multilateral, with economic and social organizations in the applicant countries, involving them in the accession process and, especially, working with them to draw up national preparatory programs. In this regard, the Economic and Social Committee had organized meetings and hearings in Brussels, Warsaw, Tallinn, and elsewhere to enable applicant countries’ social and economic organizations to voice their opinions. It participated in organizing a major conference that brought together ninety-three social partner representatives from the European Union and eighty from the applicant countries in March 1999 to discuss the social partners’ role in the enlargement/accession process.15 The conference emphasized the importance of developing social dialogue structures and activities in the applicant countries so that they could take part in the various social dialogue structures at the European level. The latter play a triple role: developing joint actions between workers’ and employers’ representatives, negotiating framework agreements, and assisting the EU institutions in their areas of responsibility. Furthermore, the Economic and Social Committee of the European Union has forged and consolidated bilateral links with groups from the applicant countries, by establishing Joint Consultative Committees on Economic and Social Issues between the European Union and these countries. The first such committee was created in February 1997 in Hungary. A second joint committee was established in January 1999 in Bulgaria. It is a joint body between the Economic and Social Committee of the European Union, and economic and social interest groups in Bulgaria.16 Six members

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on each side represent, respectively, employers’ organizations, chambers of commerce, trade unions, and organizations of farmers, consumers, and women. The Bulgarian part of the committee comprises three groups: employers (only the BIA), trade unions (CITUB and Podkrepa), and various interests (the Federation of Consumers in Bulgaria, the Bulgarian Women’s Union, and a farmers’ Federation of the Cooperatives in Bulgaria). The EU part of the Consultative Committee also comprises three groups: employers (the Assembly of French Chambers of Commerce and Industry; ACFCI, the General Italian Confederation of Commerce, Tourism, and Services, Confcommercio; and the Confederation of Finnish Industry and Employers); employees (the Netherlands Trade Union Confederation, FNV, and the French Democratic Confederation of Labor, CFDT); and various interests (the Greek Economic Chamber, and the Central Union of Agricultural Producers and Forest Owners MTK, Finland). The Bulgarian Industrial Association administers the Bulgarian Secretariat to the Joint Consultative Committee. The Division of External Relations at the European Union’s Economic and Social Committee hosts the secretariat for the EU part of the committee.17 The committee met regularly twice a year. A variety of issues of mutual interest were discussed at these meetings, such as the formation of the Economic and Social Council, anticorruption measures, regional development in Bulgaria, civil society and social dialogue, agricultural issues, the free movement of people in an enlarged Europe, social policy in Bulgaria against the background of accession, the partial closure of the Kozloduy nuclear power plant, participation of organized civil society in the preaccession programs, and Bulgaria’s preparedness for the utilization of the structural and cohesion funds of the European Union; and others.18 Overall, the EU–Bulgaria Joint Consultative Committee was expected to play an important role in Bulgaria’s preparation for EU membership. It became an important channel of education, training, and learning, because on each discussion theme two reports had to be made—one on behalf of the EU side, and the other one on behalf of the Bulgarian participants.19

PHARE’s Social Dialogue Project In addition, within PHARE’s Democracy Program, the “Social Dialogue” Project ran until 1998 and had as its major goal the strengthening of the organizational capacity of the social partners and educating them in social dialogue and negotiations as an alternative to spontaneous strike actions in the emerging market environment. Expert assistance and office equipment were provided to the social partners under this program. In order to promote social dialogue across applicant countries, arrangements were made for representatives of the social partners and governments in both western

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and eastern Europe to visit one another. Such trips, which involved briefing sessions beforehand and group learning sessions afterward, were aimed at giving social partners from accession countries concentrated exposure to other countries’ approaches to equivalent work. A series of policy seminars was further organized under the “Social Dialogue” Project. Different courses were set up at different levels, covering the major areas of skills the social partners needed, such as the structure of the market economy and industrial relations, labor and social welfare legislation, privatization and employment contracts, negotiation skills, development of a local economy, employer and trade union structures and organizations, conflict management, and general technical skills for use at the base organization. The project aimed also at strengthening and professionalizing the structures of the social partners in order to ensure the adequate functioning of social dialogue, developing an arbitration and conciliation service and strengthening the structures and processes of the industrial court, and establishing an information and resource base to meet the social partners’ needs. Business Enlargement Councils of the European Roundtable of Industrialists The European Roundtable of Industrialists (ERT) is one of the most effective business lobbies in Brussels. Founded in 1983, it is a forum of around forty-five European industrial leaders from major European companies, aiming at promoting the competitiveness and growth of Europe’s economy. ERT members are chairmen and chief executives of major European companies. ERT constantly urges policies that provide flexibility and enable European companies to build and improve their competitive strengths. Of the crucial issues that have dominated the ERT’s agenda, eastward enlargement was on a par with the creation of the single market in the 1980s and the single currency in the 1990s (Cowles 1995). Access to the CEE economies has been a goal of Western business ever since the fall of the Berlin Wall (ERT 1999, 2001). The region’s cheap but skilled workforce is one major attraction. Another is the market represented by some 150 million consumers. Following the collapse of state socialism in 1989, ERT launched management training seminars. These involved senior managers of ERT companies speaking on practical matters directly to their opposite members in newly privatized companies in eastern Europe. The first seminar was held in Prague in March 1991, and others followed in Budapest, Bratislava, and twice in Warsaw (ERT 2003, 17). In 1997, ERT created a special working group on enlargement. The objective of the group was to work on further improvements of the investment

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climate, and to help candidate countries prepare for EU membership. In December 1997, the group presented an Enlargement Action Plan to the EU Summit in Luxembourg, asking leaders to quickly integrate all candidate countries into a larger, more competitive and reinvigorated European Union. ERT demands included radical economic transformation within the candidate countries. To facilitate this, ERT announced that its member companies would cooperate directly with the commission and in business advisory councils that were being set up within the candidate countries. The group set up four regional offices, called Business Enlargement Councils (BECs), in Hungary, Bulgaria, Romania, and Slovakia, to solve problems faced by Western businesses operating in the region. Another council was also set up in Turkey in 2004. The goal was to promote further improvement in the investment climate, and help candidate countries prepare for EU membership, mostly in regard to their ability to cope with the European Union’s competitive environment. Overall, these initiatives were solely driven by the local ERT member companies, inspired by the ERT visions on enlargement. Over time, the business enlargement councils had become highly reputed consultative bodies between governments and the business community in these countries, on issues related to competitiveness. The business enlargement councils were composed of the CEOs of the local affiliates of ERT companies. These bodies brought together business leaders from multinational and local companies, and senior government officials. Their purpose was to maintain dialogue with the national governments about investment and enlargement-related issues. The councils had been well received in Bulgaria, Hungary, and Romania, where they worked with local government and business leaders on such issues as corruption, public procurement, and intellectual property (Weselowsky 2000). The business enlargement councils also played the role of educational (learning) centers where—with the close involvement and support of national governments—they were building, training, and leading the national industries in a quick way to a situation where they could enter the European Union. The councils spread the ERT’s competitiveness message, focusing on the need for structural adjustment in applicant countries in order to attract foreign investment. The Bulgarian Enlargement Business Council was set up in December 1998 and was “sponsored”—that is, at least partially financed—by the Belgian petro-chemical company Solvay, which has owned a 60 percent share in SODI Devnja since 1997, and is one of the world’s largest synthetic soda ash plants. While the Hungarian, Croatian, and Turkish Councils are very institutionalized, with consultants and full-time secretaries with office and phone numbers, the Bulgarian council was not institutionalized. Solvay’s executive Baron Daniel Jansen drove it. He was visiting Bulgaria once a year

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and held meetings with the Bulgarian prime minister and different ministers. Only in preparation for these annual visits, the ERT companies operating in Bulgaria would meet and discuss the agenda of addressing the government. These visits were highly mediatized. At them, the fulfillment of suggestions made to the government the previous year was discussed, or how the government had responded to these suggestions, and new suggestions for improvements of the investment climate were also made. These suggestions were ad hoc, there was no official white paper presented to the government by ERT members. The ERT Council in Bulgaria was not institutionalized for a variety of reasons, the major one being that the foreign investors in Bulgaria were not organized into a specialized organization. While the Bulgarian International Business Association was an organization of the foreign investors in Bulgaria, it also comprised Bulgarian companies. Because of that, it was not considered a suitable representative organization of the foreign investors in Bulgaria, whose specific business interests were considered to differ from those of the domestic businesses. For the Bulgarian conditions, the local ERT member companies had viewed the informal gatherings and communication with the Bulgarian government as the better form that would serve their interests to the most. Over the past years, ERT held several meetings with Bulgarian government officials, providing a different view on the country’s desirable steps toward business and economic progress.20 Union of Industrial and Employers’ Confederations in Europe (UNICE)/BusinessEurope21 and Enlargement Since its creation in 1958, the Union of Industrial and Employers’ Confederations in Europe (UNICE) has become an important participant in EU policy-making. It comprises thirty-three employers’ federations from twenty-five European countries; small, medium and large companies alike are members. There are about nineteen thousand experts in the European Commission, and UNICE sends them position papers on every possible topic which matters for business (Balanya et al. 2000). The major task of UNICE in the course of the eastward enlargement of the European Union was to prepare its member organizations (including one in Bulgaria—the Bulgarian Industrial Association) to be able to consult the European Commission as part of the social dialogue structures (UNICE 1999). Compared with the ERT tasks, it thus put a greater emphasis on capacity-building of member organizations rather than on the investment climate and competitiveness. UNICE sent representatives of its member federations to speak on different issues in the new and still acceding countries. Through its BOSMIP (Business Organizations as Single Market Integration Players) Program, UNICE was strengthening links between its members in the west and busi-

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ness organizations in the acceding countries. The objective of the BOSMIP program was to strengthen horizontal business federations in acceding countries through partnership with EU member federations involving transfer of know-how and experience. Under this program, training conferences and seminars were organized. The program was not set up as a response to an EC recommendation, but came as an initiative of UNICE and its member federations. The European Commission financially supported it, however (UNICE-BOSMIP 2003). To smooth the accession process, UNICE set up a task force on enlargement. Experts were assigned to each candidate country. They tried to help the local federations or the business representatives in these countries to adapt to the acquis communautaire (UNICE 2002). UNICE further insisted for a greater role of business in the enlargement process: it asked national authorities to consult business closely on all aspects of enlargement related to economic activities. However, consultation was viewed as being frequently unstructured and insufficient. UNICE further asked the national authorities to take into account the input of business in the enlargement process—in particular, prior to opening and during accession negotiations. Furthermore, UNICE welcomed and actively participated in all commission initiatives involving the European Union and candidate country business communities, such as: (1) the PHARE Business Support Program, aiming at strengthening the representative business organizations in candidate countries, and their respective activities in helping companies from these countries adjust to the Community acquis; (2) the Industrial Forum on Enlargement, aimed at exchanging information and experience on all industrial aspects of the pre-accession strategy, and at giving concrete recommendations to national authorities and to the European Commission, in order to find solutions to current problems linked to the enlargement process, in particular in regard to the implementation of the acquis in candidate countries; (3) the Social Partners Conference on Enlargement; and (4) the yearly Round Tables of Employers’ and Industrial Organizations of EU Member States and Candidate Countries. The Role of EU-Level Branch Organizations According to statements of Bulgarian business leaders, the ERT and UNICE were not particularly important for integrating Bulgarian businesses into the EU transnational business networks, and training them for EU membership.22 The sectoral or branch organizations played a more important role in that regard. The assistance provided by the UNICE and ERT had a much broader character and concerned pan-European issues, such as the free movement of goods in the European Union, customs requirements, or Euro-certificates. The concrete and specific issues of individual branches and sectors were discussed at the branch and sectoral level. Moreover, the

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contacts of Bulgarian businesses with the European business organizations are mostly at the branch level. Thus, many Bulgarian businesses have direct membership in such branch organizations in the textile and apparel industry, the food-processing industry, metallurgy, and mining. The branch associations of the Bulgarian Industrial Association and other nationally representative business organizations are actually members of the EU-level branch organizations. Some of the Bulgarian branch associations underwent a process of restructuring and mergers in order to be compatible with the business organization structures at the EU level. For example, the Bulgarian chambers of food and textile, and metallurgy and chemistry, had to merge in order to facilitate the links and contacts with the European-level branch associations. Lobbying and Representation in Brussels A 2004 Eurochambers survey of the preparedness of business for EU accession in the ten acceding countries from central and eastern Europe revealed a trend of increased appreciation of lobbying in Brussels. Thus a large majority of responding companies recognized the importance of lobbying at the European level, but still regarded the national level as the most important. There were large differences in appreciation of the importance of lobbying in Brussels. The Estonian, Slovak, and Latvian companies seemed to grant less importance to lobbying in Brussels, while Romanian and Bulgarian companies believed lobbying in Brussels was very important. Lobbying was increasingly recognized by companies as a legitimate and important activity: 79 percent of respondents believed lobbying activities in Brussels to be important, although very few companies considered opening their own representation office in Brussels (Eurochambers and SBRA 2004, 34). Most companies (73 percent) thought that it was important to be represented in Brussels through their chamber of commerce (39.1 percent) or their branch association (34.2 percent). Only 1.5 percent of the companies considered it important to have their own representation office in Brussels. For Bulgaria, 9 percent of the surveyed companies perceived no need to be represented in Brussels, 33 percent sought such representation by branch association, and 57 percent by a representative office of the Bulgarian Chamber of Commerce and Industry. None had expressed a perception for own representation office in Brussels.

ISSUES OF PREPAREDNESS Despite the numerous efforts in the direction of capacity-building, as the MBMD Citizens’ Survey ’05 revealed, in early 2005 almost half of the Bul-

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garian population at large (46 percent) thought that Bulgaria would not be ready for membership in 2007. Those who thought that the country and its people were already prepared for EU membership or would be ready at the scheduled date of accession (2007) were about one-third (33 percent). The pessimists who thought that Bulgaria would never be ready for EU membership were about one-tenth (9 percent). Respectively, the business community in general was more optimistic in that regard (see table 7.1). Preparedness of the Business Community: The Information Challenge In particular, was the business community in Bulgaria ready for the changes resulting from accession? Here the opinion of the respondents to the MBMD Business Survey ‘05 was not very optimistic. About one-third (32 percent) thought that the companies were already ready or would be ready for the challenges in 2007. However, twice that number (61 percent) thought that the remaining two years (2005 and 2006) would not be enough, while 3 percent thought that firms would never be able to adapt to the new conditions of accession (see table 7.2). Interestingly, the negative answer to this question grew into an argument both for quick accession, as well as for the delay of membership. The concerns that the companies in the country were not and would not be able to prepare for membership by 2007 divided the respondents in three groups. The first and biggest one (41 percent) thought that business was not ready for the single market of the European Union but, nonetheless, the country had to accede to the European Union as soon as possible. Such an opinion was the result of the image that EU membership would help for the resolution of national problems. However, such an opinion was more often related to the passive expectation that “things will improve” rather than to expectations for greater opportunities. The second biggest group (26 percent) comprised executives who thought that business could adequately meet the

Table 7.1.

In your opinion, when will Bulgaria be ready for EU membership?

Business

It is already ready By 2007 By 2010 Later than 2010 Never No response

All

Employers/owners, freelancers

Managers

4.6% 37.5% 19.2% 18.1% 9.1% 11.6%

6% 36% 28% 20% 4% 6%

5% 49% 22% 18% 4% 2%

Source: MBMD Citizens’ Survey ‘05.

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Table 7.2. According to you, when will Bulgaria as a whole, and business in particular be ready for EU membership?

It is already ready Around 2007 Around 2010 Later than 2010 Never No answer

Bulgaria

Business

5.1% 39.7% 28.8% 20.2% 3.1% 3.1%

7.2% 24.7% 33.2% 28.1% 3.4% 3.4%

Source: MBMD Business Survey ’05.

new conditions, and Bulgaria needed to accede to the European Union as soon as possible. The negative assessment about the business conditions in the country in some cases determined the rather different attitude toward integration. A third group of one-fifth (20 percent) thought that business was not ready for accession, and were against a speedy accession of the country to the European Union. It is important to note that the majority had not declared themselves against accession in principle—56 percent supported the efforts in that direction, and those who opposed were onethird (35 percent). Actually, the concern about the fate of companies was among the basic arguments of those businessmen who were against integration. These results indicate that the hesitations linked to EU membership among the business community were not in the direction of “whether to accede” but “when to accede.” With the approach of the actual planned date for Bulgaria’s accession to the European Union (January 2007), the question about the level of preparedness of the Bulgarian citizens as EU citizens was becoming more and more acute. Two of the basic criteria for preparedness are language compatibility and knowledge (sufficient information flows) about the European Union—its common law, institutions, policies and mechanisms of operation, and impact on citizens’ lives. The Language Barrier Language knowledge appeared to be a considerable obstacle in the process of integration with the European Union for the majority of Bulgarians. Less than one-third (29 percent) of the MBMD Citizens’ Survey respondents declared that they did not know any of the official EU languages (see table 7.3). The lack of language background would reduce the chances to travel and find employment in the countries of the European Union. Combined with the lack of any considerable interest in acquiring information on the European Union, the language barrier would increase the length

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Table 7.3. How many languages (from the official in the EU member states) do you know?

Business

Three and more Two One I do not know any of the official languages of the EU No answer

All

Employers/owners, freelancers

Managers

1.3% 7.0% 20.5% 68.5%

3% 20% 33% 42%

8% 18% 38% 34%

2.8%

3%

2%

Source: MBMD Citizens’ Survey ’05.

of the integration process. It was also one of the factors restraining people from taking full advantage of their rights and opportunities stemming from EU membership. The language barrier was also an issue for Bulgarian businessmen. As the Business Survey ’05 indicated, almost half of the respondents (47 percent) asserted that they knew one of the official EU languages, 16 percent knew two, and only 5 percent knew three and more. About 32 percent, however, admitted that they did not know any of the official EU languages. It was among them that the share of exporting production to the European Union was the lowest (17 percent). Among the firms whose manager/owner spoke one of the European languages this share was 25 percent, and the manager/owner knowing two languages was 35 percent. At the same time the survey indicated substantial issues with the language used by the Bulgarian and the European administrations. This is the socalled Euro-bureaucratic language, which comprises a lot of specific clauses of EU treaties and referrals to EU directives and normative documents. This language is hard to understand by businesses without deep knowledge of the process of European integration and its common law. At the same time businesses need information about very concrete things that concern their operations. Level of Information about the European Union As a whole, the Bulgarian population did not feel sufficiently informed about the European Union. A little more than half of the respondents (52 percent) assessed their knowledge of the European Union as being predominantly poor, while every fifth respondent declared that he/she had no

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knowledge about the union at all. Less than one-third (28 percent) assessed their knowledge of the European Union as predominantly very good (see table 7.4). At the same time the survey revealed that only around 42 percent of the business executives found the information about the EU accessible (easy to find), while 38 percent found it clear, 48 percent found it reliable, and 57 percent of the surveyed businessmen found it useful (see table 7.5). In line with these statements, 45 percent of the surveyed businessmen thought that the government’s EU communication strategy with the Bulgarian population at large and the group of business in particular had not fulfilled its general goal to communicate knowledge and awareness of the European Union, its policies, and institutions. The surveys further showed that while the business community in Bulgaria was much more advanced in terms of frequently using the Internet (around 60 percent of the surveyed, compared with only 15 percent for the population at large), still a significant part (35 percent) used it only sporadically or did not use it at all (see table 7.6). Not surprisingly, even less used were the server of the European Union (europa.eu.int) and the Bulgarian website on European integration (www.evroportal.bg)—28 percent of the surveyed businessmen, and only 4 percent of the population at large (see table 7.7). Furthermore, characteristic for the majority of Bulgarian businesses was the low level of information about the agreements reached between Bulgaria and the European Union in the process of accession negotiations. Almost half (48 percent) of respondents to the MBMD Business Survey ’05 admitted that they were acquainted with only a small portion of the responsibilities that Bulgaria had agreed to carry, and the expected benefits. More than one-fourth (27 percent) had no idea at all about the reached agreements. About one-fifth (21 percent) claimed that they were acquainted with a great number of reached agreements, while 3 percent were acquainted with it in detail.

Table 7.4.

How would you assess your knowledge of the EU?

Business

Very good Rather good Rather poor Very poor No knowledge at all

All

Employers/owners, freelancers

Managers

4.1% 24.2% 29.7% 21.9% 20.2%

8% 43% 26% 19% 5%

7% 53% 32% 4% 4%

Source: MBMD Citizens’ Survey ’05.

Table 7.5.

In your view, the information about the EU distributed in Bulgaria is:

Business All

Employers/owners, freelancers

Managers

Business survey

Accessible (easy to find) 1. Rather yes 2. Rather no 3. No interest in such information

36.5% 29.1% 34.4%

42% 37% 21%

65% 23% 12%

41.1% 46.9% 12.0%

Clear (easy to understand) 1. Rather yes 2. Rather no 3. No interest in such information

32.0% 35.7% 32.3%

34%

48%

45%

34%

38.0% 51.7% 10.3%

Reliable 1. Rather yes 2. Rather no 3. No interest in such information

35.4% 27.4% 37.2%

46% 29% 25%

62% 22% 17%

47.9% 33.2% 18.8%

Useful to you personally 1. Rather yes 2. Rather no 3. No interest in such information

37.7% 26.5% 35.8%

54% 20% 27%

73% 8% 19%

56.8% 28.1% 15.1%

Source: MBMD Citizens’ Survey ’05 and MBMD Business Survey ’05.

Table 7.6.

Do you use the Internet?

Business

Yes, all the time/on a permanent basis Yes, often Yes, from time to time Very rarely No

All

Employers/owners, freelancers

Managers

Business survey

8.0%

23%

48%

45.2%

6.6% 8.0% 4.9% 72.5%

15% 11% 8% 43%

6% 26% 4% 16%

19.2% 20.5% 7.9% 7.2%

Source: MBMD Citizens’ Survey ’05 and MBMD Business Survey ’05.

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Table 7.7. Do you visit the server of the EU (http://europa.eu.int) and/or the Bulgarian website for European integration (http://www.evroportal.bg)?

Business All Yes, I visit them regularly I visit them rarely I have not visited them but I have heard about them I have not heard about them No response

Employers/owners, freelancers

Managers

Business survey

1.1% 2.9% 11.3%

8% 5% 25%

3% 8% 45%

5.1% 23.3% 47.3%

12.2% 72.5%

19% 43%

28% 16%

24.3% —

Source: MBMD Citizens’ Survey ’05 and MBMD Business Survey’ 05.

The major reason for the low level of information was actually the lack of interest among a great part of the companies. Thus 47 percent of them had not sought such information. The remainder had expressed an interest in such information but had encountered other objective reasons for their low level of knowledge about the European Union. One-eighth (13 percent) of the surveyed companies revealed that they had sought information but could not find such. Almost one-fourth (23 percent) had found such information with difficulty. The lack of interest in the EU matters was even more pronounced among the population at large. A great majority (84 percent) of respondents admitted that they had never sought information on the European Union. Only 16 percent had expressed any interest in finding such information (see table 7.8). The various electronic and printed media were the leading sources of information about the European Union (for 37 percent of respondents). Newspapers were a priority (36 percent) as well as TV (32 percent) and the Internet (30 percent). At the same time, the use of specialized institutions that could deliver adequate and full information, as well as offer help in its interpretation, was rather an exclusive case—their services were used more rarely compared with those of acquaintances and friends. Despite the efforts of the business organizations, as already discussed above, only 3 percent of the surveyed businessmen under the MBMD Business Survey ’05 declared that they had approached their branch organizations for information on the European Union. The branch organizations had to “translate” the EU directives in the respective sector to their members. However, they were not prepared to do that. The state institutions were further listed by only 2 percent of respondents as sources of information about the European Union; the specialized Euro-Info Centers were listed as sources of information by less than 1 percent of respondents. The situation was identical re-

The Capacity-Building Imperative: Partnerships for Learning Table 7.8.

203

Have you personally ever sought any information about the EU?

Business All 1. Yes, and I was able to find 7.9% it quickly 2. Yes, but I found it with difficulty 5.3% 3. Yes, but I was not able to find 3.0% the necessary information 4. No, I have not sought any 83.8% information about the EU

Employers/owners, freelancers

Managers

Business survey

19%

26%

17.1%

6% 5%

15% 3%

23.3% 12.7%

70%

55%

46.9%

Source: MBMD Citizens’ Survey ’05 and MBMD Business Survey ’05.

garding the specialized publications—normative documents (2 percent), and specialized bulletins and publications (3 percent). Generally, the information needs were logically focused on aspects that referred directly to business organizations (see table 7.9). The survey revealed that most often the surveyed businessmen needed information about the obligations that their particular firm had to meet in the process of accession (72 percent). A similar number of representatives (68 percent) pointed to the obligations that Bulgaria had taken in the area of activity of the company. Of interest was also information related to the sources of financing and the EU funds (51 percent), as well as about the experience of similar firms in new EU member states (50 percent), the general principles and rules of the single European market (40 percent), opportunities for professional training within European programs (35 percent), customs regime after accession (import of raw materials and export of production— 7 percent), and others.

Table 7.9. What kind of information do you need in regard to Bulgaria’s accession to the EU? About the requirements that my company has to meet About the obligations of Bulgaria in the sphere of activity of my company About the sources of financing in regard to EU accession How membership has impacted similar companies like mine in other newly accepted EU members The principles and ruled of the EU single market Opportunities for professional training under European programs Other No answer Source: MBMD Business Survey ’05.

72.3% 67.6% 50.7% 50.4% 39.6% 34.9% 1.8% 4.8%

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Issues of Compliance and Competitiveness A considerable part of the Bulgarian business organizations viewed positively different aspects of the real state of their business in terms of preparedness for EU membership (see table 7.10). About 82 percent of them thought that their company was in compliance with the EU norms for health and safety at work. About two-thirds (67 percent) thought that their production was in compliance with the environmental requirements. According to 80 percent of respondents, the quality characteristics of their products and services were in compliance with the EU norms. These higher estimates did not mean, however, that the companies were in compliance with the three criteria. The companies that were in compliance with both the requirements for quality and safety of their products and services, the norms for environmental preservation, and health and safety at work were about two-thirds—61 percent. However, if the companies whose products and services are only partially in compliance with the requirements were excluded, the firms that are in compliance with the three criteria would become only about one-third (29 percent). Almost as many (32 percent) assessed that they met the requirements for environmental protection and work conditions, but that was relevant for only part of their production (see table 7.11). With this differentiation, the classification of firms according to their preparedness for the requirements of EU single market was as follows: 29 percent were completely in compliance with the three criteria, almost twothirds (60 percent) covered partially or only some of the requirements, and 11 percent were not in compliance with any of the three requirements. This is, however, only a tentative classification because it is based only on the subjective assessments of respondents, and cannot take into consideration the specific requirements for the specific sectors and branches. However, this classification gives a general impression about the state of preparedness of companies. It shows a high level of preparedness but also—based on their own assessments—the majority of firms needed to improve their basic activities in order to survive after accession. According to a 2004 Eurochambers survey of the ten acceding countries from CEE, conducted annually since 2001, Bulgarian companies23 esti-

Table 7.10.

Is your company in compliance with all EU requirements for:

Quality and safety of goods and services Environmental sustainability of production Health and safety at work Source: MBMD Business Survey ’05.

Yes

No

79.8% 66.8% 81.8%

20.2% 33.2% 18.2%

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Table 7.11. Company distribution according to the extent to which they are in compliance with the EU requirements for quality and safety of products and services, the norms for environmental protection, and health and safety at work 1. Do not comply with any of the three requirements 2. Are in compliance with only one of the requirements Including —Only “100% of production is in compliance with requirements” —Only “Below 100% of production is in compliance with the requirements” —Only “Environmental sustainability of production” —Only “Health and safety at work” 3. Are in compliance with only two of the requirements Including —Environmental protection and health and safety at work —100% of production is in compliance + health and safety at work —Below 100% of production is in compliance + health and safety at work —Below 100% of production is in compliance + environmental 4. Are in compliance with all three requirements Including —100% of production is in compliance + environmental + health and safety at work —Less than 100% of production is in compliance + environmental + health and safety at work

11.3% 9.6% 1.7% 3.1% 0.3% 4.5% 18.5% 4.1% 5.5% 7.2% 1.7% 60.6% 29.1% 31.5%

Source: MBMD Business Survey ’05.

mated their compliance with the general provisions of the acquis at the average level of 2.2 out of 4.0 points. The estimate of company compliance by areas ranged between 2.3 (“rules of competition” and “labels, trademarks, patents”) and 2.7 (“work safety”). Companies expected to encounter most problems in the areas of “product certification, technical regulations, standards,” and “labels, trademarks, patents.” In addition, 18 percent of the Bulgarian companies made an acquis compliance cost estimate; among them, almost three-fourths expected it not to be higher than 0.5 million euros (Eurochambers and SBRA 2004, 34). Readiness can also be measured via the issue of cost estimates. According to the Eurochambers survey, only 11 percent of companies have made the cost estimate. Most companies participating in the survey had no precise idea about the cost of complying with the acquis. Among respondents that actually made a cost estimate, 65 percent believed that their costs would be below 0.5 million euros. The highest share of companies that claimed to have made a cost estimate were identified in the electricity, gas, and water supply sector (18 percent), followed by the agriculture, hunting, and forestry sector (16 percent), and at the low end were retailers (7 percent), hotels and restaurants (8 percent), and construction (9 percent). In total, 85 percent of the companies did not expect the costs of the acquis implementation to exceed 1.5 million euros. Although these costs are nominally quite

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low, they may represent a financial burden, particularly for SMEs (Eurochambers and SBRA 2004, 34). The MBMD Business Survey ‘05 further showed lack of experience in trade relations with partners from the European Union. About three-fourths (76 percent) of firms did not export production to the EU markets. Almost onefourth (24 percent) exported goods and services in the EU member countries, while for the majority of them (16 percent) this was up to one-half of their production. Only 4 percent of the companies were fully oriented toward exports to the EU markets—that is, 91–100 percent of their production was exported to these markets. About 2 percent of the companies exported 76–90 percent of their production. A substantial difficulty in the process of business preparedness for accession was the low utilization of the EU financial assistance in that regard. Thus the majority of firms could not take advantage of the subsidies from the pre-accession funds. Only 4 percent of them had used financial support from these funds. For the development of projects under European programs, businesses also encountered obstacles of a subjective character. There was a widely held opinion that the funds were not distributed properly. Almost two-thirds (63 percent) of the respondents thought that the procedures for project assessment lacked transparency. Only 14 percent thought the opposite. It is possible that because of this reason part of the companies were not at all interested in applying for funds from the pre-accession financial instruments of the European Union. Often, however, the companies themselves had a passive position and were not oriented toward the utilization of new opportunities. About 40 percent of respondents admitted that their company had not tried to maximize the opportunities of accession. Almost the same (43 percent) were those who claimed the opposite. Together with suspicions for corruptive practices, the administration was also lacking the necessary capacity to handle the changes. The MBMD Business Survey ’05 revealed that the businessmen did not find the efforts made by state organs to be adequate/sufficient in the area of Bulgaria’s preparedness for EU accession. As table 7.12 illustrates, only 59 percent of them found these efforts to be adequate, while 35 percent viewed such efforts as largely insufficient. According to the surveyed businessmen, that was particularly true for the organs of local administration. Half of the respondents (48 percent) thought that the state administration could successfully carry out its responsibilities after accession. The pessimists were about the same percentage. In regard to the municipal administration, however, the negative opinions were more numerous (62 percent) than the positive (35 percent) (see table 7.13). Furthermore, the majority of surveyed companies declared that their company was not able to influence the improvement of the business cli-

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Table 7.12. How do you evaluate the efforts made by . . . in the area of accession of Bulgaria to the EU?

Business and branch organizations

State organs

8.6% 35.3% 38.4% 12.0% 5.8%

16.8% 42.8% 25.0% 9.2% 6.2%

Fully adequate/sufficient Rather adequate/sufficient Rather inadequate/insufficient Fully inadequate/insufficient No answer Source: MBMD Business Survey ’05.

mate in Bulgaria, neither through involvement in the process of accession negotiations (according to 69 percent of the companies) nor through lobbying the local authorities (according to 55 percent of respondents) (see table 7.14). At the same time an overwhelming majority of the surveyed companies (77 percent) declared high expectations in the EU institutions per se in improving the business climate in the country, especially by eliminating the opportunity of hiding income in Bulgaria after accession (see table 7.15). Importantly, the survey revealed that an overwhelming majority of the companies had not participated in any training seminars or educational conferences on the implications of the EU enlargement for the country as a whole and businesses in particular. Only 3 percent of the companies had participated in such initiatives at the EU level, a little more (11 percent) had participated in training seminars at the national level, and still more (17 percent) had participated in seminars organized at the local level (see table 7.16). Thus the local level emerged as the most appropriate one for organizing seminars and other learning activities on the enlargement of the European Union. Public opinion polls conducted after 2004 revealed similar trends in business preparedness for EU accession. A representative survey of the

Table 7.13. Do you think that the Bulgarian administration has the necessary capacity to deal with Bulgaria’s anticipated membership in the EU?

Yes, certainly Rather yes Rather no Certainly no No answer Source: MBMD Business Survey ’05.

State/National

Municipal

9.6% 38.7% 31.8% 16.4% 3.4%

4.8% 30.1% 38.7% 22.9% 3.4%

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Table 7.14. In your opinion, has your company influenced the improvement of the business climate in Bulgaria through:

Accession Negotiations

Local Authorities

1.4% 6.5% 15.8% 68.5% 7.9%

5.1% 18.2% 17.8% 54.5% 4.5%

Yes, significantly Yes, moderately Only sporadically None No answer Source: MBMD Business Survey ’05.

Table 7.15. What do you expect to happen to the practice of hiding income in Bulgaria after EU accession? It will increase It will remain the same It will decrease There will be no such opportunity No answer

2.4% 20.9% 55.5% 21.2% 37.7%

Source: MBMD Business Survey ’05.

Table 7.16. Has your firm participated in any events (conferences, seminars) regarding the enlargement of the EU, on the following levels:

European level National level Local level

Yes

No

3.1% 11.0% 17.1%

96.9% 89.0% 82.9%

Source: MBMD Business Survey ’05.

Ministry of Economy and Energy called “Are We Ready for EU Accession?” polled 373 Bulgarian firms in January-February 2005 in the twenty-eight districts of the country in order to evaluate the level of their preparedness for EU accession. The majority of the companies were SMEs (with up to 250 employees) from about ten sectors of the economy, in production, trade, and services.24 Of the surveyed companies, 41.3 percent were with employees up to 250 people, followed by companies with employees from ten to fifty (31.6 percent), more than 250 employees (16.4 percent), and up to ten employees (10.7 percent) (Ministry of Economy and Energy 2005b). According to this survey, the major difficulties in the process of EU accession were seen by Bulgarian companies as: strong competition (60.1 per-

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cent), increase in labor cost (37.0 percent), increased turnover and mobility of workforce (18.0 percent), unqualified workforce (45.8 percent), difficult access to credits (30.6 percent), inadequate infrastructure (29.5 percent), administrative problems (41.6 percent), corruption (22.0 percent), and others (8.3 percent) (Ministry of Economy and Energy 2005b). About 37 percent of the companies were acquainted with the harmonized Bulgarian legislation in the area of free movement of goods, 47.6 percent had partial information, and 13.7 percent were not informed. In terms of the regulations on environmental protection, 43.4 percent of the companies were acquainted with them, 42.9 percent were partially informed, and 13.7 percent were not. In terms of health and safety at work, 65.1 percent of the companies were acquainted with the new regulations, 30.6 percent were partially acquainted, and 4.3 percent were not. 59.3 percent of the surveyed companies had knowledge of the Bulgarian standards as they were harmonized with the EU standards, 30.8 percent had partial knowledge, and 9.9 percent had no knowledge. 33.0 percent of respondents declared knowledge of the EU trade policies, 45.8 percent declared partial knowledge, and 21.2 percent no knowledge at all. At the same time 59.8 percent of the companies declared that they had trade partners from EU member states, 10.7 percent were in a process of negotiations with such, and 25.9 percent had no trade partners from EU member states at all (Ministry of Economy and Energy 2005b). In terms of sources of information on the new EU requirements, the majority of companies pointed to the Internet (61.1 percent), followed by the official state gazette (45.6 percent), the state institutions (32.2 percent), the representative business organizations and branch organizations (49.6 percent), the media (37.3 percent), and other (14.2 percent). At the same time only 24.4 percent of the companies thought that the information they had on the EU requirements was sufficient; for 59.2 percent it was not sufficient, and it was scarce for 16.4 percent. Most of the companies needed information about the European Union’s technical requirements and standards (67.6 percent), the trade aspects of accession (61.7 percent), on eventual partners (68.4 percent), and other (5.6 percent) (Ministry of Economy and Energy 2005b). The companies participated in information forums organized by the Ministry of Economy and Energy (15.5 percent), the Ministry of Foreign Affairs (0.8 percent), other governmental institutions (11.3 percent), the district government administration (12.1 percent), and nongovernmental organizations (26.0 percent). At the same time 57.9 percent of the surveyed companies had not participated at all in such seminars. Only 29.5 percent of them had used the pre-accession programs and projects of the European Union, while 70.5 percent had declared that they had not (Ministry of Economy and Energy 2005b).

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On the positive side, the survey revealed that a total of 80 percent of the Bulgarian firms would not go bankrupt when the country joins the European Union (Georgieva 2005). The entrepreneurs were aware about the conditions for successful integration and access to the EU market—that is, compliance with the requirements for quality of products and services, and with the EU standards (30 percent), and competitiveness of production (about 20 percent). The findings of the Ministry of Economy survey were very close to a similar poll conducted by the Bulgarian Chamber of Commerce and Industry in March 2005, where eighty Bulgarian firms participated. In terms of difficulties and challenges in the process of accession, 45 percent of the respondents indicated strong competition; 49 percent indicated lack of qualified workforce; 42 percent administrative obstacles; and 40 percent increase in labor costs. The entrepreneurs were in need mostly of information about the trade aspects of accession (71 percent) and about potential partners (56 percent). At the same time while business insisted for more information, there were European sites where everybody could express opinions about European laws, directives, and regulations. However, these sites were not visited at all by the Bulgarian businessmen, according to BCCI. The survey further showed that 30 to 50 percent of the Bulgarian firms were aware and informed about changes in Bulgarian legislation and the EU accession requirements, common laws, and standards. The biggest percentage of informed was in regard to harmonized Bulgarian legislation in the area of health and safety of work (65.1 percent), followed by information on Bulgarian standards with which harmonized European standards are introduced (45.8 percent), and environmental regulations (43.4 percent) (Georgieva 2005).25 In order to respond to the EU requirements, 66 percent of the surveyed companies implemented international standards for quality, 61 percent were looking for partners, 54 percent were organizing training of their personnel, and 52 percent introduced new products and services. According to a most recent survey conducted in August 2006 by the National Center for Public Opinion Research among 411 firms, most of the managers (40 percent) did not expect any changes in the state of their businesses after January 2007; about 38 percent expected big changes in a positive direction, while 23 percent expected them in negative direction.26 Corporate Strategizing on EU Accession and Membership Corporate strategizing in response to the challenges of EU accession gradually emerged and gained an increasing importance among the Bulgarian companies. However, the majority of surveyed firms under the MBMD Business Survey ’05 demonstrated a rather negligent approach to the meaning of

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strategic planning and strategizing on EU accession. Thus 58 percent of them admitted that their company had not developed any concrete strategy in relation to EU accession. A little over one-third (35 percent) were the organizations that had developed an action plan. The lack of information or unclear requirements were emphasized by one-fifth (20 percent) of respondents as the major reason for the lack of company strategy on accession. Another reason was the belief that planning was still not necessary—11 percent of respondents thought that it was early for such an activity because the accession of the country to the European Union was distant. There were also companies (4 percent) that thought that they did not need such a plan. The lack of financial resources for the realization of such a plan was among the obstacles for the development of a firm strategy on EU accession for 3 percent of the organizations. The lack of a well-developed strategic concept on EU accession for the majority of firms did not always mean that they were completely passive in regard to the changes ahead. In contrast, the biggest was the group of firms that had done some efforts to meet the EU requirements (40 percent), but these activities were not part of any elaborate company strategy. The concrete efforts of companies for meeting the EU requirements were oriented toward some basic aspects of their activities. About 95 percent of respondents claimed that they had taken steps to increase the quality of their products and/or services in the past three years. Almost all had worked toward the improvement of work conditions (92 percent) and corporate governance (91 percent). Less companies had taken activities in areas that require more serious investments but also secure greater advantages in regard to competition, such as introduction of quality management systems (77 percent), reduction of environmental hazards (71 percent), and orientation toward the production of high-tech products (68 percent). About 56 percent of the surveyed firms made efforts for the establishment of partnership relations with businesses from the European Union, and less than half of the companies (43 percent) for the attraction of foreign investments. Overall, two basic business approaches to EU accession emerged. One was the “investment” approach—that is, businessmen thought that they were investing in the European Union by changing their production patterns, with the expectation to be able to access the EU markets and be competitive there. The investment approach included a series of deliberate efforts toward preparedness for EU accession, such as consistent and systematic search for information about changes in legislation, the EU requirements toward businesses, and opportunities for expanding business contacts; strategic long-term planning of corporate activities and updates of business strategies according to the changes in the market; and seeking of financing and cooperation for business ideas from the programs and organizations of the European Union in support of business (MLSP 2004, 4).

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The other approach was a “wait-and-see” approach, where businessmen simply did nothing to adjust their production patterns to the requirements of EU accession. As table 7.17 demonstrates, a considerable number of Bulgarian companies were actually employing the “wait-and-see” approach to EU accession. In the short run they remained more competitive because they did not spend money on adjustments to the EU requirements. In the long run, however, they became the losing companies. Public opinion polls conducted later revealed that an increasing number of Bulgarian companies already had a clue how they were going to survive and grow after 2007. The representative survey of the Ministry of Economy and Energy that was discussed above revealed several areas of business strategizing on increased competitiveness after accession. These included development of new business strategy (38.3 percent), introduction of international standards on quality (65.7 percent), investment in research and development (26.3 percent), introduction of new products and services (62.2 percent), decrease in the energy cost of production (37.5 percent), introduction of environmentally friendly technologies (30.6 percent), search for partners (60.9 percent), training of personnel (53.1 percent), improving the work conditions (53.6 percent), participation in EU programs (28.7 percent), and others (5.6 percent) (Georgieva 2005). The survey further revealed that more than half of the respondents already had business partners in the European Union (59.8 percent), while 10.7 percent were in the process of negotiations with EU partners, and 60.9 percent were looking for partners. International standards for quality were implemented by 65.7 percent of the surveyed companies, 62.2 percent of them introduced new products and services, and 53.9 percent had improved work conditions. According to the survey only 29 percent of the Bulgarian firms had taken advantage of pre-accession programs and projects, while two-thirds had foreign business partners from EU member states.27 The poll conducted by the Bulgarian Chamber of Commerce and Industry in March 2005 further revealed corporate strategizing efforts in regard to preparedness for EU membership. In order to respond to the EU requirements, 66 percent of the surveyed companies implemented international standards for quality, 61 percent were looking for partners, 54 percent were Table 7.17. How would you rate the efforts of your firm to meet the requirements for accession to the EU? Minimal Medium Considerable We have not made efforts Source: MBMD Business Survey ’05.

14.7% 34.9% 29.1% 21.2%

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organizing training of their personnel, and 52 percent introduced new products and services.28 The Bulgarian subsidiaries of foreign investors were able to manage the situation with their own resources and capacities, by relying on the authority and resources of the mother company. Problems arose mainly for the smaller and medium-sized enterprises, which did not have the long financial arm of a foreign investor. The subsidiaries of foreign investors were also in a better position to compare the conditions, regulations, and requirements across the EU member states. Sometimes they would find out that the requirements in the EU member states were not as high as the Bulgarian government had negotiated with the European Union during the accession negotiations. One example related to health and safety at work is the Sviloza enterprise for cellulose in Svishtov, where hydrogen sulphide is released during the production process. The allowable release in most EU member states is of thirty milligrams per cubic meter content of hydrogen sulphide. There is another measure for the same content—PDH, where ten PDH equal thirty milligrams. However, the Bulgarian administrators who were negotiating with the European Union did not make any difference between the two measuring units, and had written down that the allowable emission of hydrogen sulphide at the workplace was ten milligrams, rather than thirty milligrams (or ten PDH). Hence, Sviloza immediately became a violator of this norm for health and safety at the workplace. With this knowledge of discrepancies, the company was able to argue successfully before the government officials that it had been actually in compliance with the EU norms. Overall, typical for the business responses to the challenges of EU accession is that each enterprise survives on its own. The business organizations such as the Bulgarian Industrial Association were used mainly to secure tax relief from the state, and for general lobbying in the accession negotiations. The bigger enterprises as well as the subsidiaries of foreign investors were, as a rule, much better prepared for operating under the new conditions of EU accession.

NOTES 1. Dnevnik 158 (August 17, 2004). 2. Data from the European Commission. 3. Data from BIA. 4. Dnevnik (August 17, 2004). 5. Mediapool (January 24, 2005). 6. “Seminar shte zapoznava s uslovijata za kandidatstvane po PHARE,” Dnevnik (July 28, 2006).

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7. “Bulgarian Business Braces for EU Market via Standards Knowledge,” Sofia Morning News (May 5, 2005). 8. Interview data. 9. “Kampanija shte zapoznava predprijatiata s finansiraneto po schemata ‘Konkurentosposobnost,’” Dnevnik (July 21, 2006). 10. Innovation Relay Center data (hwww.irc.bg/en/inners.php?index=1057). 11. See more from DG Enterprise and Industry, ec.europa.eu/enterprise/new approach/standardization/harmstds/index_en.html. 12. Biznes Vesti 1 (January 7, 2005): 35. 13. Biznes vesti 1 (January 7, 2005): 35. 14. “Padraig Flynn Encourages Development of Social Dialogue,” European Report 2393 (March 24, 1999). 15. Euro-East 55 (June 3, 1997). 16. “EU/Bulgaria Joint Consultative Committee Inaugural Meeting,” Commission of the European Communities: RAPID (February 26, 1999). 17. Press Release, EU-Bulgaria Joint Consultative Committee (January 17, 1999). 18. Republic of Bulgaria, Economic and Social Council, Sofia (May 2004). 19. Interview data. 20. Sofia Morning News (November 2, 2005). 21. In January 2007 this organization changed its name to BusinessEurope, the Confederation of European Business. 22. Data from BIA. 23. Of the surveyed Bulgarian companies, 92 percent were SMEs. 24. According to the Company Register the SMEs in Bulgaria are among 800,000 and 1 million. However, only 10–15 percent are really functioning. See in BiznesVesti 20 (80) (May 20, 2005). 25. Sofia Morning News (May 19, 2005). 26. Dnevnik (August 28, 2006). 27. Sofia Morning News (May 19, 2005). 28. Sofia Morning News (May 19, 2005); Georgieva 2005.

8 Europeanization of BusinessGovernment Relations at the Regional Level

This chapter traces the impact of EU accession on the business-government relationship at the level of municipality on the basis of in-depth case studies of two municipalities—Sofia and Sandanski. The municipalities were selected on the basis of their size—one big (Sofia) and one small (Sandanski)—as well as the higher level of concentration of business operations and activities on their territory. Thus, among the big municipalities, Sofia has the highest concentration of business activities in the country, while Sandanski is one of the small municipalities with a well-developed business sector.

THE PARTNERSHIP PRINCIPLE IN BULGARIA’S REGIONAL DEVELOPMENT The current territorial and administrative division in Bulgaria took shape during the 1990s. Reforms focused exclusively on the strengthening of local self-government after the socialist era (UNDP 2004a). Three distinct regional entities emerged in the course of EU accession: the municipality, the district, and the planning economic region. The municipalities (265 in 2005) are the basic territorial local selfgovernment units at subnational level. They have autonomous managing bodies, competencies of their own, property, and financial resources. Municipal Councils are elected directly by the population. The mayor is the body of executive power, and is also elected directly by the population. Municipalities have a clearly outlined field of competence in terms of public policy and investment, but they also implement functions delegated to 215

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them by the central government. The competencies of municipalities that are directly related to development policy and the use of the European Union’s structural and cohesion funds include municipal property management, urban planning and development, education, health care, utility services, protection of the environment, culture, heritage preservation, promotion of tourism, and others. Within the regional development policy, municipalities are treated as a major partner of the central government in preparing regional development plans, including through participation of local actors in regional and district consultation bodies. They are considered to be a particularly appropriate partner to involve the private sector and NGOs into the formulation and implementation of regional development projects (Marinov and Malhasian 2006). The districts—increased from nine to twenty-eight after the 1998 change in the territorial division of the country—are deconcentrated administrations of the central government. District governors are appointed by the Council of Ministers, with the primary responsibility to carry out the national regional policy, and harmonize national and local interests. In 2000, the twenty-eight districts were grouped into six planning economic regions,1 to meet the accession requirements for setting up regions corresponding to the NUTS II statistical regions of the European Union. They are not territorial and administrative units, and are only used for the purposes of regional statistics, regional policy, and planning (Marinov and Malhasian 2006). Planning regions serve as the territorial basis to prepare integrated regional development plans on a larger territorial scale, which goes beyond the division into districts. However, the role of the planning regions in Bulgaria’s regional development and regional policy is rather vague. They have no powers and responsibilities in regard to the planning and monitoring of regional development policies. The functions of the planning regions are limited to regional statistics and analyses. As self-governing authorities, the municipalities have their own resources and are relatively free to dispose of them. However, about half of municipal investment expenditures are financed through central budget subsidies. Overall, the resources vary strongly from one municipality to another, and as a whole are limited in amount.2 A concept for financial decentralization and a program for its implementation were approved in 2002. In 2005 a strategy for decentralization was adopted, covering the decentralization of authorities, and fiscal decentralization. On the basis of the strategy, action plans were prepared. An important development occurred in July 2006, when—after pressure from the European Union, and many years of talks and debates—the ruling Bulgarian Socialist Party agreed to add financial decentralization of municipalities to the fourth amendment of the constitution. This amendment was also supported by the two coalition partners— the National Movement Simeon II and the Movement for Rights and Free-

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doms. Under the constitutional amendment, a greater part of the revenues that are accumulated on the territory of a given municipality would be spent at the local level. Before the constitutional amendment, from each one hundred leva paid by the local citizens as taxes and fees only seven leva were left to the municipality, according to data from the National Alliance of Municipalities. The municipalities will also get new responsibilities, as many professional schools, specialized medical and social institutions that were under state subsidies are to be transferred to the municipalities (Andonova 2006). However, decentralization as such has not progressed very far in reality (Marinov and Malhasian 2006). Attempts at administrative and fiscal decentralization to the municipal level are gradually giving way to a deconcentration of responsibilities and tasks to the six planning economic regions (or statistical units), where administrative structures are being strengthened (European Commission 2005). The formation of municipal revenues remained fairly centralized. Therefore, local authorities were not considered reliable partners in the cofinancing of projects within the preaccession instruments and the prospective structural and cohesion funds. Issues included the lack of separate investment budgets of municipalities, the legal opportunity to redirect earmarked investment subsidies to cover operating costs, the limited predictability of subsidies and municipal revenues in general, and others. National Strategy for Regional Development in Bulgaria in the Period 2005–2015, and Councils for Regional Development The Law on Regional Development, adopted by the Thirty-Eighth National Assembly in 1999 and amended several times, aims to create conditions for balanced and sustainable development of the Bulgarian regions, reduce inter-regional and intra-regional differences in the economic development of the country, secure growth of employment and incomes, and develop trans-border cooperation. The government adopted a National Strategy for Regional Development in Bulgaria for the Period 2005–2015. The vision, goals, and priorities of the strategy were formulated on the basis of the goals and principles of the EU Cohesion Policy, which targets the reduction of regional differences and the achievement of economic, social, and territorial cohesion. The document traces the long-term goals and priorities of the Bulgarian regional policy, and serves as the basis for the development of regional development strategies in the country, municipal and regional development plans, and the National Operational Program “Regional Development.” More specifically, the regional development of the country in the period 2005–2015 was linked to the development of the European transport

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corridors through Bulgaria, the increase in FDIs, the development of clusters as a factor for the attraction of foreign investments in some sectors, the utilization of pre-accession, structural, and cohesion funds for the development of Bulgaria’s regional infrastructure, integration of transborder regions, and others. The execution of the National Strategy is secured with 25 percent national financing (almost two billion leva), while the remaining 75 percent are secured from the EU budget, mostly from the EU Regional Development Fund. The partnership principle in regional development was initially applied through the establishment of Commissions for Economic and Social Cohesion at the planning-region level, to act as regional development advisory bodies. Their members comprised representatives of government ministries, regional administrations, municipalities, and other partners, including business. The functions of secretariats were performed by the regional units of the Ministry of Regional Development and Public Works. The 2004 Regional Development Act replaced the Commissions with District Development Councils of similar composition and functions. Their secretariats are specially established directorates located in the administration of the district that is designated as the center of the planning region (Marinov and Malhasian 2006). The district governors chair the councils. Their major function is to ensure the coordination of national and local interests at the district level, with the participation of local authorities. Their activities involve essentially the discussion of district development strategies. Partnerships on Regional Employment Business as well as labor organizations (the social partners) are also involved in the realization of the state policy on employment at the regional level. The Law on Employment (adopted in 2001 and amended in April 2006) harmonized Bulgarian legislation with the EU common law in the area of employment. It stipulates that the state policy on employment and professional training in the regions is carried out by the regional administrations and the organs of local self-governance, together with the territorial units of the Agency on Employment, the territorial units of various ministries, organizations, and the social partners. The law further regulates the creation of permanent or temporary regional organs on employment based on the partnership principle. The District Commission on Employment at the District Council for Regional Development is such an organ. The commission comprises representatives of the district administration and the municipalities on the territory of the district, the territorial units of the Agency on Employment,

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ministries and other state institutions, the district structures of the representative organizations of employees and workers, sectoral and branch organizations, NGOs with activities in the areas of employment and professional training, and other territorial organizations. The district governor, or a person designated by him from the district administration, chairs the commission. The commission takes into consideration the priorities of the National Plan for Economic Development, the National Plan for Regional Development, the National Action Plan on Employment, the District Plan for Development, and the Municipal Strategies and Development Plans. The Council for Cooperation is a more centralized organ. It is created at the local units of the National Employment Agency. The latter is an executive agency to the minister of labor and social policy for the implementation of the government policy on employment promotion. The agency has nine regional employment service directorates, as territorial units of the agency’s general directorate on employment services. There are also local labor office directorates as territorial divisions of the general directorate “employment services.” The Council for Cooperation exercises direct control and monitoring of the employment policy that is executed at the district level. Its functions are subordinated to the general functions of the National Employment Agency, and focus on registration of unemployed actively seeking employment and available vacancies; provision of employment mediation services; working with municipalities and employers in developing mutually beneficial action plans; fostering the development and implementation of programs and measures for employment and training, aimed at designated groups of unemployed, who—due to various reasons—find it hard to integrate on the labor market; implementation of projects and programs in the field of employment, professional qualification and training, and social integration funded by the European Union and/or other international donors, including the state budget; protection and sustainability of employment; and others. The council comprises nine members. On the state side, these include one representative from the local unit of the National Employment Agency, one representative of the territorial structure of the Ministry of Education and Science, and one representative of the local municipality. The nationally representative organizations of employees and employers have three representatives each. Other persons and representatives of NGOs can be invited to participate in the sessions of the council. The council elects its chair from the members on a rotating principle, for a period of one year. The Job Opportunities through Business Support Project The Job Opportunities through Business Support (JOBS) Project is implemented by the Ministry of Labor and Social Policy with the support of

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the United Nations Development Program. The project targets the development of sustainable and competitive private sector through systematic help for the start-up and development of micro- and small enterprises in Bulgaria, in manufacturing or services. Target clients are start-up entrepreneurs, micro- and small businesses, job seekers and unemployed people wishing to create their own business ventures, agricultural producers, and disadvantaged groups on the labor market. The project actively supports the marketing work and development of local enterprises in six priority sectors that are highly competitive internationally, and have a major potential for job creation: apparel and textile, wood processing and furniture manufacturing, handicrafts and artisanship, herbs and spices, tourism, and alternative agriculture. The financial support under the JOBS project goes for business ideas that include the utilization of information technologies, electronic communications, development of new products and technologies, and projects with environmental orientation. The JOBS network spans forty-two business centers and ten business incubators across the country. There are also thirteen window offices of JOBS business centers. In 2003 the JOBS business centers established an association called the National Business Development Network. Its mission is to broaden the scope of work of the business centers and business incubators, and to enhance their local capacity. By applying a set of specific instruments, the network supports the establishment and strengthening of microand small enterprises, and promotes sustainable job creation in communities facing high unemployment. The business centers and business incubators provide information and consulting services, training, financial services, and below-market rate premises. They also provide access to financial mechanisms and information technology centers. The project provides a microfinancing mechanism with a revolving fund of $5 million available in the form of financial leasing. Each business center manages a leasing fund of $150,000. Financial leases are provided for the purchase of manufacturing or agricultural equipment, and equipment for provision of services. Eligibility for financing under the program is linked to the condition for creation of new employment. The maximum lease value is $15,000. The grace period is six months, whereas the repayment period is thirty-six months. Clients are required to contribute at least 20 percent of the equipment cost as an advance payment. The JOBS Project Central Coordination Unit reported that after the start of the project in late 2000 through the end of 2004, 660 local businesses were approved to access financial leasing. The utilized leases under the program totaled $3.9 million. Around 26 percent of the supported clients were start-up businesses. Overall, the business centers had assisted in the creation of 12,700 sustainable new jobs, and had provided consultations to

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27,700 local businesses. More than 16,800 people had profited from specialized training courses organized by the JOBS business centers in the areas of finance, accounting, marketing, management, computer skills, and foreign languages. Support for start-up companies added a new dimension in 2004 under a joint pilot project with the Ministry of Economy. This component is called Creating Competitive Start-up Enterprises (Project 100), and implements a comprehensive support program for start-ups in four pilot regions—Vidin, Silistra, Dobrich, and Shumen. People with viable business ideas have an opportunity to attend intensive pre-start training that would prepare them to become efficient and successful owners of competitive small businesses. They have an opportunity to develop their business idea into a business plan, which then competes in a grant award contest. The best business plans are eligible to use grant assistance in the range of $3,000–$10,000 that serves as a seed capital for the new enterprise. The candidates need to put in 20 percent of the requested grant amount as their personal contribution to the business. Overall, 250 aspiring entrepreneurs successfully completed the training program and submitted 206 business plans for the grant award competition. The business plans of sixty-seven beginner entrepreneurs were approved for grant financing. They have registered their firms and are launching the new enterprises with the grant funds provided under the project. In 2005 the project expanded to four new regions in Bulgaria.3 Public-Private Partnerships for Regional Development In the course of accession, the public-private partnership became regarded as an important component of the partnership principle at the regional level, as a contemporary political and economic strategy for accelerated regional development, and as the major instrument for the realization of regional development projects. The public-private partnership became further regarded as a guarantee for transparency in governance. The goals of the public-private partnerships on regional development are to mobilize the local community for planning of its development; to harmonize plans for development of companies, NGOs, and state administration; and to build capacity for securing and utilizing resources from the EU financial instruments. The participation of the private sector in the execution of regional development programs is focused mostly on cofinancing of projects where SMEs are beneficiaries. The public-private partnerships typically comprise three basic groups of partners, such as state authorities (national, regional, local—the respective ministries which manage the operational programs, regional authorities, and local authorities), economic and social partners (representatives of nationally representative employer organizations, branch organizations, and

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labor unions), and nongovernmental organizations (such as the National Alliance of Municipalities in Bulgaria, the Bulgarian Academy of Sciences, universities, and individual consultants). More specifically, partners to municipalities could be other municipalities or nongovernmental organizations such as business centers, existing regional structures for the support of business such as the JOBS centers, agencies for regional development, business incubators, and others. Public-private partnerships on regional development are financially reinforced under the PHARE program “Support for Increasing the Competitiveness of Bulgarian Enterprises,” administered by the Ministry of Economy and Energy. The financial aid is in the amount of 5,000–25,000 euros. Projects are financed in several priority areas: public planning and land use, transport and roads, waste management, management of water resources, tourism, industry (including mining), energy, and greening. Bulgarian Association of Regional Development Agencies (BARDA) The Bulgarian Association of Regional Development Agencies (BARDA) was established in 1997. It is oriented predominantly toward the development of the SME sector and regional economies at large. Its mission is to enhance the economic environment in Bulgaria through increased entrepreneurial initiative and employment at the regional level, as well as through participation in regional development policy-making. BARDA is a member of the European Association of Regional Development Agencies (EURADA). The latter comprises around 150 development agencies from twenty-five countries of both the European Union and central and eastern Europe. Thus far, the Association comprises twenty-one agencies and business centers from all Bulgarian regions. The membership reflects a broad representation and acceptance of regional actors involved in the SME and regional development support arena. These actors are representatives of local government, chambers of commerce, branch unions, local business associations, vocational training institutions, academia, banks, and private companies. BARDA acts as a forum for coordination of information and services, development of joint projects, investment promotion, and joint participation in national and international programs. It provides training, capacitybuilding assistance, and information services to members. The association works closely with relevant ministries and government agencies, and assists the development of national policies for business and regional development. It participated actively in the preparation of the National Development Plan 2007–2013, and the National Operational Program “Regional Development.”

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BUSINESS-GOVERNMENT RELATIONS IN SOFIA MUNICIPALITY4 As Bulgaria’s leading economic and cultural center, Sofia is a dominant part of the national economy—with an estimated one million inhabitants, it represents 15 percent of the Bulgarian population and active labor force, and accounts for 27 percent of the country’s GDP, while Sofia’s GDP per capita is close to twice that of the national average. The level of unemployment is significantly lower in the capital. In the early 2000s, unemployment rates were at 4.5 percent—less than one-third of the national average (Sofia City Municipality 2003, 20). Manufacturing—now predominantly in private hands—remains an important source of income with a share of 26 percent of employment. Manufacturing of ferrous and heavy metals accounts for 30 percent of industrial output, mechanical and electrical equipment production generates 17 percent of total industrial employment, and chemical product and plastic production accounts for 10 percent of jobs. Food processing, printing, and advertising services for the local market also provide a considerable share of employment. An estimated 50 percent of jobs in the manufacturing sector and construction are provided by a few large enterprises. Sofia’s relative dependence on these companies is an imprint of the earlier socialist industrialization policies. The service sectors provide 74 percent of all jobs. Key service sectors are trade, retail and repair (providing 19 percent of employment), transport and communication (11 percent), real estate (14 percent), and the public sectors—health, education, and social care (20 percent) (Sofia City Municipality 2003, 21).5 Sofia’s private sector comprises a number of formerly public—and now private—companies, and employs about 60 percent of the workforce (compared to 6 percent in 1990). The SMEs account for 95 percent of the total number of firms in Sofia (2003). The public sector still retains a significant share of jobs related to the production of electricity and the provision of natural gas and water, transport, social, health, education, and public administration services (Sofia City Municipality 2003, 13). Cumulative patterns of FDI (1992–2000) indicate that Sofia has drawn in nearly 47 percent (or $1.9 billion) of Bulgaria’s total foreign direct investment. For 2004, 57 percent of almost two billion euros foreign investments in Bulgaria have been directed to Sofia City.6 Sectors that benefited most from FDI were industry (50 percent), finance (20 percent), and trade (16 percent).7 Collaborative Business-Government Strategies for the Improvement of Sofia’s Economic Competitiveness and Business Climate The creation of a favorable business climate became the major priority in the city administration’s action plan for the improvement of Sofia’s

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competitiveness. The city authorities conducted a sector-representative survey of 102 companies in Sofia in 2002 in an attempt to systematically draw feedback in regard to the existing business environment in Sofia (Sofia City Municipality 2003). Respondents identified several municipality-related problems that hindered business development, such as lack of partnership between the business community and the administration to share costs and responsibilities related to building new infrastructure, time-consuming bureaucratic delays in processing permits for architectural changes of infrastructure, and difficulties in securing public (municipal) spaces for business development. Respondents further identified financial regulations as major barriers that restricted business development. More than two-thirds of them considered fiscal, administrative, and legal regulations as the most burdensome of barriers. The business sector gave the municipality an overall negative evaluation, ranking the municipality at the bottom of other institutions with respect to competency, service quality, transparency, and coordination. City officials were perceived as incompetent and sometimes difficult to contact. Survey findings further revealed that the number and types of administrative barriers (rather than their costs) imposed on businesses by the municipality hindered business development. Overall, several major sources of general uncertainty and concern for the business community were identified by the survey. All of them had to do with different aspects of the business-government relationship at the municipal level, as well as at the central government level. These were, first, lack of information, communication, and outreach. The business community lacked reliable information on licensing procedures and the approval criteria in that regard. Second, the regulatory framework of the central government as well as the municipal government for existing and emerging businesses, especially with regard to taxes, was seen as lacking consistency and transparency. It was further perceived as unnecessarily complex and restrictive, as well as being very costly. Third, according to the surveyed companies the government administration lacked capacity, which had resulted in bureaucratic handling and delays in the processing of licenses and permits. The respondents from the business community noted more specifically that licensing fees among various city districts (rayons) could allegedly vary by as much as 400 percent, and that the existing inconsistencies in the licensing processes often resulted in delays of up to six months or more. Respondents identified the high amount of, and frequent changes in, taxes; the unstable normative regulations; and the complicated license and permit regimes as main impediments to business development and growth, sometimes even resulting in business closings. Based on the survey results, the Sofia municipal authorities envisaged four major steps for the improvement of the business climate in Sofia: first, establishment of an ad hoc Consultative Council with representatives from

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the city administration and the business community to advise on how the municipality could support businesses; second, an audit of the regulatory framework that directly affects business operations in Sofia; third, review of business licensing procedures across the Sofia City districts (rayons) to standardize services and ensure consistency in procedures and fees applied by rayon administrations; and fourth, setting up of a specialized information center to provide information on all matters related to business licenses, permits, taxation and registration, and access to business premises, including a system for electronic monitoring of business permits, business licensing, and registration. Emphasis was put on the improvement of contacts and consultations with the business community, and the creation of partnerships with them, NGOs, the central government, and European and other international institutions. That further included improved dialogue between the business community and the education centers in Sofia, with the goal to narrow the skills gap between labor market needs and available education and training courses. The municipality, employers, trade unions, and relevant education institutes aimed to work collectively to develop high-quality, low-cost training programs that corresponded to the changing economic climate and needs of the local and national economy. It was envisaged that more effective communication between the municipality and the business community would help identify actions for employee retraining, and improve basic skill levels of long-term unemployed, the working poor, and other disadvantaged groups. Another means of improving the business climate in Sofia was to forge partnerships with the central government to review national policies and local taxes and fees, and ensure consistency among them. And finally, in achieving a better business environment, the strengthening of the city administration’s internal capacity was envisaged by clearly defining the responsibilities of those who communicate directly with the business community and investors. The Sofia Business Council and the White Paper on Sofia’s Competitive Development The Sofia Business Council was founded in the beginning of 2004, with the goal to develop a white paper on the competitiveness of Sofia city’s economy. The council brings together business, academic, and municipal leaders to enhance Sofia’s economic prosperity. It identifies major issues in the city’s development, evaluates options, and assists in the implementation of viable solutions. On the business side, the council targets full transparency of the municipal authorities’ work. Furthermore, an assessment of permission regimes had to be made with the idea of their reduction and subsequent improvement of the business environment and corporate competitiveness.8

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Membership in the council is by invitation only, to ensure industry diversity and alternative business viewpoints. Representatives of the biggest companies in Sofia were invited to participate in it. The regular council comprises eighteen members: the presidents of five major universities (Sofia University, the University for National and World Economy, the University of Architecture, Civil Engineering and Geodesy, the American University in Bulgaria, and the Technical University), eight executives from the biggest investors and employers in Sofia (Synergon Holding, United Bulgarian Bank, METRO Cash and Carry Bulgaria, Cisco Systems Bulgaria, Lindner Bulgaria, KPMG, Shell Bulgaria, and US Meds Bulgaria), and five representatives of the NGO sector (World Business Capital, Foundation for the Bulgarian Entrepreneur, UNDP, Center for the Study of Democracy, and the Bulgarian-American Enterprise Fund). The major nationally representative business organizations, such as the Bulgarian Industrial Association and the Bulgarian Chamber of Commerce and Industry, as well as the Union of Employers in Bulgaria, were invited to participate as members in the work of the council. However, they refused to participate together with representatives of the universities of higher education—they considered such discussions to be largely fruitless. Their goal was to discuss very concrete issues, such as the concession on water, in a very pragmatic manner. The municipality reached a compromise by deciding to meet separately with these three business organizations, while pursuing the same goals for the establishment of the council. The mayor of Sofia chairs the council, and its deputy-chairman is the deputy-mayor for financial issues. It meets three to four times a year. During these meetings, the council discusses the major issues that impact Sofia’s business climate and growth, such as administrative and tax services, labor relations, the informal economy, utilities, infrastructure, construction, education, innovation, and technology transfer. The council prepares an annual white paper on Sofia’s competitive development and the business environment in Sofia, and presents it to the Sofia mayor and the Sofia Municipal Council. Backed by independent analysis and assessment, the white paper contains policy recommendations for priority actions in key business environment areas. As part of the preparation of the white paper, the business council organizes conferences, seminars, and roundtable discussions to stimulate the free exchange of ideas on improving the city’s business environment and growth potential. The 2004 white paper on Sofia’s competitive development was titled For a Dynamic and Competitive European Capital. It comprises four parts. The first part focuses on Sofia as a rising star on the European economic sky. It illustrates the shape of Sofia’s economy in a comparative European context, sets the desired direction for development of the city, and outlines the necessary steps to be taken for the achievement of this goal. The second part of the white paper discusses the environment for entrepreneurship, innova-

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tion, and growth. The paper emphasizes that for the establishment of such an environment of growth, both the private and the public sector must be innovative and entrepreneurial. The third part of the white paper focuses on the learning functions of the city—education, training, and science. It analyzes the availability of highly educated and trained human capital in Sofia and traces the conditions and opportunities for its long-term development. And the final part of the white paper focuses on attracting capital—or promoting Sofia as an investment destination. The skillful promotion of Sofia’s major assets was considered to be an important success factor for the establishment of Sofia as a competitive European capital. Part of the promotion initiatives would build upon existing practices, while the analysis in this white paper would contribute with new and innovative ideas for publicprivate projects. Addressing the Problems of SMEs Though SMEs provide a framework for a flexible and competitive economy, many problems constrain their development, such as access to financing, difficulties in technological advances, lack of management capabilities, and regulatory uncertainty. The informal sector (non-registered micro-enterprises) is another big problem related to SMEs—it provides an estimated 30 percent of local GDP through small-scale services including retail, garments, tourism, catering, and other personal services such as child care, housekeeping, and home repair. Many of those entrepreneurs stay outside of the formal economy to avoid payroll taxes and social security contributions. Even though these unregistered business activities were part of a rational—and in some cases the only available—survival strategy during the difficult 1990s, a major task of the city authorities became their incorporation into the formal sector (Sofia City Municipality 2003, 13). One of the instruments in that regard was the establishment of the Municipal Guarantee Fund for SMEs at Sofia Municipality. The fund became one of the instruments of the municipality for the promotion of the SME sector, and the creation of optimal conditions for their development and growth. The fund provides credits for SMEs of up to twenty thousand leva (ten thousand euros). Business projects are selected on the basis of several priorities, such as high technologies and information services; tourism, in particular family hospitality and restaurantship; production and trade of goods of the light and food industries; transport and transport services for the population; services provided by primary care physicians, dentists, rehabilitators, and psychotherapists; services for the leisure time, such as sport, cultural and youth activities, and others; export-oriented production; and production of environmentally friendly products, as well as of machines and equipment contributing to the preservation and improvement of the environment.

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At the same time business-government collaboration between the Municipal Council and the SME sector in Sofia is not well developed and institutionalized, in contrast to the situation with big firms. Thus, through the Sofia Business Council, the big companies were able to voice their opinions on the business climate in Sofia and to draw directions for improvements. As far as SMEs are concerned, their business lobbying is weak. For example, such lobbying does not exist at the Commission on Local Governance and Normative Regulations at Sofia’s Municipal Council, despite the efforts of the latter to involve the SME sector in consultations over certain regulations.9 Thus a letter has been sent from the commission to the branch organizations of bread producers, meat processors, and others, seeking their opinion in regard to the minimum territory on which only one meat shop or one grocery shop should be established. Only three to four branch organizations sent formal replies, however, stating that they did not have any proposals and did not want cooperation with the municipality. Overall, the experience with business-government communication at the Sofia municipal level is generally not good in regard to the SMEs. Most of them would prefer to provide opinions on ready-made draft documents instead of participating directly in roundtables for the preparation of those documents, and the resolution of some of the most pressing issues in the municipality. The protest alliance is thus present, while the constructive partnership is largely missing. Business Participation in the Process of Local Governance Business representatives also participate in the work of various consultative bodies established at the Sofia Municipal Council, to help its decision-making process. Their participation is both institutionalized and ad hoc. The institutionalized participation is usually regulated through national legislation, such as the Law on Employment, regulating the participation of business representatives in an Employment Council that has to be established at each regional labor office. The Law on Tourism regulates similar participation of the nationally representative business organizations in a Council on Tourism that has to function as a consultative body within each regional administration. Such laws specify in detail the functions and mode of participation of the business community, and do not vary much from region to region. Collaboration on Strategic Programming: Development of the Sofia City Strategy (2005–2015) In September 2000, Sofia’s municipal management initiated work to develop a city strategy with support from the Cities Alliance (CA).10 The key objective of the Sofia City Strategy (2005–2015) is to enhance the develop-

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ment of the municipal management system to generate sustainable, longterm benefits for its residents. The strategy’s three main objectives were the promotion of sustainable economic growth, improvement of local governance, and improvement of the urban spatial structure. Five broad areas have been identified as key components of the strategy: the role of the municipality in the development and growth of the city economy; the provision of infrastructure, social, and administrative services to Sofia’s citizens; the physical planning and spatial landscape of the city (urban structure); the financing of the city; and the management and governance exercised by the city administration. The formulation of the strategy was based on several years of a broadbased strategy development process. Special attention had to be paid to the EU policies in regard to regional development. The strategy was also greatly influenced by the anticipated entry of the country into the European Union. To this end, Sofia’s mayor and municipal administration engaged residents and business community members in a participatory process to develop the strategy. Feedback gathered during surveys and consultations with community members influenced the key components that comprise the long-term strategy. The collaborative process between the municipal authorities and the business community included workshops, surveys, and consultations. The strategy was adopted in 2005, after being consulted with, and approved by, the business sector. More specifically, two rounds of consultations brought together members of the local community, the international donor community, the private sector, the NGO sector, and officials from the municipality and the state government. The first two-day workshop took place in July 2001, and the second round of consultations was in April 2002. In July 2001, participants engaged in roundtable discussions on sector-specific issues, reviewed impediments to local development, and shared new perspectives on infrastructure and social needs and opportunities. In addition, community members were encouraged to submit comments about the draft strategy through the municipal web page and drop-in-boxes located in Sofia’s twenty-four districts. Residents and stakeholders also participated in a weeklong exhibit of the strategy approach, process, and major trends in the development of Sofia’s economy, finance, and urban structure. In April 2002, participants discussed a Program Action Matrix that outlines priority actions and objectives to be undertaken for the fulfillment of the strategy in the three-to-five-year period ahead. The European Day of the Entrepreneur Initiative Since 2003, an annual European Day of the Entrepreneur began to be organized by the Sofia municipality, in partnership with Sofia University.11

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This is an EU initiative and is organized in several cities in Europe, such as Dublin and Barcelona. Through the European Day of the Entrepreneur, the City of Sofia is integrated into the European initiatives toward the development of entrepreneurship. The aim of the European Day of the Entrepreneur initiative is to unite the efforts of all parties interested in the development of innovative, entrepreneurial activities, taking advantage of the best ideas and results of local and European partners. More specifically, the initiative aims to improve the Bulgarian environment for entrepreneurship and encourage innovative thinking and innovative practices by establishing networks for partnership and dialogue with all interested parties, to support the government’s efforts for the development of an adequate strategy and policies encouraging entrepreneurship, to gather and disseminate up-todate information on entrepreneurship, to develop networks for competitiveness benchmarking, and to share knowledge and best practices for finding new business opportunities. The first European Day of the Entrepreneur was held on October 8–9, 2003, under the motto of “Innovation and Development.” The initiative unfolded as a structured dialogue between the state and the business community where the government viewpoints and the viewpoints of the business community on two major themes—entrepreneurship and development of SMEs, and preparation of the business sector for EU integration—were discussed in plenary sessions. The initiative brought together more than five hundred participants from the business community, the central government and regional administrations, Sofia University, and various NGOs. In addition, foreign participants from Belgium, Greece, Germany, Italy, Luxembourg, Spain, United Kingdom, Serbia, and Macedonia, as well as representatives of the European Commission, shared their experience and actively participated in the discussion forums. More than sixty presentations were given in twelve thematic sessions. The second European Day of the Entrepreneur was organized in November 2004, under the motto “Opportunities and Challenges in the Enlargement of the European Market.” The discussions focused on the government’s strategy for the development of innovation and entrepreneurship in the country, the dialogue between the government and the business community in the process of accession, the financial framework of accession, and opportunities for financing entrepreneurial initiatives from the EU financial instruments, education and training, and others. A third European Day of the Entrepreneur was organized in November 2005 under the motto “Innovation and Entrepreneurship Promotion at Local and Regional Level.” The 2005 event was oriented toward the promotion of innovation and entrepreneurship by local and regional authorities in their regions. Mayors, representatives of municipalities and district bodies, banks and entrepreneurial business, and public and nongovernmental organizations had the

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opportunity to exchange their views on basic problems of stimulating competitiveness and establishing favorable conditions for the growth of entrepreneurship and innovation in the country. Partnerships for the Utilization of EU Funds The Council on European Integration was created in June 2006 as a discussion forum on Sofia’s priority areas for participation with projects in the utilization of the EU structural and cohesion funds. The main function of the council is thus to lobby for the successful financing of municipal projects under the EU funds. In comparison with other municipalities in the country, Sofia municipality was generally in an unfavorable position for attracting EU funds because it had already achieved the European standards in many areas, and the central ministries would rather direct money from the EU funds to less developed municipalities. However, the municipality still has a lot of problems with local infrastructure—roads and transportation, construction, development of the subway, expansion of the water canalization system, and others. At the same time the budget that is distributed to the municipality from the central government is less than 30 percent of Sofia’s contributions to the central budget. That is why Sofia has to look for additional funds for the improvement of its infrastructure. The Council on European Integration comprises leaders from the Sofia municipality, representatives of the state administration, business leaders, and leaders of nongovernmental organizations. According to its statute, the council’s major function is to assist the municipality in its efforts to attract and utilize financial resources from the pre-accession funds, the Structural Funds and the Cohesion Fund of the European Union. The council supports the municipality in identifying important issues and priority projects of the city, which could play a key role for its development as a European capital. It further assists in the creation and development of public-private partnerships for the preparation of projects; the development of the municipal Plan for the Development of Sofia in the period 2007–2013, as well as the program for its realization. Overall, the council serves as a forum for the free exchange of ideas, opinions, and views in relation to the development of the city. The council coordinates the efforts of different local, state, and nongovernmental organizations in that regard. Membership in the council is by invitation only. The council comprises twenty-three members: seven deputy mayors, the chief architect of Sofia, the secretary of Sofia Municipality, four members of the Municipal Council, one representative of Sofia Oblast administration, one representative of the Ministry of Foreign Affairs, one representative of the Ministry of Finance, one representative of the Ministry of Regional Development, one representative of the Ministry of Environment and Waters, two representatives

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of the universities in Sofia (Sofia University, and New Bulgarian University), two representatives of NGOs, and one representative of the business community—the director of directorate “European Projects and Communication” at the Bulgarian International Business Association. The members of the council meet on a regular basis once a month. Each member of the council has the right to propose topics for discussion based on his/her opinions, views, public opinion polls, and plans of operation. The mayor of Sofia appoints the chair of the council. The function of secretariat of the council is fulfilled by directorate “European Integration, International Relations, and Investment” at the municipality. Public-private partnerships are also created, with the goal for additional financing where municipal resources are limited. The public-private partnership principle was incorporated in the Sofia City Strategy. Thus the strategy states that the participation of the social and economic partners, NGOs, and the private sector in the policy of regional development would be widely encouraged. The partners to the municipality are defined as the “social and economic partners on the territory of the municipality.” These are the organizations of employers, trade unions, and NGOs in the sectors of education, science, culture, health, and others. The participation of the partners in all levels of preparation, coordination, and control over the implementation of municipal decisions is viewed as important—it would guarantee their transparency, competency, and effectiveness. These partners are further seen as enriching the central, regional, and local organs with new ideas on the basis of their practical experience and contributing to the formulation of decisions based on a greater public consensus. They are expected to contribute with their own funds for the realization of activities envisaged in the strategy. The employers’ organizations in particular are expected to assist for the realization of the strategy as both the object and beneficiary of the policies and activities related to regional development. They also have considerable capabilities for the provision of information, education, and training related to the realization of the strategy. More specifically, public-private partnerships deal with priority projects of Sofia municipality, where funding from the EU structural funds is sought. The Operational Program on Regional Development is the most important one for Sofia municipality. For example, private businesses are included in the construction of municipal infrastructure and the provision of communal services.

BUSINESS-GOVERNMENT RELATIONS IN THE MUNICIPALITY OF SANDANSKI The municipality of Sandanski is situated in the southwestern part of Bulgaria (very close to the borders with both Greece and Macedonia) and has a total

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population of about forty-six thousand citizens (December 2004), thirty thousand of them living in the city of Sandanski. Sandanski originated from a settlement of the Thracian Medi tribe and is considered the likely birthplace of the legendary Spartakus, the leader of the Roman slave uprising in 73–71 BC. In the 1960s Sandanski developed as a famous national spa resort, and in the 1980s it acquired the status of an international spa resort. The city is famous with its best natural hospital for bronchial asthma in Europe.12 The municipality is the ninth biggest municipality in the country. After the difficult transition decade of the 1990s, the municipal economy began a process of restructuring, and is now one of the most dynamic municipal economies in the country. It occupies the forty-eighth position in the country in terms of municipal GDP per capita. Part of the local economic restructuring is in response to the new requirements of EU entry. The level of unemployment has always been below the average for the country: it was 6.3 percent in 2003, and was reduced to 5.7 percent in 2004, and to 4.5 percent in May 2006—as low as the unemployment rate in Sofia.13 The level of investment is increasing although it is still not sufficient for the accomplishment of the municipal economic restructuring. Most of the foreign investors in Sandanski are from Greece, followed by Macedonia, Serbia and Montenegro, Russia, Italy, France, Armenia, Germany, Cyprus, and Great Britain. The leading industrial sectors in the municipality are food-processing, production of medical equipment, beverages, the apparel, shoe and textile industries, medical-pharmaceutical, construction, timber, wine and tobacco industry, and marble extraction and marble processing. As a municipality with established spa qualities, tourism also plays a significant role in the local economy. Agriculture remains the major source of income in the rural areas of the municipality, and serves as a basis for the food-processing industry in Sandanski. There are more than 5,500 active companies on the territory of the municipality, of them more than one hundred are exporters, and more than five hundred are with an annual turnover of more than fifty thousand leva (twenty-five thousand euros). Almost half of the active firms in the municipality are in the trade sector, followed by the processing industry, hospitality and restaurantship, and transport and communications. All companies with a very few exceptions are SMEs. The majority of them are even microfirms, employing less than ten people.14 A big challenge for the majority of firms in the municipality is to comply with the EU requirements in the food-processing sector, as well as to successfully compete on the EU common market after the country’s accession to the European Union in 2007. The Challenge of EU Accession The EU integration process is predominantly perceived by local businesses in Sandanski as threats, challenges, and restrictions rather than as

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business opportunities.15 Most of the issues arise in regard to the harmonization of domestic legislation with the EU common law, and the necessity to implement the new EU regulations in the production process and the overall functioning of companies. The challenge is predominantly financial—that is, a lot of financial resources would be necessary for a local SME to comply with all the legal requirements for health and safety at work, and the higher standards for product quality and environmental protection. One of the biggest challenges in that regard is the European Union’s HACCP system, which became mandatory in 2007 for the whole foodprocessing sector. For example, as already discussed in chapter 5, only the consultation fee on how to introduce HACCP in the enterprise would cost about eight thousand leva (four thousand euro). For the production of beverages alone, an additional one hundred to two hundred thousand euros have to be invested to meet the EU requirements for health and safety at work, ecological environment, and sustainable development. Furthermore, although the ISSO system is not yet mandatory, its implementation is highly recommended and would require additional financial resources. Beyond the financial burden, the SMEs had to secure additional personnel for the introduction and implementation of these systems. New buildings had to be constructed to meet the hygiene requirements. Furthermore, the technological process had to be altered to meet the new requirements. Separate sewage systems had to be also secured—for employee handwashing, washing of technical equipment, and for human fecal waste. In addition, separate dressing rooms had to be provided for male and female employees. The food-processing companies had to further install automatic doors to these dressing rooms so that the employees would not touch the door handles. Despite these serious challenges of EU accession, the business community was not doing much to adjust and adapt in the most appropriate way. Part of the problem was structural—for example, the city as a whole does not have a wastewater treatment plant, which would not allow local companies to clean their production wastewaters even if they perfectly complied with all other EU requirements. Furthermore, there are no wastewater treatment plants on the territory of the whole Blagoevgrad region. Currently two wastewater treatment plants are being in the process of construction, for the cities of Blagoevgrad and Razlog. There is a project for the creation of a wastewater treatment plant in Sandanski, and even the location had been selected back in 1988. However, because of land restitution issues after the collapse of the state socialist regime in 1989, the long process of compensating the original owners of the designated land for the construction of the plant delayed the whole process of construction. A survey conducted by the Sandanski Business Center in early 2005 confirmed the lack of preparedness of the local companies for EU accession.

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The survey covered five hundred business establishments from different sectors, from the municipalities of Sandanski, Petrich, Blagoevgrad, Razlog, and Bansko. The purpose of the survey was to identify the major problems that firms faced in the process of Bulgaria’s preparation for EU membership. Overall, the survey revealed that a big part of the entrepreneurs had a positive attitude toward Bulgaria’s anticipated EU membership. The enormous state bureaucracy, high taxes, and unfair competition were the major problems faced by firms in the process of accession. The survey also revealed that about 51 percent of the firms used the services of business support organizations. The information needs of the firms were concentrated on the demand and supply of commodities on the local and foreign markets, the opportunities for finding foreign partners, and legislative changes as a result of Bulgaria’s accession to the European Union. A large number of firms were also interested in opportunities for the introduction of new production technologies and the attraction of foreign investments. However, 84 percent of the surveyed companies revealed that they needed additional information on EU accession issues. Logistical Support on Accession Preparedness: The Business Information and Consulting Center and the Euro-Info Center BG806 in Sandanski The Business Information and Consulting Center in Sandanski is the major business organization in the local community. It was founded in May 1997 by entrepreneurs from the region and the municipality of Sandanski. The center’s major objectives are to foster the economic, cultural, and social development of the region by assisting the development of private enterprises—in particular SMEs; to assist in the establishment of the region as a modern economic, social, cultural, and sports center; and to promote the region as an attractive site for investment and tourism. The business center has fifteen regular members and twenty associated members. It offers a variety of services to them in six major areas: (1) assistance to local companies in seeking and finding business partners and investors from Bulgaria and abroad—by informing the local companies about companies that are looking for suppliers or investment opportunities, and by providing profiles of regional companies and their product range to potential customers and investors; (2) assistance for access to credit sources— by providing information about existing credit lines from Bulgarian and international financial institutions, and by providing support in preparing credit applications (business plans, and so on) and assistance in negotiations with banks and financial institutions; (3) assistance for access to foreign markets—by providing information about legislation, rules and regulations, fairs and exhibitions, and by assisting interested companies in

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presenting themselves and their product ranges on these fairs; (4) assistance for improving the management practices of local enterprises—by providing management consultations and training, and organizing seminars and meetings; (5) assistance to potential entrepreneurs for identifying business opportunities and registering a company; and (6) creating opportunities for the association and clusterization of regional companies in order to formulate and pursue their common interests. In 2003, the business center issued a manual titled “Better Business Environment for SMEs in Southwest Bulgaria.” The center works in close cooperation with several other business alliances in the municipality, who are also its members. These are the Alliance of Hotel, Restaurant, and Tour Operators in the Sandanski Municipality— established in 2002, its major goal is to return the fame of Sandanski as a major spa, tourist, and cultural center in Bulgaria; and the Alliance of Animal Breeders—established in 2005. The local construction firms also made an attempt to form an alliance, without officially registering it. Furthermore, in 2006 the Sandanski branch of the Bulgarian Chamber of Commerce and Industry was established with eighteen founding members— SMEs from the municipality. As a result of its activities, the center established itself as the leading business support organization in Southwest Bulgaria, including the municipalities of Sandanski, Petrich, Strumjani, Kresna, Blagoevgrad, Razlog, Bansko, and Gotze Delchev. It became a stable partner in the realization of bilateral and international projects for the development of SMEs and regional development. The center further became a member of BARDA. As a member of this national network of regional development agencies and business centers, the center participates in a variety of activities directed toward the establishment and consolidation of the national network of sustainable local structures that assist SMEs and contribute to Bulgaria’s regional development. In August 1999 the Sandanski Business Information and Consulting Center was selected by the European Commission to host the establishment of a Euro-Info Center BG806 covering the whole region of southwest Bulgaria. The Euro-Info Center in Sandanski became an integral member of the Euroclub at the Bulgarian Chamber of Commerce and Industry, the aim of which is to support and foster the interests of the business community in the country in relation to the process of European integration. The center organized a lot of seminars, most of them about the challenges of EU accession, for companies from the tourist, agricultural, textile and apparel, food-processing, and timber sectors. Regular meetings with firms from different branches are also organized, to discuss their specific information needs in light of EU accession. A roundtable “Are the Bulgarian firms ready

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to meet the competitive pressures of the European Union?” was also organized in partnership with the Ministry of Economy. A business forum for transborder cooperation among Bulgarian, Macedonian, and Greek companies was also established. The center also published a lot of information materials on the challenges of EU accession, and distributed them among the business sector. These included the monthly Info-Bulletin, with three thousand copies produced each month and distributed among the companies of southwest Bulgaria. Information announcements are also published in the local media about forthcoming conferences, seminars, forums, roundtables, and discussions. The center further publishes specialized brochures, such as “EU Enlargement—Importance for the Bulgarian Economy,” “EU Enlargement—A Well Regulated Market,” “Product Safety,” “Labeling in the European Union,” “Complex Prevention and Monitoring of Environmental Pollution,” “Standardization, Quality, Sertification, Labeling,” “Knowledge of the Euro Standards and Directives: A Major Factor for the Increase in Competitiveness of Firms from the Timber Industry,” and “Health and Safety in the Construction Industry.” The center also provides consulting services to the enterprises from southwest Bulgaria on all issues related to the European Union and EU accession, especially the implementation of the EU acquis. In 2004, the center accomplished a project on Business Opportunities in the Process of EU Enlargement. The major goal of the project was to study the business aspects of EU enlargement. The project targeted the SMEs in the cities of Sandanski, Petrich, Blagoevgrad, Razlog, and Bansko. Under the project, Business Clubs for European Partnership were created, with representatives of the tourist and apparel sectors from the region. The goal of these clubs is to assist in the creation of favorable conditions for the exchange of business ideas and experience across the region. The center also participated in a regional project for the enhancement of cooperation among the business-assisting and SME-assisting organizations in southwest Bulgaria. The goal of the project was to unite the efforts of these organizations, the regional institutions, and the local authorities in the region, and create an effective network for the provision of quality services to SMEs. Another important initiative was the project on Trans-European Cooperation and Mutual Assistance Among Enterprises in Regard to European Public Procurement. The major executor of this project was the Belgian Euro-Info Center Namur. The project aimed at facilitating partnership among European SMEs for the enhancement of their access to international participation in public procurement. This is done through the organization of branch meetings during international fairs, and the creation of a discussion platform for the development of the EU law on public procurement.

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Local Partnerships on Employment From 1994 to 1999, an institutionalized Consultation Council was functioning in Sandanski with representatives of the municipal administration and some of the major employers in the city, mostly Greek companies.16 At that time the idea of the municipal administration was to create an institutionalized dialogue with the business community to discuss the elimination of widespread labor law violations, especially by the Greek companies operating in the municipality. The Greek companies were the major employers in the early 1990s, because during the difficult transition years the apparel industry production with Greek investment was the only industry that was not in decline. There were more than fifty Greek companies operating in the municipality. They had created their own branch organization, and had a representative in the council. Medica AD—the biggest company in Sandanski—also had a representative in the council because of its size. At that time it had about 1,000–1,200 employees, while currently their numbers have dropped to about two hundred. The company is one of the major manufacturers of medical dressing materials in eastern Europe, and is still holding more than half of the local market for those products, according to company estimates. On the municipal quota, members of the council included the mayor of Sandanski, Mr. Buzov, the head of the labor office, and the director of the Regional Labor Inspectorate in Blagoevgrad. The council also comprised local representatives of the two major labor unions in the country—the Confederation of Independent Trade Unions in Bulgaria and the Podkrepa Confederation of Labor. The council met at least once a month. It was focused on using the dialogue with the Greek employers as a way of teaching them about the importance of Bulgarian labor law, and requesting strict compliance with it— that is, eliminating the frequent instances of sweatshop work conditions, low pay, prolonged working hours, and other labor violations. The participation of the Regional Labor Inspectorate in the council was very effective, as they conducted parallel control and monitoring measures. A Tripartite Council on Employment at the Regional Labor Office—covering the municipalities of Sandanski, Kresna, and Strumjani—was created after the Law on Employment was adopted by the Bulgarian parliament in 2000. The law regulated the creation of such tripartite councils to the regional labor offices. The council monitors the fulfillment of regional programs and measures on employment, controls the fulfillment of the legal requirements for the selection of relevant employment programs, and discusses priority programs and areas for financing. The council comprises nine members—the municipality, the local trade union organizations, and local businesses have three representatives each.

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On the business side, there is one representative of the local branch of the Union for Private Economic Enterprise, one representative of the local Alliance of Hotel and Restaurant Keepers and Tour Operators, and initially one representative of the local chamber of the Bulgarian Chamber of Commerce and Industry in the neighboring Petrich municipality, because there were no other nationally recognized business organizations in Sandanski. Later, the Petrich Chamber representative was replaced with a representative of the local branch of the National Alliance of Bread Bakers in Bulgaria, and currently the third representative on the business side is from the Vazrazhdane Union of Private Producers. On the trade union side, the three representatives are from the Confederation of Independent Trade Unions in Bulgaria, Podkrepa Confederation of Labor, and the National Alliance of the Secretaries of Municipalities. And, finally, the municipality’s three members to the council are the head of the labor office, one representative of the three municipalities in the region—Sandanski, Strumjani, and Kresna— participating on a rotating principle, and one representative of the regional Directorate “Education” of the Ministry of Education. The council meets at least once a month, and often twice a month. Decisions are taken with a simple majority. Its members elect the chair of the council for a period of one year on a rotating principle. Directorate Labor Office—Sandanski acts as the secretariat of the council. The council discusses predominantly the distribution of unemployment and other benefits. Most often the meetings of the council focus on the periodic distribution of information on employment and unemployment trends in the three municipalities, issues related to unemployment such as mass lay-offs, and opportunities for the elaboration and realization of local employment programs and measures. The council also regularly monitors the fulfillment of various employment programs and measures in accordance with the Law on Employment. The council further proposes and coordinates initiatives and activities for the training of unemployed on the basis of criteria specified by the minister of labor and social policy. The council also approves employers’ requests for various financial incentives on activities that target employment promotion. There are two groups of such incentives: payments at the level of the minimum wage as stipulated by the Labor Code and social security benefits. The employer has to contribute 65 percent of the total social security benefits of employees. However, a waiver of this payment can be awarded as a financial stimulus if the employer provides jobs to persons from the so-called risk groups— those with permanent disabilities, youth and orphans from the specialized institutions for orphans, mothers with children of up to three years of age, former inmates, and people in pre-retirement age (for men above fifty-five years, and for women above fifty years). The employers apply for these financial incentives to the Labor Office, and the Council for Employment

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approves or rejects applications on the basis of criteria determined by the minister of labor and social policy. This is actually the most frequently discussed issue by the council. Partnership on Local Tourism Promotion Another institutionalized channel of local business-government collaboration is the Council on Tourism at the Trade Department of the Municipality. The council was founded in April 2004 as an institutional structure required under the Bulgarian Law on Tourism. Participants in the council are twenty-one representatives of the local municipal and state authorities, business organizations, and NGOs. These include regional representatives of the State Inspection for the Protection and Control of Public Health, the municipality, and the business community. The municipality is represented by one municipal counselor (as part of the local self-governance system), while the municipal administration is represented by the deputy mayor on economic policy, heads of departments, and experts. Members from the business community comprise a representative of the Business Information and Consulting Center, two representatives of the Alliance of Hotel, Restaurant, and Tour Operators, and one representative of the local branch of the Alliance of Bulgarian Tour Operators. Members also comprise representatives of individual companies—the major local employers in the area of tourism—and also heads of local public organizations such as the local museum, the National Park Pirin, and others. The council meets every month. The major focus of its work is the categorization of hotels and restaurants in the municipality. Categorization is done on the basis of the star principle, and in many ways is an issue of prestige for each of these business establishments. The council decides on their star category, and also monitors the extent to which they are in compliance with the minimum requirements for each category, as stipulated in the Bulgarian Law on Tourism. Members of both the municipal administration and the business community evaluate participation in the council as effective.17 Another major focus of discussions within the council is the elaboration of a municipal strategy for the development of tourism in Sandanski, and the program for its realization. The Consultative Council is authorized to make recommendations on the spending of funds under this program. The strategy is a vision of the development of local tourism, including its most attractive venues such as rural tourism, cultural tourism, mountain tourism, spa tourism, and shopping tourism (in regard to the frequent tourists from Greece). The strategy thus outlines the perspectives for the development of Sandanski as a major balneological and spa tourist destination, in line with its impressive natural and climatic-therapeutic wealth. Sandanski has only

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four to five foggy days annually, and its air humidity is the lowest for the country (66 percent). Sandanski also has the longest sunshine for the country (2,506 hours) and an annual average temperature of 13.4 degrees Celsius. Attention is paid on the development of supplementary tourist services, such as tourist attractions. The program also comprises an advertising strategy for the attraction of international tourists. Transborder cooperation is also a part of the program, especially with the Siderocastro municipality in Greece, and with the city of Struga in Macedonia. Special attention is paid to cultural tourism—there are a lot of churches, monasteries, and historical monuments in the region, especially in the city of Melnik. Part of this is the revival of the traditional Spartakus games that were organized in the past.18 The program for the realization of the strategy is in a way an open forum/document for the mobilization of local resources and fundraising for the development of local tourism. It envisages projects where both the municipality and the business community in the tourism sector can participate. The council adopted the program at the end of 2004. Collaboration on Strategic Programming: Preparation of the Municipal Development Plan for the Period 2007–2013 Collaboration between business and local municipal authorities exists on a more or less regular basis in regard to the preparation of the Plan for the Development of the Municipality of Sandanski for the Period 2007–2013, and the elaboration of the measures related to its concrete implementation. The municipality invited representatives of the business community (branch organizations mostly), as well as individual citizens, to take part in the discussions over the development plan. A working group was formed under the leadership of Mayor Andon Totev for the organization and development of the plan. Members of the working group included representatives of the municipal administration, the de-concentrated state offices on the territory of the municipality, the Business Information and Consulting Center—Sandanski, the Euro-Info Center—Sandanski, and the Blagoevgrad branch of the Bulgarian Chamber of Commerce and Industry. The working group prepared a draft development plan with basic activities and deadlines for their fulfillment. The elaboration of the plan included surveys of business and nongovernmental organizations in the municipality, and opinion polls of citizens of the municipality. These materials were discussed with the broad public, and a final version of the plan was officially adopted at a session of the municipal council. The development plan follows the “European principles of partnership.” (Sandanski Municipality 2006, 6), That is, a new moment in the planning of local development after 2006 was the application of the principles of European regional development, such as development of investment clusters,

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and administrative capacity-building. The municipality pays special attention to securing the institutional framework, conditions, and relevant environment for the creation, development, and realization of investment clusters. Special attention is paid to the formation of competitive advantages for the attraction of investment on the territory of the municipality, such as securing a favorable business environment. Another important principle is building an administrative capacity, especially for the cofinancing of municipal projects and the utilization of EU funds. The plan further pays special attention to the implementation of the project approach in regional development. It envisages improvement of the administrative units for the formation and realization of projects, and creation of several new units, for project monitoring, project control, and project assessment. Formation of Regional Business Clusters and Public-Private Partnerships in the Municipality of Sandanski One of the areas where the efforts of the municipality are directed according to the Municipal Plan for Development in the period 2007–2013 (Sandanski Municipality 2006) is the formation and development of business clusters on the territory of the municipality, with the goal to increase their competitiveness. Special projects were generated by the municipality for the development of clusters and public-private partnerships, administered by the Ministry of Economy and Energy and the PHARE Program. Clusters have emerged spontaneously in the period of transition. Their advantages and necessities for business have been assessed very positively by the local authorities, and have become one of the planning priorities of the municipality. The local authorities have thus assessed that the formation of business clusters has a direct positive impact on the local economy. All companies on the territory of the Sandanski municipality are SMEs, with the only exception of Medika AD. In such conditions, business clusters were considered to be very important for increasing the competitive advantages of these companies and securing their survivability. Survivability in this sense means technological innovation, introduction of the European quality standards, high efficiency, and overall competitiveness on the European and world markets. The concrete measures for the creation of business clusters on the territory of the municipality are outlined in the Municipal Development Plan for the period 2007–2013. These include development of a framework program for the creation of regional clusters and their structures in the municipality; organization of a partnership among the central authorities, the municipality, the local business, and related local and national organizations for the start-up and consolidation of clusters; development of special programs for training and education in the form of public-private partnerships;

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organization and distribution of the necessary information along the cluster lines; and launching of pilot projects for the creation of clusters. According to some estimates of municipal experts, the economic structure of the municipality determines the formation of several clusters. The first one is in the sector of light industry—including textile, leather, apparel, and shoe industries. This cluster is considered particularly important for the municipality, having in mind the high rate of employed in these industries— about 50 percent of all employed. This cluster is thus considered to be a structural determinant of the employment level in the local municipal economy. Furthermore, the formation of the cluster was very important in regard to the increased imports of textile and apparel goods from China— from two to seven times since 2005—especially after some of the import quotas to EU member states were eliminated. As a whole the tendencies in the textile branch in 2004 and 2005 showed that some local micro-firms working with materials supplied by the customer had disappeared because of lack of customer orders. The efforts of the Sandanski municipality in aiding the formation of the textile-apparel cluster included the elaboration of a new plan for the creation of industrial zones in Sandanksi, improvement of the local transport and communications infrastructure, the electrical and sewerage infrastructure, and the ecological infrastructure. Another priority of the municipality is helping the local firms in their application with joint collaborative projects to the national operational programs “Competitiveness of the Bulgarian Economy” and “Human Resources.” This also includes reconstruction of the train stations in Sandanski and Damjanitza—in light of the increasing oil prices and costs of auto transportation and railroad transportation of goods would be an excellent alternative for the local manufacturers. The second business cluster under preparation is in the area of agriculture and the food-processing sector. This cluster is expected to create conditions for the revival of agriculture in the municipality, as one part of the agricultural production would be utilized in the processing part of the food industry. Furthermore, a greater flexibility would be secured between the local agricultural producers and the market demand, including foreign markets. There would be also improved contacts with the local tourist business in response to the increased tourist needs to use local resources. This cluster is concentrated in the village of Damjanitza and the railway station there is an asset for the quick access to strategic sea ports in Greece and the Danube River, and cheaper transportation to the European markets. One part of this cluster will be in the area of vineyards and wine production. The municipality plans to rehabilitate the existing infrastructure—local municipal roads, agricultural transport networks, and equipment. Additional stock exchange and markets are to be created in Damjanitza. The creation of

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public-private partnerships will be encouraged, as well as investments in this branch, such as the construction of a vegetable processing plant in Damjanitza. For the formation of this cluster, the municipality envisages the utilization of all available resources, including the pre-accession funds of the European Union up until 2009, the structural funds, as well as foreign direct investments. The municipality further considers the creation of a third business cluster in the area of tourism. There is an ongoing process of research and estimates on how the tourism cluster could be created and developed. Overall, the expectations of the municipality are that with the realization of these clusters the vertical and horizontal business integration in the region will be improved; trust among local enterprises and the municipal and state organizations for the development of the economy will be increased; the educational and scientific institutions at the local and regional level will be adapted to the needs of the market for qualified labor force; enterprises will get improved access to up-to-date technological, market, legal, and other important information; and new technologies will be introduced in some industrial sectors. The necessary conditions for the formation of such clusters are, on the one hand, interest and readiness at the local level, and, on the other, financial and consulting aid through relevant EU programs. Such clusters are difficult to organize, however, because of the specific mentality of the local population—there is a lot of suspicion and lack of trust among the local entrepreneurs, while the cluster form of organization requires common action and common thought. In terms of public-private partnerships, their importance is assessed very positively in the Municipal Development Plan for the period 2007–2013. However, they are still in the process of formation on the territory of the Sandanski municipality. Joint Development of Project Proposals for the EU-Funded Programs An important form of business-government partnership on EU accession is joint work for the preparation of proposals for projects and programs, workshops and conferences funded through European programs. There is mutual collaboration in the drafting and writing of projects and joint searching for donors and sponsors. Aided by the business center, the Sandanski municipality has applied and won several projects under PHARE, such as the fraternization of the city of Sandanski with the city of Navan, Meath region in Ireland (67,000 euros). Other municipal projects funded by PHARE are a water sewage reconstruction in the village of Petrovo, creation of a Center for Old People with Mental Disturbances (185,000 euros), and rehabilitation of the road (eight km) from Sandanski to Popina laka in Pirin Mountain (747,000 euros).19

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A special municipal project was further funded in 2006 by PHARE’s section on Initiatives for Employment in the European Union’s Border Regions. The project was administered by the Business Information and Consulting Center in Sandanski, and the Business Innovation Center in Serres Municipality, Greece. It targeted the creation of new employment opportunities as a guarantee for effective employment in the border region. The project covered the municipalities of Sandanski, Petrich, Strumjani, and Kresna in Bulgaria, and the region of Serres in Greece. Under the project, business-consulting services were offered to micro- and small enterprises, unemployed, and to employed with the potential and intention to develop their own business. The services offered to these categories were consultations for the development of business plans; organizational and financial management of the firm; marketing services; judicial and fiscal assistance; assistance in the search of financial sources, such as programs for the support of business, and others; establishment of business contacts; and business development through the Internet. In addition to personal consultations, the Internet page of the Business Center in Sandanski (www.bicc-sandanski.org) published periodic information about various activities under the project. As part of the project, the business center published four specialized manuals with concrete information for the local entrepreneurs: “How to Start Your Own Business,” “How to Prepare Your Business Plan,” “How to Manage Your Company,” and “How to Organize a Successful Firm Marketing.” The business center in Sandanski has further assisted local companies in applying for funding under the EU financial programs, such as the grant scheme on increasing the competitiveness of SMEs in Bulgaria administered by the Ministry of Economy and Energy and financed by PHARE. Two firms from the municipality have applied for funding under this program—a beverage bottling company, and another one for the production of bread— with the active support of the business center. The center further assisted applications to the SAPARD program, and several local entrepreneurs have been funded, with projects for the processing of agricultural food, creation of vineyard complexes and melioration, creation of greenhouses, village/agricultural tourism for hotel construction near the city of Melnik, restoration of the medieval Kordopoulos House in Melnik, and the construction of a hotel in the Pirin Mountain close to Sandanski. Transborder Cooperation: The Struma-Strimon Euroregion The PHARE Program for Transborder Cooperation is a special instrument within PHARE oriented toward the border regions of the accession countries. The program is coordinated by the Ministry of Regional Development and Public Works. Its goal is to stimulate transborder cooperation and business cooperation in the border regions, assist in the harmonization of the

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economic and social conditions on the two sides of the external borders of the European Union, and prepare the accession countries for more active participation in the INTERREG program, which finances projects for the development of border regions of the EU member states. The concrete activities of the program include development of new border checkpoints and improving the effectiveness of the existing ones, development of joint networks for energy transfer in the border regions, and resolution of ecological problems existing on both sides of the border. Under the program, with 75 percent cofinancing from the European Union, projects are financed for reduction of administrative and institutional obstacles to the free transborder movement of people, goods, and services; improvement in the infrastructure and communications in these regions; environmental protection; economic development in the rural border regions; promotion of business cooperation among enterprises, and cooperation among organizations representing business on the two sides of the border; enhancement of investments and technology transfer; and others. The program also provides cofinancing in the amount of 75–90 percent for local economic development, including tourism, cooperation in health care, support of transborder media, cultural exchanges, and local initiatives for employment and training. In 2005 the Council on European Integration approved projects under the PHARE Program for transborder cooperation with Greece, in the amount of twenty million euros. The funds are to be used for the improvement of local transport infrastructure, in the areas of employment, social policy and education, environmental protection, improving the economic activity, and transborder cooperation at the local level.20 The physical proximity to Greece determines the future of the municipality of Sandanski as part of the Struma-Strimon Euroregion for Transborder Unification and Improvement of Transborder Cooperation between Bulgarian and Greek Municipalities along the Strimon-Struma River. This is one of three Euroregions between Bulgaria and Greece that are officially acknowledged by the Council of Europe as Euroregions, the other two being the Belasitza Euroregion, and the Nestos-Mesta Euroregion. The initiative for the creation of the Strimon-Struma Euroregion began in 2003, while the region began to actually function in 2004. The goal is to develop the Euroregion, especially after Bulgaria’s accession to the European Union in 2007, from a currently working community with limited goals (international cooperation, development of culture, and strengthening of economic cooperation) toward a more structurally integrated organization with greater general goals, such as social issues, health care, education, training, waste management, ecology and greening, tourism and leisure, transport, and cooperation in cases of natural disasters. More specifically, in the economic area the activities would include information exchange (cur-

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rently already functioning), improvement of the general investment climate, development of a transborder business index, and business cooperation and assistance to SMEs on both sides of the border. After the 2007 accession, the municipality of Sandanski will further participate in another Euroregion—“Euro Balkans,” as a transborder cooperation among the border municipalities of the Balkan countries.

NOTES 1. Northwest (districts Vidin, Vratza, and Montana), north-central (districts Veliko Tarnovo, Gabrovo, Lovech, Pleven, and Rousse), northeast (districts Dobrich, Shoumen, Varna, Razgrad, Silistra, and Targovishte), southwest (districts Sofia-City, Sofia-District, Blagoevgrad, Kjustendil, and Pernik), south-central (districts Pazardzhik, Plovdiv, Smolyan, Kardzhali, Stara Zagora, and Haskovo), and southeast (districts Bourgas, Sliven, and Yambol). 2. Regional Development Operational Programme: Social and Economic Analysis (2005): 37, 57. 3. JOBS project data. 4. Sofia Municipality is actually an administrative and territorial unit with the status of a region. It combines more than two smaller self-governance units with relative autonomy, called city districts, or rayons. 5. Based on data from Regional Statistical Office of Sofia (2001); and Sofia Municipality Market Analysis Department. 6. Biznes Vesti 19 (79) (May 13, 2005). 7. Data from Sofia City Municipality. 8. PARI Daily 23 (November 16, 2004). Interview data, Sofia City Municipality. 9. Interview with the chair of the Commission Milena Stefanova, Sofia (July 2005). 10. Launched in 1999 with initial support from the World Bank and the United Nations’ Center for Human Settlements (UN-Habitat), California, is a global alliance of cities and their development partners committed to improving living conditions in urban areas through city development strategies and, in poorer countries, urban slum upgrading. 11. Interview data, Sofia City Municipality. 12. Statistical Yearbook 2003, Territorial-Statistical Office Blagoevgrad. 13. Statistical Yearbook 2003, Territorial-Statistical Office Blagoevgrad, 67–68. 14. Blagoevgrad Statistical Yearbook 2003. 15. Interview data. 16. Interview data. 17. Interview data. 18. Municipal data; Interview with Andon Totev, mayor of Sandanski, in Sandanski: Spa and Balneology with Traditions, Alliance of Hotel, Restaurant and Tour Operators in Sandanski, 2006. 19. Data from Sandanski Municipality. 20. Sandanski Euro Info Bulletin (November 2005): 2.

9 Conclusion Europeanization of the Business-Government Relationship

EUROPEANIZATION OF THE BUSINESS-GOVERNMENT RELATIONSHIP The Bulgarian case reveals that the actual effects of EU accession on the business-government relationship in an accession country could be traced along the lines of three major developments, as already outlined in chapter 1: (1) character of the relationship—greater collaboration through endorsement of the partnership principle; (2) structure of the relationship— greater institutionalization and multilevel interaction; and (3) composition of the relationship—a notable embeddedness in organized civil society; as well as strengthening of the executive on the side of the state and consolidation of business as political organization on the side of business (see table 9.1). The Impact of Legal Approximation The legal conditionalities of accession have most seriously challenged both business and government in Bulgaria. Enormous adjustment efforts were necessary in order to bring the Bulgarian legislation, public administration and business operations in compliance with the EU common law, and create mechanisms for the proper implementation of the new regulations. The EU conditionality on accession had both indirect and direct impact on the relations between government and business. Indirectly, EU membership helps reshape the relationship’s environment (especially the business climate in the country) but it also influences, more directly, the relations 249

(1) Accession negotiations: (a) Working Groups (31) on the elaboration of negotiation positions (b) Consultative Council for (2) Conflict Legislative Initiatives at the (a) Strategic conflict over the Bulgarian Parliament timing and financing of (c) Sectoral and branch adjustment steps committees and councils for (b) Technical conflict over limited compliance with the new information flows and level of EU regulations expertise in accession (d) Regional partnerships for negotiations. adjustment to the new EU regulations (Sofia Business Council and Council on European Integration at the Sofia Municipal Council)

Multilateral and multilevel institutionalization

Multilateral and multilevel partnership

Legal Conditionalities and Harmonization

(1) Collaboration: Endorsement of the partnership principle and a model of shared social governance

Structure

Character

BUSINESS-GOVERNMENT RELATIONSHIP

Impact of EU Accession on the Business-Government Relationship

EU ACCESSION

Table 9.1.

(1) National government and business actors: (a) The Executive is the major partner on the government side during accession negotiations and legal approximation; Parliament becomes important for the harmonization of domestic legislation with the EU common law and the definition of the national interest in accession negotiations (b) Business as interest organization and political organization is the major

Multilevel embeddedness in organized civil society

Composition

(3) Joint Consultative Committee on Economic and Social Issues between the EU’s Economic and Social Committee and Bulgaria

(2) Bulgarian Economic and Social Council

(continued)

(3) EU-level actors involved (European Commission; Economic and Social Committee of the EU; EUlevel business organizations)

(2) Embeddedness of the relationship in organized civil society through expansion of the social partnership/social dialogue mechanism to also include actors from the third sector (NGOs, professional guilds, academic units, consumers)

partner and participant in accession negotiations; direct participation of individual firms is limited and refers mostly to negotiations over derogations and transition periods for specific companies

Multilateral and multilevel institutionalization

Reinforcement of the partnership principle

Financial Aid

Multilevel embeddedness in organized civil society

Composition

* (1) Partnerships on strategic (1) Joint working groups over the (1) National government and programming for utilization of preparation of all programming business actors: the executive the funds documents for the 2007–2013 and business as interest programming period organization (national and * (2) Partnerships for joint branch organizations) are the monitoring and control of the (2) Joint monitoring and control core partners funds committees over the absorption and utilization of EU funds (2) Embeddedness of the * (3) Partnerships for increasing the (Monitoring Committee on the relationship in organized civil competitiveness of the Bulgarian Implementation of the SAPARD society: other actors from economy and businesses on the Program; Committee for Monitoring the third sector are involved in EU markets: and Control over the Implementation the absorption and utilization (a) Public-private partnerships of the ISPA Program of EU funds (b) Business clusters (3) Public-private partnerships for (3) Limited involvement of EUbetter absorption of EU funds and level actors (mostly the EC) increased competitiveness (under PHARE’s Project Support for Increasing the Competitiveness of Bulgarian Enterprises)

Structure

BUSINESS-GOVERNMENT RELATIONSHIP

Character

(Continued)

EU ACCESSION

Table 9.1.

Capacity-Building

Multilateral and multilevel institutionalization

Multilevel embeddedness in organized civil society

(1) Multilevel institutions and (1) National government and structures for the preparedness business actors: of government: (a) The executive and business (a) Intergovernmental institutional as interest organization structures of association and (national and branch (2) Partnerships on building accession (EU-Bulgaria organizations) are the core capacity for efficient absorption Association Council, Association targets of capacity building and monitoring of increased Committee, and Association (b) Government provides financial support from the EU Parliamentary Committee) training to the (b) Twinning Program business community for (3) Partnerships on building capacity building capacity for participation in (2) Multilevel institutions and (c) New role of domestic EU-level institutions and structures for the preparedness of business organizations as decision-making/consultative business: facilitators of business processes (a) EU-Bulgaria Joint Consultative adaptation for EU Committee on Economic and membership Social Issues (continued)

(1) Partnerships on building capacity for the adoption, implementation, and enforcement of the acquis

Reinforcement of the partnership principle

(4) Business clusters for better absorption of EU funds and increased competitiveness (under PHARE’s Project Support for Increasing the Competitiveness of Bulgarian Enterprises)

(Continued)

EU ACCESSION

Table 9.1.

Structure (b) Training by EU-level business organizations (c) Euro-Info Centers Network (d) Joint Consultative Council and Center for Business Information at the Ministry of Economy and Energy (e) Executive Agency for the Promotion of SMEs (f) Innovation Relay Center

Character

(4) Partnerships on building capacity for achieving and maintaining national economic and business competitiveness on the European markets

BUSINESS-GOVERNMENT RELATIONSHIP

(3) Extensive and most prominent involvement of EU-level actors (a) Multilateral dialogue for capacity-building involving the European Commission, the European Parliament, the European Economic and Social Committee (b) Strengthening of transnational business organization

(2) Embeddedness of the relationship in organized civil society: business and government have to build capacity on how to communicate in a multilateral actor environment and how to address actors from the third sector

Composition

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themselves, as well as their forms and contents (Lavdas 1997). Thus, as part of the social acquis, the commission raised a special requirement toward the acceding countries, including Bulgaria, for the development of social dialogue between government, business, and labor, and the strengthening of the role of the social partners (business and labor) in the preparation for accession. Based on the 1997 Amsterdam Treaty, the commission actively promoted a new understanding of social dialogue not so much as a means for mediation and conciliation but as a new form of policy-making, as a collaborative governance mechanism. Relatedly, the European Commission began to actively encourage the involvement of the social partners in consultations over the harmonization of domestic legislation with the EU common law and in the accession negotiations. All these policies and requirements endorsed directly the partnership principle in the construction of the business-government relationship in Bulgaria, and designed its character as a clear corporatist-collaborative one. Furthermore, the high approval and support for Bulgaria’s accession to the European Union on the side of both business and government, and the pressures to meet the EU conditionalities of accession brought them together in a collaborative effort to complement each other’s expertise, resources, and potential to fulfill these requirements. The legal conditionalities increased both the informal and formal interactions between business and government, but most notably new formalized structures and institutions of interaction emerged. Thus the businessgovernment communication in the process of accession negotiations and legal approximation was structured into special consulting institutions. These were mostly the thirty-one working groups that were established in 1999 on the basis of the chapters of the EU common law as the extended team of the government for holding accession negotiations with the European Union. In addition to the working groups, other consultation and information structures were also created at the various ministries, especially the Ministry of Economy and Energy. With the goal of creating a more favorable business environment, the business-government interaction focused on the establishment of partnerships for the reduction of licensing and regulatory regimes, and the tax burden. An Interministerial Working Group for Further Improvement of the Business Climate was established in January 2000 at the Ministry of Economy, and worked in close cooperation with the business sector; in addition, a special emphasis on the business environment was located at the Council for Economic Growth. Combating the continuing existence of grey and hidden economy was another major area of collaborative efforts. Collaborative efforts also emerged in the area of judicial reform against increased judicial taxes for businesses, the inability of the court system to address properly the high inter-company indebtedness, and for the acceleration of

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civil proceedings. Partnerships were further established on increasing transparency and fight against corruption, although businesses in Bulgaria were somewhat weak to voice clearly their anticorruption position. A Consultative Civil Council at the Parliamentary Commission for Fight Against Corruption was established in December 2005, with a special emphasis on public procurement procedures. Furthermore, a special council for cooperation with employer organizations was created at the Bulgarian ombudsman to address the need to reform the Bulgarian judicial system, reduce corruption, and apply European standards for administrative services. Environmental protection was an area where a lot of financial resources were needed in order to comply with the EU regulations; it was the most expensive challenge of EU accession for business. Receiving the complex ecological permit—an Integrated Prevention and Pollution Control Permit— required a lot of financial resources for technological renovation and general adjustments. The problem was particularly huge for the big chemical and metallurgical companies, where most of the technical equipment was outdated. Adaptation was easier for the subsidiaries of foreign investors, which were able to use the financial resources of their parent companies for ecological projects. In most of the cases, the companies from these sectors responded by developing multilateral partnerships with the central government, the local governments and other important local stakeholders, and some international organizations such as the World Bank. Conflicts between government and business in regard to the legal conditionalities and harmonization requirements did emerge, and were of two general types: conflicts of interest over the substantive issues of legal harmonization, and technocratic and technical tensions. The substantive conflicts were most prominent in regard to the establishment of a favorable business environment in the country, environmental protection, health and safety at work, the introduction of the EU standardization and certification system, and the food safety and hygiene requirements. Given the non-negotiability of the EU conditionality, these conflicts were not about “whether” but about “how” and “when” to meet the EU requirements in the respective areas. The nature of accession negotiations with the European Union naturally brought into consideration the national interest rather than the particular interests of business members versus the positions of the European Union. That is, there was a general consent and understanding on both sides that adjustments had to be made in the name of future EU membership, but there were issues in terms of the timing and financing of these adjustments. Thus the postponement of some of the regulations was a hotly debated area because of the great hardship that they would impose on business, with fears for decreased competitiveness on the EU single market. For example, there was a lot of debate over the six-month postponement of the

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introduction of some of the EU standards for quality of production and animal welfare, food safety, and hygiene requirements of production—more specifically, the HACCP system. These standards became one of the biggest challenges for the smaller companies in Bulgaria, predominantly from the food-processing sector—the majority of them lacked financial resources to introduce the system into their production operations. There were also a lot of tensions and conflicts of technical character. They were mostly based on miscommunication issues, lack of information flows on the negotiated positions, and lack of endorsement of mutually agreed positions during the actual negotiations with the European Union. Tensions also arose as a result of competition in regard to who is the better expert on the issues under negotiation with the European Union. The executive and business as interest organization emerged as the major partners in the business-government interaction over legal approximation. The parliament was involved in interaction with business over legal approximation mostly in regard to its role for the definition of the national interest in the accession negotiations. Government consultations with business over Bulgaria’s negotiation positions addressed business as organizations, not as individual firms or networks. The formalized consultation process in the thirty-one working groups included the nationally representative business organizations. Individual companies were involved in the consultations only if the issues to be discussed concerned them directly. The participation of individual companies in the accession negotiations varied across sectors and was higher in specific industries, such as oil, and generally in regard to the environmental acquis. Importantly, the consultation and information structures that were created to assist the negotiation process and the legal harmonization efforts were not purely bipartite (business-government) but included other segments of civil society, especially trade unions and NGOs. This was valid for the thirty-one working groups that assisted the Bulgarian negotiation team, as well as for the numerous consultation and information bodies that were created at each ministry to assist in the preparation efforts. This model of embeddedness of the business-government interaction over accession into the broader civil society was actively promoted by the commission and stemmed from the new meaning of social dialogue as shared social governance. A new institution of interaction emerged in that regard—the Bulgarian Economic and Social Council. It was closely linked to the European Economic and Social Committee and provided national delegates to the sessions of the latter along the lines of employers (the nationally representative business organizations in the country), employees (the nationally representative labor unions), and various interests (NGOs and guilds). The business community had a major concern, however, over the embeddedness of its relationship with the government in organized civil society.

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Businesses have followed this prescribed model of interaction with the government rather reluctantly. They would prefer direct bipartite collaboration, without the involvement of larger segments of civil society. The functioning of the Economic and Social Council as a purely consultative organ, without the direct participation of the state in it is seen by business as a disadvantage that reduces the overall public impact of the business opinions sought at this forum. Another example is the Sofia Business Council, which was created to enhance Sofia’s economic competitiveness. This council had to split into two separate groups because of the refusal of the major business organizations to participate in its sessions together with representatives of other organizations, especially the academic community. The municipal authorities had to hold separate sessions and discuss one and the same issues of municipal development with two separate caucuses of the council—its purely business side, and its broader civic side. The Impact of EU Financial Aid The pre-accession financial assistance of the European Union reinforced the partnership principle between business and government for the successful monitoring and control of funds. That was especially prominent in regard to the SAPARD program, where a Monitoring Committee on the Implementation of the SAPARD program was created, with the active participation of business (a lot of representatives from the branch chambers and agricultural farmers) and other organizations of civil society. The ISPA program also had a Committee for Monitoring and Control over the implementation of the program. PHARE’s Project “Support for Increasing the Competitiveness of Bulgarian Enterprises” aimed at assisting the SMEs in the areas that were the main challenges of EU accession. A big issue was misuse of funds and corruption. The post-accession financial instruments—the EU structural funds and cohesion fund—also importantly shaped the business-government relationship even before their official launching in Bulgaria. They required a lot of adaptation and institutional developments before accession, and engaged the social partners in three major types of partnerships. First, partnerships emerged on strategic programming for utilization of the postaccession financial instruments, mostly over the development of the National Development Plan 2007–2013 and the six operational programs that were accompanying it. The working groups on the specific operational programs were formed on the basis of the partnership principle. Representatives of the state administration and the nationally representative organizations of business and other civil society groups worked together to outline the priorities and measures under each operational program before negotiations over them started with the European Commission at the end

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of 2006. Based on assessments coming from the business sector and other sectors of civil society through the working groups, each ministry had to offer strategic areas where the EU funds would be utilized. Second, partnerships have to be established for the joint management and control of the EU funds. Such partnerships, however, are in a very initial phase of formation and the state is rather reluctant to proceed with their creation. Third, partnerships are also emerging for increasing the competitiveness of the Bulgarian economy and Bulgarian businesses on the European markets. These are of two major types—public-private partnerships and business clusters. Public-private partnerships are mostly created for participation of the private sector in the development of major infrastructure projects, where their expertise and financial resources would be used. Business clusters are created for the better absorption of the EU funds and increased competitiveness of Bulgarian companies through the joint sharing of a variety of operational costs. The cluster usually would comprise not just business establishments but also important local stakeholders, especially the local government. The partnership principle was also applied in regional development. The National Strategy for Regional Development in Bulgaria in the Period 2005–2015 put an emphasis on the partnership principle through the establishment of Commissions for Economic and Social Cohesion at the planning-region level—later replaced by District Development Councils at the district level—to act as regional development advisory bodies. Broad participation of civil society, including business, was sought. Other partnerships on regional development were established, such as the District Commission on Employment and the Council for Cooperation for the implementation of the government policy on employment at the district level. The JOBS project was another partnership development aimed at boosting local employment with the help of business. Business clusters and publicprivate partnerships on regional development were further created as the major instrument for the realization of regional development projects. Overall, the EU financial instruments affected the structure of the businessgovernment relationship in a similar way as the legal conditionalities— they led to greater formalization and institutionalization of the relationship. The utilization of EU funds posed a big terminological challenge to the composition of the business-government relationship and its embeddedness in civil society. Thus distinct problems emerged in regard to the definition of “partners” for the utilization of the post-accession funds—should these partners be just business and labor, or should other organizations of civil society also receive this status? The utilization of EU funds is largely a redistributive area of business-government interaction, and the business sector was against the broadening of the scope of partners, as the latter would be the major beneficiaries under different EU programs.

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The Impact of the Capacity-Building Imperative Both business and the state administration had to create institutionaladministrative capacity for the adoption, implementation, and enforcement of the acquis, and for the efficient absorption of increased financial support from the European Union. Business and government capacity had to be also created for participation in European-level institutions and decision-making processes (for business in particular participation in the EU-level structures of social dialogue). Finally, both business and government had to develop capacity on how to achieve and maintain national economic and business competitiveness on the highly competitive European markets. Multilateral, multilevel partnerships for addressing government and business capacity-building emerged, directly involving not only business and government in Bulgaria but also EU-level institutions and actors. Extensive penetration of the business-government relations by European developments and actors was most prominent in the area of capacity-building. The public administration’s capacity was targeted through the intergovernmental institutional structures of association and accession that developed on the basis of Bulgaria’s Europe Agreement (association council, association committee, and association parliamentary committee). The European Union further provided technical assistance through the twinning program and the secondment of officials from EU member states to work in Bulgaria’s ministries and other parts of the public administration. The EU servants worked alongside their Bulgarian counterparts and taught them how to do things the EU way. The business preparedness for membership and capacity-building was addressed through the establishment of various support institutions, such as the Euro-Info Centers Network in Bulgaria as an inherent part of the European network of Euro-Info Centers. The communication strategy of the government, which served educational and training needs, was implemented on the basis of the partnership principle. A special institution—the Council on European Communication—was created for the implementation of the strategy, where business representatives also participated alongside a wide variety of other actors from the nongovernmental sphere. The government further launched a special information campaign for the preparedness of business, and set up a Joint Consultative Council for Informing the Business Community on EU accession. A Call Center on European Integration was also established at the Ministry of Economy and Energy, and later it grew into a Center for Business Information. The role of business organizations for capacity-building of their member organizations also increased. A special emphasis was put on the development of partnerships for increasing the competitiveness of Bulgarian companies on the EU market. The government Executive Agency for the Promotion of SMEs was actively in-

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volved in that direction, and a special advisory board with the participation of business was established for the promotion of SMEs and increasing their competitiveness on the domestic and European markets. The Innovation Relay Center as part of the Europe-wide network of innovation relay centers was involved in popularizing and facilitating the technological cooperation between European and Bulgarian scientific and business circles through technology and know-how transfer. The center also acts as an intermediary between Bulgarian and European organizations for the creation of joint ventures, access to financing, and others. Financial assistance from the EU funds was further provided for the achievement of European standards and certification, in particular the European CE mark. Transnational capacity-building networks further emerged, involving the Economic and Social Committee of the European Union and the EU/Bulgaria Joint Consultative Committee on Economic and Social Issues, for the development of social dialogue structures and educating the Bulgarian social partners how to participate in EU-level social dialogue after accession. The PHARE program launched a special project for strengthening the capacity of Bulgarian social partners. Business interest organizations such as ERT and UNICE, and EU-level branch organizations, also became engaged in educating and training Bulgarian businesses in that regard. Despite these efforts, issues of preparedness remained a major ongoing concern. The language barrier and access to relevant information on the European Union (general and specific) and issues of compliance with the EU regulations were numerous, especially in the food-processing sector. Issues of competitiveness were also persistent. In 2005, when Bulgaria was already at the European Union’s doorstep, only about one-third of the Bulgarian companies were in compliance with the EU requirements. The financial assistance provided by the European Union for the preparedness of business was not well utilized. The majority of companies lacked systematic strategic programming on accession and EU membership, and had not developed any concrete business strategy in regard to the challenges of EU accession. Only a few businesses had implemented aggressive growth strategies designed to develop their business either internationally or regionally within Europe. Their strategies tended to be more defensive as they were concerned about the competitive threats they perceived as linked to enlargement.

General Dynamics For Bulgaria and the other candidate countries accession evolved as a process which stretched in time with three overlapping stages: the association stage, dating from the conclusion of the “association” or “Europe” agreements, 1991–1994; the early-accession stage, beginning with the

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European Union’s commitment to expand eastwards, formalized at the Copenhagen European Council in 1993; and an accelerated-accession stage starting with the opening of accession negotiations (for Bulgaria, in 2000). The relationship between business and government varied across these stages. Thus with the advancement of the accession process in the late 1990s, the need for a new deal between government and business became more prominent. This new social contract had to incorporate the EU perspective in the business-government relationship, and acknowledge the important role that the European Union had begun to play in shaping this relationship. In September 2006, just a few months before Bulgaria’s official entry into the European Union, a special Pact on Economic and Social Development in the Period Ending 2009 was concluded between the government and the representative organizations of business and labor.1 The pact defined the principles under which the economic and social policy of the country will be formed for the period 2007–2009. It was concluded after eight months of negotiations and consultations among the social partners, and its major goal is the integration of the country in the European Union through the achievement of higher competitiveness of the Bulgarian economy, higher economic growth, and improved education and health care systems (Dzhambazova 2006). The business sector in particular was able to negotiate a reduction in the corporate tax from 15 percent to 10 percent—which is to be introduced from January 1, 2008, and will be the lowest corporate tax rate in Europe.2 The Europeanization of business-government relations has different nuances across the three EU factors—legal approximation, financial aid, and capacity-building—as these are generally different policy types, such as regulatory, distributive, and redistributive (Lowi 1964). The EU conditionalities lead to regulatory policies (such as the imposition of rules concerning pollution by government on industry), while the utilization of the financial instruments of the European Union and capacity-building are mostly linked to distributive policies (such as government contracts, etc.) and redistributive policies (such as training and education as part of the welfare policies). In each of these types of policy, the same interest (such as business) would find itself in a different web of political relationships and dealings with the government. For most of the regulatory policies (EU conditionalities), business has acted as capital and has united to defend its basic interests. Issues such as the general business climate in the country, including the level of corporate taxation and the reduction on licensing and permit regimes, as well as the high financial burden of compliance with the EU acquis have affected all companies. They have created a common business front on the issue, involving both very large and very small businesses. At the same time, as the

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Bulgarian case further reveals, when it comes to winning a contract and a project from the EU pre-accession funds, the situation would be obviously one in which it is every firm for itself. The business sector, however, has demonstrated very little interest in the utilization of the funds, mostly because of lack of awareness about them and the complicated application procedures.

LEVEL OF EFFICIENCY OF THE BUSINESS-GOVERNMENT RELATIONSHIP IN ACHIEVING THE NATIONAL GOAL OF EU ACCESSION The relationship between business and government has been an important variable in explaining economic performance and development (Maxfield and Schneider 1997). Its structure has always been considered as an important factor for the achievement of shared economic objectives (Wilson 1990) or economic performance in developing countries (Schneider and Maxfield 1997). Institutionalist analyses of development have often concluded that relations between business and government account for a large part of the variation in economic performance (Amsden 1989; Evans 1989; Doner 1991; Thorp 1991). As Schneider and Maxfield conclude, in all these development studies in various regions of the world the dependent variable changes from growth to state effectiveness to bargaining performance, but in each case relations between business and the state had a decisive impact on economic outcomes (Schneider and Maxfield 1997, 6–7). Has the business-government relationship emerged as a major domestic facilitating factor for the preparedness of a candidate country for EU accession? Has it been effective in promoting EU accession? Accession-driven institutional change in the EU-acceding countries was based on deliberately created facilitating factors because where adaptational pressures exist, significant domestic change is not an automatic consequence. European signals are usually interpreted and modified through mediating factors such as domestic traditions, institutions, identities, and resources.3 For the EU accession countries, at least three macro-facilitating factors could be identified. These are, first, a broad political and public consensus on accession; second, effective national accession strategies and institutions; and third, effective networks on accession. In that regard, the businessgovernment relationship could play an important role, provided that, first, there is a broad consensus and support for EU accession among the business community; second, business is closely integrated into the national accession strategies and institutions; and third, close business-government networks have emerged with the goal to facilitate accession. There are also micro-aspects of the relationship that can, in principle, enhance performance

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by both government and business. These mostly include information flows and trust (see figure 9.1). In terms of the first macro-facilitating factor—public consensus on accession—the process of European integration and Bulgaria’s accession to the European Union generated high support from both the political elites and the business community. As a national specifics, Bulgaria was one of the few countries of the former Eastern bloc where the accelerated accession process did not bring a nationalist boom. And yet, if there was some Euroskepticism among them, it was either in the form of Bulgaro-skepticism or Euro-fears. Bulgaro-skepticism is rooted in the low self-assessment of Bulgarians, in their lack of belief in the ability of their society as a whole to turn out to be an equal and equivalent partner of EU member states (Georgiev 2004). It is more typical for the political elites. Euro-fears can emerge on the basis of expectations (Mitev 2005). For the political elites these were predominantly nationalistic fears. The EU accession would be an unequal cultural interaction where the Bulgarian identity could hardly survive; Bulgaria as a small country would lose. For the population at large, these were predominantly economic fears. EU accession would lead to price increases while salaries and especially pensions would stay at the same level. Everyday life would become more difficult for everyday people, especially for pensioners. For the business community, the economic fears were dominant, especially in regard to the SME sector. With Bulgaria’s accession to the European Union there would be an influx of competitive European goods, and the SMEs would be in a difficult position to compete with west European firms. Increases in labor costs, costs for en-

Figure 9.1.

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vironmental protection, work conditions, and education and training were seen as major obstacles to competitiveness. The biggest fears on the business side were for a wave of bankruptcies once the country joins the European Union. There were also demographic fears on both the business and government side. Young Bulgarians would be motivated to leave the country; those who would stay would be less qualified and educated. Overall, despite the increasing awareness of the costs of accession among the political elites, for the public at large, and the business community in particular, the European perspective retained the importance of a national consensus and did not lead to Euro-skepticism as a political reality in Bulgaria. The second and the third macro-facilitating factors (that is, close integration of business into the national accession strategies and institutions, and emergence of close business-government networks with the goal to facilitate accession) were not very effective, however, as mechanisms for enhancing the national goal of EU accession. The accession-related integration institutions and networks that emerged between business and government had a rather secondary importance in that regard. In many ways these were rather shallow entities of interaction. Thus there were many issues with the meaningful inclusion of the business community in the crafting of the national accession strategies and national negotiation positions. In the course of accession negotiations, such inclusion has generally been reduced to only some negotiation chapters of the acquis. More specifically, business participation in the thirty-one working groups over accession negotiations, the Economic and Social Council, and the EUBulgaria Joint Consultative Committee on Economic and Social Issues was viewed as not so effective. The business representatives in these joint institutions complained that their positions—although actively sought by the government in response to the European Commission’s active promotion of the principle of social partnership—have not been taken into consideration, and often in the actual negotiations with the European Union the state administration would not defend the reached agreements in the working groups. The working groups were viewed as serving mainly informative functions; there were issues with the selection of their participants, the effectiveness of procedures, and many others. There was also an inadequate understanding of the importance and purpose of partnership in the planning and programming sphere. The public administration stuff frequently perceived partnership as a “necessary evil.” In terms of the micro-facilitating factors—information flows and trust— the close relations between business and government are particularly beneficial as a result of an increased flow of accurate, reliable information on both sides. When a great deal of information flows easily from business to state actors, it can significantly improve the information base that officials

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use to evaluate policy options. The timely flow of accurate and relevant information in the opposite direction, from state to business, can enhance performance on the business side (Schneider and Maxfield 1997, 9). However, in the Bulgarian case the information flows were very insufficient, and most of the business complaints and tensions with the government were rooted in the lack of information flows and miscommunication. Therefore the micro-aspects of the business-government relationship could not be regarded as a particularly efficient facilitating factor for the achievement of the national goal of EU accession. It could be concluded that the generally low efficiency of the joint integration institutions and networks, as well as the numerous issues with information flows and trust between business and government, had a generally lower impact on the achievement of EU accession as a national strategic goal. Europeanization of the business-government relationship has become a mixture of two conflicting logics: the logic of appropriateness and normdriven behavior (what is prescribed by the European Union as a desirable model of business-government interaction), and the logic of short-term tactical calculations and expected utility under varying circumstances (Goetz 2002). Double standards are, however, not unique to the EU accession process—one of the basic systemic features of the European polity as a whole is institutional hypocrisy (Iankova and Katzenstein 2003). The tensions between the logic of appropriateness and the logic of utility may often lead to the creation of relatively unstable institutions (Goetz 2002; Olsen 2002, 7), and can seriously impede the achievement of desired objectives, such as EU accession. As the Bulgarian case clearly demonstrates, the numerous institutions and networks of interaction between business and government that were created in the course of accession preparations have largely turned into institutional facades created to satisfy external expectations and demands. They performed rather “ceremonial activities” (Jacoby 1999), which did not necessarily lead to much substantive change. Among the facilitating factors, the broad public consensus on Europe that was characteristic for government, business, and the population at large, has mostly contributed to Bulgaria’s integration in the European Union. Accession was undoubtedly a highly shared objective by both governments and businesses, and a relationship that is based on such high “Europe” consensus could contribute in a positive way for the achievement of the national goal of accession to the European Union.

NOTES 1. For business in particular, these were the Bulgarian Industrial Association, the Bulgarian Chamber of Commerce and Industry, the Union for Private Economic En-

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terprise, the Vazrazhdane Union of Private Producers, the Bulgarian Industrial Capital Association, and the Confederation of Employers and Industrialists in Bulgaria. 2. “Socialnite partnjori skljuchiha primirie,” Banker 39 (September 30, 2006). 3. Risse et al. identify five such intervening factors: multiple veto points in the domestic structure, facilitating formal institutions, a country’s organizational and policy-making cultures, the differential empowerment of domestic actors, and learning (Risse et al. 2001). The mediating factors could both enable or block adaptational change.

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Index

accession negotiations, 3, 20, 21, 23, 25, 34, 50, 57, 81, 82, 84–85, 87, 91–94, 97, 100, 161, 182, 250–51, 255, 257 accession partnership agreements, 13, 15, 116 Accession Treaty of Bulgaria, 37, 79 Act on Commerce, 113 Administrative Service Act, 108 Agency for Energy Effectiveness, 86 Agency for Nuclear Regulation, 86 Agency for State Receivables, 116 Agenda 2000, 14, 33, 79 Agov, Assen, 51 Alen Mak, 91 Alfa Research, 105 Alkomet, 125 Alliance of Animal Breeders in Sandanski, 236 Alliance of Bulgarian Tour Operators, 240 Alliance of Hotel, Restaurant, and Tour Operators in the Sandanski Municipality, 236, 239, 240 American Chamber of Commerce, 113, 174 American University in Bulgaria, 226 Amsterdam Treaty, 19, 83, 255

Antonov, Arlene, 103 Armenia, 233 Aroma AD, 91 Association/Europe Agreements, 13–14, 22, 83, 261; of Bulgaria, 32, 79, 81, 142, 260 Association of Commercial Banks, 145 Association of Grain Producers, 146 Association of Industrial Capital in Bulgaria, 61, 62, 64, 74, 120, 159, 179, 180, 184, 267 Association of Meat Processors, 146 Association of Poultry Breeders in Bulgaria, 146 Association of Rubber Industry, 167 Association of Specialized Accounting Enterprises in Bulgaria, 184 Association of Swine Breeders, 146 Association of the Organizations of Bulgarian Employers (AOBE), 66, 75, 120, Association of Timber and Furniture Production, 166 Australia, 29 Bakurdjiev, Evgeni, 34 Balkan countries/Balkans, 34, 165, 247 Baltic countries, 57 283

284

Index

Bansko, 235, 236, 237 Barcelona, 230 BBSS Gallup International Bulgaria, 36, 37 Belgium, 230 Beron, Petar, 103 Berov, Ljuben: government of, 70 Blagoevgrad, 234, 235, 236, 237, 238, 241 Bourgas, 123, 177 Bozhinov, Georgi, 90 Bratislava, 192 British Embassy in Bulgaria, 164 Brussels, 62, 162, 169, 182, 190, 196 Budapest, 192 Bulgarian Academy of Sciences, 157, 186, 222 Bulgarian Agrarian People’s Party, 51 Bulgarian Agricultural Chamber, 145, 146 Bulgarian-American Enterprise Fund, 226 Bulgarian Association for Information Technologies, 89, 91 Bulgarian Association of Farmers, 145, 146 Bulgarian Association of Food and Drink Industry, 134, 135, 146 Bulgarian Association of Herbalists and Mushroom Growers, 146 Bulgarian Association of Regional Development Agencies (BARDA), 222, 236 Bulgarian Business Bloc, 32, 102 Bulgarian Business Club Vazrazhdane, 74, 78 Bulgarian Business Leaders Forum, 113 Bulgarian Business Party, 102 Bulgarian Chamber of Commerce and Industry, 59, 60, 63, 64, 65, 66, 72, 74, 78, 87, 93, 94, 96, 102, 117, 120, 143, 146, 159, 178, 179, 180, 182, 183, 210, 212, 226, 236, 239, 241, 266 Bulgarian Communist Party, 32 Bulgarian Euro-Left, 32, 33, 98 Bulgarian Industrial Association, 59,

60, 62, 64, 65, 66, 72, 74, 78, 86, 94, 96, 102, 109, 114, 115, 116, 117, 120, 123, 143, 146, 159, 167, 176, 179, 180, 181, 184, 186, 191, 194, 196, 213, 226, 266 Bulgarian Institute of Standardization, 86 Bulgarian International Business Association, 61, 62, 67, 68, 69, 70, 72, 74, 78, 87, 88, 94, 113, 117, 145, 146, 159, 167, 180, 184, 194, 232 Bulgarian Investment Agency, 159 Bulgarian Labor Code, 64 Bulgarian National-Radical Party, 32 Bulgarian Ombudsman, 119, 256 Bulgarian Parliament, 26, 32, 98–101; Commission for Fight against Corruption at the, 117, 119, 256, 150; Commission on Economic Policy at the, 65, 100; Commission on Labor and Social Policy at the, 101; Committee on European Integration at the, 98, 99, 176; Consultative Council for Legislative Initiatives at the, 250; Council on European Issues at the, 98; Standing Committee on Foreign and Integration Policy at the, 51 Bulgarian Socialist Party (BSP), 32, 35, 54, 75, 91, 99, 102, 216 Bulgarian Standardization Institute, 159, 188 Bulgarian Women’s Union, 191 Bulgaro-skepticism, 264 business climate/business environment, 11, 43, 44, 49, 55, 56, 57, 61, 62, 67, 72, 77, 93, 249; improvement of/establishment of a favorable, 25, 26, 29, 61, 63, 74, 105, 109, 207, 208, 223, 225 business clusters, 20, 27, 75, 152, 165, 166, 167, 241, 242, 243, 244, 252, 253, 259. See also clusterization business enlargement councils of ERT, 193–94

Index business-government relationship/relations, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 19, 24, 25, 26, 27, 29, 53, 71, 76, 77, 94, 106, 215, 223, 232, 250–54, 257, 258, 259, 262, 263, 264 business incubators, 165, 220, 222 Buzov, Mayor, 238 Canada, 29 capacity-building, 2, 8, 10, 12, 18, 20, 22, 24, 26, 173, 174, 182, 189, 190, 196, 242, 253, 254, 260, 262; transnational networks for, 27, 189 Center for the Study of Democracy, 117, 226 Central and Eastern Europe (CEE)/CEE countries/CEE region/CEE candidates/applicants, 2, 12, 13, 14, 15, 17, 22, 31, 56, 57, 59, 63, 87, 128, 190, 196, 222 central plan/planning, 1 Chakyrov, Dzevdzet, 90 Chamber of Electronic Industry and Informatics, 91 Chamber of Electrotechnics in Bulgaria, 89, 91 Chepelare, 166 Chernobyl, 34 China, 243 Cisco Systems Bulgaria, 226 Civil Proceedings Code, 114 Civil Service Law, 176 civil society, 21, 25, 37, 70, 82, 83, 85, 86, 95, 103, 156, 173, 175, 181, 257, 258, 259; organized, 19, 23, 24, 26, 94, 95, 157, 161, 191, 249, 251, 252, 253, 254, 257 Club “Journalists Against Corruption,” 117 clusterization/cluster approach, 152, 165, 179, 236. See also business clusters Coalition for Bulgaria, 99 Code of Conduct of Civil Servants, 116 Code of Tax Procedure, 116 collective bargaining, 64, 84

285

COMECON, 32, 40 Commercial Register Law, 109 Commission/s for Economic and Social Cohesion, 218, 259 Commission for the Coordination of the Fight against Corruption, 116 Committee for the Protection of National Interests, 32 Common Agricultural Policy (CAP), 18, 141, 151 communication strategy/strategies, 25, 26, 200; Communication Strategy for Enlargement of the EU, 174; Communication Strategy for the Preparation of Bulgaria’s Accession to the EU, 175, 180, 260, 261 Community Law on Public Contracts and Concessions, 162 Confederation of Employers and Industrialists in Bulgaria, 62, 104, 267 Confederation of Independent Trade Unions in Bulgaria, 96, 159, 191, 238, 239 Confederation of Labor Podkrepa, 96, 159, 191, 238, 239 Consultative Commission for Support of the Development of Customs Administration, 71 Consultative Council on Foreign Investment, 71, 77 Coordination Council for the Preparation of the Republic of Bulgaria for Accession to the European Union, 80 Copenhagen accession criteria, 5, 82 corruption, 6, 53, 56, 76, 258, 106, 111, 116, 118, 119, 139, 149, 150, 161, 162, 169, 174, 206, 209; anti-, 116, 191, 256; fight against, 26, 116, 117, 119, 256 Council for Economic Growth at the Council of Ministers, 71, 74, 75, 77, 91, 109, 127, 255 Council for Voluntary Certification, 71 Council on European Communication, 176

286

Index

Council on European Integration at the Council of Ministers, 80, 176 Council on Social Assistance, 73 Council on Tourism, 228, 240 currency board arrangement, 33, 37, 56 Customs Agency, 86 Cyprus, 14, 233 Czech Republic, 14, 58, 93, 122, 127, 134 Damjanitza, 243 Danev, Bozhidar, 140 Danube, 243 Delegation of the European Commission in Bulgaria, 161, 162, 167, 175, 178 Democratic Left, 98 Democratic Party, 51 democratization, 5, 13 derogations, 3, 5, 23, 85, 92, 251 Diamantopoulu, Ana, 179 Dimitrovgrad, 167 District Commission on Employment, 259 District Council for Cooperation over the Implementation of the Government Employment Policy, 259 District Development Councils, 218, 259 Dobrich, 178, 221 Dublin, 230 Dulevski, Lalko, 96 ecological permit (Integrated Prevention and Pollution Control Permit), 123, 124, 126, 256 Economic and Monetary Union, 3, 14 Economic and Social Committee of the EU, 24, 95, 157, 189, 190, 191, 251, 254, 257, 261 economic and social councils, 24, 95; Economic and Social Council of Bulgaria, 26, 95, 96, 97, 191, 251, 257, 258, 265 e-government/electronic government, 108, 109, 117

Elprom, 138 embeddedness, 19, 23, 94, 249, 250, 251, 252, 253, 254, 257, 259 entrepreneurship, 1, 54, 141, 178, 185, 230, 231 environmental protection, 21, 26, 49, 50, 105, 120, 123, 124, 145, 146, 160, 204, 205, 209, 246, 256, 264–65 Estonia, 14, 58, 169 Ethnic and Demographic Council, 71 EU-8, 57 EU-15, 29, 58 EU-25, 57 EU-Bulgaria Association Council, Association Committee, and Association Parliamentary Committee, 79, 98, 253, 260 EU common law/acquis communautaire, 3, 11, 12, 13, 14, 15, 16, 17, 19, 20, 21, 22, 23, 33, 46, 49, 81, 84, 85, 86, 97, 98, 101, 105, 107, 109, 116, 118, 129, 147, 162, 173, 178, 183, 195, 199, 205, 218, 234, 237, 250, 255, 260, 262, 265; environmental acquis, 21, 26, 34, 87, 121, 122, 204, 210, 257; social acquis, 190, 255 EU common policy/policies, 3, 19, 43, 45 EU common/single market/EU markets, 3, 13, 26, 34, 49, 50, 178, 178, 183, 184, 203, 204, 252, 254, 256, 260 EU conditionality/conditionalities, 4, 5, 8, 14, 28, 29, 249, 255, 256, 262 EU Financial Instrument for Fisheries Guidance, 17, 18, 151, 152 EU funds/financial aid/assistance/ instruments, 11, 12, 13, 16, 18, 20, 21, 22, 23, 24, 26, 80, 127, 138, 141, 153, 155, 157, 160, 165, 206, 242, 252, 253, 258, 259, 262, 264; absorption, utilization of, 20, 161, 167, 168, 169, 170, 181, 191, 231, 252, 253, 258, 259, 262; joint monitoring and control of, 20, 252; misuse of funds, 258

Index EU post-accession financial aid/instruments, 8, 20, 26, 127, 155, 156, 157, 162, 179, 258, 259 EU pre-accession financial aid/instruments, 8, 20, 26, 141, 150, 179, 206, 244, 263 EU pre-accession strategy, 15 EU single currency/euro, 3, 45 EU structural funds, 12, 13, 17, 19, 20, 21, 22, 26, 49, 62, 150, 151, 152, 154, 155, 161, 162, 167, 168, 170, 177, 179, 181, 191, 217, 231, 258 Euro-Balkans, 247 Euro-fatigue, 33 Euro-fears, 264 Euro-Info Centers, Euro-Info Centers Network, 23, 177, 178, 182, 254, 260; in Bulgaria, 26, 177, 178, 179, 202, 260 Euro-skepticism, 25, 36, 39, 50 Eurochambers/European Chambers of Commerce and Industry, 60, 196, 204, 205 European Association of Regional Development Agencies (EURADA), 222 European Bank for Reconstruction and Development (EBRD), 16, 122, 145 European CE (Conformité Européne) Mark, 187–89, 261 European Cohesion Fund/cohesion funds, 17, 19, 21, 22, 26, 49, 150, 151, 152, 154, 155, 161, 162, 167, 168, 169, 177, 181, 191, 217, 231, 258 European Constitution/constitution of the EU, 45 European Council/Council of the EU, 13, 246 European Court of Justice, 11, 13 European Fund for Agricultural Guidance and Guarantees, 17, 18, 151 European Fund for Regional Development, 17, 150, 151, 162, 218 European Parliament, 13, 175, 254

287

European Roundtable of Industrialists (ERT), 25, 27, 189, 192–94, 195, 261 European Social Fund, 17, 18, 20, 150, 151, 162 European social model, 82 Europeanization, 3, 6, 7, 16, 18, 28, 82, 178; of candidate countries, 15, 28; of member states, 15; of the business-government relationship, 2, 5, 19, 27, 215, 249, 262, 266 Executive Agency “Bulgarian Accreditation Office,” 86, 129, 188 Executive Agency “Certification and Testing,” 188 Executive Agency for Economic Analyses and Forecasts, 159 Executive Agency “Roads,” 146 Federation for Active Civil Society, 103 Federation “Land” at Podkrepa Confederation of Labor, 145 Federation of Bread Producers, 132 Federation of Consumers in Bulgaria, 191 Federation of Credit Cooperatives, 146 Federation of Foresters in Bulgaria, 146 Federation of Free Business, 103 Federation of Independent Trade Unions in Agriculture at the Confederation of Independent Trade Unions in Bulgaria, 145 Federation of the Cooperatives in Bulgaria, 191 food safety and hygiene requirements, 26, 132, 256 foreign investment, foreign direct investment, foreign companies, 38, 48, 49, 57, 58 Foundation AKSES-Sofia, 117 Foundation for the Bulgarian Entrepreneur, 226 France, 9, 10, 233 Frontier business circle, 54 Fund on Working Conditions, 64

288

Index

Ganchev, George, 102 Ganev, Ginyo, 119 General Labor Inspectorate, 111 Germany, 163, 230, 233 GIVIS, 137–38 global economy, 3 Global Steel, 124 goodness of fit, 7 Gotze Delchev, 236 Grant Scheme for Support in the Area of Public-Private Partnerships, 165 Great Britain, 103, 233 Greece, 5, 12, 58, 110, 230, 232, 233, 243, 245, 246 grey economy/grey economic activities, 25, 56, 67, 75, 110, 255 Gushterov, Dobromir, 102 HACCP (Hazard Analysis and Critical Control Points), 129, 130, 131, 132, 133, 234, 257 harmonization of EU legislation/harmonization efforts, 8, 250 Hungary, 14, 16, 58, 93, 190, 193 Hyrsev, Emil, 103 Iceland, 29 Index of Hidden Economy, 111 Innovation Fund, 149 Innovation Relay Center, 186, 254, 261 Institute for Market Economy, 55 institutional and administrative capacity, 15 institutional hypocrisy, 266 institutionalism, institutionalist approach, 3, 8 inter-company indebtedness, 255, 114, 115 International Bank for Reconstruction and Development, 56 International Chamber of Commerce, 60 international financial institutions, 15, 17 International Labor Organization, 59 International Monetary Fund (IMF), 33

International Organization of Employers, 60, 66 Ireland, 244 ISPA (Instrument for Structural Policies for Pre-Accession), 17, 21, 26, 121, 127, 141, 143, 146, 147, 149; Committee for Monitoring and Control over the Implementation of the ISPA Program, 146, 252, 258 Italy, 58, 230, 233 Japan, 9, 10, 29 Job Opportunities through Business Support Project (JOBS Project), 27, 165, 219, 220, 221, 222 joint consultative committees on economic and social issues, 22, 83, 190; Joint Consultative Committee on Economic and Social Issues between the EU’s Economic and Social Committee and Bulgaria, 190, 191, 251, 253, 261, 265 judicial reform/reform of judiciary, 26, 113 Kabil, Nihat, 134 Kalfin, Ivailo, 57 KCM smelter, 26, 124, 125, 127–29 Kirkov, Kirko, 93 Koralski, Mincho, 102 Kornai, Janos, 27 Kostov, Ivan: government of, 33, 34, 102 Kostov, Ivan, 54, 68 Kovachev, Minister, 35 Kozloduy nuclear power plant, 25, 34, 35, 36, 50 KPMG, 226 Kremikovtsi, 124, 125 Kresna, 236, 238, 239, 245 Kuneva, Meglena, 35, 70, 82, 181 labor, 9, 19, 77, 80, 82, 84, 95, 255, 259 Labor Code, 239 labor/trade unions, 24, 53, 63, 64, 83, 87, 97, 112, 117, 119, 156, 175, 186, 225, 232, 257

Index Latvia, 14, 58, 134, 169 Law on Accreditation, 180 Law on Employment, 218, 228, 238, 239 Law on Energy, 75 Law on Environmental Protection, 87 Law on Fishery and Aquacultures, 129 Law on Foodstuffs, 129, 130, 134, 135 Law on Investment Promotion, 75 Law on Lobbying, 118, 119 Law on Noise Protection in the Environment, 87 Law on People’s Health, 129 Law on Private Insurance Activity, 75 Law on Public Health, 87 Law on Public Procurement, 75, 118 Law on Regional Development, 71, 75, 177, 218 Law on the Bulgarian Standardization Institute, 180 Law on the Defense of Plants, 129 Law on the Reduction of Administrative Regulations and Administrative Control over Economic Activity, 108, 109–10 Law on Tourism, 228 Law on Veterinary-Medical Activity, 129 Law on Waste Management, 91 legal approximation/harmonization, 82, 97, 98, 105, 249, 257, 262 legal conditionalities, 8, 11, 12, 15, 16, 19, 21, 23, 25, 79, 250, 256, 259, 264 Lindner Bulgaria, 226 Lithuania, 14, 58, 169 lobbying, 69, 92, 182, 196 Lukanov, Andrej, 54 Lukoil, 92, 123 Luxembourg, 193, 230 Maastricht Treaty, 3, 13 Macedonia, 230, 232, 233, 241 management-employee buyouts, 56 Maritza-Iztok, 167 Market Link polling agency, 51 Maslarova, Emilia, 112

289

MBMD Institute for Marketing and Social Research, 36, 38 Medica AD, 238, 242 Melnik, 241 Metro Cash and Carry Bulgaria, 226 Ministry of Agriculture and Forestry, 86, 129, 135, 136, 139, 142, 143, 145, 147, 159, 179 Ministry of Culture, 159 Ministry of Defense, 86 Ministry of Economy/Ministry of Economy and Energy, 71, 85, 86, 92, 96, 107, 129, 132, 145, 147, 159, 160, 164, 166, 167, 179, 180, 185, 188, 208, 209, 210, 212, 222, 237, 242, 245, 255; Call Center on European Integration at, 180, 260; Center for Business Information at the, 181, 254, 260; Consultative Council on European Integration at the, 85; Joint Consultative Council for Informing the Business Community on EU Accession at the, 179, 254, 260; Working Group for Further Improvement of the Business Climate at the, 107, 108, 255 Ministry of Education and Science, 143, 219, 239 Ministry of Energy and Energy Resources, 86 Ministry of Environment and Waters, 86, 87, 88, 89, 91, 123, 124, 126, 127, 128, 143, 146, 147, 159, 160, 231; Consultative Council on Waste and Packaging at the, 67; Executive Agency on the Environment at the, 86, 128, 129 Ministry of Finance, 71, 75, 81, 116, 143, 145, 158, 159, 163, 166, 179, 231; Financial Intelligence Unit at the, 116 Ministry of Foreign Affairs, 70, 81, 86, 209, 231 Ministry of Healthcare, 86, 129, 135 Ministry of Interior, 75, 116; National Service for Combating Organized Crime at the, 116

290

Index

Ministry of Justice/Ministry of Justice and Legal Euro-Integration, 81, 86, 113, 116 Ministry of Labor and Social Policy, 85, 86, 96, 112, 143, 147, 159, 219 Ministry of Public Administration and Administrative Reform, 163–64 Ministry of Regional Development and Public Works, 81, 86, 143, 146, 147, 159, 164, 169, 218, 231, 245 Ministry of Tourism and Sports, 86 Ministry of Transport and Communications, 146, 147, 159 Mitova, Galina, 140 modernization, 5 Monti, Mario, 179 Movement for Rights and Freedoms, 32, 35, 54, 98, 99, 216 Multigroup, 54 multilevel governance system, 19, 24 Munnery, John, 68 National Agency for Vocational Education and Training, 71 National Alliance of Bread Bakers in Bulgaria, 239 National Alliance of Municipalities in Bulgaria, 145, 186, 217, 222 National Alliance of the Secretaries of Municipalities, 239 National Anti-Corruption Strategy, 116 National Association for Fisheries and Aquacultures in Bulgaria, 146 National Association of Horse Breeders, 146 National Association of Milk Producers, 134, 146 National Association of Rabbit Breeders, 146 National Business Development Network, 220 National Center for Public Opinion Research, 51, 101, 210 National Company “Bulgarian State Railways,” 147 National Conciliation and Arbitration Institute, 64, 71

National Consultative Council on Standardization, 188 National Council for Tripartite Cooperation, National Tripartite Council, 62, 64, 70, 72, 73, 74, 96, 97, 112 National Council on Consumer Protection, 71 National Council on Food Safety, 135 National Council on Metrology, 71 National Council on Rehabilitation and Social Integration, 73 National Council on Unemployment Protection and Employment Promotion, 73 National Council on Vocational Training, 73 National Council on Working Conditions, 73 National Development Plan (2007–2013), 153, 155, 157, 158, 159, 150, 168, 222, 258 National Employment Office/Agency, 73, 218, 219 National Health Insurance Bank, 64, 73 National Insurance Institute, 110 National Inter-Professional Organization of Foodstuffs Producers, 135 National Loan Guarantee Fund, 185 National Movement Simeon II (NDSV), 35, 54, 99, 216 National Plan for Economic Development of the Republic of Bulgaria (2000–2006), 155, 219 National Plan for the Development of Agriculture and Rural Regions, 141, 142, 143, 153, 158, 168 National Program for the Adoption of the European Common Law, Acquis Communautaire, 81, 142 National Program on Temporary Employment, 73 National Revenue Agency, 110 National Social Security Institute, 64, 73, 111 national sovereignty, 3, 36

Index National Statistical Institute, 71, 86, 145 National Strategic Plan for the Development of Fisheries and Aquacultures, 153 National Strategic Reference Framework, 153, 157 National Strategy for Regional Development in Bulgaria in the period 2005–2015, 217, 218, 259 National Strategy for the Preparation of Bulgaria for Accession to the European Union, 81 National Strategy for the Promotion of SME Development for 2002–2006, 185 National Strategy on Clusters, 166 National Strategy on the Environment, 120 National Tourism Council, 71 National Union of Agricultural Cooperatives in Bulgaria, 145, 146 National Union of Gardeners in Bulgaria, 146 National Veterinary Medicine Office, 135, 188 National Vine and Wine Chamber, 146 NATO, 37 Neftohim, 92, 123 Neikov, Ivan, 104 neocorporatism, 10 neopluralist approach, 3 Nestos-Mesta Euroregion, 246 Netherlands, 90 New Bulgarian University, 232 New Zealand, 29 Nomenklatura, 1, 54 nongovernmental organizations (NGOs), 20, 70, 73, 80, 84, 85, 86, 93, 101, 117, 119, 145, 156, 158, 159, 165, 168, 170, 174, 175, 176, 181, 186, 216, 219, 221, 225, 229, 230, 232, 240, 241, 251, 257 Norway, 29 Olimp business circle, 54 Oresharski, Plamen, 171

291

Orion business circle, 54 Ovcharov, Rumen, 90 Pact on Economic and Social Development in the Period Ending 2009, 112, 262 Pamporovo, 166 partnership principle, 19, 20, 26, 27, 142, 155, 156, 158, 167, 168, 176, 241, 249, 250, 252, 253, 258, 259, 260 Parvanov, Georgi, 35 Passi, Solomon, 35 People’s Union, 32, 98 Pernik, 167 Personal Income Tax Law, 55 Petrich, 235, 236, 237, 239, 245 PHARE/PHARE Program, 13, 15, 16, 17, 21, 22, 26, 81–82, 121, 127, 133, 141, 143, 147, 148, 149, 166, 167, 175, 177, 179, 181, 183, 189, 195, 222, 242, 244, 245, 246, 261; PHARE grant scheme “Introduction of the Cluster Approach and the Creation of a Pilot Cluster Model,” 165–66, 179; PHARE Project “Support for Increasing the Competitiveness of Bulgarian Enterprises,” 147–49, 163, 164, 183, 185, 222, 252, 253, 258; PHARE Social Dialogue Project, 191, 192 Pirdop, 125–27 Pirin, 240, 244, 245 Plovdiv, 100, 124, 125, 128, 167, 177 Poland, 14, 16, 58, 87, 93, 134, 169 policy misfits, 7 political-economic conglomerates, 25, 53, 54, 76 Portugal, 5, 12 postcommunist transformation/transition/reform, 2, 4, 5, 6, 7, 14, 28, 53, 56, 76 Plan for the Development of Sofia in 2007–2013, 231 Plan for the Development of the Municipality of Sandanski in 2007–2013, 241, 242

292

Index

Prague, 192 Preparedness/Preparation for EU accession/membership, 4, 6, 7, 8, 12, 27, 173, 179, 196, 197, 204, 206, 208, 211, 234, 235, 253, 260, 261, 263 privatization, 67, 68, 69, 73, 106, 107 Program for the Development of Agriculture and Rural Regions, 142 Program for the Elimination of Past Ecological Damage, 124 Public administration reform, 176–77 Public Administrative Register, 109 public-private partnership/s, 20, 21, 22, 26, 27, 75, 118, 126, 127, 148, 149, 152, 155, 162, 163, 164, 221, 222, 232, 242, 244, 252, 259 public procurement, 75, 117, 180, 184, 185, 237, 256 Public Register, 132 Public Servant Act, 108 Razlog, 234, 235, 236, 237 regulatory impact assessment, 75, 94, 108 Rehabilitation and Social Integration Fund, 73 reinforced pre-accession strategy, 13 rent-seeking, 11, 25, 53, 76, 118 representativeness of business organizations, 63, 64, 65, 77 Rhodopes mountains, 166 Romania, 58, 110, 193 Rousse, 167, 177, 178 Russia, 58, 233 Sandanski, 163, 178, 233, 234, 237, 239, 240, 241, 244, 245 Sandanski Business Information and Consulting Center, 234, 235, 236, 240, 241, 245 Sandanski Euro-Info Center, 235, 236, 241 Sandanski municipality, 27, 215, 232, 235, 236, 238, 243, 244 SAPARD (Special Accession Program for Agriculture and Rural

Development), 17, 21, 26, 100, 121, 127, 132, 136, 137, 138, 139, 141, 142, 143, 144, 145, 149, 150, 161, 179, 245, 258; Monitoring Committee on the Implementation of the SAPARD Program, 252, 258; SAPARD Bulgaria Agency, 143, 145, 150, 171 Saxe-Coburg, Simeon: government of, 54, 82, 102 Saxe-Coburg, Simeon, 78 Serbia/and Montenegro, 230, 233 shared social governance, 19, 20, 82, 83, 250, 257 Shell Bulgaria, 226 Shumen, 221 Silistra, 221 Slovakia, 14, 58, 169, 193 Slovenia, 14, 58 small and medium-sized enterprises (SMEs), 25, 37, 38, 43, 44, 47, 48, 50, 60, 65, 73, 148, 149, 161, 166, 167, 169, 178, 179, 183, 185, 206, 208, 222, 227, 228, 229, 230, 231, 232, 234, 235, 236, 237, 242, 245, 258, 261, 264; Advisory Board for the Promotion of SMEs, 186; Executive Agency for the Promotion of SMEs, 71, 254, 159, 185, 260 Smoljan, 166 Social and Demographic Council, 71 Social Assistance Fund, 73 Social Contract, 262 social dialogue, 19, 20, 24, 64, 73, 82, 83, 84, 91, 95, 190, 191, 251, 255, 257, 260, 261 Social Investment Fund, 64 social mandate, 66 social partners, 19, 20, 21, 24, 66, 72, 73, 82, 83, 84, 85, 86, 93, 95, 176, 191, 192, 218, 255, 258, 261; social and economic partners, 80, 85, 108, 156, 157, 159, 176, 221, 232 social partnership, 64, 72, 73, 76, 77, 82, 94, 251, 265 Sodi Devnja, 193

Index Sofia, 124, 125, 167, 177, 178, 223, 226, 233; municipality of, 27, 146, 215, 223, 224, 226, 229 Sofia Airport, 147 Sofia Business Council, 225, 228, 250, 258 Sofia City Strategy (2005–2015), 228 Sofia Municipal Council, 226, 228, 231, 250; Council on European Integration at the, 250 Sofia University, 226, 229, 230, 232 soft budget constraints, 1 Solvay, 193 Soviet bloc, 28 Spain, 5, 12, 166, 230 Spartakus, 233, 241 stakeholders, 20, 126, 156, 168, 256 Stanishev, Sergey, 89 Stara Zagora, 167, 178 State Administration Act, 108, 176 State Agency for Civic Defense, 86 State Agency on Metrology and Technical Monitoring, 86, 188, 189 State Arbitrage Act, 114 State Fund “Agriculture,” 142, 143, 145, 150, 179 State Inspection for the Protection and Control of Public Health, 240 Stomana Industry, 125 strategic programming, 20, 27, 261 Strategy for Participation of the Republic of Bulgaria in the Structural Funds and the Cohesion Fund of the European Union, 155, 158 Strategy for the Modernization of State Administration, 108 Struma-Strimon Euroregion, 245–47 Strumjani, 236, 238, 239, 245 Supreme Administrative Court, 35 Sviloza enterprise, 213 Svishtov, 213 Switzerland, 29 Synergon Holding, 226 TAIEX, 22, 177 Tallinn, 190

293

Tandem, 138 Targovishte, 100 Tax Procedure Code, 75 Tebeian, Vikran, 140 Technical University, 226 Totev, Andon, 247 transition periods (for compliance with the acquis), 23, 85, 87, 89, 91, 92, 124, 132, 251 transnational business organization, 24–25, 254 Transparency International Bulgaria, 119 Treaty of Rome, 13 tripartism/tripartite dialogue, 24, 64, 66, 73, 76, 77, 91, 95 Troyan, 166 Turkey, 29, 58 twinning, 22, 29, 121, 253, 260 Umicore Med, 26, 24, 125, 126, 127, 140 UNICE/Business Europe, the Confederation of European Business, 25, 27, 60, 63, 189, 194, 195, 214, 261 Union for Private Economic Enterprise, 60, 64, 65, 66, 87, 96, 102, 117, 120, 159, 179, 180, 184, 239, 266–67 Union Miniere, 125, 140 Union of Democratic Forces (UDF), 32, 35, 56, 98, 102 Union of Employers in Bulgaria, 61, 62, 64, 65, 67, 74, 89, 94, 102, 117, 145, 146, 159, 180, 226 Union of the Processors of Fruits and Vegetables, 133, 146 United Bulgarian Bank, 226 United Democratic Forces, 99 United Kingdom, 9, 90, 166, 230 United Nations Development Program (UNDP), 37, 164, 169, 170, 220, 226 United States, 9, 29, 103 University for National and World Economy, 226 University of Architecture, Civil Engineering and Geodesy, 226

294

Index

USAID, 174 US Meds Bulgaria, 226 Varna, 138, 177 Vasilev, Nikolaj, 171 Vazrazhdane Union of Private Producers, 61, 64, 65, 66, 78, 87, 96, 102, 120, 145, 146, 159, 179, 180, 239, 267 Videnov, Zhan: government of, 54, 102 Vidin, 177, 221 Viohalko-Sofia Med, 125 Vitosha Research, 113 Vocational Training and Unemployment Fund, 73 Volta company, 167 Vratsa, 178, 183 Vytev, Kiril, 140

Warsaw, 190, 192 WEEE, 90 whitening of business, 26, 110, 111 White Paper on the Single Market, 13 winners and losers of EU accession/integration, 42, 45, 47 Work Conditions Fund, 73 World Bank, 17, 56, 122, 125, 145, 247, 256 World Business Capital, 226 World Environment Center, 60 World Trade Center, 60 Yambol, 178 Zebra company, 167 Zhivkov era, 54 Zlatitsa, 125–27