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Business crippled by poor legislation

Foreigner investors say they are discouraged from doing business in Slovakia by confusing and ambiguous legislation.
But they admit that the strain the country's race for EU membership has put on legislative procedures has been inevitable.
"Some legislation is put together in haste, and sometimes different parts of the same legislation are contradictory. We often have to seek clarification to know how to act in such situations. This shouldn't be the case," said George Varmuza, managing director of the car parts producer Emerson Central Europe which has a facility in western Slovakia's Nové Mesto nad Váhom.


"Some legislation is put together in haste, and sometimes different parts of the same legislation are contradictory. We often have to seek clarification to know how to act in such situations."

George Varmuza, Emerson Central Europe


Foreigner investors say they are discouraged from doing business in Slovakia by confusing and ambiguous legislation.

But they admit that the strain the country's race for EU membership has put on legislative procedures has been inevitable.

"Some legislation is put together in haste, and sometimes different parts of the same legislation are contradictory. We often have to seek clarification to know how to act in such situations. This shouldn't be the case," said George Varmuza, managing director of the car parts producer Emerson Central Europe which has a facility in western Slovakia's Nové Mesto nad Váhom.

As an example of such ambiguity, Varmuza presented participants at an October 25 investment conference in Bratislava with a sample of a new Customs Law that has been effective as of summer this year.

He said that one sentence in the law declared that there were situations in which the customs rules might not apply, without specifying which situations it was referring to.

"This makes for a very vague read, and the only way out of it is just to pay customs all the time." Varmuza said.

Another example of legal ambiguity, Varmuza said, could be found in the new Labour Code which is to take effect in April next year.

The problem in the Code, according to Varmuza, lay with the employee councils which had to be created in companies with more than 20 employees if no union organisation existed. Unlike union bodies, however, these employee councils have few rights to negotiate with employees.

"Some parts of the law put employee councils and union organisations on an equal footing. The legal difference between the two is not stated clearly, and some of our lawyers are guessing that the employee councils will have the right to negotiate," Varmuza said.

Other investors and analysts speaking at the one-day meet said ambiguities could also be found in legislation on income tax provisions and investments in the public interest.

In response to the complaints, government officials speaking at the conference said they did not have as much time as they needed for making changes to legislation because of the government's ambitious plan to join the EU along with Hungary, Poland and the Czech Republic by 2004.

"I don't think that we are making haste at the expense of quality. But if we had more time, our legislation would be one step better. However, any shortcomings in legislation should be fixed," said the Finance Minister, Brigita Schmögnerová.

Slovakia, like other candidate countries, is required to bring its legislation into line with the EU in 29 areas before it is allowed to enter, but only started the process of change in 2000, almost two years after its regional neighbours.

The nation has nevertheless already closed 20 out of 29 legislative 'chapters' and caught up with its peers, even overtaking Poland which has closed 18 chapters. Slovakia has won international praise for its efforts to erase its handicap.

Statistics show that between October 1998 and August 2001, parliament approved 221 laws. Eighty-two laws in this period were approved in accelerated legislative proceedings, meaning that less time than usual was allotted for parliamentary and committee debate of the fine points of each law.

"When legislation is approved in accelerated parliamentary procedures, one almost always has a guarantee that it is not discussed with representatives of the people or groups who will be affected by it," cautioned Marek Jakoby, an analyst with the Mesa 10 thinktank.

Other foreign investors agreed that ambiguous legislation was a major drawback of a necessarily fast drafting process, but argued there was little the government could do.

"Investors are questioning why the government is drafting laws quickly, but if the country wants to enter the EU in three years' time, is there any alternative?" asked Ton Verbraeken, senior tax manager with the KPMG international auditing and advisory firm.

He added: "This haste can be seen in other countries asking for EU membership."

However, Jakoby said that Slovakia's position is different from that of Hungary, Poland and the Czech Republic.

"These countries have investment agencies which can help foreign investors with legislation and advise them what to do. But Slovakia has just lost its Sario investment agency which was supposed to offer these kinds of services, and at the moment no government agency can assist investors when they have difficulties with ambiguous legislation. This puts Slovakia in a less favourable position than neighbouring countries," he said.

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