The countries of CEE are in varying stages of economic development and doing business there still involves the risks associated with most emerging markets. However, economic reforms, export growth to the EU and strong domestic demand across the region buoyed by foreign investment is driving economic progress, making these markets increasingly attractive for US exports and investment.

Today, all but three CEE countries are members of the World Trade Organization (WTO). As members, they subscribe to the basic principles of the international trading system. For the past several years, due to global and regional integration, optimism about the future direction of CEE markets has been increasing, presenting US companies with both new opportunities as well as new challenges.

If your strategic business interests include international expansion, consider the following about CEE.

• Large Market Size / Geographic Location
• Comparatively High Rates of Economic Growth
• Increases in Foreign Direct Investment (FDI) / Privatization Opportunities
• Currencies Pegged or Loosely Aligned with the Euro
• EU Accession / Standardization of Laws and Regulations
• Comparatively Higher Rates of Return on Investments

Large Market Size / Geographic Location
The countries of CEE encompass a total population of 128.3 million people. Yet, a large gap exists in the GDP per capita among CEE countries, ranging from the Slovenia's $9,107 per capita at the highest end of the spectrum to the Federal Yugoslav Republic of Serbia and Montenegro's $942 per capita in 2000. Poland, the largest country in CEE, has a GDP per capita of $4,430, totaling $171 billion in overall GDP.

Besides the WTO, trade among CEE countries has been further energized through the multilateral Central European Free Trade Agreement (CEFTA). The seven CEE countries that are party to this agreement have liberalized their trade regime for nearly all industrial products, eliminating barriers and tariffs to goods originating in other CEFTA member countries. To learn more about CEFTA, visit CEEBICNet at www.mac.doc.gov/Ceebic/tradeagreements.htm.

CEE also acts as a natural crossroad between Western Europe, Russia and the Newly Independent States (NIS), and Turkey. Russia and the NIS represent the fastest growing region in the world with an average aggregate GDP growth of 5.5%. Nevertheless, Germany is the principal trade partner with many CEE countries, and it is estimated that over 70% of exports from CEE countries are to the EU. Currently, Croatia, FYR Macedonia, and the 10 European Union candidate countries in CEE enjoy duty-free access for a majority of goods to the EU -- one of the largest markets in the world, consisting of 375 million people and a combined GDP of over $7 trillion.

Importance for US Businesses: CEE's emerging markets are difficult to neglect. Geographically situated adjacent to large dynamic markets and enjoying special trade privileges with those countries, CEE is well-positioned and has considerable commercial potential.

Comparatively High Rates of Economic Growth
In recent years, with the exception of Russia and the NIS, the countries of CEE have registered higher rates of growth than any other region in the world. Despite the international economic slump, the CEE region as a whole recorded its third successive year of positive growth in 2001. This year GDP growth rates are expected to remain comparatively strong, with Southeast Europe for the first time outpacing Central Europe and the Baltics at 4.0% and 2.7% respectively, due in large part to the recovery effort in Yugoslavia.

The European Commission estimates that enlargement could increase the GDP growth of the EU acceding countries between 1.3 - 2.1 percentage points annually. Many expect that the EU accession will stimulate dynamic long-term growth in CEE countries, similar to the results witnessed in Ireland, Portugal and Spain after accession.

Importance for US Businesses: This indicates a flux of business activity, presenting a market ripe with commercial opportunities. These high rates of growth give further impetus to optimism, which also fosters competition as firms try to "cash in" on budding opportunities.

Increases in Foreign Direct Investment (FDI) / Privatization Opportunities
Though small in comparison to developed countries, CEE has seen significant growth during its short history of foreign investment. Many multinational firms continue to invest in capital equipment and acquire assets through privatization. From 1997 to 2000, the region altogether averaged about 9% growth in FDI each year, reaching over $27 billion in 2000. Increasingly, foreign investments are in efficiency-producing capital equipment, rather than equity. These investments, in turn, are boosting domestic demand, spurring both industrial and household consumption.

In addition, many countries in CEE have improved their external debt positions, and as of February 2002, Fitch, Moody's, and Standard & Poor's have upgraded the international credit ratings of 10 of the 15 countries of CEE. Eight of these ten have received investment grade ratings.

Importance for US Businesses: Investor confidence in the region is growing. Investors seeking comparatively higher returns on investment are turning to CEE in greater numbers, especially as these countries continue reforms establishing an environment friendly to foreign investment.

Much of the volume of FDI in this region is due to the privatization of state-owned assets. There are also many opportunities to establish partnerships and joint ventures with local firms across the entire region. In addition, in Southeast Europe billions of dollars will be spent on large-scale development projects funded by governments and multilateral development banks.

US firms are well positioned and qualified to meet these demands for capital, goods and services. CEEBIC frequently publishes information about government tenders and joint venture opportunities on CEEBICNet at www.mac.doc.gov/ceebic/partcust.htm.

Currencies Pegged or Loosely Aligned with the Euro
Over the past several years, there has been a dramatic jump in trade between the European Union and candidate countries. To eliminate costly exchange rate risks, most EU accession countries are either "pegging" their currencies to the Euro or floating their currency but in close alignment with the Euro. Montenegro, the smaller republic of FR Yugoslavia, and Kosovo have even adopted the Euro as their currency. According to economic experts, pegging to Euro should reduce currency volatility when done in tandem with fiscal and monetary measures.

Importance for US Businesses: US businesses can expect more predictability in preparing and implementing longer-term strategies, and eventually exchange rate risk with accession countries will mimic the currency relationship between the US dollar and the Euro. Since its introduction at the beginning of 2002, the Euro's value vis-à-vis the US dollar has fluctuated from $.83 to $1.05.

EU Accession / Standardization of Laws and Regulations
Ten countries in CEE are negotiating to enter the European Union. They include: Poland, Hungary, the Czech Republic, Slovakia, Slovenia, Estonia, Latvia, Lithuania, Bulgaria and Romania. In addition, Croatia and FYR Macedonia have signed Stabilization and Association Agreements with the EU. The former group is required to adopt the "acquis communautaire," the common body of law in the European Union. The process of adopting the acquis is ongoing. It is expected to make the rules for doing business more homogenous throughout the region and to help liberalize and open these markets.

Importance for US Businesses: This homogenization greatly simplifies the export of products across the borders of CEE countries. No longer will the customs regulations and standards vary for product labeling, safety and inspection, etc. Also, tariff regimes across the accession countries will become uniform, eventually reflecting the U.S.'s trade relationship with the whole of the EU. In terms of investment, many US companies have already established production operations within CEE in order to benefit from duty free access to the EU market.

Although clearly beneficial in the long run, EU accession also poses its own difficulties for US businesses in the interim period until EU accession criteria are implemented. For instance, US exporters face difficulty with European competition in these markets due to preferential duty treatment for EU-originated goods.

For a comprehensive account of the impact of EU accession on US commercial interests, visit CEEBICNet's "EU Accession" webpage, www.mac.doc.gov/ceebic/euAccession.htm.

Comparatively Higher Rates of Return on Investments
One of the greatest challenges of EU accession lies with the companies of CEE. These companies must transform themselves into world-class competitors to enter the competitive and heavily regulated EU market.

As a result of capital investment to meet market demands, labor productivity is increasing by double-digit rates. In sectors like financial services, automotive parts and production, and consumer goods, there have been sizable rates of return. For example, according to PlanEcon, Inc., revenue growth by financial service firms rose exponentially in the 1990s.

In addition, due to declining interest rates in EU candidate countries, there has been an expansion in mortgage markets, boosting the residential and commercial construction sector.

Significant opportunities also exist in information technology, power generation and distribution, and environmental technology.

Importance for US Businesses: Key sectors are witnessing dramatic development. US companies in these sectors are finding considerable opportunities for exports, investment, technical services and technology transfer arrangements.

Central and Eastern Europe's large market size; strategic geographic location; high rates of FDI and GDP growth; and general commitment to economic reform, liberalization, and currency stabilization are making the region a more attractive place to do business.

Due to the broad diversity of business climates in the region, country specific factors will always weigh heavily into any decisions regarding prospective ventures in CEE. That's why CEEBIC is an important link to CEE. CEEBIC's international trade specialists provide the trade and investment leads to target business opportunities and the country-specific counseling to make it a reality.