Commission Report (2002): Poland

• Progress since the last Regular Report
• Overall assessment
• Conclusion

Chapter 15: Industrial policy

Progress since the last Regular Report

Poland has made some further progress in developing its industrial policy. Following the change in administration there has been a flurry of activity with regard to the definition of industrial policy. There have also been legislative developments in respect of the restructuring process. The advancement of the restructuring process and privatisation on the ground has been rather more varied, with a slow down in particular in privatisation.

With regard to Poland's industrial strategy, a number of new initiatives and strategies have been adopted. In January 2002, the government adopted a medium-term strategy 2002--2005 (``Entrepreneurship -- Development -- Labour'') to revive the Polish economy and to restore rapid economic growth. One of the pillars of this strategy is the ``Entrepreneurship First'' programme, whose main focus is the business environment and SMEs (see Chapter 16 -- Small and medium-sized enterprises) It envisages the introduction of a number of changes designed to simplify and streamline the tax system, to simplify the social insurance system, to make labour market regulation less onerous for companies, to improve the administration of justice and to ease the burden of administrative obligations on companies.

The strategy document also signalled the Government's intention to reinforce investment promotion. Subsequently a law on financial support to investment was adopted, in March 2002 with the aim of increasing investment by both domestic and foreign investors (see Chapter 6 ­ Competition policy).

Such an initiative is particularly important at a time when foreign direct investment flows declined in 2001. Foreign direct investment, while still higher than in any other candidate countries in absolute terms, is relatively low in per capita terms compared with some other countries of the region. (see Section B.1.2. -- Economic criteria).

The latest initiative is the ``anti-crisis programme'' adopted in July 2002 which aims at reducing unemployment and boosting economic growth. The programme contains legislative and financial measures including the cancellation of certain public debts of enterprises, introducing tax relief for banks which assist in restructuring and tax credits, the simplification of the bankruptcy procedure and the strengthening of credit institutions. (see Chapter 16 ­ Small and medium-sized enterprises). In particular, measures on debt reduction for large, often state owned, companies which are considered important in terms of the employment they generate could have significant implications for State Aid (see Chapter 6 ­ Competition policy).

With respect to restructuring and privatisation, there have been developments in a number of sectors, although the pace of progress on the ground remains slow. The steel restructuring law came into force in October 2001. Related secondary legislation has also been adopted. A revised national steel restructuring plan was adopted in March 2002. The plan assumes faster consolidation and restructuring of the sector before privatisation, as well as the rescheduling of the debts of Polish steelworks. One of the pillars of the plan is the creation of Polski Huty Stali SA, a holding company that will take over the shares of the four largest Polish steel companies. The holding company has already been established. The plan assumes involvement of strategic investors in the privatisation process. The national plan, along with individual viability plans foreseen under the steel restructuring law, forms the basis of Poland's efforts to fulfil its obligations under the Europe Agreement as concerns state aid in the sector. In the light of analysis carried out, both the national and and the individual plans are under revision with a view to ensuring that these obligations can be met.

Restructuring of the coal sector has continued. Further reductions have been made in production capacity and employment but at a slower pace than in the previous year. In the Chemicals sector a new strategy for the sector until 2010 has been adopted.

Overall, the pace of privatisation has slowed. The number of privatisation transactions decreased from 259 in 2000 to 137 in 2001. Privatisation revenues amounted to PLN 6.8 bn (EUR 1.85 bn) in 2001 and were lower than projected, in contrast to 2000, when the reported budget receipts from privatisation transactions amounted to PLN 27.2 bn (EUR 6.76 bn) and exceeded the budget assumptions. The slower pace partly reflected the fact that most of the attractive assets had already been privatised, and that those remaining were less easy to privatise.

In addition, there has been a shift in this aspect of industrial policy during the past year. The current Government has focused on consolidating state companies in different sectors (the power industry, energy distribution, petrochemicals, heavy chemicals, sugar and steel) before privatising them. This shift has created some delays in the privatisation process.

With regard to the regulatory environment the adoption of industrial product legislation to transpose the acquis has made progress (see Chapter 1 -- Free movement of goods). However, this had no immediate effect for industry as the entry into force has been postponed. Polish producers continued to suffer heavy administrative burdens, since they had to produce according to two different rules for the national and EC market.

Overall assessment

The main objective of Polish industrial policy continues to be to create an appropriate environment for the development of industrial operators, to promote innovation, to improve the competitiveness of industry, and to facilitate and encourage its adaptation to the business environment and industrial structures in the EU. The basic legal framework for business activity is in place and the private sector has developed well. Some issues still need to be resolved, notably property rights to real estate are still unsatisfactory. There should also be further efforts to implement the legislation in a more consistent and transparent manner. Activities to promote innovation need to be reinforced.

Although Poland is well advanced in its programme of privatisation, the State continues to own a dominant stake in a number of Polish companies in sectors such as steel, energy, gas, petrochemicals, heavy chemicals, air transport, railways, spirits, sugar and the armaments industry. The aim of the Government, as presented in the medium-term strategy, is to complete ownership transformation by 2005, when Poland should reach an ownership structure similar to that of EU countries, i.e. where the value of state assets represents 10--15% of GDP, compared with 32--34% at present. To date the number of State owned companies (not including companies owned by regions or local communities) has been reduced from about 8 400 in 1990 to about 2 000 in 2002. Considerable efforts must still be made, most notably with regard to steel and other heavy industries, such as coal, chemicals and the armaments industry.

The Ministry of Economy is responsible for industrial and SME policy and its co-ordination. The policy is developed in an integrated manner with the involvement of other ministries that take part in the policy-making process. Poland has the necessary key implementing agencies in this area at national and regional level, with the exception of an export promotion agency, which is to be established as of January 2003

It should be noted that an important element of any industrial policy is the control of state aid and the compatibility of support schemes with EU rules, which will have to be examined (see Chapter 6 -- Competition policy).

Conclusion

In its 1997 Opinion the Commission concluded that the key challenge Poland faced under this chapter was to restructure its traditional industries.

Since the Opinion, good progress has been made in developing industrial policy, and restructuring is underway. Poland has achieved a high degree of alignment with the acquis and administrative capacity is at a simpler level. Poland's policy towards industry generally complies with the concepts and principles of EC industrial policy, i.e. it is market-based, stable and predictable.

Negotiations on this chapter have been provisionally closed. Poland has not requested any transitional arrangements under this chapter. Poland is generally meeting the commitments agreed in the negotiations in this field.

In order to complete preparations for membership, Poland's efforts now need to focus on seeing through the restructuring process, notably with respect to steel and other traditional industries, completing alignment with the acquis and more broadly ensuring that a stable transparent environment, for businesses and particularly investors is maintained and enhanced. Great care will have to be taken that the policy of restructuring is implemented in a manner which conforms to the competition and state aid acquis so as to create efficient competitive firms.

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