Commission Report (2002): Czech Republic

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

Chapter 15: Industrial policy

Progress since the last Regular Report

Since the last Regular Report, some progress has been made in the field of industrial policy, in particular as regards restructuring and privatisation.

In the area of industrial strategy, the Czech Republic has mainly focused on the implementation of the Sector Operational Programme Industry (SOP Industry), which has been drawn up for the period 2001 -- 2006. Projects in the framework of the SOP Industry focus mainly on supporting the competitiveness of Czech industry and preparing it for the use of Structural Funds. In 2001 a total of ten support projects were launched in the framework of the SOP Industry, mainly to reinforce the performance of manufacturing industry and industrial services, and in 2002 six new projects have been launched. The SOP Industry is currently being updated with a view to appointing executive and financing bodies for future use of Structural Funds and the Cohesion Fund.

With regard to investment promotion, an amendment to the Act on Investment Incentives was adopted and entered into force in January 2002. It is designed to improve the existing system and establish more transparent conditions for granting incentives. The amendment aims to improve supervision of the fulfilment of general terms by individual recipients of incentives. The Czech Republic continues to attract a high level of FDI (EUR 5.5 bn or 8,7 % of GDP in 2001 and EUR 6 bn in the first half of 2002, with high shares in the transport and communication sectors). The investment promotion agency CzechInvest completed 25 projects in the first half of 2002, of which 15 in the automotive sector.

As regards privatisation and restructuring, agreement was reached in June 2002 to sell Nova Hut, the largest state owned steel works. Privatisation is expected to be completed by end-2002, and restructuring of the company will take place over the coming years in the framework of the Government's overall strategy for the future of the steel sector. In the same month, the Czech Republic formally requested an extension of the period during which state aid may be granted for restructuring of the steel sector under the Europe Agreement.

The Czech Consolidation Agency, which manages state property, including restructuring of state-owned commercial enterprises and the management of claims, has been able to accelerate the disposal of its assets thanks to a government resolution of October 2001. The resolution established an implementing body for company-restructuring (the Czech Government Council -- Investment Council), which is composed of representatives of ministries, trade unions, as well as the Consolidation Agency, and the National Property Fund. It also introduced two programmes (``Exit'' and ``Balance'') aimed at stabilising and reviving selected industrial plants through divestment of selected assets on the one hand and financial restructuring on the other. The programmes are only applicable to companies in which the state has a direct capital or loan engagement and which are either in the portfolio of assets of the Czech Consolidation Agency, or will be transferred into it by a further government resolution. So far, the Council has recommended nine companies for inclusion in the programmes.

Further progress has been achieved regarding privatisation. Since the last Regular Report, the government has taken decisions on the privatisation of the monopoly gas importer Transgas, the chemical holding Unipetrol, the steel producer Nova Hut and the telecommunication provider Cesky Telecom. The share of GDP produced in the private sector was 79,8 % in 2001 (compared with 74,7 % in 1997).

Overall assessment

The political, legal and administrative frameworks for facilitating industrial restructuring and improving the competitiveness of Czech industry are in place. The positive performance of government agencies promoting commercial activities (CzechInvest and CzechTrade) is continuing. Administrative capacities in the field of industrial policy are satisfactory.

The Czech Republic is expected to speed up its restructuring process and to continue to apply the principles of the EC's industrial policy, in particular in the steel sector. Particular attention needs to be paid to ensuring that privatisation and restructuring are carried out in compliance with state aid rules (see Chapter 6 `` Competition). Further efforts should be made to improve the business environment (see Chapter 16 `` Small and medium-sized enterprises).

Conclusion

In its 1997 Opinion, the Commission concluded that most sectors of Czech industry should face no major problems in integrating into the enlarged EU market in the medium term, provided that efforts in restructuring and modernisation were continued, and reinforced in the case of heavy industries. Efforts to enhance and maintain competitiveness would be needed in the long term.

Since the Opinion, the Czech Republic has made good progress in most areas, in particular the completion of privatisation of most sectors, and continuing attraction of a high level of foreign direct investment. Overall, the Czech Republic's policy towards industry generally complies with the principles of EC industrial policy, i.e. it is market-based, stable and predictable. The institutional structures operating in the area of industrial policy work well.

Negotiations on this chapter have been provisionally closed. The Czech Republic has not requested any transitional arrangements in this area. The Czech Republic is generally meeting the commitments it has made in the accession negotiations in this field.

In order to complete preparations for membership, the Czech Republic`s efforts now need to focus on speeding up completion of restructuring of the remaining heavy industries -- in particular the steel industry -- and ensuring their capacity to compete on the enlarged Single Market. 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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