Note: Czechoslovakia divided to become The Czech Republic and Slovakia in January 1993.
By Mark J. Mowrey
The Czech and Slovak Federal Republic (CSFR) will remain one of the leading Central and Eastern European success stories. Though 1991 brought a series of problems for the Czechoslovak economy, the country made an auspicious start on its economic reforms. Dramatic improvement in U.S.-CSFR economic relations and Czechoslovakia's progress in reforming its economy hold out bright prospects for future bilateral trade.
U.S. exports 1991--$124 million U.S. imports 1991--$144 million
To be sure, the CSFR will remain for a time in the throes of a deep recession. Gross domestic product (GDP) declined more than 16 percent during 1991, largely due to the near collapse of trade with its traditional trading partners in the former COMECON, and may decline another 5-6 percent in 1992. Unemployment has reached 6.6 percent and likely will rise further. The CSFR found it lost its source of cheap Soviet energy and that many of its manufactured exports were not immediately transferable to Western markets.
Nonetheless, Czechoslovakia emerged from 1991 with a number of strengths. The country maintains a relatively modest external debt. Governmental reforms have freed 95 percent of prices from administrative control. Inflation, which surged in the first half of 1991, dropped to a near zero monthly rate by year-end. The authorities devalued the crown only once in the beginning of 1991 as they made the currency internally convertible. Moreover, the CSFR made impressive gains in trade with the West as it sought to replace the COMECON market.
The CSFR reforms have already markedly improved the business climate. All registered companies may engage in foreign trade without facing administrative barriers to obtaining hard currency for trading purposes. In the investment area, the government has simplified procedures for establishing new wholly-owned firms or joint ventures and has guaranteed profit repatriation in most instances. A new commercial code came into effect on Jan. 1, 1992, and a completely new tax system incorporating an EC-style value added tax should come into effect in 1993. A U.S.-Czechoslovakia double-taxation treaty should also come into force at the same time.
The great drama of 1992, however, is the CSFR's attempt to quickly privatize a large portion of the economy. Privatization of small firms began in January 1991, with some 25,000 privatized to date; privatization of the first wave of over 2,000 large state-owned enterprises began late last year. This, along with a second wave of privatizations this May, will give foreigners opportunities to invest in a variety of Czechoslovak firms.
As restructuring and modernization proceed, import needs will grow, offering new opportunities for American exporters.
Bilateral U.S.-CSFR economic relations continue to improve. Restoration of Most Favored Nation (MFN) treatment in 1990 was followed by a 51 percent increase in 1991 trade over 1990. The two sides signed a bilateral investment treaty in October 1991, which should be ratified this year. The number of American businesses with offices or representation in the CSFR has climbed past 200, and an American Chamber of Commerce was launched in February. Several U.S. government programs are now fully operational in the CSFR, including the Export-Import Bank, the Overseas Private Investment Corporation, and the Trade and Development Program. The Czech and Slovak American Enterprise Fund has begun approving projects designed to assist in the development of the Czechoslovak private sector.
Despite limits to hard currency reserves, American goods are in strong demand. The best prospects include: computers (hardware and software), pollution control equipment, telecommunications equipment and services, electrical power systems, information services, management consulting services, financial services, travel and tourism services, aircraft, medical equipment, and food processing and packaging equipment.
The Department of Commerce sponsors a number of trade promotion events each year. In 1992, events will feature capital goods, maritime services, industrial equipment, food processing and packaging technology, and energy efficiency technology.
For further information about the above shows, and on doing business in Czechoslovakia, contact the Commerce Department's Eastern Europe Business Information Center at (202) 482-2645.
Source: International Trade Administration, Business America Magazine