VII. INVESTMENT CLIMATE Openness to Foreign Investment The Greek Government encourages private foreign investment as a matter of policy, and, in general, foreign and domestic investors are treated the same. Investments are screened only when the investor wants to take advantage of tax and investment incentives. In that case, foreign and domestic investors face the same screening criteria. One hundred percent foreign ownership is permitted in sectors open to private investments, except where prohibited for national security purposes. The Greek State restricts foreign and domestic private investment in airlines and the public utilities. Greece is a member of the EU as of January 1, 1981. U.S. and other non-EU investors receive less advantageous treatment than domestic or EU investors in: (1) the mineral sector, (2) banking, where only 40 percent of the shares of Greek state banks may be purchased, and (3) land purchases in border areas. EU regulations govern import and export policy and, increasingly, many other aspects related to investment in Greece. Major investment laws are: -- Legislative Decree 2687 of 1953, in conjunction with Article 112 of the Constitution, affords property rights, preferential tax treatment, the issuance of work permits for foreign managerial and technical staff, and the export of capital, dividends, interest, and other current payments, to approved foreign "productive investments". -- Law 1892/1990 re-establishes the investment incentives regime from a grant-based to a tax-based one. Other provisions relax labor market rigidities, reduce the role of the public sector, establish procedures for selling state-controlled companies, and improve public administration. Modifications to the incentives legislation have been recently tabled to the Greek Parliament, pending discussion. The emphasis of the new legislation is on the assistance for larger projects and on the development of new products. Foreign investments offering new know-how will get preferential treatment. Greek investments throughout the Balkans will be subsidized. -- Laws 89/1967, 378/1968 and 814/1978 provide special benefits (such as tax and import duty exemptions) for offshore operations of foreign companies established in Greece. -- Law 468/1976 governs oil exploration and development in Greece. A new draft bill is being prepared to amend previous legislation and allow private participation in oil exploration and development. Foreign investors are welcome to participate in Greece's program to sell minority stakes in state-owned enterprises. There is also a privatization program for industrial operations. There are no restrictions as to what stage they can enter the program. U.S. and other foreign firms may participate in government financed and/or subsidized research and development programs. Foreign investors do not face discriminatory or other inhibiting requirements. However, many potential and actual investors complain that the complexity of Greek regulations, the need to deal with many layers of bureaucracy, and the involvement of various government agencies tends, in practice, to discourage investor interest. Incentives are provided equally for both foreign and domestic productive investments. The incentives are provided on a rising scale based on the level of development in a particular area. More generous incentives are offered in the less developed regions. Incentives are in the form of (1) investment grants, (2) interest rate subsidies, (3) tax allowances, (4) reduced tax rates, and (5) accelerated depreciation. Transfer Policies Receipts from productive investments can be repatriated freely at market exchange rates. Previously, Greece had extensive currency controls. All currency control restrictions for investment purposes have been lifted in the last two years. Remittance of investment returns is made without delays or limitations. There has been no case of liquidation of a foreign investment made under the previous controlled regime to observe how the proceeds of the liquidation will be treated by the Greek State. Despite recent liberalization, Greece retains a "crawling-peg" system for fixing the value of the currency. There are informal mechanisms available to the Bank of Greece to help determine the currency's value. As Greece's inflation is well above that of its principal trading partners (more than treble the EU average), the Bank of Greece (central bank) allows the drachma to gradually depreciate against the currencies of the other EU members, especially the German mark. There has been pressure for more rapid depreciation or even devaluation of the drachma, but the government has so far ruled out both. According to government plans, the Greek currency will be allowed to slide 8 percent this year against all currencies. Expropriation and Compensation Private property may be expropriated for public purposes, but only in a nondiscriminatory manner and in accordance with international law. There must be due process and transparency in the process. Investors and lenders receive compensation in accordance with international norms. There have been no expropriatory actions in the recent past. Dispute Settlement A number of disputes between the Greek Government and U.S. consulting firms are currently outstanding. All cases concern payments due for services offered to the previous administration. The government claims legal and procedural discrepancies in the firms' contracts and refuses to pay. Negotiations between the Greek Government and the companies involved are underway. These disputes do not necessarily reflect a pattern. Greece has an independent court system and effective means for enforcing property and contractual rights. However, foreign companies often do not feel that they are treated fairly in Greek courts. Foreign court judgements are accepted by the local courts but the legality of the procedures followed and the compatibility of foreign and Greek laws are being investigated. The enforcement of foreign court decisions remains to be tested. Greece also accepts binding international arbitration of investment disputes between foreign investors and the state. European Court judgments also supersede local court decisions. Commercial and bankruptcy laws in Greece are in accordance with international norms. Under bankruptcy law, creditors are compensated after state and insurance funds' claims are satisfied. Monetary judgments are usually made in local currency unless otherwise stipulated. Greece has a reliable system of recording security interests in property. Greece is a member of the International Center for the Settlement of Investment Disputes, but there have not been any cases forwarded to the Center for settlement since 1982. Greece is also a member of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Performance Requirements/Incentives There are no performance requirements imposed as conditions for establishing, maintaining or expanding an investment. However, there are performance requirements when an investor wants to take advantage of tax and investment incentives. Local content, substitution for imports, export orientation and technology transfers are taken into consideration by the Greek authorities in evaluating applications for investment incentives. All investors (Greeks and foreigners) are eligible for incentives if they make a productive investment (Law 1892/90). Additional tax incentives are extended to foreign investors if they establish export-oriented businesses or if they save foreign exchange (Law 2687/53). There are no limits on foreign ownership, except in a few cases (utilities, minerals, state banks). Foreign Nationals may be employed in senior positions and may be paid in foreign exchange transferable abroad. Companies which do not meet their specified performance requirements, may be forced to give up incentives which were granted for the investment. Performance requirements/incentives are not expected to change. All information transmitted to the government for the approval process is treated confidentially. Right to Private Ownership and Establishment Foreign and domestic private entities have the right to establish and own business enterprises and to engage in all forms of remunerative activity, including the right to establish, acquire, and dispose of interests in businesses. Restrictions exist for U.S. and other non-EU investors in: (1) the mineral sector, (2) banking, where only 40 percent of Greek state banks is open to non-EU residents, and (3) land purchases in border regions and on the islands near Turkey. Private enterprises enjoy the same treatment as public enterprises with respect to access to markets and other business operations, such as licenses and supplies. Access to credit has traditionally been easier for public enterprises, which could easily borrow from State-controlled banks, but modernization of the banking system and compliance to EU norms have gradually forced state banks to operate with more market-oriented criteria. Foreign and domestic investors are equally permitted to participate in the government's privatization program. Protection of Property Rights Greek laws extend protection for property rights of both foreign and Greek nationals. Greece is a member of the Paris Convention for the Protection of Intellectual Property, the European Patent Convention, the World Industrial Property Organization, and the Berne Copyright Convention. As a member of the EU, Greece is harmonizing its legislation to EU rules and regulations. There is a problem with copyrights in Greece. Piracy of copyrighted products is currently widespread. Greece took a major step toward addressing this problem by enacting a new copyright law in February 1993. This law offers a high standard of protection for all copyrighted works. The U.S. and Greece have agreed to an ambitious enforcement of the new law. The new law relies heavily upon a new Intellectual Property Office (OPI) to supervise implementation. This new office has not yet been established. How effective the law is will depend directly upon how well OPI functions. Intellectual property appears to be adequately protected in the field of patents and trademarks. Patents are available for all areas of technology. Compulsory licensing is not used. Greek trademark legislation is fully harmonized with that of the EU. Trade secrets are protected by law. Violations of trade secrets and semiconductor chip layout design are not problems in Greece. Protection is for 20 years. Regulatory System: Laws and Procedures As an EU member, Greece is required to adopt a transparent policy and effective laws to foster competition. However, the process is not transparent. Government laws and policies generally do not negatively affect the efficient mobilization and allocation of investment. However, Greek labor laws remain quite restrictive regarding the dismissal of personnel. The complexity of government regulations and procedures is rated by foreign companies as the greatest impediment to operating in Greece. Furthermore, the complexity of regulations is exacerbated by frequent and often inexplicable changes in procedures. Efficient Capital Markets and Portfolio Investment Greek capital markets allocate credit on market terms, and foreigners have access to local credit. A variety of credit instruments are available to the private sector. A number of successful American banks operate in Greece, serving both the local and multinational business community. An effective regulatory system is in place to encourage and facilitate portfolio investments. The Greek banking industry is dominated by a few state-controlled banks, but has a competitive and generally profitable private sector (holding 25 percent of the banking system's assets) comprising Greek and foreign banks. The financial health of the industry is good. Total assets of the five largest banks are estimated at 70 billion dollars. Foreign participation in any kind of business activity open to private investments is not hindered by either the private sector, the existing legal framework, or government efforts. As described in sections A1 and A5 above, there are no limits on foreign ownership, except in a few cases (utilities, airlines, minerals, state banks, real property in border areas). Political Violence Greece is a stable parliamentary democracy currently governed by a socialist government. There are, however, several indigenous terrorist groups whose declarations regularly denounce U.S. capitalism and "imperialism". The most notorious are "17 November", "ELA", and "1 May" groups. They have a track record of murder and bombing. There were several terrorist attacks against the property of American and other foreign businesses in recent years but no American businessman has been hit by terrorists. American businesses keep a low profile in Greece compared to those of other EU countries. Bilateral Investment Agreements Greece has bilateral Investment Agreements with the United States, Armenia, Bulgaria, People's Republic of China, Morocco, Poland, Russia, Tunisia, Albania, Hungary, Romania, and Egypt. Investments from the eleven other EU member states are protected by EU regulations. OPIC and Other Investment Insurance Programs Full OPIC insurance and finance coverage is currently available only on an exceptional basis for U.S. investment in Greece. An agreement between OPIC and the Greek Export Credit Insurance Organization was signed in April 1994 to exchange information relating to private investment, particularly in the Balkans. Other investment insurance programs which apply to both industrialized and developing countries and which also offer insurance coverage for investments in Greece include the German investment guarantee program HERMES, the French agency COFACE, the Swedish Export Credits Guarantee Board (EKN), the British Export Credits Guarantee Facility (ECGF), and the Austrian Kontrollbank (OKB). Greece became a member of the Multilateral Investment Guarantee Agency (MIGA) in 1989. Labor There is an adequate supply of skilled, semi-skilled and unskilled labor in Greece. Highly technical skills may be lacking. The current unemployment rate is about ten percent. Labor-management relations in the private sector generally are good while difficulties exist in the public sector. ILO Conventions protecting workers' rights have been ratified by Greece. Specific legislation provides for the right of association, the right to strike, to organize and to bargain collectively. Greek labor laws prohibit forced or compulsory labor, set minimum age for employment of children, and determine acceptable conditions of work and minimum standards of occupational health and safety. Labor factors do not affect the choice of technology. Foreign-Trade Zones/Free Ports Greece has three free trade zones located at the Piraeus, Thessaloniki, and Heraklion port areas. Goods of foreign origin may be brought into the free zones without payment of customs duties or other taxes, and may remain free of all duties and taxes while held in the zone if subsequently transshipped or reexported. Similarly, documents pertaining to the receipt, storage, or transfer of goods within the zones are free of stamp taxes. Handling operations should be carried out according to EU regulations 2504/88 and 2562/90. Transit goods may be held in the zones free of bond. The zones may be used for repacking, sorting, and relabeling operations. Assembly and manufacture of goods are carried out on a small scale only at the Thessaloniki Free Zone. Time of storage is unlimited as long as warehouse charges are paid promptly every six months. Capital Outflow Policy Foreign exchange controls have been progressively relaxed since 1985. Medium- and long-term capital movements for EU and non-EU countries have been fully liberalized. Remaining controls on short-term capital operations for Greek residents were lifted as of May 16, 1994. This move brings Greece in line with EU rules on free movement of capital; only some bureaucratic obstacles still remain. Greek investments throughout the Balkans will be subsidized as provided by the new investment incentives legislation (pending Parliament ratification). Foreign Direct Investment Statistics Statistics on foreign direct investment are not available. Greek statistical data were previously based on records of investment approvals kept by the Ministry of National Economy or the Bank of Greece. The lifting of foreign exchange restrictions has made the acquisition of an investment approval obsolete and the Greek authorities no longer kept any records of investment inflows. Bank of Greece records of capital inflows do not distinguish among greenfield investment, acquisitions, foreign borrowing by Greek companies, or other capital transfers. The Greek Government indicated that a new data system has been set up, based on surveys. We will submit the new data as soon as they are available. Although there is no official estimate of total foreign investment in Greece, we estimate the total stock of foreign investment at around 4 billion dollars or 5.4 percent of GDP (in 1993). We estimate the total stock of US investment to be about 900 million-1 billion dollars, just about one-fourth of the total stock of foreign investment. Another 110-115 million dollars is planned to be invested over the next 24 months. US firms employ about 9,000 people. Major Foreign Investors The largest single US investment in Greece currently is a 143 million dollars equity stake by two US companies, Whiteshield and Hellenic Overseas Holdings, in the North Aegean Petroleum Company (NAPC). NAPC is involved in the production of crude oil off the island of Thassos in Northern Greece. Other major US investments in Greece are: TABLE 3 NAME OF AMERICAN COMPANY TOTAL ASSETS (IN PARENTHESIS: NAME OF IN 1992 NUMBER OF THE GREEK COMPANY) (IN $m) EMPLOYEES MOBIL OIL 132.2 376 TEXACO 68.4 154 GOODYEAR 73.6 425 PEPSICO 60.6 600 COLGATE PALMOLIVE 35.6 350 BRISTOL-MYERS SQUIBB 68.4 320 KRAFT GENERAL FOODS THROUGH ITS AFFILIATE JACOBS-SUCHARD(J-S PAVLIDES) 38.4 650 JOHNSON & JOHNSON 47.6 330 PROCTER & GAMBLE 30.0 220 RANK XEROX 20.7 240 ABBOTT 30.3 165 KNORR (CPC HELLAS S.A.) 24.0 218 ROTHMANS 37.8 101 PFIZER 13.7 80 SCHERING-PLOUGH 17.5 81 JOHNSON S.C. 9.8 100 DOW HELLAS 31.3 132 ASTY (LEDRA MARRIOTT) 21.4 - Major non-US foreign investments in Greece are shown by the following table: TABLE 4 NAME OF FOREIGN COMPANY TOTAL ASSETS NUMBER OF (IN PARENTHESIS: NAME OF IN 1992 EMPLOYEES THE GREEK COMPANY) (IN $M) FRENCH PECHINEY (ALUMINIUM DE GRECE) 435.5 1,795 ALCATEL (ALCATEL CABLES) 57.6 295 BSN (HENNINGER HELLAS) 35.8 150 AIR LIQUIDE 22.8 188 DREYFUS (VELCA SPINNING) 18.8 294 L'OREAL (ANELOR) 32.0 250 PROMODE (CONTINENT) 96.2 692 ITALIAN FERRUZI/CALCESTRUZZI (HERACLES GENERAL CEMENT) 414.2 1,999 (HALKIS CEMENT) 78.1 1,200 FULGORCAVI HALIA (FULGOR GREEK ELECTRIC CABLES) 75.6 507 ITALCIMENTI(HALIPS BUILDING MATERIALS) 78.9 230 BARILLA (MISKO) 32.3 510 GERMAN SIEMENS INDUSTRIE A.G. 7.5 77 SIEMENS TELE INDUSTRIE A.G. 126.4 450 HOECHST 53.2 450 AEG 38.1 400 LOWENBRAU 21.8 65 BEIERSDORF (BDF HELLAS) 25.2 280 BAYER 28.6 307 TRIUMPH INTERNATIONAL 23.9 374 RENOLIT WERKE 12.1 135 SCHIESSER(SCHIESSER-PALLAS LTD) 18.4 930 KUMPERS & CO (KORTAG TEXTILWERKE) 9.3 170 STIEBEL ELTRON 12.9 78 PRAKTIKER 9.5 400 BRITISH METAL BOX (HELLAS CAN PACKAGING MFRS) 110.1 472 IDV-INT'L DISTILLERS (LOUMIDIS) 64.4 370 BRITISH PETROLEUM (BP SUPERGAS) 13.6 104 NETHERLANDS HEINEKEN (ATHENIAN BREWERY) 248.2 1,537 UNILEVER (ELAIS OLEAGINOUS PRODUCTS) 100.6 550