Establishment of Industrial Economic Zones ( I EZs) Project Proposal

1. Establishment of Industrial Economic Zones (IEZs)Project Proposal Objectives: • Attract foreign investment • Generate higher economic growth for the region and for the country • Introduce modern technologies • Stimulate the development of certain sectors • Create employment • Stimulate the production and the domestic consumer market • Develop export-orientated and import-substituting production Ministry of Economy

2. Project for the Establishment of Industrial Economic Zones Preconditions: • Art. 87 of the Treaty of Maastricht stipulates as permissible an incentive package: investment subsidies, fiscal and customs alleviations • Similar zones exist in the EU countries (France, Spain, Greece), the CEFTA countries (Poland, Slovenia, Croatia), the Baltic countries (Litva, Lithuania), Bulgaria’s neighbouring countries (Romania) • A provision for state subsidies is set forth in Article 4, paragraph 1 of the State Aid Act established in the context of negotiations on Chapter 6 (Competition): state aid is allowed for the “encouragement of regions with low living standards or high unemployment rate” Ministry of Economy

3. Establishment of Industrial Economic Zones Project Proposal Basic assumptions: • Necessary preferences: • free of charge right of ownership or right of construction and/or long-time utilization • tax concessions up to the maximum ones allowed by the Taxation Policy 2003-2005 • decreasing administrative burden: issuance of licenses, permits and registration documents within set time frames • Others??? • A requirement for a considerable minimum threshold of private investment to obtain the concessions • State undertaking with regard to infrastructure investment Ministry of Economy

4. Establishment of Free Industrial Economic Zones Possible incentives for employers:Ministry of Labour and Social Policy • Financial support when employing workforce registered in labour offices: enacted • Whole or partial coverage of the expenditure for training and qualification of hired staff: enacted • Partial limitation on workers’ rights while observing the basic principles of the Labour Code Ministry of Economy

5. Establishment of Industrial Economic Zones Possible incentives: Ministry of Foreign Affairs • Encouraging investment and economic development in regions with growth potential • Providing – until 2006 or the date of Bulgaria’s EU accession – regional assistance to all regions in Bulgaria while observing the EU rules for intensity, acceptable expenditure, etc., on the base of the so-called “regional map of state aid” • The eligible schemes should be approved by the Bulgarian Commission for the Protection of Competition and thoroughly comply with theacquis communautaire Ministry of Economy

6. Establishment of Industrial Economic Zones Possible disposition by regions: • Regions in the country where technical universities are based: highly educated young people, experienced professionals, labour supply, equipment available, etc. • Regions rich in raw material where clusters are to be established: chemical industry, furniture industry, non-ferrous metallurgy • Regions with well developedinfrastructure, local traditions of manufacture, etc. • Municipality of Silistra: available ground, accessible transport, high unemployment rate • Municipality of Varna: strategic disposition, qualified workforce • Karlovo-Sopot region: highly qualified workforce, numerous grounds available • Municipality of Hadjidimovo, Topolovgrad-Elhovo region, municipality of Lom: developed infrastructure, high unemployment rate • Custom-free zones existing in Bourgas, Svilengrad, Dragoman, Vidin, Rousse and Plovdiv: existing infrastructure, immediate start, etc. Ministry of Economy

7. Project for the Establishment of Industrial Economic Zones Custom-Free Zones Infrastructure, unemployment, expertise, resources, etc. Ministry of Economy

8. Establishment of Industrial Economic Zones Conclusions: • The establishment of IEZs in their pure form as known in the world will raise problems for Bulgaria as an EU candidate country • Most of the objectives which the Government has set with the idea to establish IEZs can be achieved through the possibilities provided by the European legislation and the Bulgarian one • The incentives which are the core pillar in each IEZ need to be harmonized with the State Aid Act and the Rules for its enforcement • It is necessary to specify the scope of territories and the possible application of incentives in them Ministry of Economy

9. Establishment of Industrial Economic Zones Next Steps: • Finding resources to finance a detailed project development • Legal form??? - a separate law on industrial zones - part of an investment promotion act Ministry of Economy