From the bizarre to the merely complex: a legal perspective on the changing rules of the game in investing in Eastern Europe.

• Author: Hitch, III, James T.
• Position: Chairman's Agenda: Acquiring in Eastern Europe

A legal perspective on the charging rules of the game in investing in Eastern Europe

Any perspective on Eastern Europe -- be it legal, economic, political, or otherwise -- must address the ongoing, dynamic changes that pervade this part of the world, which had been economically stagnant and moribund for the past four-plus decades (and even longer in the U.S.S.R.). The results of perestroika and glasnost -- with their origins in the Soviet Union but with their results throughout all of the U.S.S.R.'s neighboring states -- include a radical and constant flow of new laws, decrees, regulations, and treaties which have overwhelmed businessmen and their legal advisers alike.

While these changes have produced political instability, social upheaval, and economic shocks and paralysis, they also have created new opportunities for the U.S. businessman. They have changed the bizarre rules of the game previously played only in the centrally planned communist countries. Now such trade no longer need be with only Moscow or Warsaw or another of the East European capitals. Decentralization of foreign trade and dismantling of central planning has resulted in more East European enterprises becoming entitled to deal directly with foreigners for both trade and investment.

In analyzing the prospects for investing in Eastern Europe, the U.S. businessman can hope to find new markets for sales, new sources of raw materials, less-expensive labor, and, perhaps, a new base of exports to other markets. He cannot, however, expect to find any guarantees. While using legal and other means to reduce his business risks, the American businessman should not expect a quick return on his investment in the short run. What he can look forward to are time-consuming negotiations and equally demanding efforts toward training and educating his East European partners and their personnel in the ways of doing business in a free-market economy, with which capitalists have decades of experience and an immeasurable competitive advantage.

The challenge for the U.S. businessman will be to find the right East European partner and to conduct business successfully. It will require expenditures of manpower, both executive and technical; financial resources; and patience and understanding to succeed where others will fail investing in a newly rediscovered part of a shrinking global market. Knowing and understanding the legal structures, restrictions, and incentives in Eastern Europe should help to meet this challenge.

Legal Forms of Investment

One of the many consequences of perestroika has been a decreased interest on the part of East European business managers and workers generally in the traditional forms of trade in Eastern Europe, i.e., counter-trade...