Inflation and Wages Cross-Border Mergers Finally Introduced to Czech Company Law The State of the Environment in the Czech Republic Vysočina Region
05-06 2008 CONTENTS
CZECH BUSINESS AND TRADE
Economic Bi-monthly Magazine with a Supplement is Designed for Foreign Partners, Interested in Cooperation with the Czech Republic INTRODUCTION Questions of the Month for Martin Tlapa, Deputy Minister of Industry and Trade .....4 Issued by PP AGENCY s.r.o. as an exclusive commission ECONOMIC POLICY for the Ministry of Industry and Trade Inflation and Wages...... 5 of the Czech Republic KALEIDOSCOPE Czech Economy–the World’s Top Performer ...... 7 EDITORIAL BOARD: Prime Minister's Visit to Vietnam Means Success ...... 7 Milan Hovorka (Chairman), Ivan Angelis, Czech Republic to Draw Nearly EUR 36 Million This Year Zdena Balcerová, Jiří Eibel, Zbyněk Frolík, from Operational Programme Enterprise and Innovation...... 8 Růžena Hejná, Josef Jílek, Zdeněk Kočárek, Prague Competes for the Seat of the Galileo System...... 8 Tomáš Kopečný, Marie Pavlů, Pavla Podskalská, Czech-Asian Trade Forum ...... 9 Josef Postránecký, Libor Rouček, Jiřina Semanová, Jiří Sochor, Jarmila Škvrnová LEGISLATION Cross-Border Mergers Finally Introduced to Czech Company Law...... 11 MANAGING EDITOR: Jakub Havel CZECH TOP INEKON Penetrates into Asian Markets...... 12 Delivery of Czech Cement Works to Kazakhstan...... 12 EDITORS: Largest Investment Project in North Moravia ...... 12 Jaroslava Bradová, Naďa Vávrová TOPIC REGULAR COLLABORATORS: The State of the Environment in the Czech Republic...... 14 Eva Tomášková REGION TRANSLATION: NUTS 3 – Vysočina Region ...... 20-34 Vlasta Benešová, Alena Kenclová, PRESENTATION OF FIRMS Robert Krátký, Lucie Pavlíčková, Dagmar Šímová, GEOtest Brno, a.s...... 2 Halka Varhaníková VOD-KA a.s...... 13 2H Plast s.r.o...... 15 READ: Arrow line, a.s...... 19 Mathew Booth, Pearl Harris, Ivana Kadlecová, Družstvo ENVICRACK ...... 19 Zuzana Pavlíčková Strojírny Podzimek, s.r.o...... 27 TKZ Polná, spol. s r.o...... 33 AGADOS, spol. s r.o...... 35 GRAPHIC DESIGN: PP Agency s.r.o...... 36 Helena Dvořáková, Lobby Česká republika
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Front cover: Illustration photo 3 | INTRODUCTION
Questions of the Month for Martin Tlapa, Deputy Minister of Industry and Trade
In case negotiations on the DDA are "put on Venezuela, and Peru) and with countries of ice" during the course of 2008, the Czech Central America. In this case it will be Republic will make every effort to reopen necessary to evaluate the current state of talks and to define key ambitions for affairs and choose a suitable negotiation multilateral negotiations. In this respect, and strategy for the speedy conclusion of under the framework of the Council of the negotiations either with the regions as European Union, the Czech Republic will a whole or with individual countries. also consider raising the issue of reforming The Czech Republic intends to introduce the functioning of the World Trade certain new and active elements into the Organisation (WTO) and of defining transatlantic dialogue – such as the launch parameters for a potential transformation of of talks with the USA and Canada on a new this important international organisation. contractual platform for economic cooperation, protection of investment, and trade in services. The growing number of bilateral free trade agreements is new to common trade policy. How does the Czech The Czech Republic is a liberal Republic view this area? country. Will it give its fundamental Immediately following the expected backing to efforts for removal of imminent accession of Russia and the trade barriers? Ukraine to the WTO, the Czech Republic will At the beginning of 2009, the Czech WHAT ARE THE strive to initiate bilateral talks with these Republic plans to evaluate the new Global PRIORITIES OF THE traditional trade partners on a greater Europe trade strategy, to determine whether MINISTRY AND THE CZECH REPUBLIC FOR liberalisation of trade terms, in particular on it is doing enough to spur on the THE PRESIDENCY IN the conclusion of free trade agreements. EU’s economy and global competitiveness. TERMS OF TRADE? The European Commission has launched The objective of the Czech Republic is to NEGOTIATIONS ON negotiations on free trade agreements with steer the EU towards greater openness, non- TRADE LIBERALISATION India, South Korea, and with countries of discrimination, and further liberalisation of ARE NOT LOOKING TOO the Association of Southeast Asian Nations economic relations. In order to prepare PROMISING AT THE (ASEAN – Indonesia, Malaysia, the relevant arguments to this end, evaluation MOMENT! Philippines, Singapore, Thailand, Brunei, reports will be drawn up and later presented The Czech Republic is a long- Vietnam, Laos, Myanmar, and Cambodia). If at meetings of ministers of trade of EU term advocate of maximum negotiations go ahead with India and South member states. The Czech Republic’s liberalisation of world trade. In Korea, it will be in the interest of the Czech priorities also include wrapping up the Republic to achieve maximum progress in debate on the revision of Trade Defence line with this approach, we are negotiations. In the case of ASEAN, the aim Instruments, which must lead to further making efforts for the conclusion of the Czech Republic will be to carry out liberalisation and respect for the of a multilateral agreement on a thorough stocktake of the state of EU’s economic interests. liberalisation of trade (Doha negotiations and to decide the next Moreover, the Czech Republic will Development Agenda - DDA). negotiation strategy. strongly advocate a broad implementation Negotiations are ongoing. In ongoing negotiations with China on of the revised Market Access Strategy. We a partnership and cooperation agreement will back ongoing preparations for Depending on the future state of and on the revision of a trade agreement a partnership among bodies of the European negotiations, the key priority will dating from 1985, the priority aim of the Commission, the economic diplomacy of be to conclude the multilateral Czech Republic will be to achieve maximum member states, and the business sphere for round of negotiations and concessions on the part of the the efficient monitoring and effective possibly to begin immediate People’s Republic of China, especially in removal of barriers to trade. implementation. areas of fundamental importance to the In accordance with a complex strategy Czech Republic (non-tariff trade barriers, currently under preparation by the European protection of intellectual property rights, Commission, the Czech Republic will use all observance of provisions on the status of available means to improve the protection a market economy). and exaction of intellectual property rights During the Czech presidency, a stocktake of EU entities on third markets as well as will be made of the state of negotiations on within the EU. This will involve the association agreements with countries implementation of relevant provisions in all belonging to the Andean Community of newly concluded bilateral agreements or the Nations (Bolivia, Columbia, Ecuador, use of alternative initiatives.
| 4 CZECH BUSINESS AND TRADE
Inflation and Wages
At the beginning of the year, the The intensity of the inflation increase by the administrative nature of inflation, as Czech Republic lost its at the beginning of the year, well as by the strengthening crown, which however, surpassed all expectations. considerably tightens monetary conditions reputation of a low-inflation The close of last year suggested a rapid in the economy. Over the past year, the economy, which it had boasted increase in inflation, when year-on-year crown has strengthened by almost 12% for several past years. Moderate growth in prices gradually reached 5.5%, against the euro and 30% against the i.e. 2.5 percentage points above the target American dollar. The strengthening crown inflation had been mainly of the central bank. This result was in part has thus reinforced its role as an important attributable to the strengthening attributable to administrative measures, anti-inflation instrument, protecting the Czech crown (rendering imports which considerably deflected inflation economy against the harsh impact of less expensive), the moderate upwards. Such measures include in record-high prices of crude oil and natural particular increases in excise taxes on gas. growth of wages (which did not cigarettes and the rise in regulated housing As indicated earlier, the present sharp lead to increased consumption in prices, although on this occasion prices are inflation impulse is, essentially, temporary. excess of the economy’s also increasingly reflecting higher food It will vanish from year-on-year figures capacity), appropriate monetary prices. “Food inflation", which has been within a matter of 12 months and inflation plaguing much of Europe, is now too will then return below the 3% target level and fiscal policy and favourable affecting the Czech Republic. In addition, set by the Czech National Bank. What’s far development of prices abroad. inflation has been further fuelled by more interesting is whether inflation may The close of last year already anticipated increases of the reduced VAT be deflected upwards in the coming rate from the previous 5% to 9%. Prices months by other factors warranting indicated the Czech Republic partly began to reflect this change (advised a response by the central bank. In the first would, for some time to come, in advance) before it actually came into place, such factors could include rank alongside countries with an effect. foodstuffs, which account for a quarter of inflation rate well above the EU Inflation at the beginning of the year the year-on-year 7.5% inflation rate. This then continued to further grow. Year-on- is to a small degree the result of higher average. year prices increased by 7.5% in January VAT, although the main reason for the rise and February, the highest increase the in food prices is the general increase in Czech Republic has experienced in over prices of agricultural commodities on nine years. Although these inflation figures world markets. This year’s harvest remains may be alarming, it is necessary to keep in a great unknown - it should increase mind they are mainly the result of supply, which is struggling to meet the temporary administrative factors, which increasing demand of Asian countries and cannot be dealt with in any way. These higher demand for raw materials for the factors mainly include changes in tax rates production of bio fuels. Another high-risk (an increase of the reduced VAT rate, factor is the price of energy raw materials, higher excise taxes and the recently which the Czech Republic is managing to introduced environmental tax), increases in withstand for the time being thanks to its regulated prices of energy and rent, newly strong currency. introduced fees and higher payments for health care and so on. In addition, the INFLATION TO STUNT REAL growth of non-regulated commercial WAGE GROWTH prices is also on the rise, although it Whereas foodstuff and energy prices remains well below the overall inflation reflect, for the most part, developments on rate in spite of growing prices of foreign markets and are therefore marked agricultural and energy commodities. Net by a high degree of risk, domestic inflation inflation, which disregards regulated prices factors are somewhat easier to predict. The and taxes, was therefore only 3.8% in expected slowing of the growth of February this year. domestic demand, especially consumption, should significantly reduce the risk of STRONG CROWN SHIELDS demand-pull inflation. This year's high rate AGAINST HIGH PRICES OF of inflation will considerably slow the RAW MATERIALS growth of real wages – their rate of The Czech National Bank (CNB) responded growth may thus be the lowest in over to the risk of growing inflation in advance. nine years (approximately 1%). The risk of In the past 12 months it has increased its excessive growth of wages therefore main interest rate five times by a total 1.25 appears small in spite of record inflation percentage points to 3.25%, the highest and the sharp fall in unemployment, the level in over five and a half years. Even so, rate of which is in fact accelerating at its main rate remains one of the lowest present. Most wage contracts did not take throughout the EU. The central bank is into account this year's high inflation rate, inhibited from taking a tougher approach or alternatively, they are indexed
5 | ECONOMIC POLICY
retroactively at the previous rate of inflation. This should maintain growth of real wages at an acceptable rate commensurate to changes in labour productivity. The first quarter may bring higher growth of average wages. Such growth will not be attributable to tension on the labour market but rather to the transfer of bonus payments into the current year from the close of last year, allowing employees to profit from more favourable tax conditions. Even so, it is possible to foresee higher growth of wages owing to the lack of qualified labour, which is beginning to take its toll on the labour market. Possibly the best indicator of this trend is the rate of unemployment, which has fallen year- on-year by 1.8 percentage points and has reached its ten-year low (5.4% in 2007). This rapid fall in unemployment is in particular a result of strong economic growth, which in turn is based on the influx of foreign direct investment. In certain regions and sectors, businesses have begun to encounter a lack of qualified job applicants. Increasingly, this situation is being dealt with by employing foreigners, the number of which has exceeded 250 000, totalling approximately 5% of the overall work force in the Czech Republic.