29000 3/17/2005 9:16 05BUCHAREST665 Embassy Bucharest UNCLASSIFIED This record is a partial extract of the original cable. The full text of the original cable is not available. 170916Z Mar 05 UNCLAS SECTION 01 OF 03 BUCHAREST 000665
STAFF FOR DRL/IL - ARLEN WILSON STATE FOR EUR/NCE - WSILKWORTH, EUR/ERA STATE FOR EUR/EB - KIMBERLY BARR, EB/IFD DOL FOR ILAB - TFAULKNER STATE PASS USAID, USAID FOR E&E
E.O. 12958: N/A TAGS: ELAB, ECON, PGOV, RO SUBJECT: ROMANIA: TRADE UNIONS VIEW THE NEW ROMANIAN GOVERNMENT AS AN ADVERSARY, NOT A PARTNER
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REF: A) BUCHAREST 00916, B) BUCHAREST 01748, C) BUCHAREST 02900, D) BUCHAREST 00130
1. (SBU) Romania's principal trade union federations are unanimous in taking the position that the existing labor code requires enforcement, not amendment. They hold out the possibility of a general strike if the GOR modifies the code without their consent. For their part, businesses in Romania will make a case that amending the labor code will bring more jobs. End Summary.
Unions' Views Divided Over New Government
2. (U) EconOff in the past weeks has met with Marius Petcu, CNSLR-Fratia trade union confederation, Liviu Luca, Atlas Trade Union, Iacob Baciu, Confederation of Democratic Trade Unions, and Bogdan Hossu, President of Cartel Alfa union confederation to discuss their opinion of the new right-of- center coalition Government, which replaced the center left Social Democratic Party (PSD) Government in December.
3. (SBU) Marius Petcu, CNSRL-Fratia, complained that the new government seems uninterested in engaging in dialogue with its "social partners," claiming lack of consultation with the unions before the flat 16% income and profit tax was adopted, while opining the new GOR likewise plans to modify the labor code without the unions' approval. He cited the cancellation of the position of Minister Delegate for Relations with Social Partners within the Labor Ministry as additional evidence. Bogdan Hossu, President of Cartel Alfa, agreed "social dialogue" seemed absent from the new GOR's governing program. However, Hossu appreciated the fact that PM Tariceanu was the first Prime Minister to declare publicly that Romania's fiscal policy, public deficit or pensions are not issues to be imposed on Romania by the IMF, but represent decisions of the Romanian Government.
4. (SBU) Iacob Baciu, President of the Confederation of Democratic Trade Unions (CSDR), stated that CSDR is still n the process of forming an opinion of the government. Baciu notes the new government has many young faces, who have neither links to the past nor political debts and are focused on the future. He is willing to give the new government time to see whether their deeds match their good intentions. Atlas Trade Union President Liviu Luca also took a more moderate position, stating his position is "wait and see." However, he was adamant about the necessity of the Government consulting with unions regarding any changes in the labor code.
President Traian Basescu Draws Mixed Reaction
5. (SBU) Baciu stated that new President Basescu is Romania's first real President since the revolution. He views Basescu as direct, pragmatic and willing to tackle tough problems like corruption. Luca, on the other hand, reproached Basescu for attempting to play all roles within the government, including President, Prime Minister and Parliamentarian. Petcu characterized Basescu as "different," declaring he should observe the Constitution and be apolitical, rather than presenting strong views on everything. Like Luca, he characterized Basescu as a one- man show. He criticized Basescu for overacting and at times behaving unprofessionally, presenting a poor image of the Romanian Presidency to foreign audiences.
Unions Question Flat Tax, Effect on "Gray" Economy
6. (SBU) Stiff union opposition to the flat tax was the principal reason the former PSD Government shelved the proposal last year. Petcu reiterated the unions' standard theme in opposing the flat tax, characterizing it as inequitable, favoring the wealthy. He claimed that employees with average and below-average incomes are disadvantaged by the flat tax. Petcu also is concerned that the flat tax will result in less money into the state budget, which could result in the government not having sufficient funds to cover salary increases negotiated last year with the previous government for teachers and medical staff, worrying such raises might be cancelled. Hossu, like Baciu, is skeptical of the flat tax, characterizing it as a "higher pressure for the small taxpayer, and a special aid for big taxpayers." Luca's position on the flat tax was more moderate, stating that for energy sector employees, who tend to have higher salaries, it is advantageous, although still disproportionately benefiting the rich. Nevertheless, he also questioned whether the budget could sustain it. 7. (SBU) One of the new GOR's purposes in introducing the flat tax was to "surface" the underground, or gray economy, in which workers' wages are either underreported or not reported at all. Luca commented political will is required to surface the gray economy through tough enforcement measures. Those who don't pay taxes now aren't going to change willingly, and Luca doubts the political will to get tough exists. Hossu reminded that payroll taxes remain high (49.5% of wages) which means employers will continue to underreport wages or pay employees "under the table," especially in fields such as textiles and construction.
Unions Unanimously Reject Changes to the Labor Code
8. (SBU) Regarding the Labor Code, the union leaders are concerned the new government will attempt to modify the law without consulting them. They claim they don't want any new rights, only to preserve the rights they have now. Hossu was most adamant, saying that the unions will only seriously discuss changes to the code when employers are committed to observing it. Fratia's Petcu and CSDR's Baciu made it clear that whether the labor code is modified by emergency ordinance or law, they are likely to take their workers into the street in a general strike. The union leaders were emphatic in stating the government is wrong in suggesting without changes in the labor code foreign investors won't come to Romania. Instead, the government should be looking at other measures, such as reduction in the VAT and payroll taxes. The trade unionists insist that any changes in the labor code must be negotiated between unions and employers' associations without government intervention.
AmCham, FIC Should Join Romanian Employers' Associations
9. (SBU) In a theme we've heard before, the trade unionists desire foreign employers becoming members of Romanian Employers' Associations. The reason they want this is that the unions and these employers' associations negotiate the National Labor Agreement. Because foreign business associations such as the American Chamber of Commerce (AmCham), the Foreign Investors' Council (FIC) and the British Chamber of Commerce are not members of the Employers' Associations, the unions cannot bargain directly with them over the national labor contract.
10. (SBU) Trade unionists agree that holding discussions only with Romanian employer associations is inadequate, and, further, is not marked by an atmosphere of equality in the relationship. They claim that the Romanian employers' associations as they currently exist are weak, their practices non-transparent, their leaders are "dinosaurs," and that the path to power in these associations is by paying to get elected. On the other hand, the unions believe the foreign business associations are in a position to "clean up" the employers' associations and gradually "push out" the corrupt Romanian employers. Baciu even opined that the Romanian employers' associations are the real "enemy" of foreign investors, not the unions, who instead are their real social partners.
Hope Fades for Swift Labor Code Modification
11. (U) The Labor Ministry held its first discussions with employers' associations and trade union confederations in February. The trade unionists rejected completely any changes to the labor code and refused further discussions on the Labor Ministry's proposals. As the unions began picketing at municipal, prefecture and GOR offices, the Government retreated into a mediation role, leaving it up to the employers associations and the trade union confederations to continue negotiations. The resulting dialogue has been counterproductive, leading even Labor Minister Barbu to conclude that Labor Code modification is unlikely in 2005.
12. (SBU) Romanian trade union leaders are cautious, but clearly concerned, that a center-right, business-oriented government has come to power in Romania. In the past, the unions, with the exception of Fratia (which always has had an affiliation of the former ruling Social Democrats), frequently complained the PSD was non-responsive to their demands. Now they concede the PSD ultimately gave them what they wanted in the form of the so-called "Red" Labor Code, which both foreign and domestic businesses have roundly criticized as creating an overly expensive, inflexible labor market in Romania.
13. (SBU) Labor unrest in the near future may be on the rise. The unions are firmly united in their opposition to amendment of the labor code and thus far have succeeded, given the weakness of Romanian employer's associations and the GOR's current retreat from an active role. The unions have been highly successful in mobilizing their membership in defense of the code, with over 20,000 trade unionists turning out for a single day of protests in Arad, Brasov, Targoviste and other smaller cities. The unions' trump card of a general strike is a threat to be taken seriously. As the government is aware, a general strike could paralyze the country, derail Romania's steady macro-economic progress and topple the current fragile coalition government.
14. (SBU) Romanian and foreign companies, however, are planning to mount a counter-campaign to inform the public about the benefits of a more flexible labor code. They will argue that more jobs will come to Romania if investors perceive Romania to be "open for business." An important signal for this new openness, according to business, has to be a reformed labor code that allows Romania to take advantage of its low labor costs more effectively.
14. (U) AmEmbassy Bucharest's reporting telegrams are available on the Bucharest SIPRNet website:www.state.sgov/p/eru/bucharest.