US embassy cable - 05BUCHAREST665

UNCLAS SECTION 01 OF 03 BUCHAREST 000665 
 
SIPDIS 
 
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 
 
 
SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET DISTRIBUTION. 
 
REF: A) BUCHAREST 00916, B) BUCHAREST 01748, C) BUCHAREST 
02900, D) BUCHAREST 00130 
 
Summary 
---------- 
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. 
 
Comment 
------- 
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. 
 
DELARE