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Guest Editorial: A U.S. Lawyer’s Observations on Romania: 1996-2016 and Beyond

Guest Editorial: A U.S. Lawyer’s Observations on Romania: 1996-2016 and Beyond

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It may perhaps be symbolic that I pen this rather reflective article for CEE Legal Matters now, considering that August 2016 marks twenty years to the month since I first stepped off the plane at Otopeni Airport in Bucharest, Romania, to serve as a liaison for the American Bar Association’s Central and Eastern European Legal Initiative (CEELI), having taken a one-year leave of absence from my litigation practice in Los Angeles.

As conceived, I would describe CEELI as a sort of “legal Peace Corps”, whereby experienced lawyers from the US were parachuted into the countries of Central and Eastern Europe with the idea of introducing “best practices” to the emerging markets in this region. It is hard for some to remember now, after twenty years have passed, but at that time it had been only six years since the revolutions of 1989 had shaken the region to its core. While all of the countries in the region had as a result of these fundamental political changes transitioned from a central command economy to a free market capitalist economy, many of the “rules of the game” that had been developed over the last century and taken for granted in the Western market economies had yet to be introduced or effectively implemented in the CEE/SEE region.

So, for example, the assignments during my 1996-1997 tenure as a CEELI liaison in Bucharest were to provide model laws and commentary to relevant stakeholders covering areas as diverse as Competition, Secured Transactions. and Bankruptcy law. In some instances these laws had yet to be introduced – and, where they had been, no sufficient practical experience or training existed in relation thereto.

Another area where we advised was institution-building in the judiciary – i.e., strengthening the judiciary as a truly independent branch of authority through training and consultation. Here too, Romania and other countries in the region were struggling to shake off the legacy of “telephone justice” – where a call from the Ministry of Justice to the judge considering a particular case could very well influence the outcome of that case.

I also traveled around Romania speaking to regional Bar Associations, usually accompanied by one or two “pioneer” Romanian lawyers. One of the concepts that I would discuss was the idea of hourly billing. This was very alien to most Romanian lawyers at that time – even experienced commercial lawyers – who tended to bill their fees at fixed or flat rates based on a Bar-approved rate sheet. Attempts to explain the business case for hourly billings was often met by looks of incredulity and the muttered phrase “nu sa poate in Romania” (“it can’t be done in Romania”).

My one-year term with CEELI ended too quickly, but back in the States I learned of a law firm that was looking to expand into Romania. One thing led to another, and in August 1998, almost exactly one year later, I was back in Bucharest, this time to set up the office of a US law firm.

What are the changes I have observed over the period from 1998 to the present? Certainly the market for legal services has matured tremendously, and client expectations for quality legal services, the level of sophistication and complexities of the transactional market, and generally the skills and expectations of the junior and mid-level local lawyers have all increased tremendously. I think this is a healthy and positive development for the Romanian market overall, but one which does place increasing competitive pressures on the fees of those lawyers who are scrambling for the same deals in the same market.

What about the future? Certainly at a macroeconomic level the indicators bode well for Romania. It has experienced some of the most significant GDP growth in the EU over the last couple years, and experts predict a further healthy growth of 4.2% in 2016. Much of this has been driven by increased consumer spending, following on the heels of several VAT reductions since 2015 (including a reduction of the overall VAT rate from 24% to 20%) and expectations that it will decrease still further to the pre-crisis level of 19% in 2017. This development, coupled with three increases in the minimum salary in the last two years and a reduction of the capital gains tax from 16% to 5% have fueled this spending increase (and increased the consternation of the IMF). Whether these increases can be sustained and future tax increases avoided will largely depend upon improving the efficiency of tax collection efforts, as recovery rates are currently among the lowest in the EU.

Still, its geopolitical position, staunch support (post-Brexit) for continuing EU membership, and continuing commitment to NATO (as well as its strong bilateral relationship with the US), coupled with potential for growth in sectors as diverse as energy, infrastructure, agriculture, IT, and tourism would all suggest that Romania is poised for future growth. This rather rosy expectation assumes that no global macroeconomic shock, “backsliding” from the current political will towards open and competitive markets and intolerance of corruption, or further irrational changes to the legislative framework in Romania will occur in the near future.

Hopefully, investors will also see Romania as an attractive destination within the “new Europe,” and this will translate into more work for all lawyers in this market – a true rising tide that will float all of our legal boats in this dynamic corner of southeastern Europe.

By Bryan Jardine, Managing Partner, Wolf Theiss Bucharest

This Article was originally published in Issue 3.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.