Cablegate: Croatia 2010 Investment Climate Statement

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RUEHZL/EUROPEAN POLITICAL COLLECTIVE
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SUBJECT: CROATIA 2010 INVESTMENT CLIMATE STATEMENT

REF: 2009 STATE 124006

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1. Summary: For more than a decade after the end of the war in
1995, Croatia enjoyed steady growth in foreign investment, buoyed by
a growing economy, low inflation, a stable exchange rate and
developed infrastructure. Investment activity slowed substantially
in 2009, due partly to the global financial crisis, and partly to
the structural problems that continue plague the economy. The
banking system has weathered the financial crisis well and continues
with business as usual. But a bloated and complex bureaucracy,
underperforming state enterprises, an anemic export sector, and
continued problems with corruption all contributed to a sour
economic mood at the end of 2009. Croatia's one notable success in
2009 -NATO membership - was tempered by several road blocks that
slowed negotiations for Croatia's EU membership, including a
bilateral border dispute with Slovenia and EU concerns about
Croatia's cooperation with the war crimes tribunal in The Hague.
The New Year starts with some reasons for renewed optimism however.
The government of Prime Minister Jadranka Kosor (who took office
after the surprise resignation of her predecessor last June) was
able to achieve an agreement with Slovenia that ended Slovenia's
blockade of the EU negotiations. Perhaps more importantly, she and
her team have shown a new willingness to give law enforcement and
judicial officials a free hand to fight corruption. Several new
investigations involving high level current and former members of
government seem to indicate she is serious in this effort. If she
and her economic policy makers can find a way to make government
more transparent, rationalize the state budget, move forward with
remaining privatizations, and stimulate investment and export
activity, then Croatia will be able to return to its path of strong
economic growth very soon. End Summary.

A.1 Openness to Foreign Investment

2. Croatia is open to foreign investment. The Croatian government
continues to have as one of its main goals a further increase in
foreign investment, hoping to attract greater greenfield
investments. NATO membership and the prospect of membership in the
EU continue to motivate both reform and stabilization of the
economy, which should in turn improve the investment climate of the
country. The government continues to give priority to activities
related to fighting organized crime and corruption. In July of this
year, the then Prime Minister stepped down and the new Prime
Minister has been resolute in statements and actions to fight
corruption.

3. Croatia's legal framework accords equal treatment to foreign and
domestic investors for all types of business. There are no
reviewing or screening mechanisms to exclude foreign investment, nor
are there any restrictions to foreign investment. The Internet
website of the Croatian Chamber of Economy (www.hgk.hr) provides a
useful English-language guide, "How to Start Up an Enterprise in
Croatia," as well as sector-specific and general reports. The
Zagreb Stock Exchange's website (www.zse.hr) posts English-language
translations of key laws in force.

4. Despite recent progress, however, problems remain that dampen
investment in Croatia. Of these, the greatest is the country's
legal system. Amid a backlog of 870,000 pending cases, even the
simplest cases can take years to resolve. The result is that, in
spite of laws that govern the sanctity of contracts, timely
enforcement is a problem. The difficulty of obtaining timely
judicial remedy in a dispute has hindered investment in Croatia.
Other problem areas include inefficient bureaucracy and the
country's relatively high labor costs in relation to other locations
in Central and Eastern Europe.

5. The Agency for Trade and Investment Promotion has a mandate to
match potential investors with projects in Croatia. The Agency has
specialists available in strategic planning, investment support and
export support (see www.apiu.hr) and is actively seeking projects
that it can promote to foreign investors and provides the helpful
"CROINVEST Investment Guide" on its website. The Agency is also
active in advising the government on how to make Croatia's
regulatory environment more transparent and competitive.

6. The Company Act defines the forms of legal organization for
domestic and foreign investors. The following are permitted for
foreigners: general partnerships, limited partnerships, branches,
limited liability companies, and joint stock companies. The
Obligatory Relations Law regulates commercial contracts.

7. Croatia is included on the following lists and ranks per each as
follows:

* Transparency International Corruption Index: ranked 66 with a 4.2
corruption perception index
* Heritage Economic Freedom overall score: 55.1

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* World Bank Doing Business "Ease of doing business" ranking: 103

A.2 Conversion and Transfer Policies

8. The Croatian constitution guarantees the free transfer and
repatriation of profits and invested capital for foreign
investments. Article VI of the U.S. Croatia Bilateral Investment
Treaty (BIT) establishes protection for American investors from
government exchange controls that limit current and capital account
transfers, and limits on inward transfers made by screening
authorities. The BIT obliges both countries to permit all transfers
relating to a covered investment to be made freely and without delay
into and out of each other's territory. The Croatian Foreign
Exchange Law permits foreigners to maintain foreign currency
accounts and to make external payments.

9. The Foreign Exchange Law also defines foreign direct investment
(FDI). For example, use of retained earnings for new
investments/acquisitions is considered FDI, whereas investments made
by institutional investors such as insurance, pension and investment
funds are not considered FDI. The law also liberalizes foreign
exchange transactions for Croatian entities and individuals allowing
them to invest abroad. Generally, this law liberalized foreign
exchange transactions, but it also introduced criteria for the
possible imposition of capital controls.

10. The U.S. Embassy in Zagreb has not received any complaints from
American companies regarding transfers and remittances.

A.3 Expropriation and Compensation

11. There have been no cases of expropriation of foreign
investments by the government since Croatia became independent in
1991. Article III of the BIT covers both direct and indirect
expropriations. The BIT bars all expropriations or nationalizations
except those that are for a public purpose, carried out in a
non-discriminatory manner, are in accordance with due process of
law, and are subject to prompt, adequate and effective
compensation.

12. Croatian law gives the government broad authority to
expropriate property under various economic and security related
circumstances. The law provides for an appellate mechanism to
challenge expropriation decisions by means of a complaint to the
Ministry of Justice within 15 days of the expropriation order. The
law, however, does not describe the Ministry's adjudication process
and the fact that the Ministry of Justice represents the government,
which initiates expropriations, is an area of potential concern for
investors. Investors should also be aware of the 2009 Law on Golf,
which allows the government to expropriate land in order to sell it
for golf course development.

A.4 Dispute Settlement

13. There have been few instances of investment disputes involving
U.S. companies in Croatia. As a result of the very long timeframes
involved in obtaining judgments in court, companies often try to
resolve disputes without seeking judicial remedy. The government is
currently working to reduce court backlogs and to encourage the use
of alternative dispute settlement.

14. The Croatian constitution provides for an independent
judiciary. The judicial system consists of courts of general and
specialized jurisdictions, whose core structure is Supreme Court,
County Courts, Municipal Courts, and the Magistrate/Petty Crimes
Courts. Specialized courts include the Administrative Court and
High Commercial and Lower Commercial Courts. There is also a
Constitutional Court that determines the constitutionality of laws
and government actions and protects and enforces constitutional
rights. Municipal courts exercise original jurisdiction over civil
and juvenile/criminal cases. The High Commercial Court is located
in Zagreb and has appellate review of lower commercial court
decisions. Modification of lower court decisions by the High
Commercial Court may be appealed to the Supreme Court.

15. The Administrative Court has jurisdiction over the decisions of
administrative bodies of all levels of government. The Supreme
Court, under certain circumstances, may review decisions. The
Supreme Court is the highest court in the country and, as such,
enjoys jurisdiction over all civil and criminal cases. It hears
appeals from County, High Commercial, and Administrative Courts.

16. The government continues efforts to reform the judiciary,
including reducing the backlog of cases, reforming the land
registry, training court officers and reducing the backlog and

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length of bankruptcy procedures. Alternative dispute resolution has
been implemented at the High Commercial Court, the Zagreb Commercial
Court and 6 municipal courts throughout the country. An important
move to lessen the backlog of cases is the on-going redistribution
of non-disputed decisions to public notaries. During the past year,
the number of pending cases has decreased to fewer than 870,000,
down from 950,000. The greatest reduction was in the backlog of
enforcement cases and the enforcement of judgments, which currently
make up 12 percent of all pending cases. According to the
provisions of the Law on Enforcement, a judgment made by a judge or
panel of judges to order payment or direct actions to be taken or
ceased must be executed immediately per such decision. Current
practice, however, delays enforcement until all appeals are
exhausted. Article 17 of the Law on Enforcement states that foreign
judgments may be executed only if the "judgment fulfills the
conditions for recognition and execution as prescribed by an
international agreement or the law." The Ministry of Justice's
reform plan is available on its website at www.pravosudje.hr.

17. The Law on Bankruptcy, internationally harmonized and
corresponding to the EU regulation on insolvency proceedings and
United Nations Commission on International Trade Law (UNCITRAL)
Model Law on Cross-Border Insolvency establishes timeframes for the
initiation of bankruptcy proceedings. Bankruptcy and foreclosures
have traditionally been slow and inefficient in Croatia. The World
Bank has estimated that the recovery rate in Croatia is
approximately 44 percent of the Organization for Economic
Cooperation and Development (OECD) average, and somewhat better than
the regional average.

18. The Commercial Court has exclusive jurisdiction over bankruptcy
matters. A bankruptcy tribunal decides on initiating formal
bankruptcy proceedings, appoints the trustee, reviews creditor
complaints, approves the settlement for creditors, and decides on
the closing of proceedings. The bankruptcy judge supervises the
trustee (who represents the debtor) and the operations of the
creditors' committee. A creditors' committee is convened to protect
the interests of all creditors during the proceedings, to oversee
the trustee's work and to report back to the creditors. The law
establishes the priority of creditor claims, assigning higher
priority to those related to taxes and revenues of state, local and
administration budgets. The law also allows for a debtor or the
trustee to petition to reorganize the firm, an alternative aimed at
maximizing asset recovery and providing for fair and equitable
distribution among all creditors.

19. Arbitration is available, although underutilized. Within the
Croatian Chamber of Economy, there is a permanent arbitration court
that has been in existence since 1965 (see
www.hgk.hr/wps/portal/!ut/p/.cmd/cl/.l/hr). Arbitration is
voluntary and conforms to UNCITRAL model procedures. The court
received 102 new cases in 2009 of which a few concern EU countries;
however there are currently no issues involving the US.

20. The English-language text of the Law on Arbitration can be
found on the website of the Croatian Chamber of Economy
(www.hgk.hr). The law covers domestic arbitration, recognition and
enforcement of arbitration rulings, jurisdictional matters, and
procedures. Once a dispute has been arbitrated the decision is
executed upon notice from the court to the obligatory party. If no
payment is made by the established deadline, then the party
benefiting from the decision notifies the commercial court and the
commercial court becomes responsible for enforcing compliance.
Rulings of the arbitration court have the force of a final judgment,
but can be appealed within three months.

21. Article X of the BIT sets forth several means for resolution of
investment disputes, defined as any dispute arising out of or
relating to an investment authorization, an investment agreement, or
an alleged breach of rights conferred, created, or recognized by the
BIT with respect to a covered investment. For more information on
the BIT arbitration provisions, consult http://tcc.export.gov.

22. Croatia is a signatory to the following international
conventions regulating the mutual acceptance and enforcement of
foreign arbitration: the 1923 Geneva Protocol on Arbitration
Clauses, the 1927 Geneva Convention on the Execution of Foreign
Arbitration Decisions, the 1958 New York Convention on the
Acceptance and Execution of Foreign Arbitration Decisions, and the
1961 European Convention on International Business Arbitration. In
1998 Croatia ratified the Washington Convention - the International
Center for the Settlement of Investment Disputes (ICSID), and it
became effective on October 22, 1998.

A.5 Performance Requirements/Incentives

23. Croatia's WTO Trade Related Investment Measures (TRIMs)

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agreement went into effect in 2000. Croatia has no trade-related
investment measures in place at the present time, nor does the
government intend to introduce any such measures in the future.
Accordingly, Croatia did not seek to list any measures for
elimination under the provisions of the WTO Agreement on TRIMs.
Croatia committed to maintaining measures consistent with the TRIMs
agreement and has applied the TRIMs agreement from the date of
accession without recourse to any transition period.

24. Croatian law does not impose performance requirements on
foreign or domestic investors. Article VII of the BIT prohibits
mandating or enforcing specified performance requirements as a
condition for the establishment, acquisition, expansion, management,
conduct, or operation of a covered investment. The list of
prohibited requirements is exhaustive and covers domestic content
requirements and domestic purchase preferences, the "balancing" of
imports or sales in relation to exports or foreign exchange
earnings, requirements to export products or services, technology
transfer requirements, and requirements relating to the conduct of
research and development in the host country. Article VII makes
clear, however, that a party may impose conditions for the receipt
or continued receipt of benefits and incentives.

25. In late 2004, the Ministries of Economy and Defense agreed to
introduce offsets (a requirement for local sourcing of a portion of
the contract) for defense procurements over 2 million euros, and the
Ministry of Economy said it was looking at introducing offsets in
other areas, however no such action has been undertaken. More
information on application and regulation of the offset program can
be found at www.hgk.hr.

26. The Investment Promotion Law offers potentially significant
incentives (the amount of which is dependent upon the percentage of
unemployment in the respective county) to investors, foreign and
domestic, such as 1500-3000 EUR incentive per new job position,
assistance with retraining and tax incentives. It provides for
incentives that apply only to investments in production based
businesses, technological development centers and strategic business
support activities. The minimum amount of investment that qualifies
for incentives is 300,000 EUR. Tax incentives include substantially
lower profit tax obligations and customs relief. The text of the
law is available on the Croatian National Bank site (www.hnb.hr).

27. Incentives include 10 percent corporate tax for ten years for
companies that invest from 2.2 million to 11 million HRK
(approximately $440,000 - $2.2 million) and create 10 new jobs; 7
percent corporate tax for ten years for companies that invest from
11 million to 30 million HRK (approximately $2.2 million to $6
million) and create 30 new jobs; 3 percent corporate tax for ten
years for companies that invest 30 million to 58 million HRK
(approximately $6 million to $11.6 million) and create 50 new jobs;
0 percent corporate tax for ten years for companies that invest over
60 million HRK (approximately $11.6 million) and create at least 75
new jobs.

28. Incentive measures refer to investment in the following: new
equipment and modern technology, new production processes and new
products, greater employment and education of workers, modernization
and growth of business, development of production with a higher
level processing, an increase in exports, increasing economic
activity in regions of Croatia in which economic growth and
employment levels lag behind national averages (in accordance with
the map of regional areas of special state concern), development of
new services, energy conservation, strengthening information
technology, cooperation with foreign financial institutions, and
harmonizing the Croatian economy with EU standards.

29. Investors may also be eligible to receive assistance from the
government to offset costs of employee re-training. The government
may offer real estate (or permits or infrastructure) to an
investment either cost-free or on a preferential basis. Finally,
the government will allow the duty-free importation of capital
equipment for the investment.

30. The Croatian government also offers incentives for business
activities carried out in the areas of special state concern,
mountain areas and the city of Vukovar. The laws governing business
activities in the areas of special state concern have been
harmonized with EU regulations on state aid. Various categories of
tax incentives are offered per area and further information can be
requested from the Trade and Investment Promotion Agency
(www.apiu.hr).

31. The Trade and Investment Promotion Agency can be helpful in
identifying and applying for investment incentives. Also, the
(separate) Office of Investment and Export Promotion in the Ministry
of Economy can be helpful in looking for incentive information.
Further information can be found on their website at www.mingorp.hr.

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32. Although procedures for obtaining business visas are generally
clear, they can be cumbersome and time-consuming. The requirement
listed in the 2007 amendments to the Law on Foreigners for two-year
residency before the holder of a key personnel visa can obtain visas
for his or her immediate family has been abolished. . Questions
relating to visas and work permits should be directed to a Croatian
embassy or consulate. The U.S. Embassy in Zagreb also maintains a
website with information on this subject at www.usembassy.hr.

A.6 The Right to Private Ownership and Establishment

33. Both foreign and domestic legal entities have the right to
establish and own businesses and engage in remunerative activity.
Foreign investors can acquire ownership and shares of joint stock
companies. The lowest amount of initial capital for establishing a
joint stock company is 200,000 HRK ($40,000) and the nominal value
per share cannot be less than 10 HRK ($2.00). Minimum initial
capital for establishment of a limited liabilities company is 20,000
HRK ($4,000), while individual representation per investor cannot be
less than 200 HRK ($40.00)

As a rule, the import and export of goods are free. Quotas or
protective levies may be introduced in accordance with WTO rules
only as an exception if the balance of payments experiences
disturbances. If the import of certain goods threatens to damage or
damages domestic industry, import quotas may be introduced. Export
quotas may also be set in order to protect national non-renewable
natural resources, accompanied by restrictive measures that limit
internal trade in these products.

34. Article 49 of the Constitution provides assurances that all
entrepreneurs have equal legal status and that monopolies are
forbidden. The Competition Act defines the rules and methods for
promoting and protecting competition. This law and information
about the Croatian Competition Agency can be found at www.aztn.hr.
In theory, competitive equality is the standard applied to private
enterprises in competition with public enterprises with respect to
market access, credit and other business operations, such as
licenses and supplies. In practice, however, state-owned
enterprises and "strategic" firms continue to receive preferential
treatment, including government bailouts and subsidies.

35. The Government's e-government initiative "Hitro" (www.hitro.hr)
has an on-line business registration component that reduces the time
it takes to register a company to four days. Business registration
is the first step in a plan to make more government services
available on-line in coming years and includes the full digitization
of Croatia's land records (see www.pravosudje.hr and www.katastar.hr
to find digitized land records).

A.7 Protection of Property Rights

36. The right to ownership of private property is established in
the Croatian Constitution and numerous acts and regulations
safeguard this right. A foreign physical or legal person
incorporated under Croatian law is considered to be a Croatian legal
person. The Law on Ownership and Property Rights establishes
procedures for foreigners to acquire property by inheritance as well
as legal transactions such as purchases, deeds, and trusts. While
EU member state citizens are afforded the same rights as Croatian
citizens in terms of purchasing property, the right of all other
foreigners to acquire property in Croatia is based on reciprocity.
Reciprocity exists on a state-by-state basis with the United States.
Croatia's Ministry of Foreign Affairs has confirmed the existence
of reciprocity for real estate purchases for residents of the
following states: Alabama, Arizona, Alaska, Arkansas, California,
Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Louisiana,
Maine, Massachusetts, Michigan, Montana, Nevada, New Jersey, New
York, North Carolina, North Dakota, Rhode Island, Tennessee, Texas,
Virginia, Washington, West Virginia, Iowa and Oklahoma (with a
condition of permanent residence). Residents of other states could
face longer waiting periods while the Ministry confirms that
Croatian nationals can purchase real estate in those states without
restrictions. However, a foreign investor, incorporated as a
Croatian legal entity, may acquire and own property without ministry
approval. Purchasing by any private party of certain types of land
(principally land directly adjacent to the sea or in certain
geographically designated areas) can be restricted. Both Croatian
and foreign citizens may mortgage property and pledge real and
tangible property.

37. In order to acquire property by means other than inheritance or
as an incorporated Croatian legal entity, foreign investors require
the approval of the Ministry of Justice. Approval often takes

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several months or longer owing to a lengthy interagency clearance
process. When purchasing land for construction purposes, potential
buyers should determine whether the property is classified as
agricultural land or construction land. Several controversial laws
passed in December of 2008 should be considered when purchasing
land. The Arable Land Law allows for additional fees of 25 percent
or more to be added to the initial cost of land that is to be
converted from agricultural into construction land. The Law on Golf
Terrains allows investors to expropriate land from private owners
and local governments in order to build golf courses. Finally, a
new Agricultural Land Agency came into existence on January 1, 2010.
The role of this agency will be to work with local governments to
review potential agricultural land purchases. In theory, this
mechanism could be used to exclude foreign investors, although it is
too early to assess this Agency's practices.

38. Clarifying Croatia's land registry system is an on-going
process. Although Croatia has made progress resolving a backlog of
cases, potential investors should seek a full explanation of land
ownership rights before purchasing property. It is highly advisable
to seek competent, independent legal advice in this area (see
www.usembassy.hr, Consular section for a list of English-speaking
attorneys), as there are sometimes ambiguous and conflicting claims
to property, making it necessary to verify that the seller possesses
clear title to both land and buildings, which can be titled and
owned separately. Inheritance laws have led to a situation in which
some properties can have dozens of legal owners, some of whom are
long since deceased and others of whom emigrated and cannot be
found. It is also important to verify the existence of necessary
building permits, as some newer structures in coastal areas have
been subject to destruction at owner's expense and without
compensation for not conforming with local zoning regulations.
Investors should be particularly wary of promises that structures
built without permits will be regularized retroactively.

39. Some aspects of land ownership, as distinct from ownership of
objects, are not clear. Investors interested in acquiring companies
from the Croatian Privatization Fund should seek expert legal advice
to determine whether any deal also includes the right to ownership
of the land on which an object is located, or merely the right to
lease the land through a concession. The various Croatian laws on
privatization are not clear on this point.

40. Inconsistent regulations and restrictions on coastal property
ownership and construction have in the past provided challenges for
foreign investors. Legislation restricts coastal construction and
commercial use within 70 meters of the coastline.

41. Croatia has intellectual property rights legislation, including
the Patent Law, Trademark Law, Industrial Design Law, Law on the
Geographical Indications of Products and Services, Law on the
Protection of Layout Design of Integrated Circuits, and Law on
Copyrights and Related Rights. Although some areas of IPR
protection remain problematic, Croatia is currently not on the U.S.
Special 301 Watch List. Problem areas continue to be concentrated
in piracy of digital media and counterfeiting.

Due to its geographical position, Croatia is also one of the transit
routes for various contraband products bound for other countries in
the region.

42. As a full WTO member, Croatia is a party to the Uruguay Round
Agreement on Trade-Related Intellectual Property Rights (TRIPS). A
WTO/TRIPS Working Group in June 2001 accepted Croatia's IPR
legislation. Texts of these laws are available on the website of
the State Intellectual Property Office: www.dziv.hr. Croatia is
also a member of the World Intellectual Property Organization
(WIPO). For a list of international conventions to which Croatia is
a signatory, consult the State Intellectual Property Office's
website.

A.8 Transparency of the Regulatory System

43. Croatia is under pressure to increase transparency and its
commitments to adopt EU laws, norms, and practices provide steady
pressure for reform. Nevertheless, bureaucracy and regulation
continue to be overly complex and time consuming.

44. In 2006, the Croatian government, with the assistance of USAID,
began the Hitrorez project, which aimed to remove needlessly complex
bureaucracy as an obstacle to investment, targeting the 1451 laws
and regulations that affect business in Croatia. The project made
progress and by the end of its first phase in mid-2007, Hitrorez had
identified 799 regulations for simplification or elimination.
Recommendations for 500 of the regulations were accepted, and 359
implemented as of January 2009, but the office was then shut down,
due to excessive media criticism of the program, reporting that

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Hitrorez was too expensive and not effective. Although Hitrorez has
been closed, the program continues through the government's
Legislation Office, which is currently preparing to fully implement
the work of the original project. At the time of writing this
report, the office did not have current data.

45. Legislation on public procurement, accounting and financial
security was passed in 2007 with the intent to increase
transparency. An amended Company Law was passed in December 2008.
The procurement law provides for greater transparency with the
introduction of electronic auctions, definitions of special
procurement procedures and framework agreements, as well as
publication of all procurement procedures over 70,000 HRK ($14,000).
The Accounting Law includes reporting provisions according to which
large companies will apply International Financial Reporting
Standards, while small and medium businesses will apply Croatian
Financial Reporting Standards. Progress, however, is still necessary
in this area.

46. Bureaucracy is still a major challenge for foreign investors,
although the government has made progress in this area, particularly
through the development of its e-government initiatives (see
paragraph 34). Property registration, for example, has
traditionally been notoriously inefficient, sometimes taking up to
several years. However, recent reforms and the digitization of the
land registers are hopeful signs that this problem will be mitigated
in the near future (see paragraph 34). A valuable source of
analysis is located on the website of the Croatian office of the
World Bank, at www.worldbank.hr. Click on the link for the "Doing
Business in Croatia Forum."

47. The regulatory system does not specifically discriminate against
foreign investors. However, transparency in developing legislation
and regulation is often hampered by an inefficient public
administration, a lack of intra-governmental coordination, and
reliance on expert advice from national champions, sometimes giving
the latter a privileged position in influencing new regulations.

48. Tax on corporate income is a flat 20 percent. There is a 15
percent tax on interest revenue and royalties. In 2005, tax on
dividends was eliminated as a spur to investment. For a detailed
description of extant tax legislation, please consult the Tax
Administration's website at www.porezna-uprava.hr/en/index.asp.
Detailed information about customs can be found at www.carina.hr.

49. The Institute of Public Finance maintains a useful table of
Croatian taxes at www.ijf.hr/eng/taxguide/08_05/taxtable.pdf.
Croatia also maintains a 23 percent value-added tax (VAT). Some
companies have had difficulty with the tax authorities due to
differing understandings of how certain goods and services are
affected by the VAT.

A.9 Efficient Capital Markets and Portfolio Investments

50. Croatia's securities markets are open to both domestic and
foreign investment equally. There are no restrictions that would
disrupt foreign investment in the securities market and other
markets in Croatia. Foreign residents may open non-resident
accounts and may do business both domestically and abroad. Article
24 of the Foreign Currency act states that non-residents may
subscribe, pay in, purchase or sell securities in the Republic of
Croatia in accordance with regulations governing securities
transactions. Non-residents and residents are afforded the same
treatment in spending and borrowing. These and other non-resident
financial activities regarding securities are covered by Articles
24, 25 and 27 of the Foreign Currency Act, which can be viewed on
the Central Bank website (www.hnb.hr).

51. The current Capital Market Act that entered into force on
January 1, 2009. The Act focuses on (1) the regulation of
establishment of activities, supervision and cessation of investment
companies, market operators and operators of payment and settlement
systems; (2) the offering of investment services and the performance
of investment activities; (3) the rules of trading on the organized
market; (4) the offering and quotation of securities on the
organized market; (5) the reporting requirements on connection with
securities quoted on the organized market; (6) market abuse; (7) the
deposit of financial instruments and the settlement and payment of
transactions with financial instruments; and (8) the authority and
activities of the Croatian Financial Services Supervisory Agency
(HANFA) in connection with implementation (see paragraph 53). The
new Act has also made clearer the details of required disclosures
and the consequences of a failure to disclose. It specifies in much
greater detail who is responsible for information listed in a
prospectus, and obligates the issuer to publish periodic financial
reports as well as information about changes in corporate structure
and voting rights. The new Act will improve securities regulation

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and will increase transparency. Experts have said that it will
cause some investment companies to disappear while making others
stronger.

52. Croatia's capital markets did not do well in 2009. Transactions
on the Zagreb Stock Exchange in 2008 were 31.06 billion HRK
(approximately $6.03 billion), of which 11.69 billion HRK
(approximately $2.27 billion) was in institutional turnover. In
2009, transactions were substantially lower, totaling 10.91 billion
HRK (approximately $ 2.14 billion) of which 2.98 billion HRK
(approximately $ 0.59 billion)was institutional turnover. According
to the Central Depository Agency records, approximately 856,000
Croatian citizens now own stocks.

53. The Investment Fund Law provides for the establishment of
derivative funds, index funds and other funds in accordance with EU
legislation.

54. The Agency for Supervision of Financial Services (HANFA),
headed by the Directorate for Supervision of Agencies oversees the
capital market in Croatia. See www.hanfa.hr for all legislation and
information relative to capital markets. Only an authorized company
(brokerage houses and banks)
may deal in securities in Croatia. Such activity must be licensed
by the Croatian Financial Services Supervisory Agency and entered in
a court register.
A brokerage company may only be a private or public
limited company based in the Republic of Croatia. Its only
permitted activity is transactions in securities. The type of
permitted activity depends on the amount of share capital. In
accordance with national law, a brokerage company may establish a
branch abroad in order to deal in securities in the respective
country. Foreign brokerage companies authorized for transactions in
securities may establish a branch in the Republic of Croatia,
provided they obtain a license from HANFA.

55. The privatized and consolidated banking sector is advanced and
is becoming more competitive. More than 90 percent of the total
assets of the banking sector are foreign owned. As of November of
2009, there were 32 commercial banks and two savings banks, whose
assets totaled 373.9billion HRK ($75 billion). The three largest
banks, all foreign owned are: Zagrebacka Bank, total of 92.2 billion
HRK in assets and holds24.2 percent of total bank assets in Croatia;
Privredna Bank, with 62.5 billion HRK or 16.4 percent; and Erste
Steirmarkische Bank, with 47.9 billion HRK or 12.57 percent of total
bank assets in Croatia.

56. The government uses the market to finance government
expenditure. Government debt instruments must be bought through an
intermediary such as a commercial bank, and are tradable on
exchanges. All Croatian workers under age 40 are required to pay
five percent of their gross salary into a pension fund of their
choice. EU Pillar III (additional voluntary savings with government
matching of 25 percent) has also been introduced.
57. Currently, securities are traded on the Zagreb Stock Exchange
(ZSE), established in 1991. The Varazdin Stock Exchange (VSE), which
was established in 1993 as an over-the-counter (OTC) merged into the
ZSE in 2007. The OMX X-Stream trading system is now used on the ZSE.
There are three tiers of securities traded on the ZSE. Companies
must meet high disclosure and operating requirements to be fully
listed (quotation I). A detailed explanation of all requirements is
provided at www.zse.hr in English. The ZSE's new Rules, which
entered into force on 20 July 2009, can be found at www.zse.hr.

58. The Securities Law requires that all companies with more than
100 shareholders and with share capital of at least HRK 30 million
(approximately $5.4 million) be listed on the newly established
quotation for public stock companies (JDDs). The intention was to
increase transparency and encourage companies to obtain low cost
equity financing, which would result in increased turnover and trade
volumes.

59. Measures that govern takeovers are prescribed by the Law on
Takeovers of Joint Stock Companies, which was passed in 2007 and
replaced all earlier laws regulating takeovers. The Law on Takeovers
has been harmonized with laws applicable to EU member states, in
anticipation of Croatia's accession to the EU. The Law on Takeovers
regulates takeovers in a way that is similar to that of many EU
member states.
The Law was amended in order to improve shareholders' protection in
the takeover process and to provide unambiguous rights and
obligations of the acquirers. To date, there has only been one
attempted hostile takeover, which failed.

60. The Croatian Chamber of Economy provides a useful summary of
the capital markets in Croatia at www.hgk.hr.

A.10 Competition from State Owned Enterprises (SOE's)

ZAGREB 00000034 009.2 OF 015

61. Legislation provides that private enterprises are allowed to
compete with public enterprises under the same conditions with
respect to access to markets, credit and other business operations.
In practice, however, while there is not concrete evidence, there
are often accusations that political influence in the SOE's
influences competition and tenders.

62. SOE's are active in railways, electricity, shipbuilding and
various tourism related companies. A list of SOE's is available at
www.hfp.hr.

63. The supervisory boards of SOEs are currently structured to
include government figures, often ministers. Due to recent
allegations of corruption in various SOE's, the government has
proposed to change the procedure of appointing political persons to
the boards of SOE's. Instead, the government is suggesting that
apolitical, professional persons should be appointed. Under current
procedure, the SOE boards of management report directly to the
government.

64. SOEs are required to submit annual reports and are also required
to undergo independent audits.

A.11 Corporate Social Responsibility

65. The Croatian Business Council for Sustainable Development
(www.hrpsor.hr) implements corporate social responsibility and is a
member of CSR Europe's Network of National Partner Organizations,
Global Compact and the Global Reporting Initiative. The Croatian
Chamber of Economy adopted a Code of Business Ethics in 2005 and
founded the Community for Corporate Social Responsibility.

66. The Croatian Business Council for Sustainable Development and
the Croatian Chamber of Economy has created a Socially Responsible
Practices Index. The two organizations ask, annually, 1500 small and
medium enterprises to answer a questionnaire and then rate the
companies' socially responsible practices. The Index results for
2008 are public and are published at www.hrpsor.hr/dop.html#28.

A.12 Political Violence

67. The risk of political violence in Croatia is low. Following
the breakup of Yugoslavia and the subsequent wars in the region,
Croatia has emerged as a stable, democratic country and the newest
member of NATO. Membership in the European Union is also likely in
the coming years. Relations with neighboring countries are
generally good and improving, although some disagreements regarding
border demarcation remain.

68. There is little domestic anti-American sentiment. There have
been no incidents involving politically motivated damage to American
projects or installations in Croatia.

A.13 Corruption

69. Corruption remains a serious problem in Croatia but the number
of high profile corruption prosecutions is increasing. The EU
highlighted corruption as one of the challenges remaining in
Croatia's EU accession process. The Government of Croatia (GOC)
recognizes corruption as a problem and, at the highest political
levels, has shown a willingness to combat corruption. In 2009, the
GOC gave special attention to the legal and institutional framework
used to combat corruption by reforming investigations,
prosecutions, and interagency and international cooperation.

70. The prosecutor and police Offices for Suppression of Corruption
and Organized Crime (USKOK and PN-USKOK, respectively) are the main
law enforcement bodies responsible for fighting corruption.
PN-USKOK was established in April 2009, but was not a fully
functional unit until September 2009. The GOC also created special
anticorruption and organized crime departments at the four largest
courts in Croatia where judges are screened and receive additional
training and higher pay for working on USKOK cases. The Ministry of
Justice's Anticorruption Office monitors the implementation of
anticorruption measures throughout the government and oversaw a
large anticorruption public relations campaign in the spring and
summer of 2009. In 2009, the number of cases prosecuted by USKOK
increased substantially in comparison with previous years,
particularly high-profile cases involving indictments against former
ministers and parliamentarians, professors, judges, and high-ranking
civil servants.

71. The Croatian Criminal Code and the Criminal Procedure Act
provide for the prosecution of different forms of corruption and
similar criminal acts. In December of 2008, Croatian Parliament
adopted the new Criminal Procedure Act and the Amendments to the

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Penal Code. One of the most important changes in the amended Penal
Code is Article (82) titled "Confiscation of Pecuniary Gain Acquired
by a Criminal Offense." Although the provision 82 existed in the
old Penal Code, the new amendments to this provision broadened the
possibility for asset seizure and forfeiture, especially for USKOK
cases. According to the amendments, if a case falls under the
authority of the specialized prosecutors who work in the Office for
Suppression of Organized Crime and Corruption or USKOK, it shall be
assumed that all of defendant's property was acquired by criminal
offences, unless defendants could prove legal origin of the assets.
The pecuniary gain in such cases shall also be confiscated if it is
in possession of a third party (e.g. spouse, relatives, and family
members) on any legal ground and it has not been acquired in good
faith. The burden of proof would be on defendants to prove legal
origin of assets, not on the prosecutors.

72. Additional laws that deal with suppression of corruption include
the Act on the Office for the Prevention of Corruption and Organized
Crime (Law on USKOK), the State's Attorney Office Act, the Public
Procurement Act, the Budget Act, the Courts Act, the Conflict of
Interest Prevention Act, the Corporate Criminal Liability Act, the
Money Laundering Prevention Act, the Witness Protection act, the
Personal Data Protection Act, the Right to Access to Information
Act, the Act on Public Services, the Code of Conduct for Public
Officials, and the Code of Conduct for Judges. The Croatian
Criminal Code covers such acts as trading in influence, abuse of
functions, bribery in the private sector, and embezzlement of
property in the private sector, and concealment and obstruction of
justice.

73. Croatian laws and provisions regarding corruption apply equally
for both domestic and foreign investors. According to the head of
the state prosecutor's office for the suppression of corruption and
organized crime (USKOK), the most recent prosecutions for corruption
involve mostly Croatian citizens.

74. Croatia has ratified the United Nations Convention Against
Transnational Organized Crime and the United Nations Convention
Against Corruption. It has also ratified both the Council of
Europe's Criminal and Civil Law Conventions on Corruption. Croatia
has not ratified the OECD Convention on Bribery.

75. Croatia is a member of the Group of States Against Corruption
(GRECO), a peer monitoring organization that allows members to
assess anticorruption efforts on a continuing basis. An evaluation
of Croatia, including suggestions and opinions on Croatia's progress
in its fight against corruption, can be found on GRECO's website.
Croatia has been a member of Interpol since 1992. Croatia also
cooperates regionally through the Southeast European Co-operative
Initiative (SECI), the Southeast Europe Police Chiefs Association
(SEPCA), and the Central European Initiative (CEI).

76. According to public opinion polls, corruption is perceived to be
pervasive in major public companies, the health sector,
universities, public procurement systems, the construction sector,
land registry offices, and the privatization fund. Foreign
investors, including US companies, have expressed general complaints
that the level of corruption is a barrier to investment.

77. Giving or accepting a bribe is a criminal act. The minimum
prison sentence for an act of bribery (Articles 348(1) and 294b (1),
Criminal Code) is six months and the maximum sentence is three
years. In two forms of passive bribery (Articles 347 and 294 (A),
Criminal Code), sentences range from one to eight years
imprisonment, depending on the crime. Bribes by a local company to
a foreign official are punishable under Croatian law. If it is
established that a local company is the legal entity committing
crimes, that company might receive a ban for conducting operations,
depending on the gravity of the crime.

78. The Office for the Suppression of Corruption and Organized Crime
(USKOK) is tasked with directing police investigations and
prosecuting corruption and organized crimes cases. USKOK is
headquartered in Zagreb with branch offices in Split, Rijeka and
Osijek. In addition, the newly established National Police Office
for the Suppression of Organized Crime and Corruption (PN-USKOK)
conduct USKOK-related investigations and are based in the same
cities as the corruption prosecutors. Specialized criminal judges
are situated at the four largest County Courts in Croatia, again in
Zagreb, Rijeka, Split, and Osijek, and are responsible for
adjudicating corruption and organized crimes cases, which are given
high priority in the justice system. The Ministry of Interior, the
Office for Suppression of Money Laundering, the Tax Administration,
the Anti-Corruption Unit of the Ministry Of Justice and the National
Council for Monitoring the Implementation of the National Program
for Suppression of Corruption all have a proactive role in combating
and preventing corruption.

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79. Transparency International Croatia is the main non-governmental
watchdog organization in Croatia. In addition, GONG, a non-partisan
citizens' organization founded in 1997, monitors election processes,
educates citizens about their rights and duties, encourages mutual
communication between citizens and their elected representatives,
promotes transparency of work within public services, and manages
public advocacy campaigns and encourages and helps citizens in
self-organizing initiatives. The Partnership for Social Development
is another NGO that deals with the suppression of corruption.

A.14. Bilateral Investment Agreements

80. Croatia does not have a foreign investment law; foreigners
receive national treatment under existing legislation. In addition,
investments by American citizens are covered by the U.S. Croatian
Bilateral Investment Treaty (BIT), which entered into force in June
2001. The treaty fulfills the principal U.S. objectives for
agreements of this type:

-- All forms of U.S. investment in the territory of Croatia are
covered;

-- Covered investments receive the better of national treatment or
most-favored-nation (MFN) treatment, both while they are being
established and thereafter, subject to certain specified
exceptions;

-- Specified performance requirements may not be imposed upon or
enforced against covered investments;

-- Expropriation is permitted only in accordance with customary
international law standards;

-- Parties are obligated to permit the transfer, in a freely usable
currency, of all funds related to a covered investment, subject to
exceptions for specified purposes;

-- Investment disputes with the host government may be brought by
investors, or by their covered investments, to binding international
arbitration as an alternative to domestic courts.

81. For further information about BITs and for the text of the
U.S.-Croatian BIT please see www.mac.doc.gov/Tcc/e-guides/eg_bits
(under "Croatia").

82. Croatia has signed investment protection treaties/agreements
with the following countries, however, not all have entered into
force:

Albania, Argentina, Austria, Belgium, Belarus**, Bulgaria, Bosnia
and Herzegovina, Czech Republic, Chile, Denmark, Egypt, Finland,
France, Great Britain, Greece, Germany, India, Indonesia**, Iran,
Italy, Israel, Jordan, Kuwait, Cambodia, Canada, Qatar*, China*,
Cuba**, Latvia, Libya, Lithuania, Hungary, Macedonia, Malaysia*,
Malta, Republic of Moldova**, Netherlands, Northern Ireland, Oman**,
Poland, Portugal, Romania, Russia*, United States, Serbia
Montenegro, Slovakia, Slovenia**, Spain, Sweden, Switzerland*,
Thailand*, Turkey, , Ukraine, Zimbabwe*.
(* = ratified, but not in force) (** = not ratified or in force)

A.15 OPIC and Other Investment Insurance Programs

83. Croatia is eligible for financing and political risk insurance
coverage from the U.S. Overseas Private Investment Corporation
(OPIC). In 2004, OPIC provided $250 million in political risk
insurance to support financing for the construction of a motorway in
Croatia that will do much to improve the country's infrastructure,
reduce transportation costs, and develop the tourism potential of
the Dalmatian coast. OPIC provided the insurance to Private Export
Funding Corporation (PEFCO) to support PEFCO's financing to Croatian
Motorways, ltd. for construction of a portion of the Zagreb-Split
motorway, consisting of a tolled four-lane highway connecting
Bregana and Zagreb, and Bosiljevo with Sveti Rok. For more
information about OPIC, see www.opic.gov.

Croatia is a member country of the Multilateral Investment Guarantee
Agency (MIGA), for more information see www.miga.org.

84. In the event that OPIC should pay an inconvertibility claim
under its political risk coverage, the local currency accepted by
OPIC in any subsequent recovery would be made available to the
Embassy on a priority basis for U.S. Government expenses. The
estimated annual U.S. dollar value of local currency used by the
Embassy was approximately $13 million for 2009. The Embassy
currently purchases local currency from a local commercial bank at

ZAGREB 00000034 012.2 OF 015

the market rate. A major devaluation is considered unlikely.

A.16 Labor

85. Croatia has an educated, highly-skilled, and relatively high
cost labor force compared with the region. In general, employer's
wage costs are approximately 110 percent of an employee's net wage.
The estimated average cost to employers in Croatia was 7,569 HRK
(approximately $1544.69) per month as of November 2009 and the
average net wage was 5,236 HRK ($1068.57). The manner of calculating
minimum wage was amended in 2008 per the Minimum Wage Act. The Act
introduced a substantial one-time wage increase and the adjustment
formula stipulated by the Act ensures a continuous minimum wage
increase over a longer period of time. Minimum wage raises will be
calculated from the minimum-to-average-wage ratio from the previous
year, increased by the percent equal to real GDP growth in the
previous year. Certain suggested alternative calculations for
various sectors are under review by the constitutional court.

86. Croatia's labor laws are aimed at increasing labor market
flexibility by shortening the mandatory notification period before
dismissal and reducing generous severance package requirements.
However, Croatia still fares badly in terms of time and expense in
hiring and firing employees. Labor has generally been supportive of
government efforts to boost competitiveness and welcomes foreign
investment, but remains concerned about any possible cuts in social
spending.

87. The Law on Labor regulates employee and employer relations
through "employment contracts." Fulltime employment must not amount
to more than 40 hours per week and employees are entitled to at
least four weeks of paid annual leave and seven days of personal
leave. The Law on Labor also provides special protections for
workers in dangerous occupations, work at night, and work by minors
between the ages of 15 and 18. The Law on Labor was amended in
November 2009 to further enforce the rights of workers. The
amendments prescribe that the amount of overtime hours per week
cannot exceed eight, as opposed to the previous ten, and the minimum
amount of annual leave is set at four weeks and cannot include
holidays or days off. The amendments also address improved
organization of shift work, on-call work and night hours, as well as
protection of under-age employees and the general safety and health
protection of all employees.

88. Chapter 7 of the Law on Foreigners covers the issuance of work
permits. While there are quotas (determined annually) for work
permits, there are no quotas for foreigners who execute key
positions in companies or representative offices. Likewise, there
are no quotas for business visas.

89. Workers are entitled by law to form or join unions of their own
choosing, and workers exercised this right in practice. In general,
unions were independent of the government and political parties.
The Labor Code prohibits anti-union discrimination and expressly
allows unions to challenge firings in court; however, in general,
attempts to seek redress through the legal system were seriously
hampered by the inefficiency of the court system.

A.17 Foreign Trade Zones/Free Ports

90. Croatia has several Free Trade Zones (FTZs), some in
war-affected areas. Special incentives are offered to users of
FTZs.

91. The Law on Free Trade Zones allows a foreign-owned or domestic
company in FTZs to engage in manufacturing, wholesale but not retail
trade, foreign trade, banking and other financial activities.
Articles 37a and 37b of the Law on Free Trade Zones define the
payment structure for profit taxes up through 2017. The Law on
Profit Tax also covers business in FTZs. FTZ users are eligible for
tariff waivers on imported products. .

92. FTZs are exempted from any Croatian emergency measures or other
restrictions pertaining to foreign trade or hard currency
transactions. Users of the zones may freely store their goods and
production equipment in the zones. Goods that are not intended for
trade on the Croatian market or for domestic consumption are fully
exempt from custom duties or taxes. Imported goods will be taxed
and assessed duties per the value of the production materials
imported for the product and not per the value of the finished
product.

93. The following fifteen counties currently have FTZS: Buje,
Krapina-Zagorje, Osijek, Rijeka, Slavonski Brod, Split,
Splitsko-Dalmatinska County, Obrovac, Ploce, Pula, Kukuljanovo,
Varazdin, Zagreb, Vukovar, and Ribnik counties. As mentioned

ZAGREB 00000034 013.2 OF 015

previously, EU accession will force the Government to make changes
in the free trade zone system and the incentives system associated
with them.

A.18 Foreign Direct Investment Statistics

94. Compared to other advanced transitional economies in the
region, Croatia is in the middle group in terms of foreign direct
investment (FDI). New or green-field investments have seen
particularly slow growth. According to the Trade and Investment
Promotion Agency, there was one large-scale foreign investment
project initiated this year (see list below paragraph 85).
Privatization of strategic government-owned assets has been the main
source of FDI since Croatian independence. Large state assets such
as utilities, the state insurance company and banks, are being sold
by the government, usually through international tenders, and in
some cases, through initial public offerings (IPOs), as was the case
with the state oil company, INA, and the national telecom, HT. The
Croatian Privatization Fund, the agency responsible for the sale of
other assets, has shares and stock in 1112 (mostly non-performing)
companies. The state's share of the equity base value of these
companies is about 21.8 billion HRK ($4.36 billion). Information
regarding the Croatian Privatization Fund, including information on
companies currently for sale, can be found on its website,
www.hfp.hr.

95. There were no significant sales made by the government in terms
of privatization efforts in 2009. There was an attempt at the long
awaited privatization of the shipbuilding industry; however, no
bidders satisfied tender conditions and a second round of tenders is
set for an undetermined date at the start of February 2010.

96. Foreign Direct Investment between 1993 and the second quarter
of 2009 totaled $32.9 billion, with investments in the financial,
chemical and telecommunications sector accounting for 57 percent of
total investment. Croatian firms invested $3.6 billion abroad
between 1993 and the second quarter of 2009. It is estimated that
inflow FDI for the first two quarters of 2009 amounted to 2 percent
of GDP and that outflow FDI for the first two quarters of 2009 is
estimated at under one percent.

97. According to official statistics from the Croatian National
Bank, Austria is the largest source of foreign investment in
Croatia, accounting for 29.1 percent of total FDI since 1993. The
Netherlands is second with 15.4 percent of total FDI, followed by
Germany with 12percent and Hungary with 9 percent. Because
transactions are often executed through third countries and the
Croatian National Bank records country of origin of the final
transaction leading to the investment, in many cases, this results
misleading statistics. The U.S. Embassy Zagreb estimates that the
actual amount of U.S. investment in Croatia was approximately $ 2.5
billion. However, the US investment referenced to in recent years
was the purchase of Pharmaceutical company Pliva by US company Barr
Pharmaceuticals, which was bought out at the global level by Israeli
Teva in December 2008 (see list in paragraph 98). The leading
destinations for total Croatian investment, from 1993 to the second
quarter 2009, were the Netherlands with 21, Serbia with 20 percent
and Bosnia-Herzegovina with 19 percent. In the first two quarters
of 2009, Croatians invested approximately $93 million abroad. For
just 2009, The Netherlands was the lead investment destination,
followed by Switzerland and Serbia.

98. The Croatian National Bank provides information about foreign
investments in aggregate form which can be found on their website at
www.hnb.hr. The following includes some major ($20 million and
above) foreign investments in Croatia to date listed at investment
value at the time of the transaction (current values are not
available):

Foreign investor: GP&Partners (Dutch)
Corn starch factory
Value: $103 million

Foreign investor: Barr Pharmaceuticals (U.S)
Pharmaceuticals (which was bought out by Israeli Teva in December
2008)
Croatian company: Pliva
Value: $2.3 billion

Foreign investor: Deutsche Telekom (Germany)
Telecommunications
Croatian Company: Croatian Telecom (51 percent of shares)
Value: $1.272 billion

Foreign investor: MOL (Hungary)
Oil Industry
Croatian Company: INA d.d. (26 percent of shares in 2003 plus 21.15

ZAGREB 00000034 014.2 OF 015

percent in 2008)
Value: $505 million + $1.3 billion

Foreign investor: Lactalis (France)
Dairy
Croatian company: Dukat
Value: $400 million

Foreign investor: Banca Commerciale Italiana (Italy)
Banking/financial services
Privredna Banka (66.66 percent of shares in 1999 plus 10 percent in
2002)
Value: $300 million + approximately $50 million, according to media
reports

Foreign investor: Unicredito Italiano (Italy)
TAKEN OVER BY BANK AUSTRIA IN 2007
Banking/financial services
Zagrebacka Banka (96 percent ownership)
Value: $230 million (estimate)

Foreign investor: Erste und Steiermarkische Bank (Austria)
Banking/financial services
Rijecka Banka (85 percent share)
Value: $155 million

Foreign investor: Austria Creditanstalt Group (HVB Group) (Austria)
TAKEN OVER BY SOCIETE GENERAL IN 2006
Banking/financial services
Splitska Banka (88 percent ownership)
Value: $132 million

Foreign investor: Heineken N.V. (Netherlands)
Brewery
Karlovacka Pivovara company (94.42 percent)
Value: $125 million

Foreign investor: Rockwool Group (Denmark)
Stone wool producers
Value: $110 million

Foreign investor: Sutivan Investment and Excelsa Anstalt
(Lichtenstein)
Hotels and tourism
Plava Laguna (81.5 percent)
Value: $70 million

Foreign investor: CMC (U.S / Switzerland)
Steel
Croatian company: Sisak Steel Company
Value: $52 million

Foreign investor: Ericsson (Sweden)
Telecommunications
Tesla Company
Value: $48 million

Foreign investor: Hofmann and Pankl Betelligungasse (Austria)
Minerals processing
Straza Company
Value: $39 million

Foreign investor: Societe Suisse de Cemment Portland (Switzerland)
Cement
Tvornica Cementa Koromacno company
Value: $38 million

Foreign investor: Applied Ceramics (U.S)
Semi-conductor components
Value: $30 million

Foreign investor: Interbrew (Belgium)
Brewery
Zagrebacka Pivovara company
Value: $27 million

Foreign investor: Coca Cola Amatil (Australia)
Non-alcoholic beverages
Croatian company: n/a
Value: $20 million

Foreign investor: Hospira (U.S)
Specialty pharmaceutical company
Croatian company: n/a
Value: unknown

Foreign investor: L&P Technology
Mattress components

ZAGREB 00000034 015.2 OF 015

Croatian company: n/a
Value: Between $15-20 million

FOLEY

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