Newest EU Members Not to Be Overlooked

The old Iron Curtain is looking like a gold mine for U.S. businesses.

This weekend, 10 new countries join the European Union, including the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia. (The other two entrants are the Mediterranean island states of Cyprus and Malta.)

With so much focus on the economies of China and India, it wouldn’t be surprising if many Americans greeted the EU’s expansion to 25 members with little more than a yawn. To do so, though, would be to overlook one of the major international growth prospects beckoning U.S. corporations.

Indeed, American firms have about 60% more invested in Eastern Europe -- more than $16 billion -- than they do in China, according to Joseph Quinlan of Banc of America Capital Management. Major U.S. companies, including UPS Inc. and General Electric Co., have been operating in Eastern Europe for 10 to 15 years.

With the reunification of the two sides of Europe -- a development that promises to bring greater security for those who put their money in the region and a chance to reach a larger single market -- that trend will only accelerate.

Most of the countries joining the EU spent the decades from 1940 to 1990 under the fascism of Germany or Russia’s communist control. These experiences left them poor and struggling and without the basic building blocks for economic prosperity.

U.S. business is only too happy to step in and help. “There is a huge opportunity in infrastructure development,” says Nani Becalli, head of European operations for GE, which has interests in railroad and aircraft equipment, power development and water treatment.

The countries of Eastern Europe also need to attend to environmental damage long ignored -- an issue that will become all the more urgent as tough EU rules take hold.

“We were given 85,000 pages of EU regulations to translate,” says Hynek Kmonicek, the Czech Republic’s ambassador to the United Nations, only half-joking.

As with infrastructure, these green issues will mean greenbacks for U.S. companies.

“Environmental services is already a good market in the states entering the EU now,” says A.J. Goulding, head of London Economics International, a Boston-based consulting firm. But Romania and Bulgaria, which will enter the EU in 2007, “are now desperate for help in getting their environment up to EU requirements.”

Many environmental and engineering companies in Southern California -- including Fluor Corp., Aecom Technology Corp. and Jacobs Engineering Group Inc. -- may benefit. Long Beach-based Earth Technology Inc., a subsidiary of Tyco International Ltd., already has landed a $9-million contract for environmental remediation of a former Soviet airbase at Hradcany in the Czech Republic.

Yet as wide open as these Eastern European states are, they are not typical developing countries.

Most have extraordinary levels of education -- about 95% male and female graduation rates from secondary schools, considerable prowess in math and science, and long traditions of academic and technological excellence.

Such capabilities are prized by U.S. companies. For example, Gilead Sciences Inc., of Foster City, Calif., licensed the basic formula for its anti-viral drugs against HIV and hepatitis B infections from the Czech Institute of Organic Chemistry and Biochemistry in Prague. GE is collaborating in nanotechnology research with Szeged University in Hungary.

“General Electric came to our country 15 years ago to buy a light bulb plant,” notes Odon Kiraly, consul general of Hungary in Los Angeles. “Now it is doing research.”

It isn’t just big companies that smell opportunity. Sven Oehme, who runs a New York-based service called European-American Business to introduce small companies on both sides of the Atlantic to each other’s markets, plans to take tiny BarrierMed Glove Inc.’s specially treated surgical gloves to Poland. “The product could succeed,” Oehme says, “because they have good medical systems there.”

To be sure, there are doubters. Some experts think that the EU’s Brussels-based, regulation-happy central administration will smother the entrepreneurial initiative of the new member countries. Ominously, German Chancellor Gerhard Schroeder did not welcome the newcomers in a speech Friday to his parliament in Berlin. Rather, he demanded that the Eastern countries end their practice of offering low tax rates to corporations to attract investment.

The Eastern European states “could be joining the Titanic,” says futurist Alvin Toffler, who sees the EU as a “technophobic, overly centralized” relic from an earlier industrial age rather than a beacon for the future.

But Sri Kumar, who manages investments in emerging markets for Los Angeles-based Trust Co. of the West, sees things differently. Kumar believes the Eastern European countries, with economic growth rates outpacing their Western counterparts and “new capitalist energies could reinvigorate the EU.”

Time will tell who’s right. But say this for the eager industrialists and entrepreneurs of Eastern Europe: After surviving 40 years under the lethal rule of commissars, it’s a good bet they won’t roll over for a bunch of Brussels bureaucrats.

James Flanigan can be reached at jim.flanigan @latimes.com. For previous columns, go to latimes.com /flanigan.