The legal framework for private sector activity in the Czech and Slovak Federal Republic

Since its velvet revolution in late 1989, the Czech and Slovak Federal Republic (CSFR) has moved steadily to create the conditions for developing a private market economy. Not only has the CSFR freed up the conditions for entry of new private firms, but it has also taken far-reaching steps to return property to former owners and to privatize large parts of its state-owned industry. For this emerging private sector to thrive, there must be a clear legal framework to provide decentralized rules of the game. The author describes the evolving legal framework in the CSFR in several key areas: property, contract, company law, foreign investment, bankruptcy, and antimonopoly law. Essentially the same legal framework exists in the Czech and Slovak republics, although the legal frameworks of the two could diverge considerably in the coming months and years if the country separates, as is expected. The CSFR differs somewhat from its Central and Eastern European neighbors, especially Poland and Hungary, in that its pre-war legal system was more thoroughly abrogated during the socialist period. So, fewer people are familiar with market-oriented legal principles and practices. On the other hand, in 1989 the CSFR had the advantage of starting with a relatively clean slate on which to craft modern laws. In some areas of law - such as company, contract, and antimonopoly law - legal reform in the CSFR is relatively well-advanced and could to some degree serve as a model for other reforming socialist economies. In others - including constitutional and real property law - legal reform is embroiled in political controversy and is lagging behind developments in some neighboring countries. The interests of former property owners are clashing with those of current tenants, creating a surge of new disputes entering the courts. The surge in cases is likely to be exacerbated as the current moratorium on bankruptcy claims against state enterprises expires in 1993, and as cases under the new intellectual property laws and commercial code come onstream. The CSFR's judicial system, suffering from recent purges of judges compromised by the former regime as well as generally low pay and prestige, appears to be relatively ill-prepared to cope with the skyrocketing demands expected in the newly reformed system. All in all, it is a time of great progress, great confusion, and great challenge.