Czechs given ultimatum over imports

Date: 12/06/1997

By Mark Turner

UNLESS the Czech Republic retracts recent protectionist trade measures, it will face the music in the European Commission's opinions on EU enlargement.

That is the clear warning from aides to Foreign Affairs Commissioner Hans van den Broek as the applicant countries wait to hear the institution's opinion on their bids for Union membership.

“Where we feel our trade agreements are being violated, it will be mentioned in the avis,” said a spokeswoman this week.

The warning comes days before EU leaders discuss enlargement at the Amsterdam summit, and just over a month before the Commission releases its opinions on the suitability of ten central and eastern European countries (CEECs) for entry into the Union.

This show of Commission toughness follows the Czech Republic's adoption of a 'new import deposit scheme' last April as part of a raft of measures designed to halt the country's growing trade deficit and falling gross domestic product growth.

Under Prague's scheme, importers have to place 20&percent; of the value of selected agricultural products and consumer goods in a Czech non-interest-bearing account for six months, sharply reducing the incentive for external trade.

Slovakia, which has a close-knit customs union with the Czech Republic, later followed suit.

The Commission - goaded by angry industrialists - immediately objected, pointing out that the move contravened both countries' Europe Agreements (progressive free trade deals designed to ease Union applicants into EU markets) and World Trade Organisation rules.

In a statement, the Commission stated that “the current and prospective balance of payments situation in both countries is not such that the restrictive trade measures are necessary,” and pointed to their large foreign exchange reserves, low foreign debt and “solid” credit ratings in international capital markets.

The Czech Republic replied that the Commission had not made it clear exactly how the scheme contravened the Europe Agreement, and said it would change things as soon as - but not before - circumstances allowed.

In a bid to resolve the dispute, an emergency association committee meeting was held with the Czechs at the end of May, with a second scheduled to be held with Slovakia today (12 June).

At the May meeting, Commission officials gave Prague until the end of June to retract its measures, and threatened to invoke dispute settlement procedures should it refuse to do so. There was little debate on either side.

While the Commission's stance has been welcomed by EU member states, it has been criticised by diplomats throughout the associated countries.

“The Commission pushed very toughly, without taking into account the situation as it developed,” said Jiri Vavra from the Czech mission to the EU. “This is a temporary measure which will be abolished, but we need more time. We are willing to hold a joint review of the situation.”

Citing his government's limited room for manoeuvre, Vavra did not predict any change before the autumn.

Although the dispute is unlikely to affect the Czech Republic's hopes of EU membership seriously in the medium term, it does place the difficulties faced by central and eastern European economies in reaching Union standards - and the Commission's unwillingness to give them any slack - in sharp relief.

The Czech Republic had, until recently, been touted as the EU's top candidate in terms of technical readiness for accession. But the events of this month have revealed an economy in turmoil and a government fighting to keep control.

Commission officials have expressed fears that Prague is holding back more damning revelations until after 16 July, when the avis are due to be released.

Poland and, to a lesser extent, Hungary - other prime contenders for early EU membership - have also found themselves at odds with the Union over trade policies designed to boost growth, ranging from access for Iberian citrus fruit to the assembly of Korean cars.

Warsaw officials fear that the Commission's opinion will be highly critical of their country's tough negotiating position and refusal to be dictated to by the EU, although one added that “at least we are coming out into the open with our problems”.

Add to this the delays over Slovenia's ratification of its Europe Agreement (which will be cited in the avis), and it is increasingly clear that even the Union's top aspiring members face the prospect of some tough statements in the Commission's opinions.

Diplomats from the applicant countries claim all of this is profoundly unfair. They argue that the Union is applying standards to their fledgling democracies which it does not even expect of its own members.

On top of that, they say, EU member states appear to be losing sight of the political and moral reasons for enlargement in their rush for economic advantage.

Given the leeway granted to existing member states which fail to implement and enforce Union legislation, and the EU's own marked unwillingness to grant market access to eastern agriculture and textiles, their complaints do have a certain force.

But central and eastern European hopefuls probably need not worry. Veteran observers of past enlargement negotiations point out that while the EU talks a good game, in practice it usually softens its hardline stance as deadlines approach.

If western politicians want enlargement to go ahead - which they do - technical opinions are unlikely to stand in their way.