Moscow stalls on free trade deal

Date: 08/05/1997

By Chris Johnstone

RUSSIA and the EU are spinning out attempts to seal a new textiles agreement as tempers begin to fray.

The Union has extended what was supposed to be temporary deal, even though the Russians have complained about it, pending a reply from Moscow to its proposal to phase in free trade in textiles within five years.

Russia is still examining the initial offer, saying that it agrees with the principle of free trade but disagrees with some of the details. It also argues that the temporary deal is keeping out categories of its textiles which used to enter the Union unhindered.

The temporary regime has been extended for another three months until the end of June. It was originally due to expire last year with the signing of a definitive agreement between the two sides.

“We are not happy with the way it is being managed,” said one Russian official.

A new agreement is needed to replace and update a 1993 deal which forced Russia to accept export restrictions on a whole series of textile products so that its heavily subsidised output would not invade western markets.

This was later replaced by a temporary regime heralded by the European Commission as a step in the right direction. It allowed five new product categories to be imported free of charge, including skirts, dresses and track suits, and increased duty-free quotas on 34 other products.

Europe's declining textile industry says it has no problems about free trade with Russia, but questions whether Moscow will stick to the rules.

European exporters already face a series of trade barriers ranging from customs procedures which change from day to day, excise tax, value added tax and complicated documentation.

The Union has a positive trade balance in textiles with Russia. Exports amount to between 600 and 700 million ecu while imports run to 200 to 300 million ecu. The Russian textiles industry has been starved of investment and most of the exports are of low quality basic products.

European textiles lobby Euratex' suspicions about the Russian deal have been fuelled by its unhappiness at the way the EU has structured its free trade deals with eastern Europe.

Although the Union opened up its textile market to imports from the region at the start of this year, the same treatment will not be afforded to EU products until 1999 in Poland, 2000 in the Czech Republic and Slovakia, and 2001 in Hungary and Bulgaria.

The textile lobby has already complained that low cost producers such as China, Indonesia, and Vietnam have breached import quotas, with some member states keen to accept cheap products turning a blind eye.

The latest problems for the EU concerning textiles come in the wake of the tortuous negotiations over attempts to seal a steel agreement with Russia at the start of this year.

Changes at the top led to postponed and cancelled meetings, and the deal was only finalised when a delegation from Brussels cornered the Russians in Moscow.

EU steelmakers are now concerned that there are signs of a flood of steel from neighbouring Kazakhstan.

Requests for import licences have surged to equal 1996 levels in the first four months of this year and the steel lobby Eurofer has called on the Commission to investigate whether measures should be taken to protect the European market. There are currently no restrictions on steel imports from Kazakhstan.

The Commission is pushing for an elusive deal with the central Asian republic, whose main 6-million-tonne-per-year production capacity is now in the hands of aggressive Indian company Ispat International.

Steel experts say the threat of protective measures might be enough to bring the Kazakhs to the negotiating table.

Much of Kazakhstan's excess steel has been directed to neighbouring China, but that market is close to saturation as the country's domestic surge in output has moved it to top spot in world production.

China is now likely to investigate erecting barriers to steel imports.