Poland and EU close to steel deal

Date: 18/06/1998

By Chris Johnstone

POLISH and European Commission officials look set to agree a formula for ironing out an acrimonious dispute over the steel trade in last-ditch talks next week.

Negotiators from both sides will examine a final draft of proposals covering cuts in Polish duties on imported steel, and limited EU aid of 30 million ecu to be spent on cushioning the social effects of restructuring Poland's coal and steel sectors, at a meeting next Monday (22 June).

Warsaw claims clarification of a few final points is all that stands in the way of a deal. European steel industry sources say Poland has moved to meet the EU halfway on the key issue of how fast it reduces existing duties on Union steel.

But the Commission is remaining silent ahead of an expected final decision on 30 June. The institution, impatient with Polish failures to deliver on past promises, has stressed that this deadline must be met.

Warsaw originally wanted its current 6% import duties to stay in place until the end of the year. The Commission demanded a cut to 3%, a level that should have been reached at the start of this year.

Under an original deal, tariffs were supposed to disappear by 1999, but this is not now likely to happen until at least 2000.

Polish exports of steel can already be sold free of any duties in the EU under the terms of the Association Agreement between the two sides.

The steel dispute has come at an awkward moment, with Polish-EU relations already soured by the Commission's refusal to hand over around 34 million ecu of Phare aid because of Warsaw's poor preparation of projects and by the fact that accession talks are beginning to focus on problem areas for Poland.

The aid being offered by the EU to help with steel and coal restructuring already represents a climb-down by Warsaw, which earlier this year was claiming much larger payments to modernise its ageing steel plants. The country has announced plans to cut around 40% of the 80,000 jobs in the steel sector.

Industry experts say the dispute is more symbolic than substantial, pointing out that Poland does not produce the sort of high-quality steel it currently buys from the EU and that adding a few per cent to the final price is not likely to change purchase decisions.

"The Commission is concerned that Poland could set a bad example for the rest of the candidate countries," explained one.

A Commission report has warned that the steel sector in eastern and central Europe will have to shed up to 250,000 jobs by 2002, with the bill for restructuring estimated at around 10 billion ecu. Poland is by far the biggest producer of steel among the leading contenders for early EU membership.

The restructuring of western Europe's steel industry is also picking up pace, with German steel giant Krupp Thyssen AG the front runner to take over Belgian steelmaker Cockerill Sambre, which is majority-owned by the Walloon regional government.

Krupp Thyssen has, along with other take-over candidates, had informal contacts with Commission competition officials over their likely stance on a deal which could lead to the creation of Europe's largest steel firm.

It is already Germany's fifth-biggest company, and its interest in Cockerill has come as something of a surprise since the merger of the former rivals has only recently been cleared by the Commission.

Dutch steelmaker Hoogovens, France's Usinor, and Luxembourg's Arbed have also been named as possible contenders for Cockerill.

One of Cockerill's major assets is a 60% stake in former East German steelmaker Eko Stahl, which produces sheet metal used for the car and packaging industries. The Eko Stahl stake was bought by Cockerill to supply eastern and central European markets in a deal which included heavy investments of more than 500 million ecu in modernising the plant.

German steel company Salzgitter has declared itself interested in taking over Eko Stahl on its own, but the Walloon government wants Cockerill to be sold as a whole and not piecemeal.

The Belgian steel firm's absorption into a much bigger company should increase the pressure for a shake-up of the steel sector in central and eastern Europe.