Prague takes initiative on disputes settlement plan

Date: 25/09/1997

By Chris Johnstone

THE Czech Republic is leading the way in establishing a new disputes settlement framework to deal with rows over unfair subsidies between the EU and the applicant countries of central and eastern Europe.

At present, no real procedures for resolving problems exist and the Union faces a difficult choice between dropping the issue or resorting to its big artillery, such as trade sanctions.

Prague plans to put in place its new arrangements on bilateral competition procedures with the EU by the end of the year. The rest of the candidate countries should follow suit soon afterwards, with most using the Czech experience as a model.

Applicant countries agreed to curb subsidies which could have a harmful effect on trade with the Union when they signed their Europe agreements.

But the procedures for settling disputes were not spelt out at the time and have been a long time in coming.

EU officials say a great deal of work needs to be done by applicant countries to meet the key requirement of getting to grips with subsidies. Although most of the candidates have moved quickly to set up cartel-busting offices, they have moved much more slowly to master state aid.

With subsidies sometimes handed out by local authorities or under long-standing agreement dating from the Communist era, central governments often have no real idea of what is being allocated and by whom.

The problem is exacerbated by some of the aid being well disguised in the form of preferential tax treatment, debt write-offs, subsidised interest rates or over-generous incentives accompanying privatisation. Subsidies are sometimes designed to earn much-needed hard currency by boosting exports, making governments reluctant to give them up.

The EU is handling the issue gently, stressing special arguments for subsidies and regional aid will be allowed on a case-by-case basis for economies in transition.