Textiles clash turns spotlight on Russia

Date: 29/02/1996

By Tim Jones

RUSSIA'S dispute with the EU over textiles trade has revived the debate on how to increase access for this emerging giant's 'sensitive' exports.

As European Commission officials met their Russian counterparts in Moscow this week to stave off a damaging clash over textiles, several EU member states were expressing growing scepticism about increasing market access for third countries while so many Europeans are unemployed.

In the case of Russia, the dispute is over unfinished business from the partnership and cooperation agreement signed with much ceremony at the June 1994 Corfu summit.

Desperate to lock the emerging Russian democracy into a stable trading relationship with the West, EU leaders were anxious to give President Boris Yeltsin a helping hand.

The agreement redefined Russia as an 'economy in transition' rather than a 'state trading country', giving Moscow rights of consultation before penalties are imposed in anti-dumping cases.

But while confirming the removal of more than 3,000 quota restrictions on Russian goods, trade in the sensitive textiles and steel sectors was left outside the accord.

In 1993, Russia agreed to a voluntary export restraint agreement in textiles, establishing four groups of quotas covering 34 products from shorts and woven trousers to bed linen, tents and neckties.

The two sides agreed to a 'double-checking' system to ensure tough supervision of the quotas, with Russia giving out export licences and the EU import authorisations on each product.

The arrangement was extended to cover 1996, but the two sides have been in consultation since the autumn to try to come up with a deal more acceptable to both of them.

Neither side is in love with the deal; Russia because it sees an imbalance of trade in favour of the EU and the Union because the agreement does not prevent Russia from introducing unilateral import restrictions.

“The arrangement now in force was negotiated in favour of the Union,” says a Russian official. “The general context in 1993 was not favourable to Russia, and now we can clearly see the constraints of this agreement.”

Trade Minister Oleg Davydov has threatened to introduce import quotas on textiles from the EU next week unless the European Commission increases access for Russian products.

While, in 1994, the EU exported textiles worth 624 million ecu to Russia, Russia exported just 246-million-ecu worth to the Union.

While Russian clothes are hardly likely to cause a major threat to EU products for many years, high-volume steel production could be another matter in the foreseeable future.

In this area, Russia and the EU have a similar arrangement to that reached for textiles. At the moment, these voluntary quotas are not being breached because of the parlous state of the Russian manufacturing economy.

In 1995, Russian crude steel production totalled 51.3 million tonnes, but the days of subsidised energy, wages and raw materials are over, causing the production costs for steel companies to rocket.

While European steel manufacturers are poised to file a complaint against dumped high-volume steel products, Russia will not be on the list of accused countries. Nevertheless, Eurofer, the European steel producers' lobby, is wary of the country's potential.

“While they are in the doldrums now, capacity in the ex-Soviet Union is double what they are producing at the moment,” said a Eurofer official.

The Russian steel industry is not posing a threat to the EU in most steel product areas, but a case just this week shows it is not out of the game.

Three Russian exporters of steel electrical sheets, used for making transformers, agreed to a separate voluntary export restraint agreement so as to avoid the imposition of 40&percent; anti-dumping duties.