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Import surcharge cracks under pressure

Since early August, the Slovak government has been facing a minor rebellion from entrepreneurs and exporters over the reintroduction of the 7 percent import surcharge. But now that it has decided to grant exemptions, new voices of opposition are rising from foreign trade experts who doubt the legality of the waivers.
Haunted by a 1H97 trade deficit of 32 billion Sk as well as by a 21 billion Sk budget shortfall, the government reintroduced the import surcharge of 7 percent on July 15 in an attempt to fix both problems at once.
"The import surcharge wasn't a clever law, and it was prepared and applied too quickly without administrative care," said Darina Rossová, Volkswagen Bratislava's financial department supervisor, adding that the German car-maker, one of the country's largest foreign investors, was on the verge of announcing a two-year, 6.5 billion Sk investment in its Slovak plant when the surcharge was reimposed.

Since early August, the Slovak government has been facing a minor rebellion from entrepreneurs and exporters over the reintroduction of the 7 percent import surcharge. But now that it has decided to grant exemptions, new voices of opposition are rising from foreign trade experts who doubt the legality of the waivers.

Haunted by a 1H97 trade deficit of 32 billion Sk as well as by a 21 billion Sk budget shortfall, the government reintroduced the import surcharge of 7 percent on July 15 in an attempt to fix both problems at once. But the measure is backfiring, as both Slovak and international export-driven companies dependent on imported parts and technology cry foul.

The revolt begins

"The import surcharge wasn't a clever law, and it was prepared and applied too quickly without administrative care," said Darina Rossová, Volkswagen Bratislava's financial department supervisor, adding that the German car-maker, one of the country's largest foreign investors, was on the verge of announcing a two-year, 6.5 billion Sk investment in its Slovak plant when the surcharge was reimposed.

"They didn't think at all of the consequences to the economy and for the state itself," Rossová continued. "The surcharge would cost us 455 million Sk, and would really have hurt our investment capital." Having applied for an exemption from the Finance Ministry on September 4, Rossová was awaiting the verdict. "We still have nothing concrete on paper," she said.

Volkswagen's objections to the surcharge are like those of many companies operating in Slovakia: businesses which import parts and manufacture them into finished products, or which import foreign technology for their domestic operations, are seriously disadvantaged by the law.

Conceding the point, the government announced in early August that it would revise the list of items that are subject to the surcharge, originally 75.9 percent of all imports.

In yet another reverse, the Finance Ministry in early September announced it would be empowered to grant waivers from the duty on a case-by-case basis, and on request only.

Among the companies who have come forward publicly to demand exceptions are Slovglass Poltár, Matador Púchov, Chemosvit Svit, Istrochem Bratislava and Drôtovňa Hlohovec. Steel giant VSŽ Košice has not yet decided, but figures indicate that the surcharge would cost the company 127 million Sk this year alone.

Asked if he thought that the government's surcharge twist dance was evidence of HZDS economic leaders' poor initial planning, HZDS spokesman Vladimír Hagara said that "our driving idea is to produce high-quality goods that can compete on the international market, and to achieve a state where exports surpass imports."

However, he maintained, "we are not retreating from this idea, but nobody says the measures we introduce are permanent."

Permanent waffling

But Peter Mihók, chairman of the Slovak Chamber of Commerce and Industry, said it is this very impermanence in the regulatory apparatus which is snarling business plans.

"We ended 1996 with no surcharge, then came a 20 percent import deposit rule, and now a 7 percent surcharge," he said. "It is a question of stability - how can you plan even a medium-term strategy for your company when every year you have practically a new legislative framework?" he asked.

Defense at WTO in October

Marta Ružičková, an official with the Economy Ministry's Trade Policy Department, sounded a different alarm regarding the granting of exemptions. She said that the surcharge was prepared in strict accordance with protocols laid down by the World Trade Organization (WTO).

The international rules that govern import restriction laws, Ružičková said, "allow for only a few exceptions to be given in each case," not the hundreds that Slovak entrepreneurs are apparently hoping will be granted.

She continued that a Slovak delegation will visit the WTO's Balance of Payments Committee in Geneva in the first week of October.

"[They are] preparing a review of recent events to show that exceptions were only granted in special cases, to industries that are vital to our economy," Ružičková added.

The problem is that the Finance Ministry, trying to correct some of the microeconomic distortions caused by the surcharge, has declared that any firm would be eligible for a waiver if it imports technology or goods used in export-oriented production. "We don't know how many exceptions will be granted," said an official at the ministry. "Requests are still coming in."

Alexandra Valachová, Ružičková's colleague at the Economic Ministry and an expert on WTO policy, said: "It is only my guess, but I think the WTO will not accept the surcharge reduced to any less than 65 percent of imports."

If the Slovak delegation arrives with a sheaf of waivers, Ružičková predicted, "it will be very difficult to explain. I think the Finance Ministry will be very sad."

Short-term measure

In the long run, the import surcharge, its alteration and final effect on Slovak companies will provoke less controversy as time goes by: it is scheduled to be gradually phased out and finally eliminated by 1999.

But in the meantime, government officials say, entrepreneurs should take a deep breath and count the problems facing the administration.

"We are a new state," said Ružičková. "Not only must we prepare our own legislation, but we must also make it consistent with Western regulatory structures."

Legislative missteps and bureaucratic tangles are the daily bread of economies in transition, added Valachová, and "if we want to get into the EU and OECD, we have to adapt to the rules."

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