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Import deposits not a viable solution,EU says

The requirement that importers of goods to Slovakia and the Czech Republic make a deposit worth 20 percent of the import's value at commercial banks in their respective country is, in the words of the European Union's Commissioner for External Relations, Hans Van den Broek, a measure "we don't like very much, to put it mildly." However, the future status of the measure, which the Slovak Finance Ministry put into force on May 1 after the Czech Republic passed an identical edict two weeks earlier, hinges very much on the actions of Slovakia's former federation partner.
Asked to what extent the issue was discussed at Van den Broek's meetings with Slovak leaders on May 29, the commissioner told The Slovak Spectator, "The prime minister [Vladimír Mečiar] told me the reason they did this is because of [Slovakia's] customs union with the Czech Republic. Mečiar sees this not as the perfect remedy for [Slovakia's deteriorating] current account deficit, but he said they would lift it when the Czech Republic does."

The requirement that importers of goods to Slovakia and the Czech Republic make a deposit worth 20 percent of the import's value at commercial banks in their respective country is, in the words of the European Union's Commissioner for External Relations, Hans Van den Broek, a measure "we don't like very much, to put it mildly."

However, the future status of the measure, which the Slovak Finance Ministry put into force on May 1 after the Czech Republic passed an identical edict two weeks earlier, hinges very much on the actions of Slovakia's former federation partner.

Asked to what extent the issue was discussed at Van den Broek's meetings with Slovak leaders on May 29, the commissioner told The Slovak Spectator, "The prime minister [Vladimír Mečiar] told me the reason they did this is because of [Slovakia's] customs union with the Czech Republic. Mečiar sees this not as the perfect remedy for [Slovakia's deteriorating] current account deficit, but he said they would lift it when the Czech Republic does."

On May 28, the Czech delegation to the European Commission's (EC) Association Committee in Brussels did not resolve the issue that has rankled small and medium- sized import companies in both republics, according to Louseweiss Van der Laan, Van den Broek's spokeswoman.

The impasse caused the EC committee to inform the EC Association Council that a dispute settlement procedure outlined in Article 107 of the Europe Association Agreement must be implemented unless the Czechs withdraw the import deposits by the end of June.

"We made it clear that we consider this a dispute," Van der Laan said. "In terms of bilateral relations, this is a pretty serious step. It's not even a gentleman's agreement to disagree, but [it remains] simply a disagreement."

The Czechs argued that the measure was needed to stem the country's deteriorating current account balance. But Van der Laan said the Czechs procrastinated way too long before taking action.

"[They] almost used up their three-month hard currency reserves which is a sort of emergency reserve, so the situation now looks more serious than it did 4-5 days ago," she said.

Slovakia's situation is much different. "The Slovaks have always told us that they [established the requirement] because of their customs union with the Czech Republic," Van der Laan continued. Ján Ducký, a former Economy Minister, told The Slovak Spectator that in a customs union, all member states must pursue the same policy toward third countries. "Otherwise it wouldn't be a customs union," Ducký said. "So we adopted the same measure, we saved the Czechs' hides, and we got bashed by the EU for it."

Van der Laan said the EC will continue to listen to the Czechs' argument that the deposits are needed to buttress its economy's crumbling trade balance. She added that she expects that if the Czech government resolves the issue to the EC's satisfaction, she expects Slovakia to "simply follow suit."

"It's possible they will reach a separate agreement with the commissioner, but I think it would be most unusual," she said.

"Even though the commission is searching for a solution without having to go to the dispute settlement procedure [outlined] in the Association Agreement," Van der Laan said, "we are under a lot of pressure from our member states' small businesses because [the measure] is so bureaucratic.

"[Small companies' complaints] make it very difficult to have leverage for discussion in the upcoming talks on European accession. The Slovaks and Czechs simply repeating their positions doesn't help matters," she added.

The rationale

According to Jozef Šucha, spokesman for the Slovak Economy Ministry, the import deposit measure is expected to affect around 30 percent of the overall volume of imports. Šucha added that Slovakia's reason for installing the requirement was twofold: Firstly, the need for Slovakia to retaliate against the Czechs' import deposits measure, and secondly, the "bad development" of Slovakia's own current account balance.

"It would be best if the measure is removed," said Róbert Hraňo, the director of Drôtovňa, a Slovak wire-manufacturing company in Hlohovec which exports 26 percent of its production to the Czech Republic.

Asked what impact the bilateral measure has had on his company, Hraňo said: "It has had an impact, but fortunately it only applies to 26 percent of our production. It would have a larger impact if our exports [to the Czech Republic] comprised a higher percentage."

"My opinion is that import deposits are no solution," Hraňo continued. "An import surcharge would be a better solution, but not between Slovakia and the Czech Republic. Third countries are having problems with the import deposits."

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