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WTO pressures Slovakia to eliminate import tariff

In a sudden turnaround last month, the Slovak government announced that it would cancel its ten percent import surcharge by the end of this year, thus eliminating a bone of contention that had existed between Slovakia and the World Trade Organization (WTO). But government officials, increasingly nervous over the country's burgeoning trade deficit, did not rule out the notion that they may look for a way out if the trade balance worsens. The decision was issued smack in the middle of a visit by Slovak ministry officials to WTO headquarters in Geneva. The group left Bratislava for the WTO's Balance of Payment Committee meeting on June 23 with plans to defend its decision to trim the import tariff by 2.5 percent to 7.5 percent as of July 1.

In a sudden turnaround last month, the Slovak government announced that it would cancel its ten percent import surcharge by the end of this year, thus eliminating a bone of contention that had existed between Slovakia and the World Trade Organization (WTO). But government officials, increasingly nervous over the country's burgeoning trade deficit, did not rule out the notion that they may look for a way out if the trade balance worsens. The decision was issued smack in the middle of a visit by Slovak ministry officials to WTO headquarters in Geneva. The group left Bratislava for the WTO's Balance of Payment Committee meeting on June 23 with plans to defend its decision to trim the import tariff by 2.5 percent to 7.5 percent as of July 1.

That proposal fell far short of WTO's long-standing request for a full removal of the tariff, which amounts to a fee levied on finished consumer goods and food products imported into Slovakia.

Think twice

Considering that the Slovak delegation had come to Geneva intent on defending the 7.5 percent barrier, it surprised some observers that a day after the first meeting between the two groups, the government announced on June 25 that the duty would be eliminated effective January 1, 1997. "The decision to eliminate [the surcharge] was made on the basis of decisive recommendations" from the WTO, Pavol Seko, a Ministry of Economy official who headed the delegation, said carefully.

One Slovak newspaper carried a report that the Slovaks were threatened with sanctions if they refused to bend, but a spokesperson for the WTO denied this outright, as did Seko. "They gave us sufficient time to think twice," was all Seko would say.

Though not directly threatening sanctions, WTO has been leaning on Slovakia to drop its 10 percent import surcharge since discussions began in June 1994. But Slovakia held on.

When Slovakia's imports dramatically rose in the first five months of 1996 - mostly due to an influx of Russian goods in return for old debt and the import of technology destined for the construction of the new Mochovce nuclear power plant - the government clung to the measure even tighter. "We are a very young country," Seko explained, "and we have to do a lot of things in the area of fiscal policy. We have to consolidate somehow."

Goods invasion

Statistics show, though, that the tariff is not a huge supplier to the state budget. The import surcharge brings in 3.5 billion Sk a year, a tiny drop in the 170 billion Sk in budget revenues, said Peter Hrnek, director of the state budget section in the Ministry of Finance. Its importance, Hrnek continued, is felt more in that it protects domestic products to an invasion of possibly cheaper alternatives from abroad.

Still, according to some analysts, WTO had to insist the tariff be abolished for the sake of consistency - no fair crying foul on major U.S. or Japanese trade barriers if Slovakia is allowed to get away with its own. In fact, other countries in the region are also dropping their import surcharges: Poland is on the same schedule as Slovakia, and Hungary is looking at a program for change.

Government officials seem to realize the importance of showing good faith to both the WTO and to other international economic associations that Slovakia wants to join. Representatives from the Organization for Economic Cooperation and Development (OECD), for one, also met with a Slovak delegation last week, and, according to participants, raised the issue of protective tariffs as a specific impediment to the country's possible membership.

But the reality is that some trade experts in Slovakia fear that the surcharge's elimination will result in Slovak consumers abandoning domestically-produced goods in favor of foreign products, thereby hurting local companies and plunging the country's trade balance further into the red. Illustrating this very real fear are comments from government officials that the deal, though agreed upon and approved by the Ministry of Finance, may not be rock solid.

"We have made our commitment and we will send it by letter to the WTO," Seko said, "[but] I cannot predict some new measures or other impacts. It depends on the figures for this year and those at the beginning of 1997. We will see if something should still be done to protect our balance of trade."

POSS ADDS

Seko, however, argued that the change won't turn Slovak trade on its head. "This 7.5 percent has practically no impact because the average customs incidence registered in 1995 was only 1.9 percent." Given that customs are already so low, even the removal of the 10 percent surcharge, which covers just 13 percent of all goods, is unlikely to make a significant impact overall.

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