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Czech Republic: EU And Czechs Prepare To Battle Over Import Deposits

By Bill Echikson

Brussels, 5 August 1997 (RFE/RL) -- The Executive Commission of the European Union has initiated legal steps against the Czech authorities over Prague's imposition of a deposit requirement on foreign consumer imports.

The EU has given the Czechs what amounts to an ultimatum to withdraw the plan immediately or face arbitration. An RFE/RL special correspondent in Brussels reports that if the case goes to arbitration, then each side will appoint one advocate. A third arbitrator will be appointed by the Association Council, the body dealing with countries which have association agreements with the European Union. An eventual ruling of this panel of three arbitrators would be taken by majority.

RFE/RL's correspondent reports that, if the arbitration procedure is invoked, it will be the first such occasion since the EU began linking itself to aspiring member countries through association agreements.

The Czech Republic is among the handful of mainly ex-communist countries recently invited by Brussels to open negotiations on full membership. The disagreement over import deposits would hardly jeopardise Prague's chances of eventual membership, but nevertheless could set a sour tone for the main negotiations. And at the moment neither side looks like backing down.

EU officials say the import deposit scheme contradicts the Czech Republic's free trade agreement. Commission experts also argue that Czech foreign currency reserves are sufficient to absorb the economic impact on the country of the high level of foreign consumer imports.

The Czech side, however, says it will keep the scheme as long as needed to curb the country's heavy trade deficit.

"We are not ready to listen any more to any kind of argument from the Czech side," says EU Commission member Lousewies van der Laan. " We have given them every chance and every opportunity to present their case and their figures, but they have come up with nothing convincing."

In order to tackle a growing trade deficit, the Czech government introduced the import deposit scheme in late April. Under this, companies importing certain goods must place for six-months in a non-interest bearing account a cash deposit equivalent to 20 percent of the invoiced price for the goods. Most imported agricultural products, foodstuffs and consumer goods are covered by the scheme.

After two unsuccessful meetings on May 29 and July 11, the Commission decided to step up the pressure. Van der Laan says the the Czech system is not only unjustified, but is highly bureaucratic and very discriminatory against small and medium size enterprises. He says such companies have a lot of difficulty finding the amount of liquid capital they need for the deposit. In addition, they have to put the 20 percent into a Czech bank, go three or four times back and forth between the bank and the customs, before getting a piece of paper and being able to import their goods.

Van der Laan says the scheme favors large companies, which have fewer problems because they have much more liquid cash and can hire somebody locally to do all the bureaucracy.

The Czechs react to the EU attack with anger. Jozef Kreuter, Ambassador at the Czech mission in Brussels, has been quoted in the Czech media as saying an EU decision to press for arbitration would amount to the worst possibility. Michal Klimes, an advisor at the Czech mission, said that at the meeting in early July, the two sides agreed to measure the impact of the deposit plan on the Czech economy. He said officials must wait and see the results at the end of the August or the beginning of September. Referring to the latest statistics which show an improvement in the Czech trade balance, Klimes said it is impossible to consider that his country's economic situation is improving based on figures from only the last month or so. He said the trend has to be measured over a time span of some months to really find out what's happening.

Czech officials also argue that the EU Commission should have shown more understanding just at this moment, when their country is affected by a flood disaster. But EU Commissioner Hans van den Broek refuses to make any kind of link between the two stories. "One is a human disaster for which we have provided assistance," he says. "The other one is a trade measure."

Even if they deny it, however, the Czechs seem to have exhausted their arguments. Voices in Prague have begun to criticize the measure. According to the Czech press, key trade officials doubt the necessity of the deposit plan. The scheme is running out of steam, says Milan Hovorka, an official of the Trade Ministry. He says importers have already found ways to get round it, and in any event the koruna's decline in value makes it less and less important.