The customs union agreement between the Czech Republic and Slovakia entered in its seventh year. "Had we not opened the union, we would have gone against the European trend. Customs unions have become a trend in Europe. Their absence is no longer a standard," says the Czech Ambassador Rudolf Slansky.

In 1997 the Czech Republic enjoyed active trade balance with Slovakia reaching Sk 556m. After three years it reached the positive side of the scale. Where do you see the reasons for the shift? Would you define the major Czech export commodities to Slvoakia? Do you see a long term trend in the positive balance on the Czech side?

The issue has not yet been thoroughly analysed. I see there two factors. one is the restructuring of the Czech industry and economy that moved somewhat further than its Slovak counterpart. The Czech industry is thus able to offer products at world level at acceptable prices interesting for Slovakia. Another factor is that the Slovak crown has been overvalued against the Czech crown for a long time. That benefited the Czech exporters. The introduction of floating of the Slovak crown brought it to a new balance.

Unfortunately, the statistics on CR and SR are incomparable. The Czech statistics differently incorporate labour into wages. According tot he Slovak statistics, Slovakia shows relatively low deficit, while the Czech statistics show deficit at Sk 16md in 1997.

The key commodities include leather and leather products, paper, glass, cement, textile products, china, metal products, and machines.

All seems to suggest that the diversification of foreign trade in CR and SR will cause further decline of trade between the two countries. Does the re-export to third countries through CR have an impact on the declining trade volume?

I can't speak about the re-export, as I am not acquainted with the data. Yet I believe the decline to be natural. At one point the Slovak and the Czech economies were a part of a single Czechoslovak economy. The central planning produced a number of joint ventures, complementary productions leaving a few products possible to complete in a single part of the federation. There was internal market with no formal or factual barriers. The split of the country gradually eliminated all these factors. The fall of the central planning enabled every producer to analyse the potential benefits. They can now consider imports from the Czech Republic or from Slovakia, Germany, Poland, Austria. Similar adaptation proceeds also in Slovakia.

I think the trend will continue until it settles at a natural level of the exchange of goods. It is difficult now to suggest the level and whether we have approached or indeed exceeded it.

The key reason for the introduction of the customs union between CR and SR was to retain the common economic area. There are increasing suggestion in Slvoakia that the customs union has more benefited the Czech economy and it was a security valve for the CR in case of crisis in the Czech-German economic relations. What is your position on these claims?

The Czech side isn't interested in elimination of the customs union. Unless too many barriers are introduced, we are uninterested in any limitations of the operation of the customs union. Its aim was to retain the common economic area. It's not up to me to say whether the customs union benefits Slovakia. That's up to the Slovak politicians and businesses. Generally speaking, it is better to have bigger market. We didn't construct the union to secure a better position for the Czechs against the Slovaks, but to enable the Slovak and the Czech businesses to operate on a bigger than a local market.

Slovakia has retained the access to the Czech market that represents 20% of its foreign trade. Compared with the 10% Slovak share in the Czech foreign trade, it is clear which country is the one that benefits from the union.

The German share in the Czech foreign trade is 40%. The Slovak market would be no rescue to us in case of a crisis in the Czech-German economic relations. We have to realise these facts and perceive them with open and impartial mind. Those attempting to limit the access of the Czechs to the Slovak market fail to realise that the impact of such measures would be worse for Slovakia than for the Czechs.

Is it possible to preserve the customs union in case of earlier EU membership for the Czech Republic? Should that happen, where do you see the perspective of the union and our economic relations? Isn't the risk of the Czech earlier EU membership the reason why recently the Czech side officially declared it important for Slovakia to join the first wave of the EU candidates as fast as possible?

As long as 95% of our trade is carried out without exception, there is a reason for the customs union and it is also useful for the EU. Our association agreements anticipate reduction of customs levies by the year 2000 to the present level of our customs union. From the practical viewpoint, we will have similar customs regime with the EU after 2000. Considerations about the elimination of the customs union mean that we don't want to join the EU. If we admit that the Czechs will join the EU prior to the Slovaks, even then the trade between the EU and SR will face no customs tariffs. It is in our national interest that Slovakia join the Union more or less simultaneously with the Czech Republic. Indeed some exceptions in trade with agricultural products and foodstuffs will remain in place. Trade with foodstuffs is the single problem area also within the customs union. Who follows the global trade development notes that the agrosector is more sensitive, because it concerns nutrition from own sources. It concerns interest of large groups of farmers and a specific production sphere with no major subsidies possible. Once you have a surplus of agricultural products, you face problems with their market placement and sale.

On the other hand a question arises whether agriculture is open to competition. We have to ask what is the degree of the necessary share of just market protection. No doubt, the market protection exists everywhere. The question is what is the level of temporary quotas and limits to protect the market and what reflects the attempts to conserve inefficient production.

Do you consider the demands by the Slovak of beer, mineral water, alcohol, and soft drinks from the Czech Republic reasonable? What is your view on similar demands by the Czech sugar producers?

There should be minimum protection in the customs union. We will face tougher times after the EU accession when we will face much stronger competition than at our common market.

Yet the principles are one matter, the other one is interests, often group interests. Every government has to consider the hierarchy. It is important that no false prestige enters the game, such "we will show them". We have so far reached compromise on most issues. Often producer unions agreed on some kind of auto-limitation. However, if an agreement isn't reached, it is important to proceed exactly according to the rules and regulations embodied in the Customs Union Agreement. That used to be applied in the past and also at the recent session of the union.

There are some 2000 companies in Slvoakia with Czech capital share. Most of them are trade companies. There are a few Czech direct investors. The Commercial Bank has become the most visible. Do you attribute this to the weak push of the Czech investors? Have you noted any complaints against the Slovak conditions on foreign capital entry?

There are truly a few direct Czech investors in Slovakia because of two reasons. The practice of the Slovak bodies used to be one of intense prevention of the foreign capital entry. There were a few cases when everything was done to remove the foreign capital. I shall provide a few illustrations: Inekon and Novacke chemicke zavody, catering CSA at the Bratislava airport, Investment and Post Bank that wasn't given a licence by the National Bank of Slovakia. Secondly there is capital weakness among the Czech businesses and the capital market. It doesn't enable massive investment, particularly competition of firms and banks from the most developed countries. To sum it up, there is absence of a more liberal environment, but on the other hand the Czech businesses and bank capital has to grow stronger.

Slovak Trade FORUM