Most transit economies are struggling with macroeconomics problems and microeconomics stability. Supporting moves of their countries are aimed mostly towards improvement of their business and export conditions, but also to a justified protection of the internal market.

One of the external protection measures of a country and its balance of payment represents also, compliant to the World Trade Organisation principles, the import charge. Slovak Republic imposed the import charge regime over the periods of March 1994 - December 1996 and July 1997 - September 1998.

Import charge introduction as a tool for the external protection of a country and its balance of payments ca be accommodated by the implementation of the GATT 1994, Article XII.

Since the establishment of the independent Slovak Republic the import charge was imposed twice.

In the period from March 3 1994 to December 31 1996 the import charge applied to 12 % of the overall imports, primarily to the consumer goods. The initial rate was 10 %, in mid-1996 it dropped to 7,5 % and to zero on January 1 1997.

The import charge regime in compliance with the SR Ministry of Finance regulation 197/1997 Col. was in effect from July 21 1997 to September 30 1998. The import charge was applied on the entire imports except:

• the commodities listed in the Annex to the regulation (specifically raw materials and production materials), (it applied to 74,2 % of imports in the first half of 1997),
• the import charge exempt commodities, (according to the SR Ministry of Finance 17/1994 Col.),
• cases when the goods are sent as a replacement for faulty goods.

Moreover, the SR Ministry of Finance published in the Financial Newsletter 10/1997 the deferment and exemption conditions for imported production goods and capital investment units. The import charge was stipulated to 7 %. Subsequently to the WTO Committee consultations results on balance of payments in Geneva on December 17 1997 the imposed import charge sequence for 1998 was 5 % beginning January 1 1998, 3 % beginning April 1 1998 and 0 % since October 1 1998.

Slovak Republic trade balance development before the 1997 import charge enforcement

Following a mild 1995 Slovak trade balance deficit of - 5,7 bil. Sk the 1996 deficit fell substantially. The adverse Slovak foreign trade developments started as early as second half 1995. The passive 1996 trade balance was 70,3 bil. Sk primarily due to high imports dynamics. The 1996 imports grew by 30,7 % compared to 1996, while exports went up only by 6,1 %.

The adverse trade balance development and subsequently also payment balance development continued in the first quarter 1997. The passive trade balance soared to 15 893,8 mil. Sk as of March 31 1997, almost identically with the 1996 average.

The passive foreign trade balance deteriorated in April 1997 reaching 25,584 mil. Sk. This development was a consequence of the high supply rate of foreign goods by the entrepreneurs in expectation of the prepared import deposits regulation. (The import deposits were collected from May 1 1997 to July 21 1997 according to the SR Ministry of Economy regulation 122/1997 Col.).

After the import deposits enforcement the average monthly imports dropped in May through July. The 1997 six months Slovak foreign trade passive balance was 32 571,6 mil. Sk, i.e. the average May - June passive balance dropped to 3 614,3 mil. Sk. The July passive foreign trade balance was 3 336,1 mil. Sk and the seven months value was 35 907,7 mil. Sk.

Slovak Republic trade balance development after the 1997 imports charge enforcement

After the imports charge enforcement the Slovak foreign trade development shows signs of recovery. The average monthly August through December imports dropped to 27,66 bil. Sk OP (January-July 29,5 bil. Sk), the imports went up to 24,94 bil. Sk FCO (January - July 24,4 bil. Sk), the average monthly passive foreign trade balance was reduced to 2,72 bil. Sk (January - July 5,1 bil. Sk).

The 1997 SR foreign trade balance developments demonstrate the efficiency of the import deposits and import charge arrangements.

The January through April average passive monthly trade balance of 6,35 bil. Sk declined to 3,47 bil. Sk over the May - July period and to 2,72 bil. Sk over August - December.

The significant import rate reduction as a result of the import charge enforcement is a consequence of a more temperate attitude of the importers.

Yet also the average August exports reduction compared to the previous two months by 1 370,6 mil. Sk is related to the import charge imposition. Certain businesses faced problems refinancing production due to higher input costs with subsequent rise in export prices. Such scenario, i.e. counter productivity of higher export prices owing to the import charge enforcement, was to be anticipated also in corporations.

Similar trends were recorded also immediately after the change deposit imposition. The May imports fell sharply in comparison to April, and exports emulated - the exports decline represented 1,9 bil. Sk, its volume reaching only 92,3 % of that of April.

Import charge impact on the 1997 Slovak Republic trade balance

Quantification of the import charge impact reflected in the imports assumes that the imports not affected by the import charge during the January - July period as compared to the remaining months of 1997 should develop at the same rate as the imports of goods subject to the import charge.

The average monthly value of goods not affected by the import charge amounted to 7 303,7 mil. Sk over the January - July 1997 period, and imports subject to this charge effective 21 July 1997 amounted to 22 238,6 mil. Sk.

The August through December average monthly value of goods not affected by the import charge declined to 7 159,7 mil. Sk. The imports subject to the import charge amounted in average to 20 490,8 mil. Sk

Anticipating identical development rates for both import categories the average imports of goods not affected by the import charge was expected to reach 21 800,0 mil Sk.

The difference between the actual imports affected by the import charge (20 490,8 mil. Sk) and the hypothetical average volume of imports in this category (21 800,0 mil. Sk) represents relatively reduced imports due to the import charge enforcement, i.e. a monthly increment of 1 309,2 mil. Sk in the August - December 1997 period, in total 6 546,1 mil. Sk.

Yet on the other hand the August 1997 exports fall by 1 370,6 mil. Sk is directly linked with the import charge enforcement.

The overall relative contribution of the import charge enforcement as a mitigation tool for the Slovak Republic foreign trade balance can be derived as the sum of 5 175,4 mil. Sk.

The 1997 Slovak foreign trade balance was in the reds with the value of 49,5 bil. Sk. The exports went up by 9,2 % (i.e. by 24,9 bil. Sk) compared to the previous year, and the imports by 1,2 % (i.e. by 4,1 bil. Sk).

The National Bank of Slovakia foreign exchange reserves dropped to 3,3 bil. USD and the foreign exchange export coverage fell to 3,7 months. The external foreign debt amounted to 9,8 bil. USD as of December 31 1997 and its per capita equivalent was 1 867 USD, i.e. by 394 USD higher than in 1996.

The 1998 Slovak Republic trade balance development

In the first quarter of 1998 the passive Slovak foreign trade balance was 17 522 mil. Sk.

In the second quarter this passive trade balance plunged significantly, reaching the level of 20 493 mil. Sk and its cumulative value of 38 015 mil. Sk.

In the third quarter the passive balance dropped again to 17 025 mil. Sk. The January - September recorded 55 040 mil. Sk, or 6 115,5 mil Sk as the monthly average.

Yet the October passive trade balance climbed already to 10 278,7 mil. Sk, as a result of lifting the import charge. This development is primarily a consequence of the rocketing imports. The October imports soared immediately to 43 625,1 mil. Sk compared to the average monthly value of the January - September period of 36 615,3 mil. Sk.

As of August 31 1998 the payment balance current account showed a passive balance in the amount of 49,1 bil. Sk. Immediately before the fluctuation range cancellation the National Bank of Slovakia foreign exchange reserves were 3,2 bil. USD, falling to 2,9 bil. USD as of December 31 1998. The 1998 foreign debt demonstrated continuous increase, reaching 11,3 bil. USD (2 100 USD per capita ) as of June 30 1998.

Import charge impact at the 1998 Slovak Republic trade balance

Quantification of the import charge impact at the 1998 trade balance has been derived from the comparison between the proportion of imports under the import charge in the overall imports implemented with and later without the import charge.

The overall import level over the January - September 1998 period was 332 138,5 mil. Sk, including 271 521,1 mil. Sk. i.e. 81,75 % for the imports subject to the import charge.

During the January - October 1998 period the overall imports grew to 375 763,6 mil. Sk, including the imports subject to the import charge in the value of 309 314,8 mil. Sk, i.e. 82,32 %.

With the assumption that the proportion of imports subject to import charge in the overall imports during the import charge applicability (January 1 - September 30 1998) is identical with that over January - October, the absolute value of such imports represents its hypothetical value with no import charge. The difference between such hypothetical imports value (273 416,4 mil. Sk) and real imports value (271 521,1 mil. Sk), i.e. 1 895,3 mil. Sk, represents a relative imports reduction due to the applicability of the import charge during January - September 1998, and thus also a relative reduction of the passive trade balance.

The relative impact of the import charge enforcement upon the 1998 Slovak Republic trade balance (1 895,3 mil. Sk) is significantly lower than that upon 1997 (5 175,4 mil. Sk). It results from the fact the 1998 import charge rate was significantly lower than that in 1997, as well as from the fact that the entrepreneurs carried it over in their 1998 contracts and price calculations into the final consumption. The adverse impact of the import charge on the consumer prices, exports and inflation developments can therefore not be overlooked. The benefit of the import charge regime was primarily a state revenue increase by 14,4 bil. Sk during 1997/1998 period.

Conclusion

It is evident from the past experience of the applied import charge that immediately after its enforcement the negative trade balance and payment balance positions were mitigated. It did not bring, however, any decisive change in this respect and its overall benefit was only in mitigating the development of the trade balance and payment balance.

The import balance is a non-system tool of the government protectionism measures with an adverse effect at the national entrepreneurial environment. It initiates a price increase, inflation growth, and, consequently export reduction for some businesses.

Substantial benefit of the import charge are mainly increased state budget revenues.

Slovak Trade FORUM