Russian Sanctions as a Rouse

15. 3. 2017

Company Motorpal in Jihlava, Czech Republic, manufacturing fuel pumps for diesel engines, announced in the early days of September that in case of expected difficulties on the Russian market, due to the EU imposed sanctions, it may have to lay off up to three hundred and forty people from its workforce. The company exports sixty percent of its production to Germany and currently has several promising contracts in China. Unofficially, it has been rumored to have had problems for quite some time. Turnover fell eleven percent last year and sanctions against Russia can be only partly blamed for its troubles. The company notified the authorities about the upcoming layoffs on 29 August already, too early to be caused directly by the sanctions.

Situation at Motorpal is just one of many cases that have brought the Czech Prime Minister Bohuslav Sobotka closer to his traditionally pro-Russian oriented colleagues from Slovakia, Hungary or Finland, who warn against the sanctions, arguing they will cause more damage at home, in the EU, than in Russia. Everything seems to be considered according to the number of jobs and the profits of domestic companies. “Declaring sanctions is as if we shoot ourselves into our own foot,” said Victor Orbán, the Hugarian Prime Minister when the first round of sanctions was being announced.

Russia is definitely a lucrative market for many products, from food exports to automobiles. However, Russia is a strategic partner for Central European countries mainly due to its export of oil and gas. Some countries are even hundred percent dependent on Russia for its imports of aforementioned commodities. Just ask the Prime Ministers of Slovakia or Hungary.

If we look into the recent history, this dependency was far greater twenty five years ago, and it involved the whole post-Communist world. Some countries have attempted to tackle this issue, some have not. And now, when we are facing the most severe European security crisis since the end of the Cold War, some countries are using, just like Motorpal, anti-Russian sanctions as an excuse to obscure their own short-sightedness.

The reference to sanctions works like a charm in times when individual member states are fighting to hold on to the signs of modest economic growth that finally came about last year. Only the Polish react to the whole situation differently, not only economically but also politically— they are apparently not only taking into account their historic lessons with Russia, but considering their close geographical proximity to the conflict as well.

The Polish have been moaning about the impact of sanctions as well but at the same time they are being very active—having virtually flooded the EU commission with compensation demands to such an extent that Brussels has stopped accepting them. There are some growers who claim compensations several times higher than what they are even theoretically entitled to. Nevertheless, the campaign calling on the Polish people to eat apples just to irk Putin has become one of the most successful global marketing campaigns attempting to promote anything Polish, even if the price of apples has dropped dramatically. “I have never had so many phone calls and emails. A businessman from Hong Kong even arrived in person,” claims Sebastian Szymanowski, a CEO of company Galster located in Wierzchucice in the north of Poland. The company, which boasts modern EU co-financed warehouses and packaging lines, is jointly owned by twenty farmers who grow fruit on two hundred hectares. They have just recently dispatched their first ever shipments to Algeria and the Philippines. Russian market, which has been the destination of two thirds of Galster’s apples until this summer, is ceasing to be so all-important.

It needs to be said that for the most of Central Europe the sanctions and Russian retaliation present some challenges. But the relationship with the hegemon in the East needs to be viewed not just on the economic level. As an example we can take Chancellor Angela Merkel, who was attempting to convince German industrialists that the trade with Russia has comparable parameters for Germany as the trade with the much smaller Czech Republic. Words of the Hungarian Foreign Minister Peter Szijart (in an interview given to Hospodářské noviny at the Economic Forum in Polish Krynice in September) that instead of sanctions the EU and Russia should enter into a strategic partnership, sound in that light downright dangerous. It seems as if he had not taken into any consideration the lessons of history, the mutually shared values in the EU and NATO, or the idea of human freedom and open markets.

Yes, we can lead endless debates about the effectiveness of anti-Russian sanctions in their current form. Those who oppose them argue using the fifty-year old embargo against communist Cuba as an example. Supporters of the sanctions claim that if well targeted, they can influence the Russians’ decision making. But what about the costs?

It is up to the politicians not only to explain them but also to come up with solutions of helping those affected, while respecting given rules. Not only were the Polish complaining and filing for compensations from Brussels, their diplomats have started intensive negotiations about bringing down the barriers that stop their apples entering the North American markets as well.

For some companies (or whole sectors) the sanctions can be an opportunity not to be wasted. Central European economies are dependent mostly on their exports to Germany. Russian market usually occupies second, third or fourth place. But the world is not just Germany or Russia. There are other markets to export to, even if it is more demanding and there are no connections in place since the olden days of Communist era.

Of course, it is not all that simple. Hungary started a trade policy of so-called Eastern Approaches two years ago, with the goal of finding new markets in China and elsewhere in Asia. One unfortunate byproduct has been an increased dependency on Russia, thanks to a government loan provided by the Kremlin for the construction of two new blocks of a nuclear power station Paks.

In the Czech Republic, on the other hand, it has been somewhat fashionable to highlight the potential of the South Korea, into which there is an excellent connection now, thanks to Korean Air buying a stake in the Czech Airlines. The only problem is that so far the Korean investors have been more interested in finding opportunities here, than the other way around.

People are eyeing the Arab world with its unique sets of risks and opportunities, or China, which is showing an increased interest in Central Europe thanks to its government investment initiative.

Twenty five years after the regime change the extent of interdependence of Central European economies and Russia can be surprising, not to mention energy imports. The EU sanctions against Russia have, finally, provided us with an opportunity for emancipation, and a chance to view Russian markets differently.

The fundamental question is: After the annexation of Crimea, the support of separatists in the Eastern Ukraine and the demonstrations of power on the borders of member states, the EU and NATO have lost confidence in Russia as a political partner; is it still possible to view Russia as a reliable business partner as well?

What we hear now is something different: a whole lot of moaning and complaining. After twenty five years the Central Europeans (and to a certain extent Western Europeans as well) have forgotten that freedom, liberal democracy and open market are not to be taken for granted; all liberties have their costs.

Martin Ehl

has been working for different Czech print and online media since 1992, from 2006 to 2018 as Chief International Editor and now Chief Analyst at Hospodářské noviny daily. He writes a regular bi-weekly column Middle Europe for the English language internet magazine Transitions Online, for this column he was awarded the „Writing for Central Europe“ prize in Austria in 2012. Co-editor of Visegrad Insight magazine.

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