Following the bear
Just mention the words "Polish-Russian trade relations" and the image that most likely comes to mind is one of contraband cigarette and hard-liquor hawkers smuggling their goods over the border and peddling them at the "Russian Market" in Warsaw's Praga district or other makeshift flea markets around the country.
"Ask someone to describe a Russian businessman and you'll hear that he's a fat guy who wears bad suits and a lot of gold jewelry, drives a Mercedes or BMW, and definitely has something to do with the Russian mafia," said one young Warsaw urbanite.
But while most Poles are all too familiar with the prevalent "ant trade" of border-hopping Russians selling smuggled goods at the local level, Russians are also continuing to dominate large-scale bilateral trade with Poland, something that will probably not change for years.
Ever since the demise of the Soviet Union, trade between the two countries has remained unbalanced, tipped heavily in favor of Russia and leaving Poland with an unrelenting trade deficit. In exports, Russia is Poland's ninth-largest trading partner worldwide, but its second-largest global trading partner for imports.
Last year was the worst in a decade for trade between the two countries. Polish exports accounted for only about 20% of Russia's imports, reaching $862 million. Russia's exports to Poland, meanwhile, were $4.6 billion, leaving a whopping trade deficit of $3.75 billion, according to the Economy Ministry. This compares to 1999, when Poland's exports were $710 million vs. $2.67 billion in imports, for a trade deficit of $1.96 billion.
In the first half of this year, Polish exports to Russia nudged up to $455.7 million, but imports hit $2.25 billion, leaving Poland with a negative trade balance of nearly $1.8 billion.
Yet, Poland's exports to Russia have increased 24% within the past eight months and are growing in response to the decreasing devaluation of the Russian ruble, making imports more profitable, said Nikołaj Zachmatow, the commercial counselor at the Russian Embassy in Warsaw. He estimates the two countries' turnover will hit $6 billion this year, $4 billion of which will be Russian exports to Poland.
But any increase in Polish exports depends on two factors: the political relationship between the two countries and the need for government guarantees for Polish exporters, analysts said.
Thawing relations
Icy political relations between Warsaw and Moscow in the 1990s hampered economic progress that could have given Poland opportunities to negotiate terms for a more favorable trade balance. In recent years, commercial concerns between the two countries have focused on discussions about Russian gas monopolist Gazprom's international pipeline, which passes through Polish territory, and the proposed route of a second line.
Until the Sept. 11 terrorist attacks in the United States, Russian politicians disapproved of Poland's membership in NATO. Today, they are more concerned about Poland's goal to join the European Union (EU). The adoption of EU directives would place restrictions on visas, limiting the movement of people and goods from Russia, particularly from the Russian region of Kaliningrad, north of Poland. EU membership would impose certificate schemes and sanitation rules on imports and exports, influencing trade volumes, according to Paweł Szałamacha, a research fellow at the Adam Smith Research Center, a Warsaw-based economic think tank.
Although Russia is interested in securing from the EU a special status for Kaliningrad to protect its cross-border trade with surrounding countries, Poland's trade turnover with the region is small, amounting to only 0.3% of total trade, according to a report issued last July by the Warsaw-based Center for Eastern Studies. Nevertheless, Zachmatow said Kaliningrad is the only part of Russia where Poland sells more products than it imports, mainly food and agricultural goods. Trade with Kaliningrad reached $350 million last year, he said.
But Jerzy Marek Nowakowski, the vice president of Warsaw's Center for International and Local Government Studies, said the issues raised by Russian politicians, including visas for Kaliningrad's citizens and questions about Poland's economic stability, are unfounded and have more to do with Russia's concerns about Poland joining the EU.
Zachmatow, however, said Russia wanted Poland to join the EU as soon as possible. "We don't see any serious negative results for bilateral relations," he said.
Even so, political relations between the two countries have warmed up recently, as the mid-October visit of President Aleksander Kwaśniewski to Moscow sparked an invitation for his counterpart Vladimir Putin to visit Warsaw in mid-January, the first by a Russian president since 1993.
Although political ties now look more promising, Polish exporters also need government insurance guarantees to support their business dealings with Russia, analysts said. But whether such guarantees will be forthcoming is still unknown. Nowakowski, a former undersecretary of state for foreign affairs and security in the 1990s, said that government guarantees are one element of Poland's new Democratic Left Alliance (SLD)-led government that came into power this month. But Szałamacha said that when the SLD was in power four years ago, the party introduced no new shifts in Poland's trade or economic policies with Russia.
But even if Poland manages to increase its exports to Russia during the next few years, it will continue to carry a trade deficit mainly due to its dependence on Russia for energy resources and the continued fallout from the Russian financial crisis of 1998.
Under the Soviet Union's command economy, Russia was Poland's main supplier of crude oil and natural gas. It remains so today, with oil and gas comprising more than 70%, of Russian exports to Poland, Szałamacha said. Some of Russia's biggest energy concerns are in Poland, including about 80 oil companies and Gazprom.
Meanwhile, some Polish firms are still trying to recover from the financial crisis. When the Russian ruble tumbled three years ago, exporting was no longer attractive for Poles.
At the same time, the crisis fueled Russian production so that in its aftermath the country no longer depended upon imports of Polish foodstuffs, textiles or white goods. Consequently, Polish exporters have not been able to return to their pre-crisis export levels, although Poland's main exports continue to be foodstuffs, especially meat, white goods, chemicals and other manufactured products. Futhermore, Russians are now looking for new product niches, such as imported furniture and construction goods and services - an area where Polish manufacturers have to compete with other European exporters that can offer more attractive prices.
"The Russian market is more demanding and is giving in to intense price competition," Szałamacha said. "We are in quite an uncomfortable position to compete with German and Scandinavian makers of appliances, white goods and consumer-electronic goods."
Still considered risky
Another variable for Polish exporters is their reluctance to commit themselves to what many still consider a risky market. Poland has pushed Russia's Duma (Parliament) to ratify a convention to protect Polish investments in Russia - a move that hasn't happened yet, Zachmatow said. As a result, some Polish companies are wary about seeking out Russian trading partners. "In the eyes of Polish businessmen, Russians are unstable business partners because they possibly have connections to organized crime or other risky businesses." Nowakowski said.
Not everyone agrees. "It's a rather artificial myth that it's a high-risk market," said Zachmatow of the Russian Embassy, adding that businessmen from other countries aren't afraid to operate in Russia.
Some Polish exporters also point to Russia's unfavorable customs rules as a hindrance to heading east with their products, as they believe the tariffs penalize imports of certain goods to protect Russia's own production. Russia's customs duty for furniture imports is calculated by weight, making solid Polish furniture exports non-competitive on the market, according to an official at the Economy Ministry. With the recent tariffs, Russians pay higher customs import fees now, so they order less, according to Józef Haraj, the sales director at Wielkopolskie Fabryki Mebli, an Oborniki-based furniture manufacturer that exports living room, dining room and bedroom sets to Russia.
On top of Russia's unstable customs laws, Andrzej Kadziński, the trade director of Wronki-based oven maker Amica Wronki, cited its weak banking system as another obstacle for Polish exporters. Polish firms have reported sporadic problems with Russian banks that have stopped money transfers from their Russian partners. Kadziński said that while the Russian market was not a major one for Amica, doing business with Russia balanced the firm's trade between Eastern and Western markets.
Still, analysts said the largely untapped Russian market holds great potential for Polish companies. "For Poland it's important because we have a possibility for exporting medium or low-quality products, especially furniture and agriculture," Nowakowski said.
The Russian market is paying off for some Polish companies. Russia is the main export market for Atlas, a Łódź-based producer of construction adhesives. The firm has exported there since 1994. Last year, Atlas sold 27,700 tonnes of goods to Russia compared with 15,300 tonnes in 1999, an 81% growth in sales, according to Lech Gabrielczak, the company's export director. He said this year Atlas will sell 33,000 tonnes of construction adhesives in Russia.
Because of its booming Russian export business, Atlas announced plans last week to build a mortar factory in the Russian city of Dubna, about 100 kilometers from Moscow.
Roseanne Gerin
