Czech trade after EU accession: revolutionary changes

Photo: European Commission

After joining the EU, the Czech Republic will abandon its trade policy in favour of a common trade policy directed from Brussels. This will mean a loss of some trade benefits, including the GSP benefits granted by the United States. On the other hand, the move will present new opportunities for Czech firms in other parts of the world.

The Czech foreign trade deficit in 2003 fell below 70 billion crowns. Czech exporters strengthened their positions mainly on the EU markets, despite the unfavourable economic situation there. The Czech Republic's balance with the EU has been positive, though - by contrast - the country is running high deficits in trade with China and Russia.

The upcoming EU accession in May this year will bring many changes to Czech foreign trade. Technically, trading within the EU internal market will no longer be considered as foreign trade. It is expected to account for about 85 percent of total Czech trade. The accession will remove remaining barriers between the Czech Republic and the EU, and most importantly, between the Czech Republic and fellow accession countries which have tended to protect their markets.

Photo: European Commission
In relation to countries outside the EU, there will be revolutionary changes. The Czech Republic will abandon its own trade policy and adopt a common trade policy directed centrally from Brussels. This will include the abolition of the Czech system of trade benefits and customs duties and adopting those of the EU. Experts say though that changes in the customs duties will be minimal: out of the hundred most important Czech export items, customs duty will remain the same for 62, it will decrease for 21, and increase for 17.

According to Richard Garden from DG Trade of the European Commission, joining the bloc will be above all a great opportunity for Czech companies to explore markets in third countries that may have been protected by trade barriers in the past.

"Trade opportunities are not all about customs tariffs, and preferential rates. You are joining a very large trading bloc - the EU of 15, soon 25 nations. We are trying to use our influence with our trading partners to encourage countries in a region to dismantle barriers between themselves to make a large single market as we have done in Europe. That is something we are trying to do in Latin America, for example, where economies are growing very fast. We try to use our influence to persuade countries which have obstacles to trade - not always tariffs - to reduce those obstacles. With the EU, you are joining a group which has strong influence over countries which erect trade barriers against us. I mentioned several regions of the world - China, India, Latin America, where companies from the EU are doing a rapidly increasing amount of trade and that is an opportunity which will be coming to companies based in this country as well."

Besides gaining the benefits of the single market and opportunities in other parts of the world, the Czech Republic is losing existing benefits, such as the United States' GSP trade benefits, as well as preferential treatment by Canada and Australia. I spoke to Martin Tlapa, the general director of the Czech trade promotion agency, CzechTrade:

"We expect that in the case of the United States, it will account to some 30 million USD of Czech exports. It will be a barrier for trade because prices will eventually be higher but this is not the only factor. A positive factor is the growing US economy, which is very important because strong demand will mean higher interest for Czech products. We should be in a position to follow this trend by more active marketing of Czech companies. Another important factor is the exchange rate between the Czech crown and the US dollar."

The EU membership will remove some barriers for Czech trade but at the same time introduce others. Could you elaborate on that?

"When we join the EU, all the remaining technical barriers for our trade with other member states will be abolished. Good news for Czech exporters is that barriers will also be removed between the Czech Republic and other new members, such as Poland and Hungary. The EU has preferential tariffs and free trade agreements with countries that are not on preferential terms with the Czech Republic now, so we will be able to use preferential trade agreements with Mexico, Chile, Mediterranean countries etc. This is strategic information for Czech companies that they should explore the changes in the trade barriers. Czech products will have a much better access to those markets than now. This is one of the positive effects. On the other hand, the EU membership will mean that there will be much stronger competition from many more companies from many more countries, which will be challenging mainly for small and medium-sized enterprises."

The EU accounts for almost 70 percent of the total Czech exports. Do you expect a shift from exporting goods to investment? Will Czech companies start establishing more subsidiaries abroad?

"As of May 1, the internal trade within the EU will account for about 85 percent of the total trade. That means that the Czech Republic will be in a strong position among these countries. It will mean two important things: first, the Czech businesses will step by step use the benefits of the internal market and they will be more active in setting up subsidiaries and offices in the EU. On the other hand, it will be a signal for Czech companies to explore the opportunities outside the EU. Czech exporters will be able to benefit from the preferential tariffs, new export channels, the good brand name Made in EU. The strategy of many Czech companies will also be to diversify the relations outside the EU and to explore new markets which account to a small portion of our total trade now."