Russia » Economics

Russia to purchase Eastern Europe

Russia can benefit by purchasing the goods made in East European countries.
On May 1, 2004 almost all countries of Eastern Europe (except for Bulgaria and Romania) are to join the EU, but Russian Foreign Ministry has made no statements regarding to Russia’s cooperation with the extended EU so far.

Many economic issues have not been solved either. After a number of East European countries join the EU, Russian exporters in these countries will start being subjected to the quotas currently applied to them in Western Europe.

Relatively cheap goods of the former economic partners of the Soviet Union can overflood Russian market and increase the tough competition it currently has. However, the influx of East European goods to Russia can the tool for increasing Russian influence in East European market (provided that Russian authorities apply proper diplomatic measures).

10 European countries: Cyprus, Malta, Czech Republic, Estonia, Latvia, Lithuania, Poland, Hungary, Slovakia and Slovenia – are to join the EU on May 1, 2004. For Russia, joining the EU of its former partners on the Council for Mutual Economic Assistance is especially meaningful. Russian politicians failed to offer alternative options to these countries. There were no conditions for this because Russian middle-sized business is operating mainly in the domestic market. Big Russian holdings are preoccupied only with purchasing shares of the companies, provoking negative reaction of the countries where the companies are based (the results of dozens of tenders where Russians had won, were cancelled). Russian politicians did not deal with the issue of protecting somebody’s strategic interests (except for short-term interests during privatization).

Currently the situation is changing: Russian producers faced increasing competition in the traditional big markets in Western Europe, USA and Asia, and they are in search for new niches to export their products. Central and Eastern Europe is attractive market for Russian export.

However, even the current small amount of Russian export is likely to be driven out of the East European market. Today 70 anti-dumping investigations and procedures on Russian export are in progress in Europe. Russian companies are losing $570-600 million per year because of these procedures, according to the estimate of Russian Ministry for Economic Development. The Ministry states that the “takeover” of Eastern Europe by the EU will result in $150 million more annual losses for Russia.

After joining the EU, East European countries will have to find markets for their surpluses of agricultural and industrial products. Western Europe is not ready to accept them. Historically, the socialist countries of Eastern Europe were developing the industries the USSR did not have. They were mainly high-tech industries the USSR did not consider expedient to develop, and one of the reasons was lack of qualification of workers. “Eastern Europe is producing chemical products (paints and dyestuff for light industries), equipment for food industries (refrigerators, scales), machine-building”, said Doctor of Economy, Professor of Department of Economic Geography of Russia in Moscow State University Vladimir Gorlov.

These products are competitors for West European goods. These products may be of older models, but they are much cheaper than in West Europe because of low cost of labor. At the same time, there is a demand for them in Russian market because of their low prices. In 1990-s some of these industries were developed in Russia (such as building trams and buses), but not all of them. Today East European products, such as medicine, penetrate into Russia through Belarus and Ukraine and are sold at relatively cheap prices.

The terms for the East European countries joining the EU stipulate that the amount of East European products to be used in the EU will be gradually reduced. However, East Europeans cannot close down their industries because of the threat of big unemployment rate. They will pursue subsidizing their industries under the conditions they will not compete with West Europe. On the other hand, they will need political support for exporting their products outside the EU countries. Russia can fit this purpose, and Russian politicians have a good chance to bargain profitable conditions for purchasing East European goods. The EU officials are preoccupied with allocating the EU budget and can not prevent Russia from this.


Mikhail Smirnov

Source: RBC

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