Identifier
Created
Classification
Origin
05WARSAW206
2005-01-11 13:32:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Warsaw
Cable title:  

Poland Pleasantly Surprised at Upturn in

Tags:  ETRD ECON ENRG EPET PREL PL 
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UNCLAS WARSAW 000206 

SIPDIS


SENSITIVE

STATE FOR EUR/NCE TARA ERATH AND MICHAEL SESSUMS
USDOC FOR 4232/ITA/MAC/EUR/JBURGESS AND MWILSON
TREASURY FOR OASIA MATTHEW GAERTNER AND ERIC MEYER
FRANKFURT FOR TREASURY JIM WALLAR

E.O. 12958: N/A
TAGS: ETRD ECON ENRG EPET PREL PL
SUBJECT: Poland Pleasantly Surprised at Upturn in
Commercial Relations with Russia


(U) This cable is sensitive, but unclassified, and NOT for
Internet distribution.

UNCLAS WARSAW 000206

SIPDIS


SENSITIVE

STATE FOR EUR/NCE TARA ERATH AND MICHAEL SESSUMS
USDOC FOR 4232/ITA/MAC/EUR/JBURGESS AND MWILSON
TREASURY FOR OASIA MATTHEW GAERTNER AND ERIC MEYER
FRANKFURT FOR TREASURY JIM WALLAR

E.O. 12958: N/A
TAGS: ETRD ECON ENRG EPET PREL PL
SUBJECT: Poland Pleasantly Surprised at Upturn in
Commercial Relations with Russia


(U) This cable is sensitive, but unclassified, and NOT for
Internet distribution.


1. (SBU) Summary: Polish and Russian firms had feared
that Poland's EU accession would disrupt trade, in part
because the EU required Poland to abrogate its bilateral
trade agreement with Russia. Despite problems in some
sectors, trade has expanded significantly. Polish exports
were up more than 80% in the first ten months of 2004.
Poland is lobbying Brussels for some changes in the EU-
Russian agreement which set tariffs and quotas for the new
members. Poland is particularly concerned to resolve issues
related to meat and agricultural exports, and would like to
lower tariffs on furniture. Poland supports Russia's entry
into the WTO, but would like to see Russia adopt market
based reforms first. Poland's relations with Russia on
energy are more sensitive. The EU rejected the prospect of
the two countries concluding a bilateral agreement on energy
in October. Poland and Russia plan to meet on the margins
of President Putin's trip to Poland at the end of January to
discuss a range of energy issues. End summary.


2. (U) The Director for Bilateral Economic Relations with
Russia at the Ministry of Economy, Elzbieta Bodio, provided
an overview of Polish-Russian economic relations over the
last year. Poland's entry into the EU forced several
important changes in the economic relationship, including
the EU requirement that Poland abrogate its bilateral
economic treaty with Russia. Both Poland and Russia wanted
to avoid a second shock to trade relations, given that
companies are just now recovering from the drastic shock in
the wake of the 1998 Russian financial collapse, which
caused Polish exports to fall $2.2 billion in 1997 to $760
million. The big concern was that Poland's EU accession
would force Poland to abrogate the bilateral economic
treaty, which governed a number of sectors, including
setting tariffs and import quotas in some areas. Russian

companies were concerned they would lose market share.
Russian exporters were particularly vocal in airing their
fears, demanding in the fall of 2003 that the Russian
government impose punitively high tariffs on Polish exports.


3. (U) Despite the fears that the worst would come to
pass, 2004 turned out to be a year of progressively
improving relations, at least outside of energy. It has
turned out that Russian firms have benefited handsomely from
the accession. Bodio said that tariffs on ten percent of
Russian goods had declined, while they had increased on 5%,
and stayed the same on energy (85% of the total). Through
the first ten months of 2004, Polish exports were up 80%,
despite problems in food exports. Some of the biggest
increases have come in machines and medicines, and even in
furniture, despite prohibitively high Russian tariffs.


4. (U) Poland and Russia had hoped to complete a new
bilateral agreement which would comply with Poland's EU
obligations regarding the internal market and competition
before May 1. However, this proved impossible. The EU
concluded an agreement with Russia on May 21, which set
tariff rates and quota levels for Polish-Russian trade. In
a number of areas, relatively short transition periods were
set up, some of which will expire early in 2005. Meat
exports and veterinary certificates are one of the most
sensitive issues. Under the agreement, Russia authorized 19
Polish meat exporters to enter the Russian market; Russia
left the choice of firms up to the GOP. Poland is trying to
find a more permanent resolution. Poland is now lobbying
Brussels on other areas, including pharmaceuticals,
textiles, fertilizers, construction, cosmetics, furniture,
meat, sugar and agricultural products. Poland is lobbying
Brussels to reduce the current 6% tariff on Russian aluminum
imports.

Economic Framework and Investment
-------------- -


5. (SBU) Poland and Russia have subsequently signed a
framework document which replaced some of the elements of
the previous agreement, including setting up a joint
commission. Poland would very much like to conclude an
investment agreement with Russia. In 1992, the two
governments agreed to a text, which was presented to the
Duma in 1994, but never ratified. On November 1, Hausner

and Gref held initial talks on concluding a new investment
agreement. The Ministry of Economy reports that it has
prepared a draft agreement, but will have to wait for the
outcome of consultations with the EC and Russia's reaction.

WTO
--------------


6. (SBU) Poland supports the principle of Russia's entry
into the WTO, which it believes will stabilize both Russia
and Poland's overall trade relations. However, Poland also
wants to see Russia fully implement market reforms to meet
the requirements of WTO membership. Poland also has some
bilateral concerns, particularly related to cotton and wool,
which it has communicated to Brussels. Poland is aware that
Russia is lobbying heavily to join the OECD early, even
though it has not yet met the basic requirement of WTO
membership.

Coal
--------------


7. (SBU) Despite fears to the contrary, the Polish
Government reports that its concerns about Russian dumping
of coal have diminished considerably. Bodio said that the
general increase in world prices has helped, reducing the
incentive to dump coal at low prices on the Polish market.
Russian exports are down to between one and 1.5 million tons
a year, which reflects the previous bilateral quota levels.
Ministry of Economy Coal Department Director Bogolubow said
that most of Russia's exports are now soft coal, which is
less sensitive, as more valuable coke exports have been sent
elsewhere. Part of the explanation is that Russia has
pursued other higher priced markets. Poland had been very
concerned that unfairly low Russian coal imports would
disrupt the government's politically sensitive coal sector
restructuring program. However, since January 2004, there
have been no significant problems.

Energy
--------------


8. (SBU) Poland had proposed signing an energy agreement
with Russia, setting out the quantities of oil and gas to be
imported, and pledging cooperation on related areas. First
the Russian Government gave the idea a cold reception in
November, and then the EU told Poland that such an agreement
would violate internal market provisions. Poland is
concerned that there may be disruptions in the supply of
Russian oil, connected to the Yukos nationalization, and
that Russia may be pursuing alternatives to developing the
Yamal II pipeline. Polish and Russian delegations will meet
to discuss energy issues on the margins of President Putin's
visit to Poland at the end of January for the Auschwitz
liberation anniversary commemoration.

Ashe