December 2016

The Russian-Ukrainian war’s imprint on Polish-Russian trade

Relations between Russia and the West have been at their lowest ebb since 2014 which witnessed aggression against Ukraine, the annexation and occupation of Crimea and the destabilization of the situation in the Donbas. Political tensions are leaving an imprint on economic relations. Reciprocal sanctions, coupled with the Russian recession triggered by a slump in oil prices, have influenced trade dynamics both at a European level and bilaterally. The argument which has it that European economies are suffering serious losses due to these restrictions is often raised in discussions about the future of sanctions. Poland serves as a good example as to why such generalizations should be treated with caution.

Trade relations between Poland and Russia had a very positive dynamics prior to the crisis. Turnover increased from EUR 7.2 billion to EUR 27.2 billion from 2004 to 2013. The composition of traded goods was at that time and it is still now typical of Russia’s relations with other developed states. Russia mostly supplies fuel and energy carriers to Poland (in 2015: fuels, lubricants and related materials, inedible crude materials – 67.1%, manufactured goods – 7.2%, chemicals – 5.4%, machinery – 2.4%, food and beverages – 1.2% and other – 16.6%) while Poland supplies a wider array of goods (2015: machinery – 36%, manufactured goods – 34.7%, chemicals – 20.4%, food and beverages, oils – 7%, fuel and inedible crude materials – 1.8%). Poland has traditionally maintained a significant trade deficit with Russia due to high crude and natural gas prices.

Numerous commercial disputes, primarily related to the export of Polish food, broke out after 2004. Russian phytosanitary services repeatedly limited Polish producers’ access to the Russian market. Similar practices were also employed with respect to producers from other countries. These steps were thought to weaken foreign competitors of Russian interest groups and to create divisions within the EU. Recurrent disputes resulted in periodic fluctuations in the turnover of individual groups of goods but had no significant impact on the overall positive dynamics of Polish exports.

Table 1. Trade between Poland and Russia: 2004-2016

Source: Yearbook of Foreign Trade Statistics (2007-2015), Central Statistical Office

The value of Polish-Russian trade turnover has ostensibly suffered a decline since 2014. Fewer exports to Russia were not only down to the restrictions on imports of Polish food but also flailing domestic demand in Russia brought on by the recession and the weakening of the ruble. The drop in the value of imports from Russia can be mainly explained by lower oil prices. However, weaker trade relations between Poland and Russia did not affect the overall, positive dynamics of Polish exports which rose by EUR 24.6 billion from 2013-2015, despite the drop in the value of exports to Russia by EUR 3.1 billion. Total turnover from Polish exports amounted to EUR 179.6 billion in 2015. The major importers were Germany (EUR 48.7 billion – 27.1%), the UK (EUR 12.1 billion – 6.7%), the Czech Republic (EUR 11.9 billion – 6.6%), France (EUR 9.9 billion – 5.5%), Italy (EUR 8.7 billion – 4.8%), Russia (EUR 5.1 billion – 2.9%) and the Netherlands (EUR 7.9 billion – 4.4%). Thus, the value of Polish exports to the Czech Republic - a country whose population is a quarter of Poland’s - was more than double the value of exports to Russia which has a population four times the size of Poland’s. This fact underlines the dichotomy between the real and perceived importance of the Russian market for Polish producers. Polish exports are mostly directed towards the EU market (nearly 80% in 2015).

Moreover, foreign-trade aggregated data indicate that Poland benefited from the drop in fuel prices as there was a significant decrease in Poland’s trade deficit with Russia from EUR 10.4 billion in 2014 to EUR 7.8 billion in 2015.

To conclude, the Polish economy has virtually been unaffected by EU sanctions against Russia and the Russian counter-sanctions. Other factors have determined the dynamics of foreign trade and economic growth. Polish economic losses due to reciprocal restrictions can largely be attributed to sectors or even producers whose composition of trade partners was insufficiently diversified, preventing them from switching to other markets quickly. Still, Polish exporters did undertake effective measures aimed at adaptation in most cases.

 Author: Ernest Wyciszkiewicz