Three Seas Initiative – a fine idea but…

Thursday, 14 November, 2019 Food From Poland 36/2019
The three seas idea has as many followers, as critics. It is understandable since the new economic alliance would influence the market of the region. But like every good idea, it also has some disadvantages...
History, politics, prospects
The idea of reinforcing Poland’s presence in the region south of the Carpathians is not new. It goes even further back in history than the pre-war ideas of Intermarium or even the 19th-century German concept of so-called Mitteleuropa. The region was involved not just in the inter-war Intermarium doctrines but in real programmes of building the country’s economic position. This included the plans by E. Kwiatkowski; mainly the Central Industrial Region (COP), the new concept of food policy, the rural modernization programme, etc. On paper, it also lasted during the war, in the form of Polish-Czech federalist concepts by General Sikorski. This idea faded in Poland after 1945. The prospect of Poland being strong in the region naturally came back after 1989, together with the inherent strong anti-Russian and anti-German accents. Unfortunately, it was quickly joined by the motif of contestation of the “Brussels” model of European integration.
So, when many people from the circle of this thought took up state positions in 2015, after a period of diplomatic “awkwardness”, a peculiar declaration of distance from the Intermarium and of the European loyalty of Poland in the region had to arise. The reason is clear – the opposition to the EU Treaties puts the EU money – including the resources planned for making the region more coherent – into question. There was too much to lose, so the definitely European “Three Seas Initiative” emerged, featuring twelve member states as well as the USA and Germany as observers. The mission of the Initiative was clearly defined as participation in European integration through modernization of the infrastructure, power industry, and IT, in order to facilitate the approximation of economies of the region and of entire Europe. The level of investments necessary to integrate the regional infrastructure was determined, initially at the level of 570 billion euros, and later, following the concept by the Polish BGK bank, recorded as 1.1 trillion euros. Of course, there is no such money anywhere today, and the EU is the only place where it could be generated. Against this background, the US ideas for the region to break out of the uniform EU policy do not seem useful. It is clear who would potentially pay for it and who wishes to make some money on the way, having extinguished the Atlantic single market, i.e. TTIP, and declared distance to the Union.
Barriers and disproportions
The food sector, mainly farmers, responded relatively quickly to the Initiative, creating the Council of Agricultural Chambers as early as 2016. However, the published declaration is merely a claim-driven document. It sounds like a call for joint pressure on the EU with regard to resources for development, payments, etc. It lacks a strategy for the future. Admittedly, the matter of opening of markets and support to exports is an important motif, yet it is just a mention. There is not a single word about cooperation in the area of production and investment, and without that, the Initiative may not emerge in the sector in view of serious conflicts of national interest. So far, there is no concept of trade barrier lifting either. However, let us assume this is just the beginning of the regional integration process, who knows what the future would bring. Nevertheless, this would require an economic concept and, above all, an honest diagnosis.
The essential issue is to balance the opportunities in cooperation. Poland is the unquestioned regional leader in production, processing and exports – and we should be proud of it; but in order to go further, it is necessary to act on a scale different than domestic and to build complementary cooperation. This is difficult but not impossible. After all, not everyone is happy with the fact they lose in competition against the regional leader, both in the area of price (scale) and quality (extensive investments in modern processing). So far, conflicts are moderated by the EU law and the fear of economic reprisals, but weaker players have been known to react with political and administrative protectionism.
Therefore, it would be necessary to overcome national egoisms – including our homegrown, Polish one, based on the excellent results of exports in the region.
Two dimensions, one goal: go on
There are two dimensions of future planning:
 The internal dimension. Created by 12 food economies, largely substitutive towards each other. Their production is very similar and complementary areas are hard to find. Therefore, it sees pushing each other off the markets, compensated by various forms of protectionism. Poland feels this situation as peculiarly “bittersweet”. There are export successes but also failures in overcoming non-tariff protectionist barriers. The EU law sometimes helps, but without political support and construction of foundations of multilaterally favourable cooperation between food sectors, the situation will only grow more difficult.
 The external dimension. On third-state markets (in the EU and beyond), there are no major problems with a high-quality, usually highly-processed product (this is another area where Poland is in the lead). A significant problem is to increase the scale while maintaining the quality – especially that strong competition will soon come from the East. If we think seriously of the initiative, the solution is regional consolidation and cooperation aimed at cooperative exports from the region. This is the only way to overcome the jinx of substitutive economies regulating their relations with the leader by way of barriers. This will also alleviate the regional disproportions and provide opportunities for everyone to make money. However, it will be no use without strong political impulses in the region and a friendly EU.

Think regionally, act globally

Therefore, the Three Seas Initiative needs a regional food sector expansion strategy. The geographical location of the Initiative predestines it to cooperate not just with the EU but also with Turkey, Russia, Ukraine, China, India, and the Arab world. Maybe even with the USA (if the US market is open). Numerous and affluent sector investors – including Polish ones – are needed as well. So far, our region, out of the entire EU, exports the lowest volumes of goods outside Europe. This is understandable but unfavourable. The effect of opening markets of the “old” EU is fading – so alternatives and efficient enhancements are needed. There are declarations but no political facts and financing. Poland is characterized by an overwhelming dominance of exports over imports in the region. In such categories as meat, dairy products, vegetable and fruit preparations, even in countries that used to “feed” the Comecon (Council of Mutual Economic Assistance), our exports can exceed the food imports several times, and the average oscillates around twice the number. There is much to be overcome in order to earn differently and more – especially that market recession is coming.

The measures of exchange efficiency are not just the measures of our success but of the disproportion. Export profitability ratios are very favourable (e.g. RCA for food in the region seldom goes below 3.0). This is due to the fact that 80% is comprised by processed products, sent from a country with the definitely highest productivity in the region. 224,000 euros per employee, while the Czech Republic and Hungary, with their highest-developed industry, have just 180,000. This does not mean other countries do not develop, but our scale and regularity of investment account for a durable advantage. Already in 2015, Poland (the largest country) had an approx. 11% share in the EU processing sector. For comparison, the Czech Republic had 2.0%; Romania, 3.0%; Hungary, 2.0%; Bulgaria, 1.8%; Slovakia, 0.6%; yet the growth rate is more even: Poland, 5.8%; Czech Republic, 3.5%; Romania, 6.4%; Hungary, 3.9%; Bulgaria, 8.2%; Slovakia, 5.3%.

These measures are complemented with logistic potentials – almost 15 million m3 of storage area, road fleets operating out of Poland, not to mention rail transport and sea ports. Moreover, there is a very high level of specialist equipment: cold stores, artificial atmosphere rooms, cross-docks, IT, etc. Not to mention animal feeds as well as agricultural machinery and industrial installations for the food sector. Everyone will gain on regional consolidation and expansion, but “we” can potentially gain the most. What we have managed to work out after 1989 is much for our region but too little to take on the world “alone”. So, instead of benefitting from short-term advantages on a regional scale, it would be better to become a leader of regional consolidation of potentials, to set out for expansion into third countries, and thus mitigate the disproportions and barriers, remembering Urho Kekkonen’s adage that one should not seek one’s enemies nearby and one’s friends far away.

Andrzej Maria Faliński
Expert





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