EU Single Market
Czech Republic: Corona as Pretext for Protectionism
The Covid pandemic often seems to be used as an excuse to allow those in power to do things they would not normally be allowed to do. The Czech Chamber of Deputies' decision to introduce a high quota for domestically produced food in large shops from 2022 also belongs in these ranks: especially in times of crisis like these, more self-sufficiency must be achieved in the long term. Can this form of absurd protectionism stand up to EU legislation on the internal market? One can only hope that this is not the case.
From 2022, if the Chamber of Deputies has its way, all shops in the Czech Republic with an area of more than 400 square metres will have to ensure that 55% of their sales of selected food products are of Czech origin. By 2028, the share is to rise to at least 73%. In the amendment to the Food Act, the Chamber of Deputies also approved, among other things, fines for the sale of double-quality food. A product sold by the same brand and with the same packaging must have the same composition across the EU, the resolution says.
The idea originally came from the far-right party Svoboda a přímá demokracie (SPD, English: Freedom and Direct Democracy). The Covid pandemic in particular had shown, they argued, that the Czech Republic should not remain dependent on unreliable international trade chains - as if, in a country as small as the Czech Republic, international economic interdependence did not secure supplies.
The idea could almost have been dismissed as a marginal populist aberration - not to say a crazy idea - if many MPs from the two coalition parties ANO (Movement of Dissatisfied Citizens) and the Social Democrats (ČSSD) had not jumped on the bandwagon together with the communists supporting them as a minority government. Thus, a solid majority for the project was reached. However, only half of the 200 members of the Chamber of Deputies took part in the vote.
The amendment to the law, which is not yet in force, seems to testify to a downright frightening economic ignorance on the part of the legislators - and this in a country that until now had actually been one of the economic policy poster boys among the ex-communist transition countries. Critics of the decision fear that the quality standards of Czech food products could fall once again as a result of protectionism. After all, the initiators - anticipating that scorn and derision on the subject of "Czech bananas" would be the result - have limited the quota to about 120 of the more than 15,000 foodstuffs sold that can be produced in the Czech Republic. The new obligation will apply, among other things, to Czech eggs, meat and vegetables.
However, this is only at first glance less absurd than a more general quota. Shortly after the announcement, the winegrowers' association said that the domestic wine regions could not produce enough wine to meet the quota. This also applies to a number of other products that can be produced in the Czech Republic, but not in the necessary quantities. Tomáš Prouza, president of the Czech Trade and Tourism Association, said that Czech customers would end up facing price increases of 15 to 20% on selected food products as a result of the bill. In a statement, he noted that the law was "contrary to the interests of consumers and, in effect, honest Czech producers of quality food, who have a natural interest in not having their production pointlessly dictated by bureaucracy."
Indeed, for most grocery shops, the amendment to the law poses a high risk of bureaucracy, as the following detailed regulation shows: According to it, it is not the supply that is quoted, but the demand, i.e. the sale of the products. In this way, the legislator wants to prevent products from being displayed on the shelves according to the quota, but that the remaining foreign products would actually be bought by the customers and then only be replenished more quickly on the shelves by the traders. The implementation and the control effort of this rule would be immense, even absurd. A customer who is about to buy two bottles of French wine might receive a message at the checkout that he must go back to the shelf to exchange the second bottle for a Moravian Neronet because it has just met the quota.
Conflict of Interest for the Prime Minister
Protectionist measures (like this one) are usually directed against customers and to the advantage of suppliers. It is therefore astonishing and speaks all the more vehemently for the nonsense of this law that the trade association and quite a few other suppliers and producers have spoken out against the new regulation with utter dismay. Rather the exception was the Chamber of Agriculture of the Czech Republic or some of the large Czech food companies, where there was isolated approval.
This brings us to the real political issue that is stirring up emotions. The largest Czech food company "Agrofert" used to belong to Prime Minister Andrej Babiš, who is also the leader of the largest government party ANO, which supported the amendment. Babiš is repeatedly accused of mixing politics and business interests. Proceedings are currently underway concerning subsidy fraud and conflicts of interest. No wonder that suspicions arise in connection with the quota law, because the Agrofert group would undoubtedly benefit from it. Due to political pressure, Agrofert is currently officially run by a "neutral" trustee. However, not only the EU but also the opposition has doubts about its independence from Babiš - above all because Babiš's wife participates in the trust's committees and because the company reverts to him after his term as prime minister.
Babiš has therefore largely stayed out of the current public debate. He did not attend the vote in the Chamber of Deputies. Some insiders say he is personally sceptical about the amendment because he is already getting enough pressure from the public because of his politico-business conflicts of interest. The dispute over food quotas within ANO has also been confirmed by some MPs from within the party. Babiš himself has criticised the approval of the food quotas. "I did not initiate or support this proposal and I consider it a completely unnecessary political gesture that is contrary to the functioning of the internal market of the European Union," Babiš told the press.
But doubts remain. For the question still remains why the parliamentary group of the ANO party, which he normally leads quite tightly, voted so unanimously in favour of the quota - a party which, after all, belongs to the liberal ALDE group, where the commitment to free trade and even more so to the principles of the EU internal market should actually be second nature. Even the Vice-President of the EU Commission and Commissioner for Values and Transparency Věra Jourová, who belongs to the ANO party, criticised the bill: "It doesn't make sense to me, it will hurt Czech consumers, it will limit the supply on the market, it will increase prices." She also pointed out that the Czech Republic is an exporting country, but at the same time it would legally restrict imports. "This cannot work," Jourová said.
Even though there is a government majority in the Czech Chamber of Deputies - enlarged by the right-wing extremists - it is not yet clear if and when the law will come into force at all. The next hurdle is the second chamber of parliament, the Senate, where opposition and independent MPs form the overwhelming majority. It is to be expected that the Senate will reject the law and/or make numerous amendments to it. Then the House of Representatives is required to vote on it again and overrule the Senate with an absolute majority (101 votes in the 200-member House of Representatives), which usually does not happen without amendments. If the bill does pass the House of Representatives, some politicians have already announced their readiness to file a constitutional complaint.
And then there are the general elections to the Chamber of Deputies, which take place in October. There, it looked for a long time as if the government would be able to defend its majority well. In the meantime, the hitherto fragmented opposition has largely agreed on common strategies and, according to the current polls, a Babiš victory is quite uncertain. It is precisely on the issue of food quotas that the opposition parties are in unison. Even if the law were to pass in the second round, there is no guarantee that it would not be repealed after the elections in October.
A Threat to Europe's Openness
Of course, there is also a need for external pressure. The ambassadors of Germany, Italy, Poland, France and four other countries have written a letter to Jaroslav Faltýnek (ANO), the chairman of the Agriculture Committee, expressing their concerns that the law interferes with the freedoms of other EU countries guaranteed under EU law. In fact, the law must be causing grief for the German side in particular. And not only because the supporters to the amendment indulged in resentment during the debate: "Look, when you drink coffee, what kind of milk you put in it. You all pour German milk into the coffee," Agriculture Minister Miroslav Toman of the Social Democrats fanned during the debate. "That's why we need the law." The Czech Republic has so far been a key supporter of German positions on the openness of European markets within the EU, regardless of which party is in power. Not least due to Brexit, the group of supporters of open markets feels rather under pressure and has become smaller. Protectionist movements are becoming stronger. The Czech Republic's food quota is therefore not merely a problem of an isolated economic policy aberration due to the panic surrounding the Covid pandemic.
And of course the EU itself is also called upon to act. Already in the run-up, the EU Commission has expressed doubts as to whether the law conforms to internal market rules and does not discriminate against other EU countries. It is still waiting, but reserves the right to take action against it. If the law cannot be stopped in the near future, an appeal to the European Court of Justice (ECJ) will be unavoidable. Those who want to keep the EU's internal market intact can only hope that a ruling will quickly overturn the law. Especially in these Covid times, Europe cannot afford such a firing squad of protectionist measures.
Dr Detmar Doering is the Project Director of the Foundation's office in Prague, Natálie Maráková is a Project Manager for Central Europe and the Baltic States.