Sanctions on Serbia Take Toll on Hungarian Firms

WAR in the former Yugoslavia has proved devastating to Dunaujvaros, an industrial city of 60,000 people. United Nations sanctions have closed shipping on the Serbian section of the Danube River, and the Dunaferr steelworks company is unable to regularly import raw materials or export finished products.

``We ran out of iron ore last May and shut down one of our blast furnaces,'' says production and sales director Attila Enesey. ``Our finished stocks piled up [and] we just couldn't keep our delivery deadlines.''

Dunaferr's troubles would indicate that the sanctions are having the desired effect, were it not for one fact: Dunaujvaros is located in southern Hungary, not in Serbia.

Serbia's neighbors have been hard hit by the international embargo, which has severed the principal overland transit routes linking Western Europe with Turkey and the Middle East. To date, Hungary claims to have lost $1 billion in trade and transit fees, canceled orders, and increased shipping costs. Official Bulgarian estimates exceed $2 billion, and Romania claims more than $3 billion in direct losses. Macedonia, Greece, and Ukraine also have registered significant losses.

``The sanctions cause a lot of losses to the neighboring countries, all of [which] were already in a difficult economic position,'' says Hungarian Foreign Ministry spokesman Janos Hermann. ``We've supported sanctions measures all along, but we don't think that sanctions should be employed for years and years as the only tool for solving [the Yugoslav] crisis.''

What has hurt companies like Dunaferr is not the loss of bilateral trade with Serbia, but rather the fact that sanctions have severed the main supply routes across the Balkans. Many industries rely on international traffic on the Danube to obtain supplies and ship products, especially in landlocked Hungary.

Dunaujvaros and the Dunaferr steel mill were built on the banks of the river (by a 1949 Communist Party decree) for this very reason. ``You can imagine what a big problem it's been for us,'' says Mihaly Schneider, marketing manager at Dunaferr. ``The river is the only cost-effective route we can use.''

But Danube shipping dried up when tougher sanctions were imposed last April, restricting commerce along the Serbian section of the river and cutting off Dunaujvaros from the sea. No transit permits were issued for three months, at which point Serb militia began stopping barges at gunpoint, Mr. Schneider says.

``It's sort of a highway robbery, which is done to suit the purposes of the Belgrade government,'' Mr. Enesey says. ``The Serbs will demand fuel or something from these barges before they'll let them proceed downriver.... Even if you have transit permits, the Danube's still unreliable.''

The delays have increased the cost of Danube imports by 22 percent, forcing the company to turn to railroads. Exports are now sent by railroad over the Dinaric mountains to Croat, Slovene, and Italian ports on the Adriatic. Dunaferr claims that this increases shipping costs from $12 to $32 a ton. Total estimated losses stand at more than 1.2 billion forints ($11.7 million) since April 1992.

Sanctions have disrupted overland trade as well. Bulgaria's Somat, Europe's largest trucking company, dominated the route between Western Europe and the Gulf states of the Middle East. But the war has closed the multilane highway that linked Sofia and Vienna across the former Yugoslavia. With tougher sanctions last April, all trans-Balkan traffic was diverted onto woefully inadequate secondary roads crossing Hungary and Romania. Trucks wait for as long as a week to cross the Danube to Romania.

``[With] every delay, you incur pure losses in salaries, depreciation, and gasoline, [and] then you still have to try to explain the delays to the customer,'' says Velimir Mladenov, former financial manager at Somat. To make matters worse, Iraq and Kuwait were once among Somat's biggest customers. But the company lost 110 trucks and millions of dollars in business during the Gulf war and the subsequent UN trade embargo.

Lubomir Stephanov, the Bulgarian Privatization Agency's transport sector expert, estimates Somat's total losses to be nearly $100 million a year.

``If the international community decides it's necessary or not necessary to continue sanctions, it's OK with us either way,'' says Andrei Hateganu, first secretary of the Romanian Embassy in Budapest. ``We're suffering hardships but are committed to respecting the decisions of the UN. Romania will, however, expect help in recovering damages.''