The veto Poland wielded to halt negotiations on a new partnership and cooperation agreement between the European Union and Russia has revived discussions about bilateral economic relations between Warsaw and Moscow. In fact, trade is developing dynamically-even if it is under the shadow of a dispute over Russia's embargo on Polish meat.

Poland blocked EU-Russia negotiations because it had not received satisfactory guarantees from the EU concerning help in solving the trade dispute with Moscow. Russia has maintained an embargo on Polish meat since November 2005, despite a positive assessment by EU veterinarians.

"We must not agree to Poland's exclusion from regulations that Russia has to abide by in relation to all EU countries," said President Lech Kaczyński. "Polish-Russian relations can only be good if they are based on rules of partnership and equal rights." Andrzej Lepper, Deputy Prime Minister and Agriculture Minister, says the Russian embargo costs Poland around 1 million euros in losses every day.

Regardless of the ongoing dispute, Polish economic relations with Russia are not at all bad and trade is still developing fast. Poland is Russia's fourth largest trade partner in the EU, larger than France. By the end of last July, Poland's trade with Russia exceeded $9 billion and the year may close with an even better result than last year's record. Trade exchange in 2005 crossed the $10-billion mark for the first time in history, reaching almost $13 billion.

Polish exports to Russia rose sharply after Poland's EU entry, when Polish exporters started to benefit from principles governing EU-Russian trade. Some companies resigned from the services of intermediaries in other countries to facilitate access to the Russian market. Naturally, like most other countries, Poland has a deficit in trade with Russia, which in part results from the global prices of oil and gas, the main products imported from Russia. Some 90 percent of crude oil processed in Polish oil refineries originates from Russia, as does over half of the natural gas used in the country. Although Poland's exports to Russia have increased by another 7 percent this year, spending on imports has grown by 48 percent due to the high price of raw materials. According to Polish statistics, Poland is the EU's third largest country in terms of exports to Russia.

At the end of June, Polish investment in Russia was worth $249. 1 million. In the first half of this year, the flow of investment from Poland to Russia reached $96.8 million. Most of the investment was directed at the processing sector, with wood products in the lead, followed by transportation, appliances, chemicals and food processing, including beverages and tobacco products.

According to data from Russia's State Statistics Federal Service, most Polish investments-$143.3 million-were located in the Northwestern Federal District of Russia. The district is home to the largest Polish investment in Russia, namely, the Grajewo factory of furniture and laminated boards. The factory was built on an open field near Velikiy Novgorod and cost the company around 90 million euros. The target production volume at Grajewo's Russian plant is 500,000 cubic meters of boards, with a sales target of around 85 million euros a year. The facility is still in its start-up phase and this year's sales are expected to reach 20 million euros with a production volume of 360,000 cubic meters. Grajewo and its owner, the German Pfleiderer corporation, which holds over 60 percent of Grajewo's shares, are planning to build two more factories in Russia.

Other Polish companies operating in the region include the car accessories producer Novol, the Lukullus meat processor from Nowy Dwór Mazowiecki and Medpol, which produces Christmas ornaments and personal hygiene products in Kronstadt. There is also a furniture store of Studio-Rustica from Gdańsk and the Sankt-Petersburg representation office of the Polish company Bolix has carried out a number of construction projects.

At $32.2 million, Moscow ranks as the region with the second largest amount of Polish investment in Russia. Around 30 enterprises involving Polish capital are registered in the Moscow district, representing a wide range of business activities. The companies include the ZAO Wodomierz designer, producer and seller of water meters in the city of Mytishchi and the Bella-Yegorievsk personal hygiene products factory.

Over 500 companies with Polish capital operate in the Kaliningrad District, including Budimex, Dospel and Maspex. The Forte furniture producer has opened a factory in Vladimir.

Bioton, a company quoted on the Warsaw Stock Exchange, has been very active in Russia. This year, the Russian authorities registered and allowed the sales of Gensulin insulin produced by the Polish company. The decision will enable exports of Bioton's insulin to the Russian market and thus fulfill the company's sales plan for this year, with the value of Gensulin exports to Russia reaching $20 million. The company has started the construction of its own factory in the town of Orel.

As for Russian investment in Poland, data from the National Bank of Poland (NBP) shows that direct investment from Russia reached 28 million euros in 2005. The largest Russian investors in Poland include Gazprom and Lukoil. The Bagdasarian-Śnieżka candy factory in the Wałbrzych Special Economic Zone is another noteworthy project.

As some of the biggest obstacles in business operations on the Russian market, Polish entrepreneurs point to longwinded administrative procedures, coupled with high certification costs for products before they can enter the Russian market. Another obstacle is the system of licensing different business operations. This can be a considerable problem for entrepreneurs entering Russia from the Polish market.