Promoting expansion of trade in transition economies

In order to improve this situation and to increase the competitiveness of their exports, governments in the transition economies have an important role to play in supporting the creation of a favourable environment for their private enterprises. In this respect, macroeconomic stabilization and privatization are two prerequisites and should therefore be the primary objectives of all the governments in the region.

Internal and external barriers hamper the development of trade in the transition economies. Although external barriers ([eg] market access conditions in western economies) should not be overlooked, in most transition economies internal factors ([eg] infrastructure-related problems and management deficiencies) seem to be relatively more important. Although differences exist between the transition economies, there are common internal obstacles to the development of trade and enterprise competitiveness. The most significant are:

(b) at the enterprise level: low productivity; management- and human resource-related problems; obsolete plants and equipment; low quality products and inadequate marketing skills.

Regarding market access, there is still scope for conditions to be improved. However, in 1994-1995 the situation of the transition economies has benefited from the following:< (a) the successful conclusion of the [Uruguay Round] which will have a beneficial, though different, impact on the transition economies, depending on whether or not they are General Agreement on Tariffs and Trade (GATT) members;< (b) the conclusion of preferential trade agreements with both the European Union (EU) and countries of the European Free Trade Association (EFTA), with a growing number of central and eastern European countries, and the Partnership and Cooperation Agreements between the EEC/EU and some countries of the CIS;< (c) the signing of various free trade agreements amongst transition economies ([Central European Free Trade Agreement] (CEFTA), [Baltic Free Trade Agreement], and the [CIS Free Trade Area Agreement]).

The specific measures proposed to facilitate trade cover topics like institutional development, international trade standards, foreign direct investment (FDI), and settlement of payments and financing mutual trade:< (a) Institution-building measures focus on the creation of trade facilitation, promotion and development organizations, which provide direct assistance to national exporters and/or help governments to design appropriate trade policies.

(b) International standards play a vital role in expanding international trade. UN/ECE standards will assist transition economies to improve their trade performance provided information can be disseminated to these economies and to the companies who will use them.

(c) Foreign direct investment should be actively solicited, but only on the right conditions. FDI in the transition economies for the past four years has been disappointing. By the end of the first half of 1994 it was just over US$ 20,000 million, with almost half of it going to one country ([ie] Hungary). This report shows that all FDI does not have a positive impact on trade. FDI by small and medium sized enterprises seems to be more export-oriented and trade stimulating than capital invested by very large companies.

(d) Improvements in payments and trade financing are urgently necessary to relieve major obstacles to the development of trading relations for enterprises in transition economies. In the CIS, in particular, the inconvertibility of most national currencies and the absence of a multilateral payment system seriously hampers any trade development programme. Risk is the main source of transaction costs in all transition economies, and special measures should be implemented (supported by international financial agencies) to alleviate this problem.