Promoting expansion of trade in transition economies

Because most of the transition economies are relatively small and have limited resources, improving their trade performance is essential for the success of their reform processes. However, the trade performance of the transition economies since 1989 has been disappointing. The contraction of exports has coincided with a shift in the commodity composition towards mainly low value-added products and raw materials.

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:

(a) at the national level: payment-related problems; inadequate infrastructure; poor channels of information.

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

The coordinated regional action programme identifies core sets of priorities for governments of the Commonwealth of Independent States (CIS), of central and eastern Europe, and of western market economies. Faced with limited resources and with the impossibility of financing all the desirable measures, transition economies should rather concentrate on the issues where improvement is most needed. With a view to helping implement the recommendations of this report, some proposals are made in fields where the UN/ECE, in cooperation with other international agencies, has a significant role to play. These include studies and conferences, special projects, and large-scale trade development programmes.

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.

Type Classification:
E: Emanations of other strategies