Facilitating access to markets for countries in transition

Following the conclusion of the GATT Uruguay Trade Round in December 1993, the creation of the European Economic Area in January 1994, the ratification of the European Agreements with Poland and Hungary in February 1994 and the first anniversary of the entry into force of a free-trade agreement between the Czech Republic, Hungary, Poland and Slovakia in March 1994, the questions of market access for the economies in transition have taken on a new significance. Despite this network of extended free trade agreements, the goal of pan-European integration and a barrier-free European market is still far from being realized.

To encourage European economic integration, the United Nations Economic Commission for Europe (ECE) proposed a comprehensive and wide-ranging framework for western assistance to the countries of central and eastern Europe in order to improve their access to regional markets. Such recommendations were based on the recognition of the difficulties of achieving a rapid transition to a market economy, and draw in part on relevant lessons of the European Recovery Programme in the period following the Second World War.

In contrast to the ECE response, the western countries have adopted a far more robust and effective approach in their trade policies particularly to those countries which have made the most progress in their reforms (Czech Republic, Slovakia, Hungary, Poland, Bulgaria and Romania). This approach is reflected, for example, in the Association Agreements (European Agreements) and free trade agreements with the European Union (EU) and the European Free Trade Association (EFTA) respectively. These measures have improved market access significantly for these transition economies. Although less extensive, a number of trade and cooperation agreements have been signed between Commonwealth of Independent States (CIS) and western countries; and more recently Russia has gained under the generalized system of preferences (GSP) and its favoured nation status (MFS) treatment by the USA.

The advantages of liberalizing trade with countries in transition and providing them with improved access to western markets are considerable. First, the resulting increase of trade directly helps the transition process. Given the economic policies being favoured by many of the countries in transition, e.g. tight monetary control and reductions in their public deficits, domestic demand will be unlikely to provide a major impetus for growth for some time. Thus foreign trade is particularly important if economic growth is to be achieved. Secondly, it will assist in raising the technological level of the domestic economy. Third, it will force the domestic producers to be competitive and raise the standards and quality of their products to western levels. Finally, secure access to western markets acts as a powerful stimulant to foreign direct investment which is looking to exploit low factor costs, particularly of qualified labour to manufacture products for export to western markets. It is for these reasons that governments of east European countries have argued that extending market access is by far the best form of technical assistance which the West can grant.

Immediate benefits of improved market access took the the form of a sharp rise in exports from central and east European countries to western countries. With regard to Hungary, Poland, Czech Republic and Slovakia (the Visegrad group), trade has shifted towards western market economies and particularly the countries of the European Union. During 1989-1992 exports of these countries and possibly Bulgaria grew at rates well above those of total western imports. Amongst the Baltic countries as well, there has been a radical restructuring of trade away from the former Soviet Union towards other markets, most notably towards Scandinavian countries and Germany.

Although the market access issue has been most discussed in relation to the access of eastern goods into western markets, market access also concerns restrictions on goods entering the eastern markets. This can also involve restrictions placed on the rights of western firms to establish in these markets. It is moreover a problem which is not geographically confined to the relations between East and West. Because of the collapse of intra-east European trade, market access has also become an issue for policy makers in countries in transition responsible for trying to revive intra-east European trade. The question of market access thus can be viewed in terms of access to western markets (i.e. East-West), in terms of the transition countries' own trade regimes towards imports of western goods (West-East); and finally in terms of the access of products from countries in transition to other eastern European markets (East-East). It is also relevant to mention some of the internal barriers in countries in transition at the level of the firm and its domestic environment which impede their ability to penetrate foreign markets.

As the trade and cooperation agreements have come into force, there has emerged a tendency of western governments, in the absence of the traditional forms of protection which have been abolished by the agreements, to resort to the use of special safeguards, anti-dumping, countervailing duties against products in particularly sensitive sectors of the economy. The use of these non-tariff measures to protect their industries from east European products has, it is argued, undermined the initial objectives of these agreements.

It is worth asking the question why such safeguards were included in the agreements and subsequently used. Contrary to some thinking, such measures were not designed to halt any major surge in imports of the East which might threaten the EEC/EU's or other countries' balance of payments. This threat was never a realistic one. In recent years, in many important sectors of the EEC/EU market, the share of imports from the countries in transition has in fact diminished. In chemicals, for example, the share of products imported from the East represents only 1.7% of the EEC/EU market (2.8% for textiles, 2.7% for steel and 2.3% for agricultural products). Indeed, overall liberalization of trade has benefited the western far more than the eastern producers. Rather, the use of these measures has been designed to prevent low-priced goods from entering markets, depressing prices and causing market disruption in a few specific industries. Those sensitive areas are hard-pressed industries where employment levels tend to be sensitive to structural rather than cyclical factors, i.e. employment will not increase once the economy moves out of recession, and where employment is highly concentrated geographically. Consequently, in such industries as steel, the demand for relief from such imports has grown stronger.