From misdirected integration to reintegration
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Under communism and central planning, the countries of eastern Europe and the former Soviet Union were the victims of misdirected regional and international integration. The Council of Mutual Economic Assistance (CMEA) and even more so the Soviet Gosplan– the state planning authority– imposed an excessive degree of specialisation in production and an artificial division of labour, which often conflicted with the resources and productive capabilities of CMEA member countries and the Soviet republics. This system of planned specialisation was sustained economically only by maintaining a high degree of self-sufficiency within the CMEA and conducting little trade with the rest of the world.
While there was a need for a radical restructuring of production and international and inter-regional trade in all post-communist countries following the fall of the Berlin wall and the break-up of the Soviet Union, the nature and difficulty of the required restructuring differed between countries and regions. Of the eight central eastern European and Baltic countries that will join the European Union in May 2004, all except Slovenia were part of the Soviet bloc. Together with Bulgaria, which is due to accede to the EU in 2007, they required a drastic reorganisation of their external trade towards western Europe. The same was true for Romania, the other candidate for EU accession in 2007, and for Albania, which had both been the victims of their own self-sufficient forms of central planning.
The countries of the Commonwealth of Independent States (CIS) also needed to reduce their trade dependence on Russia but the latter would continue to play a significant role as an origin and destination of trade. This is due not only to its geographical proximity but also to the high degree of production specialisation in the former Soviet republics and their interdependence as a result of the communist system. The six former Yugoslav republics were more integrated into the global trading system prior to the break-up of Yugoslavia. Except for Slovenia, their further integration into the regional and global economies was delayed by conflict and sanctions.
While initial conditions varied, all countries stood to gain from liberalisation– freeing domestic markets from administered prices and opening them to international trade– following the misallocated and wasted resources under the old system. Recognising this potential and the need to weaken state control, many early reformers embraced comprehensive internal and external liberalisation. The pace and scope of this liberalisation varied widely, however.
In some cases, the collapse of the old regime and national independence resulted in only limited liberalisation of domestic markets and the introduction of new artificial barriers to trade and transit. These barriers either have been self-imposed (as in Belarus, Turkmenistan and Uzbekistan) or are the result of barriers erected by others. For example, regional infrastructure in the CIS, including roads, railways and power grids, has been starved of investment and maintenance, often for reasons of political rivalry among countries. Large-scale, partly seasonal migration between Tajikistan and Russia has been disrupted by administrative interventions by the Kazakh and Russian authorities. Some of these restrictions are due to legitimate concerns about terrorism and drug trafficking but mutual mistrust, nationalistic rivalry and trade protectionism also play a role.
In contrast to the retreat towards self-sufficiency in some CIS countries, the expansion of the EU has been central to the reintegration into the global economy of many countries of the region. This is clearly the case for the eight transition countries that will become EU members in 2004, and for Bulgaria and Romania, which could join the EU in 2007. The eight first-wave accession countries have done much to prepare themselves for this historic step. They have undertaken major structural and institutional reforms that have been chronicled by the EBRD’s Transition Reports since 1994 and by the European Commission’s annual reports on the preparedness of the candidate countries since 1998.
Building on these reforms, the countries have redirected their trade towards existing EU members and away from former CMEA members (see Chapter 4). They have increased significantly their overall openness to trade and have attracted large capital inflows primarily in the form of foreign direct investment (FDI– see Chapter 5). These processes of structural and institutional reform, greater openness to trade and increased FDI tend to be mutually reinforcing in terms of their impact on overall economic performance, helping to sustain further progress in transition and to support integration into the single European market. However, the transition is not yet complete and more remains to be done in terms of further structural and institutional reform.
This chapter assesses key policy issues in promoting the transition to an open market economy in the region. The analysis draws on the experiences of western Europe since the Second World War as well as the recent experiences of the accession countries that have responded well to the challenges of international integration and regional cooperation. However, it recognises that there are important differences among countries in terms of location, history and culture and that one approach to international integration cannot be simply emulated in other countries.
The chapter tries to identify some of the underlying factors for success and to draw some implications for other countries in the region. This analysis suggests that the EU’s Stabilisation and Association Process in south-eastern Europe is well-founded on past experiences and that it could eventually expand to include the opportunity for EU membership for a further five countries (see Map 1.1). For the western CIS countries, EU membership is a more distant prospect.
The histories and cultures of the CIS countries differ significantly from those of the EU accession countries. In particular, the CIS countries experienced over 70 years of communism and central planning compared with about 40 years for the countries of central and eastern Europe and the Baltic region. The EU’s Wider Europe initiative, which covers Belarus, Moldova, Russia and Ukraine among other countries, attempts to encourage "good neighbourly" relations between these countries, which are unlikely to be candidate EU members in the foreseeable future, and the enlarged EU, without ruling out their eventual membership.
Other countries that lie outside of Europe, in particular those in Central Asia, are ineligible for membership in the EU under its founding agreements. The three Caucasus countries– Armenia, Azerbaijan and Georgia– are also excluded from the Wider Europe initiative, although they lie within Europe. Countries unlikely or unable to become EU members in the foreseeable future will need to develop policies that foster greater international integration and regional cooperation outside of the EU context.
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