Trade and integration in transition countries
View Full Text (PDF)
Fields marked with an asterisk * are mandatory.
Over the past two decades, the world economy has become increasingly integrated. The transition countries are particularly striking examples of this process. Formerly a largely isolated trade bloc, with few interactions with the world economy, the region now sends and receives more than two-thirds of its goods and services to and from the rest of the world. The transition countries are also now attracting significant amounts of external investment (see Chapter 5). Transition and integration have therefore been closely linked over the past decade and a half.
However, the process of international integration has not been uniform across countries. Integration has been rapid and deep in the countries of central eastern Europe and the Baltics (CEB), most of which will accede to the EU in 2004. In south-eastern Europe (SEE) and in the Commonwealth of Independent States (CIS) there is far less integration into the world’s product and capital markets. Both regions remain relatively closed to international trade, albeit for different reasons. In SEE the violent break-up of former Yugoslavia has prevented more rapid integration by its successor states. Slow economic reform during the early 1990s in Bulgaria and Romania has also delayed the process of economic integration with western Europe. CIS trade is limited by obstructive domestic and regional policies and distance from other markets. Moreover, some of the artificial Soviet trade links remain entrenched even after more than a decade of transition. Consequently, it has taken longer than in central and eastern Europe to redirect trade to the rest of the world.
Openness and international integration can lead to a dramatic improvement in economic performance through the introduction of new technologies and access to larger markets. For the past two decades, world trade has expanded much more quickly than world output. Countries benefiting from this increase in trade are also likely to do well economically. Moreover, those countries which have successfully expanded their participation in global trade have generally done so on the basis of liberal trade policies. Multilateral organisations, such as the World Trade Organization (WTO), have supported this process.
At the same time, international integration places significant demands on a country’s economic, political and social institutions. Trade across long distances and between new trading partners requires confidence in the enforcement of contracts. The increased competition resulting from participation in global markets can force costly adjustment on some previously protected sectors. Open trade policies need to be accompanied, therefore, by a strong institutional framework that can enforce contracts and support the process of adjustment– particularly in the labour market– if international integration is to be lasting and successful. The challenge is to find a way of encouraging the developing and transition countries to undertake the necessary institutional reforms together with the liberalisation of trade.
The link between integration and domestic institutional reform is particularly clear in the requirements for EU accession. The enlargement process has played a crucial role over the past decade in supporting far-reaching institutional reforms in the accession countries and strengthening the foundations for their integration into the EU and the world economy. For those countries of the region for which EU membership prospects are either distant or absent altogether, we must ask whether there are alternative modes of interacting with the wider regional and global communities that would trigger similar institutional reforms. In particular, the question is to what extent improved market access to industrialised countries should be conditional on strengthening domestic institutions. Increased integration with regional neighbours could be another option, although the merit of such regional arrangements remains hotly debated.
This chapter analyses the integration of the transition countries into international commerce– trade in goods and services. The integration of the region into global capital and labour markets is covered in Chapter 5. The chapter begins by examining the differences in the degree of international trade integration achieved across the region and looks at the major causes for these differences. It examines in particular the role of transport and transit costs, trade policy and institutional quality on the extent of trade. Transport and transit costs are a major factor limiting trade in the CIS, for example. However, trade policies and, in particular, the quality of a country’s institutions and public governance are also critical. If the CIS countries were to adopt the trade policies of the accession countries and achieve the same level of institutional quality, their level of trade with the world economy would increase significantly. In SEE the low level of integration cannot be explained by geography and domestic economic policies alone. The low trade flows probably owe much to the political turbulence of the early and mid–1990s.
The chapter subsequently examines some of the policy options for increasing the international integration of SEE and the CIS. It starts by reviewing the role of international institutions, such as the WTO or the EU, in supporting institutional and trade policy reforms in the nonaccession countries. WTO accession requires a certain amount of regulatory and policy adjustments but it stops short of deeper institutional reform. However, WTO membership and especially free access to industrialised markets can have a significant indirect impact on the pace of reform by increasing the incentives for openness and by strengthening support for economic and institutional reform.
There is considerable scope, therefore, for the EU and other trading partners to encourage greater openness and reform in the CIS through offers of improved market access. This would have the greatest impact if the EU sought in return a reduction in trade barriers in the CIS and trade facilitation measures, such as improved customs procedures. Linking improved market access to more ambitious domestic institutional reforms, such as competition policy or investment support, could be a longer-term goal. But it should not be allowed to delay or derail the process of granting improved market access. To underline this conclusion, the chapter draws on work by the International Trade Centre (ITC) in Geneva, which shows that EU trade barriers encountered by SEE and CIS are still very high for some "sensitive" goods. The CIS, in particular, is granted fewer trade preferences than most developing economies.
Finally, this chapter considers how closer regional cooperation could support international integration. Regional cooperation to reduce transit and transport costs is particularly important in the CIS because of the geographic isolation of many CIS countries. Such regional cooperation could in principle be achieved without the need for preferential trade arrangements, such as those currently planned by several CIS countries. However, provided regional trade blocs pursue generally open trade policieswith the rest of the world, they may provide a political basis for improved regional cooperation at limited economic cost. Moreover, should the non-accession countries aim to conclude a free trade agreement with the EU, the benefits of such an agreement would be greatly enhanced by reducing the trade barriers among the nonaccession countries themselves. The EU has already insisted on greater regional cooperation within SEE before it increases integration with that region. The chapter considers the relevant trade-offs between regional and international integration, drawing on the experience of other regional trade blocs. Annex 4.1 contains detailed country-by-country tables on trade flows and integration.
Email to a friend
Printer Friendly
Please Enter Your Comment: |
Rate the Article |
|---|---|
|
|
You need to login for rating the article.
|
Most Rated Articles |
Most Emailed Articles |
Most Viewed Articles |
|---|---|---|
| * Top 3 Articles | ||
