Europe and Central Asia - ECA in International Trade

From Disintegration to Reintegration: Eastern Europe and the Former Soviet Union in International Trade

Lead Author: Harry Broadman
February 2006
This study analyzes the evolution of trade in 27 transition countries since the fall of Communism. It finds that most of the Region's countries are better integrated into the global economy today than at any time since the Russian Revolution.

Over the past 10 years, exports have tripled, imports have increased two and one-half times, and trade has grown at a faster pace than any other region worldwide.

But to take full advantage of greater liberalization, countries must push ahead more strongly on domestic ("behind-the-border") reforms.

Without such reforms, two trading blocs will continue to emerge: one faster-reforming, richer group of countries with ties to Western Europe, and a second, slower-reforming, poorer group focused on Russia.

1. Introduction

Chapter 1 describes the transition from plan to market, which entailed profound institutional and structural changes that led to disparities in the trade flows of the Region's 27 countries. It also describes the scope and structure of this study.

2. Trade Patterns and Performance of Eastern Europe and the Former Soviet Union since the Transition

This chapter investigates the evolution of trade openness in the Region. It finds that trade in the Region is largely in line with trade in other countries of the world of comparable levels of development, size, and geographical characteristics (the only exception involves some of the SEE countries). However the pace, nature, and extent of the Region’s international reintegration are characterized by pronounced variations across the Region. Two “new” trading blocs are emerging: one “Euro-centric”, the other “Russia-centric.”

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3. Trade Policies and Institutions

This chapter looks at how different trade policies affect trade performance across the Region. Beyond the eight countries in the Region that joined the European Union in 2004, three other countries in the Region are poised for EU accession. Seventeen countries in the Region are members of the World Trade Organization (WTO), with most of the other 10 countries in various stages of the WTO accession process.
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4. Roles of Domestic Competition and Governance in the Region's International Integration: A "Two-Way Street"

Chapter 4 concentrates on the ways in which international integration is influenced by the extent of domestic interenterprise competition, the state of the national business climate, and the institutions and incentives for sound governance. In a nutshell, competition at home seems to breed success abroad.

5. Trade Facilitation: Challenges and Opportunities in Eastern Europe and the Former Soviet Union

This chapter elaborates on the importance of lowering transactions costs through improving transportation systems and deregulating transport services. To facilitate trade in this diverse Region, the study suggests infrastructure upgrades in standards, ports, customs, and information technology, as well as policy reform.

6. Services, Trade and Investment

This chapter concentrates on the crucial role played by domestic services sectors in fostering international integration both through trade and investment in services. It highlights the need for achieving a balance between traditional regulation and the introduction of competition. It assesses the role played by international trade commitments in spurring behind-the-border liberalization and services deregulation and makes recommendations for reform.

7. Linkages Between Foreign Direct Investment and Trade Flows

Chapter 7 focuses on the ways in which attracting multinational corporate investment into the national economy through FDI can affect the Region’s countries’ abilities to participate in high value
added global production-sharing networks and intraindustry trade. It analyzes the characteristics of buyer and producer-driven networks and the degree to which countries in the Region have been involved in network trade.

8. Policy Agenda, Reform Linkages, and Action Plan

Chapter 8 summarizes the principal policy recommendations detailed in previous chapters. It discusses the interrelationships, sequencing, and priorities among suggested reforms. It outlines a reform action plan and assigns specific tasks to the the Region's countries, the international donor community and developed countries.