What are the central issues with regards to trade for the countries of Europe and Central Asia (ECA)?

The first major point is that, while ECA is a very diverse region, so that trade issues play themselves out somewhat differently across subregions, an important unifying theme of which one should not lose sight is that the prize of integrating the formerly socialist countries into the world trade system through multilateral trade liberalization in the context of WTO rules is a glittering one.  Let me turn to some of the subgroups of countries.

First, there are eight countries in Central and Eastern Europe that will become members of the European Union (EU) next year and although some of them have trade issues between each other and with the EU, which is their major trading partner now, those will become intra-EU rather than trade issues once they join the European Union.

Second, there are countries in southeastern Europe, such as Bulgaria and Romania, which have ‘Europe’ agreements and are slated to enter the EU in 2007, and countries such as Albania, Croatia, Bosnia, Serbia and Montenegro, and Macedonia, which have Stabilization and Association Agreements with the EU, and which provide the roadmap for their joining the Union at a future date. The EU is the major trading partner for these countries and they enjoy fairly good access to the EU markets right now. However, the countries of southeastern Europe would be well advised to set up a single free trade area among themselves to replace the current patchwork of bilateral trade arrangements. This will increase the openness of their economies and permit them to reap greater benefits from the preferential arrangements with each other and with the European Union.

Third. the CIS countries trade very much with each other, but they have been reorienting their exports and the EU has emerged as the most important trading partner for them outside the CIS. They benefit from preferential access within CIS markets—which again they would be well-advised to replace by free trade areas--and from most favored nation status in non-CIS markets, the latter having been extended on a voluntary basis by developed countries until the CIS countries join the WTO. While the countries also benefit from the Generalized System of Preferences (GSP), the latter do not cover textiles, clothing and “sensitive” temperate agricultural products, such as wine. They are also in the lowest rung of the EU preference ladder, so that countries in southeastern Europe, for example, enjoy even deeper preferences. Furthermore, developed countries have characterized the CIS countries as “non-market” economies and imposed quantitative restraints and brought anti-dumping actions against iron and steel and non-ferrous metal exports from Russia and Ukraine.  It is to be hoped that as part of the move towards a more open trading system, developed countries would reduce tariff barriers on items of export interest to the CIS countries and not consider those countries which have become WTO members to be “non-market” economies.

Fourth, an important non-transition country in the ECA Region is Turkey, which  has enjoyed a customs union with the European Union (which, however does not cover agriculture) and is seeking to open talks on EU accession in the near future. 

Another major point to be made is that WTO accession is of great importance.  All the “first wave” EU accession countries in ECA—the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia—as well as Bulgaria and Romania are already members of the WTO. Albania, Croatia and Macedonia are members too, as is Turkey. In the CIS, only Armenia, Georgia, the Kyrgyz Republic and Moldova are in the WTO while a number of large countries, such as Kazakhstan, Russia and Ukraine, though engaged in accession negotiations, are outside it.

Joining the WTO is above all an important signal of integration of the formerly socialist  countries into the world trading system. It provides governments with an instrument to push through measures such as tariff reductions and phasing out quantitative controls which might otherwise be difficult to do and it allows WTO members to undertake further liberalization of policies affecting merchandise trade and services on a multilateral, reciprocal basis. Countries which do not as yet belong to the WTO should make every effort to accede to it.

To what extent are the intra-regional barriers to trade a significant problem for these countries?

This brings me to the third major point to be made, which is the importance of regional cooperation.  In the CIS, for example, you have countries which are landlocked and which therefore do not have access to ports, except through other countries. To this must be added political tensions between countries both in the South Caucasus and Central Asia. 

Regional cooperation in areas such as transportation, water and electricity will be an important ingredient in facilitating trade in Central Asia. But while infrastructure can play a role in reducing economic distance, there needs to be political accommodation in these subregions in order to reduce barriers to trade. 

Regional cooperation in trade, transport and energy are also important in southeastern Europe.

Do we expect to see more investment flowing into the region with the ongoing trade liberalization?

Yes, the complementarity between trade and foreign direct investment (FDI) is recognized. But it is worth noting that a number of the difficulties this region is facing in attracting FDI are home-grown. There has clearly been a huge growth in FDI to the EU accession countries, but far less in the CIS and in southeastern Europe. That situation could begin to turn around in southeastern Europe , once reform efforts to improve the investment climate bear fruit and the integration process into the EU gains momentum. In the CIS countries, FDI has been very low, except for the oil countries – Azerbaijan, Russia, Kazakhstan – which are attractive due to their oil sectors. So sustained efforts to improve the investment climate, together with improved policies affecting merchandise exports and services could increase investment to them, which would be beneficial.  However, at the present time, these measures have much more to do with strengthening institutions rather than stroke-of-the-pen policy measures many of which have already been undertaken.  The agenda of institutional reform is vast, involving inter alia customs and tax administration, establishment of standards and other trade-related institutions, the apparatus of corporate governance, banking supervision, and legal and judicial reform to ensure security of property rights.

What is the World Bank's involvement in trade facilitation for ECA?

The Bank has worked extensively with the EU accession countries on what may broadly be described as an agenda of integration over the last several years, to bring them to where they are now. The bulk of this has been analytical work on trade related issues, such as improving the investment climate, services and so on.

We are currently engaged in providing analytical advice to countries such as Kazakhstan, Russia and Ukraine on the road to WTO accession. We have a Trade and Transport Facilitation Program to promote integration in South-Eastern Europe. We are trying to get something similar off the ground in the CIS countries. We are doing customs and tax administration projects in an umber of countries.

Let us also remember that even after these countries join the WTO, there will be a significant amount of institutional reforms that will be necessary, in order to facilitate the successful achievement of trade negotiation rounds such as the Doha Round. We expect to continue being significantly involved, both through lending and non-lending instruments, to help countries achieve this agenda.

Has trade overall been beneficial to these countries?

Without any question. The overriding challenge of transition has been to bring the formerly socialist countries into the world economy. The adjustment has been wrenching and fraught with many challenges, but countries are turning the corner. If Doha does truly become the development round it was meant to be, it will provide a tremendous boost for the integration of these countries into the world economy.

Useful links: For more information on the World Bank's work on trade, please visit: http://www.worldbank.org/trade For more on the Cancun ministerial and the Doha Development Agenda, go here.

See also: "Trade for Development in Asia", "Bring Down The Barriers: Trade Discussion Focuses On What's At Stake For Africa", “Cancun 2003: A Look at Trade and Development in Latin America" and “Cancun 2003: A Look at Trade and Development in the Middle East and North Africa"

World Bank Chief Economist for the Europe and Central Asia Region Pradeep Mitra