As the world marketplace becomes increasingly globalized, a new study warns much is at stake for the prosperity of hundreds of millions of people in Eastern Europe and the former Soviet Union, now in their second decade of transition from communism to capitalism… January 31, 2006 ─ A new World Bank study cautions unless further market reforms are taken, the former Soviet Union and Eastern Europe are in danger of permanently breaking into two intra-regional trading blocs—one rich and one poor. The study, From Disintegration to Reintegration: Eastern Europe and the Former Soviet Union in International Trade, analyzes the evolution of trade by 27 transition countries since the fall of communism. It finds in the decade and a half since the disintegration of the Soviet trade bloc, the region as a whole has experienced rapid trade flows – so much so it now trades largely in line with comparable regions in the world. However the study’s lead author, Harry Broadman, a Bank Economic Adviser, says there’s evidence two new intra-regional trading blocs are emerging. “There’s an emerging bipolarity in the region,” Broadman says. “The prosperous countries are those that have begun to trade more with Western Europe and the global economy. There’s another set of countries which are focusing still on commodity oriented trade and have begun to pull back into a Russia centric sphere” “But,” as Broadman cautions, “given the diversity among countries in the region, the boundaries of the two blocks are soft. Ukraine, for example, is more integrated into the global economy than many of its neighbors in the Russia-centric bloc.” The study says the Euro-centric trading bloc comprises the eight new countries of the European Union (EU-8) (as well as Turkey). It also increasingly includes many of the seven Southeastern European (SEE) countries. Indeed, while the SEE countries are gravitating toward the Euro-centric pole, they are in fact doing so at different rates, with some countries, such as Serbia and Montenegro, displaying trade characteristics more akin to the CIS countries. “Moreover, Broadman notes, “the two blocs are of greatly unequal scale.” The study shows that total merchandise trade flows of the EU-8 and SEE countries are twice the size of those of the CIS. The study finds the most prosperous countries of the region are those which have found ways to leverage greater integration internationally into more rapid development at home. But it makes the point, the countries have achieved this not only by liberalizing trade policies, but also by implementing domestic reforms fostering international trade - what Broadman calls “behind the border” reforms. The study cites such reforms as measures to promote competition between domestic enterprises; improve governance and reduce corruption; reduce regulation of services sectors; and encourage foreign direct investment – linking domestic firms into global production networks. Countries which have been effective implementing these reforms include Poland and Hungary. The Czech Republic and Slovenia are also mentioned.
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Broadman says actions are needed to prevent the two intra regional trading blocs becoming a permanent fixture in the region, . “Virtually all of the countries in the region need to continue to further liberalize trade,” Broadman says. “But the lions’ share of required reforms are those which need to take place behind the border. This includes basic institutional and structural reforms to make the domestic economies more competitive, nimble and resilient to global market forces so as to enhance growth and reduce poverty.” In essence, the study stresses reform of trade policies are necessary to ensure sustainable growth…but not sufficient by themselves. “For most of the countries in the region this leaves a significant behind the border reform agenda unfinished,” the study says. “Moreover, several such as Belarus, Tajikistan, Turkmenistan and Uzbekistan are still relatively closed and have yet to put in hand even fundamental trade policy reforms.” Broadman says the bulk of the reforms need to be taken by the countries. But he also sees a significant role for the world’s richer nations and the donor community. “The rich countries need to improve market access and remove the non market designation for anti dumping proceedings, “he says. “The donor community has a vital role to provide for greater technical assistance for the poorest countries to improve their trade policy regimes and further their behind the border reforms.”
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