Box: Trade Issues Preoccupy Transition Economies—Interview with Pradeep Mitra

The World Bank’s Development News recently interviewed Pradeep Mitra, the Bank’s chief economist for the Europe and Central Asia Region (ECA) , to talk about major trade issues for European and Central Asian countries. A shortened version of the interview follows.

Major Trade Issues

The region is a diverse one, so trade issues play themselves out somewhat differently across subregions, but an important unifying theme is the integration of the formerly socialist countries into the world trading system by means of the WTO. The region can be grouped in three subregions:

• Eight ECA countries will become members of the EU in May 2004, and the countries’ unsettled trade issues with the EU and with each other will become intra-EU issues.

• Bulgaria and Romania have signed "Europe" agreements with the EU and are hoping to enter the organization in 2007. Others countries, such as Albania, Bosnia, Croatia, Macedonia, Serbia and Montenegro, have signed stabilization and association agreements with the EU that provide the roadmap for joining the Union at a future date. The EU is their major trading partner and they enjoy fairly good access to EU markets right now. However, these countries should set up a single free trade area among themselves to replace the current patchwork of bilateral trade arrangements and cooperate not only in trade, but also in areas such as transport and energy. This would further open up their economies and enable them to reap greater benefits from the preferential arrangements with each other and with the EU.

• CIS countries trade mostly with each other, but have been reorienting their exports, and the EU has emerged as their most important trading partner outside the CIS. They are already benefiting from preferential access within CIS markets, but they would also be well advised to create free trade areas and cooperate in areas such as transportation, water, and electricity. They also benefit from most favored nation status in non-CIS markets, this status having been extended on a voluntary basis by industrial countries until the CIS countries join the WTO. While the countries also benefit from the Generalized System of Preferences, this does not cover textiles, clothing, and such "sensitive" agricultural products as wine. They are also on the lowest rung of the EU preference ladder, so that countries in southeastern Europe, for example, enjoy greater preferences. Furthermore, the industrial countries have characterized the CIS countries as nonmarket economies; imposed quantitative restraints on their exports; and brought antidumping actions against iron, steel, and nonferrous metal exports from Russia and Ukraine. The hope is that as part of the move toward a more open trading system, the industrial countries will reduce tariff barriers to CIS countries’ goods and once they become WTO members will no longer consider them to be nonmarket economies.

WTO Accession

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 WTO members. Albania, Croatia, and Macedonia are also members. 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, while engaged in accession negotiations, have yet to become members. Countries that do not yet belong to the WTO should make every effort to accede to it. Joining the WTO provides governments with an instrument to push through measures such as tariff reductions and phasing out quantitative controls that might otherwise be difficult to do. It also allows countries to undertake further liberalization of policies affecting merchandise trade and services on a multilateral, reciprocal basis.

The World Bank’s Role

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. The Bank is currently providing analytical advice to countries on the road to WTO accession, including to Kazakhstan, Russia, and Ukraine. The Bank’s Trade and Transport Facilitation Program promotes integration in Southeastern Europe and is trying to get a similar project off the ground in the CIS countries. The Bank is also completing customs and tax administration projects in a number of ECA countries.