East Europeans Fear Protectionism

Eastern Europe has focused most of its trade efforts on the west, but new restrictions have raised concerns

WITH the collapse of the Comecon trading systems two years ago, the countries of Eastern Europe cut ties with one another and reoriented their trade to West European markets. Now leaders in Poland, Hungary, and the Czech and Slovak Republics are wondering if that was a good idea.

Helped by the lifting of many European Community and European Free Trade Association (EFTA) trade barriers, the four Central European countries conduct 60 to 75 percent of their trade with Western Europe. Eastern leaders had hoped that the signing of free trade agreements with the EC and EFTA earlier this year would further integrate their economies with the West.

But a spate of measures restricting imports from the East has raised concerns across the region that Western Europe has no intention of letting the East compete on an equal footing.

``Europe uses a sort of double-speak,'' says Laszlo Csaba of Hungary's Kopint-Datorg economic research institute.

``It's all very good when they're talking in very general terms,'' he adds. `` But when it comes down to substantive things it gets very petty-minded, especially in areas where we have a competitive advantage.'' West European measures

In April, the EC imposed a ban on livestock, meat, and dairy products from 18 eastern countries following an outbreak of hoof and mouth disease in Croatia. Hungarian Foreign Minister Geza Jeszenszky told EC leaders that the ``entirely unwarranted [move] smacks of a most regrettable survival of the notion of an Eastern bloc.''

The EC followed with anti-dumping duties and ``voluntary'' export restraints on certain steel products from Hungary and Poland. And just days after signing the EFTA free-trade agreement in early April, Austria introduced import quotas on chemicals, cement, agricultural machinery, and steel from Eastern Europe. West Europeans claim that their eastern neighbors have an unfair advantage because of low wages, state subsidies, and low environmental standards.

Although the EC and EFTA agreements are supposed to lift tariffs and trade barriers on most industrial goods over 10 years, most agricultural products are not included in the agreements. This is critical for Hungary, with its extensive farm sector.

``The EC is never going to let Hungary achieve its potential output,'' says Iowa farmer David Andres, who has studied Hungarian agriculture firsthand. ``They're already afraid of Hungary.''

``The stronger player always calls the shots in the gray areas and we're certainly weaker than they are,'' says Ladislav Derian, first secretary of Slovakia's embassy in Budapest.

``Europe could afford to make more lavish concessions because we're insignificantly small compared to them,'' says Csaba, who estimates the East-Central European share of imports to the EC at less than 5 percent. Diversifying ties

Trade experts say the four central European countries should seek new markets to reduce their dependency on Europe. ``Most East Europeans don't understand that if you diversify your economic ties you're not leading yourself away from the EC,'' a Western trade official says.

``Europe is not eager to let [its] markets be swamped with cheap Eastern imports,'' he adds. ``If these [Eastern] countries traded more elsewhere and with one another it would help relieve the pressure on the EC and EFTA.''

Continued recession in Europe and a severe regional drought in Eastern Europe are largely responsible for a sudden downturn in the four countries' exports in the first half of this year.

``This underlines the necessity of cultivating other, fast-growing markets,'' a document of the Organization for Economic Cooperation and Development (OECD) states. ``Continued strong export growth will be essential to sustain the transformation to a market economy and avoid balance of payments constraints.''

The OECD says the six ``Asian Tigers'' - Malaysia, South Korea, Taiwan, Thailand, Singapore, and Hong Kong - could make excellent trading partners for the Central Europeans, as they undergo rapid economic growth.

Others say the first step should be for East European states to conduct more trade among themselves. ``We traded freely [between ourselves] for 40 years, and now we have quotas and duties blocking the way,'' Mr. Derian says. Barriers to trade

In March 1993, with EC prodding, Hungary, Poland, and the Czech and Slovak Republics set up a free-trade zone of their own. But member states have shown little interest in promoting the development of this Central European Free Trade Association, because of concerns that it might undermine bids for EC membership.

In May, CEFTA representatives failed to ratify an agreement that would have reduced the timetable for trade liberalization from eight to five years.

Instead, some CEFTA countries have started adopting temporary import quotas and imposing indirect barriers to intraregional trade.

``People are reluctant to drop barriers because the other East European countries are the only ones from which we can protect ourselves,'' Derian says. ``All our other trading partners are so much stronger than we are.''

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