Hungary's integration into European Union markets - production and trade restructuring

Hungary has achieved impressive results in reorienting both its production and trade. Between 1989 and 1992, as the former CMEA marketscollapsed and Hungary liberalized imports and the exchange rate regime, exports to the European Union (EU) expanded, with manufactured exports redirected largely to Western (mostly EU) markets. During this first phase of expansion, characterized by a dramatic reorientation and explosion of trade, the value of Hungary's exports increased 84 percent. In 1993 export expansion lost steam and EU-oriented exports fell 12 percent. In a second phase of expansion (in 1994-97), driven by restructured and rapidly changing export offers, exports again registered strong performance, their value increasing 132 percent. There was a dramatic shift from an export basket dominated by resource-intensive, low-value-added products to one driven by manufacturers, with a rapidly accelerating growth of engineering products. Machinery and transport equipment rose from 12 percent of exports to the EU in 1989 to more that 50 percent in 1997. The shift from natural resource and unskilled-labor-intensive products to technology - and capital-intensive products in EU-oriented exports - suggests the potential for integration higher in the value-added spectrum. More stringent EU environmental regulations will affect a relatively low, and falling, share of Hungary's exports. The Hungarian share of environmentally"dirty"products imported by the EU has increased, but these products have not been trendsetters among Hungarian exports, their share in exports falling from 26 percent in 1989 to 16 percent in 1996. The rapid pace of Hungary's turnaround seems to reflect the emergence of second-generation firms, mostly foreign-owned. Foreign-owned firms tend to be more export-oriented. Hungary has been on of the more successful transition economies because its economy was receptive to foreign direct investment from the outset. Between 1990 and 1997, Hungary absorbed roughly half of all foreign capital invested in Central Europe.TradePolicy,Economic Theory&Research,Agribusiness&Markets,Environmental Economics&Policies,Markets and Market Access,Environmental Economics&Policies,Trade Policy,Economic Theory&Research,Agribusiness&Markets,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT

Economic Regime for Iraq: the Foreign Trade Perspective

Iraq faces structural reforms designed to effect transition from opaque administrative structures to competitive markets. The process has already begun with a series of measures announced by the Coalition Provisional Authority for Iraq. The paper provides arguments in favor of establishing liberal, preferably free trade regime based on past foreign trade performance indicating that there is not much to protect, Saddam Hussein’s legacy of negotiated free trade agreements with most Arab countries and domestic political economy considerations. It also argues in favor of radical reforms in measures shaping business climate as well as explores institutional measures to lock-in a current liberal trade regime.foreign trade, transition, radical approach, trade policies, trade institutions, multilateral liberalization, regionalism, customs, tariff structure, corruption

The foreign trade dimension of the market transition in Poland : the surprising export performance and its sustainability

To the extent that foreign trade has been discussed in the debate about the transformation of former centrally planned economies, discussion has focused on what should be done to minimize the costs of external adjustment through managed foreign trade and exchange rate policies. Little attention has been paid to the supply-side forces behind export expansion. The author addresses questions that have been ignored: What product categories were the driving force behindthe expansion of exports to the OECD? To what extent were exports from the CMEA reoriented to the West? What was the factor content of exports to the OECD? Was export expansion accompanied by a shift in relative comparative advantage? Will the Central European economies preserve their recent gains in OECD markets? He finds that developments from the beginning of the transformation program represent a dramatic acceleration of the trends in exports observed between 1984 and 1989. Contrary to expectations, the driving force behind the export upswing were manufactures; not raw materials, mineral fuels, or agricultural products. Exports expanded because of the efforts of state-owned enterprises to export more in metallurgy, electro-engineering, and chemical and light industries. Evidence on the relationship between Poland's export performance in the West (especially trade with the European Community) and the collapse of the CMEA seems to suggest that the fall in Polish exports to the CMEA was smaller than expected. The redirection of Polish exports from the CMEA fueled only limited export expansion to the West. The developments in Polish trade during the first two years of the transformation program suggest that attempts to recreate the CMEA arrangements in some new guise would have unnecessarily weakened incentives to restructure the economy with its comparative advantage.Trade Policy,Economic Theory&Research,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Environmental Economics&Policies,Agribusiness&Markets

Bulgaria's institutions and policies : integrating into Pan-European markets

This paper analyzes the process of institutional transformation in Bulgaria and assesses the extent to which it has established institutions and policies fostering domestic economic activity and integration into global markets. After a brief review of characteristics and achieved progress in first-generation reforms, that is, removal of central control over prices, liberalization of foreign trade and exchange rate regimes, the paper first assesses in the comparative perspective the progress made in the quality of governance and structural reforms. It then takes a look at the extent to which this has impacted foreign direct investment inflows and was translated into improved business environment in its domestic and external dimensions. The external dimension relates to backbone services facilitating trade and Bulgaria's trade policies. As far as the latter are concerned, the discussion highlights tensions that emerge from duality-regional versus multilateral-in Bulgaria's trade policy. Despite significant progress in implementation of structural reforms and converging to the EU acquis communautaire that has led to a significant enhancement in the quality of governance and market supporting institutions,"macro"institutional improvements are yet to be fully transplanted to a micro-level, as three areas appear to remain a binding constraint: First and foremost is the low quality of the judicial system and, by the same token, weaknesses in the enforcement of property rights and contracts. Second, backbone services facilitating trade remain a barrier. Bulgaria ranks low relative to the levels of efficiency achieved on average by both EU-8 and the EU-15 countries in management of ports, information technology infrastructure, and customs. Third, there are recurrent complaints among businesses of government bureaucracy, poor infrastructure, and frequent changes in the legal framework including taxation. As a result, the regulatory burden remains huge. There are still redundant and excessive sector-specific regulatory regimes. Bulgaria's markets for industrial goods are fully contestable for pan-Europe (EU-25, European Free Trade Association, Romania, and Turkey), exposing local producers to duty-free competition from imports. With relatively high most favored-nation tariff rates, the level of reverse discrimination significantly increased over the past couple of years. While this has not resulted in perceptible trade diversion, organizational arrangements preventing that to happen unnecessarily increase administrative intervention in the economy.Governance Indicators,National Governance,Economic Policy, Institutions and Governance,Economic Theory&Research,Financial Crisis Management&Restructuring

The EU factor in the trade policies of Central European countries

The author examines the development of foreign trade institutions and policies in Central European countries invited to negotiate their accession to the European Union. With the dismantling of state trading, conditions of market access have been dramatically liberalized. However, except for Estonia and, to a lesser extent, the Czech Republic, most Central European countries have followed a policy of bilateral rather than multilateral trade liberalization. The fall in tariff rates on preferential imports has prompted a search for non-tariff barriers, but these countries'trade regimes have remained open - which is surprising, considering the strong protectionist sentiments in economic administration. Regional disciplines (the EU factor), combined with the legacy of low tariffs under GATT commitments, appear to have been responsible for this openness. Foreign trade policy has been shaped by tensions between domestic protectionist impulses and pressures from the European Union (and other World Trade organization members) to improve conditions of market access.Payment Systems&Infrastructure,Trade Policy,Economic Theory&Research,Environmental Economics&Policies,Rules of Origin,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Trade Policy,Environmental Economics&Policies,Trade and Regional Integration,Economic Theory&Research

The significance of the"Europe agreements"for Central European industrial exports

In 1991 and 1992, the European Union (EU) and the economies in transition of Central and Southern Europe - the CEE-5 (Bulgaria, the former Czechoslovakia, Hungary, Poland and Romania) - signed the European Association Agreements. The Agreements established a new framework for their mutual economic relationship, including the transition to a free trade regime for industrial products. The importance of the"Europe Agreements"has been underscored by the rapidly shifting trade patterns between the CEE-5 countries and OECD markets, and by the emergence of the EU as their major trading partner. The author examines the significance of the trade concessions granted by the EU to the CEE-5 countries (1) by analyzing the incidence of EU trade barriers on imports from the CEE-5 before and after implementation of the Agreements and (2) by identifying trade flows of groups of industrial products subject to different concessions.He focuses on trade liberalizing measures for industrial products for which a free trade regime should be in place no later than five years after the Agreements are in force. (Excluded are textiles and clothing, discussed in the Uruguay Round of Trade Negotiations.) Overall, the industrial product trade provisions of the Agreements, which affect about 80 percent of CEE-5 exports to the EU, significantly improve those countries'access to EU markets. In 1992, the first year they were in force in Hungary, Poland, and the former Czechoslovakia, the Agreements freed slightly less than 50 percent of total exports to the EU from import duties and nontariff barriers (NTB's). In terms of the 1992 composition of exports, this"free trade"share in total exports increases over five years to about 80 percent for the former Czechoslovakia, 60 percent for Hungary, and 70 percent for Poland. Although there are significant differences in the composition of exports from CEE-5 economies affected by EU trade liberalizing measures, these are the result of varying shares of sensitive (especially agricultural) products across countries, not dissimilar of concessions from the EU. The EU's negotiation approach, as revealed in the Agreements, was to minimize the adverse effects of opening up"sensitive"sectors: the time and the pace of transition tends to be longer and slower for groups of products with higher NTB-coverage ratios and higher average tariffs. Whether by design or not, the variation in products identified in various provisions assures a more equitable treatment of CEE-5 countries, judging from their industrial export patterns in 1990-92.Economic Theory&Research,Environmental Economics&Policies,Agribusiness&Markets,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Trade Policy

Trade and production fragmentation : Central European economies in European Union networks of production and marketing

Developments driven by trade liberalization and tehcnological progress mean that old development strategies, based on state intervention and trade protection, no longer work. Global competition has brought a growing emphasis on product standards, rapid innovation, adaptability, and speedy response. Technology has made possible the fragmentation of production. Firms that become part of global production and distribution networks do not have to be foreign-owned, as many multinationals contract out the delivery of services and products. Foreign involvement facilitates the transfer of managerial and technological know-how, so firms benefit from becoming part of a network. Small producers, rather than servicing small local markets, can supply large firms abroad. Foreign participation--through outsourcing or direct investments--may offer direct access to a parent company's global networks. Becoming part of a multinational's production and distribution network is a cheap way to market products. But the unprecedented globalization of the production process has brought the integration of trade and the disintegration of production, with deep implications for the international division of labor. Have Central European economies been able to take advantage of the global fragmentation and disintegration of production and the division of labor? Ten countries--Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia--have made large strides toward readjusting their production structures to international markets, mainly in the European Union. And trade in industrial products has lost its pre-transition idiosyncratic character. All 10 economies apear to be on the same track as the European Union in changing patterns of trade with the networks the authors discuss. Progress is advanced in furniture (most of the 10 economies) and automobiles (the Czech Republic, Hungary, Poland, Slovakia, and Slovenia) and is gaining momentum in"information revolution"networks (Estonia and Hungary). Progress in industrial integration with the European Union has been uneven. The first-tier economies (the Czech Republic, Estonia, Hungary, Poland, Slovakia, and Slovenia) are much less so and, despite relatively low wages, have no comparative advantage in assembly in EU markets. Among first-tier economies, three stand out: Estonia and Hungary (in integration into"information revolution"markets) and Slovakia (in restructuring its automotive sector).Trade Policy,Environmental Economics&Policies,Economic Theory&Research,Transport and Trade Logistics,General Manufacturing,Environmental Economics&Policies,Economic Theory&Research,Trade Policy,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Consumption

OECD trade barriers faced by the successor states of the Soviet Union

Using a comprehensive World Bank - UNCTAD data base on tariff barriers NTBs), the authors examine the incidence of Organization for Economic Cooperation and Development (OECD) trade barriers to exports of the former Soviet Union (FSU). OECD markets have grown steadily in importance in the past decade and now receive more than half of FSU exports. And additional trade could help the FSU republics make the transition to market economies. Overall OECD tariffs that the FSU republics face are 70 to 90 percent higher than the average paid on all goods imported, but their worst effect is the result of the margins of preference they give other (non-FSU) exporters. For example, because of a special EFTA-EC protocol, manufactures are traded duty-free between countries in these blocs, while similar (competing) FSU goods may face duties of 20 percent or more. No significant trade expansion will occur until nontariff barriers are liberalized in NTB-"ridden"products groups of interest to FSU exporters. Sectors in which NTBs are particularly important include fish, fruit, sugar, vegetables, beverages, textiles, clothing, and ferrous metals. OECD trade barriers on some FSU commodity exports provide high levels of"effective protection"that constrain the efforts of the newly independent states of the FSU (NISs) to increase domestic commodity processing. Although the United States has granted most-favored nation status to the NISs (excluding Azerbaijan), and the European Community recently signed the Agreements on Trade, Commercial, and Economic Cooperation with the Baltic states, these developments have not substantially improved their market access. Because of geographic proximity and the existing transportation network, the European market is the most important OECD market for most NISs. But under present EC arrangements, NIS products are subject to higher tariffs and more restrictive nontariff barriers than exports from EFTA members, Lome Convention signatories, or former European CMEA members (the Czech Republic, Hungary, Poland, Romania, and Slovakia). Lower wage rates in many NISs may not be sufficient to compensate for their generally lower productivity and the losses in value added (triggered by higher tariffs) that exportershave to absorb to compete in protected markets. Except for exports of energy and industrial raw materials trade opportunities for many products in which the newly independent states of the former Soviet Union might have a comparative advantage are greatly restricted by OECD tariffs and nontariff barriers.Trade Policy,Environmental Economics&Policies,Export Competitiveness,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Economic Theory&Research

Turkey's evolving trade integration into Pan-European markets

This is an empirical paper seeking to identify the mode of Turkey's integration into global markets in general, and pan-European markets in particular, as revealed in its trade performance. The analysis provides empirical support to the following observations. First, thanks to steady expansion of trade in goods and services since the mid-1980s, Turkey has become highly integrated into the world economy. Second, Turkey's export performance in 1996-2004 in EU markets bears strong similaritiesto the aggregate performance of new EU members from Central Europe (EU-8). Similarities include dynamics, similar factors responsible for the increased presence in EU markets, factor content, and the role of"producer-driven"network trade. Turkey, together with Hungary, the Czech Republic, the Slovak Republic, Slovenia, Estonia, and Poland, stands as one of the top performers in"producer-driven"network trade indicating participation in a new global division of labor based on production fragmentation. The available evidence suggests an economic success story in the making. Export expansion owes a lot to improved policy environment and domestic liberalization. It is rather telling that the recent expansion has coincided with the implementation of most of the provisions of the EU-Turkey Customs Union Agreement, the completion of the removal of tariffs on trade in industrial products among pan-European parties to the Pan European Cumulation of Origin Agreement, and improved macroeconomic stability after the 2001 crisis.Trade Policy,Economic Theory&Research,Free Trade,Transport Economics Policy&Planning,Trade Law

Romania's integration into European markets : implications for sustainability of the current export boom

In defiance of its unimpressive track in structural reforms and relatively low foreign direct investment (FDI) inflows, Romanian exports have experienced surprisingly strong performance in both European Union (EU) and non-EU markets since 2000 after a four-year period of flat growth. While the firstphase of growth in 1992-95 can be easily explained by redirection of trade toward the EU once the state monopoly over foreign trade was abolished and other policy areas liberalized, the current second phase of export expansion raises questions concerning its drivers and sustainability. Having examined overall foreign trade performance, evolving patterns of specialization, Romania's competitiveness in EU sunrise markets, changes in factor intensities of trade with the EU, and"intra-product"trade, the authors conclude that Romania's export offer has become diversified, reflecting an impressive progress in industrial restructuring. Restructuring has been facilitated by FDI inflows, even though they appear to have been too small to generate such a big effect. Romanian firms have become increasingly part of international production networks and traditional global value chains. Sustainability of this performance depends on maintaining macroeconomic stability and keeping wage increases in line with productivity growth, as well as increasing Romania's ability to attract larger FDI inflows through improvements in business climate and trade facilitation.Economic Theory&Research,Export Competitiveness,Trade Policy,Agribusiness&Markets,Environmental Economics&Policies,Economic Theory&Research,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Trade Policy,Agribusiness&Markets,Environmental Economics&Policies