No. 64, András Köves (2004): Perspectives for economic cooperation between Russia and the countries of Central and Eastern Europe in the light of the enlargement of the European Union

This paper argues that Eastern enlargement of the European Union, which is to be accomplished de jure as of May 1, 2004, will not bring about any further significant changes in trade and economic cooperation between Russia and the former socialist countries of Central and Eastern Europe (CEE). Most of the really important changes related to the European integration and re-orientation have already occurred in the period following 1989, and there is little left for the future. On the other hand, economic and political stabilization in the CEEs – of which full membership in the EU should be an important phase – may contribute to better conditions (than in the turbulent transition period) for the development of relations with Russia (and other CIS countries outside the scope of the paper) as well. De facto integration of CEEs in (Western) Europe started as early as 1989-1990, concurrently to political change and economic transformation. Of all fields of integration, trade was the first to start. Trade re-orientation was an organic part of transformation (as a consequence of both the collapse of the CMEA and the rapid rise of trade with the West), and was an accomplished fact in most of the CEEs as soon as early 90s. By the end of the millennium, the share of the 15 present member countries of the European Union in total trade of most of the CEEs reached the point of culmination. This is a unique feature of Eastern enlargement (as compared to previous cases of enlargement): trade-creating and trade-diverting effects of joining the European Union had emerged in their entirety before full membership of the newcomers was attained. It would make no sense (what is more, it would be even counterproductive) to aim at further increase of those shares.Parallel to the growing volumes of trade, and in accordance with the „Europe Agreements” concluded in early 90s, trading systems and trade policies of now acceding countries have gradually approached those of the Union. Therefore, coming change from national trading systems, regulations and policies of the CEEs, and also from nationally concluded trade agreements with third countries, to the acceptance of the common commercial policy of the Union will result in minor changes only, as far as conditions of trade, including those with third (non-member) countries are concerned. Also, according to calculations, in case of Hungary for example, the change from national regime of Most-Favoured-Nation treatment of Russia to the GFS treatment extended to Russia by the Union will not imply any significant alteration of conditions of bilateral commerce. There is a mutual dependence on Russian exports of energy to CEE. For the CEEs, Russia is a cheap (relative to alternative sources), reliable, geographically near-by supplier of most of their needed imports of energy, with established and well-functioning transport infrastructure. For Russia, CEE remains the market outlet for a large part of its exports of oil and gas, and one of the important transit routes for its actual and potential energy exports to Western and Southern Europe, as well as Asia Minor. CEE is also an area for promising foreign investments of leading Russian oil and gas companies.Just the opposite seems to be the case with CEE exports to Russia: in macroeconomic sense, present trade data are witness of mutual „independence”, following the not-so-long process of smashing and deconstruction of large-scale business relations of the CMEA period. The Russian share in CEE exports is about 2 percent, while about 6 percent of total Russian imports come from CEE (the six former CMEA members). In such a situation it is simply irrelevant to raise the question of eventual further negative implications of CEEs’ full membership in the European Union. This is not to ignore the highly protectionist and divisive policies of the Union, aimed, first of all, at imposing more administrative controls and restrictions on crossing its borders by nationals (inhabitants) of non-member states, at limiting cross-border (shuttle) trading and employment (legal and illegal). The injurious negative human (regional) implications of those policies, the eventual difficulties of business as usual notwithstanding, the macro-economic impact of the measures for Russia-CEE trade seems to be limited. By all means, they should not conceal the deeper, basic causes of the decay in relations.

Project leader:
András Köves