The Basic Features of Trade Relations between the EU and the Applicant States

Abstract

The collapse of communism in central and south-east Europe in 1989, followed by the dissolution of the Soviet Union in 1991 and the disbanding of the CMEA destroyed the rationale on which the trade relations between communist states had been constructed. This required the former CMEA economies and the Baltic states to seek new trade partners. Similarly, the secession of Slovenia from Yugoslavia in 1991–2, and the dislocation created by the outbreak of war in the former Yugoslav lands, required Slovenia to intensify its trade relations with non-Yugoslav states. The EU became an obvious target for the redirection of trade. The countries which now constitute the EU had been the major trade partners for each of the economies in the inter-war period and their geographic proximity and their relatively large per-capita incomes made them an attractive proposition for exporters seeking new markets. The growth of trade between the ten central and east European economies that are being considered for entry into the EU in the first two tiers of eastward enlargement (the CEE-10) and the current fifteen members of the EU (the EU-15) was substantial in the early 1990s. However, it has not been without problems. EU-15 exports to the CEE-10 have grown substantially faster than CEE-10 exports to the EU-15, resulting in the re-emergence of large trade deficits and problems of indebtedness. This raises an important question about the cause of deficits in CEE trade with the EU. Are they purely a transitional phenomenon related to the increased demand for capital for restructuring? Or, do they result from more fundamental problems arising from a structural inability to produce the more sophisticated goods that are demanded in EU markets?