European Integration,
Vol. 26, No. 3, 309–338, September 2004
ISSN 0703–6337 Print/ISSN 1477–2280 Online/04/030309-30 © 2004 Taylor & Francis Ltd
DOI: 10.1080/0703633042000261652
ARTICLE
CEFTA: Between the CMEA and the
European Union
MARTIN DANGERFIELD
University of Wolverhampton, UK
Taylor and Francis LtdGEUI041015.sgm
(Received June 2003; final version May 2004)
10.1080/0703633022000261652Journal of European Integration0000-0000 (print)/0000-0000 (online)Original Article2004Taylor & Francis Ltd263000000September 2004MartinDangerfieldSchool of Humanities, Languages and Social SciencesUniversity of WolverhamptonStafford StreetWolverhampton Wv1 1SBUKM.Dangerfield@wlv.ac.uk
ABSTRACT This article uses the CEFTA experience to explore interactions between
subregional integration and the EU pre-accession process. It covers the following
issues. What contributions did CEFTA make to the EU membership endeavour? In
which ways did the EU membership drive impact on the subregional cooperation
process? Were restrictions on the form of integration applied (basic trade liberalisation
in the CEFTA case) a conscious choice or are there inbuilt limits to subregional integration
pursued in the EU pre-accession context? What factors influenced the institutionalisation
and widening issues? Does the CEFTA experience offer any lessons for
other subregional integration exercises, including those already underway – as in the
West Balkans – or purportedly on the agenda – as in the ‘United Economic Space’
planned by certain former Soviet states? The discussion is organised as follows: introduction/preliminaries;
the origins of CEFTA; the evolution of CEFTA cooperation;
outcomes of CEFTA cooperation; the future of CEFTA.
KEY WORDS: CEFTA, Central European Free Trade Agreement, subregional
cooperation, EU pre-accession process, EU enlargement
1. Introduction
EU accession will not only mark the onset of further intensification of the
new members’ integration with incumbent EU states, but also do the same
for their mutual integration. As EU members, Central and East European
(CEE) countries will achieve a level of integration that never proved possible
Correspondence Address: School of Humanities, Languages and Social Sciences, University
of Wolverhampton, Stafford Street, Wolverhampton WV1 1SB UK; Email: M.Danger-
field@wlv.ac.uk
310 Martin Dangerfield
within the failed and flawed Council for Mutual Economic Assistance
(CMEA).1 However, just as considerable de facto integration (for example,
trade reorientation and inward investment flows from the EU countries) and
de jure integration (legislative alignment and involvement in certain EU
common policies) has preceded EU accession proper, so CEE states’ mutual
integration also progressed during this time. Subregional economic cooperation
has been a genuine and necessary, though often neglected, aspect of EU
pre-accession. It has played both a political role, which has included enabling
the new EU members to satisfy the EU’s insistence they engage in subregional
cooperation, and an important practical role in the form of fostering market
integration and trade interdependence in advance of deeper integration in the
EU context.
This article focuses on the role of the Central European Free Trade Agreement
(CEFTA) in the CEE subregional integration process. As well as elaborating
its contributions to the EU membership endeavour, it will also reveal
that CEFTA’s value neither involved nor necessitated going beyond the basic
trade liberalisation model of integration and even suggest that this has been
a factor in its success. Restricting mutual economic cooperation efforts to
free trade was instrumental in getting CEFTA off the ground in the difficult
early climate for reintegration projects, and it subsequently enabled a multilateral
partnership between Europe Agreement (EA) states with different EU
accession timetables. Moreover, it has meant that the CEFTA downsizing
necessitated by the EU expansion could proceed relatively problem-free. The
article also considers this virtue of CEFTA from another perspective to give
further insights into ways that subregional integration amongst EU aspirants
interacts with the EU accession process. The failure of CEFTA cooperation
to move beyond the baseline integration stage was not necessarily premeditated.
Deepening measures featured on the CEFTA developmental agenda,
particularly in the 1995–96 period, and the CEFTA Treaty included some
significant (though ultimately not implemented) non-tariff barrier content.
Yet de jure integration remained at the basic trade liberalisation level,
providing evidence for a further major conclusion that subregional integration
has inbuilt limits when pursued alongside the EU integration endeavour.
The analysis of CEFTA is particularly timely in a number of ways. First,
on the recent (March 2004) eleventh anniversary of CEFTA, five members
were just two months away from EU accession and obligatory CEFTA exit.
2003 was therefore the last full year of CEFTA’s existence in this form and,
with its purpose for the founding members and Slovenia fulfilled, the point
at which a clear assessment can be made of its role and limitations has
already arrived. Second, the advent of EU expansion means that CEFTA
cooperation has reached a critical juncture, raising questions about whether
its future could be anything other than continuing on a much smaller scale
until Bulgaria, Croatia and Romania enter the EU. Third, CEFTA represents
an important antecedent experience which can potentially inform policymaking
in areas where similar processes are underway, under contemplation,
or being imposed upon uncertain or even reluctant parties. For example,
South East Europe (SEE), where subregional cooperation has already taken
CEFTA: Between the CMEA and the EU 311
off to the extent that the de jure framework for a free trade zone linking
states covered by the Stabilisation and Association Process (SAP) is now
virtually in place.2 Also, subregional economic cooperation between former
Soviet states, after years of failed Russian-sponsored reintegration efforts
(e.g. the Commonwealth of Independent States, Russian-Belarussian Union),
may be gathering real momentum. In April 2004, Russia and Ukraine were
reported to have committed “to greater economic integration when the two
parliaments ratified a Treaty creating an economic union called the United
Economic Space”.3 Belarus and Kazakhstan are tipped to join in the near
future.4 Unlike CEFTA and the SAP case, the United Economic Space (to be
known as YEP after its Russian initials) will develop outside the organising
and motivating framework of an EU membership exercise and perhaps even
in the context of a kind of tug-of-war between integration within YEP and
further EU integration. As George Soros recently put it: “To counteract
Russia’s pull, the EU must offer greater access to Europe’s common market,
more favourable visa regimes, job and immigration opportunities, and access
to capital, cultural contacts and technical assistance”.5 Clearly, it is vital for
the EU to be clear on what kind of subregional cooperation it wants to
encourage in the ‘Wider Europe — new neighbourhood’ zone, what its essential
purpose will be and how it might contradict other objectives. Examination
of earlier subregional cooperation experiences may assist with such an
assessment.
The article begins by looking at the origins and initial objectives of CEFTA,
emphasising how the legacy of the CMEA and the primacy of EU integration
ambitions interacted in determining the nature, form and initially restricted
scope of CEFTA. The next section discusses the evolution of CEFTA across
three dimensions — institutionalisation, deepening and widening — and
discusses these in the context of the main developmental phases of CEFTA
cooperation and the various factors at work. This narrative reveals the limitations
of CEFTA cooperation in the context of its status as a secondary integration
scheme subordinate to and driven in its detail by the process of its
members’ simultaneous accession to the EU. The article then focuses on
outcomes of CEFTA cooperation. These are elaborated primarily in terms of
the essential pre-accession role as a device to encourage trade growth but also
highlighting some other important effects, of a political as well as economic
nature, which have contributed to the success of CEFTA as a vehicle for helping
to lay the foundations for the much deeper mutual integration processes
that formally commenced on 1 May 2004. The final section of the article deals
with the impact of EU accession proper on CEFTA, including discussion of
both the downsizing process and where CEFTA goes from here.
2. From CMEA to CEFTA
The CEFTA Treaty was signed in December 1992 and implementation began
on 1 March 1993. Its remit was strictly circumscribed: a free trade area for
industrial products by 2001; partially liberalised trade in agricultural products;
to remove certain non-tariff barriers; to apply to the Visegrad Four (V4)
312 Martin Dangerfield
only since the Cracow Treaty had no enlargement provisions. The CEFTA
Treaty was clearly modelled very closely on the EA trade chapters both in the
detail of its provisions and the timescale for transition to free trade. Moreover,
just as the EAs were differentiated bilateral trade arrangements rather
than a multilateral EU-Visegrad deal, liberalisation schedules within CEFTA
were bilaterally settled. A crucial difference between the EA and CEFTA
liberalisation principles was that concessions were essentially symmetrical in
the latter.
Technically speaking, CEFTA was to be a reintegration exercise as these
countries had formerly belonged to the CMEA. Yet, like most things in the
topsy-turvy world of ‘real’ socialist economics, the notion of reintegration
carried problems as, largely because of the economic system and structures
onto which it was bolted, the CMEA was a phenomenally ineffective integration
vehicle. Intra-CMEA trade was considerably below the norms of
regional economic associations and as a proportion of total trade was in
decline throughout almost the whole duration of the CMEA project. IntraCMEA
trade was also largely inter-industry and CEE member states had a
clear export aversion to the CMEA area for so-called ‘hard’ goods and an
import aversion for ‘soft’ goods.6 Furthermore, non-trade aspects of integration
such as labour and capital mobility and cross-border company investment
were largely absent except for large Soviet-driven projects in the energy
transportation infrastructure. Finally, and especially pertinent to the CEFTA
context, the intra-CMEA trade of the ‘five’ central and east European
members of CMEA was largely fixed on the USSR.
While characterising CEFTA and other post-CMEA cooperation proposals
as ‘reintegration’ needs considerable qualification, there is no doubt that
this is how the situation was construed in CEE policy-making circles.7 Early
debates were conducted in a particularly unfavourable context since reintegration
projects were associated with risks of falling back under Soviet/
Russian tutelage, sentiments which were only reinforced by the practical as
well as political logic of moving closer to Western Europe (and the EU in
particular). The Hungarian economist Köves explained the prevailing thinking
as follows: “(j)oining Europe, as seen from Poland or Hungary, is not just
joining a dynamic form of regional integration (the EC) in place of the
defunct CMEA but integration into the international economy after forty
years of involuntary seclusion. For these countries, Europe is not so much a
continent distinct from America or Asia as one of the centres of a global
economy previously blocked to them by the CMEA structure.”8 Indeed, the
essence of the debate was not about the design of multilateral post-CMEA
cooperation but whether it was even advisable.
Concrete proposals for the recovery of intra-CMEA trade came mainly
from Western sources, which seemed only to further provoke reaction
against the reintegration route. Eminent Western specialists, reacting to
the rapid and large-scale decline in intra-CMEA trade, argued for more
gradual abandonment of regional trade biases and advocated a Central
and East European Economic Union (CEEU) combining preferential trade
with multilateral clearing arrangements. Specialists from CEE opposed the
CEFTA: Between the CMEA and the EU 313
reintegration approach on grounds that it was neither justified, since the
politically driven over-trading with the CMEA (mainly with the ex-USSR)
had been a major cause of economic failure and therefore had to be jettisoned,
nor feasible since the CEEU proposal could not influence the principal
cause of the collapse of intra-CMEA trade — the Soviet economic
crisis of 1990–91. As Toth observed, the “phenomenon called the collapse
of the CMEA must, therefore, be carefully used as a general explanation
to the developments in the dynamics of intra-regional trade within the
CMEA. The economic disruptions in Soviet and post-Soviet markets must
be separated from problems related to the complete overhaul of the trading
regime, and subsequent dissolution of the CMEA.”9
The debate about small-scale (i.e. excluding the USSR) post-CMEA
economic cooperation was more open, but even this option faced many
(interrelated) obstacles.10 These included: first, a general aversion to multilateral
cooperation with former socialist allies, commonly referred to as
‘CMEA syndrome’; second, and closely associated with the previous point,
ideas that post-CMEA integration exercises would lead to a new ‘bloc’ taking
root in the east, either closing the door to EU membership or tying EU accession
prospects of more ‘advanced’ states to a group schedule;11 third, a lack
of convincing arguments that CEE ‘reintegration’ could yield worthwhile
economic benefits given that exchanges with the USSR had dominated intraCMEA
trade. This seemed especially resonant given that fast advances in the
reorientation policies were made by the Visegrad countries in 1990 both in
the de facto (rapid trade growth) and de jure (progress towards signing EAs)
spheres; fourth, some important, and often unrecognised, political economy
factors. The relatively small trade with the CMEA ‘five’ and success in diverting
some of that to the EU meant a lack of significant lobbies for CEE reintegration.12
Rather, the emergence of neoprotectionist sentiments in 1991
meant vested interest pressure against reopening markets to producers from
the region, as Okolicsanyi explained: “[d]omestic producers had already
been complaining about the liberalisation of regulations on imports coming
from the EC countries, which had resulted in a number of factory closures …
state-owned firms, citing high unemployment figures, were by no means
eager to confront still more competition as a result of the new free trade
zone”.13
It was therefore unsurprising that CEE reintegration schemes faced “quiet
opposition on the part of the governments of the respective countries”.14
Nevertheless, the key influence which worked in favour of a CEE reintegration
scheme came from outside and, somewhat paradoxically, it was the allconsuming
desire to move forward in relations with the EU which was decisive.
Though the EAs contained no articles on subregional cooperation, the
negotiations for them provided opportunities for the European Commission
to apply pressure. The Visegrad countries were persuaded that action on CEE
reintegration would enhance their case for a rapid move to EU association
and be important for progressing beyond that stage. Political cooperation in
the Visegrad Group also played a vital role. As well as a vehicle for Czechoslovakia,
Hungary and Poland to coordinate their eastern and western
314 Martin Dangerfield
foreign policies, the Visegrad Group also provided the forum for the trade
liberalisation discussions to take place and come to fruition. Along with the
fact that Bulgaria and Romania were behind in the economic and political
reform process and outside the (as then perceived) ‘privileged’ group of CEE
countries in terms of EAs, the Visegrad Group factor also helps to explain
why the CEFTA project initially excluded other post-socialist states.
Once the Visegrad countries accepted that some form of economic reintegration
was inevitable, three further questions remained. First, what kind of
mutual integration should they pursue? The February 1991 Visegrad Declaration
formally confirmed the intent to pursue reintegration but was also
unclear since it was “a general reference to the need to engage in economic
cooperation rather than a concrete proposal”.15 The issue was settled at the
October 1991 Cracow summit where the Visegrad countries declared “their
will to conclude agreements on mutual liberalisation of trade as quickly as
possible”.16 One month later their ministers for foreign economic relations
met in Warsaw and agreed to open negotiations and the broad principles of
the trade liberalisation process. The decision to restrict reintegration to the
most basic principle was often explained in terms of Visegrad countries’
alternative approaches to subregional cooperation and free trade was the
lowest common denominator. Clearly the neo-liberal stance of the Václav
Klaus government played a big part, but there were practical limitations
too. Economic transformation was still in the early stages and the Visegrad
countries’ overall reform strategies were differentiated meaning that some
kind of cooperation taking in coordination of reform and restructuring
programmes was out of the question. It is also important to note that even
the negotiations for the trade liberalisation were rather prolonged (the original
target was for CEFTA to commence in July 1992) because even though
“the negotiations went fairly smoothly … the very difficult economic and
political conditions existing in all three countries left the actual signing of
the agreement by all countries in doubt almost until the very last
moment”.17 The background to the CEFTA negotiations included the ongoing
serious transformationary recession, domestic political crises in Poland
(regular changes of government) and Czechoslovakia (impending division
and “temporary loss of power of President Havel, who was the main
supporter of the idea of regional cooperation in Central Europe”18) and
Slovak-Hungarian tensions. In sum, it was simply not feasible at that time
to base reintegration on anything beyond free trade and the signing of
CEFTA was a major triumph in the context of the time. The second and
third questions were whether this subregional integration process could
later become more advanced and what results the CEFTA framework
would produce. The discussion now moves to those issues.
3. The Evolution of CEFTA Cooperation
Though subregional integration in CEFTA has remained at the free trade
area level, this does not mean that there was no developmental agenda. There
were periods when genuine deepening of CEFTA integration came under
CEFTA: Between the CMEA and the EU 315
serious consideration and of course there has been further development in the
form of widening. The content and outcomes of the developmental agenda
reflected a mixture of genuine deepening imperatives, the CEFTA states’
alternative approaches to subregional cooperation and practicality issues
given the EU accession context. Three distinct phases in the evolution of
CEFTA cooperation have been evident. The early years (1993–1995) were
essentially an ‘enhancement’ phase which focused mainly on accelerating the
trade liberalisation schedule. The Brno (September 1995) summit marked the
onset of an ‘enthusiastic’ phase which featured several deepening initiatives
and the shift to an open organisation. From late 1997 onwards the developmental
agenda left the enthusiastic phase and moved into a more pragmatic
mode, something which coincided with a number of CEFTA parties getting
EU membership clearly in their sights. The analysis now reviews this evolution
and is organised thematically across three dimensions — institutionalisation,
deepening and widening.
Institutionalisation
CEFTA has no permanent institutions. Debates over whether it was necessary
to create some were most intense in the 1995–1996 period and there
were two proposals of real note, including the Polish plan for the creation of
common financial institutions and the push for establishment of a CEFTA
secretariat, which came predominantly from the Slovak side. At the 1995
summit, former Polish Premier Oleksy suggested “a Central European bank
which would deal not only with accounting in mutual trade but also joint
investment”.19 A year later, at the Jasna summit there was a follow-up
suggestion for regular co-ordination meetings between commercial and
central bank representatives. As well as the connection to discussions about
possible capital liberalisation, these proposals were influenced by Western
intermediaries’ involvement in intra-CEFTA trade at that time. Since CEFTA
customers were unable to offer similar credit lines, part of the profit in intraCEFTA
trade was leaking out of the subregion and financial cooperation
could have been potentially useful in that respect. However, these schemes
came to nothing with the Czech government especially critical of both ideas.
During the Jasna summit Václav Klaus denounced the latest idea as “the
remnants of the idea of the creation of a sort of joint CEFTA bank which has
really gained no support among other member states … [w]e cannot imagine
why we should add another one to the existing system of banks — a new
Comecon bank. We cannot order commercial banks to meet. It is their own
business”.20
The proposal for a permanent secretariat for CEFTA was first put forward
by Slovakia at the Brno summit. This was a more practical suggestion to ease
some organisational and administrative problems of CEFTA cooperation
and less easy to dismiss on grounds of ideology or similarity with CMEA
methods. But even a modest unit to co-ordinate meetings and perform the
essential secretarial functions was ruled out. The 1995 summit agreed that
Slovakia would submit a more detailed proposal to the 1996 summit. This
316 Martin Dangerfield
they duly carried out, but it was firmly rejected in favour of a solution based
on the principle of a rolling secretariat (see below). This issue came back onto
the agenda in 1999 and the Czech government, now more amenable to subregional
political cooperation, agreed that a modest ‘information centre’ could
be formed in Bratislava. This time the veto came from Hungary and the issue
was buried once and for all.
The prevailing anti-institutionalist sentiment to some extent reflected the
legacy of a lengthy experience with the extensively bureaucratic and ineffective
CMEA, neoliberal/anti-interventionist inclinations of the Czechs during
the Klaus era and concerns about how institutionalisation might be interpreted
in the west. The largesse of the 1996 Slovak proposal (to cost $1.3
billion in its first year) and suspicions that the Slovak agenda was politically
motivated and oriented to developing CEFTA as an alternative rather than a
complement to EU integration further reinforced the negative attitudes.
Finally, it would not have gone unnoticed that the main purpose of CEFTA
— to stimulate trade growth — had been far from impeded by lack of insti-
tutions.
As a functional substitute for institutions, the main administrative tasks
are carried out by (small) teams of national government officials who share
the burden of organising the main meetings, preparing documentation etc.
according to the rotating CEFTA chair.21 Decision-making power rests
formally with the annual summit of CEFTA Prime Ministers though this is
really a ‘rubber stamping’ process with the main responsibility for overseeing
the implementation of CEFTA and the airing and attempted resolution of
disputes lying with the CEFTA Joint Committee. This body consists of
Ministers responsible for external economic relations whose own regular
meeting usually reaches decisions and resolutions for formal approval at
CEFTA summits. The Joint Committee is serviced by national teams of
experts who work on the detailed and technical aspects of CEFTA business.
CEFTA has no supranational features though some aspects reflect the EU
intergovernmental style. As well as CEFTA summits, the EU Council of
Ministers’ practice is reproduced in the change of personnel attending ministerial
level meetings according to the policy area under discussion. As well as
the Joint Committee, regular meetings of agriculture ministers and periodic
meetings of ministers responsible for finance and government procurement
have taken place under the aegis of CEFTA.
Integration ‘Deepening’ in CEFTA
The ‘enhancement’ phase. The principle of moving cooperation beyond the
confines of the Cracow Treaty was contained in Article 33 of the agreement
which states that the parties can make proposals “to develop and deepen the
relations established by the Agreement by extending them to fields not
covered thereby”.22 The first phase of further development focused on the
speed and scope of tariff and quota elimination, with a proposal to amend
CEFTA appearing before the agreement had even been signed. A separate
Joint Declaration signed alongside the Cracow Treaty committed the parties
CEFTA: Between the CMEA and the EU 317
to “immediately start to discuss the reduction of the transitional period to
five years”.23 By the end of 1995, various ‘Additional Protocols’ to CEFTA
had reduced the transition period to free trade in industrial products from
eight to four years and replaced the objective of partial liberalisation of agricultural
trade with complete liberalisation.24 These changes mean that intraCEFTA
trade gained temporary preferential treatment over imports from the
EU.
Various reasons lay behind the willingness to accelerate the liberalisation
process. The Czech and Slovak sides were keen to further exploit their
surplus positions in CEFTA and saw the CEFTA market as one way of offsetting
decline in mutual trade while the Polish and Hungarian sides recognised
that the disintegration of Czechoslovakia could create additional opportunities
for their producers. Also, after 1993 the CEFTA states began experiencing
negative trends in their overall external balance and were realising that
access to the EU market was more complicated than they had anticipated.
Difficulties of exporting agricultural products to the EU were particularly
important for Hungary’s attitude to the CEFTA and post-socialist market in
general, as Kiss noted: “as the EU — in spite of signing the Association
Agreement — failed to provide an expanding market, Hungary’s main
endeavour became to regain the lost Eastern European markets, including
the markets of the neighbouring countries. In order to achieve this goal
Hungary revitalised her traditional relations”.25 Additional early moves to
enhance the cooperation included co-ordination of positions in the World
Trade Organisation (WTO) and joint conferences to promote foreign direct
investment (FDI) in the CEFTA area. The agenda also included discussion of
ways to improve the efficiency of CEFTA, such as the proposal to establish
procedures for settling disputes by arbitration.
The ‘enthusiastic’ phase. During 1995, with the scope for further acceleration
of the trade liberalisation schedule becoming exhausted and some
important external impulses coming into play, initiatives in line with the
Article 33 category came onto the CEFTA agenda and generated debates
about a serious upgrading of the de jure framework for integration. The
climate for progress was also positive because it was no longer feared that
CEFTA cooperation could somehow impede EU accession endeavours and
the CEFTA governments leaders (some now led by former communists who
were much less biased against cooperation with former CMEA partners)
were keen to build on the useful outcomes achieved. In this context, the
CEFTA cooperation went into an ‘enthusiastic phase’ and considerable
deepening rhetoric surfaced. The second CEFTA summit (Brno, September
1995) included proposals for free trade in services, free movement of capital
and even free movement of labour. These moves were clearly influenced by
developments in the broader context for CEFTA cooperation. The European
Commission’s White Paper of May 1995 (Preparation of the Associated
Countries of Central and Eastern Europe for Integration into the
Internal market of the Union) broadened the potential boundaries of
CEFTA cooperation and encouraged discussion of incorporating the ‘four
318 Martin Dangerfield
freedoms’. Impending OECD membership, particularly for the Czech
Republic (the advocate of capital and services liberalisation), was also a key
factor as Richter pointed out at the time: “it is worth mentioning that,
although the liberalisation of capital movements was not addressed in the
CEFTA Document, the compliance with the OECD Codes of Liberalisation
of Current Invisible Operations and Capital Movements will leave no room
for restrictions in intra-CEFTA capital movements once all the five CEFTA
members have become members and when the transitional restrictions are
lifted”.26
On the progress of these proposals, free movement of labour did not gain
unanimous approval and the existing bilateral arrangements were
retained.27 No details were released as to the reasons why this issue did not
even merit a feasibility study but several factors probably played a part.
First, significantly uneven V4 unemployment levels, where the Czech
Republic stood out with a very low rate of around 3 per cent at that time
against the 11 per cent to 13.5 per cent range for the others, may have acted
a disqualifier on grounds of lack of appropriate economic convergence.28
Second, substantial cross border movement of people, including illegally
and for seasonal work, was already a reality. To the extent that illegal
movement of people was perceived as problematic, countries (such as the
Czech Republic) without borders with the former USSR or Balkan countries
would have had quite different interests in the free movement of people.
Third, the proposal was a Polish one and, at that time, Poland was stressing
a need for CEFTA countries to “coordinate their economic policies in relations
with the European Union and other international organisations. Such
a coordination, especially as regards the EU, would eliminate unnecessary
competition and would strengthen the bargaining positions of the CEFTA
nations”.29 Not all CEFTA countries accepted the logic of a collective
approach to the EU and the Czech Republic and Hungary — inclining
towards a competitive race for EU membership — in particular would have
reasons for thinking that it unwise to risk involvement in such a big step in
formal subregional integration at that stage. Finally, there may also have
been a fear that free movement of labour in CEFTA might well result in
substantial migration which could also set EU accession hopes back by
demonstrating what would happen when the higher wages and social security
benefits of the EU were on offer as a result of free movement of people
in the enlarged EU.30
Free movement of services and capital were rather neutral in that they were
more in tune with broader OECD/WTO obligations and developments and
less a replication of the EU’s deeper integration features. Though the
response to these other proposals was positive and working parties were
convened to tackle the questions of how to proceed, the complexity of these
issues, along with growing congestion of the CEFTA agenda, eventually led
to the decision to set aside their implementation at the CEFTA level and wait
for the necessary harmonisation to happen in the EU accession context.
Clearly the difficulties of implementing these higher levels of integration in
the setting of ongoing transformation were underestimated. Ambitions to
CEFTA: Between the CMEA and the EU 319
liberalise services trade, ran up against different rates of progress in privatisation,
for example, and would also have proved difficult to achieve given the
reluctance to introduce free movement of labour.31 CEFTA did prove
however to be a useful vehicle for at least some experimentation with higher
levels of integration at the subregional level and for sharing experiences in
the relevant aspects of economic transformation needed for the move to EU
membership. The CEFTA governments no doubt felt that even discussing a
potential transformation to a common market would pay dividends for their
EU credentials. The Brno summit Declaration confirmed: “the intention of
their governments to develop mutually advantageous economic and trade
cooperation, to extend the areas of trade liberalisation and to remove trade
barriers. They are convinced that such an approach will have a positive effect
on the preparation of their countries for entrance into the European
Union”.32
The ‘pragmatic’ phase. After late 1997 the attitudes to CEFTA cooperation
took a markedly more pragmatic and ‘hard-headed’ direction. Three factors
in particular put the brakes on, the first and most obvious reason of which
was the EU decision to open membership negotiations with four CEFTA
members. Commitment to existing obligations within CEFTA remained
strong, but it was now less a case of how rhetoric about CEFTA cooperation
could support the attempts to move to EU candidate status and more to do
with making sure that CEFTA cooperation remained productive but did not
waste energy and resources by duplicating developments which would eventually
come with EU membership. Moreover, it was necessary for CEFTA to
avoid developments — external as well as internal — which could be incompatible
with the run-in to EU membership.
A second factor in the onset of pragmatism was the publication, in 1998,
of the internal review of CEFTA’s first five years of operation. Amongst
other things, this report drew attention to aspects of the Cracow Treaty yet
to be implemented. It recommended that these be prioritised in order to
further boost CEFTA trade and integration and ensure that the obligations
of the CEFTA treaty would be fulfilled by the 2001 deadline. Though this
involved measures which go beyond the ‘classic’ concept of free trade, rather
than ambitious attempts to introduce new layers of integration, it meant
addressing those non-tariff barriers already included in the CEFTA Treaty
via duplication of certain EA articles. Thus, subsequent CEFTA summit and
Joint Committee business focused on Articles 23 and 24, which cover rules
on state aids and government procurement markets respectively, and also on
non-tariff barriers falling under the category of ‘technical’ barriers’ — covering
mutual recognition of certificates and test results for industrial and agricultural
products.
On the implementation of these non-tariff barrier measures, the CEFTA
experience seems to demonstrate that serious progress on even this restricted
deepening agenda is inevitably compromised in the subregional context. Any
rules and regulations must duplicate arrangements already in place with the
EU because of the requirement for them to be compatible with those of the
320 Martin Dangerfield
EU and lack of prior experience in dealing with more advanced aspects of
integration. Independent solutions at the CEFTA level were never really
likely and, moreover, some of these areas have proved difficult to resolve
even in the EU negotiations. For example, following Poland’s failure to meet
the end-1999 deadline for submitting its state aid law package to the EU, one
state aid legislation adviser commented that “(t)he problem is that public aid
is so untransparent and so unorganised that nobody even knows the size of
it”.33 Meanwhile Polish Parliamentary deputies complained that the draft
law “is just too bureaucratic for small businesses to cope with” while the
government’s view was that parliament was “dragging its feet, hobbled by
the various industrial lobbies who all want keep their own types of aid sacrosanct”.34
Even Hungary had “a last-minute row with Brussels over state aid
for industry. At issue are the tax breaks Hungary has granted to foreign
groups including General Electric of the US, Japan’s Sony and Volkswagen,
the German motor group”.35
State aids harmonisation discussions were in reality more a case of collating
available information on pre-existing regimes within the CEFTA countries
and sharing experience about competition policy negotiations with the
EU. These are useful exercises, particularly for the latecomers to the EU
accession negotiations (Bulgaria and Romania), but nevertheless very different
to intra-CEFTA harmonisation. It was the same result for the work on
Article 24, which stipulates that companies across CEFTA should get
‘national treatment’ when bidding for CEFTA government contracts. In
October 2000 the CEFTA Joint Committee received the report outlining the
findings of the Bulgarian team tasked with responsibility for assessing the
extent to which the obligations on government procurement were being met
and on the compatibility of national legislation with the provisions of Article
24. The main conclusion was that further analysis was needed and the next
stage would be to examine the possibility for developments to ensure transparency,
free access and full reciprocity. This work was still ongoing as
CEFTA began its winding-up process.36 Finally, some tangible progress on
the question of mutual recognition of certificates and test results for industrial
goods has been in evidence, as noted in the September 2002 CEFTA
summit Declaration. However, this was also essentially a by-product of EU
accession as the vehicles for mutual recognition within CEFTA are the Protocols
on European Conformity Assessment (PECA) which were doing the
same job between the EU and the new members based on the usual pattern
of the latter adopting EU legislation. This solution was both logical and
necessary as “the scale of changes to legislation and infrastructure in conformity
assessment in these countries is huge”.37
In all these integration-deepening areas the essential point is this: when
parties to subregional cooperation are on their way to much deeper mutual
integration in the framework of a more developed, regional organisation as
is the EU, attempts to duplicate the higher echelons of economic integration
at the subregional level are unlikely to succeed. Waiting for these issues to be
resolved at the EU level seems not to be a question of choice. Moreover, the
potential danger of letting mutual integration get ahead of the current level
CEFTA: Between the CMEA and the EU 321
of integration with the EU is shown by the example of the Czech and Slovak
Republics where much deeper mutual integration was inherited from the pre-
1993 period. The implication of separate EU accession timetables, which
looked likely for several years, included cancelling the customs union,
suspending free movement of labour, potential introduction of visa regimes
and generally a very disruptive reversal of integration. At the same time, the
attempts to deepen CEFTA integration were not wholly unproductive. For
one thing, discussing these issues always creates the chance that relevant
experience in dealing with the EU on these issues can be disseminated. It is
also interesting that in certain aspects of the acquis — for example free movement
of labour — the new members did not request that the same transition
periods that they have negotiated with the EU15 should apply to each other.
The third determinant of the pragmatic phase was the agricultural trade
issue and, in so far as CEFTA cooperation had an ‘Achilles heel’, this was it.
All went reasonably well until 1998 when massive agricultural trade disputes
erupted in the setting of certain conjunctural factors. This highlighted the
difficulty of attempting intra-CEFTA agricultural trade liberalisation in the
context of differences in farm/agricultural support systems.38 At the 1999
CEFTA summit both representatives of the two leading antagonists in the
CEFTA agricultural trade disputes recognised the roots of the problem.
Discussing the latest failure to make progress on resolving agricultural trade
disputes, for Poland Jerzy Buzek said it was “difficult to talk about a
complete opening of markets when the subsidy systems are different” while
for Hungary Viktor Orban’s view was that “[t]he root of the problem is that
we don’t have a common agricultural policy”.39 Orban also “added that
because all CEFTA members aspired for European Union membership and
would have to adopt the EU’s Common Agricultural Policy, they did not
wish to set up different rules for their regional group”. The ensuing series of
trade disputes (mainly concerning cereals, pork and dairy products) blighted
CEFTA cooperation and featured actions which overturned CEFTA rules,
complicated enlargement negotiations, led to the cancellation (in August
1998) of the objective of complete agricultural trade liberalisation and made
the agricultural trade issue a perennial source of friction at summits. At
subsequent CEFTA meetings much time and energy was spent in attempting
to deal with numerous cases of ‘illegal’ import control measures. Though
public airing of rebukes and counter-rebukes took media attention, strong
efforts to tackle problems were made, beginning with the 1999 (Budapest)
CEFTA summit decision to convene a Subcommittee on Agricultural Trade.
Its task was to examine ways to improve application of CEFTA provisions
and co-ordinate intra-CEFTA liberalisation with the impending incorporation
into the Common Agricultural Policy. Progress eventually came in
March 2001 when Hungary and Poland reached a bilateral compromise that
“closed a two-year war between the countries over trade tariffs on agricultural
products”.40 This paved the way for the ‘Separating Compromise’
approved at the 2001 Bucharest summit which effectively ended the multilateral
approach by agreeing the following formula: “the economically more
advanced Hungary, Czech Republic and Slovakia will continue liberalising
322 Martin Dangerfield
trade among themselves and abolishing tariffs … (t)he other, less developed,
four members (Bulgaria, Poland, Romania and Slovenia) will be allowed to
defend local producers of agricultural goods by keeping some trade barriers
in force”.41
These considerable agriculture trade difficulties should not necessarily be
taken as an indicator of failure of CEFTA or even as partial failure. Substantial
liberalisation trade was achieved and overall growth of agricultural trade
occurred despite the protectionism.42 Also, liberalisation of agricultural trade
is rarely straightforward and a fairer verdict on CEFTA in this respect is that
full liberalisation was essentially overambitious and compromised by the EU
accession-related constraint on any schemes to make the national agricultural
support systems more compatible. Finally, the CEFTA countries
managed, albeit after some delay, to take a pragmatic way out through this
vexing issue, representing a kind of triumph in terms of the politics of subregional
cooperation.
Political cooperation in CEFTA. Before turning to CEFTA widening, what
about the question of deepening in the political sense? The question of
whether CEFTA could play a more direct role in co-ordinating the member
countries’ approach to the EU was often raised in the literature and in official
circles. At the first CEFTA summit in Poznan in November 1994, for example,
there was approval of “a declaration calling for ‘consultations’ on joining
the European Union”.43 Also, prior to the 1995 summit it was reported
that “(w) ith regard to West European institutions, Warsaw arrived here with
the proposal to co-ordinate the activities of the countries of Central and East
Europe in their contacts with the European Union, NATO, the Organisation
for Economic and Cooperation and Development as well as other international
institutions”.44
However various factors prevented CEFTA from developing this role.
First, rather than being lined up as a political instrument in its own right
CEFTA essentially provided a forum for attempts to revive the Visegrad
Group (inactive between 1993 and 1998). Second, the Czech Republic’s
steadfast refusal to engage in formal subregional political cooperation
prevailed, particularly within CEFTA, which they stressed was pure
economic cooperation. During the 1994 summit “(p) leas for close co-ordination
of these efforts, made repeatedly by Hungarian Premier Gyula Horn,
went unheeded by the Czech prime Minister Václav Klaus, who is in favour
of each country entering the union separately”.45 Third, as noted earlier,
until the post-AGENDA 2000 period at least, the instincts of the CEE countries
were essentially competitive rather than co-operative. It was only
during the phase of the negotiations proper that some common ground on
bargaining positions crystallised. Fourth, the CEFTA countries were subdivided
between the ‘Luxembourg’ and (as it was to become in 1999) the
‘Helsinki’ groups.46 Accession-related cooperation was pursued in more
suitable subregional fora, including the reconvened Visegrad Group and
regular co-ordination meetings of Luxembourg group representatives.
Finally, even these associations were prone to disruption. Despite top
CEFTA: Between the CMEA and the EU 323
agenda items including the EU proposals for farm and regional subsidies for
candidates, the Czech Republic and Slovakia stayed away from the February
2002 Visegrad Group summit in protest at “remarks by Victor Urban,
the Hungarian Prime Minister, suggesting that the Benes decrees were
incompatible with EU membership”.47 Given all this, and arguments that
the EU side had a strategy of negotiating simultaneously though separately,
a direct role for CEFTA during the accession negotiations phase was clearly
neither likely nor necessary.
Finally, a slightly different situation prevailed for Croatia. As a latecomer
to integration with the EU, Croatia used all available instruments to fasttrack
its EU membership. CEFTA accession negotiations put Croatian officials
in close working contact with the new EU members and in the environment
of full CEFTA membership these contacts extended to regular
institutionalised high-level meetings. Croatia stood to gain from the fact that
the CEFTA countries “exchange information and share experience gained in
accession negotiations”48 and, probably more importantly, once fully in
CEFTA Croatia had, even if only for a relatively short time, a key vehicle to
garner new EU members’ support for its effort to get candidate status. The
decision by the European Commission, announced in April 2004, to recommend
commencement of membership negotiations will be taken as vindication
of the Croatian strategy, including the CEFTA tactic.
Enlargement Issues
Though the Cracow Treaty had no provisions for enlargement, suggesting
that some or all founder members did not envisage extending CEFTA beyond
the V4, pressures for CEFTA enlargement soon asserted themselves. The
spread of bilateral free trade agreements across parts of the CEE region after
1993 served as key pathways to CEFTA, and Czech and Slovak agreements
with Slovenia signed at the end of 1993 were particularly important. By July
1995 Slovenia had signed free trade agreements with all four CEFTA
founders, and its de facto accession to CEFTA was complete.49 The Slovenian
situation had already prompted the discussion of enlarging CEFTA at
the 1994 summit and the CEFTA treaty was amended accordingly during the
1995 summit. Article 39a states that CEFTA is open to any European country
which (a) is a WTO member, (b) has free trade arrangements with the EU,
(c) has signed free trade agreements with all CEFTA countries and (d) whose
candidacy has the unanimous approval of the existing member states.
CEFTA applicants must send an official membership request to the Foreign
Ministry of the CEFTA chair country. This is transmitted to the CEFTA Joint
Committee and its decision is then considered by the next summit which,
where applications are successful, will give the go-ahead for negotiations to
begin.
Motivations for CEFTA enlargement — the member states. All CEFTA
countries would have seen enlargement as a factor which further enhanced
their EU membership credentials by demonstrating that the CEFTA countries
324 Martin Dangerfield
were not only capable of mutual cooperation but were also responsible
subregional players in CEE. Widening CEFTA also fitted in with national
interests. For example: the Czechs’ neoliberal stance and willingness to
develop free trade agreements with all comers; Hungary’s interest in Romanian
accession to CEFTA, important economically and politically; Poland’s
eastern agenda and its endorsement of Baltic states’ candidancy and sponsorship
of Ukraine; Slovakia’s attempts to increase the significance of CEFTA as
compensation for their compromised integration with the EU process and
promotion of enlargement accordingly. The CEFTA newcomers have all had
similar agendas, Slovenia with regard to Croatia, Romania and Moldova,
Bulgaria and FYR Macedonia.
Motivations for CEFTA enlargement — the candidates. Grela noted that
“[i]nterest in CEFTA springs from both political and economic sources. First
there is fear of marginalisation and a new division in Europe. Secondly, there
are trade and financial considerations”.50 Politically, CEFTA has represented
one vehicle for the non ‘avant garde’ CEE to stay in touch with the leading
group. As Mayhew wrote, “the associated countries which feel they may be
in the slower track for accession look for the maximum level of contact with
the candidates which are considered to be on the fast track”.51 As an example
of this, at the time of Romania’s accession to CEFTA Calin Tariceanu (then
Romanian Minister for Industry and Trade) said that: “politically speaking,
CEFTA is a good training school with a view to adherence to the European
Union, as well as a signal for NATO”.52 For the non-associated CEE, interest
in CEFTA was a lifeline to the European integration process and a symptom
of ‘the syndrome of the deserted’ described by Madej as “a peculiar fear of
loneliness in the time of transformations”.53
The likely economic impact of CEFTA membership, as indicated by preexisting
levels of trade, seemed small in many cases or relatively high only
due to the importance of one particular CEFTA market. The political
significance of CEFTA membership may have been uppermost in the
thoughts of CEFTA aspirants. For example, once Lithuania and Latvia had
the green light for opening EU membership negotiations at the 1999 EU
Helsinki summit, their interest in CEFTA evaporated. Croatia, which
acceded on 1 March 2003, is another case in point. Data on Croatia’s
recent trade with CEFTA reveals that this is only significant with Slovenia
and there had been a free trade agreement between the two since 1997. In
2001 Croatia’s exports to CEFTA amounted to 12.1 per cent of overall
exports, made up of 9.1 per cent for Slovenia, 1.2 per cent for Hungary
and 1.8 per cent for the rest of CEFTA.54 Given the timing of Croatia’s
accession to CEFTA there really seems to be no conclusion other than that
this was a predominantly political move.
Enlargement and the ‘Pragmatic’ Phase of CEFTA Evolution. Factors
which stalled CEFTA deepening after 1997 also impacted on the enlargement
process. CEFTA became increasingly inward-looking due to already
mentioned problems of agricultural trade, attention to the inactivated
aspects of the CEFTA treaty and, at least among the CEFTA bureaucrats, a
CEFTA: Between the CMEA and the EU 325
degree of ‘enlargement fatigue’ following the complications of the Romanian
and Bulgarian accessions (completed by mid-1998 but in motion during
1997). The opening of EU negotiations was also crucial for the enlargement
dynamic and while openness to new members was still emphasised, a more
cautious approach to widening prevailed after 1997. One clear signal of this
was the absence of guests at the 1998 Budapest summit, a situation which
continued until the 2002 Bratislava meeting attended by Croatia. Though
this was justified on grounds that summits’ efficacy would be improved by
increasing the time available to devote to matters arising in CEFTA cooperation,
the new stage in the EU enlargement process was also relevant. Mindful
of the need now to harmonise external relations with those of the EU and
to avoid agreements needing to be undone upon EU entry, CEFTA states
became more discerning when it came to bilateral free trade agreements.
Those countries which looked to override this constraint because of specific
national interests faced the additional pressure of falling foul of certain countries
being at that time ‘off-limits’ for EU relations priorities (e.g. Hungary
and its free trade negotiations with Croatia in 1999).
The CEFTA door eventually re-opened with the advent of Stabilisation and
Association Agreements (SAAs) for FYR Macedonia and Croatia in 2001,
though few would have predicted any changes to the CEFTA line-up especially
as the application and negotiation stages would push the next enlargement
point even closer to the CEFTA downsizing date. Yet Croatia remained
persistent and the existing members held true to their obligation to admit
candidates which meet the entry conditions. In fact, only Croatia itself
achieved this before CEFTA downsized on May 1 2004. Whether CEFTA can
expand in the post-EU enlargement context is discussed in the final section.
4. Outcomes of CEFTA Cooperation
Intra-CEFTA Trade
The specific purpose of CEFTA is “to promote trade expansion in order to
develop the parties’ economic relations”.55 The liberalisation of subregional
trade via CEFTA, and the early moves to shorten the transition period to free
trade has clearly paid off. Table 1 contains data on trends in intra-CEFTA
trade between 1993 and 2001 — that is from the year of activation to the
point of complete liberalisation. It shows that the V4 all registered strong
increases in both exports to and imports from CEFTA and good progress in
de facto integration has clearly occurred. Czech exports grew by 359 per cent
and imports by 425 per cent while for the other Visegrad countries the
respective figures were: Hungary 496 per cent and 307 per cent; Poland 363
per cent and 449 per cent; Slovakia 334 per cent and 429 per cent.56 The
CEFTA newcomers’ experience has been rather mixed. Romania has posted
strong export and import growth though this has concentrated mainly on
Hungary. During its shorter period of CEFTA membership Bulgaria has
experienced relatively rapid import growth on the import side but has failed
to match that on the export side (though with a promising surge in 2001
326 Martin Dangerfield
given that, by end 2000, exports to CEFTA had actually fallen by 7 per cent
since joining). Slovenian trade with CEFTA has grown steadily but comparatively
modestly, demonstrating a relatively less intense engagement with the
Table 1. Intra-CEFTA trade, 1993–2001 ($US million)
1993 1994 1995 1996 1997 1998 1999 2000 2001 Index
2001/93
1993=100
Bulgaria
Export 207 178 193 247 119*
Import 275 354 568 550 200*
Czech Republic
Total CEFTA:
Export 3489 3258 4348 4944 4816 5199 4709 4891 5678 163
Import 2746 2718 3883 3886 3622 3657 3901 4106 4582 167
Excluding Slovakia:
Export 655 925 1343 1824 1927 2392 2491 2670 3008 459
Import 497 594 900 1236 1369 1581 1924 2180 2611 525
Hungary
Export 462 565 757 1163 1387 2039 1961 2289 2753 596
Import 655 900 982 1254 1378 1766 2025 2418 2668 407
Poland
Export 680 823 1245 1481 1659 2026 2227 2662 3149 463
Import 682 919 1624 2161 2585 2974 3070 3462 3744 549
Romania
Export 294 342 369 597 848 808 275*
Import 541 642 1040 928 1202 1537 284*
Slovakia
Total CEFTA:
Export 2716 3057 3778 3656 3357 3397 3027 3570 3795 140
Import 2483 2226 2757 3225 2915 3122 2641 2727 3329 134
Excluding Czech Rep:
Export 406 555 767 918 999 1233 1190 1514 1761 434
Import 208 268 424 543 563 732 760 856 1100 529
Slovenia
Export 403 451 480 588 622 692 741 184*
Import 634 616 688 725 851 920 967 153*
*= Index 2001/Year before entry into CEFTA (Slovenia joined in 1996; Romania in 1997, Bulgaria in
1999); Bulgaria is included in the figure for other CEFTA from 1999 onwards except for Romania which
includes trade with Bulgaria from 1998 onwards.
Source: Dangerfield, M. (2000).
CEFTA: Between the CMEA and the EU 327
CEFTA market and perhaps the effects of non-participation in the CMEA.
However, whereas overall Slovenian exports were relatively static between
1998 and 2001, exports to CEFTA managed to grow by 26 per cent over that
time.57 In addition to the picture given by overall trade trends, Table 2 shows
that, apart from Bulgaria, by end 2001 exports to CEFTA were growing
faster than total exports and that imports from CEFTA outpaced total
imports in all cases.
As for trade balances (Table 3), the Czech and Slovak Republics have
been the consistent surplus countries. Hungary’s position — always somewhat
unstable due to significant agricultural exports to CEFTA — has oscillated
somewhat, moving from a deficit to surplus by 1998, suffering a
reversal thereafter and then recovering again by 2001. Poland and Slovenia
have had relatively stable deficit positions while Romania and Bulgaria
experienced deteriorating positions during their time in CEFTA. The significance
of trade balance figures has to be placed in the context of the size of
the overall value of intra-CEFTA trade and is best assessed in the light of
data on export/import coverage. As Table 4 shows, over the period 1995–
2001 Poland, the Czech Republic, Slovenia and Hungary have, in ascending
order, improved their position. Romania has remained more or less stable,
while Slovakia and Bulgaria have experienced fairly major reversals. As of
2001 only the Czech Republic, Slovakia and Hungary (just) had positive
export/import coverage.
Table 2. Intra-CEFTA trade as % of total trade 1995–2001 ($US million)
Note: All data for Czech and Slovak Republics excludes mutual trade; Bulgaria, Romania and Slovenia
covered from year of entry into CEFTA.
Source: Dangerfield, M. (2000).
EXPORTS 1995 1996 1997 1998 1999 2000 2001
Bulgaria – – – 4.9 4.4 4.0 4.8
CR 6.2 8.3 8.6 9.2 9.5 9.2 9.0
Hungary 5.9 7.4 7.3 8.9 7.8 8.1 9.0
Poland 5.4 6.1 6.4 7.2 8.2 8.4 8.7
Romania – – 4.1 4.4 7.0 8.2 7.0
Slovakia 8.9 10.4 11.3 11.6 11.6 12.8 13.9
Slovenia – 5.4 5.7 6.5 7.3 7.9 8.0
IMPORTS 1995 1996 1997 1998 1999 2000 2001
Bulgaria – – – – 6.4 8.7 7.6
CR 3.4 4.5 5.1 5.6 6.9 6.8 7.2
Hungary 6.4 6.9 6.5 6.9 7.2 7.5 7.9
Poland 5.6 5.8 6.1 6.3 6.7 7.1 7.4
Romania – – 5.7 8.8 9.2 9.2 9.9
Slovakia 4.8 4.9 5.5 5.6 6.7 6.8 7.5
Slovenia – 6.5 7.4 7.2 8.4 9.1 9.5
328 Martin Dangerfield
Since the purpose of this section of the article is to highlight positive results
of CEFTA cooperation in order to support the overall argument that it has
been an important aspect of the EU pre-accession process, the intention is to
identify rather than explain some of the main patterns of intra-CEFTA trade.
In any case a full analysis of the development of intra-CEFTA trade would
merit a substantial study in its own right. Moreover, it is important to be clear
that, like any trade and integration framework, the de jure processes of tariff
removal and elimination of quotas etc. are only facilitating devices. The extent
to which trade responds in a dynamic way will depend on various factors,
such as geographic proximity, whether countries have traditionally been
active in each others’ markets and also critically on supply-side factors. In the
CEE context, key supply-side determinants of economic restructuring and
improvements in competitiveness have reflected the pace, quality and consistency
of reforms and also whether significant inflows of FDI have occurred.
The FDI issue does merit some discussion here due to the fact that there
has been a two-way relationship between CEFTA and FDI flows. Standard
Table 3. Trade balances with CEFTA 1995–2001 ($US million)
1995 1996 1997 1998 1999 2000 2001
Bulgaria −68 −176 −375 −303
CR 465 1058 1194 1542 808 785 1096
Hungary −225 −91 9 273 −64 −129 85
Poland −379 −680 −926 −948 −843 −800 −595
Romania −247 −300 −671 −331 −354 −729
Slovakia 1021 431 442 275 386 843 466
Slovenia −231 −165 −208 −137 −229 −228 −226
Source: Dangerfield, M. (2000).
Table 4. Export/Import Coverage in CEFTA 1995–2001 (%)
1995 1996 1997 1998 1999 2000 2001 Index
2001
Bulgaria – – – 75 50 34 45 60
CR 112 127 133 142 121 119 124 111
Hungary 77 93 101 116 97 95 103 138
Poland 77 69 64 68 73 77 84 109
Romania – 54 53 35 64 70 53 98
Slovakia 137 113 115 109 115 131 114 83
Slovenia 64 73 70 81 73 75 77 120
Note: Index 2000 compares 2000 value with 1995 or year prior to CEFTA entry in the case of Bulgaria
and Romania. A score of over 100 indicates an improved export/import coverage situation; less than 100
indicates a deterioration.
Source: Dangerfield, M. (2000).
CEFTA: Between the CMEA and the EU 329
economic theory assumes that formation of free trade areas stimulates further
FDI into the economic space created. Many official endorsements of CEFTA
have made this assertion, including ones from European Commission officials:
“the Union strongly supports the Central European Free Trade Area (CEFTA)
… [a]s trade barriers fall, foreign direct investment should increase, with
further gains to productivity and investment”.58 Various authors have
provided empirical evidence that CEFTA has had an FDI-inducing effect, for
example Rudka & Mizsei, Handl and especially Elteto & Sass whose study
based on survey data found that “the main aim of the investment had become
not simply to supply the local market (initially through imports and later
through local production) but to supply the regional market as well. For some
products, production capacity was established with the express purpose of
producing for the regional (CEFTA) as well as the local market”.59
At the same time, FDI inflows have influenced intra-CEFTA trade developments.
For example, Hungary’s position as the leading recipient of FDI
inflows has contributed to strong performance in intra-CEFTA trade, as
shown by its steady improvement in export coverage and dynamic structural
changes in its exports to CEFTA. There has also is the link between FDI and
modernisation and diversification of the export structure, something which
was already in evidence by the mid 1990s according to the UNECE which
noted that exports of CEE countries were being accelerated by “new productive
capacities in a number of sectors which came into operation as a result
of 1991–1996 greenfield investments by multi-national companies.”60 Given
that, by the end of the first five years of CEFTA operation, modernisation of
the commodity structure of intra-CEFTA trade was evident in the form of
above average increases in shares of SITC categories 7 (machinery and equipment)
and 8 (miscellaneous manufactures), the modernising impact of FDI
inflows was showing up in intra-CEFTA trade too.61 Agricultural trade has
also felt the effect of significant FDI influence too. According to Kiss, the
“increase of the Hungarian agricultural and especially food exports can also
be explained by the activity of foreign capital and MNCs [Multi National
Companies] in Hungary”.62
Finally, though this phenomenon remains essentially embryonic, outward
FDI from various of the CEFTA countries increased markedly after the mid
1990s. Svetlicic & Jaklic show that this has been especially true of Hungary,
Poland, the Czech Republic and Slovenia and that “[m]ost affiliations have
been established in other TEs [Transition Economies].”63 Though previous
experience of these markets and historical and cultural proximity were identified
as the two main factors at work, rather than CEFTA, subregional integration
can only have helped these processes which will no doubt proceed
apace in the context of EU membership.
Political Dimensions of CEFTA Cooperation
Even though no formal political role was possible, CEFTA cooperation itself
has generated various useful political by-products. Theoretical reference
points for assessing the political role of subregional integration activities
330 Martin Dangerfield
include, of course, ‘commercial liberalism’ which holds that free trade frameworks
give rise to interdependencies via cross border trade and investment
and these sub-state relations are part of a broader process of forming ‘security
communities’. In addition, research conducted into the role of post-Cold
War subregional cooperation in Europe has stressed their contributions to
so-called ‘soft’ security issues (economics, organised crime, environment)
and their role as devices to alleviate tensions created by divisive patterns of
EU and NATO enlargement.64
CEFTA’s political contributions would seem to be mainly to do with ‘soft’
security and the furthering of economic interdependence in particular. The
more pan-European and inclusive subregional organisations (e.g. Central
European Initiative, Black Sea Economic Cooperation) clearly have been
more suitable vehicles for these soft security functions. Nevertheless, it can
be argued that CEFTA has made a range of political contributions.
First, CEFTA has acted as an important forum for top-level political
dialogue between the members states’ officials, especially useful for those
states whose bilateral political relations have been somewhat strained.
Between 1993 and 1998, CEFTA also acted as a useful surrogate for the
dormant Visegrad Group. Second, CEFTA acted as a vehicle for re-activating
diplomatic activity between the former CMEA partners (for accession negotiations
for example). Third, the CEFTA factor also contributed to the resolution
of complications in relations between existing and potential future
members of CEFTA. Ukraine and Lithuania for example had strong incentives
for consolidating their relationship with Poland, their ‘sponsor’ in
CEFTA. Matters such as debts remaining from the break-up of the CMEA
also needed to be resolved so as to obtain the necessary unanimous approval
needed to enlarge CEFTA. For example, Bulgaria’s accession necessitated
reaching agreement on its transferable rouble denominated debts to certain
of the CEFTA states.65 Fourth, though CEFTA fell some way short of forging
a regional identity, the member states’ mutual political relations could only
have been enhanced by the shared experience of a successful subregional
cooperation project and the bonding and confidence-building usually
entailed. At the Portoroz (1997) summit, for example, former Hungarian
Premier Gyula Horn stated that the “fact that this Central European free
trade zone — for after all this is what CEFTA represents — has become an
enormously dynamic market and that trade among members has continued
to grow is a great achievement in itself”.66
Finally, CEE leaders often express the view that CEFTA has served as a
‘training ground/fitness centre’ for EU integration. Beyond the basic opportunity
to practice trade liberalisation, the implementation of CEFTA has also
yielded “practical experience of the modalities of voluntary multilateral
cooperation”.67 This helps prepare for operating in organisations with bigger
and more complicated agendas and demonstrates suitability to join those
organisations on the assumption that “a good record of cooperation at subregional
level will help, not handicap, states which otherwise meet the conditions
for membership”.68 This can be seen as a generic quality of post-Cold
War subregional initiatives, though it might be the case that CEFTA has a
CEFTA: Between the CMEA and the EU 331
higher grading in this respect due to its focused agenda, shaky early foundations
and potential to generate really testing problems (viz. 1998 agricultural
trade disputes).
5. CEFTA Beyond the Fifth EU Enlargement
The last CEFTA summit (Brdo pri Kranju, Slovenia, 7–8 November 2003)
passed with headlines such as “the members of the Central European Free
Trade Agreement (CEFTA) have more or less said goodbye to this agreement”.69
This farewell party for the EU new members did not even really
qualify as a summit since only three out of eight Prime Ministers attended,
showing that, for the departing states at least, CEFTA was consigned to the
past. This meeting was preceded by some minor procedural steps to expedite
impending downsizing of CEFTA. The Joint Committee meeting (Bled, Slovenia
on 4 July 2003) amended Article 41 to the effect that EU accession automatically
triggers exit from CEFTA and also modified Article 42 to enable
Bulgaria to replace Poland as CEFTA Depositary.70
More substantial issues arose out of the transfer of trade arrangements
between the new EU members and remaining CEFTA states from CEFTA
to EA/SAA trade provisions, mainly because of the more advanced level of
liberalisation of agricultural trade achieved in CEFTA. This was not a trivial
issue as was pointed out in a recent bulletin from the Croatian Ministry
of European Integration: “Currently, Croatia has bilateral agreements
on free trade with six acceding countries which will cease to apply when,
on 1 May this year these countries become EU members … It is very
important for the Croatian economy to gain absolutely free access to the
market of the six acceding states for sensitive products such as milk and
dairy products, live cattle and beef, pigs and pork. In the negotiations,
Croatia is trying to achieve an increase in export quotas, given that quotas
for the export of fish products to the EU are limited, while there are no
limitations in exports to the market of the six previously mentioned states,
where products can also be exported at zero customs rate.”71 By 1 May
2004 corrective renegotiation of the relevant EAs and SAA had resulted in
new protocols to the relevant bilateral agreements in which the most
important export concessions for the remaining CEFTA states were
retained at a cost of further opening agricultural markets to the wider EU
(though not in line with the full CEFTA concessions). The negotiations for
Croatia in particular were delicate and far from straightforward and
included 200 product groups. Thus the passage from CEFTA to EU provisions
seems set to proceed smoothly in the case of industrial products
trade but less so in the agricultural sphere. Yet this could be seen as a
symptom of deeper, universal problems of agricultural trade liberalisation,
which in the CEFTA case unavoidably led to differentiated bilateral
arrangements according to the preferences of the member states and the
varied political sensitivities at work. Avoidance of future disruption of
trade relations on account of EU membership for some was therefore
largely inbuilt to the CEFTA framework.
332 Martin Dangerfield
What of the future of CEFTA? Bulgaria, Romania and Croatia plan for it
to continue, having “expressed the conviction that the Central European
Free Trade Agreement had a future at least for a medium term period” and
FYR Macedonia is likely to accede sometime later this year.72 The main
debate at present is on the question of whether CEFTA could or should
further expand into the SAP zone and in doing so perhaps transform into a
South East European Free Trade Area (SEEFTA). Croatia has been a keen
advocate of expanding CEFTA, though this has been essentially a strategy to
pre-empt emergence of a discrete regional economic association for the SAP
area. Officials of the Stability Pact for South Eastern Europe (SP), on the
other hand, are in the process of assessing the possibility of expanding
CEFTA into the SAP in line with the declaration of the second annual meeting
of the Ministerial Conference of the SP Working Group for Trade Liberalisation
and Facilitation, (Rome, 13 November 2003) which advocated the
need “to consider the modalities of gradually going beyond the network of
bilateral free trade agreements in South Eastern Europe”.73
Apart from the essentially political motivations of the two main protagonists,
there are good reasons to doubt whether CEFTA can become a vehicle
for more advanced subregional economic integration in the SAP zone.
This is because such a scenario would rely on a paradox. On the one hand a
strengthening of the CEFTA framework — given that it too has had significant
bilateral components — would be needed in order for it to offer significantly
more than the current SAP-wide network of free trade agreements
but this would be at odds with the weakening of the CEFTA accession criteria
that would be needed in order for it to be able to admit new members
from the SAP zone (other than Macedonia) within the necessary timescale.
There seems to be no obvious economic case for expanding CEFTA into the
SAP area and the role CEFTA played in terms of a vehicle for top-level
political dialogue is not relevant in the SAP case (due to the many fora
currently available for this). Moreover, the European Commission’s April
2004 recommendation that membership negotiations with Croatia be
opened should finally allay Croatian fears of involvement in any hypothetical
Balkan economic union and make future scenarios for CEFTA far less
relevant for Croatian policy. Either way, a revived role for CEFTA in SEE
seems unlikely. CEFTA looks destined to gradually wither away and how
long this takes will depend on whether the remaining members meet their
target date for EU entry.
Conclusions
The CEFTA cooperation has generated a range of useful political and
economic benefits for the participating states. Economically, by facilitating
impressive expansion of mutual trade and adding to reasons why multinational
companies decided to invest in CEE, both of which have also
amounted to important groundwork for the de facto dimensions of mutual
integration which will come with EU membership. In the political sphere
CEFTA cooperation has met with EU preferences on mutual integration and
CEFTA: Between the CMEA and the EU 333
has in various ways been a force for improving neighbourly relations in the
subregion. The story of CEFTA cooperation is a counterbalance to those
whose portrayals of the relations of certain of the participating states have
tended to emphasise disputes and anti-cooperative behaviour. The widening
success of CEFTA — clearly possible because the integration parameters
have been set at the lowest common denominator (in practice free trade but
in principle within the parameters of the current level relations with the EU)
— has meant that these political as well as economic benefits have included
countries at varying stages in the EU accession process. A more complicated
or advanced integration agenda would not only have probably failed but also
have restricted the diffusion of the benefits of the subregional activity, while
a more diluted or broad-based one would probably have achieved less effective
results.
What does the CEFTA experience offer in terms of lessons for other
subregional integration programmes? First, there is the need to embed
trade liberalisation in the broader disciplinary framework of WTO
membership and EAs or at least to ensure that free trade agreements
strictly conform to those standards. Second, agricultural trade liberalisation
should proceed cautiously because of the potential for trade disputes
— which should certainly not be unnecessarily risked in case of the SAP
countries, for example. Third, subregional integration will tend to parallel
the mode of integration the participating countries have with the EU; this
means what is being undertaken in practice and not what is being
prepared and worked towards. In the case of the EU candidates this
means that the basic free trade model will prevail.74 Even where countries
have achieved more intensive mutual integration outside of EU membership
this has either been a unique result of state dissolutions (e.g. division
of Czechoslovakia) or has been a secondary process based on the implementation
of EU rules and usually in the context of a policy of staying
outside the EU proper (e.g. the European Economic Area). Fourth, by
ensuring that the integration being implemented at the subregional level
does not breach that existing with the EU during the pre-accession period,
other favourable consequences for the EU membership endeavour are
guaranteed. As the CEFTA example shows, subregional cooperation will
not in any way act as a drag on the EU membership prospects of the more
advanced candidates. Moreover, in the event of differentiated EU accession
timetables for the various participants — inevitable in the SAP zone
— it means that the problem of disrupting or reversing integration (as
would have applied in the case of the Czech and Slovak Republics, for
example) will not arise. Thus the CEFTA experience provides evidence
that the occasional rhetoric which surfaces on the subject of economic
unions for SEE is practically as well as politically unacceptable.
Historically the EU aspirants from post-socialist Europe have shown (at
least initial) reluctance to engage in mutual cooperation and have equated it
with a hindrance to EU membership prospects. On the basis of the above
they can only gain from the endeavour, though any subregional integration
which somehow runs ahead of that achieved at the level of EU relations
334 Martin Dangerfield
should be neither expected nor encouraged. An intriguing question for the
future is whether a different story may unfold in the case of the putative
‘United Economic Space’. If this project proceeds, it looks set to do so not
only without an anchor in the EU enlargement process but as a result of this
anchor being withheld. In both the CEFTA and SEE subregions the EU
membership prospect played a key role both in motivating the participants
and providing guidelines for the form and limits of the subregional integration
projects. Yet the EU may still turn out to be a catalyst should the YEP
group opt to develop their relations with the EU to a level similar to, say, the
EEA, as their own mutual integration will have to be compatible with those
arrangements. Also, if the YEP integration scenario develops beyond free
trade, any model other than a single/common market route is hard to imagine,
irrespective of whether the EU is directly involved or not. There is also
the possibility that the YEP project could fail because of the reform and
transformation deficiencies which so far prevail. Either way, it seems inevitable
that the EU will exert a strong influence on the process and prospects
of subregional cooperation beyond its new eastern frontiers as well.
Notes
1
1. All CEE new members except Slovenia were CMEA members (indirectly in the case of the Baltic
States).
2
2. The SAP Process covers Croatia, FYR Macedonia, Bosnia and Herzegovina, Serbia and Montenegro
and Albania. For more on intra-SAP economic cooperation and also on the links with the CEFTA
experience see Uvalic, M. (2003) and Dangerfield, M. (2003).
3
3. See ‘Deal for Ukraine boosts Russian plans for regional economic bloc’, Financial Times, 21 April
2004.
4
4. ibid.
5
5. See ‘Europe must take a wider view of the future’, Financial Times, 30 March 2004.
6
6. ‘Hard’ goods were saleable outside the CMEA and for convertible currency. ‘Soft’ goods were in
excess supply in the CMEA and usually not saleable outside it.
7
7. Earlier proposals included the Central and East European Union (CEEU), outlined later in this
section, and the Soviet-sponsored Organisation for International Economic Cooperation (OIEC)
which was abandoned when it became clear that the CMEA would be abolished rather than
reformed.
8
8. Köves, A. (1992), p. 93.
9
9. Toth, L. (1994), p. 16.
10
10. See Dangerfield, M. (2000) for a more thorough account of the reintegration versus reorientation
debates and the full story behind the birth of CEFTA.
11
11. A problem not helped by the Visegrad countries all seeing themselves as ahead of not only Bulgaria
and Romania in the EU membership race but also, for varying reasons, of each other too.
12
12. See Richter, S. (1997). In contrast to the Soviet trade issue for which vested interests affected by the
collapse of the Soviet market represented a “large and influential group of economic agents with a
vital interest in this trade” (Köves, A. & Oblath, G. (1994), p. 16).
13
13. Okolicsanyi, K. (1993), p. 21.
14
14. Köves, A. (1992), p. 91.
15
15. Dangerfield, M. (2000), p. 33.
16
16. Declaration of Cracow (1991), p. II. For the full text of the Declaration see http://www.visegrad-
group.org.
17
17. Rudka, A. & Mizsei, K. (1995), p. 14.
18
18. Rudka, A. & Mizsei, K.(1995), p. 14.
19
19. BBC, Summary of World Broadcasts, 13/9/95, A/2.
19
CEFTA: Between the CMEA and the EU 335
20. BBC, Summary of World Broadcasts, 16/9/96, C/4.
19
21. Bulgaria holds the CEFTA chair in 2004.
19
22. CEFTA, Central European Free Trade Agreement, Cracow, 21/12/92, p. 17.
19
23. ibid., p. 2.
20
24. This objective was formally abandoned in August 1998.
21
25. Kiss, J. (1999), p. 88. While it is true that the Soviet market was the core one during the CMEA
period, as Kiss also shows, Hungary succeeded in substantially increasing agricultural exports to the
CEFTA area to the extent that Hungary became the only CEFTA member for which agricultural
goods were the most important component of exports to CEFTA.
22
26. Richter, S. (1997), p. 12.
23
27. There was free movement of labour between the Czech and Slovak Republics in the framework of
their bilateral agreements that were quite separate from the CEFTA provisions.
24
28. Unemployment data taken from World Economy Research Institute (1997), p. 30.
25
29. Kopec, U. (1996), p. 80.
26
30. Richter, S. (1997) argued that by rejecting free movement of people — which would not have encouraged
significant migration — CEFTA countries in fact missed a great opportunity to demonstrate to
the EU countries that their own fears on this front were greatly exaggerated.
27
31. This failure to liberalise cross-border trade in services is hardly surprising when the meagre progress
of the EU itself in this sphere is taken into consideration. In May 2003 the European Commission
stressed the need to “tear down barriers in the service sector, which accounts for 70 per cent of EU
gross domestic product but only 20 per cent of cross-border trade” (Financial Times, 5 May 2003).
28
32. BBC, Summary of World Broadcasts, 14/9/95, A–1.
28
33. Koza, P. (2000), p. 43.
28
34. ibid., p. 43.
28
35. Financial Times, 12/11/02.
29
36. The author is most grateful to officials from the Slovak Ministry of Economy for their advice regarding
the state of play in both Articles 23 and 24 and for providing a copy of the press information
released following the Bratislava summit.
30
37. DTI (2000).
30
38. Notably the collapse of the Russian market and the diversion of both exports from CEFTA and EU
producers onto the CEFTA market.
31
39. The Budapest Sun Online, 28/10/99.
31
40. The Budapest Sun Online, 29/3/01.
31
41. RFE/RL Newsline — Southeastern Europe, 12/10/01.
32
42. See Kiss, J. (1999).
32
43. RFE/RL Daily Report, Slovak Selection, 28/11/94.
32
44. BBC, Summary of World Broadcasts, 13/9/95, A/1.
32
45. RFE/RL Daily Report, Slovak Selection, 28/11/94.
33
46. The ‘Luxembourg Group’ was used to denote the five original ‘fast-lane’ CEE candidate states — the
Czech Republic, Estonia, Hungary, Poland and Slovenia — which, together with Cyprus, received
their invitations to begin EU membership negotiations in December 1997. Invitations to begin
membership negotiations were issued to the other five CEE candidates at the December 1999 Helsinki
meeting of the European Council. Thereafter the original ‘slow-lane’ EU candidates — Bulgaria,
Latvia, Lithuania, Romania and Slovakia — were referred to, at least for a while, as the ‘Helsinki
Group’.
28
47. Financial Times, 23–24/2/2002.
28
48. CEFTA Press Information, 2002, 4.
34
49. Slovenia’s EA was influential as it referred to the need for Slovenia to pursue subregional cooperation
with other associated states.
35
50. Grela, M. (1997), p. 142.
36
51. Mayhew, A. (1998), p. 355.
37
52. Romanian News Agency, April 1997.
38
53. Madej, Z. (1997), p. 100.
39
54. All data taken from Dangerfield, M. (2003).
40
55. CEFTA: Central European Free Trade Agreement, Cracow, 21 December 1992, p. 2.
41
56. Figures for the Czech Republic and Slovakia exclude their mutual trade.
42
336 Martin Dangerfield
57. CESTAT Statistical Bulletin (2001), II.
43
58. Avery, C. & Cameron, F. (1998), p. 20. Also, when discussing the reasons why Croatian entry to
CEFTA was seen as a strategic priority, the former Croatian Minister of Economic Affairs Nenad
Porges explained that “a small market such as ours cannot interest large American corporations.
However, we have to bear in mind that Croatia’s absolute priority is to join CEFTA, which means a
wider Central European market, and that means that American arrival is more assured” (Banka
International, 1 March, 1998) .
44
59. Elteto, A. & Sass, M. (1998), p. 12.
45
60. UNECE (1998), p. 132.
46
61. Dangerfield, M. (2000). SITC refers to the UN’s Standard International Trade Code.
47
62. Kiss, J. (1997), p. 17.
48
63. Svetlicic, M. & Jaklic, A. (2003), p. 661.
49
64. Cottey, A. et al. (1996); Bremner, I. & Bailes, A. (1998).
50
65. On 17 September 1998 Poland and Bulgaria reached agreement on a payments timetable for
Bulgaria’s DEM 123.6 billion to Poland and “settlement of this debt to Poland was part of Bulgaria’s
preliminary agreement for Central European Free Trade Agreement membership.” Central European
Business Weekly, 25/9–1/10/98, p. 11.
51
66. BBC, Summary of World Broadcasts, EE/3025 C/2, 16/9/97.
52
67. Cottey, A. et al. (1996), p. 21.
53
68. Bailes, A. (1997), p. 30.
54
69. BBC Monitoring Service, 8/11/03, ‘Slovene press says most members have “said goodbye” to
CEFTA’, (Accessed via http://www.FT.com, 10/11/03).
55
70. Details of the amendment to the CEFTA treaty concerning Articles 41 and 42 were kindly provided
by the Slovak Ministry of Economy.
56
71. Euroforum (Newsletter of the Ministry for European Integration, Croatia), February 2004, p. 6. The
six new members mentioned were the CEFTA 5 plus Lithuania with which Croatia also had a free
trade agreement.
57
72. ‘Slovenia: CEFTA’s past activities assessed as very successful’. BBC Monitoring Service, 7/11/03. FYR
Macedonia formally applied to join CEFTA on 15 April 2004. (Accessed via http://www.FT.com,
10/11/03).
58
73. Euroforum (Newsletter of the Ministry for European Integration, Croatia (2003), p. 22.
59
74. Even though a case for a customs union could be made, problems would arise in the case of those
countries which have particular preferences for trade liberalisation with specific countries which are
not shared by the other members because, for example, they may at the time have been contrary to
strategies of aligning third party relations with those applying for the EU. In addition, as in the case
of the other deepening measures mentioned in this paper, the approach to the EU has been exerting
an indirect harmonisation effect in the field of external economic relations too.
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