Central European Free Trade Area

Abstract

Following very difficult and intensive negotiations, an agreement on the establishment of a new regional economic organization to be called the Central European Free Trade Area (CEFTA) was signed in Cracow (Poland) at the end of December 1992. Though fonnally the Czecho-Slovak Federal Republic still existed at the time, the relevant documents were signed by representatives of four governments-Poland, Hungary, the Czech Republic, and Slovakia in order to enable the latter two to assume the obligations negotiated with the other CEFTA partners by the extinct federal government. The countries of the so-called Visegrad group possess (next to Russia) the largest economic potential in Eastern Europe; they are also furthest down the road of economic reform. They have a total population of some 65 million. In 1992 their combined GDP was US$130 billion, exports to the advanced countries were US$25 billion, and their net currency reserves were US$13 billion. The principal weaknesses of the CEFTA economies are their large external net debt of approximately US$70 billion; a relatively high inflation rate, particularly in Poland; and steadily growing unemployment. The collapse of the centrally planned economy led to a severance of most of the traditional economic links in East-Central Europe. The directions of specialization in production and trade delineated within the old CMEA framework did not stand the test of market economics. As a result, trade with the Visegrad group accounted already in 1990 for only 4.5 percent of Polish imports and 5.1 percent of exports. For the former Czechoslovakia the figures were, respectively, 12 and 10.3 percent and for Hungary, 7.1 and 5.8 percent. The next two years (1991-92) brought no basic improvement in this respect in view of continuing symptoms of recession in the countries in question and growing competition on their markets from the advanced countries. The conclusion of association agreements with the European Community and this grouping's high share in the trade of Poland, the former Czechoslovakia, and Hungary make it unlikely that the establishment of CEFTA