Trade liberalization in Czechoslovakia, Hungary and Poland was accomplished in record time. Between 1989–91, these three countries completely abrogated state monopoly of foreign trade, freed over 90% of imports from licenses and quotas, and reduced the average tariff rate to less than 15%. The speed of the transformation has been matched by the rapidity of political changes.

In Discussion Paper No.1024, Research Fellow André Sapir focuses on Hungary, stressing that the main problem with trade liberalization for these economies since 1991–2 has been the sustainability of the transition process. He argues that this requires credibility, something which can be fostered through international commitments. Membership of regional groupings may be one option, but the experience of the GATT shows that enforcement and not membership is the sufficient condition. To that end, institutional arrangements, such as the Europe Agreements, can play a major role by limiting the discretion of governments in setting trade policy. The paper examines the impact of the Europe Agreements on the process of trade policy formulation. A secondary hypothesis is that the agreements impose additional constraints on Hungary's trade policy formulation.

Sapir finds that in spite of rising protectionist pressures, &nbspthe Europe Agreements have had the expected impact on both the process of trade policy formulation and the actual outcome of trade policy in Hungary. &nbspLittle evidence of protection diversion is unearthed, although the agreements impose little discipline over the protection of agricultural products.

The Europe Agreements: Implications for Trade Laws and Institutions. Lessons from Hungary
André Sapir

Discussion Paper No. 1024, September 1994 (IT)