At a lunchtime meeting on 21 March, L Alan Winters argued that the West must open up to imports from Central and Eastern Europe if it is to expand its own exports to the region or help develop the region's enormous trading potential. Winters is Professor of Economics at the University of Birmingham and was then Co-Director of CEPR's International Trade programme. His remarks were based on his new book,* based on research carried out under the auspices of a grant to CEPR from the European Bank for Reconstruction and Development. Financial support for the meeting from Manchester University Press is gratefully acknowldeged. The views expressed by Winters were his own, however, not those of these organizations nor of CEPR, which takes no institutional policy positions.

Winters first noted that the Central and East European countries (CEECs) and the Soviet Union had pursued very inward-looking policies to limit trade and other contact with the rest of the world since 1948. One of the first consequences of undoing the post-war division of Europe in 1989 was an unprecedented opening of international trade. The events that now allow some 120 million people in Central and Eastern Europe and potentially 280 million more in the former Soviet Union to play their full part in world affairs are comparable in their economic effects only with the opening of the New World, but their consequences will be worked through much faster within 20-30 years.

Winters reported the results of using a `gravity model' to predict Eastern Europe's potential trade with the rest of the world on the basis of their income levels and geographical characteristics, which was estimated on 1985 trade data for 76 market economies in Western Europe, the US, Japan and developing countries. His results for the `CEEC(3)' Hungary, Poland and Romania, which provided the most reliable data suggested that the levels of their exports to each other and to developing countries in 1985 were broadly in line with their predicted levels. In contrast, their potential exports to EFTA, the EU and `other industrial economies' (the US and Japan) should rise to four, five and ten times these predicted levels, as they become normal trading economies. Since 1989, their actual exports have risen significantly only to the EU, where they have concentrated their limited export capacities. Western data on exports to the `CEEC(5)' also including Bulgaria and the then Czechoslovakia confirms the huge differential between actual and potential trade. Germany and the US are the largest potential gainers from the CEECs' liberalization, while most actual trade growth has taken place in Germany; UK exports, in contrast, have probably fallen in real terms since 1985.

Winters then turned to the EU's `Europe Agreements' with Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia, which were intended to help bind these economies into a liberal policy framework and inspire confidence among investors. The Agreements have been largely undermined, however, by pressures from special interest groups in `sensitive' sectors: agriculture, iron and steel and textiles and clothing, which are all important to economies pulling themselves out of 40 years of central planning. They also include a variety of safeguard clauses and provisions for antidumping actions, which are harmful even if never used since they undermine potential investors' confidence in the EU's willingness and ability to aid the CEECs' transition. Winters maintained that these Agreements are a missed opportunity for doing well out of doing good, since they also penalize EU citizens by delaying structural change and maintaining low-wage, low-skill employment and restricting export potential, as well as imposing higher prices on consumers. The EU should therefore unilaterally and publicly renounce the import restrictions permitted by the Europe Agreements, remove all current import controls and relax the Agreements' provisions on rules of origin.

Winters concluded that trade liberalization offers huge opportunities for the CEECs to pull themselves into the twenty-first century and for the rest of the world, in particular the EU, to benefit from their improved productivity. To reap these benefits, however, the rest of the world must undergo a process of adjustment that is quite minor relative to that under way in the CEECs themselves, which has nevertheless aroused substantial opposition. Powerful domestic interest groups within the EU must not be allowed to undermine the prospects for the CEECs or deny the benefits of their efforts to EU consumers.