23 smaller in their mutual trade than in their trade with the FSU.) The change in export patterns of the two countries displays some similarities: Hungarian exports to the FSU peaked in 1987, while Polish exports peaked in 1988; in the 1985-91 period the value of Hungarian exports to the EC increased almost five times, while Polish exports increased almost _3.5_ times; the largest increase in Hungary's and Poland's exports to the EC, which occurred in 1990, coincided with the largest fall in exports to the FSU (the EC absorbed 57 percent of the fail in Hungarian exports to the FSU and 106 percent of the fall ir Polish exports to the FSU); as a result, the ratio of Hungaian exports to the FSU to exports to the EC fell precipitously from 7.3 in 1985 to 0.41 in 1991, while tho ratio for Poland decreased from 7.0 in 1985 to 0.38.

The degree of redirection of Hungarian and Polish exports of power generating equipment from the CMEA to the EC may be inferred from two indexes: first, the ratio of the increase in the value of exports to the EC to the decrease in the value of exports to the FSU between the peak year of exports to the FSU and 1991; second, the ratio of the total annual changes in the value of exports to the two partners in the 1985-91 period. These ratios are: 49 and 66 percent for Hungary; and, 33 and 45 percent for Poland. They suggest that the scope of redirection was larger for Hungary (between one half and two thirds of the fall in FSU imports compensated by the increase in EC imports) than for Poland (between one third and close to one half). These measures should be ti d with extreme caution, however, because of the use of different implicit crossrates between the TR and the US doiar in the period under consideration." For instance, in 1990 the crossrates used in both Hungary and Poland significantly increased, thus depressing the dollar value of exports to the FSU. Thus, the value of earlier exports to the FSU was probably oversated, and so was the contaction in 1990. As a result, the scope of redirection of Hungarian and Polish exports of power generating equipment to the EC might have been actually larger than indicated by these two measures." This "transformation" of soft goods into hard goods was possible thanks to EC demand (which could not be met earlier because of obligations vis-a-vis the CMEA partners), greater concern for quality control, low wages, subsidies (as OECD producers often complains'), or a combination of the above.<sup>2</sup> But the 29 For an extensive discussion of statistical problems involved, see Economic Bulletin for Europe, Vol 43, pp.59-62.

> 30 While no data are available in the UN COMTRADE data base for Czecho-Slovalda, mirror sistics show a very considerable increase in exports of SITC.Rev 1.71 to the EC from US$167 million in 1989 to US$396 million in 1991. It is clear that reorientation played an important role in the increase.

> 31 West European producers of steel are particularly vocal in criticizing CEE-5 steel makers for undercutting prices through subsidies (Ostry, 1993:12). Clearly, energy-intensive exports were subsidized through cental co=iiols over prices of oil and electricity in 1990. In 1991 this was not the case, however.