metadata: authors: 0: author: Kaminski, Bartlomiej
1: author: Yeats, Alexander
count: Europe and Central Asia
docna: 0: docna: OECD trade barriers faced by the successor
            states of the Soviet Union
docty: Policy Research Working Paper
subtopic: Labor Markets,International Trade and Trade Rules,Energy Demand,Energy and Environment,Energy and Mining,Transport Services,Global Environment,Rural Labor Markets
teratopic: International Economics and Trade
abstracts: cdata!: Using a comprehensive World Bank -
            UNCTAD data base on tariff barriers NTBs), the authors
            examine the incidence of Organization for Economic
            Cooperation and Development (OECD) trade barriers to exports
            of the former Soviet Union (FSU). OECD markets have grown
            steadily in importance in the past decade and now receive
            more than half of FSU exports. And additional trade could
            help the FSU republics make the transition to market
            economies. Overall OECD tariffs that the FSU republics face
            are 70 to 90 percent higher than the average paid on all
            goods imported, but their worst effect is the result of the
            margins of preference they give other (non-FSU) exporters.
            For example, because of a special EFTA-EC protocol,
            manufactures are traded duty-free between countries in these
            blocs, while similar (competing) FSU goods may face duties
            of 20 percent or more. No significant trade expansion will
            occur until nontariff barriers are liberalized in
            NTB-"ridden" products groups of interest to FSU
            exporters. Sectors in which NTBs are particularly important
            include fish, fruit, sugar, vegetables, beverages, textiles,
            clothing, and ferrous metals. OECD trade barriers on some
            FSU commodity exports provide high levels of "effective
            protection" that constrain the efforts of the newly
            independent states of the FSU (NISs) to increase domestic
            commodity processing. Although the United States has granted
            most-favored nation status to the NISs (excluding
            Azerbaijan), and the European Community recently signed the
            Agreements on Trade, Commercial, and Economic Cooperation
            with the Baltic states, these developments have not
            substantially improved their market access. Because of
            geographic proximity and the existing transportation
            network, the European market is the most important OECD
            market for most NISs. But under present EC arrangements, NIS
            products are subject to higher tariffs and more restrictive
            nontariff barriers than exports from EFTA members, Lome
            Convention signatories, or former European CMEA members (the
            Czech Republic, Hungary, Poland, Romania, and Slovakia).
            Lower wage rates in many NISs may not be sufficient to
            compensate for their generally lower productivity and the
            losses in value added (triggered by higher tariffs) that
            exporters have to absorb to compete in protected markets.
            Except for exports of energy and industrial raw materials
            trade opportunities for many products in which the newly
            independent states of the former Soviet Union might have a
            comparative advantage are greatly restricted by OECD tariffs
            and nontariff barriers.
repnme: repnme: OECD trade barriers faced by the successor
            states of the Soviet Union
display_title: OECD trade barriers faced by the
            successor states of the Soviet Union
listing_relative_url: /research/1993/09/443669/oecd-trade-barriers-faced-successor-states-soviet-union
topicv3: Labor Markets m1326488 855,Energy and Extractives m1326595 507,Transport m1326661 135,Trade m1326924 698,Environment, Natural Resources and Blue
            Economy m1327391 566
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: International Economics and Trade
origu: Development Economics and Chief Economist
no_of_pages: 42
model_extractions: .1s 0 0o (

* O

;~~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ t

# Policy Research

~~~~~~~~IntwmAttonal Trade o fl5 -@A O Q1. **~** ~ ~ ~ ~ ~ ~ ~ ~ ~ **4** WPS 1 175 Thispaper- aproduct ofthe IntematidnalTrade Division, International Economics Deparrnent-is part of a largereffort in the departnent to analyze and predict structural changes in trade and to identify factors operating to restrain trade. Copies of this paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Jean Jacobson, room _S7-035,_ extension 33710 (September 1993, 35 pages).

ow VJsing a comprehensive World Bank-UNCrAD data base on tariff and nontariff barriers (NTBs), : Kaminski and Yeats examine the incidence of OECD trade barriers to exports of the fonner Soviet Urion S.U). OECD markets have grown steadily in importance in te -]past decade and now receive rore than half of FSU exports. And additioal trade ould help the FSU republics make the transition to markqt economies.

Overall, OECI) taEiffs that the FSU republics face are 70 to 9G percent higher than the average paid on all goods imported, but their worst effect C~ s ishe result If the _margins ofpreference_ they give other (.bn-FSU) exporters. For example, because of a spial EFTA-EC protocol, manufactures are traded duty-free between countries in these two blocs, while similar (competing) FSU goods may face duties of 20 percent or more.

No significant trade expansion will occur unitil nontariff barriers are liberalized in NTB"ridden" product groups of intrest to FSU exporters. Sectors in which NTBs are particu-Mrly important include fish, fruit, sugar, veg:eables, beverages, textiles clothing, and ferrous metals. OECD trade barriers on some FSU commodity exports provide high levels of "effective protection" that constrain the efforts of the newly independent states of the FSU (NIS.s) to increase domestic commodity processing.

Although the United States has granted most-favowd-nation status to the NISs (excludiiig Azerbaijan), and tle European Community recently signed the Agreements on Trade, Commercial, and Economic Cooperation with the Baltic states, these developments have not substantially improved their market access. Because of geograt'ic proximity and the existing transportation network, the European market is the most important OECD market for most NISs. But under present EC arrangements, NIS products are subject to highler tariffs and more restrictive nontariff barriers than exports from EFIA members, Lome Convention signatories, or former European CMEA members (the Czech Republic, Hungary, Poland, Romania, and Slovakia). Lower wage rates in many NISs may not be sufficient to compensate for their generally lower productivity and the losses in value added (triggered by higher tariffs) that exporters have to absorb to compete in protected markets.

Except for exports of energy and industrial raw materials, trade opporunities for many products in which the newly independent states of the former Soviet Union might have a comparative advantage are greatly restricted by OECD tariffs and nontariff bariers.

ThePolicy Research Working PapSeriesdisseminates therfdings of workunderway in theBanku Anobjectiveof the series is to get these findings out quickly, even if presentaions are less than fuly polished. The fndings, interpretations and concWsous in these papers do not necessarily represent official Bank policy.

Produced by the Policy Research Dissemnadon Center . ,~~~~~~~~~~~
# OECD TRADE BARRIERS FACED BY THE SUCCESSOR STATES OF THE SOVIET UNION

by Bartlomiej Kanminski and Alexander Yeats Economists, Internationa' Trade Division International Economics Department World Bank, Washington, DC 20413
# Table of Contents

|I.|Intmduction...................................|........<br>1|
|---|---|---|
|H.|The owing lmportanceofOECD Markets................|.............<br>2|
|m.|PSUExports byRepublics............................|............8|
|IV.|TarffBarersFacingFSUExports<br>.<br>...................|..............<br>12|
|V.|Trade Barrier Escaation and FSU Commodity Exports..........|...........16|
|VI.|No<-tariff Barriers Facing FSU Exporters .........<br>.................|....<br>18|
|VII.|Trade Barriers Facing Individual Republics .........<br>..............|......<br>21|
|VII.|Concluding Commets.............................|.............<br>24|
||References .....|28|
||Staitsdcal Appendix ............................................|30|

U
# **Tables**

|1.|The Relative Imporance of OECD Markets for the FSU and other<br>EmsterEurooean Countries.....................|3|
|---|---|---|
|2.|Ile Relative Itnportance of OECD Markets for theFSU,in 1991 ..<br>.......|6|
|3|. Shares of Republics In Total FSU ExpL.-ts, in 1990,1991, and 1992 ..<br>......|9|
|4.|Ten Largest Export Industries and their Shares in Exports Outside<br>**the**<br>**USSR,in**<br>**1990**........|11|
|S.|Average OECD Tariffs Applied to Major Export Products of the FSU ..<br>.....|12|
|6.|Comparison of Nominal and Effective Rates of Tariff Protection<br>for Selected Processed Commodities in OECD Countries ..<br>.........|18|
|7.|Indices c;f NTB Application for Major Export Products of the Former<br>SovietvUnion in 1991.20||
|8.|Shares of Potential Exports from the NISs vulnerable to EC Trade<br>Barriers .23...<br>.............................................|3|

|11..............|
|---|

Charts

1. Major Export Markets of the Soviet Union, 1981-91 ..... ................. 4
P ' . Introdud_ion Previous analyses of tariff and nontarliff barriers have focussed almost exclusively on trade between developing and developed countries, or on their intra-trade. For several reaons relatively little attention has been given to OECD or developing countries' barriers to exports from Eastemn Europe and the former Soviet Union (Olechowski and Yeats 1982a and 1982b are among the few studies undertaken). 'Me political climnate was not conducive to the reductlirn of OECD barriers to East-Wes **t** rade, so there wgs little incentive for related resarch on this subject. Also, the former centrally planned countries did not participate in a series of GA7T multilateral trade negotiations, starting with the 1947 Geneva Round '(the-U.SSR was not a GAIT' member), so they did not require background analyses of foreign trade > .~~~~( ip barriers to slupport their negotiating position. Finally, economic systems based on central planning made'-,~~~~~~~~~~~~~~~~~~it~possible for them to pursue "outward oriented' trade strategies aimed at increasing exports to 1 markets outside the Council for Mutual Economic Assistance (CMEA).

The dissolutloni of the formier Soviet Union (FSU) has prompted research in assisting the qqwly independent states (NISs) to make the transition to market economiies. It is rightly believed that increased trade with the West could provide a significant stimulus to this end. Recognizing the need for background analysis to identify constrrints to increased trade, this paper examiines the influence of current The authors wislb to acknowledge helpful comments from Ronald Duncan, Costas Michalopoulos and Vikcram Nehru.

I Th CMEA was officially dissolved at its 46th general meeting on June 28, 1991. Its members included Bulgaria, Cuba, Czechoslovakia, _German_ Democratic Republic, Hungary, Mongolia, Poland, Romania, Soviet Untion, and Vietnam.
2 OECD trade barriers facing the NISs.<sup>2</sup> By way of introduction, both United Nations and FSU statistics are used to assess the current, and previous, importance of OECD markets for FSU exports. Statistics on OECD triff and nontariff barriers, combined with estimates of the NISs' pre-independence export patterns, are then employed to determine which products, and which NISs, are most seriously affected by these restrictions. The stricture of OECD tariffs is also analyzed, using the 'effective protection" concept, to assess their importance as constraints to mirther FSU processing of natural resources. The study concludes with an overall evaluation of the importance of OECD trade barriers facing exports from the FSU and tosiders ways in which these restrictions might be liberalized.

# **H.** The Growing Impcrtance of OECD Markets

Aside from recent political developments, the Importance of Western markets to Central Europe and the FSU has been growing for some time. For example, Table 1 indicates the values and shares of the FSU and other Eastern European countries' (the latter includes Bulgaria, Czechoslovakia, German Democratic Republic, Hungary, Poland, and Romania) exports to the OECD and other markets fr selected years over the 1970-90 period; while Chart 1 shows details on the annual changes in trade

**2** Thse include forner Baltic republics (Estonia, Latvia, and Lithuania), other Europeani republics (Belarus, Moldovs, Russia, and Ukraine), Transcaucasian republics (Armenia, Azerbaijan, and Georgia), and Central Asian republics (Kazkhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbedstan). The Baltic republics becaine sovereign sates in September 1991. The rewaining became independent with the formal dissolution of the FSU, effective on January 1. 1992. The NISs are a very diversified group in terms of size and economic develo'ment. In term of 'economic size' the dissolution produced one very large economy, Russia; one medium-sized economy, Uramine; and thirteen small ones. In terms of territory, there has emerged one enormous country, Russia; one very large county, Kazkhstan, with X territory representing 30% of the land area of the United Stat; three large countries of approximately the size of France (Ukraine, Turkmenistan, and Uzbekistan); and nine mid-sized and small countries. The NISs are at very different stages of economic development.
: v v

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Table 1. The Rdatjve Inportance of OECI) Markets for the TSU and Other Esttrn Em ope Comties

||&E<br>Eastern<br>Europe &|sernEropes<br>OECD|Enr<br>to<br>Other|-U,|.<br>E|FS<br>|Exrs<br>|.o|
|---|---|---|---|---|---|---|---|---|
|Ye.||Markutrs|<br>W<br>||astern<br>le<br>eCh|OECD|Odher|World|
|1970|11.57|4.78|(value o<br>1.74|f total es<br>in ter<br>1810|ms of US $ biHion)<br>676|278|||
|1975|30.48|1210|519|.<br>4777|.<br>|.<br>|3.26<br>|12.80<br>|
|1980|27.90|.<br>2354|,<br>963|.<br>6106|17.99<br>|9.74<br>|7.47<br>|35. 20<br>|
|1985|<br>28.35|.<br>2490|.<br>1027|.<br>6353|17.81<br>|26.70<br>|13.43-<br>|.57.94<br>|
|1990|23.79|.<br>3385|.<br>822|.<br>6586|18.09<br>|23.81<br>|15.42<br>|57.32<br>|
|||.|.|.|11.10|31.05|16.91|59.06|
|1970|64|26|(share<br>10|of total exports in te<br>100|rms of percetge)<br>53|22|||
|1975|64|_25_|<br>11|<br>100|<br>|<br>|25<br>|100<br>|
|1980|<br>46|<br>39|<br>15|<br>0OO|_51_<br>|28<br>|21<br>|tO0|
|1985|<br>45|<br>39|<br>16|<br>100|31<br>|46<br>|23<br>|100<br>|
|1990|<br>36|<br>_51_|<br>13|<br>|32<br>|42<br>|26<br>|100|
|||||tO0|19|53|29|100|

Source: Data compiled from Economic Commission for Europe, Economic Surven of Europe in 1221-2 1992), particularly Table C4 on page 315.

(New York: United Nadons,
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-shares that occurred during the past decade." In 1970, approximately 53 percent ($6.8 billion) of all USSR exports went to Eastern Europe; by 1990 this share had dropped to under 20 percent. While JUN ECE, 19911 and the UN COMTRADE data base suggest the FSU share of world trade peaked in 1983 at 3.4 percent, and steadily declined thereafter to 1.8 percent in 1990, this dramatic decline was accompanied by a rapid increase, from 22 to 53 percent, in the share of FSU exports going to OECD countries. Similarly, other Eastern European countries' intra-trade (plus exports to the FSU) fell froin 64 to 36 percent of total exports. As was the ase with the PSU, the OECi) was the "other" Eastein <; \ff& ean countries' major source of growth as their sham Xof exports to these markets wert from 26 to 51 percent.4

Table 2 shows the importance of individual OECD markets in 199', and provides details 1on the commodity composition of their imports from the FSU. Over two thirds of FSU exports ($29.4 billion) to the OECD went to the European Community (EC), with Germany receiving about 40 percent ($,.S billion) of the latter's total. The six EFI'A members received 14 percent ($4.2 billion went to these countries), with Finland accounting for about 45 percent of the EFTA total. With imports of $900 millio in 1991 the United States was a relatively unimportant market for the FSU, ranking slightly ah4d of Austria and about $200 million below the combined imports of Switzerland and Sweden. However, 'Statistics on developments in foreign trade of the FSU are subjec to considerable error, mainly because of difficulties involved in estimating trade based on 'soft' payments arangements with CMEA members and some developing countries (India being the most notable case). The estimates using the official 'transferrable ruble' exchange rate yield higher values of Soviet trade (the soft component is significantly larger) than those based on the 'conectod rate. Thus, the estimte of the UN ECE (Economic Commission for Europe), which are not based on the Soviet official cxchange rate, show lower value of Sovie **t** rade in 1990 than the Soviet or World Bank/IMF estates. The difference is significant: according to the UN ECE, the value of Soviet exports was USS 59.1 billion as compared with USS 104.7 billion (see Michalopoulos, 1993, table 1). Leaving aside the issue of which estimates bRtor reflected the actual trade flows, we use UN ECE estimates because they cover a longer time span. However, both estimates provide support to the conclusion about the growing importance of OECD markets to the FSU.

'While the data on 1992 exports are subjec **t** o a significant margin of error, they do sugges **t** hat the fall in the NIS8 exports to the former CMEA and developing countries was significastly larger than the decline in exports to the OECD. According to a preliminary estimate, OECD wqrkets received more than 50 percent of Russia's total exports.
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7 the relatively low US trade values were at least partially due to the fact that the FSU did not have MFN (most-favored-nation) status and important exports (like urea) were subject to ani-dumping duties. The NISs' access to US markets improved throughout 1992, as they obtained MFN (most-favored-nation) status-except for Azerbaijan., With few exceptions, c:ich as the relatively high share (26 percent) of chemicals in US K < ' imports, a -imilar pattern exists in the composition of exports to Individual OECD markets. Energy products (SITC 3) comprised over 50 percent of all FSU exports with ores, minerals, and (nonferrous) metals accounting for about 14 percent of total trade. With!n tthe ores and nonferrous metals group, worked silver and pltinum (SITC 681) accounted for or--third of all shipments (in terms of value) while aluminum and nickel (SffC 684 and 683, respectively) combined added a further 36 percent (see ~ AAppendix Table 3, column 1 for details on trade in three-digit SITC ores, minerals and nonfz-. rous metals products).

In 1991 manufactures were only 17 percent ($5 billion) of total FSU exports to the OECD, with almo.4 70 pacent of these s. 'pments destined for the EC. Five three-digit SITC product -groups, organic chemicals, radioactive materials, road motor vehicles, pig iron, anti precious stones _c!_ accounted for almost half of all manufactured exports (see Appendix Table 1, column 1). About 7 percent of FSU exports consisted of agricultural products (both foods and agricultural raw materials) with shaped and rough wood, fresh fish, and cotton being the most important products (see Appendix Table 2, column 1). In short, FSU exports were highly concentrated with 10 three-digit SITC products accounting for more than 50 percent of total nonfuel trade.<sup>6</sup> 'By October 1992 Armenia, Kyrgyzstan, Moldova, Russia, and the Ukraine had US MFN status, with Belarus, Georgia, Kazakbstan, Tajildstan, Turkmenistan and Uzbekistan receiving it since then. Azerbaijan is the only Republic not now receiving MFN treatment and, as a result, Azerbaijan's exports face US general tariffs averaging about 30 percent.

' contrast, the ten largest three -digit US products account for about 36 pcnt of total exports. In France, -Germany, Sweden, Switzerland, and the United Kingdom the largest ten products account for 30 to 39 percent of all exports.

* g~~~~~
m. **FsU Exports** by Republics<sup>7</sup> The PSU republics' foreign trade data give valuations of trade flows in both domestic and world prices. The latter are reportedly based on weighted averages of trade with different partners and subsequently aggregated to 110 items. Since domestic pricing policies were a major source of trade distortions', we employ wotid prices for valuations despite several reservations. For example, about 20 percent of FSU trade was with the CMEA and probably an equivalent amount was on the basis of "soft" .ttlements (e.g., India) and it is not clear how this exchange was accounted for in terms of world prices. In spite of such shortcomings, world prices provide a better 'measuring stick" than domestic prices for assessing past export performance and potential vulnerability to OECD trade barriers.

Given their large size, it is not surprising that foreign trade of the FSU was the preserve of t,e European republics, although factors other than size accounted for Russia's share. Excluding the Russian Federation, Ukraine and Belarus, the combined contribution of all other republics amounted to less than 7% of total FSU 1989-91 exports. Russ.a accounted for around 77% of this total, Ukraine for around 13%, and Belarus for about4%. In 1Q91, the joint contribution of the two largest Asian republics - Kazakhstan and Uzbekistan - was only 3%, and the Baltic and Transcaucasian republics' share in total exports was 1.2% and 1.3%, respectively (see Table 3).

The earlier observations concerning developments in FSU trade apply especially to Russia because of its prior dominant position in Soviet exports. The other republics were more inward-oriented, i.e., their shares in FSU exports were significantly lower than in inter-republic trade, reflecting state monopoly of trade at the Union level and the centrally controlled internal division of labor. The greater '-'Me analysis in this section is based mainly on data collected by Goskamstat on the flows of goods between former Soviet republics and the vast of the world in 1990. Trade data are derived from input-output tables, and the maximum item breakdown concurs with the Soviet I 10-sector input-output tables. International agencies did not tabulate 1990 FSU trade data for the republics because they were not independent states.

'The prices were not market-clearing and did not reflect relative scarcities of products. They were also highly distorted by implicit and explicit subsidies. Intermediate products and raw materials tended to be undervalued in relation to the final output, since the bulk of value added was collected through turnover taxes levied on final products. As a result, exports of intermediate products and raw materials were understated and those of final products overstated.
9 Table 3. Shares of Individual Republics in Total FSU Exports, in 1989, 1990 and 1991

||1989|1990|1991|
|---|---|---|---|
||----<br>|**_(-% )_**<br>|**__-----_**<br>|
|Armenia|0.10|0.11|0.10|
|Azerbaijan|0.60|0.70|0.73|
|Georgia|0.50|0.50|0.04|
|Estonia|0.20|0.19|0.07|
|Latvia|0.40|0.28|0.19|
|LiUzuania|0.80|0.66|0.52|
|Belarus|3.40|3.36|3.79|
|Moldova|0.50|0.40|0.36|
|Russia|76.90|76.95|77.31|
|Kazakhstan|1.50|1.74|1.77|
|Kyrgyzstan|0.10|0.09|0.03|
|Tajikistan|0.50|0.60|0.64|
|Turkmenistan|0.20|0.18|0.22|
|Ukraine|12.90|12.87|12.74|
|Uzbekistan|1.40|1.36|1.48|
|FSU-total|100|100|100|

Sources: CIS Goskomstat; World Bank; and UN ECE.
10 Involvement of Russia in external transactions was the result of several factors: its endowment of many natural resources which constituted major Soviet export items; the centralization of foreign trade operations in FrOs (Foreign Trade Organizations) located mainly in Moscow; and the transportation infrastructure which prevented other potential net exporters of raw materials (especially those from Central Asia) from gaining direct access to world markets. A closer examination of Russia's respective contributions to internal and external exports in various product categories in 1989 and 1990 reveals a general tendency for greater relative involvement in external transactions when compared with other republics. This asymmetry was especially visible in non-ferrous ores (share in outside exports of 88 percent versus 23 percent in inter-republic trade) and non-ferrous metals (78 percent vs. versus 57 percent). The export structure of most other republics (especially of Central Asian) was almost the reverse. For instance, Kazakhstan exports of ferrous ores accounted for 56 percent of inter-republic exports Out only for 2.5 percent of FSU exports; its exports of coal accounted for 28 percent of interf republic exports and zero of outside exports; and its exports of oil products for 13 percent and 0.4 percent respectively. Similarly Turkmenistan's share in outside exports of gas was zero, whereas its snare in inter-republic trade was around 10 percent. In consequence, these data do not give a good indication of the 'outside" export potential of the NISs.

- There was considerable variation in the destination of the republics' exports reflecting ,to a large degree both their specialization profiles and geographical proximity to various markets. In general, republics specializing in non-renewable, natural resource-intensive products contributed more to Soviet exports to the West than those exporting food and manufactures: those with a strong base in these latter products made a relatively larger contribution to Soviet exports to the CMEA (see Appendix Table 4 which tabulates shares of republics in total Soviet exports by major product categories). - Exporters of raw materials ores and nonferrous metals (Kazakhstan, Tajikistan, Turkmenistan and Uzbekistan) and energy (Azerbaijan and Russia) -- were more oriented towards the OECD, whereas the
H H Table 4: Ten Largeot Export Industue and their Shaes In Exports outside the USSR in 1990

|Indusries<br>Shaof<br>Top 10<br>Animal Husbandry|RUS.<br>77%|UKR.<br>73.1%|BELAR<br>81.3%|MOLD.<br>81.4%|ESTON<br>72.8%|LATV.<br>67.1%<br>3b3|UlTH.<br>82.3%<br>|ARMl<br>90.5%|AZER.<br>93.9%|EO.<br>85.4%|KAZAK<br>89.0%|KYRO.<br>91.7%|TAJUC<br>99.4%<br>|fliUC<br>97.6%|ULZC<br>94.0%|
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|<br>Meat Products||||22%|||<br>35%||||||_0.2%_|||
|Fish Products||||.|24.7%|80%|.<br>22%||||1.7%|_1.9%_||1.2%||
|Dairy Pmducts|||||<br>2S%|.<br>93%|.|||||||||
|<br>FrutlVsgetabs||||9.3%|.|.|||17%|||||||
|<br>Othr- Food Pwoducts|||||||||.|19%||||||
|Wines||||2..%||||22%||.<br>3%||1.6%|0.2%|||
|CoidnPmoduct<br>OiProduct|22.1%|77%|280%||12,4%||407%||1.1%<br>|.<br>||||||
|Gas Product|<br>14.3%|.|.||||.||61.8%|46.7%|4.1%|||21.0%|1.5%|
|Ewcbtkv||~~~10.|0%|37.3%||||||||||||
|Basic Chemish|19%|60%|52%|||||||||||||
|<br>Organic Cheicals|.|.|.||||1.9%|||2.6%|5.0%<br>||0.2%|1.3%|3.9%|
|<br>Chemial Fib|||||||||||1.9%|||||
|<br>MimralChwsry|||65%|||||7.8%||||||22%<br>||
|<br>Leather||||||||||||||0.9%<br>||
|Rubber & Asbestos|||||||||||1.7%|||0.7%||
|<br>Wool Products<br>||||||||3.1%||||25%|0.2%<br>05%|21%||
|Cotton Product|||||85%|||||||.|.<br>|.<br> <br>||
|<br>Silk Product|||||..||||5.8%||3.5%||11.S%<br>|<br>65.3%|55.3%|
|<br>Non-ter. Metal|63%||||||||||||0.7%<br>||1.7%|
|<br>Femaus Metals|.<br>_4A%_|147%||64%||||||39%<br>|47.3%<br>|62.2%|78.9%||3.7%|
|House. AppDances||.|26%|.<br>47%|||||1.3%<br>|14.8%|20.8%|||||
||||.|.|||4.0%||4.6%||||||0.9X|
|Met Products Equip.||||||2||||||||||
|<br>Pumps||||18%||.||||||||||
|<br>Machine Tools|||27%|.|||32%|2.0%<br>10476|6.7%|||||1.3%||
|Energy & Power Equip.|1.6%||.||||.|.||||||||
|Autos E& Part|44%|36%|106%|||||||||||||
|<br>Tract<br>&Agd.Equip.|.<br>31%|.|.<br>142%|||S.1%<br>39%||||||5.6%<br>||||
|<br> <br>Transponation<br>Equip|.||.|||.||||||9.5%||||
|<br>.<br>ShipbuldIn||_24A%_|||||||||||||4.3%|
|<br>_Otherwd_Equip|161%|_._<br>1&8%|<br>61%|22%|36%|||||&4%<br>||||||
|_._.<br>Consum. hd Equip|.||.|.|.||2.1%||2.3%|5.8%|1.4%||0.3%<br>||15.1%|
|. .<br>Tools|||27%||28%||||||||0.6%||6.1%|
|<br>MdalerEquip.|||.|17|.||3.5%|30.3%|6.1%|1.9%||||||
|Fun*dure||||||||||||||||
|<br>|<br>||||3.7%|2.6SS||||||||||
|_UMMWc|-products<br>n<br>__-product<br>s|otcovwed <br> <br>ubject to bo|_b_NTBsan<br>th NTIsan|d hhr<br>tdfa<br>dhigher twdi|<br>fa-produc|t||--|productf <br>su|sbectto h<br>bject to NT|Ighwr twif<br>8e|||||

Scaum: Gos t
12 ;.

CMEA played a more important role for Armenia, Belarus, Ukraine and Moldova. Geographical proximity and cultural links account for the high share of the EFTA (mainly Finland and Sweden) in exports of the Baltic republics, and China in shipments originating in some Asian republics (Kazakhstan, Kyrgyzstan, and Uzbekistan). However, it appears that distance was not always a major determinant of trade volumes. For example, despite the geographical proximity of European CMEA markets, their share in the exports of the Baltic republics was much lower than that for most other republics, while India's share was considerably larger (see Appendix Table 5).

What were the major external export items of the republics in 1990? Table 4 draws on data compiled by the Goskomstat to provide an indication. For each republic, the ten largest exports - as measured by their shares in all shipments (excluding inter-republic trade) - are identified. Since exports of most republics were highly concentrated, Table 4 covers a high share of their total trade, i.e., between 67% (Latvia) to 99% (Tajikistan) of total exports. Petroleum products were among the top export earners, not only for the net energy exporters (Azerbaijan, Russia, Kazakhstan and Turkmenistan), but also for five other republics. Exports from the three Baltic republics and Moldova were clustered in agricultural products. Industrial raw materials and lightly-processed, resource-intensive products accounted for an important share of Soviet exports. These mainly originated in Russia, Ukraine, Belarus, Moldova and, to a lesser extent, Lithuania. For some republics there was a very high export concentration. For instance, non-ferrous metals accounted for 62% of Kyrgyzstan's exports and 79% of Tajikistan's exports, cotton products comprised 65% and 55%, respectively, of exports originating in Turkmenistan and Uzbekistan. Similarly, petroleum products accounted for around 62% of Azerbaijan's exports, for 47% of Georgia's exports and 41% of Lithuania's exports.

# IV. Tariff Barriers Facing FSU Exports

How widespread are pre-Uruguay Round tariff barriers facing FSU exports, and on which products is their incidence highest? Table 5 shows the average duties on broad categories of goods
13 shipped to major OECD markets.<sup>9</sup> To place the importance of these tariff<sup>rates in perspective, the table</sup> shows total 1991 OECD imports of each product group from the FSU. Appendix Tables 1<sup>through 3</sup> provide more detailed three-digit SITC trade and tariff statistics for manufactured goods, agricultural<sup>raw</sup> materials and foods, and ores, minerals and nonferrous metals.

Table 5 shows FSU exports faced relatively high OECD tariffs in several important sectors. The republics paid an average import duty of about 15 percent on food exports of approximately $900 million to the EC, Finland, and Japan with several product sub-groups (fruit, sugar, and beverages) having average tariffs ranging from 23 to 40 percent. Import duties on some manufactured products like leather, clothing, and footwear in Japan, or clothing in tne EC, Finland, Sweden and the United States averaged between 11 and 30%. However, the major adverse effects of OECD duties would be almost certainly due to FSU products often being required to pay considerably higher tariffs than similar (competing) goods exported by other countries.

Overall, tariffs in the United States and Japan averaged about 5.2% on FSU exports and EC duties averaged roughly two percentage points higher. These rates range from about 70 to 90% higher than the average tariff on all imports in these three markets.'° The underlying tariff-line level data also show the FSU **often** faced considerably higher import duties than those paid by other (competing) exporters of the same product due to extensive OECD preferences that differentiate among sources of 9From GATr records incorporated into the World Bank-UNCTAD "Software for Market Analysis and Restrictions to Trade" (SMART) data base. All reported tariffs are the average of the MFN or special<sup>preference</sup> duties that ame applied to imports. See World Bank (1992, Appendix C) for a description of the SMART<sup>data base</sup> and model. The EC announced it will grant GSP treatment to the Republics in 1993 as "an exceptional tempra measure. Due to the uncertainty associated with the longer term application of<sup>GSP tariffs we show MFN rates</sup> in the following tables. Also, key products like steel, fish and textile and clothing exports are excluded<sup>from the</sup> EC scheme. Finally, Laird and Yeats (1987, p. 95) show the EC GSP has only a modest impact on<sup>tariff levels</sup> reducing the average MFN duty on manufactures (excluding chemicals)<sup>from 8.1 to 6.4 percent.</sup> 10 After accounting for special preferences, Laird and Yeats (1987:94-95) estimate that the average tariff on all Japanese and US imports was 3.1 and 3.4%, respectively. The lower average Japanese duty was due<sup>largely</sup> to the relatively high share of very low tariff crude materials (i.e., metal ores, nonmetallic<sup>minerals, unrefined</sup> petroleum, etc.) in total imports. The overall EC(1O) tariff was estimated to be even lower (2.5%)<sup>due to the</sup> extensive EC preferences.
14 Table _5._ Average OECD Tariffs Applied to Major Export Products of the Former Soviet Union

|Product Group (SITC)|1991<br>Total OECD<br>Imports (S miD.)|<br>EEC(12?|Average applied t<br>Finland|ariff rate(%)<br>Jaan|Sd|||
|---|---|---|---|---|---|---|---|
|Al Food Products (0 + I + 22 + 4)|<br>940|<br>|<br>|p<br>|ween|Switzland|U.S.A|
|<br>Fresh and frozen fish (03)|<br>710|14.6<br>_155_|14.6<br>|15.3<br>|2.7<br>|6.7<br>|8.9|
|Fresh and preserved fruit (051 to 053)|<br>56|_._<br>153|4.0<br>|7.0<br>|1.2<br>|0.0|_5.3_|
|<br>Beverages (11)|<br>59|.<br>144|15.7<br>|23.3<br>|0.0<br>|6.3|18.1|
|Agricultural Materials (2 - 22 - 27 - 28)|<br>2115|.<br>16|40.0<br>|35.5<br>|1.2<br>|10.3|14.2|
|<br>Wood and lumber (24)|,<br>1380|.<br>13|0.6<br>|2.4<br>|0.6<br>|0.4|1.6|
|<br>Pulp and paper (25)|,<br>125|.<br>|0.0<br>|2.3<br>|0.0|2.0|0.0|
|<br>Texfile fibers (26)|<br>435|0.0<br>2|0.0<br>|2.2<br>|0.0|0.2|0.0|
|<br>Ores, Minerals and Metals (27 + 28 + 68)|<br>4022|.9<br>20|0.0<br>03|2.2<br>||0.4<br>|2.3|
|<br>Metal ore and scrap (28)|,<br>493|.<br>02|.<br>|2.2<br>|G.3<br>|0.6|0.6|
|Nonferrous metals (68)|<br>3434|.<br>38|0.0<br>08|0.0<br>|0.0<br>|0.1<br>|0.6|
|All Manufactured goods (5 to 8 - 68)|,<br>5048|.<br>67|.<br>|4.3<br>|0.5<br>|1.0|0.7|
|<br>Chemical elements (51)|.<br>1085|.<br>81|9.0<br>|4.6<br>|5.2<br>|1.7|4.7|
|<br>Manufactured fertiizer (56)|,<br>293|.<br>65|2.1<br>|4.9<br>|1.9|0.7|2.2|
|<br>Leather and goods (61)|<br>34|.<br>49|0.0<br>|0.0<br>||||
|<br>Wood manufactures (63)|<br>132|.<br>|10.3<br>|_14.5_<br>|3.1<br>|0.3|2.6|
|<br>Textileyarn and fabric (65)|<br>112|7.1<br>99|2.9<br>241|2.5<br>|2.6<br>|4.4<br>|5.4|
|Ferrous metals (67)|<br>925|.<br>_55_|.<br>51|8.3<br>|11.6<br>|5.4<br>|7.8|
|Metal Manufactures (69)|<br>30|_._<br>_51_|.<br>63|4.9<br>|2.3<br>|2.1<br>|2.4|
|Nonelectric machinery (71)|<br>254|_._<br>46|.<br>50|4.9<br>|4.1<br>|1.2<br>|3.4|
|Electrical machinery (72)|<br>126|.<br>64|.<br>|2.4<br>|3.6<br>|0.7<br>|3.2|
|Transport equipment (73)|<br>895|.<br>67|8.9<br>|2.1<br>|3.7<br>|1.2|3.5|
|<br>Furnitu (82)|<br>71|.<br>57|4.8<br>|4.4<br>|5.3<br>|2.3|1.7|
|Clothing (84)|<br>45|.<br>121|5.8<br>|4.8<br>|3.8<br>|9.9|3.7|
|Footwear (85)|<br>27|.<br>|30.7<br>|16.3<br>|11.7<br>|12.3|11.4|
|<br>Scientific instruments (86)|<br>50|9.8<br>60|12.8<br>|23.5<br>|11.1<br>||9.3|
|Misc. Manufactures (89)|<br>167|.<br>_58_|4.3<br>64|4.0<br>|2.8<br>|1.1<br>|4.4|
|All||_._|.|3.6|3.4|_0.5_|4.5|
|non energy goods (0 to 9 -3)<br>All Goods (0 to 9)|13,654<br>29443|6.8<br>|8.7<br>|5.3<br>|4.5|2.2|5.2|
||,|6.6|8.5|5.2|4.4|2.1|5.0|

Note: Blank spaces indicate no trade ocourred for the product group. Source: OEC tade statistics from COMTRADE records. Tariff records from the SMART Data base.

continuation, as well as the specific exclusion of imporant Republic exports, we report EcMFN ta on tariff levels, i.e., it reduces the average MFN duty on manufactures (excluding chemicals ) from 8.1 to 6.4 percent.The EC announced it wil extend GSP treatment to the Republics in 1993 as 'an ex c onal and tglray below Laird and Yeats (1987, p. measure." Due to the uncertainty associated with the plan's longer-term<sup>_95_</sup> _show_ the EC GSP has only a modest
15 supply. For example, FSU exports of undenatured ethyl alcohol face an EC tariff of 73.8 percent which is 42 percentage points higher than the average duty that developing countries pay on this product, and more than 30 percent higher than the average duty on all exporters combined. Approximately the same adverse tariff margin (41 percentage points) applies to exports of unfermented apple juice, and differentials of 15 percent or more occur on half of the tariff line products. For all manufactured goods combined, the 6.7 percent FSU tariff applied by the EC is more than twice as high as the average duty all - porters pay on these same products, and three times the corresponding rate facing developing countries. These adverse tariff margins, resulting from preferential trading arrangements like the EC's Lome Convention, or the Community's Protocol with the EFTA for tiee trade in manufactures, allow other suppliers to displace (divert) potential FSU exports.

Several possibilities exist for rectifying this situation - including the adoption of an FTA arrangement or extension of regional preferences to put the FSU region on an equal footing with other countries. Tlis is all the more important because the match of trade and tariff data shows the adverse tariff differentials affect trade of all FSU republics. Assuming that the republics' exporte were identical with those going to the EC, they would be affected by tariffs which were at least twice as high as the world average as follows: Rusea-nine sectors accounting for at least 74 percent of its exports; Ukrainesix sectors accounting for at least 50 percent; Belarus-nine sectors accounting for at least 75 percent; Moldova-five sectors accounting for at least 1? percent; Estonia--six sectors accounting for at least 42 peret; Latvia-four sectors acounting for at least 16 percent; Lithuania-six sectors accounting for at least _55_ percent; Armenia-six sectors accounting for at least 53 percent; Azerbaijan-eight sectors accounting for at least 89 percent; Georgia--eight sectors accounting for at least 81 percent of its exports; Kazakhstan-eight sectors accounting for at least 81 percent; Kyrgyzstan-eight sectors accounting for at least 86 percent; Tajikistan-eight sectors accounting for 99 percent; Turkmenistan-8 sectors accounting
16 for 95 percent and, Uzbekistan-9 sectors accounting for 91 percent of Its exports."

# V. Trade Barrier Escalation and **FSU** Commodity Exports

The previous section showed that a relatively h!gh share of ISU exports to the OECD consists of unprocessed or semi-fabricated commodities, i.e., items in which the NISs could potentially experience important benefits from further processing.'<sup>2</sup> However, studies have argued that trade barrier escalation in major international markets is an important constraint to further processing in commodity exporting countries (see Balassa, 1968, for an early statement of this point, or later studies by Helleiner and Welwood, 1978, and Yeats, 1979). Trade barrier escalation is characterized by zero, or very low, tariffs (and nontariff barriers) on unprocessed commodities but with these restrictions increasing with the degree, of further processing, thus creating a bias against trade in processed commodities.

The concept of effective protection provides useful insights into the effects of escalating trade barriers over commodity processing chains (i.e., a processing chain identifies commodities at different stages of production with each successive stage representing a higher level of fabrication) in that it measures the influence of protection on value added in a production process (specifically, the effective rate shows the percentage reduction in value added foreign exporters of processed commodities must " Because of their heavy reliance on ferrous metals and cotton products, the central Asian Republics (CAR) -- pear t. bespecially affete by the EC discriminatori tariffs. This obsezvation must be qualified, however, _since FSU_ trade data combine raw cotton (which is largely free of duties) with cotton textiles and clothing. We have been unable to determine the shares of these differen **t** ypes of gocds in the reported total.

1TeU potential benefits may be of .fficient importance that some economists have argued that 'natural resource based industrialization strategies' can provide a significant stimulus to overall industrialization and growth. Among the benefits cited are: avoidance of the purported deterioration in the terms of trade for primary commodities; increased employment opportunities associated with the production and export of manufactures; achievement of important linkages with other sectors of the economy; improvement of human capital through 'leamning effects'; and more stable prices of processed as opposed to primary commodities. See Roemer (1979) for a discussion of resource-based industrialization strategies.
17 absorb in order to compete In the protected market)."3 The higher the effective rate of protection afforded by tariffs and other trade restraints, the more foreign exporters must reduce returns to domestic labor and capital. Thus, the effective protection concept provides insights about the effect that escalating tariffs (and NTBs) have on processing and trade. Previous empirical studies have shown that some low nominal tariffs, that appear to be unimportant may conceal high rates of effective protection."4 As previously noted, the FSU exported mainly energy, industrial inputs and low value added products for further processing. Since both enterprises and FTOs were indifferen **t** o revenues generated by exports, there was no incentive to respona to higher tariffs by moving to less protected product groups. OECD effective protection is quite high in several sectors where the NISs (e.g., Armenia, the Baltic states, and Belarus) should be able to increase processing. For example, Table 6 indicates effective tariff rates range to more than eight times the nominal rate for such value added products as vegetable oils. In general, the effective tariff rates average over two times the corresponding nominal rate-indicating that OECD trade barriers have a far more restrictive effect on the location of processing activity than a superficial analysis of nominal rates suggests.

**VI.** Nontariff Barriers Facing FSU Exporters

While tariffs have often an adverse effect on FSU exports, in some sectors nontariff measures are even more formidable barriers. As an indication of their importance, Table 6 shows the share of individual FSU export products (individual products are identified here at the level of the importing countries' national tariff line) that encounter one or more nontariff barriers. Restrictions iciudel M.ite tabulaonrs me. qUaritltti ceilings on imports (including all Muitifibre Arrangement "<sup>3</sup> Due to the importance attached to the issue, the World Bai* identified processing chains for 49 individual commodities that are exported by developing countries in primary and processed forms. See the appendix to Yeats (1991) for details. All stages of these chains are defined in terms of the SlTC system in order to facilitate analyses of interDational trade in these items.

24 For a non-tecbnical discussion of the effective rate concept, see ambel, (1971).
18 Table 6. Compars of Nondal 6nd Effective Rates of Tariff Pwction for Sdected P ocessd Commodifis in OECD Couies

||Eurowa<br>Co|st<br>mumnitv|bn||VUnited<br>S|<br>tates|All OEM|Counis|
|---|---|---|---|---|---|---|---|---|
|Processed Commodity|Nominal|Effective||Effective||Effective|N|Effective|
|Processed mea products|17.9|51.7|22.5|_59.6_|23|4.4|7.8|15.0|
|Preserved swe foods|12.4|26.5|10.7|23.2|1.1|2.5|1.7|3.7|
|Preserved fruits|16.6|40.8|21.8|31.6|20.3|72.5|17.6|43.4|
|Preserved vegelables|15.1|37.9|17.5|40.2|11.0|20.2|12.2|30.6|
|Wood manufacturs|4.2|9.2|1.2|1.3|4.7|10.3|3.4|7.4|
|Paper and paperbosd|6.0|5.5|3.6|13.7|3.8|0.7|2.5|4.3|
|Articles of paper|6.0|12.6|3.6|10.7|3.8|8.7|33|7.6|
|Coun fabrics|5.6|11.8|5.9|10.0|10.4|13.5|8.5|11.0|
|Wool fabrics|2.7|5.1|11.0|25.3|37.3|85.8|14.6|34.0|
|Leather manufactures|_5.5_|9.9|12A|18.6|9.2|17.5|7.6|13.7|
|Vegetable oils|6.1|50.6|6.2|49.6|0.7|0.0|4.5|36.1|
|Ferrcus mets|2.2|5.0|2.3|_5.1_|5.3|11.8|4.6|9.2|
|Nonferrous metals|2.0|5.0|4.2|10.5|3.0|7.5|3.1|7.8|

Source: Compiled from Lad and Yeats (1987, Table ISA on page 119). Some data were changed due to recent tariff c bnge
19 §2?

(MFA) and other textile quotas; "vw untary" export restraints; product specific charges like antidumping and countervailing duties; restrictive licensing requirements; and variable impert levies or "flexible"import fees. These tabulations were made for the same product groups used to analyze tariffs in order to indicate where the two types of restrictions are generally applied jointly (like foodstuffs), or separately (like wood furniture).13 With the exception of the United States, foods and animal feeds is one of the most NTB ridden product groups in OECD markets. Over three-quarters of FSU exports to Finland and Sweden encounter nontariff barriers, as do almost 70% of food exports to Japan. European Community NTBs are applied to 80 percent of FSU meat and sugar exports, and to slightly less than half of all fresh and preserved fruit products. The importance of these NTB statistics is accented by related studies showing they often reflect very high levels of nominal protection against foreign suppliers. For example, the UN Food and Agricultural Organization estimates the average level of protection for cereals, dairy, and sugar products in the EC and Japan ranges from 100 to 300 percent, while Laird and Yeats (1990, Chapter 5) indicate that variable import levies in Switzerland and Sweden, which are applied extensively to agricultural imports, often have ad valorem equivalents of over 100 percent.

As far as manufactures trade is concerned, the highest NTB coverage indices are recorded by the EC, Switzerland, and Sweden. Almost one-fifth of FSU exports to the EC face NTBs, with these restrictions largely concentrated in five sectors: leather and leather goods; textile yarn and fabrics; ferrous - metals; clothing; and footwear. As was the case with foodstuffs, related studies affirm that very high c__ levels of nominal protection are associated with these nontariff measures. A Laird and Yeats (1990, C=hapter _5)_ survey suBLests the (NTB-induced) level of EC protectinn fnr textiles and clothing liae between 30 and 50 percent, while that for ferrous metals is in the range of 20 to 30 percent. Hamilton 35An important problem associated with the analysis of NTBs is that these measures take very different forms from country-to-country and their trade effects or nominal equivalents are often very difficul **t** o estimate (see Laird and Yeats, 1990 Chapter 2 for a detailed discussion of this point). As suwh, economists often rely on indices (like those presented in Table 9) that show product sectors within which nontariff barriers are most prevalent. See UNCTAD (1988) for a discussion of problems in the use and interpretation of NTB inventory data.

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Tabk 7. ndices of <!-- Start of picture text --> !<br><!-- End of picture text --> <!-- Start of picture text --> tz<br><!-- End of picture text --> Applicatio for Major Bpont Products of the Fower Soviet Uion-

|-<br>.L<br>-- --<br>STota<br>Product Grotip (SMt)|1991<br>OBCD<br>Imort(SmilL)|<br>EEC(12)|Shaic Of allfffhl<br>Finn|;D<br>prdu<br>tha<br>Jaan|t faceatriffb<br>d|e<br>(%**)**<br>.S<br>||
|---|---|---|---|---|---|---|---|
|AU Food Produc (0 + 1 + 22 + 4)|<br>940|<br>|<br>|p<br>|swe|Switerlad|U.S.A|
|<br>Mea and live animal (01)|<br>3|39<br>so|77<br>0oo|68<br>33|76<br>|46<br>|33|
|Fres ad frozen fisIk (03)|710|<br>26|<br>63|<br>|S0<br>|8<br>||
|FnCS mndpreservCdfzit(05Ito053)|<br>56|<br>47|<br>_55_|100<br>0|78<br>|0<br>|0<br>|
|Sugar amd preparations (06)|16|<br>80|<br>0|<br>|100|6|0|
|Animad Feeds (08)|<br>7|<br>20|to<br>100|0<br>0|.<br>-|||
|BevCWagCs<br>(11)<br>|<br>59|<br>46||50||||
|O0led and nuts (22)|34|<br>0|0||100<br>|SO|94<br>|
|Animad and vegetable os (4)|9|<br>11|<br>0||100<br>||0|
|Agriculural Materi<br>a(2<br>- 22 " 27 - 28)|<br>2.115|<br>26|<br>0|t00<br>23|100<br>|100<br>||
|Wood and lumber (24)<br>|1,380|<br>21|<br>0|<br>0|7<br>0|20<br>|6<br>|
|Ptdp and paper (25)|<br>125|a|<br>|<br>|<br>|0<br>|0|
|TCKetifibers (26)<br>|<br>435|<br>14|v<br>0|0<br>0|0|0<br>||
|Orcs, MinoS and h5Ctai (27 + 28 + 68)|4022|3||<br>||0<br>|13<br>|
|Crude Feizer<br>(271|,<br>51|<br>0|0|U<br>0|29<br>|9|0|
|Metal Ore and srap (28)|493|<br>0|<br>0|<br>|S0<br>|||
|Nonferru metals (69)|<br>3434|<br>6|<br>|0<br>|67<br>|0<br>|0|
|AlD ManUfaCured<br>_goods (5_a S - 68)|,<br>5048|<br>18|1<br>3|0<br>1|20<br>|17<br>|0<br>|
|Chanical Cements (51)|,<br>1085|<br>4|<br>0|0<br>|26<br>|18<br>|1|
|Manufacturcd<br>frtilizer (56)|,<br>293|<br>:7|<br>U|13<br>|30|16|_5_|
|L,ather nd goods (61)|<br>34|<br>90|<br>0|100<br>80|||0<br>|
|Wood manufiatures (63)|132|<br>0|<br>0|<br>|0<br>|100<br>|0|
|TCxtile yam and SbriC (65)|<br>112|<br>93|<br>0|0<br>38|0<br>|0<br>|0<br>|
|Fearus metals (67)|925|<br>68|<br>0|<br>|71<br>|67<br>|20|
|Metal Manufactures (69)|<br>30|<br>1|<br>0|0<br>|94<br>|10<br>|0|
|Nonlectric nachiinory<br>(71)|<br>254|<br>0|<br>0|0<br>0|11<br>|0<br>|0<br>|
|Electica machin y 1(72)|126|<br>3|<br>0|<br>|0<br>|6<br>|0|
|Transport equipmnt (73)|<br>895|<br>0|<br>0|0<br>|3<br>|9<br>|0|
|Fumniturn<br>(82)|<br>71|<br>0|<br>0|0<br>|13<br>|60<br>|0<br>|
|Cbhng (84)|<br>_45_|<br>83|<br>|0<br>|0<br>|0<br>|0|
|Footwear M)|<br>27|<br>94|0<br>0|71<br>|65<br>|100|0<br>|
|SeiiC<br>insruomes (86)|<br>50|<br>3|<br>|0<br>|_75_<br>||0|
|<br>Misc. Manufcturcs (69)|<br>167|<br>17|0<br>0|0<br>|0<br>|22<br>|0|
|AD non Cnergy goods (O to 9 -3)<br>|<br>13,654|<br>19|<br>4|2<br>18|19<br>|7<br>|0<br>|
|AU Goods (0 to 9)|<br>29443|<br>19|<br>|<br>|29<br>|21|5|
||,||_5_|19|30|24|6|

Source: OECD tRad sbaistis fiom COMTRADE reCords. Tariff records from the SMART Daa bas. Bklaks icdicatc tha no tradCe occuredm it product group.
21 (1984 and 1986) estimates that EFTA's nontariff barrief prolotion for textiles and clothing is at least as high as that in the EC, and is proDably somewhat higher for agriculture. In short, the message that emerges from Table 7 is that nontariff barriers (as well as tariffs) often constitute a major impediment to PSU exports and, in speclfic sectors, alr.ost certainly will prevent any significan **t** rade expansion.

**VII. Trade Bsrriers** Facing Individual Republics

In the medium term, as the NISs become more integrated into the world economy, their export baskets wi11 evolve substantially reflecting reallocation of resources in line with their comparative advantage. In the short term, however, the FSU republics' production capacities probably will not change signiflcantly. While raw nmaterials and lightly-proL ssed industrial products can probably be easily sold in international markets, some more highly processed manufactures-traded with other republics and "soft' trading areas (CMEA and some Third World countries)-which, as a rule, did not meet international quality standards could encounter problems. Yet, the significant redirection of manufacturing exports of Central European economies from the CMEA to EC markets cannot be entirely dismissed (Kaminski, 1993). Therefore, export capacities revealed in their 1990 trade could help identify products they will attemp **t** o export.

Except for crude materials, many of these potential export products did not have easy access to Western markets, either because of the adverse tariff differentials associated with OECD preferences, and/or because of non-tariff barriers. In order to "quantify" the vulnerability of major (actual and potential) republic exports to EC trade barriers (the EC was selected given the overall _==imprtance_ of this market) products were first defined as "vulnerable" if one of the following conditions was met: (i) the EC MFN tariff on the PSU good was at least three times higher than the average facing other exporters, and (i) the NTB coverage ratio for the group was at least 20% (i.e., one out of five tariff line level items was subject to non-tariff barriers). It is rather striking that 36 out of 47 export sectors fell into the vulnerable group. 'he sectors which did not fall into this group included ferrous

-~~~~~~~~~~~~

**I,**
22 ores; non-ferrous ores; coal; coking products; perfume oils; silk products; electro-technical equipment; radio-electronics; shipbuilding; precision instruments; and other miscellaneous production. These sectors only accounted for more than 10% of exports of seven republics: Ukraine (17%), Moldova (13.2%), Estonia (12%), Latvia (37%), Lithuania (21%), and Armenia (22%).

In order to obtain a comprehensive assessment of the sensitivity of NIS exports to EC trade barriers, we employed the following three-step procedure. First, a concordance between the SITC (Rev. 1) and the 110-sector disaggregation used in Goskomstat estimates of inter-republic and extrarepublic trade was established and then tariff rates and NTB coverage ratios were computed for each group using the World Bank--UNCTAD SMART data base. Next, we aggregated trade into two groups (vulnerable and non-vulnerable) using the criteria described earlier. The trade shares of these groups in both total inter- and extra-republic exports are given in columns "a" and "b" of Table 8. To assess the relative importance of the two types of barriers, the portion of FSU exports vulnerable to NTBs and tari%f are shown in (columns "c" and Vd") while columns ("en and "f") show the share of exports vulnerable to relatively high tariffs and columns (ng" and "h") provide similar information for nontariff barriers.

The key points evident from this table are as follows. First, many products which were both traded within the FSU and shipped to outside partners are highly vulnerable to EC trade barriers. The share of vulnerable products is high in the trade of all former republics and particularly so for most -Asian NMSs, especially from the CAR which is the least developed region of the FSU.<sup>1</sup> ' Second, any '<sup>6</sup> The vulnerability of exporters of cotton products _may_ be overstated, however, because the Soviet 110-sector breakdown lumps all cotton products together without distinguishing between their level of fabrication. In the above tabulations we treat them as final stage products (SITC. 65), although some of their exports may include prinmary stage products (e.g., raw cotton-SITC. 263) which are neither subjec **t** o non-tariff barriers nor to higher tariff rates in most OECD countries. Since the FSU exported to the OECD mainly raw cotton (its share was around 35 % of all 1990 shipments of cotton product), one may suspec **t** hat almost 100% of exports originating in the CAR was raw cotton rather than NTB-ridden cotton products. Recalculating the shares of exports from the CAR subject to either discriminatory tariffs or NTBs (see Table 10) yields the following results: for Kyrgyzstan the inter-republic and extra-republic share falls to 73% and 91%, respectively; for Tajikistan to 74% and 81%; for Turkmenistan to 79% and 33 %; and for Uzbekistan to 68% and 40%. This is clearly not the case of many European NISs-highly vulnerable to EC trade barriers--which, because of geographical proximity, could be competitive in EC markets. The coverage is very high, especially for Belarus and Moldova.
23 Table 8. Shae of Potential Exports from the NIS Vulneable to EC Trade Banirs (perent)

||NTBs|Share of Exp<br>and/or|orts wbject to<br>both N|TBs and|Nonta|iff Brrir||iff|
|---|---|---|---|---|---|---|---|---|
|||||||aes|Ta|rs|
||Higher T<br>Inter-rep|ariffs<br>Extra-re|Higher<br>Intrr|Tariffs<br>E|||||
||.<br>|p.|e-ep.|xtrt-rep.|Itr-rep.|Extra-rep.|Inter-rep.|Exta-rep.|
||(a)<br>|(b)<br>|(c)<br>|(d)|(e)|(0|(g)|(h)|
|Armenia<br>|64<br>|71<br>|25<br>|11|_5_|9|37|_55_|
|Azerbaijan<br>|93<br>|95<br>|13|8|14|10|_75_|_85_|
|Gcorgia<br>|79<br>|93<br>|30<br>|19|30|22|46|82|
|Estonia<br>|84<br>|73<br>|19|16|25|44|39|25|
|Latvia<br>|70<br>|57<br>|13<br>|8|14|22|48|33|
|Lthuania<br>Bl|69<br>|77<br>|11<br>|3<br>|13|10|42|66|
|earus<br>Mld|83<br>|90<br>|8<br>|3<br>|6|3|73|87|
|oova<br>|82<br>|85<br>|22<br>|15|22|27|46|24|
|Russia<br>|71<br>|70<br>|10|4|10|6|65|66|
|Ukraine<br>|80<br>|76<br>|21<br>|16|25|18|68|62|
|Kazakhstan<br>Kh|64<br>|90<br>|23<br>|28<br>|14|27|42|81|
|yrgyzstan<br>|75<br>|95<br>|10|4|13|8|55|86|
|Tajikistan<br>|91<br>|99|26|18|28|19|52|80|
|Turkmenistan<br>|97<br>|98<br>|21|68|22|70|69|28|
|Uzbekistan<br>|88<br>|96<br>|26<br>|56|24|57|58|39|
|FSU ALL|75|73|14|7|14|9|63|66|

Source: Based on the 1990 Goskomstat inter-and extra-republic tiade data and data on taiffs and NTBs compiled fiem SMART.
24 attempt to redirect inter-republic exports to the EC would be constrained by substantial trade barriers. As an illustration, for a significant number of the NISs the coverage ratios for what was inter-republic trade are higher !han those for extra-republic trade, especially so for Estonia, Latvia, Russia, and Ukraine. As a result, without any improvement in their access to Western markets, limited prospects _',exist for a significant redirection of exports.

# **VIII.** Concluding Comments

The FSU was outside the extensive OECD trade preference system which differentiated market access according to the orurce of supply. Its exports faced the highest tariff rates and were subject to quantitative restrictions going beyond those imposed on most other trading partners. In EC markets, it had to compete on unequal footing with other highly industrialized European countries, since the latter, members of the EFTA, had preferential access. Its exports to the United States were discriminated against, simply because the FSU did not have MFN status.

While one may argue that access to OECD markets was of no particular relevance for the Soviet central planners, it has become critical for most successor states of the FSU. The FSU's major foreign currency earners-oil and gas, ores, minerals, and non-ferrous metals-were not particularly vulnerable to trade barriers. As a result, there was little incentive to expand other exports - most of them in short supply at home. For instance, the utilization rates of EC quotas by CMEA countries were low and, on the whole, quotas were not binding (Schumacher and Mobius, 1992:8, and Rodrik, 1992). Producers in the former republics, divorced from international markets by the state monopoly of foreign trade, were inifierent whether their products were shipped abroad or consumed at home. Now, however, regardless of differences among the NISs in terms of size and GDP per capita, they all face the challenge to establish viable economies integrated inLo the world economy. Most of these new economies are extremely dependent on foreign trade, both with the former republics and with other countries,
25 j

# especially in the OECD.

Yet, the period following the dissolution of the FSU has not witnessed a substantial improvement in their market access. The United States has granted MFN status (excluding Azerbaijan), but for the European NISs the United States is not, and is not likely to become, their major market. The EC has recently signed the Agreements on Trade, Commercial and Economic Cooperation with the Baltic states and also extended GSP treatment to some selected products on a "temporary" basis. Moreover, it promises negotiation of higher quotas for textiles and clothing. However, the Agreements do not cover some products in which the Baltic states are potentially competitive, i.e., agricultural and steel products, and GSP specifically excludes textiles and clothing along with fishery products. For the immediate future, the joint Baltic states/EFTA declaration paving the way for a free trade zone for manufactured goods strikes one as potentially more significant, because the EFTA is an important trading partner.

Because of geographical proximity and the existing transportation network, the most Important trading partners within the OECD for most NISs is the EC. The present EC arrangements put the NISs on the same footing as high-income countries (such as Australia, Japan, United States, etc.), which means that they face restricted access to EC markets. Their products are subject to nigher tariffs and more restraining non-tariff barriers than those encountered by EFTA members, Mediterranean and Lom6 Convention signatories, and former European CMEA-members. Thanks to the European Association Agreements signed with the EC, exports of manufactures from the Czech Republic, Hungary, Poland, Romania and Slovakia are either duty-free or subject to much lower tariff rates than levied on most other exporters. Because of similar industrialization strategies pursued under central planning, Europeon NISs and Central/Southern European countries are likely to compete in the same markets. The lower wage rates in many NISs may not be sufficient to compensate for their generally lower productivity and losses in value added (because of higher tariff rates that importers would have to pay on these imports) that exporters have to absorb in order to compete effectively in protected markets.
26 _/_ The NISs' vulnerability to various OECD preferential arrangements-determined by their export baskets-vary among successor states. Those with export profiles leaning towards agricultural products (including agricultural raw materials) face significant NTBs in all major OECD countries, except for the United States. Food and feeds is one of the most NTB-ridden product groups. Exporters from the Baltic states and Moldova encounter widespread non-tariff barriers in the EC, Japan, Finland and Sweden (NTBs are applied to between 70 and 80 percent of FSU exports to these markets). While the share of food in total FSU exports was well below 10 percent, the share in external exports in these former republics often exceeded 20 percent. In addition, Ukraine clearly has the potential to become an important net exporter of agricultural products (its contribution to external agricultural exports was significantly lower than its share in internal exports).

Not more encouraging are prospects for exporters of manufactures. All NISs share the socialist legacy of a strategy of Industrialization which focused on the development of the so-called heavy industries (steel, basic chemicals, etc.) characteristic of the Second Industrial Revolution. With the exclusion of the military sector, the Soviet economy was unable to absorb the modern technologies associated with the Third Industrial Revolution. Because of firmly entrenched vested interests, the markets for these products in the OECD economies tend to be more highly protected than others. Thus, for Instance, according to a recent study (Schumacher and Mobius, 1992), among sectors in the former European CMEA regarded as highly affected by the EC trade policy measures in 1990 one finds iron and steel industries, steel tubes, non-ferrous metals, basic chemicals, yarns, rubber products, and petrochemical industries. A quick examination of major external export industries of the NISs in Table 4 shows that they are also of significance for the former republics. For instance, iron and steel producers were among the top ten exporters in Azerbaijan, Georgia, Kazakhstan, Moldova, Russia and Ukraine, and basic chemicals producers were among the top ten export performers in nine NISs. In all, manufactured goods originating in the FSU face tariffs more than twice as high as the average duties all
27 other exporters pay on the same products, and three times as high as exporters from developing countries pay.

Thus, the key sectors-outside of energy and industrial raw materials--in which the NISs are potentially competitive are practically exempted from OECD markets or face higher restrictions than countries at a similar level of economic development. Significant export expansion is not likely to take place unless some measures are implemented that would put the NISs on equal footing with other countries.

Finally, considerations of market access affect foreign direct investment: trade barriers in external markets make more difficult or may rule out the export option and therefore increase the risk factor associated with investments. Thus, the flow of foreign direct investment--important not only to increased capital formation but also to increased efficiency of domestic firms through the "demonstration effect" of good management practices and work habits-is likely to be adversely affected.