Trade Between the United States and Eastern Europe

25 Patrkia S. Pollard Patricia S. Pollard isan economist at the Federal Resewe Bank of St Louis. Richard 0. Taylor provided research assistance. ~ Trade Between the United States and Eastern Europe HROUGHOUT MOST OF THE post-World States and the three Eastern European countries War JI era, trade between the United States and which have made the greatest progress in adopt’. Eastern Europe was minuscule. The United ing market reforms: the Czech and Slovak 1 States maintained high tariffbarriers on imports Federal Republic (CSFR), Hungary and Poland. from most Eastern European countries and also Studies have shown that the U.S. economy is restricted its own exports to these countries. likely to be one of the principal beneficiaries of In particular, the United States prohibited the economic liberalization in Eastern Europe.2 U.S. export to these countries of high-technology exports to, and investment in, the region should goods related to national security interests. increase as the restructuring of the economies of Eastern Europe also maintained various trade Eastern Europe results iii an increase in demand restrictions on imports from the United States. for capital goods and technology, and opens Most Eastern European trade was controlled by new markets for U.S. products. Such gains will the state and conducted within the Council for be limited, however, if the Eastern European Mutual Economic Assistance (CMEA), the trade countries reverse the pattern of opening their organization of the Soviet bloc countries. markets and raise protectionist barriers against With the disintegration of the Soviet system products from the United States. and the collapse of the CMEA trading bloc, Despite the initial steps taken to reduce trade Eastern European countries began to re-orient barriers on Eastern European products, the their trade to the West. As these countries United States maintains quantitative restrictions undertook political and economic reforms, the and other forms of protectionism on many prod- United States reduced its tariff restrictions on ucts from Eastern Europe. Most significantly, their products. Consequently, trade between the the United States maintains a high degree of United States and Eastern Europe has expanded protection against the importation of textiles substantially since 1988. This paper examines the and apparel, chemicals, steel and agricultural growth and pattern of trade between the United products from Eastern Europe. These goods 1 In January 1993, the Czech and Slovak Federal Republic 2 See, for example, Wang and Winters (1992). split into two independent countries: the Czech Republic and the Slovak Republic. With the exception of total export and import data, the data used in this paper end before the split occurred. 26 Table 1 Growth in U.S. Trade 1988~93 U.S. imports (S millions) U.S. exports (S_millions) 1988 1993 Growth________ 1908 1993 Growth CSFR S87.6 $341 5 289.9% $55.1 $300.1 4442% Hungary 293.9 400 5 36.3 77.5 433.9 459 7 Poidrld 375.6 454.0 20.2 303.7 916.5 201.5 Combined CSFR. Hungary. Poland 759.0 1196.0 57.6 436.3 1630.5 2783 World 441282.4 580054.4 31 6 322,718.3 464767.2 44.0 Based on nominal dollar values The 1993 data for the ~SFRwere calcul&od by comb:ning the dala ~orthe czech Republic and the Slovaic Republic. SOURCE U S. Dop~r~rneritof Commerce. Bureau of the Census are produced by the sectors in which Eastern OVERVIEW OF TRADE Europe is most competitive. The possibility exists Trade with the CSFR, Hungary and Poland for au increase in protectionism in Eastern Europe has always comprised a low percentage of the as these countries have become increasingly total international trade of the United States. frustrated by the lack of progress in securing Neither U.S. exports to these countries nor access to U.S. as well as other Western markets imports from any of the three constitute more for their products. How the problems stemming than 1 percent of total U.S. exports or imports. from these trade barriers are handled will be an From the perspective of the CSFR, Hungary and important determinant of future trade flows Poland, however, trade with the United States between the United States and the CSFR, constitutes a larger share of the international Hungary and Poland. trade of each country.3 This paper describes the recent changes in Despite its relatively small size, there has these trade flows and examines the restrictions been a substantial expansion in trade between facing Eastern Europe in its trade with the United States. The structure of the paper is as the United States and the CSFR, Hungary and Poland following the disintegration of the Soviet follows. Section two provides an overview of bloc. In dollar terms, U.S. imports from the three trade between the United States and the CSFR, grew by 58 percent between 1988 and 1993 while Hungary, and Poland. The causes of the recent U.S. exports to these three countries grew by growth in trade between the United States and 278 percent (see Table 1, and Figures 1 and z).~ Eastern Europe are examined in section three. In comparison, total U.S. imports increased by The product composition of this trade is dis- 32 percent between 1988 and 1993 whereas cussed in section four. Section five examines total U.S. exports rose by 44 percent. U.S. restrictions on the products in which the CSFR, Hungary and Poland have their greatest U.S. exports to the CSFR, Hungary and Poland comparative advantage. The conclusions are have grown much faster than imports from these presented in section six. countries, Consequently, in 1988 the United The European Union (B&gium, Denmark, France! Germany, Union were avaiIab~e).US. mports from the three Eastern Greece, Ireland, Ita’y, Luxembourg, the Nether’ands, European countries, however, grew more slowly than Portugal, SpaTh and the United Kingdom) remains the major European Union imports over the same fime period (27 per- trading partner for these three Eastern European countries, cent compared to 133 percent). accounfing for more than half of their exports and imports. Exports from the United States to the three countries combined grew at a faster rate than exports from the European Union (208 percent compared to 180 percent) between 1988 and 1992 (the latest year for which data for the European 27 Figure 1 Total Annual U.S. Imports from Eastern Europe Millions of dollars 500 - 450 400 ~~ .~ 350 - 300 - Hungary 250 - 200 150 CSFR 100 50 0 1988 1989 1990 1991 1992 1993 SOURCE: U.S. Department of Commerce, Bureau of the Census Figure 2 Total Annual U.S. Exports to Eastern Europe Millions of dollars 1000 900 800 700 600 500 400 300 200 Hungary CSFR 100 0. 1988 1989 1990 1991 1992 1993 SOURCE: U.S. Department of Commerce, Bureau of the Census 28 The Jackson-Vanik Amendment to the Trade Act of 1974 The Trade Expansion Ac.t of 1951 suspended \Vaivers were grnnted for a one—year penod. thn most—favored—nat ion (MFN ) status of any emil ~igJuly 3. 1w 1 could he renewed cac h Cut tatry deemed to be under the control of year by t he Presi (1 eni P0 Ii owing the renewal the \VUffId ( .ornrnun 1st movement. BetWeen of the waiver. Ccuigress was gi vHfl 30 days IC) I ‘351 and 1 ~174,the MFN status of Poland and pass a resolution ehurlindi I ng the waiver. Yugoslaua was restored. The J.S. Trade Act Between 1974 and ~1988, ijo coiuitrv of 1.974 reasserte~I the (let eFlfl 1w naI the — \~as .ertlhr3d to have met the Jackson—Van ik United States to withhold MIN st;ituc from reqwcement. L..nder a waiver of ib ic amend- CoirunLI IIIst C cuin! FLOS Se cli Un 402 of t hi ~ • went, however. thi’ei~countries were granted I rade Act states that MF N stat us could nut be .. — ME N status: Romania nx 19 / ~. IIungarv in qranted to an~nomnarket economy count rv — 19,8. and China in 1980. In October 1989, which did not already have stich status. I he -. liii flgdrv Was au.orded pernia ne.nt MF N status Act estah~ished two exccptions. howevur. - fo11o~~’mu the pa~s~geof a Ireeclorn—ot—ern “ni— through wli ich MF N status would be granted: .C’ C t1(p law. J he (zc .h and SI ovak I ederal 1) the }‘resident reported to Cow’ress that the 0 Repubiit wus granled wa~ver stat us in country (lid not reMIrLc:t 11w euhL’~rdLIonof ik 0~ November 1990. and pnrrnanen~MF N status citizens: and 2) t lie Prost dent wa i t’ed COTfl 1)11 - in October 1991 1 r accordance wit Ii tim U~1(~(!with the’ freed nn of emi “ration require Jac kso u—Van k a rn end nmei it. AU ho ugh S rn_h ni en t. I he Juckson ~~mk amen (IrnenL estcib— . stat us was retorr~dto us permanent, the J isIi ed the frredoni —of—em i”rution req u I FCifl~iii. 0 . Inc. kson—Vani k amend rncnt required that the Fhis requircrntnl COLLICI 0111% 1)0 ~%a1vedif tim -. President repoP to (.origress sen tan iii Ui I ‘,‘ on !‘rt,sident determ i ned that tim n so would 0 a country s c:ornpliancu With Ge orni°rattori “promote [he ohjw:Iive of th~arntmdnierit. I cnleria. Countries. which wei-H not sub]ect MI N stat us still .oul ci nat be “rn fled until 1 to the Jackson—%anik requirements (suc.h as the 1 rnted Stales ii ad ,oncltided a hi id tnra] Poland) had tint onditiona~MF N status.

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