Reviving Trade Amongst the Newly Independent States

The collapse in NIS trade to less than half its former volume has fostered an intense debate on policy remedies. Of the many proposals--which run from the reconstitution of an economic union to the free-for-all of total laissez faire--two are, politically as well as economically, realistic and feasible. Both entail substantial liberalization. Both envision joining the economic organization of the European Union as a long-term goal. One champions the prior creation of an EFTA-type free trade area in the NIS, and its progressive integration with the European Union. The other rejects regional preferences and advocates multilateral liberalization, gradually implemented, on the pattern of the Central European countries, (notably Poland, the Czech Republic and Hungary). This essay brings modern economic analysis to bear on the benefits and costs of these alternative scenarios. The author concludes on balance that the arguments favour gradual, multilateral liberalization on the Central European model.