Commentary

Making Sense Out of Russia’s Free Trade Initiative

The leaders of four former Soviet Republics have signed a regional free trade agreement that aims to emulate the European Free Trade Agreement and the North American Free Trade Agreement. If successful, it will increase the volume of trade and create new jobs in the process.

Critics have attacked the Russian initiative — agreed to in Yalta recently — as an ill-disguised attempt to recreate the communist empire. But, in fact, the Common Economic Space, the formal name of the agreement, has more to do with the future of the European Union than with the history of the Soviet Union.

The CES initiative — which also includes Ukraine, Kazakhstan, and Belarus — is emerging during the grandest nation-enlargement in European history: On May 1, 2004, eight countries of the former communist bloc will join the European Union. However, the joy of elites at bringing Europe “together” cannot hide the acrimony that has marked the enlargement negotiations. Nor can it ignore the power balance in the EU, which risks turning the newcomers into permanent supplicants of the larger members.

The less-than-enviable terms under which the newcomers join the EU stems from tactical errors committed by leaders of the Central and European Countries. By declaring membership in the EU a sine qua non of their foreign policies, the Central and European countries have committed themselves to joining regardless of the conditions of accession. The EU, in other words, had little incentive to accommodate Central and Eastern European needs.

A more sensible approach for those nations would have been to vigorously pursue a Central European Free Trade Initiative by liberalizing trade relations throughout the region and creating a lucrative market for West European companies. Negotiating from a position of strength, the Central and European countries could then conclude a free trade agreement with the EU in the future.

It is ironic that in an age when both theoretical and practical cases for economic freedom have become so convincing that even the European left now accepts free trade as a way forward for the poor people across the world, unilateral liberalization seems as difficult as ever. Instead, countries continue to rely on their political power in free trade negotiations. Russian diplomats are well skilled in the art of “realpolitik,” and all realists recognize the importance of negotiating from positions of strength.

Therefore, far from being an alternative to an eventual economic integration with the EU, the CES is its obvious precursor. If successful, over the next decade the Russians will establish a free trade zone of significant economic power and potential. That will enable the former Soviet Republics to negotiate with Europeans and Americans on a more equal footing.

The CES is part of a larger pattern, of course. An ad-hoc alliance of nations called the “Group of 21” emerged at the WTO negotiations in Cancun. These developing nations understood that together they could hold out for more favorable terms of trade liberalization. They were right and wrong at the same time. They were right to stick together and demand that the developed countries abandon their protectionist agricultural practices, which are immoral and harm the poor the most. They were wrong in thinking that the developed nations would do so without getting anything in return.

Trading blocs, therefore, are double-edged swords. The countries involved can bring about a lowering of barriers, but only if they themselves are committed to free trade. Otherwise, global liberalization comes to a standstill. The Group of 21 belongs to the latter category. The same, thankfully, cannot be said of Russia. President Putin and his cabinet are keen on trade liberalization. Under their stewardship, the CES may turn out to be an engine for global economic progress.

Marian L. Tupy is assistant director of the Project on global Economic Liberty at the Cato Institute.