Russia Rising On Wings Of Liberal Trade
by Marian L. Tupy
October 24, 2003
Marian Tupy is assistant director of the Project on Global Economic Liberty at the Cato Institute.
The leaders of four former Soviet Republics have signed a regional free trade pact that aims to emulate the European Free Trade Agreement and the North American Free Trade Agreement. If successful, it will increase trade volume and create new jobs.
Critics have attacked the Russian initiative -- agreed to in Yalta last month -- 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 EU.
However, the elites' joy at bringing Europe "together" cannot hide the rancor that's marked the expansion of talks. Nor can it ignore the power balance, which risks turning the newcomers into the larger members' permanent supplicants.
Mistakes Were Made
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 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 pact 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 political power in trade talks. Russians, well skilled in the art of "realpolitik," and all realists recognize the importance of negotiating a position of strength.
Banding Together
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 Russia will establish a free trade zone of significant economic power and potential. That will enable former Soviet republics to negotiate with Europeans and the U.S. 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 World Trade Organization talks in Cancun. These developing nations knew that together they could hold out for more favorable terms of trade liberalization. They were right and wrong.
They were right to stick together and demand that developed countries quit 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 nations 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 liberalizing trade. Under their stewardship, the CES may become an engine for global economic progress.
This article originally appeared in Investor's Business Daily on October 24, 2003.