Central and Eastern European Economies Lose in Agricultural Trade. West-East Trade in Agriculture under Discussion

The countries of Central and Eastern Europe suffered severe losses in trade with the West. Austria's food industry has markedly improved its position in trade with the East: in 1993 Austria's exports to the Central and Eastern European countries totaled AS 5.1 billion, exceeding the level of 1989 by 54 percent; over the same period imports rose by only 3 percent to AS 3.6 billion. This trend persisted into the first half of 1994. Thus, Austria changed from a net import to a net export position. This is an unexpected development, at least as far as the extent of the change is concerned. Most countries of Central and Eastern Europe are well suited for agriculture and have a comparative advantage in agricultural production. Moreover, in recent years Western Europe has somewhat facilitated access to its markets. But apparently, the "agricultural giant" Central and Eastern Europe has not been able to draw upon its great potential. Transition to a market-based economy more difficult than expected To a great extent the causes of the losses suffered by the Central and Eastern European countries in agricultural trade are the deep crisis of its agriculture and food industry which still suffers from the transition to a market-oriented economy. Since 1989, agricultural output has declined dramatically; many enterprises are in great debt and fight for their survival; market structures are in disarray. The Western European suppliers benefit from the weakness of their competitors in the East. Professional marketing, high product quality, and the excellent image of Western products have opened the Eastern markets for processed food. Exports of agricultural raw materials benefit from heavy subsidies, which are intended to help clear the Western markets. In recent years, several leading Western producers of brand name products have begun to do business in Central and Eastern Europe. This development should tend to alleviate the trade deficit in agriculture in these countries. Furthermore, the agreements on agriculture and trade in agriculture, part of the GATT's Uruguay round, strengthen the position of the Central and Eastern European countries. Is wider access to Western European Markets a solution? The imbalance in their trade account has prompted the Central and Eastern European countries to review their relatively liberal import regimes. At the same time, criticism of Western Europe's trade and agricultural policies is growing. In view of the current development, the EU Commission advocates opening the EU market to a greater extent. A revision of the "Europe Agreements" is being discussed, but so far no tangible results have emerged. As a future member of the EU, Austria is obliged to adopt the EU's trade regime in agriculture and therefore is interested in guarding its interests, should these "Europe Agreements" be revised. Austria's food industry is keen on preserving its export potential in Hungary, in particular. The possible consequences of the EU's concession in agriculture on the Austrian market remains an open question.