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Regional Cooperation and the Enlargement of the European Union: Lessons

Learned?
Milica Uvalic
International Political Science Review 2002; 23; 319
DOI: 10.1177/0192512102023003006
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International Political Science Review (2002), Vol 23, No. 3, 319333

Regional Cooperation and the Enlargement of the

European Union: Lessons Learned?
MILICA UVALIC

ABSTRACT. The article evaluates and attempts to draw some lessons from
the recent initiatives aimed at stimulating regional cooperation among
transition economies in Northern, Central, and South-Eastern Europe.
Although these initiatives varied significantly in their scope, objectives,
and domain of activity, the author highlights the common elements and
discusses both their major achievements and greatest weaknesses. The
author then relates these initiatives to the recent theoretical debate on
regionalism, the main conclusions in the empirical literature, and the
most important policy issues concerning current integration processes
and EU enlargement. The role of subregional economic cooperation
among transition economies is examined within the context of the
problems posed by the variable speed integration policies of the
European Union. The general conclusion is that the overall experience
of regional cooperation among European transition economies has, on
balance, been positive, though clear limitations and many unresolved
questions remain. (For acronyms see page 323.)
Keywords: Cooperation

EU

enlargement Integration Regionalism

Transition

The New Regionalism of the 1990s

The former socialist countries transitions to market economies and multiparty
democratic systems opened up a new era of political and economic cooperation
among European countries that fundamentally differs from that prior to 1989.
Initiatives on regional cooperation among transition countries in Northern,
Central, and South-Eastern Europe, as well as among the successor states of the
former Soviet Union proliferated during the last decade. A number of important
factors encouraged these cooperative initiatives, including the dissolution of
COMECON; the disintegration of the Soviet Union, Czechoslovakia, and Yugoslavia;
0192-5121 (2002/07) 23:3, 319333; 023901 2002 International Political Science Association
SAGE Publications (London, Thousand Oaks, CA and New Delhi)
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International Political Science Review 23(3)

German unification; and European Union policies promoting regional integration. The dissolution of old trading blocks and the creation of new regional ones
have brought about substantial changes in the regional economic subgroupings of
Europe. Consequently, in the 1990s individual countries have experienced
important changes in their own systems of trade and position as trading partners.
The recent initiatives on regional cooperation among transition countries are
part of what is known as the new regionalism. This contrasts with the old
regionalism, or the regional agreements of the 1950s and the 1960s which, with
the exception of the European Economic Community, are generally considered as
failures (see Bhagwati, Greenaway, and Panagariya, 1998). The renewed interest in
regionalism reflects the general global trend toward regional agreements.1 It is
likewise enmeshed in the whole range of new policy questions that have emerged
from the very different context of todays international economic order. While old
regionalism was set in the context of a relatively infant international trading
system, today the World Trade Organisation (WTO) enjoys established and wideranging powers. This simultaneous existence of regionalism and multilateralism
has given a fresh impetus to a controversy about regional trading blocks that had
remained latent for several decades (Lahiri, 1998: 1126).
Apart from theoretical controversies, important policy issues about subregional
political cooperation have also been raised within debates on current integration
processes in Europe. Regional cooperation has been actively promoted by major
pan-European organizations and institutions, including the Organisation for
Security and Cooperation in Europe (OSCE), the UN Economic Commission for
Europe (UNECE), the Council of Europe, and the European Union (EU). The
Europe of subregional cooperation processes has acquired a particularly
important role after the Monaco Declaration adopted in 1997 by the OSCE
Parliamentary Assembly. This declaration clearly defined the role, spheres of
intervention, and means of achieving subregional cooperative agreements, and
their relations with European institutions (OSCE, 1997). The European Commission has also promoted and strongly recommended regional economic cooperation to candidate and non-candidate countries in the transition economies as a
way to accelerate their integration into greater Europe.
The next section provides an evaluation of the main achievements and failures of
recent initiatives aimed at stimulating regional cooperation among European
transition countries. In the following sections I present the main conclusions of
the recent theoretical debate and the principal findings of the empirical literature
on regionalism. Then, I address some questions regarding regional cooperation
and EU enlargement. Finally, in the last section, I draw some principal lessons from
the topics covered.

Regional Cooperation among Transition Economies: Has It Worked?

The regional cooperation initiatives among European countries in transition have
been characterized by rather great variation, mostly because of the highly
divergent political and economic conditions found in the various European
subregions and individual countries. From the beginning of the 1990s, many
former socialist countries succeeded, in a remarkably short period of time, in
reorienting their trade from traditional partners within COMECON to partners
within the European Union. This process of trade reorientation towards western
markets ran parallel with various initiatives of stimulating regional cooperation
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UVALIC: Regional Cooperation & EU Enlargement

321

among former socialist countries. These initiatives can be divided into two broad
groups.
The first group of initiatives, most of which were launched between 1989 and
1992, was the result of the dissolution of the socialist block. These initiatives were
addressed to a wide group of countries located in various parts of Northern,
Central, and South-Eastern Europe, and the former Soviet Union. Among the most
important were the Central European Initiative (CEI, 1989), the Commonwealth of
Independent States (CIS, 1991), the Council of the Baltic Sea States (CBSS, 1992),
the Baltic Free Trade Area (BFTA, 1994), the Black Sea Economic Cooperation
(BSEC, 1992), and the Central European Free Trade Agreement (CEFTA, 1992). The
second group of initiatives was, on the contrary, directed primarily towards SouthEastern Europe (SEE), and was launched in 199596 after the end of the war in
Bosnia-Herzegovina. Among the most important of these were the Conference on
Good Neighbourliness, Stability, Security and Cooperation in SEE (CSEE, 1996), the
Royaumont Process (RP, 1995), the Regional Approach of the EU (RA-EU, 1996),
and the Southeast European Cooperation Initiative (SECI, 1996). Finally, the most
recent of these initiatives, the Stability Pact for SEE adopted in Cologne in June
1999, also establishes, through its specific mechanism (the three Working Tables),
concrete forms of regional cooperation in various fields among the participating
countries. These most important initiatives on regional cooperation among
transition countries are presented in Table 1.
The initiatives stimulating regional cooperation can be significantly different in
terms of their scope, objectives, and domain of activity. Still, given that the main
objective behind most of them is to promote various forms of cooperation among
neighbouring countries, they tend to include peace, stability, development, and
integration. While some envisage the creation of a free trade area (such as the
Central European and the Baltic Free Trade Agreements), others are limited to
cooperation in specific fields (such as the CEI, SECI, or RP), or may be of a much
more general and political nature (such as the CSEE). They usually involve
countries which are geographically located in the same region. As seen in Table 1,
most countries are members of several subregional agreements. There is great
economic diversity among countries participating in the different initiatives on
regional cooperation: this is a reflection of the different characteristics of the
main subregions. As shown in Table 2, some subregional economies (like the
Baltics) share more major similarities than do others (like SEE or the CIS).
How can these various initiatives be evaluated and which criteria are appropriate for assessing their effectiveness? The answer to this question revolves on the
real objectives these initiatives aim to achieve (not only those declared in constituent
documents), which in many cases are themselves quite vague and undefined. Not
surprisingly, questioning whether there is a rationale for regional groupings
among former socialist countries, a well-known expert concludes that history,
economic theory, and politics all provide ambiguous answers (Lavigne, 1999: 206).
Objectively speaking, however, we can identify a number of important and
positive outcomes from processes of regional cooperation. For instance, most of
these initiatives have facilitated communication between participating countries,
stimulating political dialogues and promoting the resolution of political and
economic differences. They have contributed to cooperation in a number of
areas, helping countries develop trust and confidence with other participating
members. Finally, regional cooperation agreements have provided a framework
for launching cross-border regional projects in important sectors such as
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Baltics, CEE & SEE

CIS
1991

CBSS
1992

BFTA
1994

+
+
+
+
+

BSEC
1992
+
+

+
15

RP
1995

RA-EU
1996

SECI
1996

SP
1999

+
+
+
Obs

+
+
+
+

+
+

+
+
+
+

+
+
+
+

+
+

+
+

+
+

+
+

+
+
+
+
+
+

CSEE
1996

CEFTA
1992

+
+

+
+
+
+
+
+
+
+
+
+
+
+
12

+
+
+
+

+
+

+
+

+
+
+
+
+

+
+

+
5

6+1
Obs

10

10

International Political Science Review 23(3)

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Albania
Bosnia & Herz.
Bulgaria
Croatia
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Macedonia FYR
Poland
Romania
SlovakRepublic
Slovenia
Yugoslavia FR
CIS
Armenia
Azerbaijan
Belarus
Georgia
Kazakhstan
Kyrgyzstan
Moldova
Russia
Tajikistan
Turkmenistan
Ukraine
Uzbekistan
Total transition
countries

CEI
1989

322

TABLE 1. Participation of Transition Countries in Multilateral Initiatives of Regional Cooperation.

Western participants

Italy & Austria

Denmark
Iceland
Finland
Germany
Norway
Sweden
Eur. Commission

Greece
& Turkey

Greece Turkey
& Turkey
EU
USA

Turkey

Turkey
EU
USA

Japan
Canada

UVALIC: Regional Cooperation & EU Enlargement

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CEI: Central European Initiative

CSEE: Conference on Good Neighbourliness, Stability, Security and Cooperation in SEE
CIS: Commonwealth of Independent States
RP: Royaumont Process
CBSS: Council of the Baltic Sea States
RA-EU: Regional Approach of the EU
BFTA: Baltic Free Trade Area
SECI: Southeast European Cooperation Initiative
BSEC: Black Sea Economic Cooperation
SP: Stability Pact for SEE
CEFTA: Central European Free Trade Agreement
Source: Compiled by the author using various sources, in particular Lavigne (1999) and Lopandic (1999).

323

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International Political Science Review 23(3)

TABLE 2. Transition Economies by Subregions in 1998Basic Data*
per head ($)
rates
Market
exch rates

GDP

Population
(million)
Central East Europe
Czech Republic
Hungary
Poland
Slovakia
Slovenia
South East Europe
Albania
Bulgaria
Croatia
Macedonia, FYR
Romania
Yugoslavia, FR
Baltics
Estonia
Latvia
Lithuania
CIS

Russia
Ukraine
Belarus
Moldova
Armenia
Azerbaijan
Georgia
Kazakhstan
Kyrgyz Republic
Tajikistan
Turkmenistan
Uzbekistan
CEE, SEE & Baltics
CEE, SEE, Baltics, & CIS

66.4
10.3
10.1
38.7
5.4
2.0
51.7
3.8
8.2
4.5
2.0
22.5
10.6
7.6
1.4
2.5
3.7
283.3
146.5
50.4
10.2
4.3
3.9
7.7
5.4
15.5
4.7
6.1
4.7
23.9
122.0
409.4

PPP

7,870
10,284
7,925
6,930
8,147
12,632
3,962
2,078
4,438
6,542
2,904
4,167
3,160
4,569
5,381
4,167
4,517
3,211
4,172
2,144
4,623
1,533
2,493
1,184
1,332
2,629
1,603
706
1,495
2,134
5,968
4,050

4,551
5,484
4,709
4,088
3,860
9,831
1,813
801
1,486
4,833
1,745
1,842
1,298
2,934
3,589
2,613
2,890
1,364
1,888
848
1,396
380
483
537
953
1,434
349
216
582
510
3,282
1,959

Exports
($bn)

Imports
($bn)

97.08
26.39
20.75
30.12
10.72
9.10
21.60
0.21
4.30
4.61
1.32
8.30
2.86
8.66
2.69
2.01
3.96
108.26
74.75
13.70
7.12
0.64
0.23
0.68
0.30
5.84
0.54
0.64
0.61
3.22
118.68
235.60

118.90
29.02
23.10
43.84
13.07
9.87
31.81
0.79
4.76
8.77
1.71
10.93
4.85
12.43
3.80
3.14
5.48
99.57
57.39
16.28
8.48
1.04
0.81
1.72
1.16
6.59
0.76
0.77
1.14
3.44
150.71
262.71

* The region in April 2000 comprised 27 countries. Bosnia/Herzegovina is not included in the table
because of lack of data.
Source: Economist Intelligence Unit (2000), Economies in Transition: Regional Overview, Country Forecast,
1st quarter, London, p. 3.

infrastructure, transport, energy, and the environment. There are certainly a

number of successful cooperation initiatives, as evident in the activity of major
subregional organisations, which frequently work in close collaboration with the
UN Economic Commission for Europe.
Despite the types of success mentioned above, regional cooperation initiatives
are frequently criticized either because they have had little impact in key areas
such as regional stability and intra-regional trade growth, or because,
notwithstanding ambitious plans and declarations, concrete forms of cooperation
fail to be implemented. The most obvious example of limited achievement is
South-Eastern Europe, which, despite numerous cooperation initiatives, has
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suffered five military conflicts. Many initiatives on regional cooperation did not
really get off the ground, while others were accepted only with scepticism. For
example, in the CEFTA case, the CEE countries feared that regional arrangements
would postpone their accession demands. The SECI or the EU Regional Approach
met difficulty with the successor states of the former Yugoslavia, that rejected
anything that could imply the revival of old links existing in their former country.
The CIS was resisted because many countries (with a few exceptions) were not
ready to accept the economic dominance of Russia.
One of the major points of criticism regards the marginal impact of these
initiatives on intra-regional trade. If we look at trade flows among the Baltic states
during 199398, we see that despite the signing of a free trade agreement among
them in 1993 (which came into force in 1994), intra-Baltic trade has remained at a
very low percentageusually below 10 percentof overall trade in both imports
and exports, and in several cases even declined over time (Pautola, 1999: 1314).
Similarly, though the share of trade within CEFTA in central and eastern Europe
slightly increased after 1993, by 1997 it had dropped back to its 1994 level of 14
percent and 10.5 percent for exports and imports, respectively (see Lavigne, 1999:
209). The present level of trade activity between first-wave CEFTA countries comprises
a very small share of each countrys total trade activity, at the level of 8 percent
(Inotai, 2000: 38). In the CIS, trade among the successor states to the USSR fell even
more steeply than among CEE countries. Intra-CIS trade remained largely centred
on Russia, which accounts for about half of mutual trade flows, and retained its oldfashioned star-shaped trade relations patterns within COMECON, with the Soviet
Union in the middle and the other members trading with it rather than among
themselves. Despite numerous attempts to strengthen the CIS, many initiatives are
considered to have been purely declarative and largely redundant (ibid. 210211).
As for the SEE region, the situation is rather peculiar.2 The disintegration of
former Yugoslavia in 199192 into five new independent states led to the
introduction of various restrictions on trade with countries that had formerly been
trading partners. These restrictions, quite contrary to the general trend of trade
liberalization elsewhere, contributed, along with the regional military conflicts, to
a drastic decline in trade levels.3 Nevertheless, trade links have been renewed or
maintained among some successor states of the former Yugoslavia, and despite the
drastic reduction in the volume of trade, the share of intra-regional trade is
important for several countries (see Uvalic, 2000). According to preliminary data
for 1998, around 65 percent of Bosnian exports(33 percent to the Federal
Republic (FR) of Yugoslavia, 25 percent to Croatia, 6 percent to Slovenia, 1 percent
to Macedonia)and 52 percent of its imports(27 percent from Croatia, 12
percent from FR Yugoslavia, 12 percent from Slovenia, and less than 1 percent
from Macedonia)went to or came from countries of the former Yugoslavia.
Similarly for FR Yugoslavia, 31 percent of its exports in 1998 went to countries of
the former Yugoslavia (22 percent to Bosnia and another 9 percent to
Macedonia), though much less of its imports. Paradoxically, trade links among
some SEE countries have not only been maintained but are rather significant,
suggesting that economic links inherited from the past, re-established for political
reasons4 or simply accepted out of necessity, are a second-best solution in the
absence of alternatives such as preferential access to EU markets. These have been
more important for stimulating trade in this region than the barriers created by
disintegration, military conflicts, and the non-existence of a regional free trade
agreement. Apart from this very specific case, however, the general picture is that
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initiatives on regional cooperation, including those which have created free trade
areas, have not really had a significant impact on intra-regional trade over the past
decade. In fact, intra-regional trade in most cases has either remained constant or
has even declined.
Why have many of these initiatives not led to more substantial and far-reaching
results? There are a number of very different reasons.5 Political hostilities and thus
resistance to implementing regional cooperation is one of the most important,
since nothing can substitute for the political will of countries to cooperate. The
disintegration of countries can also block many possible forms of cooperation, as
has been the case with the former Yugoslavia and the former Soviet Union.
Another important reason is the exclusion, until very recently, of some key actors
from such initiatives, primarily FR Yugoslavia. (FR Yugoslavia has been included in
the stability pact for SEE since 26 October 2000, following the September elections
which brought political change and the coming to power of a democratic
government.) Several of these initiatives have been imposed from outside,
encouraged by western countries and institutions, and therefore were not the
product of autochthonous processes. In other cases, there was absence of direct
support from important institutions (EU) or developed (friendly) neighbours, and
many agreements are simply small preferential trade agreements without the
involvement of any of the larger economies. Most initiatives had little or no
financial backing and had to be financed by participating members (such as SECI).
Some lacked technical expertise and support, while others lacked the innovative
leadership needed to launch specific projects. Some scholars have also criticized
the limited scope of regional cooperation programmes.
Does this mean that these initiatives were launched and promoted without any
real justification? In my view, there are still important economic and political
reasons to support efforts at regional cooperation. Some scholars have argued that
the dynamic effects of regional cooperation agreements are yet to be felt; for
example, according to recent estimates for CEFTA countries, EU membership is
expected to significantly stimulate trade among present CEFTA members, raising
the share of intra-regional trade from the present 8 percent to 1112 percent
(Inotai, 2000: 38). Furthermore, although the trade of most transition economies
is mainly oriented towards the European Union, having preferential access to
alternative markets in transition economieswhether within a free trade area or
through bilateral free trade agreements with neighbouring countriescould be
important, as poor export performance on EU markets could be compensated for
by increasing exports to these alternative markets (as has indeed been the case
with several SEE transition economies in 199597). In addition, considering that
the previous nine socialist countries in Europe now make up as many as 27
countries,6 with proportionally smaller economies, there seems to be a clear need
to establish broader regional linkages and agreements. In addition, both the
theoretical literature and the empirical evidence suggest a number of more
general arguments which point to the beneficial effects of regional cooperation.
These arguments are addressed in the next two sections.

Theoretical Controversies over Regionalism

Regionalism can be broadly defined as a tendency towards some form of
preferential trading arrangement between a group of countries belonging possibly
to a particular region (see Lahiri, 1998).7 However, regionalism obviously also has
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a much broader meaning, since economic cooperation and trade agreements are
usually backed by important political motives and objectives.
Economic theory has offered many hypotheses regarding the most important
factors facilitating regional agreements, and the controversy about the desirability
of regionalism is not new. Whereas conventional economic theory suggested that
preferential regional agreements are necessarily welfare improving, Jacob Viner
(1950) has pointed out that this need not always be the case. He cautions that in
addition to trade creation, regional agreements also create the possibility of
significant trade diversion. As trade creation occurs within a preferential trade
area, the raising of protectionist measures against non-members can convert it
into trade diversion. In this way, trade volumes among member countries increase
at the expense of trade between member and non-member countries. Other
hypotheses, such as the natural trading partners hypothesis, emphasize the
importance of the initial volume of trade among countries and of the distance
between them. The gravity model predicts that the volume of trade between two
countries will be related both to the economic distance between them and to their
8
GDP.
Whereas earlier debates reflected mainly static questions concerning the
welfare effects of preferential trade agreements, the more recent debates focus on
what Bhagwati (1991) has described as the dynamic time-path questions. These
ask whether such agreements will be stumbling blocks or building blocks to
multilateral free trade, and whether they will facilitate or hinder the worldwide
process of trade liberalization (Bhagwati, Greenaway, and Panagariya, 1998:
11281129). Will the spread of regionalism undermine the progress of the
multilateral trading system? Does regionalism affect the enforcement provisions
built into the articles of WTO? These questions have been at the centre of the
debate on regionalism versus multilateralism, and there is a range of economic
views on the desirability of regionalism.
On the one side of the debate are those who see such agreements as a threat to
the multilateral system. A number of systemic issues have recently been raised by
the proliferation of preferential trade agreements, including what Bhagwati has
called the spaghetti bowl phenomenon. It refers to the numerous and crisscrossing preferential trade agreements and even more numerous tariff rates,
frequently arbitrarily determined, which are today applied among countries. Their
systemic effect is that they have generated a world of preferences which increases
transaction costs and facilitates protectionism. In the guise of freeing trade,
preferential trade agreements have managed to recreate the preferences-ridden
world of the 1930s as surely as protectionism did at the time. Irony, indeed! (ibid.:
1139).
On the other side of the debate are those who argue that preferential
agreements can complement existing multilateral efforts to foster greater
economic integration among countries and should therefore be encouraged
(Bagwell and Staiger, 1998). These economists have argued for a more positive
approach to regional integration, which can also explain why the new regionalism
has come about (Ethier, 1998). This approach suggests that the new regionalism
is, in good part, a direct result of the success of multilateral liberalization.
Regionalism is the means by which new countries try to enter the multilateral
system, competing among themselves for the direct investment necessary for their
successful participation in that system. Regionalism, by internalizing an important
externality, plays a key role in expanding and preserving the liberal trade order.
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Therefore, there are no reasons for special concern or conflict between regionalism and multilateralism. There are assumptions which render trade diversion
innocuous, and a huge volume of trade diversion could well imply little effect on
welfare. Thus regionalism is seen as playing a transitory role, while the new
regionalism reflects the success of multilateralism, not its failure (ibid.: 1161). This
literature therefore suggests that preferential agreements can facilitate multilateral liberalization, and that they have their most desirable effects on the
multilateral system precisely when multilateral enforcement mechanisms are
ineffective and the multilateral system is working poorly (Bagwell and Staiger,
1998). Another important contribution is Baldwins (1993) analysis of the
incentives of non-members to join a preferential trade agreement. His model has
demonstrated that the incentives will be positive, and that such an agreement will
create a domino effect, with outsiders wanting to become insiders. This is because
such an agreement implies a loss of cost-competitiveness by non-members, whose
profits in the free trade area will decline because they must face the trade barriers
that member countries themselves do not have to face. The firms in non-member
states then lobby for entry, and the countries will then enter the bloc assuming
there is open entry, thus enlarging the market and increasing the cost of nonmembership, pulling in other countries as well.
The policy debate on preferential trade agreements has also been more
optimistic than some of the academic debates. Although many sustain that it is
necessary to reform the WTO so as to minimize the damage such agreements can
create, others see the fears about preferential trade agreements as exaggerated.
The European Council of Ministers has recently resolved, in light of concerns
expressed by the anti-regionalism economists, that the current architecture of the
EUs trading system will be frozen. This implies a standstill on new preferential
trade agreements unless a strong case can be made and certain criteria are met.
The WTO is also addressing the problem of reform of Article 24 which permits such
agreements through its Committee on Regional Trade Agreements (see Bhagwati,
Greenaway, and Panagariya, 1998: 1145).

Regionalism: Some Conditions for Success

There is a fairly large body of empirical research on the effects of regional
integration, mainly based on the experiences of developing countries. The
following conclusions were reached at a recent World Bank symposium on
regionalism regarding its impact in two main areas: growth and policy credibility
(World Bank, 2000: 1718).9
Growth. The main findings are the following. Open economies grow faster,
economies that have open and large neighbours grow faster, but the size of closed
neighbouring economies is of no account. Economies that have open and
developed neighbours also grow faster, but again the level of development of
closed neighbouring economies is not important. There are two main conclusions.
First, while regional integration arrangements may boost the industrialization
efforts of a developing country, they could also retard those of an excluded
developing country. Second, countries may derive growth benefits from being a
neighbour to a large, developed, open economy, while agreements between small,
closed, developing economies are unlikely to result in faster growth. These results
therefore suggest the advantages of agreements between developed and developing
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countries, rather than among countries at a similar level of development. Small

economies can obtain significant growth and investment benefits from regional
integration agreements they make with large, developed, open economies.
Policy Credibility. Research on this topic has focused on the regional mechanisms
through which a developing country may gain policy credibility that is not
obtainable unilaterally. The results show that regional trade agreements can serve
a useful purpose above and beyond the direct gains from trade liberalization by
reducing uncertainties about national policies or political developments and
enhancing credibility. This increased credibility in turn reduces risk, making it
easier for the private sector to plan and invest and allowing for a major inflow of
foreign direct investment. Given that attempts at reform are often undermined by
expectations of reversal, a regional agreement can provide a commitment
mechanism for trade and other policy reforms, thus raising the cost, and thereby
reducing the likelihood, of policy reversal in both political and economic reforms.
Combining these different findings suggests the possibility of virtuous and vicious
circles in the formation of regional integration arrangements (see World Bank,
2000: 17). A strong, liberalizing arrangement with the right partnerpreferably
rich, open, and largemay lead to a virtuous circle of increased credibility, higher
investment and growth, and more political stability. By contrast, a more closed
agreement or a wrong choice of partner could lead in the opposite direction,
reducing credibility and lowering investment and growth, resulting in even less
credibility and more political instability over time.
These findings help us understand better why some of the initiatives aimed at
stimulating regional cooperation among transition economies have not been very
successful. The key factors which seem important for the success of regional
cooperation seem to be the size of a country, its degree of openness, its level of
development, and who its neighbours are (that is, which are the countries with
which it enters into regional arrangements). Whereas the ideal solution
suggested by the reviewed literature seems to be a trade liberalization agreement
with a developed, open, and large economy, the main problem is that transition
economies obviously cannot choose their neighbours, nor can they do much to
accelerate the EU pre-accession strategy and obtain membership earlier than
envisaged. While the most advanced transition countries will at least soon be able
to benefit from EU accession (the Baltics, CEE), this is only a distant goal for the
large majority of countries located in the other subregions (SEE, CIS).

Regional Cooperation and Union Enlargement

The issues surrounding regionalism are also highly relevant for the current
process of EU enlargement. Will regional agreements among transition countries
be a stumbling block or a building block for integration with the European
Union? Is regionalism an impediment, or a facilitating factor for successful EU
enlargement? Will existing trading blocks among transition economies accelerate
or delay entry into the Union?
Judging from EU policies towards various groups of transition economies over
the past decade, they seem to have been based on the conviction that regional
agreements can indeed be beneficial. The European Union has strongly
promoted regional cooperation in CEE, which resulted in the creation of CEFTA. It
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has also been active in SEE through its Regional Approach, the Royaumont
Process, and today through the Stability Pact for SEE and the Stabilisation and
Association Process. The benefits of intensifying economic and other links among
transition countries have frequently been emphasized in EU official policy
documents on the assumption that the consequences would be largely beneficial
for these countries and would later facilitate their integration into EU structures.
There are several problems which need to be stressed here, all related to the
variable speed integration policies of the European Union. The first is that the
unique contractual relationship the Union has with each individual transition
country has been a determining factor in the success or failure of various
subregional initiatives. The CEE countries, having been offered early on the
important incentive of EU membership, collaborated in creating CEFTA. Similar
attempts in SEE have so far failed, partly because no such incentive had been
offered (until 1999). The situation between the Union and the CIS is not very
different. The incentive to integrate with European structures has been indicated
as one of the key factors contributing to the success of regional cooperation
among transition economies because of its encouragement of reform programmes
and better social and political dynamics (see World Bank, 2000). However, since
some countries will inevitably join the Union much sooner than others, many
transition economies will remain de facto excluded from current integration
processes, at least for a decade or even longer. The time-path of EU accession is
also of concern: if the prospects for joining are too distant or only vaguely
specified, there will be no incentive to implement regional cooperation (as until
recently was the case with the western Balkans). Therefore, there is probably
reason to more actively encourage further regional cooperation processes among
those transition economies likely to join the European Union in the second, third,
or further rounds of enlargement.
Second, the question of the conflicting nature of bilateralism and regionalism
needs to be addressed. To what extent have EU policies actually stimulated regional
cooperation among transition economies? Variable speed integration policies,
based on strict conditionality and bilateralism have been the main features of EU
policies towards transition countries throughout the 1990s. However, by de facto
imposing competitionnot cooperationamong these countries (for example,
through the Copenhagen criteria), the attainment of some key objectives of
regional cooperation have been frequently undermined.
The third problem concerns the effects of the fragmentation of some existing
regional groupings once accession takes place. Given the variable speed
integration policies of the European Union, the division of the applicants into
different groups will also split existing regional groupings such as CEFTA and
BFTA.The first group of transition economies entering the Union will have to
renounce their free trade agreements with the other countries once they join (for
example, Estonia with the two Baltic states; Slovenia with Croatia, Bosnia, and
Macedonia; the Czech Republic to the customs union it has had with Slovakia). In
this way, external barriers on trade will be introduced among countries which have
had free trade agreements throughout the 1990s. The variable EU enlargement
process will therefore imply the introduction of various trade restrictions, which
might have adverse effects, at least in the short run. As noted by M. Lavigne, It is
thus ironical that the European Commission sought to promote regional
arrangements in the early 1990s only to destroy them through the enlargement
process itself (Lavigne, 1999: 210).
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Lessons Learned?
The ongoing analysis does point to some lessons that can be drawn from recent
regional cooperation initiatives among European transition economies. First, any
integration process among countries has to be based on a shared political will to
cooperate towards implementing certain objectives of common interest. Second,
external support and the promotion of regional cooperation, not only from the EU
but also from neighbouring countries, can be fundamental.10 In addition, a
number of hypotheses based on the experience of developing countries (Ethier,
1998: 11521153) are applicable to transition economies, where it is also the case
that trade liberalization promotes regionalism, or that the fewer the number of
participants in a regional arrangement, the easier it should be to reach a concrete
agreement. There are other hypotheses, however, where the experience of
transition economies does not always conform to the features typical of the new
regionalism. For example, in these areas it is not always the case that regional
agreements usually involve one or more small countries linking up with a large
country, or that trade liberalization among members in a regional trade
agreement is only modest at best.
In addition to these general lessons, there also remain a number of open
questions for reflection and further research.
Is economic diversity a stimulus or a barrier to regional cooperation among
countries? Economies having similar features will more easily find economic
interests in common, but economies having very similar economic structures
are unlikely to develop substantially intra-regional trade. The main
characteristics of transition economies located in the four European subregions
clearly illustrate the enormous economic differences both among the
subregions and within them, among the individual countriesregarding their
size, level of development, importance of trade (see Table 2, above).
What shapes economic regions? Geography is obviously only one of the factors,
and the observed overlappingthe fact that most countries are at the same
time members of several regional initiativesclearly shows the flexible nature
of the European subregions. Is membership in several regional cooperation
initiatives primarily an advantage, or could it also be a barrier for integration
processes?
How can we measure the effectiveness of regional cooperation? How can the
work of regional initiatives within the ECE region be further developed and
cooperation intensified among the different subgroups? What role does outside
supportfor example, by the EU or the UNECEplay in promoting regional
cooperation? How can efficient networks based on the collaboration of
interested governments and the private sector in implementing pan-regional
projects be further promoted? Is there a problem of flow of information on the
opportunities offered through these initiatives, or a lack of transparency of
some of these initiatives?
Does the creation of subregional trading blocs raise or lower welfare? Will
regionalism help or hinder multilateral trade liberalization in Europe? Are the
WTO principles of non-discrimination and reciprocity in conflict with
preferential agreements among transition economies promoted today by the
European Union?
Why has the new regionalism among transition economies emerged? Is it only
and primarily because of pressure from outside (EU), or because of the
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transition economies own interests and EU protectionism? Are there strong

economic interests at the basis of the regional cooperation initiatives
undertaken, or should we consider them as primarily politically motivated?
How can we promote further regional cooperation in SEE, a region that has
constantly been politically unstable, characterized by hostility, ethnic strife and
military conflicts?
There are no simple answers to most of these questions. However, the potential for
increasing regional and subregional cooperation is nevertheless there, not only
between the more advanced transition economies and the European Union, but
also among those countries which will join the Union later.

Notes
1. According to some estimates, currently there are nearly 100 regional arrangements
worldwide. See Lahiri (1998: 1126).
2. Here I exclude Bulgaria and Romania, which now are members of CEFTA, as well as
Albania, since 80 percent of its trade is with the EU.
3. In the theoretical literature, this has been called inverse regionalism, but in reference
to the case of India and Pakistan, which today have a number of quantitative and
administrative restrictions on trade. See Lahiri (1998: 1127).
4. In fact, a large part of trade is along ethnic lines, between Republika Srpska and FR
Yugoslavia, and between the Bosnian Federation and Croatia.
5. For an excellent overview of the main reasons impeding successful regional cooperation
in SEE, see Lopandic (1999).
6. In fact, only five of the present 27 transition countries have not been affected by the
disintegration processes in Europe occurring at the beginning of the 1990s: Albania,
Bulgaria, Hungary, Poland, and Romania.
7. Sometimes regionalism is used interchangeably with Preferential Trade Agreements
(PTAs) or Free Trade Agreements (FTAs), but this is not desirable since PTAs are sometimes formed with countries which do not meet any reasonable definition of a region
(for example, USA and Israel); see also Bhagwati, Greenaway, and Panagariya (1998).
8. For an excellent overview of these theories, see Bhagwati, Greenaway, and Panagariya
(1998) and the other articles mentioned in the references which have been published
in the special issue of the Economic Journal dedicated to regionalism (1998:108, July).
9. These findings are reported in World Bank (2000: 1719), but are based on an earlier
research by Maurice Schiff and Alan Winters (1998).
10. This has been the case with the Baltic states and the Visegrad countries, but much less
with countries in the other subregions.

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Biographical Note
MILICA UVALIC is Professor of Economics at the Faculty of Political Sciences,
University of Perugia. She is the author of Investment and Property Rights in
Yugoslavia: The Long Transition to a Market Economy; co-editor of Privatization
Surprises in Transition Economics; The Balkans and the Challenge of Economic Integration;
and co-editor of Advances in the Economic Analysis of Participatory and Labor Managed
Firms, vol. 6. Together with Will Bartlett, she edited the journal Economic Analysis:
The Journal of Enterprise and Participation. In January 2001 she became Vice-Minister
of Foreign Economic Relations in the new Federal Republic of Yugoslavia.
ADDRESS: Borgo Pinti 87, I-50121 Firenze, Italy. [e-mail: uvalic@unipg.it]
Acknowledgements. An earlier version of this article was prepared for the Annual Conference
of the UNECE held in Geneva in May 2000. I would like to thank Susan Senior Nello and
Mario Nuti for their helpful discussion and comments.

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