Trade between East and West has been slow to get started. While aggregate trade flows with Eastern Europe have increased faster than overall European Union trade since 1985, and doubled over the decade, they are still relatively small. But if flows are to reach the scale observed between developed Western countries, then there is a 500% increase in East European imports in the pipeline.

The prospect of trade growth on this scale should be good news for consumers and governments in West and East alike. Economists have little difficulty in proving that trade is far from being a zero-sum game. Yet that is not the way things are perceived. The Union has been less than generous in its offers of free and fair trade with the East, while the risk of a protectionist backlash in Eastern Europe remains real.

Two recent CEPR books provide policy-makers with the ammunition they need to argue the case for free East-West trade, and outline institutional changes in the East that would help make it a reality. The first, European Union Trade with Eastern Europe, provides a powerful counterblast to those who argue that trade liberalization will inflict significant damage on the EU economies. Its authors show clearly that the benefits and opportunities from free trade far outweigh the likely adjustment costs.

For example, contrary to conventional wisdom, there are few signs that countries in Southern Europe will suffer from trade with the East. Jordi Gual and Carmela Martín, writing on Spain, find that the effects will be negligible, while Sophia Dimelis and Konstantine Gatsios estimate that Greece will gain substantially from the growth in trade.

Nor are the Union’s so-called ‘sensitive sectors’ likely to suffer disproportionately. Damien Neven reveals that, between 1985–92, imports of ‘sensitive’ products from Eastern Europe (agricultural goods, textiles, footwear, iron and steel, metal products, motor vehicles and furniture) doubled – in line with the average for manufactured goods.

Cristina Corado’s study of the textile and clothing industry indicates that EU producers have benefited from the growth of trade, because they have been able to export both textiles and labour intensive production to the East. And L Alan Winters finds little evidence that East European steel production poses a serious threat to EU producers, particularly because of the Union’s comparative advantage in higher quality production.

But there will be individual losers in Northern Europe resulting from the fact that Eastern nations have a clear comparative advantage relative to the North in industries using relatively unskilled labour. While North European high-tech and human capital intensive industries should expand, Neven anticipates that heavy and light industries using unskilled labour will shrink further.

The result is that the wages of unskilled labour could fall by 5–7% according to Neven’s estimates. And that is where the problems start. To the extent that the interest of unskilled labour is well represented in the political process, he expects that protectionist pressures in Northern Europe will remain, especially as the vulnerable sectors tend to be concentrated in particular regions.

Pressures for protection should be more limited in Southern Europe and come from different quarters. Because the comparative advantage of Eastern countries appears closer to that of the South, all Southern industries will tend to expand further, possibly with a small bias in favour of labour intensive industries and against heavy industry. Competition from Eastern nations will mean that, even in the South, industrialists are likely to seek protection of the specific factors and rents earned in their sector. But the authors of this volume are clear that such pressure should be resisted.

Yet it is not only in the West that these protectionist pressures persist. In the second CEPR volume, Foundations of an Open Economy, L Alan Winters warns that the honeymoon is over for trade liberalization in Eastern Europe. Neither GATT membership nor the Europe Agreements alone are strong enough to withstand the recent growth in protectionist pressure, he argues.

In many East European countries, the old lobbies in agriculture and industry have re-emerged, supplemented and reinforced by new ones, such as small private business and the political clientele of the new elites that have taken over many of the crucial sectors of the economy. In Hungary, André Sapir warns that protectionist sentiment is growing. While contact with the EU has helped Hungary sustain its liberal trade policies, he warns of ‘liberalization fatigue’ and growing demands for renewed protection – led, ironically, by large foreign firms with investments in Hungary.

In order to withstand this pressure, Winters believes that trade policy must be given a new and stronger institutional basis. Trade policy, he contends, must above all be designed to emphasize accountability, independence and transparency.

Winters and László Csaba both call for the creation of a separate and senior Ministry of Trade, which would act as the governmental agency for free trade. Protectionism, Csaba points out, does not need an agency to administer its many intricacies, and can flourish among many departments. In contrast, free trade and the job of managing the congruence between domestic and EU legislation do require a strong departmental advocate. This and many other institutional recommendations form the core of the book’s agenda for action.