In fact, FDI inflows into central and eastern Europe (CEE) declined from a record $31bn in 2002 to a low of $21bn last year, mainly because of the end of privatisation in the Czech Republic and Slovakia, according to Unctad’s World Investment Report 2004.

FDI inflows rose in 10 of the region’s countries and fell in nine, with most countries receiving less than $1bn, and inward FDI flows as a percentage of gross fixed capital formation in CEE declined from 17% in 2002 to 10% in 2003.

Untapped potential

The drop indicates a huge, untapped FDI potential in the accession countries, as well as a need for concerted policy efforts between home and host countries to speed up both the integration of the accession group into the enlarged EU and the group’s economic parity with the 15 older members, says Unctad. Despite the decline in 2003, the report predicts that medium to longer-term prospects for further FDI growth in CEE are good because of expected economic growth.

On the trade front, the expanded EU is pressing ahead with trade agreements with countries around the world. The EU’s Common Commercial Policy means that the European Commission (EC) negotiates on behalf of all member states in trade matters, and the EU has become a key actor in the World Trade Organization and the current Doha round of trade talks.

New EU trade commissioner Peter Mandelson has said that the successful conclusion of the Doha round and an improvement in trade relations with the US are two of his top priorities.

Among other movements, the EC is working to conclude a trade deal with Mercosur and has expressed interest in exploring a free trade agreement with the Association of Southeast Asian Nations.

It has also struck trade deals with its Mediterranean neighbours in the form of Euro-Mediterranean Association Agreements, such as one with Turkey, which includes a customs union.

Association agreements

There have also been association agreements with Tunisia, Israel, Morocco, Jordan, Egypt, Algeria, Lebanon and Syria that cover economic, social, cultural and financial co-operation issues in addition to trade.

Meanwhile, four states outside of the EU – Iceland, Liechtenstein, Norway and Switzerland – have banded together in the European Free Trade Association (EFTA). The EFTA Convention calls for full free trade in industrial goods and the abolition of tariffs and qualitative restrictions among the members and includes provisions on the prohibition of state aid, restrictive business practices, and dumped and subsidised imports. An updated convention was signed in Vaduz, Liechtenstein, in June 2001 and came into force the following year, which deepened intra-EFTA co-operation to a level similar to that between the EFTA and the EC.

Over the past decade, EFTA has sought to increase economic co-operation with central and eastern Europe as well as the Mediterranean countries, with 18 free trade agreements and eight declarations on co-operation to show for it. EFTA’s first free trade partner was Turkey, with which it signed an agreement in 1992.

New free trade area

A target date of 2010 has been set for the creation of a Euro-Mediterranean Free-Trade Area, which would bring together the EU, the 12 Mediterranean partners and eventually EFTA to form a trade zone of 40 countries and nearly 800 million consumers.