Recent political changes in Eastern Europe will help to cement improving economic relations with the European Communities (EC). Hungary has little alternative but to seek to continue strengthing these ties. It faces important supply constraints and needs injections of fresh capital to help it gear up to seize market opportunities. In the past, Hungary has been somewhere near the bottom of the EC's pyramid of privileges as far as tariff and non-tariff barrier (NTB) treatment are concerned. Hungary has been examining the options of applying for EC membership, European Free Trade Association (EFTA) membership, and examining other forms of association such as those the EC has with a number of Mediterranean countries. From a simulation exercise, the authors conclude that membership of the EC could lead to an expansion of Hungarian exports to the Communities of some 48 percent, with meats, iron and steel, fruit and vegetables, textiles, and clothing being the main sectors to gain. This results from setting tariffs to zero and eliminating non-tariff barriers. If EC or EFTA membership is ruled out, Hungary must seek a closer relationship with the EC, encompassing agriculture as well as manufactures, and covering tariffs and non-tariff barriers.
