(FORTUNE Magazine) – Allied bombing in World War II couldn't destroy Konigsberg when it was part of Germany, and neither could 46 years of urban planning by the Soviets, who got hold of the city in 1945 and renamed it Kaliningrad. But the possibility of Lithuanian independence threatens to cut off this ancient port from the rest of the Soviet Union (see map). In response, the local council has voted to turn the city and the surrounding 5,710 square miles into a free-trade zone, a kind of Hong Kong in Eastern Europe (for more on this part of the world, see Europe). The city wants foreign companies to set up new plants or invest in its many factories to make a broad range of products. Labor and Soviet raw materials are both cheap. Its port makes the city an ideal place to dispatch the finished goods to Western Europe, where they'd sell for hard currency. As a lure, the city would offer investors a five-year absolution from taxes and reduced customs tariffs. Russia's President Boris Yeltsin has endorsed the plan, but it still needs the approval of the Russian Parliament.