The European Community and East-West Economic Relations

Journal ofCommon Market Studies Volume XXIII, No. 1 September 1984 0021-9886 $3.00

The European Community and East-West Economic Relations

PETER MARSH

Manchester Polytechnic

INTRODUCTION

Recent developments in East-West economic relations have underlined the importance of the policies of the European Community and its member states for the trade prospects of the Soviet Union and Eastern Europe. The period from 1970 to 1977 coincided with a steady growth of East-West trade stimulated by the granting of Western credits to the socialist states for the purchase of capital goods, machinery and technology with which to modernise their industrial structures. In exchange the Soviet Union and Eastern Europe sought to expand their traditional sales of energy, raw materials and semi-finished goods but, in addition, to use newly-acquired Western machinery to boost their export of manufactured goods, thus earning hard currency to pay off Western loans and finance new purchases.’ This pattern of trade produced regular annual Eastern deficits with the West up to 1982 when the East registered a small trade surplus and began also to reduce its net indebtedness to the West, a pattern continued in 1 9 8 3 . 2

Within this general pattern the Community emerged as the major Western trading partner of the socialist states and the holder of two thirds of the total debts of the CMEA (Council for Mutual Economic Assistance) state^.^ Particular countries, notably the Federal Republic of Germany, and particular industries, notably thc process plant and chemical engineering

‘Bornstein, Gitelman, and Zimmerman (1981). *The Economic Commission for Europe noted a Soviet and Eastern European surplus on trade with

the developed market economies of 0.9 billion dollars in 1983. See Economic Bullctin for Europe (1983), p. 2.16. For details on trade deficits in the 1970s see Bornstein et al. (1981).

3For the growth of the Community’s trade and financial relations with the Soviet Union and Eastern Europe see Shlaim and Yannopoulos (1978), Chs. 1 , 7 and 8, and Thc European Communip andthc Countries ofEastem Europe (1978).

2 THE EUROPEAN COMMUNITY AND EAST-WEST ECONOMIC RELATIONS

sectors, benefited considerably from socialist orders even though trade with the CMEA states represented only 4 per cent of the Community’s total foreign trade.4 More significantly, the share of the Community in the total trade ofthe CMEA states remained at approximately 25 per cent throughout the decade. By 1981 the Community was reportedly absorbing between 40 to 60 per cent of individual CMEA states’ manufactured goods exports to the West and was the principal recipient of increased exports of fertilisers, chemicals, machinery, iron and steel, textiles and clothing as socialist states sought to diversify the content of their export^.^ Community policy on East- West economic relations and the general openness of the Community market to foreign producers were therefore important influences on the trade prospects of the socialist states, particularly the more trade-intensive Eastern European economies.

From around 1976, however, the atmosphere surrounding East-West economic relations gradually began to change and this was reflected in the direction ofCommunity policy. In the context ofgeneral issues highlighted by the recession - notably the declining competitiveness of many Western European industries, the challenge of the newly industrialising countries (NICs), surplus manufacturing capacity and the rising volume of international debt-specific East-West trade problems began to gain in significance. When these economic problems were compounded by a gradual deterioration of the political and strategic relationship between East and West in the late 1970s, the pressures on Community policy-making became more acute. This article attempts to examine the Community’s response to three crucial problems in East-West economic relations, namely the question of access to the Community market for socialist products, socialist state indebtedness, and the links between tradeand East-West security raised by the Polish Crisis. The overall aim is to analyse how adequately Community policy-making faced up to the new developments in East-West economic relations, characteristic ofthe late 1970s and early 1980s, and to indicate the questions which need to be dealt with if the Community is to develop a more assertive role in the East-West sphere in the future.

Community polig and market access for socialist products

Beginning in 1976, the Community found itself more actively involved in the resolution of East-West trade problems as a by-product of its developing role in handling structural adjustments in major Western European industries.

41n 1982, imports from the state-trading countries were 4.6% of total Community imports and Community exports to these countries were 3.3% of total Community exports. In West Germany’s trade, the corresponding shares were 5.6% (imports) and 4.8% (exports). See European Economy, No. 8 (1983),

SEconomic Buttetinfor Europe ( I 983), special survey ofExports of Manufactures from Eastern Europe and p. 220.

the Soviet Union to Developed Market Economies, 1965-81, pp. 3.12-3.15.

PETER MARSH 3 Although the East-West dimensions of these structural adjustment problems were not necessarily the most significant, they were sufficiently important for Community action to have an influence on the trade prospects of the socialist states. As the Community acquired greater competence for the ‘management of surplus capacity’ therefore, the impact of its actions on Soviet and Eastern European exports increased.6

The major initiatives taken by the Community which had a direct bearing on the trading interests of the socialist states were in the steel and textile sectors. In the case of textiles, the Community’s determination to strengthen the GATT Multi-Fibre Arrangement, when it was renewed in 1977, as a means of legitimising tougher restrictions on imports, directly affected several Eastern European states. The result was that Romania, Hungary and Poland all negotiated textile quotas and accepted Community limits on specific products in the period after 1976. Similarly, as a result of the Steel Anti-Crisis Plan, launched by the Community in 1977, Czechoslovakia, Hungary, Poland and the Soviet Union all accepted Community import quotas on their steel products and agreed to maintain minimum price levels and volume limit^.^

In other industries (notably, chemicals, rubber, plastics, tyremaking, synthetic fibres and clock and watchmaking) the Community came under strong pressure to take a protectionist stance towards Soviet and Eastern European products in the late 1970s. As a result, Community anti-dumping powers were used more speedily and more vigorously against products from a range of industries. Such action usually resulted in Eastern European commitments to raise prices and/or curb the volumes of their exports of certain products.8

A particular target for the protectionist lobby from the late 1970s was the Soviet and Eastern European chemicals industry, the capacity of which had been substantially increased by large purchases of Western European plant and technology in the first half of the 1970s. Many of these deals had involved Buy-Back or Compensation trade whereby part-payment for Western plant was to be through re-export to the West ofpart ofthe eventual output of chemical products. Member governments and the European Commission had been content to leave such deals unsupervised, acting on the assumption that private companies and banks could look after their own commercial interests and aware that Soviet and Eastern European orders were a major source of employment in the recession-affected engineering and process plant industries. By the end of the 1970s however, the Community was faced with a vigorous lobby from leading Western European chemicals companies, trades unions and employers’ associations calling for the curbing

‘Strange and Tooze (1981). 7Marsh (1980). *Marsh (1980) pp. 46-49, Europe, 22/23 December 1980 and European Chemical New$, 10 September

1979.


oflow cost chemical imports from the Soviet Union and Eastern Europe and greater supervision in the future of East-West compensation deals.g

The case of the chemicals industry and the controversy over East-West Buy-Back deals indicated precisely how Western Europe's industrial problems, linked to a deepening recession, had helped to worsen the climate for East-West trade and forced the Community into a defence of what were seen to be Western Europe's economic interests. Despite various Commis- sion proposals for more comprehensive industrial policies involving long- term restructuring and adjustment, in the short run it had little choice but to respond to the increasing demands for protectionist action from vociferous industrial lobbies. In fairness to the Commission, it was at pains to point out to Western European chemicals and synthetic fibres producers that growing competition from Soviet and Eastern European products was a symptom rather than a cause of their troubles. Moreover, such competition was often self-inflicted, via the earlier actions of Western chemical companies and process plant contractors in providing the technology, processes and licences which were now boosting the capacity of the Soviet Union and Eastern Europe. In addition, the Commission was notably selective in its restrictive actions against Soviet and Eastern European chemical products and critical of Western European over-reaction to the problem of East-West Compensa- tion trade. This moderate response to some extent neutralised the more extreme protectionist demands emanating from within Western Europe and, in fact, anticipated some of the more considered conclusions on East- West chemicals trade arrived at by the industry itself in the early 198Os.l0

However, there is no doubt that generally restrictive trends in Community policy, coupled with the impact ofthe recession on the exports ofall marginal suppliers to the Community market, exacerbated the trade problems of the socialist states by the end of the 1970s. Indeed, some observers have argued that, even taking into account the increasing restrictiveness of Community policy in general, the exports of the socialist states were particularly discriminated against by the Community compared to those of other countries." Faced with general and specific obstacles to the expansion of their trade with the Community, Soviet and Eastern European manufactured goods exports to the West declined for three consecutive years from

'See Marsh (l980), and Sobeslavsky and Beazly (1980). "Ibid. The Commission's own report on chemicals compensation trade tended to play down the

impact of such trade on the chemicals industry, for details see European Chemical News, 14 July 1980. Detailed support for this view from within the chemicals industry can be found in 'Buy-back-the- counter-argument', European Chemical News, Chemscope, October 1982, pp. 9-10, For a recent study see East- West Trade: Recent Developments in Counter Trade (1981).

"A recent study claims that over 27% of the total exports of six socialist states (Bulgaria, the GDR, Poland, Hungary, Romania and the Soviet Union) were subject to Community quotas or restrictive licensing agreements compared to 8 to 9% of developed and less developed country exports. In total it claims that over 60% of the six states' exports to the Community were subject to some form of tariff barrier. For details see Olechowski and Yeats (1982).

PETER MARSH 5

1980 to 1982 and had to be compensated for by increased exports of energy products.’* This declining export performance by the socialist states was thus a contributory factor leading to the second major problem of East-West economic relations, namely the growth of Soviet and Eastern European indebtedness.

The Community and Socialist State Indebtedness

By the end of the 1970s, the Community was subject to two conflicting pressures on its attempts to formulate a coherent policy on East-West economic relations. On the one hand, as already described, recession, deflationary economic policies and specific restrictive actions in several industrial sectors had reduced Western European demand for many Soviet and Eastern European exports. On the other hand, the growth of Western capital goods and technology exports to the East (and the prospect of future orders) was firmly linked to the ability of the socialist states to pay off existing and future Western loans by increasing their exports to Western markets. This paradox at the centre of East-West economic relations was highlighted by the financial difficulties of the socialist states in the early 1980s. The inability of Poland and Romania to meet their debt repayments in 1981 and 1982 respectively, together with the repayment problems of other Eastern European states, underlined the complex nature of East-West economic interdependence which the false optimism of the 1970s had glossed over.13 Inevitably, the emergence of East-West financial problems raised the question of Western policy responses and focused attention on the potential role of the Community in dealing with the issue of socialist state indebtedness.

However, whereas in the case of socialist state exports, the Community had a clearly defined role through its control of commercial policy on behalf of the member states, its role in the sensitive area of financial and credit relations was much less clear cut. Lending to the socialist states, like all export credit lending, was controlled by private banks and by the official export credit institutions of member states (a slightly larger share of total Soviet and Eastern European debt being owed to private banks and financial consortia than to official credit institutions). Both private and official lenders tended to have their own informal machinery for consultation about credit terms, and until the emergence of the ‘Debt Crisis’ of the early 1980s little thought was given to the need for a more co-ordinated credit policy in which the Community could play a role. In the absence of any financial control over its member states’ export credits therefore, the Community was confined to the role of trying to harmonise the separate national policies through the notification and consultation procedure finally adopted in

‘*Economic Bulletinfor Europe ( 1983). See Czerkowski (1982) and Bornstein (1981). I 1


1978, and also representing Western Europe’s interests in international negotiations on credit terms within the OECD.I4 In the latter context the Community had been a party to the original OECD Consensus arrangement in 1976, which laid down guidelines on the minimum interest rates and maximum repayment terms for export credits to different categories of countries. Thecommunity also agreed to aslight strengtheningofthe terms of the Consensus in October 1983 as a response to the international debt problem and the rising costs of Western export credit policie~.’~

Whilst these arrangements were useful in themselves they did not constitute a sufficient basis for a concerted Community response to the specific problem ofsocialist state indebtedness and were unable to prevent the ‘softening’ of Western European loans during the 1970s caused by competition between Western European companies and banks for Soviet and Eastern European orders.I6 Direct negotiations with the major Eastern European debtors, Poland and Romania, as well as talks with Hungary over payments problems, have been channelled through the ‘Paris Club’ of Western central bank officials (in the case ofofficial loans) or the ad hoc ‘task forces’ representing leading Western banks set up to deal with the rescheduling of private loans. In the case of Romania and Hungary, the IMF,17 ofwhich both are now members, has also acted as a negotiating forum. There would appear to be some doubt thereforeabout the role thecommunity could effectively play in handling the problem of socialist state indebtedness especially when the area of export credit is jealously guarded by national governments influenced by powerful domestic ‘export lobbies.’

However, the conventional wisdom of liberal export credit granting is increasingly being questioned within individual Western European states in thelight ofthe rising costs ofpublicsubsidyofloans and the burden ofNIC and Eastern European debt on the Western European banking system.18 Argu- ably, the Community could help to alleviate some ofthese problems ifit were able to impose greater collective discipline on its members and prevent a re- emergence of the ‘beggar my neighbour’ credit policies of the 1970s. Such a policy initiative might, ironically, also be in the long term interests of the socialist states, because the competitive policies ofthe 1970s have now led to a situation where Western European credit institutions and banks are reluctant

’‘Community involvement in export credit is traced in Marsh (1980), and Shlaim and Yannopoulos (1978).

’’Details of the new OECD Consensus can be found in EconomicBulletinfor Europe (1983) and Europe No. 4, April 1984, p. 12.

%he growth of lending to the socialist states was influenced by the surplus of petrodollars held by Western banks, the competition for ‘turnkey’ plant and technology deals, and the notorious ‘umbrella theory’ of the ultimate Soviet guarantee of Eastern Europe’s credit-worthiness.

”Schroder (1983). ‘*An indication of criticism of current British export credit policy was the setting up of the Matthews

Committee to investigate and review the operations of the ECGD, as reported in The Obserucr, 28 August 1983. For a critical view by a West German banker see Lebahn (1983), pp. 257-281.

PETER MARSH 7

to risk further loans to Eastern Europe. The European Parliament recently suggested that the Community needed to be more assertive in the area of export credit policy as a response to current East-West financial problems. Most notably, the Parliament argued that Community policy ought to improve the monitoring of member states’ credit terms and evaluate the costs and benefits ofofficial credit subsidy as a prelude to the more ambitious goal of constructing a common export credit policy with Community-level funding.lg Such an ambitious role would obviously be resisted by some interests within the Community but the current problems and costs of nationally based export credit policies certainly create the opportunity for a debate on possible Community-level alternatives.20

What is clear is that the problems of access to the Community market and socialist state indebtedness are interlinked and a more assertive Community policy on East-West economic relations will have to tackle both of them. This interrelationship of trade and credit was dramatically underlined by the Polish Crisis which also highlighted the political and strategic implications of East-West economic relations. Any assessment of the future development of Community policy on trade and credit problems has, therefore, to be made in the light of the Community’s response to the Polish Crisis, and the question of the respective influence of political and commercial criteria on the Community’s attitude towards East-West economic relations, which the crisis raised.

The Polish Crisis and Community policy on East- West Economic Relations A major consequence of the Polish Crisis, following upon the general deterioration in East-West relations in the late 1970s, was the intensification of the Western debate on the political and strategic implications of East- West trade. During the 1970s there had been, on the part of the Community member states, a gradual decoupling of East-West trade issues from East- West security questions and the human rights issue. At the same time, beginning with the US Trade Act of 1974 and intensified under the Carter and Reagan administrations, there had developed a more assertive Amer- ican policy of linking trade with East-West political and security issues. By the end of the 1970s, therefore, a potential divergence of Western European and American perspectives on East-West economic relations was emerging and it was underlined by the difference of response to the Afghanistan invasion of 1979. The muted response of the Western European states to American demands for strong economic sanctions against the Soviet Union indicated what the Polish Crisis eventually confirmed: that regardless of the differing political complexions of member governments, the Community was united in its reluctance to endorse an aggressive “linkage” approach to

”OJ (C.292, 1982), pp. 1520. ‘‘Reportedly 8 out of the 13 leading official export credit agencies were running at a loss in 1983,

Financial Times, 21 May 1983, p. 2.


East-West relations by the United States, which sought to make trade and technology transfer conditional upon changes in Soviet and Eastern European domestic and foreign policies.21

The Declaration of Martial Law in Poland in December 1981 brought to a head the developing schism between Western Europe and the United States over the use of economic sanctions in the East-West context and served to unite the member states behind a clear articulation ofCommunity policy on this issue. Because the question of economic sanctions was linked to commercial policy in general, the Community had a clear mandate to respond on behalfofits members to the Polish events themselves and to the economic diplomacy of the Reagan Administration. Moreover, the member states undoubtedly found it advantageous to use the Community framework to develop a common resistance to American attempts to orchestrate a Western sanctions policy against Poland and the Soviet Union, on the grounds that such a policy threatened the Community’s interests in East- West economic relations.

The American decision to impose economic sanctions against both the Polish Military Government and the Soviet Union after the Declaration of Martial Law was a logical consequnce ofAmerican policy towards the Soviet Union and Eastern Europe under the Reagan Administration.22 In restrict- ing agricultural exports, technology and financial credits, the United States looked to Western Europe for support in the form of similar sanctions adopted by the Community. When the Community finally agreed on its own measures however, they fell far short of American expectations. In March 1982, the Community announced a list of restrictive measures which affected only 1.4 per cent of total Community imports from the Soviet Union, and which had reportedly been reduced from the original proposal by the Commission because of member state objections. Moreover, Greece decided not to impose any sanctions at all on Soviet exports.23

With regard to Poland, the Community confirmed that it would continue with the supply of food and medical aid to Poland begun in December 1980, but would channel such supplies through the Catholic Church and other non-official bodies rather than deal with the Polish Government. More significantly, the Community member governments agreed to support America in its refusal to reschedule Poland’s official debts until Martial Law was lifted, to curtail all official credits to Poland and raise interest rates on new credits for socialist state borrowers by between Y2 and 1 per cent.24 These credit initiatives, however, were motivated as much by commercial

“See Muller (1984), pp. 67-79. “Ibid. 23The Commission’s original list reportedly affected about 3.5% of Soviet exports to the Community,

“For Community policy towards Poland see Bulletin of the European Communities No. 12, 1980, points The Guardian, 13 March 1982.

1.1.4.,1.2.2.to1.2.6.,andNo.12,1981,1.4.1.to1.4.6.,andThcCuardian,2March1983.

PETER MARSH 9

prudence as by the desire to punish Poland for the declaration ofmartial law. Furthermore, they were soon to be reviewed, as commercial objectives reasserted themselves in Community policy towards the Soviet Union and Eastern Europe in defiance of American pressure.

The catalyst which speeded up the articulation of a distinct Community perspective on East-West economic relations and the Polish Crisis was the so-called ‘Pipeline Dispute’. The Reagan Administration saw the Polish Crisis as an opportunity to put pressure on the Community member states to affirm their support for a ban on Western technology and equipment sales to the Soviet oil and gas industries and to terminate contracts linked to the proposed gas pipeline between the Soviet Union and Western Europe. Having tried and failed to prevent the conclusion of the pipeline contracts between the Soviet Union and various Western European states in 1981, the American government argued that the Polish Crisis confirmed the need to see East-West economic relations in a strategic context.25 Disappointment with the lukewarm Community response to events in Poland also served to convince the Reagan Administration that Western Europe needed to be pressured directly into making clear which side it was on in the growing confrontation between America and the Soviet Union. As one American political columnist put it, reflecting closely the Reagan Administration’s disapproval of the Community’s initial reaction to events in Poland, “what is outrageous is the absence ofoutrage”.26

On the basis of this perspective, the American government announced in June 1982 that Western European firms which had concluded contracts with the Soviet Union for the supply ofequipment to the pipeline project, would not be able to use any American licences or technology in fulfilling such contracts without facing economic sanctions from the United States. This amounted to an extra-territorial extension of American sanctions legislation to Western European companies and immediately affected contracts with the Soviet Union held by Constructors John Brown of Britain and the French companies, Dresser (France) and Creusot-Loire. Predictably, the national governments rejected such interference by the United States in their commercial affairs, but more significantly the Community framework was used to present a united front ofresistance to the American legislation. This common position was clearly articulated by the Commission in a memorandum that it was authorised, by the member states, to present to American officials in August 1982. The memorandum argued very forcefully that the effectsofsanctions on the Soviet Union were doubtful, that the sanctions were damaging to Western Europe’s commercial interests, that American retroactive legislation was illegal, and that American actions constituted an “unacceptable interference in the independent commercial policy of the European C ~ m m u n i t y ” . ~ ~

25Muller (1984) and Lebahn (1983). 26Quoted in The Guardian, 23 December 1981. “The Guardian, 13 August 1982.


In short, the Pipeline Dispute revealed very clearly the difference between the American and the Community perspectives on East-West trade and on the role ofeconomic sanctions in East-West relations. Whilst the dispute was eventually patched up and the tension between America and the Com- munity defused by compromise and the promise of a NATO investigation into the strategic implications of East-West trade, the rift was apparent for all to see.28 Ironically, it seemed, the Community appeared to be more concerned about America’s interference in other states’ affairs than the Soviet Union’s.

The conflict over the pipeline issue cleared the way for the Community to pick up the threads of its normal approach to East-West economic relations which emphasised commercial rather than security considerations. This enabled the Community to take some tentative steps towards trying to improve Poland’s trade and financial situation which was deemed to be in the best interests ofEast and West alike. In March 1983, Community foreign ministers agreed to review their decision to suspend the rescheduling of Poland’s debts to official credit institutions and to try and persuade other Western nations to do likewise.

Subsequent negotiations within the ‘Paris Club’ of Western central bankers, aided by the lifting of martial law restrictions in Poland in July 1983, paved the way for the Community to persuade the United States to lift its veto on the rescheduling of official Western credits. Talks were thus initiated between Western official representatives and Polish banking officials on Poland’s debts to Western governments in November 1983 with the aim of concluding a rescheduling agreement.2g This was intended to complement the rescheduling of Poland’s private debts which had already been negotiated by a joint committee of private Western bankers and Polish officials on a yearly basis from 1980 to 1983. Together, these arrangements could be expected to ease Poland’s short-term repayment problems and offer at least some prospect of eventual repayment of Western creditors.

Finally in December 1983, the Community quietly ended the limited trade sanctions it had adopted in March 1982 against the Soviet Union, thus abandoning any pretense of accepting the linkage approach of the Reagan Administration towards East-West economic relation^.^' The Polish Crisis therefore appeared to reaffirm the predominance of commercial criteria in the Community’s approach to East-West economic relations. The Community also appeared to acknowledge its partial responsibility to help solve the trade and indebtedness problems of Poland and, by implication, of other socialist states, in the interests ofthe eventual recovery ofWestern European loans and the future prospects for Western European exporters to Eastern Europe.

American officials which led to the sanctions against European companies being withdrawn. ‘*A compromise was reached in November 1982 after several meetings between Community and

“The Guardian, 2 March and 3 November, 1983. 30Tht Guardian, 23 December 1983.

PETER MARSH 11

The future development of Community policy on East- West economic relations

Community policy on East-West economic relations for the remainder ofthe 1980s will probably continue to be concerned with the specific trade and financial problems discussed in this article and with the political and security aspects of such problems which were highlighted by the Polish Crisis and American policy towards the socialist states. The Community's approach to East-West economic relations will also be very much influenced by the state of the Western European economy and the extent ofthe restructuring measures it is able to take to deal with the problems of surplus capacity, and the competitive problems ofcertain industrial sectors. In the last resort, solutions to problems in East-West economic relations will be dependent on Western European economic recovery and improvements in the economic performance of the socialist states themselves. Community policy can however help to encourage a Western European recovery, and more specifically can help the socialist states to overcome the key problems of indebtedness and market access. For such a policy to besuccessful, ofcourse, it must also be perceived by the Community member states to be in their best interests.

The Community has a special responsibility to help develop solutions to East-West trade problems because of its importance to the smaller Eastern European states as a market and source of technology and finance. Undoubtedly the experiences of the early 1980s have strengthened arguments within the CMEA, especially by the Soviet Union, in favour of greater national and regional self-sufficiency. However, although the socialist states adopted short-term austerity programmes in 1982 and 1983 to curtail Western imports, improve balance of payments figures and pay off some of their accumulated debts, such policies appeared to be essentially temporary adjustments to help restore equilibrium and re-establish credit-worthiness in the eyes of Western banks and government^.^' Arguments in favour of greater self-reliance at national or regional level do not seem to have triumphed over the desire for continued East-West trade in the long-term. Indeed, some Western forecasts foresee a revival of East-West trade in the late 1980s given favourable economic and political condition^.^^

The Community, by its general actions and policy, can thus help to encourage an outward rather than an inward looking economic strategy on the part of the CMEA states, for there would appear to be no automatic move in the East towards what has been called a 'Fortress CMEA' strategy unless negative Western policies help to create one.33 If the Community is

3'See Economic Bulletin for Europe (1983), and the improvement in Soviet and Eastern European

32See Vanous (1982) pp. 1-20, and Levcik (1981) pp. 62-87. 33For recent analyses which are sceptical of any greater strengthening of CMEA autarky see Smith

trade figures referred to in footnote 2.

(1984) and Csaba (1984).


serious about encouraging greater contact between Eastern and Western Europe, and lessening the dependence of the Eastern European states on the Soviet Union, then at the very least this must mean the development of positive policies to help the socialist states restore their credit-worthiness, and to ease access for their products to the Community market. I t ought also to mean developing East-West negotiations which identify complementar- ities of economic interest as a basis for more stable trade relations in the long term.

The European Parliament has urged the Community to take a more assertive role in the light of current problems in East-West economic relations and has emphasised the major issues which a more ambitious Community policy must address. The Parliament’s resolution called upon the Commission to submit proposals for a common credit and insurance policy, to deal with problems of compensation trade and dumping, to monitor Community energy links with the Soviet Union and to review the strategic and economic significance of East-West trade in general.34 Such issues would seem to form the basic elements of Community policy on East- West economic relations and Community action could be to the benefit of member states in helping to overcome the current stagnation of East-West economic relations.

There remains, however, the additional question of establishing a better negotiating framework within which the Community can examine trade problems constructively with the Soviet Union and Eastern Europe. The protracted procedural wrangles surrounding Community-CMEA relations have been bypassed by ad hoc individual negotiations and, in the case of Romania, by the negotiation in 1980 of a formal agreement with the Community, independent of any wider arrangement^.^^ Given the par- ticipation of some of the Eastern European states in GATT and the IMF, there do not appear to be any ideological obstacles to more formal relations between the Community and individual Eastern European states, provided they facilitate the handling of mutual trade and financial problems. The recent (early 1984) negotiations between Hungary and the Community in fact confirm Eastern European interest in closer relations with the Com- munity as a means of solving trade problems. The more comprehensive the Community’s role in East-West economic relations becomes therefore, the more likely this Eastern European interest in formal agreements with the Community is to spread.

Although in the last resort it is the socialist states which have the most to lose from the current impasse in East-West economic relations, the situation has created an opportunity for the Community to convince its member states that collective action can best represent their economic interests and at the same time persuade more of the socialist states to approach the Community

OJ (C.292, 1982). 34

35See Marsh (1980) and Ehrhardt (1980) pp. 371-385.

PETER MARSH 13

via the front door rather than the back. Such official recognition of its power and competence has been a long-term goal ofcommunity policy towards the Soviet Union and Eastern Europe. If it is serious about achieving a close relationship the Community must develop a more positive approach to the major problems of market access, indebtedness and the link between trade and security considerations, which this article has argued are at the heart of East-West economic relations. Only then will the Community increase its authority and its influence in the East-West sphere in the eyes ofits members, its allies and its Soviet and Eastern European trade partners.

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Documents

The European Community and East-West Economic Relations