EU R O PEA N U N IV E R SIT Y IN ST IT U T E , F L O R E N C E
DEPARTMENT OF ECONOMICS
E U I W O R K I N G P A P E R N o . 8 8 / 3 6 0
ECONOMIC RELATIONS BETWEEN THE
EUROPEAN COMMUNITY AND CMEA
by
DOMENICO MARIO NUTI
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© Domenico Mario Nuti Printed in Italy in Novemberl988
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ECONOMIC RELATIONS BETWEEN THE EUROPEAN COMMUNITY AND CMEA _1 Domenico Mario Nuti,
European University Institute, 50016 Florence, Italy.
1. CMEA: "Common Plan" versus "Common Market"
The Council of Mutual Economic Assistance (CMEA,
also known as Comecon2), set up in 1949 by the Soviet Union
and the European countries which had adopted a Soviet-type
socialist system after the War, was partly the formal
expression of economic solidarity within the newly formed
bloc, partly a response to the challenge of the Organisation
for European Economic cooperation, set up in 1948 by 16 West European nations.
CMEA is an economic community sui generis. It is
not a common market because no country has direct access to
internal markets (if any) in the other countries. It is not
a customs union because in all these countries state
monopoly of foreign trade and compensatory taxes and
1. Paper presented at the Seminar on "Horizonte de la
Union Europea 1992", organised by the Association of
European Journalists and the European University Institute,
Florence, at the Menendez Pelayo International University,
Santander (Spain), 12-16 September 1988. The first two
sections of this paper draw extensively on Maciejewski and
Nuti, 1985; the author has also benefitted greatly from
discussions with the participants in a Workshop which he
held on this general topic at the E U I , Florence, on 30
August-2 September 1988, and in particular with Marie
Lavigne and Klaus Schneider, though they should not be
associated with any of the views, errors or omissions to be found in this paper.
2.. Comecon is a Western label, more euphonic than CMEA
(SEV in the Russian initials) but avoided in Eastern Europe because it originated in Cold War sovietological literature;
it is associated with Cominform and Comintern and it leaves
out the element of "assistance" (van Brabant, 1988); this is
why "CMEA" is now preferred in economic literature and used
in this paper. Founder members were Albania, Bulgaria,
Czechoslovakia, Hungary, Poland, Romania and the USSR,
joined 'in 1950 by the GDR; Albania’s membership lapsed in
1961, Mongolia joined in 1962, Cuba in 1972 and Vietnam in
1978. Forms of associate membership have been given to
Yugoslavia (1966), Finland (1973), Iraq and Mexico (1975)
and Angola (1976). The six East European full members of
CMEA are often designated as the EE6, while EE7 includes
also the Soviet Union.
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subsidies make custom duties a purely formal and irrelevant
complication. It is not a monetary union because individual
currencies are separately managed and rates of exchange have
a perfunctory role, while the so-called "transferable
rouble" is neither transferable without prior agreement nor
a rouble (in that it does not lead to a direct and
unconditional claim on goods and services even in the Soviet
Union). There is no factor mobility (except for technical
knowledge and minor and controlled labour movements) even
within CMEA; there is no policy integration in the sense of
concertation of current policy instruments. There is, of
course, a strong measure of political integration, because
of the similarity and indeed the near identity of their
political systems as well as Soviet hegemony but, although
the CMEA is used to maintain and consolidate political
integration, this pre-dates the establishment of CMEA and is
not a stated intention of that community; there is no
provision for supranational authorities and technically each member is not bound by decisions with which it disagrees
(CMEA Charter, 1961; see Marer and Montias, 1981;
Maciejewski and Nuti, 1985).
International economic integration is best
understood as a pattern of resource allocation which would
not be altered •if national borders were removed3. Thus a
Common Market for goods and production factors, with
transactions conducted competitively with convertible
currencies under policy coordination, is not a necessary element of economic' integration, which can be achieved - in
theory - through a Common Plan. This is, at the risk of
oversimplification, precisely the nature of CMEA, i.e. a
commitment to planned integration of both current and future
trade, between state monopolies of foreign trade, operating
in economies which are centrally planned through
administrative means, along the Soviet-type model. In
addition, CMEA has imposed a restriction on the type of
integration to be achieved, by trying to establish
infrasectoral rather than sectoral specialisation, according to the principles of a "socialist" international division of labour aimed at avoiding the polarisation between primary producers and industrialised countries.
Within this framework, CMEA commitment to economic
integration could be regarded as intermediate between that
of members of the EEC and of the European Free Trade
Association. Namely, CMEA has a higher degree of
cooperation and integration than EFTA countries intended,
and in this respect is closer to the European Community; at
the same time CMEA, like EFTA, has never adopted
supranational objectives of the nature envisaged in the
Treaty of Rome (though in the early 1960s there were
3. Such a pattern is never unique, not only for the all
the reasons causing multiple solutions in the theory of
general economic equilibrium, but because it is conditional
on a particular policy of regional development.
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attempts at establishing them); CMEA members "maintain
individual tariffs and trade policies towards third parties
and undertake obligations only with respect to their mutual trade" (Kaser and Ransom, 1969).
2. The evolution of CMEA
The implementation of this general design has
progressed at a changing pace over the last forty years (see
Robson, 1984). Until the mid-1950s CMEA cooperation was very
limited. Pre-war trade flows were drastically diverted from
Western Europe towards the Soviet Union (though some
diversion was the reinstatement of pre-1917 economic links), but this occurred independently of Council activity, through
the year-by-year bilateral exchange of surplus outputs. In
1955-1962 there was a determined attempt at greater CMEA
coordination and integration, with the emergence of joint
enterprises and joint investment projects, the setting up of
several sectoral and functional Standing Commissions^, the
publication of the CMEA Charter and of the "Basic principles
of international socialist division of labour" (1960).
These developments under Krushchev’s leadership were also
stimulated by rival developments in Western Europe, with the birth and rise of the European Economic Community and EFTA.
From the early 1960s to the end of the decade CMEA activity stagnated; this was due to the lack of further progress in the multeralisation of intrabloc trade in spite of the setting up of the International Bank for Economic
Cooperation (1963), to the generalised slowdown of economic
activity throughout the area, resistence to supranational planning by Romania supported by Czechoslovakia and Hungary, and experimentation with economic reform which were widely
regarded as the necessary prerequisite of further
integration; infrabloc trade stagnated though more joint
projects were launched.
The 1970s saw generalised opening to foreign trade
within the Council, with the launching of the fifteen and
twenty years “Comprehensive Programme for Socialist Economic
Integration" (1971), an International Investment Bank
(1971), the adoption in 1975 of the long-term special
purpose programmes for cooperation (1978 and 1979). The oil
crisis created a unique opportunity for CMEA, as an energy
self-sufficient economic bloc; CMEA pricing criteria for
intra-bloc trade, linking prices to a moving average of
world prices, stabilised the intra-bloc price of Soviet
4. These Commissions were set up to cover areas such as
agriculture, building and construction, chemicals, coal,
research coordination, currency and finance, economic
questions, electric power etc., with headquarters in Moscow
and other Eastern European capital cities.
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traded but by and large CMEA countries did not adjust to the
oil crisis either individually or collectively. They
maintained domestic absorption resorting to international
borrowing, boosting East-West trade until the early 1980s,
when the exhaustion of credit and the burden of debt induced a drastic intra-bloc retreat.
At present intra-CMEA trade is dominated by the
decline in Soviet export earnings and terms of trade, due to
the delayed diffusion of oil price fall to USSR oil exports, which constrains the growth of intra CMEA trade and because of its unplanned and uncertain nature - leads to
unexpected trade surpluses (especially for Hungary, 3bn TR
last year) embarassingly large because they cannot be offset against parallel payments deficits with Western countries.
In practice CMEA countries have achieved a degree of economic security in coordinating their internal supply
of energy - through Soviet oil and Polish coal - and raw
materials, and a high degree of integration as measured by
the share of intra-bloc trade (which rose from 9% in 1948 to
52% in 1981). However CMEA economies are comparatively much
less open to trade than countries at a similar level of
economic development; in the planning process exports are
treated as a "necessary evil" for obtaining essential
imports, instead of opportunities for enhancing efficiency
and productivity. Also, the generalised policy of high
investment and accelerated industrialisation, with emphasis
on heavy industry, coupled with the anti-diversification
bias of so called "socialist division of labour" (see
previous section) has given all East European countries a
somewhat similar structure, preventing the rise of
complementarities. Further integration has been limited
also by other systemic factors: bilateral bias in the
absence of convertible national currencies (let alone a
common currency), not only by country but also by commodity
groups according to the degree of their "softness" in
international trade (van Brabant, 1973); the inertia built
into administrative central planning, combined with the
rigidities of economies characterised by persistent excess
5. Intra-CMEA planned trade refers to an average of
world prices. In 1958 the rule known as the "Bucharest
principle" was agreed, whereby intra-CMEA prices were fixed
for a five-year period, at average world prices for the
previous five years. In 1975 this was replaced by the
"Moscow principle", whereby prices, on a moving five-year
average, were to be revised every year (except for 1975 when
a three year 1972-1974 average was used). With the drastic
rise in oil price Soviet oil lagging behind world prices
gave rise to a gain for CMEA oil importers, which many
regarded as an implicit subsidy (for instance, Marrese-
Vanous, 1983). However the alleged subsidy was more in the
nature of a loss for the fulfilment of a long term contract; in any case the same price formula is now making Soviet oil gradually catch up with and exceed the spot price.
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demand for both goods and labour; mutual fear of exploitation in the face of transactions not taking place at world prices; inability to appropriate fully the returns on joint investments; political limitations to the movements of labour.
The current wave of political renewal and radical economic reform which is taking place in the Soviet Union with Gorbachev’s perestroika and in most East European
countries (with the exception of Romania and the GDR) is
making itself felt within CMEA. First, a major
reorganisation is under way, with the liquidation of many of
the "Standing or Permanent Commissions" through which CMEA
cooperation was administratively articulated; these
Commissions can be regarded as the international equivalent of national Branch Ministries, also reduced in number in the
process of national reform. Second, direct links are being
established directly at the enterprises level in CMEA
countries, with exporters being’ allowed to retain some of
the export revenue and to convert it into commodities without prior administrative arrangements; this development, which has been agreed bilaterally between the Soviet Union and both Czechoslovakia and Hungary, paves the way towards
multilateral convertibility. Third, for the first time in
thirty years, there is now talk of a "unified socialist
market"6, spurred both by the development of domestic
markets and by the example of the EC "Internal Market"
expected by 1992.
3. CMEA-EC relations: three phases
Relations between the European Community and the
CMEA "state trading countries" (which is their official EC
designation) have gone through three main phases. The first
phase goes from 1957 to about 1971 and is characterised by
CMEA "total rejection of the European Community as something
which could develop into a new subject of international law"
(Seeler Report, 1986). This attitude was embodied in 17
theses on the Common Market, published by (Communist in 1957,
and reiterated in the 32 theses on imperialist integration in Western Europe published by Pravda in 1962 (though it was also stated there that its existence did not rule out
fi. The pressing need for such a unified market was
advocated for instance by the Polish Prime Minister Zbigniev Messer at the CMEA Summit meeting in Prague in July 1988
(FT, 7 July 1988). © The Author(s). European University Institute. version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.
cooperation between the two blocsZ). This was the result of a miscalculation about the degree of permanence of the EEC, and of the crude application of marxist-leninist theories of capital concentration and imperialism.
The second phase in EEC-CMEA relations goes from
1972 to 1984. This is characterised by CMEA expressions of
interest in a formal trade agreement with the European
Community, and by EC willingness to hold trade negotiations
only with individual members of the CMEA. The change of
attitude on the CMEA side, first indicated in a March 1972
statement by Brezhnev, was associated with detente, the
ambitious CMEA 1971 programme and probably also apprehension at the adverse effects of the European Community on CMEA
exports^. The EC, having acquired in 1974 full competence
for commercial policy, which implied termination of existing
bilateral agreements concluded by its members, proposed
individual trade negotiations to all state-trading
countries!. CMEA proposed reciprocal trade relations,
industrial technological and scientific cooperation, co
signature by member states, the establishment of a joint committee to consider future relations (February 1976); the EC counterproposal specifically excluded all these issues
but included exchange of information, standardisation and
environmental questions (November 1976). The Community
would not accept "the CMEA becoming a kind of intermediary
between the EEC and individual CMEA countries, with power,
through the agreement between the two organisations, not
only to lay down guidelines for trade policy but also to
2. Already in the 1960s some East European countries
approached the EC with a view to alleviate the impact of
CAP, which the EC has done slowly and minimally (this was
probably a blessing in disguise for food-deficit countries
like Poland, but an obstacle to a genuine comparative
advantage for Bulgaria and Hungary).
£. The establishment of the EEC caused a modest trade
diversion away from CMEA countries, estimated at 4 per cent
of the value (at 1959 prices) of the European Community’s
imports from the CMEA in 1970; the effect was stronger for manufacturing exports, equivalent to 10 per cent on the same
basis (Balassa 1975; see also Balassa 1967). The first
enlargement of the EEC appears to have produced stronger net trade diverting effects in.industrial products, estimated at
16 per cent of the value, of the enlarged EEC in 1970
(Yannopoulos, 1985). Net effects were stronger in food and
drinks, chemicals and "other manufactures".
7. The issues involved: MFN treatment (which however is
not an issue, having been granted by the EC to all Eastern
European countries), quotas, agricultural trade, safeguard
mechanisms and credits (Pinder 1988).
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supervise the content and execution of Community agreements with individual countries" (Maslen, 1987).
This divergence led to protracted and inconclusive
EC-CMEA negotiations, which were suspended in 1980, though
direct sectoral agreements were reached with individual CMEA
countries, on steel, textiles and agricultural products,
with Hungary, Czechoslovakia, and above all Romania (which
signed a comprehensive package of agreements and was given preferential status as a less developed country)10.
The third phase in EC-CMEA relations began with
the CMEA Summit of June 1984, whose Final Declaration
indicated willingness to sign an EC-CMEA agreement aimed at
promoting the further development of relations between
member countries; this was followed in October 1984 by a
proposal to reopen negotiations, without insisting on a
trade agreement between the two organisations. In further
statements, contacts and negotiations, the EC reiterated the
approach of developing closer relations with CMEA "parallel"
to the "normalisation" of relations 'between the EC and the
seven CMEA member states.il. Already . by 1986 CMEA
negotiators effectively accepted the EC "parallel" approach; but a further disagreement arose, over the status of Berlin, which delayed an agreement but was resolved eventually by
means of a compromise formulai.2. A Joint Declaration was
ID. Trade restrictions came down not only for steel and
textiles covered by special agreements, but also for other
products (for instance, in 1985 the EC removed 200
restrictions on Romanian products) but there are still quite
a few still in force.
1 1 . "Normalisation" here was understood to mean
"willingness to negotiate an overall trade agreement with each country, the accreditation of diplomatic missions with
the Community and the abandonment of anti-community
disruptive action in international organisations" • (Seeler
Report, 1988).
12. All EC agreements have a territorial clause about
their applicability to all of its territory, which includes West Berlin; in agreements with the EC individual CMEA
countries (except Romania) had added a unilateral
declaration t acknowledged by the EC though not part of the
agreement - that the territorial clause did not alter the status of Berlin as agreed in the Four-Power Agreement of 3
September 1971. This compromise at first was not acceptable
to the Soviet Union, wishing to single out Berlin’s position
in any EC-CMEA agreement. This divergence delayed an
agreement but in the end was resolved by means of the same
formula (except for Romania who, not having raised this
reservation in its own bilateral agreements with the EC could not raise it at this stage).
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signed eventually in Luxemburg on 25 June 1988, which
amounts to a pact of mutual formal recognition by the two
trading blocs and has laid the foundations for further
bilateral relations between the European Community and
individual CMEA countries.
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4. The EC "parallel" approach
The EC "parallel" approach, to the CMEA on minor
general questions and to individual CMEA members on
substantive questions of trade and cooperation, was due to two main factorsUJ:
i) the CMEA lack of common trade policy and indeed
its inability to enforce the terms of an agreement on its
own members through its own legislation, i.e. CMEA lack of
competence in trade negotiations (see above, section 1). In
practice an EC-CMEA trade agreement, if it had been
concluded with the unanimous agreement of CMEA members,
would have carried enough weight to bind CMEA member
countries as much (or indeed as little) as any individual
trade agreement; in fact over the period 1964-85 cooperation
agreements have been signed by CMEA with Yugoslavia,
Finland, Iraq, Mexico, Nicaragua and Mozambique. Formally,
however, the EC objection was unimpeachable.
ii) the political preoccupation that the Soviet
dominant role within CMEA would affect excessively EC
relations with the other members of CMEA (especially the
EE6); such a preoccupation is said to have been shared by at
least some of the other CMEA members themselves. The Seeler
Report makes this point and contrasts the Soviet position within CMEA with the position of the other superpower, the
United States, which does not belong to the EC. This is
seen as the reason for diversifying EC relations with the USSR and the E E 6 .
The long time taken by the negotiations between
the two trading blocs and the EC success in implementing its
"parallel" approach are best explained with reference to
some structural aspects of trade between members of EC and
CMEA. Namely, there are two basic asymmetries:
i) EC-CMEA trade represents a small fraction of EC
trade turnover, of the order of magnitude of its trade with
Sweden or Switzerland, whereas its share of CMEA trade
turnover is four or five times larger; this enabled the EC to negotiate from a position of strength.
ii) Trade with the EC is more important for the
EE6 than for the Soviet Union, both in relative size
(especially for individual countries such as Hungary, where
it represents 1/10 of national income) and structure. In
fact Soviet exports to the EC consist mostly of oil, gas and
raw materials which enter free of tariff or quota, are
13 Additional reasons were also given by the EC (see
Seeler Report) but are not very plausible: the uneven
development level of CMEA members, which however is no more
uneven than that of an enlarged EC; the presence of non-
European members within CMEA, which however could have been handled by already existing forms of association.
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supply-determined and easily switchable to other outlets; Soviet manufacturing exports are modest and in low tariff
fields, while the EE6 are trying to export to the EC
agricultural goods (now exported to the Soviet Union) and
low technology manufactures subject to EC protection
(Pinder, 1988).
These factors explain why there was never a great incentive for either the USSR as a CMEA prime mover or the
EC to reach a comprehensive EC-CMEA agreement. Soviet
interest in such an agreement, however, must have increased over time in view of several factors: i) the persistent CMEA
economic slowdown, which made it necessary to rely
increasingly on West European technology imported no longer
on credit but on trade; ii) the slump in EC-CMEA trade and
deterioration of terms of trade in 1985-87 and the prospect
of further trade diversion that might be generated by the
enlargement and unification , of the European "Internal
Market" in 1992, regardless of whether this diversion may or
may not be overcompensated by the boost that the net gains expected by the EC (put by the Cecchini Report at ECU 200
bn) might give to EC external trade; iii) political factors
such as the new detente, Gorbachev’s perestroika, or
possibly the desire to "use these improved contacts with the EC to drive a wedge between the European Community and the United States" (Seeler Report, 1986).
5. Prospects for EC-CMEA collaboration
Shortly after the June 1988 Joint declaration five CMEA members requested official diplomatic relations with
the EC (GDR, Hungary, Czechoslovakia, Bulgaria and the
Soviet Union), followed by Poland; Romania has not made the
request but is involved in trade negotiations all the same.
The first five requests have been officially welcomed and obtained a "favourable response", after the endorsement by the July meeting of EC foreign ministers of a proposal by
the E C ’s external relations commissioner, Mr Willy Le
Clercq, to widen trade talks with CMEA countries to include
the Soviet Union; Poland’s request is still under
consideration but apparently only because of its later
submission.
These developments are not purely nominal. The EC
has recently agreed to end quotas on Hungary’s exports by
1995; is renegotiating a 1980 trade and cooperation
agreement with Romania, and is negotiating ’ an industrial
trade arrangement with Czechoslovakia. There is no shortage
of issues for discussion and areas for cooperation; the
1970s negotiations had indicated a number of ^possible fields
for official relations: i) better statistical information
(demanded by the EC already at the first sessions of the
CSCE at Helsinki) about both plans (perhaps more of a matter
for joint committees set up by the EC and individual
countries) and actual performance; ii) planning and
forecasting; iii) standardisation, becoming more important
with the 1992 schemes for further standardisation within the
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EC, iv) the environment, dramatically come to the fore since
the Chernobyl disaster, which however would require the
involvement of other neighbouring countries outside EC And
CMEA (such as for instance Austria, Yugoslavia and Finland)
and therefore might be handled better by the UN Economic Commission for Europe.14
The list of possible areas for cooperation could
be lengthened to include: i) non-tariff barriersl.5; ii)
trade multeralisation; iii) countertrade, which thrives on
trade constraints and may have to be reduced or regulated
with the gradual removal of those constraints; iv) the
extension of financial facilities, including the possible use of the ECU for the "financing, invoicing and payment of
foreign trade transactions"; v) joint ventures, including
joint EC-CMEA projects such as those mentioned in the Seeler
Report, namely research on "the exploration of new sources
of energy, and notably nuclear fusion but also alternative
sources of energy", "scientific cooperation...provided that
the proper necessary strategic interests of Western Europe
are properly guaranteed", “the development of an energy
system for the whole of Europe, particularly for the supply of electricity, so as to establish a major inter-European
network of energy supplies and mutual services",
"cooperation ... as regards reactor security and mutual aid
in cases of reactor malfunctioning", the development of
transport infrastructures in Europe"; possibly, also joint
action vis a ’ vis the Third world.
5. Obstacles and incentives
The further development of EC-CMEA cooperation
runs into a number of obstacles, which deserve further
consideration. Mostly they are general obstacles to trade
between different economic systems, namely the questions of effective reciprocity, trade denial, and debt burden.
"Effective reciprocity" of any concession and
trade barrier reduction offered by the EC. Eastern traders complain about tariff and non-tariff trade barriers but - as long as the traditional administrative allocation of hard currency and trade licencing system are maintained (whether
1A
The UC-ECE was 'set up in 1947 in Geneva by theEconomic and Social Council of the United Nations; it
includes all European countries, the USA and Canada and is already dealing with environmental questions as well as energy and transport.
1 5 . Tariffs are discussed within GATT, of which
Czechoslovakia, Hungary, Poland and Romania are members
while Bulgaria is an observer; Romania benefits from the EC
general scheme of preferences, but Bulgaria does not because
of its higher level of industrialisation.
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or not state monopoly of foreign trade is dismantled) Western trade with the East meets a generalised, implicit,
arbitrary and uncertain barrier. At the same time, Western
markets are exposed to price policies which can be as
disruptive as the most aggressive "dumping” . The problem
however is not insormountable. Usually East European
imports are constrained by export revenues, not by demand;
their recent and persistent trade surplus with the EC could
be handled by EC-wide ties linking concessions to trade
levels; there is every expectation that any reduction of
trade barriers would be matched by higher East European
imports or repayment of debt. Protection of EC industries
is not a case for trade restrictions, because protection
whenever necessary can be enacted via anti-dumping duties if
there is actual injury to EC producerslg. There are Western
countries which have very close relations with a centrally planned economy, such as between West and East Germany17 or
l_fi. Pinder, 1988.. Anti-dumping duties are applicable
when a product is sold at less than its normal value,
usually defined as "the comparable price actually paid or
payable in the ordinary course of trade"; given the
difficulty of defining the ordinary course of trade in a
centrally planned economy, EC and GATT have used price in
analogue country, or the existing price of an close
substitute in the importing country.
1 7 . Under the EEC Treaty Protocol on German internal
trade the GDR has tariff-free access to the FRG, so that
many have regarded the GDR as a member of both CMEA
(official) and the EC (unofficial). Recently West German
circles have claimed that closer links between the two blocs implied abandoning the Federal Republic’s pledge to seek reunification with East Germany (for instance, Mr Egon Bahr,
the East-West strategist of SPD; see FT, 5 August 1988).
The claim does not seem to follow necessarily, especially in
view of the EC "parallel" policy which cuts out CMEA
intermediation; also, it could be argued that closer
relations between the two blocs are a precondition for further progress towards closer infra-German links.
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between Finland and the Soviet Unionl8; their experience indicates that trade relations between different economic systems can go much further than current EC-CMEA relations.
"Trade denial" is built into EC-CMEA relations as antagonistic alliances protecting their own security and
political systems using economic weapons to influence
policies through threat and retaliation. The strictest
security-minded constraint applicable to EC-CMEA is that
administered over the last forty years by the Coordination
Committee for Multilateral export Controls, known as CoCom,
including all NATO countries minus Iceland plus Japan and
operating from Parisl9. Although the implementation of
CoCom policies is left to national authority, there is no
reason why the EC should not formulate a policy about the list administered by CoCom, especially in view of the more
accomodating policy increasingly adopted by Japan. Economic
weaponry includes trade embargoes, asset freezing or
impounding,’ credit and trade limits or vetoes. Economic
sanctions are are costly to implement and are rarely
effective. The EC participated in economic sanctions
following Polish declaration of Martial Law (December 1981), imposing Community import restrictions on the Soviet Union
worth about US$100 mn. Restrictive US policies towards the
USSR have been costly for Europe (including boycott of
exports of equipment for the production and transport of
energy) and divisive, especially in view of the
retroactivity and extra-territoriality claimed by the US.
Economic inducements such as the FRG policy of "change by
trade" (Wandel durch Handel) may be more effective
(Schiavone, 1987).
IS. Finnish-Soviet trade takes place at spot
international prices (i.e. there is no price formula such as those of Bucharest or Moscow discussed above), but according to long medium and short term plans, and quota systems for a
list of goods; the Finnish government is not committed to
trade but only to do its best to ensure that trade
corresponds to agreements. The Finnish-markka/rouble rate
is effectively determined by the USSR because it is linked
to Soviet rouble-dollar rate; "clearing roubles are
convertible to dollars (via the Finnish markka) at the
official Soviet dollar-rouble exchange rate for firms
exporting to the Soviet Union" (See Oblath, 1988). Because
of Finnish lack of control over the exchange rate, Finnish
exports are subject to licencing (in practice only Finnish
products containing ,less than 20 per cent imports are
exportable). This formula for limited convertibility seems
a useful example for others to follow in East-West and intra-CMEA trade, though there is no reason why the exchange rate should be in line with Soviet cross-rates.
1.9. The peak of CoCom restrictions was reached in 1953
when 260 items were embargoed, 90 were under quantitative
control and 100 were under surveillance (Schiavone, 1988).
© The Author(s). European University Institute. version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.
Another obstacle to the development of further
relations with the EC is the buriden of servicing and
repaying CMEA debt (now of the order of about US$100 bn),
combined with the unwillingness and/or inability to raise
new capital, and aggravated by lack of currency
convertibility even within CMEA and state ownership of
national assets. Different countries are differently
affected, and here the "parallel” approach pursued by the EC
is bound to be appropriate; for a country like Poland,
indebted beyond visible possibilities of redemption, joint
EC-CMEA cooperation in debt relief and economic assistance
may be essential to economic recovery and political
progress; the alternative is economic and political
involution, which is the high price paid by Romania for
reducing its debt. Occasional calls for a Marshall-like
plan for Eastern Europe are best taken as expressions of the need for a selective and concerted East-West plan of action to deal with the debt problem worldwide.
On the more positive side, there are also economic
and political incentives. There «re mutual gains from an
intensified international division of labour, especially if
expected to last; not only conventional (static and dynamic)
gains from trade and financial relations which may be
expected from the reversal of the post-War trade diversion
(see above) but also those deriving from a certain
"systemic" complementarity between capitalist countries
characterised by unemployed capacity and labour and
socialist countries characterised by endemic excess
demand2Q. Gains from trade bring about mutual dependence,
which raises the cost of conflicts and promotes peace.
There are also two basic political incentives. The first is
that of aiding the process of market-oriented radical reform and political renewal in CMEA countries, since a measure of economic improvement is essential to the consolidation and
2.Q.. This kind of complementarity has nothing to do
with the alleged CMEA-EC complementarity as primary
producers and industrialised countries, rightly criticised
by Graziani, 1987. 14 © The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.
progress of reformgJL. The second is the possibility of "driving a wedge" between the Soviet Union and the other
East European countries; more generally, the possibility
"gradually to overcome the problem of the division of Europe and change substantially the spirit of Yalta with regard to
the division of zones of influence and control between the
two superpowers" (point G of the motion submitted by the
Committee on External Economic Relations to European
Parliament, see Seeler Report, 1988). REFERENCES
BALASSA B. (1967), "Trade creation and trade diversion
in the European Common Market", The Economic Journal, March BALASSA B. (1975), European economic integration, North Holland, Amsterdam
DENTON R.G. (Ed.) (1969), Economic integration in
Europe, London.
GRAZIANI G. (1987), "La CEE e il Comecon: concorrenza e complementarità’", in Parboni and Wallerstein, 1987
KASER M. and C.F.G. RANSOM, (1969), "Relations with
Eastern Europe", in Denton, 1969.
MARRESE M. and J. VANOUS (1983), Soviet subsidization
of trade with Eastern Europe: a Soviet perspective,
Institute of International Studies, UC, Berkeley.
MACIEJEWSKI W. and D.M. NUTI, "Economic integration
between CMEA countries and prospects for East-West trade", Conference paper, EUI, Florence, 1985.
MARER P. and M. MONTIAS (1981), "CMEA integration,
theory and practice", in JEC-US Congress, East European
Economic Assessment, Part 2, pp. 148-195.
MASLEN J. (1988), "European Community-CMEA:
institutional relations", Colloquium on "The political and
legal framework of trade relations between the European
Community and Eastern Europe", University of Ghent, 17-18
December.
21
. If a CMEA country were to implement radical reformfully and unambiguously it would have to be removed from the
list of "state-trading countries". At present such category
is not defined, so that a change in status would not be
automatic. A likely candidate is Hungary: already in 1969,
when it approached GATT for accession, Hungary claimed that its reform - which had just been launched - was to "replace
the previously employed administrative directives by
economic regulators" and that its enterprises "have full
autonomy to decide what to produce and how much, where to buy and where to sell"; at that time GATT was not convinced
and allowed import restrictions against Hungary, but
subsequent reform has led to further claims of this kind, in negotiations with the EC and with GATT.
© The Author(s). European University Institute. version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.
OBLATH G. (1988), "Internal regulation of foreign trade with respect to socialist trading partners: a comparison of the Finnish and the Hungarian system", Conference on "The challenge of simultaneous economic relations with East and West", Bellagio, 29 February-5 March.
PARBONI G. and I. WALLERSTEIN, (1987), L ’Europa e
l ’economia politica del sistema-mondo, Angeli, Milano.
PINDER John (1988), "The EC and Eastern Europe under
Gorbachev: how normal could relations become?", NATO
Economics Directorate, Conference paper, 23-25 March 1988, Brussels.
ROBSON P. (1984), The economics of international
integration, 2nd edition, Allen and Unwin, London.
SCHIAVONE G. (1987), "Export controls: the general
framework", Colloquium on-"The political and legal framework
of trade relations between the European Community and
Eastern Europe", University of Ghent, 17-18 December.
SEELER H.-J. (Rapporteur) (1986), Report on relations
between the European Community and the Council for Mutual
Economic Assistance (CMEA) and the Eastern European member
states of the CMEA, drawn up on behalf of the Committee on
External Economic Relations, Working Documents of the
European Parliament, document A 2-187/86, 19 December
van BRABANT J.M. (1973), Bilateralism and structural
bilateralism in intra-CMEA trade, Rotterdam UP, Rotterdam.
van BRABANT J.M. (1988), "Integration reform - new
horizons for the CMEA and East-West economic relations?", mimeo., New York
YANNOPOULOS G.N. (1985), "The impact of the European
Economic Community on East-West trade in Europe", University of Reading Discussion Papers in Economics, Series A, n. 165.
16 © The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.
WORKING PAPERS ECONOMICS DEPARTMENT
86/206: Volker DEVILLE Bibliography on The European Monetary System and the European Currency Unit. 86/212: Emil CLAASSEN
Melvyn KRAUSS
Budget Deficits and the Exchange Rate
86/214: Alberto CHILOSI The Right to Employment Principle and Self-Managed Market Socialism: A Historical Account and an Analytical Appraisal of some Old Ideas
86/218: Emil CLAASSEN The Optimum Monetary Constitution: Monetary Integration and Monetary Stability
86/222: Edmund S. PHELPS Economic Equilibrium and Other Economic Concepts: A "New Palgrave" Quartet 86/223: Giuliano FERRARI BRAVO Economic Diplomacy. The Keynes-Cuno
Affair
86/224: Jean-Michel GRANDMONT Stabilizing Competitive Business Cycles 86/225: Donald A.R. GEORGE Wage-earners’ Investment Funds: theory,
simulation and policy
86/227: Domenico Mario NUTI Michal Kalecki's Contributions to the Theory and Practice of Socialist Planning 86/228: Domenico Mario NUTI Codetermination, Profit-Sharing and Full
Employment
86/229: Marcello DE CECCO Currency, Coinage and the Gold Standard 86/230: Rosemarie FEITHEN Determinants of Labour Migration in an
Enlarged European Community 86/232: Saul ESTRIN
Derek C. JONES
Are There Life Cycles in Labor-Managed Firms? Evidence for France
86/236: Will BARTLETT Milica UVALIC
Labour Managed Firms, Employee Participa tion and Profit Sharing - Theoretical Perspectives and European Experience. 86/240: Domenico Mario NUTI Information, Expectations and Economic
Planning
86/241: Donald D. HESTER Time, Jurisdiction and Sovereign Risk
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2
86/242: Marcello DE CECCO Financial Innovations and Monetary Theory 86/243: Pierre DEHEZ
Jacques DREZE
Competitive Equilibria with Increasing Returns
86/244: Jacques PECK Karl SHELL
Market Uncertainty: Correlated Equilibrium and Sunspot Equilibrium in Market Games 86/245: Domenico Mario NUTI Profit-Sharing and Employment: Claims and
Overclaims
86/246: Karol Attila SOOS Informal Pressures, Mobilization, and Campaigns in the Management of Centrally Planned Economies
86/247: Tamas BAUER Reforming or Perfecting the Economic Mechanism in Eastern Europe
86/257: Luigi MONTRUCCHIO Lipschitz Continuous Policy Functions for Strongly Concave Optimization Problems 87/264: Pietro REICHLIN Endogenous Fluctuations in a Two-Sector
Overlapping Generations Economy
87/265: Bernard CORNET The Second Welfare Theorem in Nonconvex Economies
87/267: Edmund PHELPS Recent Studies of Speculative Markets in the Controversy over Rational Expecta tions
87/268: Pierre DEHEZ Jacques DREZE
Distributive Production Sets and Equilibria with Increasing Returns
87/269: Marcello CLARICH The German Banking System: Legal Foundations and Recent Trends
87/270: Egbert DIERKER Wilhelm NEUEFEIND
Quantity Guided Price Setting
87/276: Paul MARER Can Joint Ventures in Hungary Serve as a "Bridge" to the CMEA Market?
87/277: Felix FITZROY Efficiency Wage Contracts, Unemployment, and Worksharing
87/279: Darrell DUFFIE Wayne SHAFER
Equilibrium and the Role of the Firm in Incomplete Markets
87/280: Martin SHUBIK A Game Theoretic Approach to the Theory of Money and Financial Institutions
© The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.
3
-87/283: Leslie T. OXLEY Donald A.R. GEORGE
Perfect Foresight, Non-Linearity and Hyperinflation
87/284: Saul ESTRIN Derek C. JONES
The Determinants of Workers’ Participation and Productivity in Producer Cooperatives 87/285: Domenico Mario NUTI Financial Innovation under Market Socialism 87/286: Felix FITZROY Unemployment and the Share Economy:
A Sceptical Note
87/287: Paul HARE Supply Multipliers in a Centrally Planned Economy with a Private Sector
87/288: Roberto TAMBORINI The Stock Approach to the Exchange Rate: An Exposition and a Critical Appraisal 87/289: Corrado BENASSI Asymmetric Information and Financial
Markets: from Financial Intermediation to Credit Rationing
87/296: Gianna GIANNELLI On Labour Market Theories
87/297: Domenica TROPEANO The Riddle of Foreign Exchanges: A Swedish-German Debate (1917-1919) 87/305: G. VAN DER LAAN
A.J.J. TALMAN
Computing Economic Equilibria by Variable Dimension Algorithms: State of the Art 87/306: Paolo GARELLA Adverse Selection and Intermediation 87/307: Jean-Michel GRANDMONT Local Bifurcations and Stationary
Sunspots 87/308: Birgit GRODAL
Werner HILDENBRAND
Income Distributions and the Axiom of Revealed Preference
87/309: Eric PEREE Alfred STEINHERR
Exchange Rate Uncertainty and Foreign Trade
87/312: Pietro REICHLIN Output-Inflation Cycles in an Economy with Staggered Wage Setting
87/319: Peter RAPPOPORT Lucrezia REICHLIN
Segmented Trends and Nonstationary Time Series
87/320: Douglas GALE A Strategic Model of Labor Markets with Incomplete Information
87/321: Gianna GIANNELLI A Monopoly Union Model of the Italian Labour Market: 1970-1984 © The Author(s). European University Institute. version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.
A -87/322: 87/323: 87/324: 88/329: 88/330: 88/331: 88/332: 88/333: 88/335: 88/337: 88/338: 88/339: 88/340: 88/341: 88/344: 88/345:
Keith PILBEAM Sterilization and the Profitability of UK Intervention 1973-86
Alan KIRMAN The Intrinsic Limits of Modern Economic Theory
Andreu MAS-COLELL An Equivalence Theorem for a Bargaining Set
Dalia MARIN Assessing Structural Change: the Case of Austria
Milica UVALIC "Shareholding" in Yugoslav Theory and Practice
David CANNING Dalia MARIN
Keith PILBEAM
Convergence to Equilibrium in a Sequence of Games with Learning
Trade and Scale Economies. A causality test for the US, Japan, Germany and the UK.
Fixed versus Floating Exchange Rates Revisited.
Felix FITZROY Kornelius KRAFT Domenico Mario NUTI
Pietro REICHLIN Paolo SICONOLFI
Piece Rates with Endogenous Monitoring: Some theory and evidence
On Traditional Cooperatives and James Meade’s Labour-Capital Discriminating Partnerships
Government Debt and Equity Capital in an Economy with Credit Rationing Alfred STEINHERR The EMS with the ECU at Centerstage:
a proposal for reform of the European rate system
Frederick VAN DER PLOEG Monetary and Fiscal Policy in Inter dependent Economies with Capital Accumulation, Death and Population Growth David CANNING Optimal Monetary Policy in an Economy
without a Forward Market for Labour Joerg MAYER Intervention Mechanisms and Symmetry
in the EMS
Keith PILBEAM Exchange Rate Management and the Risk Premium © The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.
- 5
88/348: Milica UVALIC The Investment Behaviour of the Labour- Managed Firm: an econometric analysis 88/351: Alan P. KIRMAN On Ants and Markets
88/352: Gianna GIANNELLI Labour Demand, Pricing and Investment Decisions in Italy: An econometric Analysis
88/353: Niall O'HIGGINS The Progressivity of Government Taxes and Benefits in Ireland: a comparison of two measures of redistributive impact
88/356: Mary MCCARTHY Lucrezia' REICHLIN
Do Women Cause Unemployment? Evidence from Eight O.E.C.D. Countries
88/357: Richard M. GOODWIN Chaotic Economic Dynamics 88/358: Fernando PACHECO
Eric PEREE Francisco S. TORRES
Duopoly under Demand Uncertainty
88/360: Domenico Mario NUTI Economic Relations between the European Community and CMEA
88/361: Domenico Mario NUTI Remonetisation and Capital Markets in the Reform of Centrally Planned Economies 88/362: Domenico Mario NUTI The New Soviet Cooperatives: Advances
and Limitations
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22
PUBLICATIONS OF THE EUROPEAN UNIVERSITY INSTITUTE NOVEMBER 1938 87/315: Serge NOIRET Nuovi motivi per studiare i meccanismi
delle leggi elettorali. Una
riflessione metodologica a proposito della legge del 1919 in Italia 87/316: Alain GOUSSOT Les sources internationales de la
culture socialiste italienne à la fin du 19e siècle et au début du 20e siècle. Problèmes de la composition de l'idéologie du PSI et ses rapports avec la circulation des idées en Europe
87/317: Eamonn NOONAN Württtemberg's exporters and German protection, 1931-36
87/318: Jean-Pierre CAVAILLE Theatrum Mundi. Notes sur la théâtralité du Monde Baroque. 87/319: Peter RAPPOPORT and
Lucrezia REICHLIN
Segmented Trends and Nonstationary Time Series
87/320: Douglas GALE A Strategic Model of Labor Markets with Incomplete Information
87/321: Gianna GIANNELLI A Monopoly Union Model of the Italian Labour Market
87/322: Keith PILBEAM Sterilization and the Profitability of UK Intervention 1973-86
87/323: Alan KIRMAN The Intrinsic Limits of Modern Economic Theory
87/324: Andreu MAS-COLELL An Equivalence Theorem for a Bargaining Set
88/325: Angela GROPPI "La classe la plus nombreuse, la plus utile et la plus précieuse".
Organizzazione del lavoro e conflitti nella Parigi rivoluzionaria.
88/326: Bernd MARIN Qu'est-ce que c'est "Le Patronat"? Quelques enjeux théoriques et observations empiriques
88/327: Jean BLONDEL Decision-Making Processes, Conflicts, and Cabinet Government *
88/328: Ida KOPPEN The European Community's Environment Policy.
From the Summit in Paris, 1972, to the Single European Act, 1987 *
:Working Paper out of print
© The Author(s). European University Institute. version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.
23
PUBLICATIONS OF THE EUROPEAN UNIVERSITY INSTITUTE NOVEMBER 1988 88/329: Dalia MARIN Assessing Structural Change: The Case
of Austria *
88/330: Milica UVALIC "Shareholding" in Yugoslav Theory and Practice
88/331: David CANNING Convergence to Equilibrium in a Sequence of Games with Learning 88/332: Dalia MARIN Trade and Scale Economies. A causality
test for the U.S., Japan# Germany and the UK
88/333: Keith PILBEAM Fixed versus Floating Exchange Rates Revisited
88/334: Hans Ulrich Jessurun d'OLIVEIRA
Die EWG und die Versalzung des Rheins 88/335: Felix Fitzroy and
Kornelius Kraft
Piece Rates with Endogenous Monitoring Some Theory and Evidence
88/336: Norbert LORENZ Die Ubertragung von Hoheitsrechten auf die Europaischen Gemeinschaften - verfassungsrechtliche Chancen und Grenzen einer europaischen Integration erlautert am Beispiel der
Bundesrepublik Deutschland# Frankreichs und Italiens
-88/337: Domenico Mario NUTI On Traditional Cooperatives and James Meade's Labour-Capital Discriminating Partnerships
88/338: Pietro REICHLIN and Paolo SICONOLFI
Government Debt and Equity Capital in an Economy with Credit Rationing 88/339: Alfred STEINHERR The EMS with the ECU at Centerstage:
A proposal for reform of the European Exchange rate system
88/340: Frederick VAN DER PLOEG Monetary and Fiscal Policy in Interdependent Economies with Capital Accumulation, Death and Population Growth
88/341: David CANNING Optimal Monetary Policy in an Economy without a Forward Market for Labour 88/342: Gunther TEUBNER "And God Laughed..."
Indeterminacy, Self-Reference and Paradox in Law
88/343: Jean BLONDEL Ministerial Careers in Western European Governments
:Working Paper out of print
© The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.
24
PUBLICATIONS OF THE EUROPEAN UNIVERSITY INSTITUTE NOVEMBER 1988 88/344: Joerg MAYER Intervention Mechanisms and Symmetry
in the EMS
88/345: Keith PILBEAM Exchange Rate Management and the Risk Premium
88/346: Efisio ESPA The Structure and Methodology of International Debt Statistics 88/347: Francese MORATA and
and Jaume VERNET
Las Asambleas Régionales en Italia y Espana: Organizacion Institucional y Réglas de Funcionamiento
88/348: Milica UVALIC The Investment Behaviour of the Labour-Managed Firm: An Econometric Analysis
88/349: Massimo PANEBIANCO Inter-Regional Co-Operation in the North-South Dialogue
Latin America and the European Community
88/350: Gregorio ROBLES La Cour de Justice des CE et les Principes Généraux du droit 88/351: Alan KIRMAN On Ants and Markets
88/352: Gianna GIANNELLI Labour Demand, Pricing and Investment Decisions in Italy: An Econometric Analysis
88/353: Niall O'HIGGINS The Progressivity of Government Taxes and Benefits in Ireland: A Comparison of Two Measures of Redistributive Impact
88/354: Christian JOERGES Amerikanische und deutsche Traditionen der soziologischen Jurisprudenz und der Rechtskritik 88/355: Summary of Conference,
debates and abstracts of selected interventions
The Future Financing of the EC Budget: EPU Conference 16-17 October 1987 88/356: Mary MCCARTHY and
Lucrezia REICHLIN
Do Women Cause Unemployment?
Evidence From Eight O.E.C.D. Countries 88/357: Richard M. GOODWIN Chaotic Economic Dynamics
88/358: Fernando PACHECO Eric PEERE and Francisco S. TORRES
Duopoly Under Demand Uncertainty
88/359: Jaakko NOUSIAINEN Substance and Style of Cabinet Decision-Making © The Author(s). European University Institute. version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.
25
PUBLICATIONS OF THE EUROPEAN UNIVERSITY INSTITUTE NOVEMBER 1988 88/360: Domenico Mario NUTI Economic Relations between the
European Community and CMEA
88/361: Domenico Mario NUTI Remonetisation and Capital Markets in the Reform of Centrally Planned Economies
88/362: Domenico Mario NUTI The New Soviet Cooperatives: Advances and Limitations
88/363: Reiner GRUNDMANN Marx and the Domination of Nature Alienation, Technology and Communism 88/364: Tony PROSSER The Privatisation of Public
Enterprises in France and Great Britain
The State, Constitutions and Public Pol icy
:Working Paper out of print
© The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.
© The Author(s). European University Institute. version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.
© The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.