Eastern Europe's challenge to the EC
EASTERN EUROPE ther issue of labour migration became another major sticking point because of the restrictive EC attitude.12
The same basic problems stalled the negotiations with Hungary. The fourth round of talks with Brussels foundered on agriculture, textiles and migration. 13 "Fundamental differences still existed in June 1991 with deadlock on textiles and
THE period from the summer of 1989 through 1990 was one of internal political turmoil within the East European states and international honeymoon - in public at any rate - between the West, and the European Community (EC) in particular, and the new polities of Eastern Europe. During this phase a clear rift opened up between the political dynamics of the Balkans and of East Central Europe; in the former area, domestic politics was governed by the crisis of the electoral victors, as both the Bulgarian Socialist Party (BSP) and the Romanian National Salvation Front (NSF) found themselves denied the fruits of electoral triumph and plunged into crisis amidst mounting anti-Communist mobilization. But in East Central Europe the new regimes have been increasingly associated with the West, and have faced mounting domestic criticism of their Westernizing transition policies. It is, thus, in the three countries with leaderships most acceptable to the EC — Poland, Czechoslovakia and Hungary - that the strains were most serious from the Western point of view.
'radically different approaches to the free movement of workers' " 14
The greatest difficulties seem to be between the EC and Poland. While Commissioner Andriessen envisaged Hungary and Czechoslovakia as achieving Association status by the end of 1991, he could hold out hope only for 1991 for Poland. 15
The prospect of full trade liberalization alerted the EC lobbies most vulnerable to an East European export drive, notably textiles and steel.
The European Community's textile and clothing industry employs some three million people and has an annual turnover of some $150bn. Its output has been in decline since 1980, especially in clothing and the EC's trade deficit in textiles in 1989 stood at $10bn. The industry occupies a particularly important place in the economies of the South European EC member states.
The threat of cheap labour
The industry is highly decentralized, involving about 100,000 companies, but
OLIVER MACDONALD - July 16, 1991
The EC Commission proposed as a conproduct by product and reducing the transitional period for steel products to five years. A Council meeting on April 21 accepted the Commission's proposals for a gradual removal of customs duties and non-tariff barriers over five years on steel, but required a specific arrangement for coal; it continued to insist on a ten year tariff transition for textiles while suggesting that non-tariff aspects should be settled within the Uruguay Round; agriculture it offered the removal quantitative restrictions but required on specific goods deemed specially important for the East Central European countries' reciprocal effort on their part. 6
For the CSR the key problems were textiles and steel, agriculture being largely a non-export industry.? By the end of the third round at the end of March, the negotiations were still stalled. 8
Poland's main demand upon the West throughout 1990 and the first months of 1991 had been for a drastic reduction in its debt obligations, but in February 1991 its economic supremo, Leszek Balcerowicz, indicated that the trade issues in the Association negotiations were its dominant concern. When the external affairs Commissioner Hans Andriessen returned from Warsaw in March he highlighted textiles, agriculture and coal as the key stumbling blocks. 1°
At the end of the third round of ECPolish negotiations in March, Poland's Secretary of State for External Economic Relations, Olechowski, was publicly scathing about the EC's stance. He noted that Poland's market is fully open to EC products and he called for full reciprocity on the part of the EC. Yet the EC was continuing to insist on trade protection for its own markets. Instead of asymmetry in favour of Poland, the result was "inverted asymmetry" in favour of the EC. Since the EC is not willing to liberalize in textiles, steel and agricultural products, liberalization in fact covers only half of Polish exports. Mr. Olechowski said no government could submit such a draft agreement to parliament for approval in Poland.
He also emphasized that "this agrcement will determine Poland's fate."1 During the fourth round in April, the fur1. Although it was used against Soviet and Albanian ferro-chromium and against a few Yugoslav and Czechoslovak products. Intra-community surveillance procedures were granted by the Commission to Spain to monitor linen and other textile imports into the EC from the Europe, March 3, 1991. 2. Europe, April 4, 1991, p. 7. 3. Europe, April 13, 1991, p. 8. 4. Ibid. 5. The present series of discussions in the framework of the General Agreement on • Trade and Tariffs the EC lobby, ELTAC (The European Largest Textile and Apparel Companies) has been clamoring since the start of 1990 about the threat from Eastern Europe which, together with the USSR, has about three times the EC's capacity and lower wages. ELTAC's leadership has argued that concessions could not be made to both Eastern Europe and Asia.
Some Western governments, notably the Italian, have argued that ELTAC's warnings are much exaggerated because of the poor quality of East European output. And the EC Commission has tried to argue that the opening of trade relations with Eastern Europe even offers new opportunities for the EC industry in the export field. But ELTAC has been successful in insisting upon a protracted transition (over at least ten years) towards full trade liberalization, a stance repudiated early on by all three East European governments negotiating on Association as unacceptable.16
West European steel interests, a much more tightly organized industrial group, (GATI). 6. Europe, April 22, 1991, p. 7. 7. Ibid, March 23, 1991, p. 3. 8. Ibid, March 26, 1991. 9. Ibid, February 13, 1991. 10. Ibid, March 12, 1991. 11. Ibid, March 21, 1991. 12. Ibid, April 24, 1991. 13. Ibid, May 3, 1991. 14. Ibid, May 31 1991. 21 15. Ibid, March 11, 1991. 16. Ibid, March 20, 1991, p. 9.
TABLE 1: 1989 Steel Capacities
S. Collins and D. Rodrick: Eastern Europe and the Soviet Union in the World Econo my (LIE, Washington DC, 1991) quoted in the Economist, July 6, 1991.
International Viewpoint #212 • September 16, 1991
EASTERN EUROPE
Draw steel capacity
EE and Soviet 260m tons
EC 190m tons Source: Europe, March 3, 1991. were swiftly put on guard because of a Council decision to increase the quota of East European steel imports into the EC by 15% for 1990. Five meetings of Coreper were needed to approve a draft negouating mandate to maintain this quota tot 1991. Experts for some member states feared that this could allow East European industries to concentrate their exports in a few, particularly sensitive products and thus create disorder in the market. The Commission responded that member states could apply the safety rules if this happened.'
At the same time, stricter regulations for monitoring these imports were instituted, requiring the exporting countries to provide greater information before an import document is issued! But the Commission's efforts to lift the quota on pig iron were rejected by France and Spain, the EC's main pig iron producers.20
To appreciate the scale of the "threat" from East European steel, we should note the figures for total steel production (Table 1).
The total quota for steel from Eastern Europe (excluding the USSR) for 1991 was set at 2,657m tons - just one percent of total EC raw steel capacity. Flood of East European steel unlikely
The prospect of East European steel producers being able to flood West European markets if import barriers are removed does not seem to be borne out by research. One German study of the problem argues that high transport costs would prevent a major influx. Projections of EC economic growth in the 1990s would suggest that the extra steel capacity in the East could be absorbed.
rolled steel steel consumption capacity
200m tons 160m tons
145m tons 112m tons how for updating their technology and such know-how transfer requires acceptance of consensus on trade matters.22
The alternative proposed by the EC steel lobby is for the East European steel industry to be restructured. The big Wester steel companies would be happy to cooperate in this and massive Western credits should be offered for the whole operation. In return for technical and financial aid, the East European countries will have to agree to reducing overcapacity and to either privatizing or at least adopting the management principles of privatized companies in those that remain nationalized. EC steel companies could train both the managers and the work forces of Eastern Europe, and Western experts could advise steel companies there on restructuring via on-site consultations. At the same time East European steel experts could be integrated into the West's steel organizations and participate in the work of their technical bodies.
meaning of such proposals for restructuring has already been demonstrated in the former GDR. During 1991 output there has been reduced to 54% of its 1988 level. The workforce in the East German steel industry, which stood at
7,000 on July 1, 1990, will have droppe y 00% to 30,000 by the end of 1991.-
The German steel lobby's proposals for fitting the industries of the two halves of 17. Europe, April 4, 1991, p.6. Coreper is the committee of top officials of the 12 that shadows the Council of Ministers. One reason for the delay was that the Commission insisted on the East European countries being allowed 30% flexibility between categories of steel products in 1991. 18. Europe, February 21, 1991. 19. Ibid, March 11, 1991. 20. Ibid, February 26, 1991. The UK and Denmark
Europe together in the new European division of labour typify the approach of the private sector industrial giants of
Western Europe.
The same general approach has been advanced by the Chemical industry lobby, CEFIC (European Chemical Industry Council), which has warned that efforts to achieve free market economies in Hungary, Poland and Czecho-
Slovakia "must not be at the expense of the long-term viability of Western
Europe's own chemical industry." It called on EC and EFTA governments
"imaginative" financial support structures for Western companies moving into Eastern Europe, including investment guarantees, systems of tax relief and subsidized loans. The chemical industries of the West should ensure the creation in the East of legally constituted trade federations on the pattern of the industry in the West.24
Such ideas mean in practise maintaining export barriers to the West while the EC's private sector decides which chunks of their East European counterparts to buy up and absorb into their own international
The remainder of the given East European industry will then be scrapped with generous arrangements for redundancies, funded by Western aid. The enclaves of continuing East European output will then be modernized, again with public sector aid for the new Western owners of the East European plant. Such schemes avoid the risk of the future place of East European industry in the international division of labour being decided either on the market or through public planning by East European governments. The planning would be done by the private sector in the West.
EC deadlock poses political problems
Despite their resistance during the Association negotiations, East European were supporting higher steel quotas in general; France, Belgium, Italy and Luxemburg wanted to lower the 1990 quotas. 21. Helmut Wienert: "Die Stahlindustrie Osteuropas - Entwicklung, aktuelle Struktur, Probleme und Perspektiven" RWI-Mitteilungen, Jg 40, 1989. 22. Europe, March 3, 1991, p. 10. 23. Ibid, May 1, 1991, p. 13. 24. Ibid, April 25, 1991, p. 14.
TABLE 2:
But this is not the view of the EC's steel
Annual Capital Flows in Billions of US$ over Ten Years lobby. The President of the German Steel
Association (The Wirtschaftsvereinigung
Eisen und Stahl) spoke out in March against any rash liberalization of trade for
East European steel. He declared that there was now huge over-capacity in steel across Europe and that rapid liberalization of imports would lead to massive defensive measures in the context of the
22
GATT. He pointed out that the EC states are dependent on West European know-
Pessimistic
Eastern Europe
12
Eastern Germany
30
Source:
Middle
Optimistic
18
24
55
90
September 16, 1991 • #212 International Viewpoint with
Association
EASTERN EUROPE
2.5 to 4 million Gypsies in Romania and
TABLE 3:
Total foreign investments
(registered at end of 1990)
Number of foreign investments
Country
3,000
USSR
Poland
2,180
Czech and Slovak Rep.
1,600 agreements with the EC is being resolutely resisted by the 12 EC member states. They are already facing high levels of structural unemployment in their own countries,
Yugoslavia.2
There have been further worries about the danger of a mass exodus from the USSR or Romania as a result of near-total economic collapse. During the Cold War one of the most insistent human rights demands of the West on the Soviet government was for freedom of travel and
Romania 1,350
Bulgaria 140
Hungary 5,000
Source: The UN Economic Commission for Europe's
East-West Venture News, no. 7 (Geneva). governments will probably have to accept this approach so long as they continue to pursue integration into the Western market. But for Poland and Hungary, the deadlock with the EEC is probably more serious politically and also more difficult to overcome in the long-term. The agricultural sector is important economically and politically in both countries. Hungarian agriculture has been an outstanding success story in productivity terms since the 1960s and both countries would hope to gain substantially from the removal of tariff barriers on their exports to the West (Czechoslovak agriculture is far more geared to import substitution and the domestic market).
Yet agricultural tariffs are integral to the EC's Common Agricultural Policy (the CAP), the EC farm lobby is immensely strong, is facing a major challenge from the USA in the Uruguay Round of the GATT negotiations and is in no mood to sacrifice the CAP for East European farmers. The EC-wide farmers organization COPA (the Committee of Agricultural Professional Organizations of the EEC) has made this very clear.25 The agricultural issue also poses major problems for any transition to full EC membership for a country like Poland.
The Eastern also facing a mounting social and political crisis as a result of their first moves towards a capitalist market, blocked in key export sectors by EC tariff barriers and being offered restructuring projects involving huge redundancies for their still state-owned industries, see one way of easing their difficulties through gaining free movement of labour into Western Europe. Such an open door could ease the unemployment crisis (and the fiscal crisis linked to it), could gain hard currency earnings and could improve skill levels amongst temporary workers in the West returning to their country of origin.
But the principle of free movement of labour westwards on the part of countries increasingly significant political backlashes against the social effects of the long-term economic crisis in Western Europe in the 1980s (the waves of riots in France in 1990-91 being one sign of this) and a growing far right mobilization around the theme of immigration (the France, the Republikaner in Germany, the Lombard League in North Italy, the Vlaams Blok in the Antwerp region of Belgium and so on).
In addition, the EC is already predicted to face a large increase in political from the east. According to expert estimates, between 3.7 and 8 million people in this category are likely to move westwards in the coming years,
Before we go on; what exactly are your plans,
Mr. Gorbachev? though not by any means all will be aiming to settle in the EC. The EC Commission estimated in January 1991 that some could leave Eastern Europe for the Community each year between 1991 and 1996. The figures break down as follows: 1.3 million Germans from Poland and Romania and another 1.7 million from the USSR; 1.5 million Jews from the USSR (although few are expected to stay in Europe); a large movement of perhaps as many as nine million Armenians from Azerbaijan and Georgia (most wanting to go to the USA or France); and refugees from political violence against minorities brought on by economic hardship and nationalist ferment, especially against the 25. Ibid, May 25, 1991, p. 14. 26. Ibid, January 16, 1991. 27. Ibid, January 26, 1991, p. 15. 28. Polish agreement to this was made a precondition for the abolition of visas by the Dutch and Belgian goverments See Europe, March 26, 1991, p.7.
emigration for its citizens; the demand was still being made a precondition for normalizing trade relations in the USA in 1991. But the Soviet government's readiness to legislate such freedom spring of 1991 caused some alarm in the Council of Europe conference on migration in January reported that "we have learned through diplomatic channels that it would be appreciated if we slowed things up" over the passing of the legisla-
Against this background the EC has been taking a very restrictive stand against migrant labour from those states currently negotiating association agreements. The Shengen countries (Germany, France, Italy and Benelux) have agreed to the scrapping of tourist visas for Poles and to allowing them to enter for three months provided that they don't work.
But this agreement has been Polish government has promised to accept the forced repatriation of Poles trying to stay beyond the time limit or to gain regular employment. 28 There has been strong criticism of the EC's stance on migration by human rights Brussels on January 29 on the problems of refugees organized by the European ParliaDevelopment and Cooperation and by the UN High Commissioner's Office for Refugees heard strong criticism on this score. Professor d'Oliveira from the European University Institute in Florence claimed the EC was developing a whole series of instruments violating the Geneva Convention which itself rep resents only minimal protection." The Council of Europe has also attacked the EC's immigration policy, notably for its effects on youth mobility in Europe. 30
The prospects of gaining growth and modernization motors through diplomatic leverage with the European Community thus look bleak, especially for Poland and the Balkan states. The other dimension of economic relations with the West lies in the response of Western private capital to 29. Ibid, January 30, 1991, p. 13. 30. The Secretary General of the Council, Catherine Lalumière, made this point forcefully, as well as criticizing the EC's entire attitude as restrictive. See the report of the Council of Europe's Vienna conference in guary 19516, this subject in Europe, January 25, 23 1991, pp. 15-16.