East-West Debt and the Trade Debate Reconsidered

EAST-WEST DEBT AND____________ THE TRADE DEBATE RECONSIDERED MarkJ. Ellyne A. he conduct of postwar economic diplomacy between East1 and West has been dictated by a debate that has raged between two extreme schools of thought. One sees the modern industrial worlds of East and West involved in a "non-zero-sum" game of economic and political interactions . Policies designed to integrate the East into a web of "complex interdependence" are thus believed to have a stabilizing effect on the international system as well as on the respective domestic systems. The other school beholds an adversarial world in which economic independence is critical for the rival blocs. This "zero-sum" world view commends the use of economic policy as a tool of warfare. This article first considers Western lending to the cmea countries. The broader trade policy debate is then reexamined in anticipation ofthe forthcoming revision of the U.S. Export Administration Act, which regulates trade with the Eastern bloc. Eastern debt originated in the rapid expansion of East-West trade at the beginning of the 1970s (see Table 1). This trade expansion resulted from the European détente of the late 1960s—led by the Federal 1. In the context of this article, the "East" or the CMEA (Council for Mutual Economic Assistance) refer to the six Eastern European centrally planned economies (ee-Síx)—Bulgaria, Czechoslovakia, the German Democratic Republic (GDR), Hungary, Poland, Romania—and the Soviet Union. The West refers broadly to the OECD (Organization for Economic Cooperation and Development) countries for trade purposes, but narrowly to the United States and the European Community (EC) for foreign policy purposes. As regards the West, the United States and the Federal Republic of Germany have been most responsible for setting Eastern bloc policy. Mark J. Ellyne is a Ph.D. candidate at SAIS in the field of international economics. He received his M.Sc. degree from the University of London. From 1977 to 1982, Mr. Ellyne worked as an international economist for Data Resources, Inc., in Lexington, Massachusetts. 203 204 SAIS REVIEW Table 1 CMEA Trade Deficits with the OECD, 1970-81 CMEA Mtrchandi» Mane· of Trad« 1$ billion.) k \ USSR§ Other East Europe J Poland +2 "I I 1970 1971 I I 1972 1973 1974 1975 1976 1977 I I 1978 1979 3USSR Surplui Source: OECD, Statistics ofForeign Trade, Series A. Graph reprinted by permission of The Trilateral Commission, which first published this information in Robert V. Roosa, Michiya Matsukawa, and Armin Gutowski, East-West Trade at a Crossroads (New York University Press, 1982), p. 22. Note: Deficits understated by f.o.b. export valuation of Western goods. Republic of Germany (frg)—and the U.S. détente of the early 1970s, combined with Eastern Europe's own push for greater growth through the importation of Western technology. From a reasonably balanced position in 1970, unprecedented Polish and Soviet trade deficits by 1975 caused a fivefold rise in net cmea debt from $5.5 billion in 1971 to $26 billion by 1975. East European merchandise trade deficits declined after 1975, and a substantial Soviet surplus in 1980 and 1981 put the aggregate trade balance for the East into a small surplus. Hard-currency debt, nevertheless, continued to accumulate at 18 percent per annum, reaching an estimated $88.3 billion in 1981 (see Table 2). EAST-WEST DEBT AND TRADE RECONSIDERED 205 Table 2 U.S.S.R. and Eastern Europe: Hard-Currency Debt" ($ million) 197119751977198019811982 Bulgaria gross7432,6403,7073,5102,9752,725 net7232,2573,1692,7302,1351,835 Czechoslovakia gross4851,1322,6164,8904,6203,650 net1608272,1213,6403,7552,980 GDR gross1,4085,1887,14514,41015,30012,840 net1,2053,5486,14911,75012,64011,740 Hungary gross1,0713,1356,6558,8108,8007,800 net8482,1954,4917,5107,9007,200 Poland gross1,1388,01413,96725,12025,00024,300 net7647,38113,53224,50024,25023,280 Romania gross1,2272,9243,6059,50010,7009,800 net1,2272,4493,3889,18010,3509,520 Total EE-CMEA gross6,07223,03336,69566,24067,39561,115 net4,92718,65732,86059,31061,03056,555 r t c c ? gross1,800 10,500 15,600 18,100 20,900 20,000 net600 7,400 11,100 9,500...