Socialist Countries Face the European Community

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Introduction

The Soviet bloc’s internal coherence was tested at the turn of the 1970s. Having barely managed to contain the repercussions of the Warsaw Pact invasion of Czechoslovakia in August 1968, the socialist countries were confronted with another issue that affected the central tenets of their ideology and system. All of them had experienced economic hardship and deteriorating growth rates during the past decade. The crucial question was: would they manage to find an internal development path to economic prosperity or would they have to open their system to the global economy – and bear the consequent pressures, rules, and competition that this decision entailed.

The clash of two coinciding but unrelated processes started to tear the socialist bloc apart. The first factor was the growing dependency on the Western markets since the beginning of the 1960s. The socialist countries had increasingly turned towards the West to acquire better quality products which they were unable to produce themselves, primarily due to problems inherent to their own economic system. Their need for technology and consumer goods from the West, and consequently the need to sell their produce on the EC market to receive currency to pay for those imports, worked towards creating dependencies. These became evident due to another process taking place at the time: the integration process of the European Community (EC).¹ The socialist countries’ trade partners, the EC members, began to implement a Common Commercial Policy (CCP) as had been agreed upon when the organization was established. The process would transfer the authority in the field of foreign trade policy from the member states to the Community. This envisioned a change in East-West trade practices, since the socialist countries would no longer be able to negotiate customs duties and other protective measures on a bilateral basis with Western states. The socialist countries were not willing to acknowledge the EC competence and deal with it instead of its member states. Therefore the CCP would significantly limit their trade options.

The EC policy implementation might not have had such grave consequences had there not been a growing dependency on the EC market on the ← 15 | 16 → part of the socialist countries. Trade between the eastern and western parts of Europe, that had reached its height in 1938, just before World War II broke out, had been curtailed with the onset of the Cold War. In the post-Stalin era, East-West trade had resumed again, and consequently the socialist countries had increased their trade turnover with West European countries. The beginning of détente had helped East-West trade to expand significantly. During the 1960s, the total turnover increased from 6 billion US dollars in 1960 to 16 billion in 1970, the largest share – over 90 per cent – of it being trade between European states.² The implementation of the EC’s policies was to dramatically limit the socialist countries’ access to Western markets, and particularly limit the export in such fields that were protected within the Common Market, namely agricultural products and industrial goods.

Foreign trade priorities immediately became a crucial issue on the socialist countries’ political agenda. In order to counter the negative effects of the EC policy, they began negotiations on a common policy towards it at the beginning of the 1970s. The negotiations exacerbated the latent differences within the bloc and brought the alliance’s internal dissent to the forefront. Much of the intra-bloc controversy in the early the 1970s was kept out of the public eye, as the battle took place largely behind the scenes, within the Soviet-bloc organization for economic cooperation, the Council for Mutual Economic Assistance (CMEA).³

Any official approach towards the EC as a whole was out of the question for the CMEA countries. Since the establishment of the European Economic Community in 1957, the CMEA countries had followed a policy of non-recognition of their Western counterpart. Trade was conducted through bilateral governmental trade agreements and the two economic organizations were not involved in East-West trade. As the EC began to acquire a greater role in the conduct of its members’ trade at the turn of the 1970s, this presented a political ← 16 | 17 → impediment for the CMEA countries’ access to the EC markets. East European states initiated independent actions to secure protection against any discrimination they might face. The countries most dependent on foreign trade, Hungary and Poland, went the furthest in their demands.

None of the East European countries dared to breach the policy of non-recognition of the EC, but some came close. The actions of the allies went against the wishes of the bloc leader as well as the communist ideology. The Soviet Union urged for intra-bloc trade and a status quo policy vis-à-vis the EC. The Soviet leaders understood that trade relations with the West represented a dichotomous issue. On the one hand, there was the hope that increased East-West trade would bring a solution to the problems facing the planned economies. On the other hand, it was well understood that the uncontrolled expansion of these relations might have detrimental consequences for the entire socialist system.

The CMEA states were simultaneously engaged in other negotiations at the time. In 1969, the CMEA began negotiations for a programme of further economic integration. There were, besides external reasons, also internal reasons for this endeavour. The internal push for integration was related to the economic performance of the planned economies, which were showing signs of decreasing growth rates by the 1960s. The Comprehensive Programme⁴ was intended to give a boost to economic growth. In the aftermath of the invasion of Czechoslovakia, the Soviet leadership also needed to increase bloc coherence, which was expected to be achieved through tighter control and coordination of intra-bloc cooperation.

As economic integration on both sides of the Iron Curtain progressed, the EC and the CMEA as well as their individual member states had to deal with the issue of how they would organize their trade relations with non-members, and with one another. The CMEA policy towards the EC became intertwined with the larger integration scheme, but soon the negotiations proved indecisive. The CMEA EC policy was separated from the Comprehensive Programme negotiations as a separate field of policy making. The CMEA needed to completely rethink its negotiating strategy and decide on a common foreign trade policy. To be able to act in the international arena and to represent its member states’ trade interests, it had to have a well-functioning policy-making mechanism. This presented the Soviet leadership with a means to try to introduce supra-nationalism ← 17 | 18 → into the CMEA – an issue that had been vigorously opposed by Romania in the early 1960s, when the Soviet Union had previously attempted this. Any proposals to change the CMEA working mechanisms would bring to the open the paradox that CMEA cooperation entailed for the small Soviet allies. If they negotiated alone with the EC they would be in a very weak position. If they had the backing of the Soviet Union, the CMEA – and thus its members – they would be stronger. The crucial questions which the Soviet allies needed to find answers to were twofold. If they needed to let the Soviet Union have more control, could they at the same time affect Soviet policy choices? Could they trust that intra-bloc interdependencies were so strong that the allies could affect Soviet decisions?

At the time when the CMEA and the EC began a new phase of integration, there were many other simultaneous negotiation processes taking place and many of them came to bear significant implications for the CMEA intra-bloc relations.

The turn of the 1970s has been labelled as détente, or the easing of tensions. The world entered what has been called “an era of negotiations”, as phrased by US President Nixon in his inaugural speech in 1969. The superpowers sought equilibrium and began negotiations on nuclear force reductions in the two rounds of the Strategic Arms Limitation Talks (SALT I and II) and the Mutually Balanced Force Reductions (MBFR) negotiations. Also, new players were allowed to enter the international arena as the United States opened a communication channel to the People’s Republic of China, a step which was emulated by the EC a few years later.⁵ In Europe, the Federal Republic of Germany (FRG) embarked on its own policies towards the East – Ostpolitik – which led to the signing of non-aggression treaties with the Soviet Union and Poland. The negotiations within the Conference for Security and Cooperation in Europe (CSCE) that led to the signing of the Helsinki Final Act in 1975 were a truly multilateral process, with almost all European states participating.⁶

The era of détente was also a turning point in the history of the global economy. The Bretton Woods system, which had been created in the aftermath of World War II, collapsed in the early 1970s. Almost simultaneously the world was struck by the first oil crisis in 1973. That year marked a downturn in ← 18 | 19 → the whole global economy, but in the socialist countries it was more manifest and the Soviet policy of catching up to the West seemed ever more unlikely.⁷ Philip Hanson, terming the latter part of Brezhnev’s leadership as the era of stagnation, put the tipping point in 1973.⁸ A concurrent process, related to the decreasing economic growth rates in the East, was the unprecedented growth of East-West trade – an increasing integration into the world economy by the socialist countries, largely financed on Western credits and loans.

These European and global processes had one thing in common. They all affected the socialist bloc. Neither the division of the world into two competing blocs, nor the existence of the Iron Curtain could make the Soviet bloc immune to changes in the international environment. Research conducted after the collapse of communism has posited that the Soviet bloc was far more penetrable than had been believed during the years of the Cold War. This gradual opening up to foreign influences, or globalisation as it more recently has been termed, meant that no country could avoid the impact of the changes in the international system.⁹

Opening up meant that countries on both sides of the Iron Curtain started to “deal with the devil”. The crucial effect of this interaction was that such contacts opened up possibilities for comparisons between the two systems. The Soviet Union and its allies were increasingly exposed to Western ideas of democracy and liberal markets. Because this happened at a time when the socialist countries had begun to face serious economic difficulties, the Western influence was perceived at the same time as both a threat and an opportunity.¹⁰ The economic success of the EC and its integration process provided a model ← 19 | 20 → that 'might have been possibly applied' to the CMEA. At the same time the danger loomed that if CMEA integration were to fail to create economic growth, the East European socialist countries could easily be tempted to engage in trade relations with the prosperous EC.¹¹

Integration was not a word used to describe cooperation between the socialist countries before the late 1960s. The concept was used in a critical fashion to describe capitalist economic interaction, while the socialist countries were engaged in cooperation. The EC aim of supranationality was an antithesis of the kind of socialist division of labour that was the goal within the CMEA. After the concept socialist integration was used in a Soviet journal in late 1968, it became an acceptable word in socialist vocabulary and researchers began to apply the term when describing cooperation between socialist countries.¹² The fact that integration studies became an accepted and even supported research area had a practical outcome: international affairs analysts were able to provide their leadership with more accurate and up-to-date information on the development of the EC.¹³ This enabled the socialist countries to better formulate their tactics towards the Community. ← 20 | 21 →

This change reflected a deeper revolution in the worldview of both leaders and citizens of the socialist world. After the creation of the Community in 1957, Soviet analysts had recognized that West European integration was a new phenomenon of the capitalist world, but they continued to view it as a temporary one. Marxism-Leninism taught that further integration would create contradictions, which would lead to the general crisis of capitalism and that no capitalist institution could be permanent.¹⁴ The success of the EC integration soon proved the teachings of the founding father of the Soviet state wrong.

Already by the 1960s, the socialist leaders of Eastern Europe understood the potential advantages of regional economic integration. Possibly impressed by the success of the EC, they began to look at the CMEA with greater pragmatism. They started to treat it as an economic rather than a political organization.¹⁵ An evolutionary process had taken place: in order to understand the theory and practice of economic integration, the ideological basis on which the socialist bloc stood, was challenged.¹⁶ This allowed the CMEA members to question the advisability of the policy of non-recognition towards the rising economic power in Europe.

The aim and object of study

This study investigates how the EC’s attempt to implement the Common Commercial Policy in trade with the socialist countries challenged the CMEA members to review how they conducted their foreign trade relations, particularly with EC members. The effect was felt by individual countries and they consequently put pressure on the CMEA to make it protect their trade interests and secure their access to the EC market. How did the CMEA seek to overcome the challenge posed by the CCP? What kind of strategies did it formulate and how were they negotiated and implemented? Which factors made the CMEA modify its policy vis-à-vis the EC? How was this policy negotiated, and what factors were at play in the outcome?

The study takes an institutional approach to answer these questions. They will be answered by analysing firstly the functioning principles and performance ← 21 | 22 → of the CMEA machinery. Secondly, the study will assess the negotiating positions and powers of the member states within the CMEA in their effort to face the economic challenge of the EC. The CMEA development and debates are put in the wider context of the Cold War and its members’ acknowledgement of the need to integrate into the world economy. The analysis sheds light on the differences of opinion that came to the fore during the Brezhnev period. These problems were tackled vigorously by Mikhail Gorbachev’s perestroika programme, but in the end, the internal differences helped to bring about the demise of the socialist bloc at the end of the 1980s.

Simultaneously the study will touch upon the debate concerning the EC as a foreign policy actor and the tools it used in its external policy. The EC integration process was a challenge to the existing situation and it pressured non-members to renegotiate their access to the EC market.¹⁷

When the EEC was established in 1957, the Soviet Union refused to acknowledge it as an international legal entity. According to Soviet calculations, a prospering and reasonably cohesive Western Europe could become a powerful attraction for the East European countries in its sphere of interest, thus threatening Soviet hegemony in a region vital to its security. The policy of non-recognition of the EC was imposed upon the East European allies and the CMEA alike.¹⁸

This diplomatic anomaly had little effect on European economic and political life until the late 1960s. The EC bid to start implementing its Common Commercial Policy, starting on 1 January 1970, changed that situation. The EC aim was to transfer the right to negotiate and conclude international trade and commercial agreements from the Community members to the Commission. It ← 22 | 23 → was about to take a major step forward in its goal to fulfil the tasks set in the Treaty of Rome. The implementation of the CCP meant that all trade agreements would have to be negotiated with the EC, instead of with its individual member states.¹⁹ The EC had further ambitions to raise its international authority as it began discussions on political integration. This was initiated in 1970 with the establishment of a new political cooperation mechanism – the European Political Cooperation (EPC).²⁰