THE EEC EATS ITS OWN RHETORIC

Western Europe has been taught a lesson in free trade by former Communist

countries, argues Anne Applebaum AMERICAN politicians have long been aware of the difficulties encountered when reality clashes with rhetoric. Because the Founding Fathers thrust the idea that 'all men are created equal' into the Declara- tion of Independence, politicians later found it hard to deny the advantages of cit- izenship to blacks. Because the Constitu- tion spoke of a 'perfect union', it later became impossible for any group of states to break away. Even President Clinton has been caught by this need to live up to what one has promised: having spoken of 'fixing' Bosnia during his election campaign, he now feels compelled to do something about it, although he would clearly prefer to do nothing.

Until recently, European Community politicians were rarely forced to live up to the same standards. When it was still in the planning stages, de Gaulle spoke grandly of the EEC as 'the conception of Charle- magne', and no one paid much attention. But lately, the mood has changed. These days, much of the European Commission's time is spent prodding the Community's member states to live up to their rhetoric. In order to enforce the free trading ideals of the Single Market, writs are issued to prevent member governments from subsi- dising their own state companies, lawsuits are filed to ensure Community-wide com- petition for government contracts, and so on.

There is no better example of this phe- nomenon than the European Commission's latest proposals to accelerate the economic integration of eastern Europe — Poland, Hungary, the Czech Republic, Slovakia, Rumania and Bulgaria — which will be dis- cussed at the Copenhagen summit in June. Ever since the wall fell in 1989, west Euro- pean politicians have spoken proudly of their role in the glorious collapse of com- munism, and waxed joyous at the thought of the eastern brethren coming back into the fold. They have sent food aid to Poland and Rumania, and contemplated sending enormous sums of cash to Russia. At exact- ly the same time, however, they have been doing what they could to prevent the newly independent east European states from helping themselves: at all costs, they have tried to keep eastern Europe from gaining access to EEC markets.

Just two years ago, a handful of bright young Polish economists at the optimisti- cally titled Polish Ministry for European Integration sat down with their calculators and their computers (gifts, no doubt, of some well-meaning western government) and attempted to guess how much the Pol- ish economy was going to grow over the next few years. One of their models assumed that the European Community opened its borders, liberally, to Polish goods; the other assumed that western Europe's borders remained closed.

`Either way, the European Community finished first,' remembers one of the Poles. `Either way, their exports to us were going to rise faster than our exports to them. But with more liberal trade rules our economy was going to grow much faster than it would have done otherwise, maybe as much as 1 per cent of GDP per year.' Armed with this information, he and the rest of the team set off for a meeting of the European Commission. The Poles, like the Czechs and the Hungarians, were not ask- ing for aid, but for trade. Surely western Europe would see that opening borders helping the East to help itself — was a good thing. They were surprised.

`Officially, our results were dismissed as inconclusive. Unofficially, the Eurocrats blamed us. They did not believe that west- ern Europe's borders were too closed. On the contrary, they told us that Poland's bor- ders were too open.' The Polish economic reforms, in other words, were going too fast. 'What could we say to that?' What indeed? That western Europe preferred not to see eastern Europe succeed too quickly?

It is possible. When the first post-com- munist Polish government put together its plan for radical economic reform plan in 1989, the new ministers shopped it around western capitals for approval. The response was overwhelming — most western leaders praised the Poles for their decision to jump into free markets — with one exception. `Once you have killed off your economy,' Jacques Delors told them crossly, 'it is we who will have to pull the dead body up off the floor.' Leszek Balcerowicz, the finance minister in that government, remarked to me that 'unlike us, they are perhaps still a bit statist in Brussels'.

He admits, 'We started out very naive.' In the beginning, east Europeans used the expression 'EEC' as a synonym for eco- nomic progress. Politicians spoke of joining the EEC as a panacea, as if membership alone would solve all their problems. But they learned quickly. During their very first discussions, the west European negotiators surprised their east European counterparts with their tough tone. 'That is fine for ordi- nary negotiations, but when you are negoti- ating something called the "Europe Agreement", something with a very grand title and implications for the future of the continent, you expect a different attitude,' recalls one of the participants.

The result of that negotiation was a set of three very thick documents — the Europe Agreements — which bear an uncanny resemblance to the sort of thing which Comecon — through which Moscow regulates trade in eastern Europe — used to produce. They are, in effect, very long lists of what can be traded, and in what quantities, over the next decade or so. In year one, for example, Hungary can export 1,100 tons of dried prunes, at 9.6 per cent duty. In year two, Hungary can export 1,200 tons of dried prunes, at 7.2 per cent duty — and so on. Fine distinctions are made: there are separate listings for patent leather, patent laminated leather, and rep- tile leather; machinable steel, ball-bearing steel, steel in long rods and steel in short rods; raspberries, blackcurrants, redcur- rants, strawberries and 'other' berries. There are curious anomalies: why, for example, an 18 per cent duty on raspber- ries?

The east Europeans claim that the duties were specifically designed to penalise those products which might be able to compete with the West, particularly textiles, steel, and agriculture. Goods which can't com- pete — computers, say, or locomotives were granted low tariffs and high quotas. The result has been not only a shift in the trade balance — western European exports eastward are growing faster than Eastern European exports westward, just as the Poles predicted — but a surge in corrup- tion as well. If, because of quotas, only a handful of lamb-chop producers are allowed to export, a bureaucrat must make an arbitrary decision. When that bureau- crat's salary is $200 per month, he will often be swayed by a bribe.

But the agreements also produced a flood of contradictory rhetoric. At times, the IMF representative from a given coun- try would be telling the Hungarians to fol- low one policy (`export') while the EEC negotiator from that same country would offer different instructions (`don't export'): western banks advised the newly capitalist governments to eliminate agricultural sub- sidies, while western politicians refused to allow imports of agricultural products. While urging the east Europeans to comply with the rules, only five of the 12 actually ratified the Europe Agreements.

Angered by the deal they got from their new western friends, the east Europeans began to fight back, throwing the rhetoric of free markets back at their western coun- terparts. Over the last year, an official at the EEC trade commission told me they became very skilled propagandists: 'They have all sorts of ways of lobbying for mar- ket access.' He complained that the Com- missioners were 'constantly' having to see east European politicians, who spoke over and over again of free trade, the need for a united continent — everything which the EEC was supposed to stand for.

The worst moment was the trade war which began this spring, when the EEC banned east European meat and dairy products on spurious charges of foot and mouth disease. 'There hasn't been foot and mouth disease in the Czech republic since 1974,' fulminated the Czech foreign minis- ter, who promptly banned EEC meat and dairy products from his country. The Hun- garians followed suit. What the East Euro- peans were doing, in fact, was throwing EEC rhetoric back at the EEC.

In order to reconcile rhetoric with reali- ty, the Commission has finally caved in: it now wants to liberalise the Europe Agree- ments, opening borders further, and to offer the East Europeans a firm commit- ment to eventual Community membership. In June, at the Copenhagen summit, the member states will be forced to decide whether or not to agree to a freer Euro- pean trade zone.

While the implications have not been much talked about so far, this decision may turn out to be the most important one the Community ever makes. Given that most of the east Europeans — particularly Poland, Hungary, and the Czechs — have encour- aged the growth of virtual free markets in farming, the costs of the CAP would soar if they were admitted: east European farmers would have to be paid off to produce less. According to current formulas, richer countries would also be paying poorer countries nearly twice what they are paying now in 'cohesion funds'.

Neither the Cap nor the system of cohe- sion payments could survive. Free-trade- minded Community officials hint darkly about 'those countries — you know which ones I mean' who are obstructing trade lib- eralisation with eastern Europe, and can ultimately be expected to obstruct their membership. But perhaps the French, the Spanish, the Portuguese and the Greeks (it is always better to name names) are right, from their point of view, to resist. If forced to live up to its rhetoric — if forced to become a continental single market instead of an exclusive, protectionist bloc — the EEC as we know it will have to undergo the same painful transformation from a planned economy to a free market which the east Europeans are experiencing today.