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Prospects for integration in the Council for Mutual Economic Assistance (CMEA)

Published online by Cambridge University Press:  22 May 2009

Paul Marer
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Abstract

In analyzing the future of the Council for Mutual Economic Assistance (CMEA), it is useful to assess both the centrifugal and centripetal forces affecting regional economic integration. Centrifugal forces include the existing structure of production in Eastern Europe; problems of coordination; and inefficient price systems, among others. Centripetal forces include the worldwide energy crisis; Western inflation and recession; the growing importance of trade blocs; and numerous other factors contributing to the increasing hard-currency indebtedness of the Eastern European countries. Many of these external events have increased the attractiveness for CMEA countries of intrabloc economic relations and provided a momentum for CMEA integration. Analysis of the various forces leads to the conclusion that Soviet economic policy vis-à-vis Eastern Europe will remain crucial in determining the direction and speed of economic integration. Soviet economic involvement with Eastern Europe seems to have been costly for the USSR during the past decade and so it is not obvious that the USSR will attempt to push integration much further than it now stands.

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Articles
Information
International Organization , Volume 30 , Issue 4 , Autumn 1976 , pp. 631 - 648
Copyright
Copyright © The IO Foundation 1976

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References

1 The CMEA in this paper refers only to the USSR and the six East European countries of Bulgaria, Czechoslovakia, the German Democratic Republic, Hungary, Poland and Romania, even though Cuba and Mongolia also have full membership in the organization.

2 Pryor, Frederic L., The Communist Foreign Trade System (Cambridge, Mass.: The MIT Press, 1963)Google Scholar.

3 McMillan, Carl H., “Some Remarks on Socialist Integration and East-West Relations.” Remarks prepared for the Airlie House Conference on “Eastern Europe-Stability or Recurrent Crises?,” 11 13–15, 1975 (unpublished)Google Scholar.

4 A recent comprehensive review of institutional developments in the CMEA can be found in Fallenbuchl, Zbigniew M., “East European Integration: COMECON,” in US Congress, Joint Economic Committee, Reorientation and Commercial Relations of the Economies of Eastern Europe, (Washington, D.C.: US Government Printing Office, 08 1974)Google Scholar.

5 McMillan.

6 Montias, J.M., “Obstacles to Economic Integration of Eastern Europe,” Studies in Comparative Communism, Vol. 2, Nos. 3 and 4 (07/10 1969)CrossRefGoogle Scholar.

7 Marer, Paul, Postwar Pricing and Price Patterns in Socialist Foreign Trade (1946–1971), (Bloomington, Indiana University: International Development Research Center Report No. 1, 1972)Google Scholar.

8 Hewett, Edward A., “Prices and Resource Allocation in Intra-CMEA Trade.” Paper prepared for a conference on The Consistency and Efficiency of the Socialist Price System, University of Toronto, 03 8–9, 1974Google Scholar.

9 McMillan, Carl H., “Factor Proportions and the Structure of Soviet Trade,” The ACES Bulletin, Vol. 15, No. 1 (Spring 1973)Google Scholar. Critical comments on this article and further original findings are presented in Rosefielde, Steven, “The Embodied Factor Content of Soviet International Trade: Problems of Theory, Measurement and Interpretation.” The ACES Bulletin, Vol. 15, Nos. 2–3 (Summer–Fall, 1973)Google Scholar.

10 For a listing of additional considerations and further discussion, see Marer, Paul, “Has Eastern Europe Become a Liability to the Soviet Union-the Economic Aspects” in Gati, Charles (ed.), The International Politics of Eastern Europe (Praeger, 1976)Google Scholar. See also an earlier study by the same author which discusses the early postwar period as well as more recent developments: “Soviet Economic Policy in Eastern Europe,” in US Congress, Joint Economic Committee, Reorientation and Commercial Relations of the Economies of Eastern Europe, (Washington D.C.: US Government Printing Office, 08 1974)Google Scholar.

11 Bergson, Abram, “Russia's Economic Planning Shift,” The Wall Street Journal, 05 17, 1976Google Scholar.

12 More than any other commodity, oil illustrates the problem. In 1974 the Soviet Union shipped about 60 million tons of crude oil and petroleum products to the five European members of CMEA (Romania did not purchase oil from the USSR), at $16 to $20 per ton (depending upon the mix of crude and oil products), for a total revenue of $1.0 to $1.2 billion dollars. During the same year the Soviets sold approximately 40 million tons of oil in the West at the then current average world market price of about $70 per ton, for a total revenue of about $2.8 billion. If we make the admittedly unrealistic assumption that the USSR could have sold the 60 million tons of oil to the West rather than to CMEA, we find that they could have earned $3 billion additional hard-currency revenue, increasing their $7.5 billion actual earnings by 40 percent.

13 It is important to note that the nominal revaluation of the ruble vis-à-vis the dollar increases the nominal dollar but not the actual ruble value of intra-CMEA trade. Thus, when calculating the real burden of intra-CMEA price changes in dollars, an unchanged ruble/dollar exchange rate must be used.

14 Ptichkin, N., “The 29th Session of the Council for Mutual Economic Assistance,” Foreign Trade (Moscow), 10 1975Google Scholar.

15 For example, Czechoslovakia buys approximately one-third of industrial raw material and semimanufactures imports from the industrial West (Svet Prace), November 12,1974, p. 4.

16 Campbell, Robert W., “East European Trade in Crude Oil and Petroleum Products, 1965–1974” (unpublished, 1975)Google Scholar.

17 Author's estimate, based on Brainard, Lawrence J., “Financing Eastern Europe's Trade Gap: The Euromarket Connection,” Euromoney, 01 1976, pp. 16–18Google Scholar. The indebtedness figure is a “gross” estimate, i.e., without subtracting East Europe's relatively small hard-currency, assets, held mainly in the form of Eurocurrency deposits.

18 Baumer, Max and Jacobsen, Hans-Dieter, “Integration of COMECON Into the World Economy?” Aussenpolitik (German Foreign Affairs Review), Hamburg, Vol. 27, No. 1 (1976)Google Scholar.

19 Carl H. McMillan, “Some Remarks.…”

20 Korbonski, Andrzej, “Detente, East-West Trade, and the Future of Economic Integration in Eastern Europe.” Paper presented at the Annual Meeting of the American Association for the Advancement of Slavic Studies, Atlanta, Georgia, 10 1975Google Scholar.

21 An example of how the expansion of East-West commerce can contribute to CMEA integration: shortly after East European countries began to purchase Western licenses, on a regular basis, CMEA decided to introduce (in 1967) a system of payments for the transfer of licensing and know-how among CMEA countries-an indispensible first step toward improving the effectiveness of intra-CMEA technology transfer. Another example is the establishment of a central CMEA office for purchasing Western licenses proposed by the USSR to avoid duplication. This would be linked to CMEA funding of joint specialization projects. McMillan further points out that when an East European country is committed under an East-West cooperation agreement to payment in convertible currency for royalties or parts and service, it will undoubtedly press for hard-currency payment when the resulting products are exported to CMEA partners. In fact, the joint venture agreements of Romania explicitly provide for this possibility.