East-West Trade and Détente 28 February 2005 Juhana Aunesluoma University of Helsinki tel

Economy and international relations: why bother? what are international relations about? what are international relations about? international economic system international economic system economic interdependence and security economic interdependence and security connected?connected?

Today’s lecture economic matters in the CSCE economic matters in the CSCE developments in East-West trade developments in East-West trade Western economic warfare Western economic warfare economic issues as a part of détente economic issues as a part of détente US, Soviet and European views US, Soviet and European views

CSCE: I Basket (Security in Europe): principles … 1 sovereign equality, respect for the rights inherent in sovereignty 1 sovereign equality, respect for the rights inherent in sovereignty 2 refraining from the threat or use of force 2 refraining from the threat or use of force 3 inviolability of frontiers 3 inviolability of frontiers 4 territorial integrity of states 4 territorial integrity of states 5 peaceful settlement of disputes 5 peaceful settlement of disputes

… I Basket principles 6 non-intervention in internal affairs 6 non-intervention in internal affairs 7 respect for human rights and fundamental freedoms, including the freedom for thought, conscience, religion or belief 7 respect for human rights and fundamental freedoms, including the freedom for thought, conscience, religion or belief 8 equal rights and self-determination of peoples 8 equal rights and self-determination of peoples 9 cooperation among states 9 cooperation among states 10 fulfilment in good faith obligations under international law 10 fulfilment in good faith obligations under international law

CSCE: III Basket (Co-operation in Humanitarian and Other Fields) 1 human contacts 1 human contacts 2 information 2 information 3 culture 3 culture 4 education 4 education

CSCE: II Basket 1 commercial exchanges 1 commercial exchanges business contacts and facilitiesbusiness contacts and facilities economic and commercial informationeconomic and commercial information marketingmarketing 2 industrial co-operation and projects of common interest 2 industrial co-operation and projects of common interest 3 provisions concerning trade and industrial co-operation 3 provisions concerning trade and industrial co-operation harmonization of standardsharmonization of standards arbitrationarbitration specific bilateral arrangementsspecific bilateral arrangements 4 science and technology, 5 environment, 6 other areas (tourism, migration) 4 science and technology, 5 environment, 6 other areas (tourism, migration)

Economic statecraft economic restrictions imposed for the sake of national security economic restrictions imposed for the sake of national security strategic embargostrategic embargo purpose is to limit the opponents military capabilitypurpose is to limit the opponents military capability measures to influence the opponent’s decision- making measures to influence the opponent’s decision- making sanctionssanctions leverageleverage linkagelinkage long-term economic warfare/détente long-term economic warfare/détente enourage/discourage tradeenourage/discourage trade purpose is to create long-lasting changes in the opponentpurpose is to create long-lasting changes in the opponent

East-West trade: effects of the First World War and 1917 Bolshevik revolution effects of the First World War and 1917 Bolshevik revolution 1935 US-SU trade agreement 1935 US-SU trade agreement MFN statusMFN status 1938 ”high water mark” 1938 ”high water mark” effects of the Second World War effects of the Second World War Lend-Lease ProgramLend-Lease Program wartime destruction and post-war reconstruction needswartime destruction and post-war reconstruction needs

Early cold war: US economic containment policy: US economic containment policy: 1948 control program for US technology and commodity exports1948 control program for US technology and commodity exports 1949 Export Control Act1949 Export Control Act 1950 China embargo (-1971)1950 China embargo (-1971) 1951 Trade Agreements Extension Act1951 Trade Agreements Extension Act together with allies: together with allies: 1949 Coordinating Committee (COCOM)1949 Coordinating Committee (COCOM) Soviet policies 1940s: Soviet policies 1940s: redirection of satellites’ economiesredirection of satellites’ economies Soviet-led integrationSoviet-led integration effects on East-West trade: effects on East-West trade: rapid decline allround rapid decline allround

Economic Cold War: US-Europe disagreements US-Europe disagreements European openings mid-1950s onwards: European openings mid-1950s onwards: bilateral trade agreements with East European countries on the basis of MFNbilateral trade agreements with East European countries on the basis of MFN creditscredits revisions of COCOM listed commoditiesrevisions of COCOM listed commodities US maintained a more extensive list US maintained a more extensive list changes in US policy: differentiation changes in US policy: differentiation Soviet policies: Soviet policies: 1950s: attempts to increase trade in Europe1950s: attempts to increase trade in Europe 1958 Khruschev letter to Eisenhower1958 Khruschev letter to Eisenhower effects on trade effects on trade recovery and expansion (Europe)recovery and expansion (Europe) remains on low level (US)remains on low level (US)

The Economy of Détente Europe: intensified economic East-West interaction Europe: intensified economic East-West interaction new US policy new US policy Kissinger: ”Our strategy was to use trade concessions as a political instrument, witholding them when Soviet conduct was adventurous and granting them in measured doses when the Soviets behaved cooperatively”Kissinger: ”Our strategy was to use trade concessions as a political instrument, witholding them when Soviet conduct was adventurous and granting them in measured doses when the Soviets behaved cooperatively” 1969 Export Administration Act 1969 Export Administration Act 1971 end of China embargo 1971 end of China embargo

… economy of détente 1972 US-Soviet negotiations 1972 US-Soviet negotiations agreements (trade, credits, facilities)agreements (trade, credits, facilities) problems for Nixon-Kissinger policy problems for Nixon-Kissinger policy Jackson-Vanik Amendment 1973Jackson-Vanik Amendment Soviet Union rejects 1972 agreement1975 Soviet Union rejects 1972 agreement effects on trade: effects on trade: : boom : boom : stagnation, differentiated development : stagnation, differentiated development

II basket in the CSCE process East bloc interest greater in principle East bloc interest greater in principle but demands were modestbut demands were modest material benefits also for the West material benefits also for the West practical issuespractical issues links to III basket issueslinks to III basket issues reflected the contemporary East-West trade boom reflected the contemporary East-West trade boom ”comprehensive notion of security” ”comprehensive notion of security” North-South (Europe) dimension as well as East-West dimension North-South (Europe) dimension as well as East-West dimension

II basket: problems abstract principles: symbolic value limited abstract principles: symbolic value limited comparisons with III basketcomparisons with III basket contracts and further official agreements required to achieve the stated endscontracts and further official agreements required to achieve the stated ends existing bilateral and multilateral agreements and institutions existing bilateral and multilateral agreements and institutions GATT, MFN-status, bilateral trade agreements...GATT, MFN-status, bilateral trade agreements... Nixon-Kissinger economic engagement policy in trouble Nixon-Kissinger economic engagement policy in trouble

Epilogue: after 1975 a new life for United Nations Economic Commission for Europe (est. 1947) in the follow-up process a new life for United Nations Economic Commission for Europe (est. 1947) in the follow-up process advances in practical issues advances in practical issues wider conception of security: benefits of interdependence wider conception of security: benefits of interdependence 1980s economic realities 1980s economic realities

Selected reading John J. Maresca: To Helsinki (1985) John J. Maresca: To Helsinki (1985) Gunnar Adler Karlsson: Western Economic Warfare (1968) Gunnar Adler Karlsson: Western Economic Warfare (1968) Michael Mastanduno: Economic Containment. CoCom and the Politics of East-West Trade (1992) Michael Mastanduno: Economic Containment. CoCom and the Politics of East-West Trade (1992) David Baldwin: Economic Statecraft (1985) David Baldwin: Economic Statecraft (1985) Angela Stent: From Embargo to Ostpolitik. The Political Economy of West German- Soviet Relations (1981) Angela Stent: From Embargo to Ostpolitik. The Political Economy of West German- Soviet Relations (1981)

People’s democracies trade with Western Europe

US trade with the Soviet Union (million $)

US trade with the Soviet Union (million $)

US trade with the Soviet Union (million $)

US exports to Soviet Union (million $)

US imports from Soviet Union (million $)

EC trade with Eastern Europe (million ECU)

East German-West German trade (million clearing units)

Exports to East Europe and USSR in % of total exports

Importance of Eastern exports for Mannesmann A.G. in %

FRG-USSR trade (million DM)