Free trade across Iron Curtain

Press, 25 August 1983, Page 20

Free trade across Iron Curtain

By

PAUL BOLDING,

of Reuter, in East Berlin

In a world beset by the problems of protectionism, free trade is thriving in an unlikely corner of the world — over the Iron Curtain that divides East and West Germany. Special trade terms granted by Bonn for political and historical reasons mean that the Communist East is often thought by other nations to be the eleventh member of the European Community, a situation which deeply concerns some Community politicians. When the founding fathers of the Community signed the Treaty of Rome in 1957, they also approved a protocol exempting from it “inner-German” trade, reflecting the belief in the West at that time that Germany was one nation temporarily divided. Since then the world has recognised East Germany as a separate state, though Bonn does not accept it as a foreign country, and trade between the two has rocketed.

Last year, East German exports to West Germany, all free of Community duties and import levies, were a record seven billion marks ($4 billion) and 1983 figures show a further rise.

Officially less than 1 per cent of them, worth around 50 million

marks ($28.49 million),' are reexported to other Community countries, but this is enough to worry Community politicians who fear that the real figure is higher. A French Gaullist, Jean-Fran-cois Deniau, was the latest of many members of the European Parliament to complain when he called in March this year for a thorough probe of the legal basis for East Germany’s exemption from import duties and of how its re-exports through West Germany are monitored. No member state has complained about the issue and Mr Deniau said that the whole topic seemed to have become taboo. Two years ago the Belgian Foreign Trade Minister, Dr Willly De Clercq, in a European Parliament report, said that the special arrangement was estimated to be worth $6.16 billion a year to the East Germans. Another member, David Curry of Britain, asked in vain in 1980 whether the Internal Market Commission had estimated how much it lost because of the system. The Internal Market Commissioner, Karl Heinz Narjes, himself a West German, said the Commission had not worked it out because

if East Germany lost its special status there would be “very marked changes in trade flows”. Dr De Clercq warned that there was a constant risk that other countries would abuse the system to get goods duty free into the Community and at least one case is known where an East German enterprise connived at such deception.

West German officials assert that such incidents are rare and are dealt with as fraud on both sides of the German divide.

Dr De Clercq pointed out that the only information on East-West German trade came from West Germany and there were no independent checks. Community diplomats in East Berlin also complain that information is scant on the detailed nature of the trade. One envoy said many goods sold in the Common Market as West German are made or assembled in East Germany and the fact concealed.

These cover a range of consumer items including leading brands of car spares and fashion shoes. “There is an added value which could make it easier for West German firms to compete with ours, but we simply have no idea of the extent of it,” said one

diplomat. The scale of the trade also means hefty competition in the West German market which, in times of recession, the other community countries could do without. Among the groups most concerned are farmers, a strong lobby who fear almost any competition. West German officials say, however, that a large proportion of the East German farm imports are for West Berlin, an enclave surrounded by East Germany with minimal agriculture of its own and where ease of transport makes it an obvious buyer. They also point out that West Germany can and does impose quota limits on East German goods and say some 90 per cent of farm items are restricted in this way.

Ironically, East Germany does not recognise the Common Market as a bloc because the Community’s writ extends to West Berlin, whose legal status is disputed between East and West.

However, according to Otto Haensch, a West German member of the European Parliament who came here last year, the East Germans are showing greater interest in an accord with the Community. The chagrin in other Community

states has been worsened by a shift in East Germany’s trade patterns meaning it is buying less from them and selling more to them.

A desperate hard currency shortage has made it slash Western purchases except those from West Germany, which are up around' 30 per cent on last year.

This is because Bonn allows East Berlin a clearing arrangement between central banks which means the Communist side does not need hard cash for purchases, only for its cumulative deficit. It also gets an interest-free “swing” credit of 770 million marks ($438.9 million) — a kind of overdraft on its West German trade which means short-term deficits do not require new credits.

The Bonn Government has maintained the special trade relationship in the hope of keeping ties with what it sees as the other half of one divided nation as close as possible, even though the idea of reunification has been virtually forgotten by the rest of the world.

The East Germans are happy to take advantage of the special status, although they firmly reject the West German view, of the German “nation” and defend their position as an independent and separate state.