Why East-West trade?

The Polish economic morass raises a fundamental question. Has the West become too entangled economically with the Soviet bloc and has the time come to rethink the whole subject of East-West trade? Some voices, like that of New York financial expert Felix Rohatyn, go so far as to say the West ought to declare Poland bankrupt, put the burden of the Polish economy on the Russians, and stop financing an inefficient system, especially one inimical to Western interests.

Such a course seems attractive in its simple logic. Whether it is the wisest one, economically or politically, is another matter.

There is no denying the failures of the Soviet system. Poland is not the only member of the bloc in trouble. The Soviet Union itself owes Western traders and banks close to $20 billion and its economic growth rate has been steadily declining. Romania has a debt of $10 billion and, in order to export more food, has instituted food rationing. Czechoslovakia, one of the technologically most advanced in the bloc, has had to scale down its economic goals. Overall economic growth for the Comecon countries, the East European economic grouping, has slowed every year since 1976 and was down to 1.2 percent in 1980. The total East-bloc debt is nearing $80 billion. While the recession in the West accounts for some of the bloc's problems, including those of Poland which overoptimistically counted on exports to the West to pay for its heavy investment borrowings, the underlying flaws in the communist system are basically to blame for the poor performance and the inability to meet obligations to the West.

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This is not to absolve the Western bankers of responsibility for the difficulties in which they now find themselves. The fact is, they have tended to look on the Eastern bloc as a stable market for Western exports, thinking the Soviet Union would pay the debts of its East European allies rather than risk destroying the bloc's credit-worthiness. The banks in effect went on a spree, with less than a keen commercial analysis of the projects underwritten or the economic policies of the communist governments. Few if any conditions were attached requiring financial discipline; often the terms were extremely low. Then, instead of cutting their losses when it became clear such countries as Poland were overextended, the banks proceeded to issue new loans to protect the loans already made. After the binge

Behind this binge lay political as well as economic considerations. By creating a web of economic relations with the East - so went the Kissingerian argument--the Soviets would have an incentive to moderate their behavior abroad. Helping build up consumer economies in the Soviet bloc, moreover, would create increased internal pressures on communist governments. At the same time, rising unemployment and recession in the Western nations made trade with the East all the more attractive. By pushing exports, such countries as West Germany have sought to save jobs, spur high-technology industries, and keep up competitive strength abroad.

Where now?

To begin with, East-West trade is not so large as to arouse alarm. Trade with Comecon by the European members of NATO accounted for about 4 percent of their total world trade in 1980. For West Germany the figure was 6.5 percent, France 4 percent, Italy 3.5 percent, and Britain 2.3 percent. For the United States the figure was only l.7 percent. This is hardly a serious ''dependence'' on the Soviet bloc.

But clearly Western governments, traders, and bankers have some rethinking to do. Efforts to tighten up the sale of sensitive industrial goods to communist countries, including electronic and computer equipment, is a good start. It is self-defeating to sell the Russians items that enhance their military capability. The whole debt question also needs imaginative solutions. Common sense suggests that no rescheduling program should be put into effect or further loans and credits granted to Poland without a solid economic reform program. And if any lesson has been learned by the recent experience, it is that commercial greediness does not pay off in the long run and that East-West deals should be soundly based. Political benefits

Beyond that, however, is the question of just how much dependence on the Soviet bloc is prudent - for such a critical commodity as natural gas, for instance. In general trade with the communist bloc can be looked on as economically beneficial. Thus, American farmers would be the first to protest if the US placed another grain embargo on the Soviet Union. West Europeans believe the Siberian gas deal will reduce their overreliance on Persian Gulf supplies, along with providing good export contracts. For the Russians, the deal helps earn foreign exchange and is crucial to fulfilling economic plans -- gains they would not lightly jeopardize by cutting off the flow of gas.

But trade with the East cannot be looked at in just economic or commercial terms. There are political dimensions as well. It is true that detente has not, as some expected, tempered Soviet behavior around the world. But it has contributed to a measure of liberalization and reform in Eastern Europe. Hungary is, of course, the prime example of a communist country which has expanded its commercial links with the West and adopted elements of a market economy. Bulgaria is now planning similar experiments. If the changes in Eastern Europe are modest by Western standards, life for the peoples there has certainly become easier and more decent.

With the events in Poland, however, the process of gradual integration of the Comecon economies with the West stands in doubt. The Soviet Union is now squeezing its East European allies to share the burden of rescuing Poland, thereby strengthening its hold on them and frustrating their efforts to loosen the Soviet grip. In contemplating even stiffer sanctions against Warsaw and Moscow, the NATO allies must weigh that the result of that policy would probably be to bind the Poles and others even more closely to Moscow and insulate them from the West. On the other hand, keeping open the door to further trade and aid -- tied to Polish economic reform and alleviation of martial-law repression -- could help influence events in a moderate direction. The risk of xenophobia

One other political nuance should be mentioned. The Soviet Union is nearing the time when there will be a change of leadership. Of course the West cannot determine what happens in the Kremlin. But it must not ignore that whatever hard-line policies it chooses to pursue in this period of political struggle could play into the hands of hard-line elements and feed xenophobic feelings. This is not an argument for appeasement or softness, but for an understanding of the larger political stakes which dictate restraint.

In short, declaring the Soviet bloc in default and self-righteously walking away from the problem may soothe some egos. It would not make for a discriminating diplomacy that serves the best interests of the West -- and the people of Eastern Europe.

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