YUGOSLAVIA AND THE EUROPEAN COMMUNITY 1958-70

YUGOSLAVIA AND THE EUROPEAN COMMUNITY 1958-70 BY STJPHEN HOLT AND KEN STAPLETON

ON March 19, 1970 a non-preferential trade agreement was signed between Yugoslavia and the European Community. It followed more than a decade of anxiety and uncertainty for the Yugoslavs about the effect on their economy of the apparent division of the world into regional economic blocs. It also further confirmed the new trend of Yugoslavia’s foreign trade, a trend which seems likely to remain for some time to come.

Ever since Yugoslavia’s expulsion from the Cominform in 1948 she has been in an exposed economic position and has had to face the constant threat that this situation could undermine her hard-won political independence. Having refosed Marshall aid along with other members of the then Soviet bloc, Yugoslavia found herself after 1948 suffering an economic blockade by other Communist countries. Her Government has estimated that the damages caused by the Cominform economic blockade amounted to the equivalent of 12 Billion dollars.1 In an attem t to help Yugoslavia resist Soviet ressure, Western

forms of aid. This process began at the end of 1949 and by 1951 the country was receiving tripartite aid from the United States, Britain and France worth $5g1,720,000.2 This Tripartite Aid lasted from 1951 to 1955 and by far the largest part of it came &om the United States. Indeed even after 1955, U.S. Aid (includin agricultural surpluses)

1959 just covered Yugoslavia’s balance of payments deficit.3 The dramatic thaw in East-West relations which followed the death

of Stalin also opened a new chapter in the relations with Yugoslavia. In the same month as the Austrian State Treaty was signed (May 1955)’ a Soviet state visit to Belgrade led to a revoking of restrictions on trade with Yugoslavia. A formal reconciliation between Tito and Kh-uschev followed in June 1955. But while the Western powers were prepared to provide finance for the country’s day-to-da needs they were not will-

countries an s organizations began to make availab P e loans and other

continued to flow in substantial amounts an B for the period 195s to

ing at that time to finance long-term capita I y projects. It was to this end

1 Review. vol. I, no. I. Published by The Study Centre for Jugodav &in, London, 1960, p. 34. ZJugodovenski Regled, 1957 3 Soe Statistical Pocket bwk &ugodavia. A p d 1959 and May 1962.

. 39. Quoted in op. at.. p. 34.

47

48 JOURNAL OF COMMON MARKET STUDIES

that Yugoslavia in 1956 concluded a series of agreements with the Soviet Union, Czechoslovakia, Poland and Hungary for credits to a total value of $464 milli0n.4 It soon became clear, however, that as far as the Russians were concerned, there were political strings attached to these agreements. When the Yugoslavs made it clear, particularly at the Moscow conference of Communist Parties in November 1957, that they did not intend to rejoin the Soviet bloc, all kinds of difficulties began to appear in relation to the agreements. Although substantial parts of the agreements continued to be carried out, it was clear by the end of the fifties that the new hopeful chapter in Soviet-Yugoslav relations which had opened following Stalin’s death was now at an end.

By this time, anyway, the Yugoslavs had another problem on their hands-the formation of the European Community. It seemed likely also, in response to this ambitious Western undertaking, that Comecon too could embark on a more far-reaching process of integration. The Yugoslavs saw the creation of regional economic blocs as a serious threat to their independence. In a pamphlet published in 1962, the economist Janez Stanovnik criticized both the European Community and Comecon for the effect they were having on developing countries. ‘Regional economic integration’, he said, ‘enables the creation of a big centre of economic power which, similar to concentration in industry, represents an element of monopoly and hence also an element of power and exploitation in international economic relations.'^ While this was not an official document, it did reflect the view generally held in ruling circles at the time. Yugoslavia faced the pros ect of increasing tariff discrimination as the Common external tariff o P the EEC. was gradually harmonized and internal tariffs abolished. More important in the long run was to be the discrimination in the agricultural sector as the Community’s Common Agricultural Policy was being established. Stanovnik prescribed a set of three main defensive measures in the interests of economic independence : (a) the promotion of economic ties with other non-aligned countries (but not in the form of a new economic bloc), (b) the concentration of investment policy on the promotion of the exporting industries and (c) to join with other non-aligned countries in the development of normal trade relations with existing blocs. Rational though such a strategy may seem, neither time nor events have been on Yugoslavia’s side in implementing it. The enor- mous economic pull of the countries of the European Community shows clearly in the changing pattern of Yugoslavia’s foreign trade and

‘Ibid., . 37. 5 WodEconornic l3locs: The Non-aligned Countries andEcononaic Integration (Beogradski

Graficki Zavod. Belgrade 1962) p. 27.

Y U G O S L A V I A A N D THE E U R O P E A N C O M M U N I T Y 1958-70 49

the steady drain of her labour force (including some skilled workers) to Germany and elsewhcre has ncccssitatcd a painful reappraisal of her investment policy. While the recent trade agreement bctwccn the Community and Yugoslavia is a step towards developing ‘normal trade relations’, even that took a very long time. Clear1 y, unless sorne- thing had been done, Yugoslavia’s growing trade deficit with the Community would have necessitated sonic nicasurcs by her Govcrn- riicnt that would have been even less palatable to Community govern- ments.6

As it is, tliree devaluations oftliellinar have bccn necessary since r961.7 At die same time, howcvcr, Yugoslavia has followed a policy of

increasing contact with die world’s main cconomic blocs. Besides cooperating with OECD she has played a leading role in the United Nations Economic Comniission for Europc. The first oficial contact with EEC was made in 1962, thcrc were exploratory technical talks in 1965 which were followed by foriiial negotiations for the tradc agrce- ment from 1968 to 1970. Under a special Statute, Yugoslavia has participated in the work of Comecon since 1964. She joined GATT in 1966 and soon afterwards established contact with the Secretariat of EFTA.

The agreement signed with Coinecon in September 1964 admitted Yugoslavia to seven Standing Conirnissions of the organisation. It inarkcd yet anotlier attempt to make a fresh start with tlic Eastern bloc8 and in the following year, 1965, the pcrccntagc of Yugoslavia’s trade with the Comecon countrics reached the high point of 34.69%. Since that year, however, tlic pcrccntagc share accounted for by Conic- con lias shown a steady decline. As can be SL‘CII froni Fig. I a clear pattern of increasing trade with the countrics of Western Europe has now bccn cstallished.

In absolute terms of coursc, the volunic of trade has increased with all groups but in the case of dcvcloping countries, tlie incrcase has been disappointingly small. Since Jancz Stanovnik attached importance to promoting greater trade with other non-aligned countria, it is worth considering in more detail the picture which the figures prcscnt. Wliilc Stanovnik referred specifically to non-aligned countrics he undoubtedly incant mainly dcvcloping countries. In the year that lie was writing (1962) the latter sector accounted for 16.3 pcr cent of Yugoslavia’s total tradc; this figure had fallen to 10.5 per cent in 1970.

It can be seen from Table I that the comfortable surplus position of 1962 lias lapsed into one of deficit in which imports have been rising

6 This deficit had reached $593 niillion b y 1970. (OECD Overall Trade b y Countries), May

7 Jnnuary 1961, July 1965 and January 1971. * This developtiicnt followcd tlie visit of Mr. Khruschev to Iklgrade in August 1963.

1971.


faster than exports. The only other surplus year, 1968, occurred when imports temporarily fd.

4or

% 2o t

EFTA

Under - developed

10

O l I I I I 1 I I I I I I 1 58 59 60 61 62 63 64 65 66 67 68 69 70

Yeor

ing Countries 1958-70 FIG. I , Percentage of Total Yugoslav Trade to EEC., Comecon, ERA. and Develop-

TABLE I YUGOSLAV TRADE WITH DEVELOPING COUNTRIES*

(In millions of U.S. dollars)

Year 1962 1963 I964 I965 1966 1967 1968 1969 I970

Exports 159'60 143.52 142.08 163.92 180.96 151.80 168.00 196.92 182.28

Imports 99-12 144'60 187.68 176'52

173'40

244'44

191.04

159'36

298.92

Balance + 60.48 - 1-08 - 45-60 - 12.60 - 10'08 - 21-60 + 8-64 - 47'52 - 116.64

Total Trade 258.72 288.12 329'76 340'44 372'00

327'36 441.36

325'20

481.20

% (of total) 16.3 15'5 14'8 14'3 13-2 10'9 10'7 12.3 10.5

*Overall Trade by Countries Series A. OECD., April 1966, July 1970 and March 1971

As Yugoslavia is now classified as a 'medium developed' country it is not surprising that she gets into deficit with more developed countries from whom she needs all kinds of expensive capital equipment. On the other hand the total imbalance in visible trade has become so great that not even the country's present very considerable receipts from invisible

YUGOSLAVIA AND THE EUROPEAN COMMUNITY 1958-70 51

transactions has been able to fill the overall gap. Yugoslavia has managed a surplus on visible trade only with Italy among the countries of the Six since 1958. Even this exception occurred only three times9 and in 1970 the trading deficit with Italy was 8123 million and with West Germany $370 million. These two countries now account for over 80 per cent of Yugoslavia's transactions with EEC countries.10 As far as the Comecon countries are concerned, foreign trade is on a much more organized basis, and Yugoslavia's favourable balance of invisibles has usually placed her in total surplus with them. But this still leaves the country's overall balance of payments in a serious and worsen- ing position as can be seen from Table 11"

TABLE I1 BALANCE OF PAYMENTS

(in Miffions ofdoffurs)

YCU Balance of Trade Deficit

341 I97 266 429 196 355 456 537 660 I195

Surplus of Invisible Transactions

117 J 54 224 258 292 341 43 1 509 541 838

Balance of Payments

- 224 - 43 -42 - 171 + 9 6 - I4 - 25 - 28 - I19 -357

The picture in Table I1 clearly demonstrates how desperately Yugoslavia has needed her earnings in the 'invisible 'sector. In recent years between 74% and 82% of total receipts in foreign Currency have been from tourism and remittances from migrant workers abroad.13 The surplus of receipts over expenditure on tourism rose dramatically from 8 million dollars in 1961 to 190 million in 1970. But even this figure was overtaken in 1970 by remittances from Yugoslavs working abroad. Most of these workers have gone to Germany where they now constitute the largest single group of foreign nationals. In June 1970 the figures were as in Table UI.14

@ 1963, 1965, 1966, Statistinti, Godiinjack Jugodavije. 10 Compiled from OECD. op. cit. (May 1971). 11 Figures for 1961-67 from Yugosfuv Survey, voL X, no. I , Februa 1969. Figures for 1968-70

compiled from Kmings archives (1g70-71), OECD. (Overall TradeTy Countries, March 1971) and Ekonomska Politika, February 22, 1971.

13 Yugoslav Survey, VOL X, no. I, February 1969. 1' Die beschgftigten auslandischen Arbeitnehmex Nach Wirtschaftsbereichen im Bundesgebiet

Endc Juni 1970, A.N.B.A. Nr 911970 P. 600.


But what is most significant about the migration of Yugoslav workers is not just the number of people involved but the prodigious increase in the rate of migration in recent years. In 1958 there were only 4846 Yugoslav workers in Germany or 3-81 per cent of the total; in 1968 it was still only 9-82 per cent but the figure had more than doubled by 1970.1s In absolute numbers the figure has continued to climb and by January 1971 had reached 4 8 0 , o ~ f o u r times the number in 1968.16 They are part of the z million Gastarbeiter in West Germany where it is estimated that there still remain 700,000 d i l l e d jobs. Some of these workers seem to be settling ermanently, they

much shorter basis and make no attempt to integrate with the local community. ClearIy with these kinds of numbers, considerable social

TABLE III

have learnt German, bought a house and so on. Ot K ers are there on a

No. % Italian 374.981 20'4 Turkish 327,985 17-8 Greek 229.379 IZ'S Spanish 165,854 9-0 Portuguese 40,222 2'2

Yugoslav 388,953 21.2

problems are building up, both for the Yugoslav workers and for the German communities that receive them. Work permits have to be renewed every year and should there be a recession in Germany these workers would return home in large numbers where there would be no jobs for them.

There are also political problems. The various emigrC groups, whose canvassing activities have previously been confined to political exiles, find themselves suddenly with a large, new constituency. Several public meetings have been held, although it is not possible to say how far these are attended by temporary workers or by permanent emigres. In May 1971 the so-called Croat Workers Alliance (Hrvatski RadniZki Savez) held a congress in Brussels; this prompted a protest note from the Yugoslav Embassy to the Belgian Government on the grounds that the demonstration was expressly anti-Yugoslav.~7

The protection of Yugoslav workers in Germany has improved following an agreement signed by both countries in 1968. German

15 Statistiche Ubersichten. A.N.B.A. No 311971. 16 Borba, January 4,1971. Borba also reported that this figure is estimated to be 750,000 when

17 Summary ofworld Broadcasts: Part 2, EasternEurope Second SeriesEE./3675. May 5,1971. families are included.

B.B.C. p. 4.

YUGOSLAVIA A N D THE EUROPEAN COMMUNITY 1958-70 53

Trade Unions have opened up their membership to Yugoslavs and have undertaken to support and advance their interests. Similar conventions exist with France and the Netherlands. In addition, the Trade Union Council for Yugoslavia has a special 'Committee for Questions of Workers Abroad'. In recent years, the migrant workers have been driven abroad by an unemployment rate of 7-8 per cent and have also been drawn by the high wages in Germany which make it possible to save a worthwhile sum in a reasonably short time. But whether they are sending money home to relatives or bringing a nest egg home for themselves, they are making increasing quantities of foreign exchange avail- able to the Yugoslav Government. The sum involved jumped from 18 million dollars in 1961 to 122 million in 1967.18 Not surprisingly, the sudden leap in numbers in the last few years has dramatically increased the revenue and the figure for 1970 from both migrants and emigrants reached a total of $500 million.19 The fact is that Yugoslavia could not now close her frontiers even if she wished without causing an economic disaster.

The only long-term answer, from everyone's point of view, is that the migrant workers should all be able to find work at home in their own country, The creation of new jobs on this scale requires a massive programme of investment and Yugoslavia has neither the capital nor the technological resources to undertake it. These will both have to be found abroad. The technological resources can sometimes be acquired without any foreign investment as such by means of a straightforward cooperation agreement with a foreign firm. Under this arrangement the two firms agree to exchange patents, knowledge, machinery and components and to manufacture or assemble the products in the respec- tive countries. By 1972 the Tomos motor works at Koper (Capodistria) will be assembling 12,000 Citrogn cars a year under an agreement of this sort; the Italians have concluded at least a dozen contracts in various fields.20

But clearly, the bulk of the effort must come from capital investment and Yugoslavia has been progressively easing the regulations for foreign investors, beginning with a law passed in 1967. The initial response to these moves was cautious for several reasons. In the first place, even the more moderate, reformist form of Communism operated in Yugoslavia had previously provided no place for private capital. There was no guarantee how much scope the Yugoslavs would give to the whole experiment. Furthermore, the regulations themselves

18 Yugoslav Survey, vol. X, 1969, pp. 72-76. 19 Borba, January 8, 1971. 20 E. G. Cellulose (SNIA-Viscosa). refrigerators and washing machines (Zunuui. Ignis and

Castor), sewing machines (Necchi), knitting machines (Onofri) etc. See Article by Corral0 Pallenberg in the European Business Magazine Vision, January 1971, no 2, pp. 779.


were certainly less liberal than in most other non-communist countries. Foreign investors have not been able to own more than 49.9 per cent of the equivalent of equity capital, and 20 per cent of the foreign partners' profits have had to be reinvested in Yugoslavia. The amount thereafter that could be repatriated was originally a variable but usually fairly low percentage (say 20 to I 5 per cent) of the total convertible currency earnings of the enterprise. However, in order to attract more foreign investment, since the beginning of 1970 the limit has been a flat 3 3 per cent.21 Under the revision ofthe Constitution currently being discussed an amendment is roposed which will further ease the restrictions on the operations of P oreign capital. If it is approved, the require- ment to reinvest a proportion of the profits in Yugoslavia will be abolished, and guarantees will be offered to foreign investors against possible changes in the law. But the other factor causing hesitation among foreign investors is a lack of understanding and an uncertainty about the method of workers' self-management practised throughout industry. In an enterprise in which foreign capital is invested, a joint committee is set up in which the foreign investor is represented, although always in a minority position. While it is true that the proportions in which the profits will be divided up is laid down in the original contract, there is theoretically nothing to stop the Workers Council overruling the Joint Committee and wiping out the profits by paying higher wages. In practice, the Workers Councils do not usually behave thisway. It wasoriginally their decision tobring inthe foreigninvestorand common sense tells them what will happen if they ignore his interests.

By January I, 1971, there had been 18 separate contracts in which Western firms had made a joint investment with a Yugoslav partner. Of these, only four had taken up to the legal maximum of 49 per cent. The lowest figure of 10.6 per cent was one of the two involving Fiat. On this occasion Fiats' share came to million dollars, in money terms one of the highest Western stakes in a Yugoslav enterprise. Their second investment made with the same partner just over a year later was 17 million dollars, but even this only accounted for 29.1 per cent of the capital of the enterprise. In addition to this investment by particular manufacturing firms, the American Import-Export Bank has granted a zso million dollar loan to Yugoslav industries. In late 1969 the International Investment Corporation for Yugoslavia was set up with an initial capital of IZ million dollars. It is a consortium of I S Yugoslav banks and 39 leading American, West European and Japanese banks.22 All indications are that the year 1971 will see a rash of further contracts with Western firms, particularly if the revision of the Constitution goes through in its expected form. In the long run of

2' op . cit. 22 Op. cit.

YUGOSLAVIA AND THE EUROPEAN COMMUNITY 1958-70 55

course, Western Gms waiting in the wings are likely to be much more interested in the record of success of the firms that have gone in already. It is too early to make a judgement about this particularly as the internal economic situation in Yugoslavia js undergoing a process of rapid change following the economic reform of 1965. While on the one hand this has resulted in a greatly increased demand for consumer goods, the economic disparities between the constituent Republics are widening. The G.N.P. per head in Slovenia is nearly four times that of Monte- negro.

The changes in the pattern of Yugoslavia’s economic relations with the rest of the world have also been reflected at the political level. This has not been a particularly one-sided process especially in the case of West Germany. Diplomatic relations between the two countries were broken off in 1957 when Yugoslavia offended against the Hallstein Doctrine by recognizing the D.D.R. Attempts to resume diplomatic relations in 1959 broke down when Yugoslavia refused to modifjr her attitude. The activities of Croatian emigrks continued to be a source of rancour to the Yugoslav authorities throughout the sixties. In 1962 their trade mission in Bad Godesberg was attacked and in 1965 and 1969 attempts were made to assassinate Yu oslav diplomatic personnel in

ment of trade between the two countries continued to flourish un- affected. A new trade agreement was signed in 1964 and diplomatic relations were formally resumed in 1968. Relations with Italy have been even more strained following the post-war dispute over Trieste which was settled by a compromise in 1954. Ruffled feelings continued for a long time afterwards and can still be rearoused today as could be seen when Tito’s visit to Italy planned for the end of 1970 was postponed at the last minute. But commercial realities and geographical proximity have dictated that relations should improve, After the Italian-Yugoslav state talks in January 1968 President Saragat accepted an invitation to visit Yugoslavia. As one newspaper remarked, this would have been unimaginable ten years before.= The same paper reported the gasps among journalists at the Press Conference when the two delegations announced agreement in principle that there should be cooperation between their countries’ armed forces.

This intensification of contacts between Yugoslavia and the West, particularly Western Europe, emerges clearly in the programme of foreign visits. In May 1970, Yugoslav Survey gave the figures for State visits (i.e. both as host and guest) for the years 196669.24 From a

Munich and Berlin. But despite politica f differences the steady develop

23 Vcccrnje Novati, January 11, 1968 (Joint Translation Service, Belgrade No. 4917, January

24 Yugodav survey. vol. XI, no. a, May 1970. pp. 135-58. 17, 1968.)


total of 53, 7 were recorded as having been with ‘capitalist’ countries, 20 were with the countries of Eastern Europe and 26 were with developing and non-aligned nations. Saragat‘s visit to Yugoslavia was the only one during those years which involved a Common Market country. The picture changed markedly in 1970. State visits with ‘capitalist’ countries jumped to 15 in that year alone, while those to Eastern Europe maintained their approximate average of 5. Contacts with non- aligned countries, however, intensified with 19 in the year of 1970.25 But the most important and significant for Yugoslavia was the programme of visits to all the Common Market countries undertaken by Tito beginning in September 1970. These visits formally consolidated the relationship between Yugoslavia and the Common Market which had been embodied in the 3-year non-preferential trade agreement signed earlier in the year.

Under the agreement the parties undertake to grant one another the highest degree of liberalization which they normally apply to non- member countries. Yugoslavia will accordingly benefit from Liberaliza- tion arrangements for 885 full tariff headings and these will gradually be extended to other products26 On the other hand there are still considerable problems in ensuring that the agreement produces concrete results, e.g. in cattle, beef and wine. Textiles, maize and tobacco also present special problems.

In conclusion, then, it would seem that the weakness of Yugoslavia’s current position is not due to a lack of basic wealth, but rather to various kinds of maladjustment. As far as her overseas debts are concerned, for example, it is not their size which is serious--zq74 million dollars at the end of 1970, but the fact that 93.2 per cent of this sum is in convertible currency.*’ Furthermore, as a medium-developed country without a convertible currency herself, Yugoslavia uses foreign credits under more difficult conditions than might appear. On the one hand she finds that many of the credits she receives are in the form of tied funds, and on the other, she is financing much of her own export effort in the form of credits to underdeveloped countries.

No one can say that Yugoslavia does not have the basic resources to earn her international living. The skills of her migrant workers are generating wealth in other European countries, but only a proportion of this wealth (i.e. savings) is actually being fed into the Yugoslav economy. The economies of these other countries enjoy all the multi- plier effects of the local expenditure on food, clothing, etc., which

23 The figures for 1970 compiled by the writers from the 1970 Bulletins of the Joint Translation

26 Bullefiri o j h e European Communifies, April r970 (4). 27 Ekonomku Polifiku, April 12,1971, quoted in Joint Translation Service, Belgrade, No. 5917,

Service, Belgrade.

A p d 22, 1971.

YUGOSLAVIA A N D THE E U R O P E A N C O M M U N I T Y 1958-70 57

these workers make while they are abroad. The tourist industry, the other excellent source of foreign exchange, is by no means yet fully stretched. But to exploit it to the full needs a heavy injection of new capital which under present difficulties Yugoslavia cannot easily provide. The maladjustments which complicate her economic relations with the outside world are of course not the only ones from which she suffers. Many others are internal, like the disparities in wealth between the constituent regions of the country. But the need to solve the external maladjustments is clearly extremely urgent. There are going to be major social and political problems both for Yugoslavia and for West Germany if the flow of Gastarbeiter continues on its present scale. By bringing about this geographical movement, European indus- trialists are acquiring what is in most of their countries the scarcest factor of production in conditions over which they have a great deal of control. They can rely, for exam ley on political stability and by this

investment. It may soon be clear, however, that the social conse- quences of large-scale labour migration make the whole process counter-productive.

The only realistic solution would appear to be the one that Yugo- slavia seems in fact to have chosen and that is to liberalize the regdations relating to foreign investment. This would alleviate the problem of the shortage of capital and offers the best long-term prospects that the migrant workers will come home. For Yugoslavia to attempt some more radical solution like forcibly closing her frontiers and retreating back in on herself would not only be economically disastrous for more than the short run, but would also be an abrupt reversal of the trend of policy favoured both by the people and their leaders. Yugoslavia’s situation seems to be a further example of the twentieth-century predicament for countries of her sizethere is no worthwhile independence without a certain minimum of wealth. This can only be won at the cost of considerable defacto if not de jwe interdependence. She can perhaps console herself with the fact that other countries in Europe, much richer than herself have faced and are this year facing a similar choice.

means they avoid many of the ris E s which normally attend overseas

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