Michael Dauderstädt:
Eastern enlargement and development policy


• Central and eastern Europe and the Third World – a look back at the past
• Eastern European aid policy
• The impact of EU accession...
• ... on the candidate countries
• ... and on the EU

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Michael Dauderstädt:
Eastern enlargement and development policy

The upcoming accession of what will probably be eight post-communist states in central and eastern Europe to the EU will alter the relationship between them, the enlarged EU and the developing countries. As in many other policy fields, the candidates are already taking up elements of the development policies normal in the EU or expected by the EU as they prepare for membership. At the latest when they join, or possibly following a subsequent transition period, they will have to adapt fully to EU rules. And they will then have the possibility themselves to influence the future policy of the EU on developing countries. This article looks back at the development of the major candidate countries from a role of donor to recipient and back to donor since 1989, their current relations with the Third World, and their likely post-accession influence on the policy of the EU towards developing countries.

Central and eastern Europe and the Third World – a look back at the past

The communist countries of the former Eastern Bloc, the so-called "Second World", competed with the Western "First World" for influence in the Third World. The instruments they used to achieve this included those of trade and development policy. [Cf. the regular monthly reports on „development policy activities of communist countries" which appeared regularly in the 1970s (with different titles from 1977) from the research institute of the Friedrich Ebert Foundation (editor: Henrik Bischof); Heinrich Machowski/Siegfried Schultz (eds.) „RGW-Staaten und Dritte Welt. Wirtschaftsbeziehungen und Entwicklungshilfe" Bonn 1981.]
In addition to bilateral co-operation, they also participated in multilateral aid in the context of their UN membership. Poland and Hungary (as well as Romania, which is not considered further here) were also members of the International Monetary Fund (IMF) and the World Bank even before 1989. The rapid advances in industrialisation of the Eastern Bloc countries in the 1950s and 1960s acted as a model for many developing countries and resulted in the copying of centralised economic planning policies in many Third World states. At the same time, the aid from the Eastern Bloc was concentrated on countries pursuing a socialist development model and a foreign policy which was at least neutral or sympathetic to the Eastern Bloc (exception: Turkey, which was one of the leading recipients of loans). The level of aid stood at 0.06 % of GDP in the eastern European countries in 1980 (0.14 % in the case of the Soviet Union), lower than the OECD level. The foreign trade of the communist countries was in any case controlled by the state. The countries of central and eastern Europe mainly exported industrial goods and imported raw materials and agricultural products. [Cf. Heinrich Machowski/Siegfried Schultz (eds.) „RGW-Staaten und Dritte Welt. Wirtschaftsbeziehungen und Entwicklungshilfe" Bonn 1981, pp. 13 ff.]

The collapse of communism was followed by a re-ordering of the state structures in central and eastern Europe, massive economic upheaval and an equally drastic change in foreign relations. Whereas Poland and Hungary (and Romania and Bulgaria) retained their state identity, Czechoslovakia, Yugoslavia and the Soviet Union disintegrated and the candidate countries of the Czech Republic, Slovakia, Slovenia, Latvia, Lithuania and Estonia emerged as new, independent states with their own foreign, development and trade policies. All of these countries quickly acceded to the World Bank, the IMF and – from 1995 – the WTO (cf. Table 1). In the mid-1990s, the Czech Republic, Hungary, Poland and, somewhat later (2000), Slovakia became members of the OECD, marking their formal inclusion in the group of donor countries.

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In reality, the aid received by them, especially from the EU, has far exceeded the aid provided by them.

Table 1: Membership of international organisations (year of accession)

Source: EBRD Transition Report 1998 for OECD, WTO; Michael Dauderstädt, A Comparison of the Assistance Strategies of Western Donors, in: Transformation. Leipziger Beiträge zu Wirtschaft und Gesellschaft No. 3, December 1996, pp. 51 ff. for IMF and World Bank

In view of the severe decline in national income in the first phase of the systemic change, it was no surprise that these countries largely discontinued their aid, especially as their political objectives from the Cold War period had disappeared. Foreign trade with developing countries also changed in the course of a transition which entailed a massive reorientation of eastern European foreign trade away from the Eastern Bloc to the West and particularly the EU. If one disregards statistical differences (the categorisation of developing countries in eastern Europe in the 1990s generally did not coincide with the system applied in the OECD, the weight of the developing countries in the trade of the candidate countries initially declined substantially and then stabilised. However, this relatively stable small share – of a foreign trade which was rising in overall terms – did imply an absolute increase in imports and exports. In fact, imports rose faster than exports and all three major candidate countries have appreciable trade deficits with developing countries, mostly resulting from trade with emerging Asian economies.

Eastern European aid policy

Having overcome the transitional crisis and commenced preparations for EU accession, the candidates (again) launched their own development policy activities. The volume of funding remained modest. As Table 2 shows, the countries spent an average of no more than 0.03 % of gross domestic product (GDP) on development co-operation; by way of comparison, the OECD average is almost ten times higher. The OECD members amongst the candidate countries have already begun to adapt to the normal rules of the Development Assistance Committee (DAC).

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Table 2: Expenditure of the candidate countries on development co-operation

Source: Léna Krichewsky "Development Policy in the Candidate Countries" Trialog Vienna 2002, OECD "Development Cooperation Report 2001", Paris 2002 and article by Judit Kiss in this issue

*European Commission, Progress Reports 2002; all amounts refer to 2001, except Lithuania (2002); in the case of Slovakia, the figure refers to additional humanitarian aid.

All of the countries mix bilateral and multilateral aid. In the case of the Czech Republic, multilateral aid accounts for almost two-thirds of the total; in Poland for just over half, in Slovakia for almost three-quarters and in Hungary for as much as 85 % in 1999. [Based on OECD figures for the Czech Republic, Poland and Slovakia; the figures for Hungary are based on the article by Judit Kiss in this issue.]
The Baltic countries are also involved in trilateral co-operation with Canada in the former Soviet Union. Furthermore, most of the countries also provide humanitarian aid.

The regional focus of the development co-operation is appreciably different from that of other OECD countries. The candidate countries concentrate their bilateral aid on other post-communist countries, particularly in the former Soviet Union and in the Balkans. Hungary operates sizable aid programmes for the Hungarian minorities in its neighbouring states, particularly Romania, but these do not count as official development aid. Slovenia gives almost all its aid (95 %) to the former Yugoslavia and (5%) to Albania. The regional distribution occasionally shows some traces of the communist past, e.g. in the form of aid for Angola, Viet Nam or Yemen. One sectoral emphasis is on the experience of transition (e.g. in the case of Hungary and Poland), with the advanced countries in transition advising those lagging behind in eastern and south-eastern Europe. Other policy fields often mentioned are agriculture, environment and infrastructure.

The objectives of the development co-operation of the candidate countries reflect the blend familiar from the traditional donor countries: foreign and economic policy interests on the one hand, and development policy ideals on the other – these are not necessarily contradictory. The normal objectives like good governance and respect for human rights, sustainability and integration into the world economy also emerge as criteria for the selection of recipients and projects.

The continuing relatively low status of development policy in the candidate countries finds expression not only in the tiny proportion of spending in terms of GDP, but also in the organisational and institutional set-up. State development policy is not, as in Germany, guided and administered by a separate government ministry, but – as also in most major donor countries – by departments in the foreign ministries. However, other government ministries are often involved in project management. The non-governmental development co-operation of the

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NGOs is also at a very early stage of development, since this entire sector did not start to emerge until after 1989. NGOs are already very active in Poland and Hungary in particular. The UNDP supports this development, e.g. via a Trust Fund under the Emerging Donors Programme.

The impact of EU accession...

The prospect of EU membership has already influenced the trade and development policy of the candidate countries and will continue to have a major impact on these policy fields once it becomes a reality. At the same time, it can be assumed that the new members will in future participate in the shaping of the relevant EU policies. Let us first consider the candidate countries and then the EU itself.

... on the candidate countries

The candidate countries need to adopt the acquis communautaire of the EU in the fields of trade and development policy. The relevant chapter 26, "Foreign Relations", which covers these policy fields, has been provisionally closed in the accession negotiations with all the candidates. Nor do the Progress Reports of the EU indicate any substantial conflict. Most of the adjustments refer to trade policy, albeit less with respect to developing countries and more with regard to other countries in central and eastern Europe with which the candidate countries have free-trade agreements. Thanks to the WTO membership, the other effects are limited. In some cases, the tariffs of the candidate countries are actually lower than the EU’s external tariff. Here, accession will make imports from non-EU countries more expensive. In other cases, however, the tariffs are higher (cf. Table 3). Specific technical, administrative and fiscal barriers will disappear, and this may make access easier for trading partners in the Third World, since they will be able to use the EU procedures familiar to them. The candidate countries will have to apply the Generalised System of Preferences (GSP). In so doing, they will in some cases have to grant trade preferences to emerging economies whose per-capita income is higher than their own.

Table 3: Tariffs of the candidate countries compared with the EU’s external tariffs

Source: European Commission, Progress Reports 2002

*The data in the Progress Report are unclear.

When the candidate countries take over the Cotonou Agreement (the successor to the Lomé Convention), they will also have to grant the ACP countries the relevant preferences and implement the liberalisation under the "Everything but Arms" programme. The same goes for the Mediterranean agreements and the Barcelona Process and for a host of other bilateral and multilateral agreements between the EU and individual developing countries or regional trading blocs (e.g. Mercosur). An effective involvement of the new members in the bodies envis-

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ged for many of these agreements is likely to prove problematic in terms of the scarce resources of qualified experts, particularly in the smaller countries. In the course of the accession negotiations, the positions taken by the candidates and the EU in the Doha Round are already being co-ordinated.

In the field of development aid itself, the candidate countries will not only have to contribute their own share of the EU budget, but will also have to pay into the European Development Fund (EDF), which is financed by contributions from the individual member states, although they will probably not start doing so until the tenth EDF (the current ninth fund runs until 2007). There are no fixed rules on the contributions by the member states to the EDF, but the current total of € 13.5 billion corresponds to about 0.15 % of the GDP of the EU. If the new members were to make anything like a proportionate contribution, this would imply a substantial rise in their currently low spending on development co-operation. These questions are being addressed in the accession negotiations in Chapter 29 (budget) – tellingly, this chapter has not yet been closed with any of the candidates.

There are at present no binding EU rules on the level of bilateral development aid of the member states or on total spending. However, guidelines on this were adopted at Monterrey (0.33 % share of GDP by 2006), and the implementation of these necessitates some considerable adjustments even in the existing EU members. They would represent a massive multiplication of the current spending levels by the new members.

As in many areas of international policy, the implementation of certain standards [Cf. Tanja A. Börzel and Thomas Risse „Die Wirkung internationaler Institutionen. Von der Normanerkennung zur Normeinhaltung", in: Markus Jachtenfuchs, Michèle Knodt (eds.) „Regieren in internationalen Institutionen" Opladen 2002, pp. 141-181], particularly in the international arena, depends not only on the degree to which they are accepted, but also on the interests and capacities of the relevant countries, i.e. the states and their societies. Accession to the EU will mobilise individuals and organisations in the candidate countries and will promote the formation of institutions which for their part will then influence national policy in the direction of a further development of co-operation with the Third World. This includes the implementing organisations and experts as well as the action groups and NGOs concerned with development policy. Their pan-European networking will reinforce their capacities and influence.

... and on the EU

Even without a direct prospect of EU enlargement, the radical changes in central and eastern Europe gave rise to a debate in the early 1990s on whether the Third World and development policy might become less important for Europe. [Cf. Michael Dauderstädt „Development Policy ’92: Farewell to the Third World" (Friedrich Ebert Foundation, Eurokolleg Series) Bonn 1992] The reasons for this were the end of the Cold War (which had been a key motivation for the emergence of development as a policy field in the first place), the reduced economic interests and the priority of a stabilisation of the poor neighbouring regions. It was indeed possible to see a relative decline in the weight of the developing countries as trading partners and recipients of investment and aid. But there was no massive or sudden drop.

Instead, the traditional interests won the day in the EU once again. With the Barcelona initiative, the south-western member states corrected the eastern orientation of the EU in the mid-1990s with a new programme for the Mediterranean countries. The development policy com-

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munity was able to successfully defend its policy field both bilaterally and multilaterally. The relative stabilisation in central and eastern Europe resulted in a redistribution of priorities: crisis areas in eastern and south-eastern Europe like the Balkans, the Caucasus or central Asia are increasingly being included in the traditional tasks/areas of development policy, and the traditional developing countries (some of which have since become more prosperous emerging economies and belong to the OECD) have, together with these countries, become the subject of a development policy which regards itself more as the domestic policy of a globalised world. This trend is likely to consolidate further following 11 September 2001.

The EU is a major pillar of this global domestic policy. But its specific regional and sectoral priorities, its instruments and institutions are the result of a long historical development which in many cases derives from the colonial era which ended just after the foundation of the EEC. It is this history which results in the bias towards the ACP countries and the Mediterranean region. Changes in the Third World, shifts in the general debate on development policy and, particularly, the earlier enlargements of the EU have further altered and influenced the structures of European co-operation. The coming enlargement will also have an impact, but in view of the small weight (particularly in terms of national income and foreign trade) the effect will be modest.

This means that hardly any more major diversions of trade are likely, since liberalisation has already occurred to a large extent and the level and structure of trade between the EU and the candidate countries is already close to the state one would expect according to gravitation models. Thanks to the membership of the WTO, no more significant changes are to be anticipated in trade policy. However, accession will end certain special rights for countries in transition. In future rounds of negotiation, some of the new EU members (e.g. Estonia) could advocate a less protectionist policy, whilst others could tend to call for greater protection – depending on the pressure to adapt and on the underlying position on economic policy. The candidates could, with some plausibility, insist that trade facilitations should be granted only to genuinely poor (i.e. poorer than the candidate countries) partners in the Third World. In the important field of agriculture, the interests of the candidate countries in protection from imports of tropical and subtropical fruits (olives, wine, citrus fruits) are less than was the case when the EU enlarged southwards. Things could be more difficult with grain, meat or dairy products, although significant supplies of these products only come from a few countries in southern Africa and America (Argentina, South Africa, etc.). Where the EU applies quotas to imports (e.g. bananas), there will have to be an expansion or redistribution.

In the field of aid policy, the candidate countries are likely, with the best will in the world, [Cf. for example the comments of the Polish Government on Monterrey cited by Baginski in this issue] to lay claim to a lengthy period in which they, as poorer countries, have to make a smaller contribution than other EU members. In this respect, they are also likely to influence the position taken by the EU at international negotiations if there is no corresponding advance agreement on internal burden-sharing. With regard to the regional orientation, it can be assumed that the new members will have little sympathy for the traditional structures of EU co-operation and may call for a modification of the ACP co-operation towards an extension to all poorer developing countries, such as the inclusion of their own historical partners like Viet Nam or Yemen if the latter also desire this. They will also have a greater interest in co-operation with south-eastern Europe, the Caucasus and central Asia. In the course of the package deals usual in the EU, they may call for greater Community efforts there before they give the go-ahead for measures in regions of less interest to them (Africa, Latin America). In an extreme case, the new members could insist on a re-evaluation of the policy field in the EU and demand an ori-

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entation towards narrower economic and security interests, in order primarily to develop and to stabilise the nearer EU neighbourhood.

The EU, its member states and the NGOs active in them will probably have to work for quite some time on supporting the establishment of development policy institutions and organisations, as well as the training of the relevant personnel in the candidate countries (or rather new member states). Multilateral projects on which all the existing members, partners outside the EU and new members co-operate could and should draw on the special expertise, experience and capacities of the post-communist countries. The EU must also have an interest in co-ordinating the involvement of the new members in international organisations in such a way that the weight of pan-European interests is enhanced there.