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East Germany Table of Contents

East Germany


East Germany has always been fundamentally dependent upon foreign trade for its economic well-being, and that dependence has increased with the passage of time. Although trade has brought the country enormous advantages, it has also introduced uncertainties into the economy because worldwide conditions have been so volatile during the 1970s and early 1980s.

The East German regime has at least avoided the worst possible situation for a centrally planned economy--rapidly changing prices (in an adverse direction) for its basic exports and imports--because its economy is largely insulated from short- term fluctuations on the world market. This insulation results from the fact that two-thirds of its trade has been with other communist countries and has been conducted on a medium- or long- term, planned basis. Over time, however, intra-Comecon trade has also been affected by world market conditions. It is also true that East German trade with the West has been possible only when the Western partner has found it profitable to buy or sell. Thus East German dependence on foreign suppliers and buyers carries with it many of the normal risks as well as advantages of international commerce.

The foreign trade sector of the economy is particularly difficult to analyze and to relate to the other domestic branches. One difficulty stems from the fact that East Germany separates its external economic activity from its domestic system, placing each in a relatively distinct compartment. Producers of goods for export operate under the same price and other constraints as those making products for domestic use; their sales to foreign trade organs are measured in GDR marks. But when the foreign trade organ sells on the international market, the prices it charges are determined by market conditions or negotiated agreement, and they need not have a relationship to the internal price. In fact, the transactions are carried out in foreign currencies or value units. This process is reversed for imports. Foreign trade organs purchase imports with United States dollars, D-marks, or Soviet foreign-exchange rubles under conditions imposed by the world market and then "re-sell" them internally to the end users for GDR marks.

When the East Germans have published statistics on foreign trade, they have used valuta marks rather than GDR marks. How those reported figures were calculated, however, is not known. The value of the valuta mark against the domestic currency is also not known. East German economists generally consider the two kinds of marks to be of equal value. In the mid-1980s, Western calculations suggested that official East German estimates overstated somewhat the value of the flow of foreign trade.

The unavailability of important statistics poses another problem for the Western analyst attempting to assess East German trade. The East German statistical yearbook does not break down trade totals into exports and imports but instead shows only the total turnover. As a result, it is not possible to determine whether East Germany's trade is balanced, either overall or with individual countries. Some export and import totals are reported on a country-by-country basis, but they are selective rather than exhaustive, and they are given in value terms that cannot be aggregated, i.e., in some instances by weight or unit and in others by value. Those who would examine East German trade performance are therefore forced to rely heavily on the data of its partners, a cumbersome and not altogether satisfactory process.

According to East German sources, trade turnover has grown impressively. In 1985 it amounted to 180,191.3 million valuta marks, about 77 percent of produced national income if the valuta mark is assumed to be equal to the GDR mark, or somewhat less according to Western calculations. According to official sources, as of 1985 the flow pattern of East German trade, in gross terms, was about 65 percent with other communist states, 30 percent with "capitalist industrial countries," and 5 percent with the developing world. During the 1970s, a slight reduction in the trade share of the communist countries took place, accompanied by a compensatory increase in commercial relations with other countries. This situation reflected the fact that in the 1970s Western credits were made available to and were used by East Germany for the purchase of increasing amounts of Western goods; in the early 1980s, a general leveling off occurred as restrictions on credit tightened. East Germany has also actively sought to build ties with the developing world. In general, the extent of fluctuations has been modest, and the orientation of East German trade has been clear.

According to official statistics, of total East German exports in 1985, 46.6 percent consisted of machinery, equipment, and transport products. This group of products had declined in importance since the early 1970s (down from 51.7 percent in 1970). By contrast, in 1985 exports of fuels, minerals, and metals had tended to increase, from 10.1 percent in 1970 to 20 percent in 1985. Other major groups were industrial consumer goods, at 14.1 percent (down from 20.2 percent in 1970); chemicals, fertilizers, building materials, and other goods at 11.6 percent (10.6 percent in 1970); and various raw materials, unfinished goods for industrial use, and food products, at 7.7 percent (up from 7.4 percent in 1970). On the import side, in 1985 by far the largest group was fuels and other raw materials, at 42.5 percent (up from 27.6 percent in 1970). Next in importance were machinery and transport equipment at 26.8 percent (down from 34.2 percent). Various other raw materials and unfinished goods for industrial use, as well as various food products, followed, at 16.1 percent (down from 28.1 percent in 1970). In 1985 chemical products and industrial consumer goods were also important, standing at 8.4 and 6.2 percent, respectively (both of these had increased in significance since 1970, from 5.6 and 4.5 percent, respectively).

In 1985 about 65 percent of East Germany's total trade turnover was with five countries (see table 11, Appendix A). The dominant partner was the Soviet Union, having a trade share of almost 39 percent of total East German trade. Next in importance was West Germany, including West Berlin (8.3 percent). Three fellow Comecon members followed: Czechoslovakia (7.2 percent), Poland (5.4 percent), and Hungary (4.9 percent).

In trade with the Soviet Union, major items on the East German export side in 1985 were machinery and transport equipment (by some counts, as much as 80 percent). Chemicals, textiles and clothing, and domestic appliances also played a minor role. Major groups of imports from the Soviet Union included petroleum and petroleum products (about 42 percent), machinery and transport equipment (about 11 percent), and ferrous products (10.5 percent). There were also significant imports of wood and paper products (4 percent) and coal and coke (about 3 percent).

An important factor in East German-Soviet trade was the long- term dependence of East Germany, along with other Comecon countries, on the Soviet Union for imports of fuel, primarily oil but also natural gas and coal. Prior to the oil price explosion of 1973 and for some time after, Comecon prices were fairly stable. The subsequent drastic changes in oil prices had an inevitable, though somewhat delayed, impact on East Germany. In 1975 at Soviet insistence, a new pricing system was implemented for Comecon trade, which called for new calculations every year based on average world market prices for the previous five years. As a result, for a number of years prices increased considerably, but in predictable steps (thus making planning possible) and at a relatively favorable pace. According to Honecker, the 1980 prices paid for Soviet oil were only 50 percent of the world market level. Even that price was a burden the East German economy could not easily bear.

In 1982 the Soviet Union reduced oil deliveries to East Germany by 10 percent from planned levels; the new reduced level remained in effect until 1985. An additional problem was the Comecon oil pricing system, which had benefited East Germany during the early 1980s. By 1983 and 1984, world market prices for oil were falling. But Soviet (intra-Comecon) prices continued to rise because of the five-year formula. After 1984 the East German leadership also faced the termination of a 1966 agreement with the Soviet Union on delivery of supplementary crude oil at particularly favorable prices. Declining oil prices did make East Germany's purchases of oil on the open market less expensive. However, Soviet oil amounted to 17 million tons of the 23 to 24 million tons of total imported oil. Because the Soviet, or Comecon, oil price was tied only retroactively to the world price, East Germany actually began paying prices higher than world market levels. Furthermore, East Germany's re-exports of oil products (13 million tons in 1984), mainly in the form of diesel fuel, from which the country derived a sizable portion of its hard currency, were affected immediately by the lower prices. Only in subsequent years would East Germany benefit substantially from the price drop.

In late 1985, East Germany and the Soviet Union signed an agreement on trade plans for the 1986-90 five-year period. Trade turnover was to increase by 28 percent over the previous five- year period, and the East Germans were to export machinery for opencut mining, ore mills, and chemical works, as well as expertise and plant for Soviet consumer goods and food industries; consumer goods were also to increase by 40 percent. The Soviet Union agreed to supply quantities of crude oil, natural gas, hard coal, iron ore, rolled steel, timber, and cotton. At a Comecon meeting in late 1986, the Soviet Union announced that it would once again increase its export of oil to East Germany and the other Comecon states. Admittedly, the increase in supplies was only sufficient to match what these countries had been receiving in the late 1970s. It was clear in any case that the Soviet Union would retain its position as East Germany's primary trade partner. By the mid-1980s, a broad pattern of economic cooperation had emerged that involved coordination of economic plans, research projects, and joint investment projects.

With regard to East Germany's major Comecon partners, official statistics list the major exports as tractors and agricultural machinery; transportation equipment, including rolling stock (to Czechoslovakia) and highway vehicles (to Hungary and Bulgaria); electronic equipment; data-processing equipment; and machine tools. In turn, East Germany also imported various kinds of machinery, including agricultural machinery from Czechoslovakia and Hungary and equipment for the food and construction industries from Poland. Other significant imported items were electronic equipment from Poland and electronic and pharmaceutical products from Hungary. Since the late 1970s, the role of East Germany's major non-Soviet Comecon trade partners-- Czechoslovakia, Poland, Hungary, Bulgaria, and Romania--had declined somewhat, from 29.8 percent of total East German trade turnover to 23.2 percent in 1985.

West Germany plays a relatively dominant role in East German trade, a fact that can be explained in part by West Germany's geographic proximity and traditional inter-German ties. Furthermore, West Germany's advanced industrial level and product quality plus its aggressive foreign trade-oriented business community also help to explain the country's prominent position as a trading partner.

There is another reason, however, which is as complex as it is important. Since World War II, West German leaders have consistently treated trade with the Soviet Zone of Occupation, and later East Germany, as a special case--as domestic (intra- German) commerce, but with a difference. The grounds for this special treatment have been political; since the late 1940s, Bonn governments have sought to keep alive the idea of German reunification, to increase the contacts between Germans on both sides of the border, and to maintain the stability and well-being of West Berlin. One of the important means of achieving these ends has been the provision of an attractive economic package to the East Germans. For its part, the East German government has been willing to accept the advantages offered by West Germany, but not to the point of acknowledging the linkages Bonn asserts. The European Economic Community (ECC), of which West Germany is a member, has also sanctioned the special relationship and excluded East Germany from ECC competence. This means that ECC quotas and tariffs, as well as its other regulations, do not apply to "intra-German" trade (on the West German principle that East Germany is not a foreign country). Furthermore, because trade between East Germany and West Germany is conducted in a clearing unit of account, East Germany can import some Western products by way of West Germany without spending hard currency.

Among the special economic advantages East Germany obtains from West Germany are permanent, interest-free credit, referred to as "the swing," which in 1985 was set at 850 million D-marks; free entry of East German agricultural products into the West German market, where prices are maintained (under ECC agreement) at above world market levels; free entry (no tariffs) for East German nonagricultural finished products that are sold to West German buyers; substantial cash payments in hard currency for such things as construction and improvement of railroad lines and highways to and from West Berlin and transit visas for those West Germans using them; and exemption of goods sold to East German buyers from normal regulations concerning the value-added tax.

The East German capacity to export industrial goods, so important in its Comecon trade, has played a much reduced role in its trade with West Germany, accounting for only about 10 percent of East German exports in the mid-1980s. Instead, raw materials and producer goods such as chemicals have been dominant, accounting for approximately 50 percent of total value. Other important East German deliveries were consumer goods (textiles and clothing, at 25 percent, being particularly important) and agricultural products (about 6 percent). On the East German import side, about 18 percent of the total consisted of investment goods and equipment, about 45 percent consisted of raw materials and producer goods, and an additional 25 percent was evenly divided between consumer goods and agricultural products.

According to official sources, in 1985 East German exports to other market economies, most notably Austria, Switzerland and Liechtenstein, Britain, and France, included chemical products, machinery and machine tools, and products of ferrous metallurgy. In turn, East Germany imported products of ferrous metallurgy, textiles and clothing, chemical products, and machinery for chemical engineering, among other items.

Historically, the United States had demonstrated minimal interest in developing a trade relationship with East Germany. By 1985 the United States, which in 1980 was East Germany's twelfth largest trade partner, had dropped to twenty-eighth place. As of 1985, principal East German exports to the United States included iron and steel (26.6 percent), machinery (20.3 percent), and rubber manufactures (15.4 percent). In turn, East Germany imported primarily foodstuffs (grain and soybeans); such goods comprised 76.4 percent of all imports from the United States. Generally, in the mid-1980s East Germany was particularly eager to trade with countries that could offer high technology (especially robots and electronics) and equipment for improving East Germany's energy and fodder supply situation. For this reason, East Germany's trade with Western countries had considerable importance for the economy, although its quantity was relatively modest by comparison with trade conducted with Comecon countries.

In the mid-1980s, there were signs that East Germany hoped to foster its trade relations with countries in Southeast Asia and East Asia, particularly with China. In July 1985, following mutual visits of delegations, East German and Chinese representatives signed a long-term agreement that called for a substantial increase in trade from 1986 to 1990. Primary East German exports to China in the mid-1980s were agricultural products, textiles, and mineral and chemical raw materials. Two agreements reached during 1986 called for deliveries of railroad refrigerator cars and passenger coaches to China.

East German trade with the developing world has not been significant in percentage terms, although its relative importance has increased slightly since the late 1970s. In specific cases, however, East Germany has placed some emphasis on trade with the countries in the Third World. Sometimes a political consideration has been dominant. East Germany has provided considerable support for national liberation movements and various governments in Africa, Asia, and Latin America (see The National People's Army and the Third World , ch. 5). The East Germans have supplied to governments such as those of Angola, Mozambique, and Ethiopia machinery and equipment on favorable credit terms. In other cases, economic factors have been dominant, as when East Germany evinced interest in oil imports from countries such as Mexico, Iran, and Iraq beginning in the late 1970s. During the previous Five-Year Plan (1981-85), East Germany chalked up large trade surpluses with developing countries. These surpluses were particularly helpful because some of the trade took place in freely convertible currencies.

As a whole, at the end of the 1981-85 period the status of East German foreign trade was relatively favorable, particularly when viewed against the background of the seemingly intractable problems of the previous decade. As noted previously, during the late 1970s and into the early 1980s, East Germany had run dangerously high trade deficits. In 1980 East German indebtedness to the West amounted to approximately US$9 to US$10 billion, or more than the value of all the goods it sold on Western markets that year. In the late 1970s, the country was also running substantial deficits in its trade with the Soviet Union. Western banks, citing the growing East German international debt, began to restrict the availability of loans. In early 1982, the East Germans responded by cutting imports drastically and by expanding exports as much as possible. During the 1981-85 period, East Germany's exports rose by 64 percent while imports rose by only 37 percent. In early 1987, East Germany was again considered a prime customer for credit; as a result of their strategy, East German economic planners were well positioned to draw on Western credit if they chose to do so.

Data as of July 1987

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