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East Germany FOREIGN TRADE
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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