Part 1: Yugoslavia between the regional trade blocs (1948-65)
The Balkans was a politically and ideologically diverse region during the Cold War. Bulgaria and Romania were parties to the Warsaw Pact, Albania sided with the People’s Republic of China during the Sino-Soviet split, after which the country was isolated for most of the Cold War period. Greece has been a member of the European Union since 1981 and, along with Turkey, have been members of NATO. Finally, Yugoslavia, another communist state, was the only communist country to establish formal foreign and trade relations with the European Economic Community (ECC).
Yugoslavia will be the main focus of this two-part analysis. The development of its foreign and trade relations throughout most of the Cold War unveils important lessons about balancing its geopolitical and economic interests between two major trading blocs. Although the Belgrade government insisted on its independent, non-aligned position on the international stage, Part 1 of this analysis will seek to explain the difficulties and advantages of maintaining such a position, and in Part 2 will apply them to modern-day Bulgaria, a full member state of the EU and NATO that has trade relations, mainly in the energy and tourism sectors, with the successor state of the Soviet Union – Russia.
The Soviet-Yugoslav split and an opportunistic West
Communism was not interpreted uniformly throughout Eastern Europe. Soviet leader Joseph Stalin propagated the “socialism in one country” principle, whereby the industrial base and military power of the communist state are built up, before competing with the economically advanced nations of the West and exporting communist revolution to the world. However, his namesake Yugoslav leader Josip Broz Tito advocated policies and practices based on the principle that in each country the means of attaining ultimate communist goals must be dictated by the conditions of that particular country, i.e. Yugoslavia, rather than by a pattern set in another country – the USSR.
This clear divergence led to the Soviet-Yugoslav split in 1948. Yugoslavia was practically left isolated in a bipolar world, which undoubtedly resulted in insecurity among policymakers in Belgrade: “…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.” (Holt and Stapleton, 1971: 47). The West unsurprisingly saw this as an opportunity to establish economic relations with what was still a communist state, and, possibly, prove that capitalist economic system will gradually and naturally overcome communism. Thus, from 1949 Yugoslavia began receiving offers for loans and other forms of aid from Western countries and organisations (Holt and Stapleton, 1971), which arguably contributed to Belgrade’s decision to seek closer trade relations with the EEC and the United States (Obadić, 2014).
Non-Alignment and Western Europe’s integration project
Stalin’s death in 1953 led to Soviet-Yugoslav relations warming, with the Soviets “revoking restrictions on trade with Yugoslavia” (Holt and Stapleton, 1971: 41). Nevertheless, Western Europe remained Yugoslavia’s major trading partner and Tito made it clear during the Moscow conference of Communist Particles four years later that Yugoslavia will remain non-aligned. This, however did create unprecedented challenges for the Belgrade government. For at least the first half of the 1950s, Yugoslavia’s foreign and trade policy was multifaceted, stuck isolated in the middle of the two blocs, preoccupied with surviving the Soviet threat (Obadić, 2014: 331). This complex policy included a focus on non-aligned Third World countries, but Yugoslavia was still economically and financially dependent on the West and, nonetheless, shared ideological principles with the Soviet East. What was at first Yugoslav apathy towards Europe’s integration project, turned into serious anxiety: the emergence of the European Coal and Steel Community (ECSC) in 1952 and the signing of the Treaty of Rome in 1957 gradually drew the attention of Yugoslav policymakers, because the Common Agricultural Policy (CAP) posed serious threats to Yugoslav exports. Since the establishment of the common European agricultural market, Yugoslavia’s agricultural exports steeply reduced from over 50% of the country’s total sales to the EEC in the early 1960s to 13.5% in 1978.
Despite Belgrade’s non-alignment policy, the EEC’s increasingly protection policy forced Yugoslavia to shift its attention from agricultural exports to industrialisation and the export of industrial goods. A process of industrialisation meant that the Yugoslav economy was more reliant on raw materials from Western Europe to export a larger share of industrial products. This led to a significant problem for the Yugoslav economy – the balance-of-payment deficit increased (Obadić, 2014). This meant that Yugoslavia did not save enough, nor produce enough economic output, to pay for its imports and growth. Belgrade’s strategy for tackling this deficit was through Western aid and donations, war reparations and financial credits, yet this would not be a feasible long-term strategy for Tito, if he were to keep Yugoslavia independent and non-aligned. Therefore, exports needed to be expanded.
A turn to the Third World – cutting the deficit?
In order to maintain economic independence, Yugoslav economist Janez Stanovnik set out three-point plan (Holt and Stapleton, 1971): establish economic ties with other non-aligned countries, i.e. the Third World; concentrate investment policy on promoting export industries and join with other non-aligned countries in the development of normal trade relations with the existing blocs. Widening and diversifying its foreign-trade relations with the Third World seemed to be the only sensible policy choice for Tito, as he maintained that Yugoslavia ought to base its economic development on these emerging markets, which would anticipatedly experience sufficient growth (Obadić, 2014). It was hoped that this policy would wean Yugoslavia off the West, providing growing markets for Yugoslav industrial products in the long-term, given that these products were uncompetitive in the Western European market.
Therefore, Yugoslavia became increasingly involved internationally as a diplomatic power. Throughout the 1960s, Tito initiated the Non-Aligned Movement, monitored the negotiations and discussions on international trade within UNCTAD and GATT, expecting the establishment of the Generalised System of Preferences (GSP) to ease the country’s economic challenges, and founded and played an active role within the Group 77 – a coalition of developing nations, designed to promote its members’ collective economic interests in the United Nations. Furthermore, Yugoslavia resumed relations with the OECD as an observer, a member of GATT in 1966 and also established relations with the EFTA. Additionally, the 1964 agreement with the Eastern bloc was a result of increased trade between the two in the period 1962-1965, reaching a high point of 34.69% in 1965 (see Figure 1 below).
Figure 1: Percentage of total Yugoslav trade to EEC, COMECON, EFTA and Developing Countries 1958-70
Nonetheless, the EEC showed little enthusiasm for negotiations on a trade agreement with Yugoslavia (Obadić, 2014). Yugoslavia’s experimental expansion towards the non-aligned Third World markets was not particularly successful: it did not solve the severe balance-of-payments deficit (as Figure 2 shows for the second half of the 1960s), thus it failed to lessen the importance of Western Europe as a trade partner for Belgrade.
The comfortable surplus position of 1962 (seen in Figure 3) was short-lived and lapsed into one of deficit in which imports rose faster than exports, rather than the other way around, which is why Yugoslavia sought expansion into these markets in the first place.
The second part of this analysis will be published on Sunday, June-17, 2018. The author will present various aspects of the Yugoslavia’s liberal economic reforms, 70’s relationship crisis and finally, a projection of the lessons from these events over equivalent problems of contemporary Bulgaria.
The bibliography will be published at the end of the second part of the analysis.
Author: Yoan Stanev
2018 Millennium Club Bulgaria