European Community Restrictions on Imports from Central and Eastern Europe: The Impact on Western Investors

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INTRODUCTION

The promise of a rapid transformation of Central and Eastern Europe (1) toward free market systems (2) has piqued the interest of Western investors and has spurred an in-flow of capital into an otherwise moribund economic region. (3) Many Western investors correctly view Eastern Europe as offering both low labor and related production costs and a natural gateway to the markets of Western Europe. (4) Indeed, since the profitability of many Western investments depends on relatively low production costs and export sales to the European Communities, the opportunity for investment in Eastern European production facilities has been widely viewed as a welcomed business development. (5)

Notwithstanding these acknowledged economic incentives for investment, however, most investors have also come to recognize that political and economic uncertainty continues to darken the skies over Eastern Europe. Much has already been written on the likely effect of this political and economic uncertainty on Western investment in Eastern Europe. (6) Yet comparatively little has been written about the other side of the coin--namely the prospects for an unimpeded flow of goods and services from Eastern Europe to the markets of the West. Although the European Economic Community (EEC or Community) (7) will be the natural export market for the goods produced by most of these investments, exports to the Community, including antidumping, (8) countervailing, (9) and safeguard measures (10) and possibly, state-aids remedies. (11)

The ECC can levy duties on dumped goods entering the Community (12) and has special standards for imports from non-market economies. (13) Before the recent changes in Eastern Europe, the EEC consistently classified every Eastern European nation as a "non-market economy" (NME). (14) Unfortunately, the EEC has yet to announce any specific program for their eventual graduation to free-market status. Imports from the East therefore will continue to face the risk of having antidumping duties imposed on them on a restrictive NME basis until the EEC changes its classification of Eastern European countries.

The EEC can also take action against subsidies granted by foreign governments. (15) Pervasive cross-subsicization was an essential characteristic of the state-owned, centrally-planned economies of Eastern Europe during the communist era. (16) For various reasons, however, the EEC generally has not enforced countervailing duty laws to counter these subsidy practices. (17) Yet there is little reason for complacency. It is likely that Czechoslovakia, Hungary, and Poland will eventually conclude separate bilaterel "association agreements" with the EEC and agree to prevent the granting of most state aids to private enterprises. (18) Under current practice, if the EEC Commission determines that a member-state government improperly grants an aid, it can direct the government to require repayment of that aid. (19) Thus, if current EEC disciplines are extended to Eastern Europe, there is a risk that the EEC may impose countervailing duties on imports from Eastern European countries or take action against any subsidies granted after a bilateral association agreement takes effect.

Finally, the EEC may also impose safeguard measures to protect its industries against a surge in imports. (20) Although the EEC traditionally has replied on this protective device less than antidumping duties, (21) increased exports by competitive Eastern European producers could easily provoke safeguard protection.

This Article will examine the potential effect of EEC antidumping, countervailing, and safeguard practices on the flow of goods from Eastern Europe. It will also discuss EEC internal controls of state aids and the possibility that such controls could be extended to Czechoslovakia, Hungary, and Poland. Since the only certainty in the region is that some form of change will occur over the short- and medium-terms, this Article will not attempt to predict either the eventual outcome or the exact risk of an EEC measure impacting any particular Western investment. …