Increased imports will accompany gradual East European recovery; U.S. sales of manufactured goods should pick up in 1986 - World Trade Outlook

At $351 milliof for January-June 1985, direct U.S. exports to Eastern Europe are running about 25 percent behind last year's six-month total, due to lower agricultural sales. U.S. manufactured exports, led by fertilizers and other chemicals, agricultural tractors and spare parts for machinery, increased slightly over last year's figure to about $100 million. Continued East European import restraint and the high value of the dollar are expected to hold total U.S. exports this year to roughly 1984's level of $884 million.

In 1986, U.S. sales of manufactures should pick up as the East European countries--Bulgaria, Czechoslovakia, the GDR, Hungary, Poland and Romania--launch their new five-year plans. As the planning period progresses and East European annual targets are set, there should be modest additional prospects for U.S. exporters.

U.S. imports from Eastern Europe have continued their vigorous growth, totaling $882 million for the first half of 1985, an 18 percent increase over the same period of 1984. Since much of this increase is attributable to expanded steel purchases from every East European country except Bulgaria, import growth will slow as a result of bilateral voluntary steel restraint agreements conculded this year.

Export Growth Aids Financial Recovery

Eastern Europe's determined hardcurrency export drive is meeting with success. Exports to the West last year, led by Romania, Poland and Hungary, increased by 14 percent to $15 billion, yielding a hard-currency trade surplus of $2.8 billion for the region. This contributed to the third successive annual decline in the region's net hard-currency debt, from an all-time high of $59.5 billion in 1981 to $50.9 billion at end-1984.

The financially stronger countries are once again seeking and obtaining Western commercial financing. Western banks recently oversubscribed loans of $600 million for the GDR and $200 million for Bulgaria, in addition to syndicating a $100 million credit for Czechoslovakia. Hungary will continue to receive World Bank financing to support a variety of industrial projects.

Romania has perfornmed remarkably well in reducing total foreign debt to about $7 billion, but payments on rescheduled debt will remain heavy for the next year. Poland, which recently reached a rescheduling agreement with Western governments, will see its hard-currency debt obligation increase this year with no new infusion of Western credits.

Hampered by lagging productivity and financial difficulties, East European economic growth during the current Five-YEar Plan period (1981-85) ahs been roughly one-half of that in the preceding period. Economic performance in each of the six countries did improve slightly in 1983, however, and more noticeably in 1984.

As they conclude the final year of their Five-YEar Plan cycle, all the East European countries are attempting to bring performance up to targets. This was impeded earlier in the year by an unusually severe winter that disrupted production and exports. As a result, even improved performance in the second half of the year may not be sufficient to match 1984's 3.1 percent regional growth in real GNP.

East European planners are currently deciding on the directions for the 1986-90 period. During the next five years, the East European countries have common goals of reducing energy and raw material inputs, improving productivity and product quality, and modernizing and upgrading industry. They also will seek to develop high quality, competitive exports for hard-currency markets. Some countries--notably Hungary, Bulgaria and the GDR--have implemented specific reforms to achieve these objectives.

Prospects for Western Exports

Further easing of the region's debt burden, coupled with policies aimed at modernization, energy efficiency, and improved labor productivity, should stimulate growth in Eastern Europe's imports of Western technology, equipment and materials. Last year, Western exports to the six totaled $12 billion, roughly the same level as in 1983. This indicates that the sharp rate of decrease in Western exports--which declined 40 percent between 1981 and 1983--has been arrested.

While East European import plans for the 1986-90 period are still sketchy, sales and cooperation prospects are beginning to emerge for Western firms. Opportunities exist in food processing and packaging, agricultural machinery, pharmaceuticals and fertilizer production, synthetic fiber and plastics production, and medical equipment. Other traditional American exports, such as agricultural commodities, chemicals, and spare parts, will continue to be in demand. Within the limits of U.S. government regulations, restricted opportunities also may exist for American exports of electronic components, small computers, and computerized process control equipment.

More specific opportunities will develop as the individual countries unveil production targets and investment plans for the next five-year period. Information already available indicates that the GDR plans wide-ranging investment projects in 1986-90, such as upgrading lignite and oil processing facilities, including plants for coal gasification and synthetic fibers; waste reprocessing; industrial electronic componets production; and modernization of the GDR's mechanical engineering and light industries.

Hungary will receive continued World Bank support for projects in the food processing, transportation, pharmaceuticals, and gain storage sectors. These projects are specifically aimed at boosting Hungarian hard-currency export performance. Romania's import plans indicate U.S. exports will begin to recover next year.

Bulgaria has indicated particular interest in U.S. agricultural machinery and technology, specifically biotechnologies. Bulgarian officials also maintain that there is room for U.S. participation in substantial investment projects planned for 1986-90.

The EAst European countries view industrial cooperation arrangements with Western firms, including joint ventures, as a desirable means to attract Western technology and boost exports. With the exception of the GDR and Czechoslovakia, all of the East European countries permit joint ventures with Western companies. They have already concluded several such ventures, including some with U.S. companies, and a number of others are under discussion.

Despite the region's gradual progress toward financial recovery, countertrade remains an important factor in trading with Eastern Europe. Western companies often find that a deal may hinge on their ability to take back East European products as payment for sale of technology and equipment. Some Western companies have benefited from specifying production styles and buying back resultant products. Firms interested in the East European market need to pay particular attention to countertrade possibilities.

Commerce conducts an official trade promotion program in Eastern Europe. Plans are currently being made for 1986 exhibitions at next spring's trade fairs in Leipzig (GDR) and Budapest (Hungary); and next fall, at Brno (Czechoslovakia), Plovdiv (Bulgaria), and Bucharest (Romania). For further information on these and other upcoming trade promotion events in Eastern Europe, or for advice and assistance on doing business in the region, contact the East European Division in the Department of Commerce on (202) 377-2645.

COPYRIGHT 1985 U.S. Government Printing Office
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