German Trade Policy in Eastern Europe, 1890-1990: Preconditions for Applying InternationalTrade LeverageAuthor(s): Robert Mark Spaulding, Jr.Source: International Organization, Vol. 45, No. 3 (Summer, 1991), pp. 343-368Published by: The MIT PressStable URL: http://www.jstor.org/stable/2706735 .Accessed: 20/02/2011 19:50

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German trade policy in Eastern Europe, 1890-1990: preconditions for applying international trade leverage Robert Mark Spaulding, Jr.

Other than war, trade is the most important international activity of a sovereign state. The projection of German technology, goods, and services into Eastern Europe was a centuries-long process of major importance for European development. At the same time, the projection of German state power into the East lay at the root of both world wars. No aspect of the German presence in Eastern Europe has been more enduring than the economic connections between Germany and its Eastern neighbors. The persistent pattern of German-East European trade is one of the few areas of German economic history, German-East European relations, and German foreign policy in which we can connect the activities of 1990 to those of the 1950s, to those of the 1920s, to those of the 1890s. As an economic phenomenon noteworthy for its continuity and stability across political regime changes, German-East Euro- pean trade offers an opportunity for an approach that is long-term in its scope. The underlying methodological hypothesis is that a long-term ("vertically" comparative) study of German trade policies will begin to illuminate the key prerequisites for Germany's application of trade pressure in its relations with Imperial Russia, the Soviet Union, Poland, and Czechoslovakia.

This study examines German efforts to exploit trade relations for public, political purposes over four distinct German domestic regimes since the late nineteenth century. These largely coincide in time with four different interna- tional trade regimes and European power constellations. The trade relations under scrutiny are those with the Russian, Polish, and Czechoslovak govern- ments. Followed over the vicissitudes of a century, they permit us to generalize about the conditions under which Germany could apply economic statecraft in

Earlier versions of this article were presented to the Diplomatic History Workshop, chaired by Gunter Bischof at Harvard University, and to the Seminar on Non-Violent Sanctions, directed by Christopher Kruegler at the Center for International Affairs, Harvard University. In addition to the valuable comments received at these presentations, the article has benefited from suggestions offered by Jonathan Kirshner, Stephen Krasner, Charles Maier, Beth Simmons, and two anonymous reviewers.

Intemational Organization 45, 3, Summer 1991 ? 1991 by the World Peace Foundation and the Massachusetts Institute of Technology

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the East. The record is rich enough to allow some robust conclusions as to which international and German domestic frameworks had an impact on Germany's capacity to apply trade leverage on its East European neighbors.'

The early sections of this article present the key variables that determined the Eastern trade policy experiences of four different German regimes: Imperial, Weimar, prewar Nazi, and early Federal Republic. In each of these periods, four factors largely determined the nature of leverage. These included, first, the nature of the international trade regime; second, Germany's own willingness to accept trade politicization as a tool of statecraft; third, the degree of German state autonomy in setting the course of Eastern trade policy; and, fourth, a factor often overlooked, the availability of an effective import-export control mechanism for German trade. The fact that Germany remained the "superior" partner vis-a-vis its Eastern neighbors throughout the period means in effect we can control for the inherent economic inequality of the trade relationship and trace political leverage to other factors as well. Subsequent sections of the article follow the successive regimes as historical experiences to see how the key variables operated-positively or negatively. After summariz- ing the role of the four factors as preconditions for trade leverage, the article closes by assessing the prospects for continued stability of the key variables.

It should be emphasized that this article examines the preconditions for the application of trade leverage, not the prerequisites for the success of trade leverage as a policy. In other words, it examines when leverage might be attempted, not whether it will work. Certainly no country would seek to apply trade leverage if there were no possibility of success. However, a systematic assessment of the prerequisites for the success of German trade leverage requires another essay. Although comprehensive judgments on the success of German policies lay outside the scope of this article, it does indicate in passing when and where German trade leverage applications have been most rewarding.

Understanding the preconditions for applying international trade leverage

Dean Acheson once described trade policy as the area in which the currents of "foreign affairs" cross with those of "fiscal and domestic matters." In the same

1. In this article, I use a means-oriented definition of "trade leverage" that emphasizes the use of merchandise trade flows as a means of pursuing nontrade related foreign policy goals. Of course, the conceptually less challenging use of trade policy as a means of influencing other states' trade policies also constitutes trade leverage. Employing Baldwin's terms "economic statecraft" and "economic diplomacy," I also refer to "trade-based economic diplomacy" and use that term interchangeably with "trade leverage," distinguishing where necessary between trade-based economic diplomacy and forms of diplomatic pressure with other bases. See David A. Baldwin, Economic Statecraft (Princeton, N.J.: Princeton University Press, 1985), pp. 35 and 39-40.

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vein, he called the tariff "the most political of all areas of foreign policy."2 Acheson's observation should remind us that trade policy is a response to the economic and political pressures of both the international and domestic frameworks.3

Studies of economic diplomacy have had some difficulty in moving beyond the debate over an appropriate conceptual framework.4 A new type of contribution might be made by joining this type of theoretical discussion with empirically researched cases in a single study. Explicating the German experience in Eastern Europe has yielded the following insights that might be useful in guiding further research on the use of trade leverage.5

(1) Foreign economic policy studies that cover periods contained within one trade regime have difficulty in finding a comparative perspective for assessing how the nature of the prevailing trade regime affects the scope of policy choices available to regime participants. Attempts to identify the effects of interna- tional trade regimes on policy should focus on enduring patterns of trade.

(2) The recognition of trade as a foreign policy tool is closely (though inversely) related to the availability of other (nontrade) foreign policy tools and international levers. Trade leverage may be a relatively undesirable form of statecraft, with states tending to prefer nonmarket sanctions over which they have greater control.

(3) In societies based on private ownership of economic property, trade is a particularly complex tool of statecraft, since governments acting in the international arena must attempt to employ private economic resources over which they do not have direct or exclusive control. Accounting for government interaction with the private sector is central to explaining foreign economic policy. Consequently, the "unitary rational actor" assumption of state behavior appears a particularly problematic point of departure for studies of foreign trade policy.

(4) Any application of trade leverage rests on state possession of a bureaucratic mechanism capable of screening imports and exports on a

2. Dean Acheson, Present at the Creation: My Years in the State Department (New York: Norton, 1969), pp. 139-40.

3. Putnam has developed the concept of "two-level games" to describe the dual frameworks in which policymakers of sovereign yet interdependent countries must respond to both domestic and international constraints and pressures. See Robert Putnam, "Diplomacy and Domestic Politics: The Logic of Two-Level Games," Intemational Organization 42 (Summer 1988), pp. 427-60.

4. See, for example, C. Fred Bergsten, Robert 0. Keohane, and Joseph S. Nye, "International Economics and International Politics: A Framework for Analysis," Intemational Organization 29 (Winter 1975), pp. 3-36; Baldwin, Economic Statecraft, p. 58; and Benjamin J. Cohen, "The Political Economy of International Trade," Intemational Organization 44 (Spring 1990), pp. 261-81.

5. As long as the "inadequacy of basic theoretical work" and the "lack of attention to history" remain two of the "major lacunae in the intellectual development" of security studies, historically based case studies with theoretical implications should be an especially valued type of contribution to the entire field of international relations. See Joseph S. Nye, Jr., and Sean Lynn-Jones, "International Security Studies: A Report of a Conference on the State of the Field," Intemational Security 12 (Spring 1988), pp. 5-27.

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selective basis. The real, practical problems involved with generating a large, trained bureaucracy for selective trade control have received far too little attention. In a great many cases, the underlying assumption that all sovereign states either have or can produce such mechanisms overnight should be reconsidered.

The foundation for any policy of international trade leverage must be sought in the role of each country in the international division of labor. National economic performance provides objective measures of each country's relative strength in a given trade relationship-the starting point for any policy of economic statecraft based on trade leverage. Because Germany's industrial superiority vis-'a-vis its East European neighbors was continual throughout the period discussed here, I have set economic performance outside the group of factors examined, using it as a constant against which these other, more variable factors can be evaluated.

Relative strength and trade vulnerability are most basically measured by the size of a country's gross national product (GNP) and by the ratio of imports and exports to GNP and are further delineated by a number of increasingly sophisticated indices designed to measure the degree of trade concentration on certain markets or sources of supply. By generating the proper indices, one can establish an objective measure of the relative economic strength of each country in a trade relationship. The power conferred by possession of certain strategic materials must be treated on a case-by-case basis.

German experiences, 1890-1990 The background for German trade leverage

Germany held the upper hand economically in its relations with Eastern Europe throughout the period under consideration by virtue of exchanging its more sophisticated consumer and capital goods for Eastern Europe's primary products. This evolving yet surprisingly stable pattern of trade has sent value-added goods from Germany to Eastern Europe in exchange for agricul- tural products, raw materials, and cheap manufactures for over a century.

On the eve of World War I, the highly productive German economy had already assumed a controlling position in Russian foreign trade, capturing 45 percent of Russia's import market and 30 percent of its export market. Yet these figures represented "only" 9 percent of Germany's total exports and 13 percent of its total imports.6 While a number of countries other than Russia could serve Germany well as alternative sources of agricultural products, the

6. See Kaiserliches statistisches Amt, Statistik des deutschen Reiches (Statistics of the German Reich), new series, vol. 271, part 5 (Berlin: Puttkammer und Muihlbrecht, 1914), pp. 1-2. The volume also contains a useful commentary on the deficiencies of Russian trade statistics prior to 1914.

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German market, with its densely packed mass of consumers, was an irreplace- able outlet for Russian grain exporters. Russia also needed Germany as a supplier; few other countries or, in some cases, no other country could deliver the advanced chemical, electrical, and machine exports of the type that Germany sent to Russia.

The shattering of the Russian and Habsburg empires into a number of smaller "successor states" in Eastern Europe only increased the previously existing German trade advantages during the interwar years. In 1929, the German share of Polish foreign trade was more than ten times larger than the Polish share of German trade (29 percent and 2.5 percent, respectively).7 Czechoslovakia's position was only a little better. The Reich absorbed 23 percent of Czechoslovak exports and supplied 38 percent of imports, while Czechoslovakia was a market for just 4.9 percent of German exports and supplied only 3.6 percent of German imports.8 While the Soviets remained largely withdrawn from the European economy in the 1920s, that trade which they did conduct with the Reich was skewed to the German advantage. Germany held 22 percent of the Soviet import market in 1929, but this represented only 2.6 percent of German foreign sales. The Germans bought 23 percent of Soviet exports, yet these were only 3.2 percent of Germany's total imports.9 Only in 1939-40, when the rearming Reich required huge amounts of timber, grain, ores, and petroleum, did the Soviets bargain from strength.

The economic success of the Federal Republic from 1949 to 1960 gave the West Germans a strong position from which to plan trade strategy toward Eastern Europe. By 1955, the previously existing disparity between living standards in Eastern and Western Europe had widened into an unbridgeable gulf, affecting even the most advanced industrialized areas of Czechoslovakia. The divergence in economic performance between Germany and its Eastern

7. In 1929, German exports to Poland were 339 million marks, or 2.5 percent of total German exports (13,482 million); imports from Poland were 343 million marks, or 2.6 percent of total German imports (13,434 million). See Statistisches Reichsamt, Monatliche Nachweise uber den Aussenhandel Deutschlands-Erganzungsheft: DerdeutscheAussenhandel nach Erdteilen und Landem, 1929 (Monthly record of German foreign trade-Supplement: German foreign trade by continent and country, 1929) (Berlin: Reimar und Hobing, 1930), p. 5. On the other side, Polish exports to Germany were 877 million zloty, or 31 percent of total Polish exports (2,813 million); imports from Germany were 850 million zloty, or 27 percent of total Polish imports (3,111 million). See B. R. Mitchell, European Historical Statistics, 1750-1970 (New York: Macmillan, 1975), pp. 496 and 547.

8. In 1929, Czechoslovak exports to Germany were 4,691 million koruna (with total Czechoslovak exports equal to 20,499 million); imports from Germany were 7,675 million koruna (with total imports equal to 19,998 million). See Mitchell, European Historical Statistics, pp. 493 and 513. German exports to Czechoslovakia were 658 million marks; imports from Czechoslovakia were 480 million marks. See Statistisches Reichsamt, Monatliche Nachweise-Ergdnzungsheft: 1929, p. 5.

9. In 1929, Soviet exports to Germany were 169 million rubles (with total Soviet exports equal to 724 million); imports from Germany were 153 million rubles (with total imports equal to 691 million). See Mitchell, European Historical Statistics, pp. 496 and 557. German exports to the Soviet Union were 353 million marks; German imports from the Soviet Union were 425 million marks. See Statistisches Reichsamt, Monatliche Nachweise-Ergdnzungsheft: 1929, p. 5.

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neighbors had never been greater. The Federal Republic could deliver both the food and the investment goods that Eastern Europe needed. West Germany could also supply short-term financing for its export sales and long-term loans for both investment and consumer purchases. The Federal Republic's greatly reduced economic stake in the Eastern trade after 1949 allowed the federal government to accommodate more easily the inclusion of political and diplomatic considerations into its trade policy calculations, knowing that the economic penalty for miscalculation could be absorbed by the West German economy.

Yet relative economic superiority is not by itself a sufficient condition for the application of trade leverage. Other factors frequently prevent powerful trading countries from employing trade policies in attempts to wring the desired concessions from weaker trading partners. The Germans were not always able to apply their economic advantage in attempts to gain political or diplomatic advantage in their relations with the East. The Weimar Republic concentrated its trade on smaller countries, including those of Eastern Europe, to a far greater extent than did any other major European power.'0 Yet the Reich was generally unable to bring that trade advantage to bear on nontrade negotiations. To cite another example, the Federal Republic has been more prone to attempt economic diplomacy in Eastern Europe than the Weimar Republic was, in spite of a greatly reduced volume of German-East European trade after 1949. The strength of the German economy in the international framework provided only the starting point for trade policy formulation. Analysis must take into account several other significant factors affecting German trade policy.

Four factors affecting German trade leverage

The nature of the international trade regime. The record of German activities shows that the prevailing international trade regime played an important role in placing limits on Germany's use of its economic strength in Eastern Europe."1 It is clear that a powerful economic actor such as Germany

10. The Weimar Republic's economic potential for applying trade leverage is captured in Hirschman's "index of preference for [trade with] small countries." By this measure, Germany under the Weimar regime concentrated its trade on smaller countries to a greater degree than did either Britain or France. In 1925, this index of concentration stood at 126 for German imports and 158 for German exports, well above both Britain (111 for imports and 114 for exports) and France (93 and 93). See Albert 0. Hirschman, National Power and the Structure of Foreign Trade (Berkeley: University of California Press, 1980), Table 1, pp. 92-93.

11. The international trade regime can be defined as the web of "institutions, fundamental assumptions, and rules of the game" governing trade practices and trade relations between states, according to Bergsten, Keohane, and Nye in "International Economics and International Politics," p. 5. Charles Lipson refers to "rules, norms, principles, procedures, [and] expectations" when discussing trade regimes in "The Transformation of Trade: The Sources and Effects of Regime Changes," in Stephen Krasner, ed., Intemational Regimes (Ithaca, N.Y.: Cornell University Press, 1983), pp. 233-71. See also Krasner's own contributions in the same volume.

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was not merely a market-taker in terms of regime, but neither did it fly in the face of prevailing trends. Germany worked within the Western trading system but was always a leader in protectionist departures from existing norms.'2

Four distinct trade regimes have emerged since the late nineteenth century. The pre-1914 liberal trade regime was secured by most-favored-nation (MFN) clauses and limited state powers of regulation. The transitional regime of the 1920-29 period sought in vain to restore the full liberty of prewar trade. The fractured regime of the 1930-39 period of depression was characterized by bilateralism and impermeable trading blocs. The post-1945 order produced a bifurcated European trade regime with neoliberalism in the West and state control in the East.'3 These successive regimes prevented, impeded, allowed, and then encouraged the execution of trade leverage policies. In shaping trade flows with Eastern Europe, German policymakers had to choose their particular tools (tariffs and treaties, administrative action, and cartels) from the set of trade policy actions deemed permissible by the prevailing trade regime.

Prior to 1914, the liberal European trade regime worked to prevent Germany from isolating its trade relations with Russia. Beginning with the Anglo-French Cobden-Chevalier treaty of 1860, European commercial relations had been regulated by an expanding web of trade treaties that contained the MFN clause. This treaty practice made it difficult and unusual to discriminate against or grant preference to any subset of trading partners in an enduring manner, since "given a network of such [MFN] treaties, any bilateral tariff reduction becomes a multilateral reduction."'4 Under these circumstances, Germany did

12. While Lipson, Krasner, and others have turned their attention in part to the question of how international regimes are constructed, this study takes the international trade regime as exogenous and offers explanations of how existing regimes influence national trade policies. For a discussion of the benefits and drawbacks of "upward-looking" and "downward-looking" analyses of system management, see Cohen, "The Political Economy of International Trade."

13. Despite recent challenges to the hegemonic model, it continues to dominate explanations of economic regime change and stability. See, for example, Charles Kindleberger, The World in Depression, 1929-1939 (Berkeley: University of California Press, 1974); Peter Katzenstein, "Introduction: Domestic and International Forces and Strategies of Foreign Economic Policy," in Peter Katzenstein, ed., Between Power and Plenty: Foreign Economic Policies of Advanced Industrial States (Madison: University of Wisconsin Press, 1978), pp. 3-22; Robert Gilpin, "Economic Interdependence and National Security in Historical Perspective," in Klaus Knorr and Frank Trager, eds., Economic Issues and National Security (Lawrence: Regents Press of Kansas, 1977), pp. 19-66; Robert Gilpin, U.S. Power and the Multinational Corporation (New York: Basic Books, 1975); Stephen Krasner, "State Power and the Structure of Foreign Trade," World Politics 28 (April 1976), pp. 317-47; Robert Keohane, After Hegemony: Cooperation and Discord in the World Political Economy (Princeton, N.J.: Princeton University Press, 1984); and Duncan Snidal, "The Limits of Hegemonic Stability Theory," Intemational Organization 39 (Autumn 1985), pp. 579-614. For a critical review of the structural, game-theoretic, functional, and cognitive approaches to regime analysis, see Stephan Haggard and Beth A. Simmons, "Theories of International Regimes," Intemational Organization 41 (Summer 1987), pp. 491-517. For thoughts on how an international economic regime corresponds to the international political power system in a given period, see Akira Irye, "The Internationalization of History," American Historical Review 94 (February 1989), pp. 1-10.

14. Lipson, "The Transformation of Trade," p. 241.

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not develop a rigorous German import-export control bureaucracy."5 This, in turn, further hindered Germany's ability to apply differential tariffs and other forms of discrimination or to grant preferences. Both directly and indirectly, the pre-1914 trade regime of MFN treaties handicapped the Reich's attempts to bring the full German economic advantage to bear during German-Russian treaty negotiations.

After 1920, the liberal trade regime reemerged, badly damaged by the bitter experience of World War I. The war unleashed a wave of economic nationalism heralded by the six-power "Allied Economic Conference" in June 1916 and confirmed by the Versailles settlement. The economic and reparations clauses of the treaty (Part X, Articles 264-70) legitimized the continued use of commercial and financial weapons in the pursuit of foreign policy goals during peacetime. Even in the relatively normal years from 1925 to 1929, trade in many important commodities remained strictly controlled. In Germany, imports and exports of coal remained under state control throughout the period. Particu- larly in East-Central Europe, what Joseph Rothschild has described as an "understandable but nonetheless irrational craving for state autarky" shaped tariffs, state budgets, and private investments.'6 At the same time, the goal of essentially free, multilateral trade was still acknowledged in Western and Central Europe, and the MFN principle was included (though often without the necessary tariff substance) in most German trade treaties.

A League of Nations report recorded unemotionally that "the system of multilateral trade, already seriously affected, broke down with the collapse of the world monetary system" in 1931.17 State import monopolies, quantitative restrictions, foreign exchange controls, and preferential treaties killed the multilateral trade system which, though shaken by the consequences of World War I, had governed European commercial exchanges since the mid- nineteenth century. According to economists working with the League of Nations, these fundamental changes in the international trading system produced a "general movement towards bilateralism" in Europe and in the world at large, and "each bilateral agreement was sui generis, designed to meet the special trade requirements of, and to afford effective reciprocal advantages to, the signatories.""8 Whereas the pre-1914 multilateral trade regime had obstructed Germany's attempts to apply trade pressure to Russia, the bilateral regime of the 1930s did just the opposite: it facilitated Germany's exertion of trade pressure on individual East European states.

15. Domestic factors such as the late unification, the federal structure of the Reich, and the almost exclusively aristocratic character of the upper levels of the civil service also played impor- tant roles in the noteworthy underdevelopment of the central Reich bureaucracy before 1914. See Friedrich Facius, Wirtschaft und Staat: Die Entwicklung der staatlichen Wirtschaftsverwaltung in Deutschland vom 17. Jahrhundert bis 1945 (Economy and state: The development of state eco- nomic administration in Germany from the 17th century to 1945) (Boppard: Harald Verlag, 1959).

16. Joseph Rothschild, East-Central Europe Between the Wars, vol. 9 of A History of East-Central Europe (Seattle: University of Washington Press, 1974), p. 22.

17. League of Nations, Commercial Policy in the Interwar Period: Intemational Proposals and National Policies (Geneva: League of Nations, 1942), p. 70.

18. Ibid., pp. 70-71.

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American plans for overcoming the bilateralist legacy of the depression in the post-1945 era remained confined to Western Europe as the events of 1945-49 created two rival political-military blocs in Europe. The formation of two trade blocs, a development perceptible as early as 1948, was all but inevitable as American concerns about the national security aspects of trade with the Soviet bloc led to the politicization of trade across Europe. West German trade with Poland, Czechoslovakia, and the Soviet Union became subsumed in the larger concept of "East-West trade." Like other Western countries, the new Federal Republic participated in two distinct trade regimes: a depoliticized trade regime for Western partners, which was embodied in the General Agreement on Tariffs and Trade (GATT), and a politicized regime for East European rivals, which was embodied in the Paris-based "Coordinating Committee" (COCOM). The new American-sponsored regime for East-West trade not only allowed trade leverage to be used but also demanded its use as part of the American "embargo" policy on trade with the Soviet bloc.

State acceptance of trade leverage as tool of statecraft. Recognizing the potential of trade leverage in Eastern Europe and accepting the use of that leverage as a foreign policy tool are obviously vital preconditions for any application of such policies. A growing awareness after 1890 of the potential of trade policy as a foreign policy tool was not unique to Germany. After 1918, European policymakers recognized the new opportunities offered by the crumbling liberal trade regime. Particularly in Germany, however, the reduc- tion and (by 1950) the elimination of other means of influence in Eastern Europe hastened the acceptance of trade leverage as a foreign policy tool.

Government officials are likely to prefer the use of forms of leverage over which the state, rather than the private sector, has predominant or exclusive control. From this perspective, the employment of military threats, nontrade diplomatic pressure, or foreign aid assistance incentives is preferable to the cumbersome process of manipulating trade flows-a process which usually cannot remain secret and which requires some accommodation of the private sector. (This point is examined at length in the following section.) If the state can find some other means of leverage at an acceptable cost, policymakers can greatly reduce the additional burdens that the inclusion of foreign policy political considerations places on trade policy. Surely the use of trade and tariff treaties as foreign policy tools further increases the difficulties of reaching satis- factory trade agreements. In those circumstances, trade agreements have to per- form double duty, producing political as well as economic concessions abroad.19

19. One line of this thinking culminates in the questions surrounding the costs and benefits of conquest versus trade. An early discussion of this issue can be found in Benjamin Constant's De l'esprit de conquete et de l'usurpation dans leurs rapports avec la civilisation europeenne, part 1, chap. 2, as cited in Hirschman, National Power and the Structure of Foreign Trade, p. 14. For more recent thoughts on this question, see Alan Milward, The New Order and the French Economy (Oxford: Clarendon Press, 1970), especially chap. 1; and Richard Rosecrance, The Rise of the Trading State: Commerce and Conquest in the Modem World (New York: Basic Books, 1986).

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Bismarck had always maintained a strict separation of foreign economic policies from the "higher" political-military aspects of foreign policy. In this, the still-dominant European liberal trade doctrines (which had been strong in Prussia through the 1870s) and the position of Germany as a net grain exporter (which continued until 1876) reinforced Bismarck's natural inclination to avoid entanglements that might limit his diplomatic room to maneuver.20 In addition, before 1914 Germany had available to it other forms of leverage, especially military and diplomatic tools, which might influence Russian policy. For these reasons, Bismarck felt no need to support his allies with trade or financial considerations. The German-Austrian dual alliance covered over a de facto trade war which had originated with new increases in the German tariff of 1881. Similarly, in 1887 Bismarck raised the (primarily anti-Russian) grain tariff for the third time in ten years, while at the same time he proposed, negotiated, and signed the Reinsurance Treaty with the Russians and arranged for the Czar's visit to Germany.21

Bismarck's successor, Caprivi, on the other hand publicly embraced the idea of using trade in support of larger foreign policy goals. He argued in 1894 that economic sacrifices were required in order to secure a Russian trade treaty which Germany needed, in part, to reestablish a line to St. Petersburg after the lapse of the Reinsurance Treaty in 1890. Caprivi's logic may have been sound, but his argument caused a small sensation because it so obviously departed from Bismarck's practice of refusing to commit the Reich to the economic support of its allies.22 Notwithstanding the self-serving nature of their argu- ments, the agrarian Conservatives, who instinctively clung to Bismarckian practices, feared the loss of German diplomatic freedom which the political overtones of Caprivi's long-term trade agreements implied. The Junkers' preindustrial world view could not easily accommodate Caprivi's policy of strengthening Germany's allies through trade and economic cooperation. At

20. This "separatist" view was not unique to Bismarck; it can be traced back through the first U.S. president at least to Machiavelli. In his farewell address, Washington declared that "the great rule of conduct for us, in regard to foreign nations, is, in extending our commercial relations, to have with them as little political connection as possible." Machiavelli offered the following argument: "Fortune has decreed that as I do not know how to reason . .. about profits and losses, it befits me to reason about the state." For further discussion, see Felix Gilbert, To the Farewell Address: Ideas in EarlyAmerican Foreign Policy (Princeton, N.J.: Princeton University Press, 1961); and Baldwin, Economic Statecraft. See also Hirschman, National Power and the Structure of Foreign Trade, p. 54. Hirschman notes that before 1914 even those contemporary scholars who warned specifically about the dangerous growth of German exports-such as E. E. Williams, author of Made in Germany (London: Heinemann, 1896)-saw "foreign, and in particular export trade ... as an end in itself and not as a means to political penetration and economic subjugation."

21. In 1887, Bismarck also pulled Russian government bonds off the list of securities usable as collateral at the Reichsbank and applauded a court ruling prohibiting the investment of German trust funds in Russian bonds.

22. See Stenographische Berichte des deutschen Reichstages (Stenographic report of the German Reichstag), 27 February 1894, p. 1451. Assessing the success of Caprivi's reversal of Bismarckian practice is complicated by the asymmetry between Caprivi's use of trade treaties as foreign policy incentives ("carrots") and Bismarck's policy of withholding treaties as disincentives ("sticks").

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the same time, the Junkers' belief in German military superiority meant that most Conservatives would not accept the idea that Germany "had to pay for peace" by maintaining harmonious trade relations with its neighbors.

These hesitations were swept away by the terms of the Versailles settlement. Politically outcast and militarily stripped, German policymakers naturally sought to employ their economic resources in the service of foreign policy. The new circumstances of politicized trade in the interwar period were well suited to Gustav Stresemann, the German foreign minister (1923-29), who had long argued for an active integration of international economic and political concerns. As a product of the Saxon industrial environment, Stresemann understood Germany's remaining strengths in the new European order: "I believe that today [1925] any Foreign Minister must solve the task of making foreign policy by using world economic circumstances and the one area in which we are still a Great Power-our economic power."23 As a net capital importer, the Weimar Republic did not have the financial resources to counter British and French financial diplomacy in Eastern and Southeastern Europe. The republic's status as an economic great power was restricted to trade, relying on the Reich's export capabilities and appetite for imports. In light of this, the Weimar regime's general inability to apply trade pressure in Eastern Europe deprived Stresemann of what ought to have been Germany's most useful foreign policy tool for compelling a peaceful revision of the terms of Versailles.

After 1933, Hitler's worldview determined that trade policy could be only a means toward his ultimate ends. Beginning in 1934, the Reich applied trade leverage in Eastern Europe hoping to open the area to German influence in the period before Germany could impose military control. Unlike any other chancellor, Hitler knew from the time he took office that ultimately he (and Germany) would stand or fall with the outcome of a major war of conquest. With this knowledge, he could ignore the short-term economic consequences of his trade policy decisions, and he understood that only Germany's most immediate and intractable economic problems constrained his use of trade in Eastern Europe.

After 1949, the lack of diplomatic, cultural, and all other forms of normal relations with Eastern Europe virtually compelled the Federal Republic to recognize the use of its economic advantage for political advantage. In the absence of other forms of contact, regular trade negotiations assumed a central place in West German-East European relations.24 By the mid-1950s, political

23. Stresemann, speech to the Central Committee of the Deutsche Volkspartei, 22 November 1925; reprinted by Henry Turner in Vierteljahrshefte fur Zeitgeschichte 15 (October 1967), pp. 412-36. Hans Posse, the influential undersecretary in the Economics Ministry, privately arrived at the same conclusions, as indicated in his unpublished manuscript of 1924-25, "Denkschrift zur Politik der Regierung" (Memorandum on government policy), Bundesarchiv Koblenz, Nachlass Posse/2.

24. Formal trade negotiations took place on the basis of "trade and payments agreements" signed by the Allied occupation authorities on behalf of the western zones of Germany with Poland

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questions were often discussed at the annual trade negotiating sessions. This formal linkage naturally invited the Federal Republic to use trade leverage for the resolution of political issues. By mid-1953, the economic position of the Federal Republic was strong enough for the new West German Foreign Office to advance the idea of using trade policy for other advantages in the East. In interministerial debates, officials of the Foreign Office declared flatly that the purely commercial considerations of trade agreements should be subordinated to raising the "overall standing of the Federal Republic in the East." Members of the Agriculture and Economics Ministries, eager to establish and reestablish a German economic presence in the East, balked at the proposed connection.25 Adenauer's decision to back the Foreign Office recognized that trade had, of necessity, become the Federal Republic's foreign policy tool of greatest utility in Eastern Europe.26

State autonomy in setting Eastern trade policies. Even prior to any politically motivated manipulations, trade with Eastern Europe initiated shifts in domestic incomes, location, and political power which were felt for many years by every major economic sector in Germany: agriculture, domestically oriented heavy industry, export-oriented industries, the merchant community, and labor. Government policies designed to sculpt trade flows for foreign policy advantage were bound to generate domestic conflicts and ferocious private struggles-complications that would not necessarily have accompanied the state's use of other forms of leverage.27

Using trade as a weapon requires a special understanding between the state as the director of foreign policy on the one side and the private sector as the owner of economic resources on the other. What, then, is the basis of this understanding? It may rest on a private sector consensus-in the form of a coalition of interests-which accepts the degree and distribution of sacrifices and rewards generated by government policy. Liberal pluralism, social corporat- ism, and Marxism offer variants of this mode of explanation.28 In the absence of

(October 1947 and July 1948) and Czechoslovakia (February 1947). These agreements were among the many international obligations undertaken by the Allies for the Bizonia and Trizonia and subsequently taken over by the Federal Republic.

25. Foreign Office report, 1 July 1953, Bundesarchiv Koblenz, Economics Ministry (B102), file 7197.

26. Truetzschler (Foreign Office) summary for the Chancellor's Office, 5 December 1953, Bundesarchiv Koblenz, Chancellor's Office (B136), file 1261.

27. An early exploration of these issues can be found in Stephen Krasner's "Domestic Constraints on International Economic Leverage," in Knorr and Trager, Economic Issues and National Security, pp. 160-81. Gilpin touches on this issue in a discussion of the costs of negative economic sanctions. See Robert Gilpin, "Structural Constraints on Economic Leverage: Market- Type Systems," in Gordon H. McCormick and Richard Bissel, eds., Strategic Dimensions of Economic Behavior (New York: Praeger, 1984), pp. 105-28.

28. For classic pluralist writings, see David B. Truman, The Govemmental Process: Political Interests and Public Opinion (New York: Knopf, 1952); and Robert A. Dahl, Who Govems? Democracy and Power in an American City (New Haven, Conn.: Yale University Press, 1961). For "neopluralist" variants, see Grant McConnell, Private Power andAmerican Democracy (New York:

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such a consensus between commercial, agricultural, and industrial private sector groups, coordination between the state and the private sector must come from the regime's own autonomy-its ability to impose the necessary sacrifices on society. In order to use trade as a tool of the state in international relations, successive German governments had to build a consensus with the private sector on the costs and benefits of trade leverage policies or, alternatively, had to impose those policies on a fractious private sector through tariff and other trade regulations. Consensus, state imposition, or some combination of the two has thus been a critical precondition for the use of trade-based economic diplomacy in Eastern Europe by each of the four distinct German regimes: the authoritarian monarchy of Imperial Germany, the "corporatist" democracy of the Weimar Republic, the dictatorship of the Third Reich, and the postwar "neocorporatist" democracy of the Federal Republic.

After 1890, the conflicting material and organizational interests of the leading sectors of the German economy precluded the possibility of these groups reaching a consensus among themselves on even the most preliminary questions of Germany's future trade policies in the East. At the core of the conflict stood a German agrarian response to Eastern trade policies which might be characterized as "obstructionism." Because the proposed expansion of trade required Germany to import East European agricultural products, the German agricultural sector actively sought to block the conclusion of trade agreements between Germany and its Eastern neighbors. Hereafter, the agricultural sector's input on German trade policy grew increasingly one- dimensional and negative. Private sector consensus on policies designed to increase German influence in Eastern Europe through an expansion of trade was possible only if and when imports from the East did not threaten domestic German agricultural price levels. By the 1920s, this policy conflict had widened precisely at a time when the burden of the Versailles settlement made a German trade surplus imperative. The domestically oriented producers of agricultural goods, textiles, and heavy industry argued for an emphasis on home protection and reduced imports. In opposition, the producers of machine tools, chemicals, pharmaceuticals, and electrical equipment urged that priority be given to export growth, which required a reduction of home protection both to lower the costs of industrial production and to secure export-facilitating trade agreements.

Knopf, 1967); and Theodore J. Lowi, The End of Liberalism: Ideology, Policy, and the Crisis of Public Authority (New York: Norton, 1969). On social corporatism, see Phillippe Schmitter, "Still the Century of Corporatism?" Review of Politics 36 (January 1974), pp. 85-131. For recent Marxist theory, see Ralph Miliband, Marxism and Politics (New York: Oxford University Press, 1977); and Nicos Poulantzas, Political Power and Social Classes (Atlantic Highland, N.J.: Humanities Press, 1975). Gourevitch's coalition-based interpretation of foreign economic policy has been a valuable recent addition to societal actor explanations. See Peter Gourevitch, Politics in Hard Times: Comparative Responses to Intemational Economic Crises (Ithaca, N.Y.: Cornell University Press, 1986).

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Genuine, across-the-board private sector consensus on expanding German trade in the East emerged under the Nazi regime in 1933-34. Hitler allowed Agriculture Minister Alfred Hugenburg to build on protectionist measures initiated in 1930 and to impose radical tariff, quota, and price control protection for German farmers. At the same time, a state-sponsored export drive, public works, and rearmament prevented any downturn in industrial production, which labor, industry, and commerce had long feared would be the ultimate result of increased domestic agricultural protection. After 1950, the Federal Republic saw a reemergence of German private sector consensus on expanding trade with the East. However, the new consensus rested on a fundamentally different basis: the poor economic performance of the new People's Democracies and, in particular, their inability to produce exportable agricultural surpluses. As Czechoslovakia and Poland sank into the abyss of declining productivity after 1950, they lost the ability to regularly generate exportable surpluses on a scale that could genuinely threaten German agriculture or industry. By 1954, a program for protecting German farmers from East European or Soviet competition would have been laughable.

The long-term historical record shows that the political structure of the German state, as manifested in the degree of state autonomy in trade policy formation, was as important as any other factor-including the overall strength of the German economy-in determining Germany's ability to pursue tactics of trade leverage in Eastern Europe. The German experience also shows that during times when the leading economic actors could not reach a domestic private sector consensus on future trade policies, as in the 1890-1933 period, the role of the state in stimulating trade policy formation became greatly increased. The state and its agents have thus been crucial to the formation of foreign trade policy and have often demonstrated the capacity to initiate policies and procedures that diverge sharply from the preferences of leading private sector economic groups.29 The balance of power between the state and society in general, and between the ministerial bureaucracy and the private interest groups in particular, went a long way toward determining German abilities to formulate and implement workable trade policies toward the East.30

29. Liberal and Marxist theorists of democracy deny that the state has the ability to act autonomously from society. Even when expanded to include the role played by the "intermediate agents" (the interest groups and political parties) of private economic actors, the liberal and Marxist frameworks still do not allow a role for the state in which state agents themselves habitually act as autonomous forces in the process of formulating policy. See Eric Nordlinger, On the Autonomy of the Democratic State (Cambridge, Mass.: Harvard University Press, 1981); and Michael Mann, "The Autonomous Power of the State: Its Origins, Mechanisms, and Results," in John A. Hall, ed., States in History (New York: Basil Blackwell, 1987), pp. 109-36.

30. The literature on state-society relations, particularly on the role of private sector interest groups (Verbande), in these four German regimes is voluminous. For good coverage of the entire period, see Kurt Jeserich et al., Deutsche Verwaltungsgeschichte (German administrative history), vols. 3-5 (Stuttgart: Deutsche Verlagsanstalt, 1983-88). For valuable individual studies, see Thomas Nipperdey, "Interessenverbande und Parteien in Deutschland vor dem ersten Weltkrieg" (Interest groups and parties in Germany before the First World War), Politische Vierteljahresschnft

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The shifting nature of the state-society balance of power and the state's ability to act autonomously depend on a number of components of the domestic framework. Although intangible factors such as political culture and economic ideology play supporting roles, the structure of the state certainly plays a major role in this regard. Are the regimes authoritarian or democratic? Do they have centralized control or a separation of powers? Are their bureaucracies large or small, permeable or closed? In short, are these "strong" and largely autono- mous state regimes that can resist social pressures and perhaps even compel private sector actors to follow government trade policy initiatives? Or are they weak and barely autonomous regimes that are incapable of compulsion or even resistance to social pressures? These considerations not only determine the state's ability to insulate itself from private sector pressures and to act with some independence from society but also, at the other extreme, they determine society's ability to permeate state structures and dictate the content of trade policy.3"

Maintaining most of the autocratic autonomy they had inherited from the preconstitutional era, the Imperial regime and royal Prussian administrations successfully insulated themselves from the demands and pressures of compet- ing interest groups. The authoritarian monarchical structure of the regime lent the bureaucratic apparatus more than enough prestige, authority, and disci- pline to fend off intrusive inquiries from a badly fragmented private sector. The Bulow government simply ignored private sector demands that representatives of commerce and industry be allowed to participate in preparing and negotiating the new round of trade treaties in 1904 and 1905, even when these demands came from the most powerful private interest groups in Germany.32

2 (September 1961), pp. 262-80; H-J Puhle, "Parlament, Parteien, und Interessenverbande, 1890-1914" (Parliament, parties, and interest groups, 1890-1914), in M. Sturmer, ed., Das kaiserliche Deutschland (Imperial Germany) (Dusseldorf: Droste, 1970), pp. 340-77; Charles Maier, Recasting Bourgeois Europe: Stabilization in France, Germany, and Italy in the Decade After World War I (Princeton, N.J.: Princeton University Press, 1975); T. W. Mason, "The Primacy of Politics: Politics and Economics in National Socialist Germany," in H. A. Turner, ed., Nazism and the Third Reich (New York: New Viewpoints, 1972), pp. 175-200; Jurgen Weber, Die Interessengnup- pen im politischen System der Bundesrepublik Deutschland (Interest groups in the political system of the Federal Republic of Germany) (Stuttgart: Kollhammer, 1977); Theodor Eschenburg, Herrschaft der Verbande? (Dominion of the interest groups?) (Stuttgart: Deutsche Verlagsanstalt, 1955); and Theodor Eschenburg, Das Jahrhundert der Verbande: Lust und Leid organisierter Interessen in der deutschen Politik (The century of interest groups: Pleasures and pains of organized interests in German politics) (Berlin: Siedler, 1989).

31. For an illustrated notion of "nonexistent, weak, moderate, strong, and dominant" levels of state power, see Stephen D. Krasner, Defending the National Interest: Raw Materials Investments and U.S. Foreign Policy (Princeton, N.J.: Princeton University Press, 1978), p. 57. For similar views, see Gourevitch, Politics in Hard Times, pp. 61-62; and Joel S. Migdal, Strong Societies and Weak States: State-Society Relations and State Capabilities in the Third World (Princeton, N.J.: Princeton University Press, 1988).

32. On the frustrations of two leading interest groups, the Central Association of German Industrialists and the Union of German Iron and Steel Industrialists, see the Union's own unpublished history by C. Klein, "Geschichte des Vereins deutscher Eisen- und Stahlindustrieller, 1874-1934" (History of the Union of German Iron and Steel Industrialists), Bundesarchiv Koblenz, Union of German Iron and Steel Industrialists (R 13 I), files 12 and 13.

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Biilow's fortuitous success in the 1904 German-Russian trade treaty vindicated the "closed-door" manner in which the government had prepared for and negotiated the treaty.

Ratification procedures also contributed to a high degree of executive autonomy. Trade agreements were presented to the Reichstag as inviolable wholes subject to a single yes-or-no vote, thereby precluding legislative refashioning of parts of the deal.33 Until 1914, control over trade policy remained exclusively in the hands of the state bureaucracy-concentrated chiefly in the persons of the chancellor and the interior state secretary and executed by the Foreign Office bureaucracy. This concentrated authority allowed the wide fluctuations that characterized Imperial Germany's trade policy: from protectionism under Bismarck in the 1880s to dramatic tariff reductions under Caprivi in the 1890s and back to highly protectionist policies under Bulow. However, political culture and state structure could not fully insulate the chancellor from the political realities of German society. Caprivi was capable of reversing Bismarck's protectionist policies but paid the price in unrelenting agrarian sector hatred and intrigue which helped secure his dismissal after ratification of the Russian trade treaty in 1894. The quasi- democratic structures of the Imperial regime allowed the chancellor to impose his will on trade policy, but they could not always afford absolute or permanent protection against the reactions of powerful political opponents.

The heavy-handed Imperial regime was followed by the porous Weimar regime, which proved incapable of standing "above" the intensifying private sector disputes and imposing a solution to them. The Weimar Republic's corporatist structure and coalition governments allowed the private interest groups to carry their differences over trade policy directly to the Reichstag and, more significantly, to the cabinet and the ministerial bureaucracy and, on occasion, even to the German trade delegates as they negotiated with their foreign counterparts. In this way, the Weimar regime granted to each of several major economic groups and their corresponding political parties a veto power over trade policy decisions on each of several different levels. For that reason, the system was unable to impose trade policies that would have required sacrifices by one or more of the private sector groups.

By 1934, radical agricultural protection, culminating in guaranteed prices, gave farmers the income stability they had so desperately sought in the 1920s. This put an end to agrarian obstructionism. In addition, rearmament with full industrial employment helped provide the Nazi regime with an economically

33. The U.S. Congress granted the executive branch similar powers in the Trade Expansion Act of 1974 and in the "fast track" legislation for the Uruguay Round of GATT negotiations. In exchange for diminished legislative control, Congress established a network of private sector committees to communicate directly with U.S. negotiators before and during treaty negotiations. In the case of Imperial Germany's system, however, there were no analogous networks. For a detailed discussion of ratification procedures and international negotiations, see Putnam, "Diplomacy and Domestic Politics."

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pacified private sector. By 1934, all independent political parties and trade unions had been dissolved, and other independent associations such as the German Chamber of Commerce had been reconstituted as part of political "harmonization" (Gleichschaltung). In this way, economic and political devel- opments combined to give the government a passive consensus on managing Germany's Eastern trade however it chose in accordance with the bases of Nazi agricultural and industrial programs.

From 1945 to 1949, the gulf that separated German civil society from the state authority, which now took the form of the Allied occupation administra- tion, was greater than it had been under any previous German government. As the Allies returned control over West German-East European trade relations to the Federal Republic, that control became imbedded in a "neocorporatist" coalition consisting of the ministerial bureaucracy and the business community. However, unlike the corporatism of the Weimar Republic, the neocorporatism of the Federal Republic had a domestic framework for trade policy that was based on an economic consensus vis-a-vis Eastern Europe. Consensus and a measure of bureaucratic autonomy inherited from the Allied occupation regime gave the ministries the upper hand in dealing with the interest groups.

State ability to control imports and exports. In the case of Germany, the ability to effectively control imports and exports on a selective basis must be considered a precondition for the state's application of trade leverage in Eastern Europe. The existence, size, and quality of a trade control bureaucracy are more clearly the products of the international trade regime, the use of trade as a form of statecraft, and the degree of regime autonomy than vice versa.34 Nonetheless, the issue of import-export control by the state, an issue that has generally been neglected in the literature, is important and deserves to be treated as a coequal factor in considerations of trade leverage.

Without elaboration, Albert Hirschman assumed the existence of an effective trade control ability as the basis for his concept of the "influence effect" of foreign trade in international relations: "Every sovereign nation has some [trade] influence, . . . since through the control of its own frontiers and the power over its own citizens it can at any time interrupt its own export and import trade, which is at the same time the export and import trade of some other countries."35 It remains unclear whether Hirschman meant for his "sovereign nation" to interrupt all its foreign trade or only trade with one or more selected partners. In reality, certainly, the "influence effect" will be employed on a selective basis and not universally. In that case, Hirschman's further statement that "the only condition for the emergence of these political aspects of trade is that of unfettered national sovereignties" requires some

34. This is by no means a one-way process, however. Reliance on a privately based trade control bureaucracy served as the narrow end of a wedge undermining the Weimar regime's trade policy autonomy.

35. Hirschman, National Power and the Structure of Foreign Trade, p. 15.

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elaboration.36 In cases involving major trade partners or large volumes of trade, selective trade control policies require a virtual army of personnel possessing the technical expertise to determine the origin of every imported commodity and the ability to police the destination of every exported item, since other countries will naturally seek to circumvent any prohibitions.

Imperial Germany did not meet this condition. Prior to 1914, Germany did not possess the effective import-export control bureaucracy required to manipulate the flow of trade as either a reward or a punishment for Russia. The Prussian Finance Ministry, which was responsible for customs administra- tion, explained this defect to Caprivi in 1894, and the Reich Treasury Office returned to this shortcoming in response to Bulow's questions in 1903. The German customs service could not even administer a discriminatory tariff against Russian grain. When Germany was negotiating with Russia in 1894 and 1904, the absence of a sufficiently sophisticated customs service virtually compelled the Reich to sign MFN treaties with Russia.

Only by relying heavily on the private interest groups as control administra- tors did Germany create a "corporatist" system that was able to control trade extensively and effectively during the 1914-24 period. The Weimar regime's "commissar for import and export clearance," Ernst Trendelenburg, character- ized this mixed private-public system of regulation as "economic self- administration."37 At the height of trade controls in 1920, the system was processing 20,000 to 30,000 import and export applicationsper day; more exact information for the iron and steel industries shows 187,000 export applications in 1922 (512 per day) for this sector alone.38 The extensive trade control regime gave the Weimar Republic something which pre-1914 Germany never had: a means of controlling foreign trade so effectively that it could be used for foreign policy purposes. In 1933 and especially in 1934, as part of Reichsbank President Hjalmar Schacht's "New Plan," the Nazis greatly accelerated the wave of trade controls which had been surging since the final years of the Weimar Republic. In administering its system of import controls and export promotion, the Third Reich, too, relied on the mixture of government and private bureaucratic administration.

In the earliest days of the Federal Republic, the Allies explained to federal authorities the need for the new republic to construct an adequate export control program in compliance with the pan-Western "embargo" policy. Over the next four years, the Americans never tired of pressuring the Germans to improve their control system. The acute shortage of men of "service" age and the refusal of the Allied High Commission to allow a return to the practice of private sector export controls caused the Federal Republic great difficulty in establishing a centralized licensing office and the field apparatus for export

36. Ibid., p. 16. 37. Ernst Trendelenburg, Weltwirtschaftskrise und Aussenhandel (Economic crisis and foreign

trade) (Berlin: Deutschen Hochschule fur Politik, 1921). 38. Ibid.

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controls. When the West German Economic Ministry reorganized itself in 1951, a comprehensive "Group on East-West Trade" was created within the Foreign Trade Department specifically for the purpose of coordinating commercial policy in Eastern Europe with the "pure control side" of the issue.39 By the end of 1951, American pressure to improve control procedures had stimulated the growth of the East-West group to the point where it had generated three "desks" in the Economic Ministry to cover all aspects of embargo policy. And by 1953, the federal authorities had put in place within the Ministry a large and effective bureaucracy whose primary purpose was to control exports-initially in accordance with American wishes, but increasingly in accordance with the Federal Republic's own foreign policy initiatives in the East.40

Trade policy under four German regimes

Can we speak of enduring relationships between certain forms of the factors reviewed above and Germany's ability to apply trade leverage in Eastern Europe? The historical record does suggest such relationships. Specifically, it suggests that applications of trade leverage in Eastern Europe required a conjunction of the four factors we have examined. The Imperial and Weimar regimes did not have and could not produce the necessary positive constella- tion of factors. As a result, they could not apply trade leverage policies in the East. In contrast, the combination of factors surrounding both the Third Reich and the Federal Republic (although with very different origins) did allow exercises in trade-based economic diplomacy, many of which were successful.

The conflicting material and organizational interests of Wilhelmine Ger- many could not produce a functional private sector consensus on the fundamen- tal questions involved in trade policy toward Russia. That deficiency, however, was overcome by a quasi-democratic state structure in which a largely autonomous and authoritarian administration was repeatedly capable of imposing trade policy settlements on the fractious private sector. In view of Caprivi's recognition of the new international political use of German trade policy and the sudden rise of agrarian opposition to Caprivi's proposed treaty with Russia, that high degree of state autonomy was crucial for the state's

39. Memorandum of conversation between Witzel (Economics Ministry) and members of the Allied High Commission's East-West Trade Subcommittee, 2 February 1951, Bundesarchiv Koblenz, Economics Ministry (B102), file 7233. The Economics Ministry oversaw the work of the Federal Agency for Merchandise Trade and its Central Export Control Group with nine departments. Below that level were the field offices and customs administration.

40. The Federal Republic currently employs over 200 trained professionals in the upper level of its principle export control agency and 2,350 "export controllers" in its customs service. See "Bonn Maps Controls on Arms Exports," Boston Globe, 16 February 1989, p. 6; and "Bonn verscharft Exportkontrollen" (Bonn sharpens export controls), Deutschland Nachrichten, 8 February 1991, p. 1.

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resolution of conflicting economic claims and successful conclusion of the treaties with Russia in 1894 and 1904.

For Imperial Germany, the difficulty in applying trade leverage on Russia had its roots in the international trade regime, where an extensive network of MFN treaties and the lack of a rigorous trade control mechanism left Germany unprepared to handle Russian agricultural exports in a discriminatory manner. The European international economy and Germany's bureaucratic structure restricted the Reich's ability to manipulate international trade flows, thereby making trade too cumbersome a weapon for effective international use. This combination of negative factors compelled Caprivi to place Russia on equal footing with Germany's other trade partners in 1894 and explains why his use of trade as a means of influencing relations with Russia could consist only of granting this unavoidable "concession."

Bitter domestic debates over the content of the Reich's Eastern trade policies wracked the Weimar Republic as well. But unlike the Imperial regime, the Weimar regime lacked the strength necessary to impose a settlement on the splintered agricultural and industrial interest groups. These domestic limits, expressed in the form of an agricultural veto on trade policy, prevented the conclusion of serious trade agreements between Germany and its Eastern neighbors regardless of whether German motives for an agreement were political, economic, or a mixture of the two. Trade policy thus remained paralyzed. Seven years of laborious negotiations failed to produce a trade treaty with Poland during the life of the Weimar Republic. Similarly, the agricultural veto allowed only a preliminary general treaty with Czechoslovakia signed in 1920; subsequent substantive agreements remained elusive.

As a result, the Weimar regime could not even begin to realize Stresemann's desire to exploit Germany's superior trade position vis-a-vis the East or to explore the increased possibilities of trade leverage provided by the weakened interwar trade regime. Hitler's use of a full German-Polish trade treaty for political gains with both the Poles and the Western powers in 1934 only underscores what Stresemann lost as a result of the Weimar Republic's inability to come to terms with Poland.

Only as the political structures of corporatism gave way-first to the increasingly authoritarian presidential "quasi-dictatorship" in the 1930-33 period and then to the one-party state with totalitarian aspirations after 1933-could Germany employ economic diplomacy in the East. By 1932 these transitions had progressed far enough that Chancellor Bruning offered concessions and obtained a small trade agreement with Poland. That agree- ment served Bruning's "go for broke" policy designed to obtain a radical reduction in reparations by demonstrating to the West that despite German good will the Reich could not pay the amounts demanded from it.

Unprecedented economic protection for agriculture, rearmament, and political suppression provided the Nazi regime with a mixture of consensus and control sufficient to pursue its politically motivated Eastern trade policies. At

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the same time, the collapse of the multilateral trade regime deprived the East European countries of any possible communal international protection. The resurgent Reich isolated its smaller neighbors in bilateral deals shaped by radical new measures such as "clearing" accounts and differential exchange rates. The years 1933-39 provided Germany with a combination of an anarchic international trade regime and an autonomous domestic regime. The combina- tion worked synergistically to produce both the opportunity and the ability for German policies of economic diplomacy in Eastern Europe.

Nazi economic penetration into Southeastern Europe and the Balkans is generally well known.4' Less well known is the Nazi use of economic diplomacy in German-Polish relations at this time. Hitler ended a decade of German- Polish tariff conflict by accepting Polish coal exports and voluntarily reducing the size of the German trade surplus. As part of Hitler's near-term policy for Poland, these concessions paved the way for the 1934 German-Polish non- aggression pact of March 1934, which, as Gerhard Weinberg has pointed out, "broke the ring of French alliances around Germany."42 The critical role played by German trade incentives in the July and August 1939 negotiations with the Soviets is still not sufficiently well appreciated. The Soviets demanded material proof about the sincerity of German feelers for a nonaggression pact. In order to obtain the political-strategic cover for his invasion of Poland, Hitler offered the Soviets advanced industrial equipment and armaments valued at 320 million marks, with 200 million of this on credit. In terms of the offer's enormity and its ultimate political significance, it remains the "deal of the century" in the words of historian Phillip Fabry.43

Since 1949, the Federal Republic has experienced a favorable combination of international and domestic factors for the application of economic diplo- macy in the East-namely, a highly politicized international trade regime and a domestic consensus providing the regime with autonomy in setting trade policy. Ironically, this is similar to the combination of factors experienced by the Third Reich in the 1930s. These parallel situations, however, arose from fundamen- tally different forces. After 1945, the anarchic, politicized trade regime govern-

41. In Economic Diplomacy and the Origins of the Second World War (Princeton, N.J.: Princeton University Press, 1980), pp. 74 and 79-80, David Kaiser explained how changes in the international trade regime after 1931 allowed for the German penetration of Eastern Europe. However, in view of the agricultural obstructionism that plagued the Weimar regime, any explanation of Nazi success must also include an account of the policies and developments that solved the problems of domestic opposition. One of the best treatments of Nazi economic activity in the Balkans can be found in John R. Lampe and Marvin R. Jackson's Balkan Economic History, 1550-1950: From Imperial Borderlands to Developing Nations (Bloomington: Indiana University Press, 1982). For a study that views Nazi economic expansion as serving capitalism as much as the state, see Alice Teichova, An Economic Background to Munich (London: Cambridge University Press, 1974).

42. Gerhard Weinberg, The Foreign Policy of Hitler's Germany: Diplomatic Revolution in Europe, 1933-1936 (Chicago: University of Chicago Press, 1970), p. 73.

43. Philipp Fabry, Der Hitler-Stalin Pakt, 1939-1941: Ein Beitrag zur Methode sowjetischer Aussenpolitik (The Hitler-Stalin pact, 1939-1941: A contribution to the method of Soviet foreign policy) (Darmstadt: Fundus Verlag, 1962), pp. 190-94.

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ing East-West trade was an exception to the largely depoliticized trade regime functioning elsewhere in the world. The nonparticipation of the Soviet bloc in the world economy excluded Eastern Europe from the depoliticizing protec- tions of the postwar neoliberal trade regime. Those restrictions which the Federal Republic did face in its manipulation of trade with the East arose from its semisovereign status within the Western alliance during the 1949-54 period rather than from the East-West trade regime itself.

The Federal Republic's universal domestic consensus on expanding trade with the East did not rest on protectionism and state controls, as it did in Germany during the 1930s. Rather, it rested on the political and economic consequences of Stalinism as embodied in Eastern Europe's inability to compete with German agriculture and manufacturing. The Federal Republic's successful reorientation away from the Eastern market and toward Western Europe and North America meant that West Germany could easily "afford" to politicize its Eastern trade. Foreign Office and Economics Ministry policymak- ers had the latitude to balance both short- and long-run commercial goals with political considerations.

One narrow yet consistent aim of post-1945 West German foreign economic policy has been the expansion of the West German commercial presence in the East. This began in 1953 as a conscious plan by the West German Economics Ministry to gain or regain an "appropriate" share of the Soviet market. The Economics Ministry countered the Soviet policy of not buying in West Germany by insisting that German-Soviet trade be balanced bilaterally on a deal-by-deal basis. This forced the Soviets to accept German exports or else risk losing the German market-a policy reminiscent of German actions in Southeastern Europe in the 1930s (despite the other immeasurably vast differences between the earlier German regime and the Federal Republic). By 1959, aggressive and innovative commercial policies had propelled West Germany into the position of the premier Western economic partner for the Soviet Union.

A second use of West German commercial policy has been as a link to a number of foreign policy agreements between the Federal Republic and its East European neighbors. One recurrent theme has been the coupling of economic incentives to the status and treatment of German minorities in the East. As early as 1954, the Federal Republic used 300,000 tons of German grain, provided on credit, to force open the minority issue and to obtain the first Polish concessions on repatriation. Thirty-five years later, the West German government refused to enter into financial negotiations with the new Solidarity government until the Poles had "met part way" the Federal Republic's "wishes" on the minority issue.44

Trade treaties and economic agreements have also been invaluable in

44. See "Genscher: Rasche Hilfe fur Polen" (Genscher: Quick aid for Poland), Deutschland Nachrichten, 10 May 1989, p. 2.

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helping the Federal Republic establish diplomatic relations in the East. Trade incentives played a role in opening diplomatic relations with the Soviet Union in 1955; three years later, a DM 3.3 billion multiyear trade treaty opened a direct political line to the Soviets with Vice-Premier Anastas Mikoyan's February 1958 visit to Bonn. The trade treaty and state visit enhanced the political status of the Federal Republic within the Western alliance and crowned the Federal Republic's position as the Soviets' premier Western economic partner. The long-term gas pipeline deals signed in 1970, 1972, and 1974 went along with the West German-Soviet treaty (1970). In addition, the normalization of the Federal Republic's relations with Poland, Czechoslovakia, and the German Democratic Republic and the signing of the Berlin accord occurred between 1970 and 1973. In a more recent example of trade linkage from September 1989, the Federal Republic promised and two weeks later the Economic Community (EC) delivered some $300 million in material aid to the Hungarians in return for Hungary's earlier decision to open its border to passage by East German refugees.

The third, most interesting, and ultimately most significant use of West German economic diplomacy in Eastern Europe has been as an incentive to and a form of support for reform-minded regimes in the East. Since the first post-Stalinist reform attempts of the mid-1950s, the West German Foreign Office has argued consistently (if somewhat vaguely) that Western economic assistance can increase the likelihood of reform success by granting reform regimes some measure of Spielraum (maneuvering room) for their policies.

From October 1956 to 1958, the Federal Republic granted DM 200 million in debt relief, trade concessions, and financial aid to Gomulka's "reform" regime in Poland (the United States extended $90 million in credit to Poland in May 1957). During this period, the West German Foreign Office insisted that the change in leadership in Poland offered a unique opportunity that justified Western economic assistance despite the accelerating deterioration of the Polish economy. The parallels with 1989 are obvious.45 Upon conclusion of the Polish round table agreement in April 1989, the Federal Republic took the lead in promising increased Western support. A unanimous Bundestag resolution of 19 April 1988 urged "economic and financial support" for Poland. In familiar tones, Foreign Minister Hans-Dietrich Genscher repeatedly mentioned the need for Western aid to provide reform governments with "room to maneuver," while Free Democratic Party Chairman Otto Graf Lambsdorff implied that West Germany must grant Poland some debt relief or else risk a revocation of Polish reforms.46 Both Chancellor Helmut Kohl and Finance Minister Theo

45. Despite the international parallels, a subtle but critical change in the nature of aid mechanisms has occurred as financial instruments (trade credits) and debt relief have assumed equal weight with import allowances and price concessions on merchandise trade.

46. See "Genscher: Rasche Hilfe fur Polen." We should also recall the detente version of this reform-seeking use of commercial policy, which was summarized in the Social Democrats' slogan "Wandel durch Annaherung" (change through rapprochement). After 1970, both the United States

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Waigel insisted on outside support to provide "a chance" for the reform process in Poland.47 Joint statements to this effect with France and Italy preceded Genscher's appeal to the EC in July 1989. Massive EC trade concessions contained in the EC-Polish agreement of 19 September 1989 have given Poland greatly expanded export opportunities in the West. One year later, the same thoughts and identical rhetoric reappeared with regard to the role of Western aid in securing the future of the reform movement in the Soviet Union at a time when Gorbachev's position appeared precarious.

The 1989-90 wave of West German economic diplomacy conforms to the pattern of explanations presented here. German trade leverage in the East continues to depend on an unrestricted East-West trade regime that allows radical discriminations against some East European countries, such as Roma- nia, and preferences for others, such as Poland and Hungary. These exercises in economic diplomacy also require a degree of state autonomy in setting preferential and discriminatory trade policies. For the Federal Republic, that autonomy continues to stem from the domestic consensus that the neighboring Eastern economies do not threaten West German incomes.

Conclusions and prospects for trade leverage in the 1990s

The most ambitious goal of this article has been to shed light on the necessary factors or preconditions for applications of German trade leverage in the East. The four preconditions and the German regimes meeting them are outlined in Table 1 and summarized below. Thereafter, the limits of stability for the current disposition of factors are explored briefly in light of the rapid changes under way in Central and Eastern Europe.

Trade-based diplomacy in the East has depended on an anarchic or highly politicized international trade regime that would allow Germany to bring its full economic advantage to bear on the less developed Eastern countries by approaching them on a bilateral basis and employing a full range of sanctions or inducements. Trade leverage has also required government recognition of the foreign policy potential of manipulating trade and an acceptance of politicized trade as a tool of statecraft. Beyond this, applications of trade leverage have hinged on a degree of domestic state autonomy, based either on private sector consensus or on regime strength, which granted to the govern- ment the latitude to set Eastern trade policy in accordance with the state's political (noneconomic) considerations. Finally, a policy of trade manipulation

and the West European nations sought to expose Eastern societies to the "Western life-style" and the productive powers of the West by exposing them to Western products. In this way, they hoped to encourage Eastern regimes and elites to recognize the need for greater concern to their own consumers and to soften their domestic structures.

47. See "Deutsche und EG-Hilfsmassnahmen fur Polen und Ungarn" (German and EC aid measures for Poland and Hungary), Deutschland Nachrichten, 28 September 1989, p. 2.

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TABLE 1. The preconditions for applying international trade leverage and the German regimes under which these preconditions were met

German regimes meeting Precondition the precondition

Anarchic or politicized (East-West) trade re- Weimar (to a limited extent), Third Reich, gime and Federal Republic

State acceptance of trade leverage as a tool of Imperial (after 1894), Weimar, Third Reich, statecraft and Federal Republic

State autonomy in setting trade policy Imperial, Third Reich, and Federal Republic

State ability to selectively control imports and Weimar, Third Reich, and Federal Republic exports

could not have been attempted without an import-export control bureaucracy capable of regulating the movement of German merchandise in accordance with policies of selective preference or discrimination.

What are the prospects for the Federal Republic's continued ability to apply trade leverage in Eastern Europe in light of the dramatic events of 1989-90 and the forces of change now unleashed there? How might these recent events affect the factors that have facilitated West German applications of trade leverage since 1945? On the one hand, neither the Federal Republic's recognition of trade leverage as one of its premier tools of international statecraft nor its ability to selectively control imports and exports appears likely to disappear as a result of recent upheavals. Indeed, the already discernible trend toward an increased role for economic influence and a declining utility of military power in European affairs has been greatly accelerated by the (temporary?) removal of the Soviet military factor from European interna- tional relations. At the same time, four decades of experience in restricting trade with the Soviet bloc and the need to maintain current controls on exports to China, Libya, and Iraq should preserve the existence of a capable trade control bureaucracy in the Federal Republic. The stability of these two factors, though not certain, appears likely.

On the other hand, the German government's largely autonomous control over Eastern trade policies and the nature of the international (East-West) trade regime will undoubtedly feel the impact of the profound changes currently reshaping Central and Eastern Europe. Fundamental changes in these two factors will make the continued German application of trade leverage in Eastern Europe more difficult, if not impossible.

Increased East European productivity resulting from the processes of economic and political reform threatens to upset the private sector consensus that underlies the West German government's wide-ranging ability to employ

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economic "sticks" and "carrots" in the East. Eastern economic impotence has been the ultimate source of the West German consensus that Eastern neighbors were trade partners of distant secondary importance and that Eastern trade policy was not an economic issue of the highest order for the Federal Republic. If, as is hoped, economic reform reinvigorates the histori- cally productive agricultural and manufacturing sectors in Poland, Czechoslova- kia, and the Soviet Union, some Western producers will begin to feel the pinch of Eastern competition. That sort of economic pressure will reactivate domestic debates in the Federal Republic and Western Europe over Eastern trade policies. Ever-vocal EC farmers will certainly protest even the minute sacrifices which preferential treaties such as that signed with Poland in September 1989 might require. Other, less well protected industries will react strongly as shoes, furniture, household items and then increasingly sophisticated manufactured goods move from East to West. The possibility of an "obstructionist coalition" of weak economic sectors (with agriculture and textiles again in the forefront) seeking to block even nonpreferential trade agreements with the East Euro- pean countries should not be discounted. No matter what the outcome of these political struggles, the government's wide latitude in setting Eastern trade policies will have disappeared with a raising of the economic stakes.

The East European political and economic reforms of 1989-90 are already eroding the highly politicized international regime that has governed East- West trade since 1945. A major goal of these reforms is to bring the Eastern economies back into the world economy. As that process proceeds, Polish, Czechoslovak, and future Soviet membership in GATT and eventually perhaps in the EC will all but eliminate the Federal Republic's ability to apply discriminatory or preferential trade policies to these countries. The 1989-90 round of Western economic diplomacy may be ultimately self-terminating as Western economic assistance brings Eastern Europe so far along the path of political and economic reform that further use of trade concessions and sanctions will be neither required nor permitted.