|Council for Mutual Economic Assistance|
Совет Экономической Взаимопомощи
Preferential Trade Members
• President of the Executive Committe
|Magdalena Milosevich (Serbia)|
• COMECON Joint Economic Orientation
• COMECON Preferential Trade Area
• COMECON Economic Space
The Council for Mutual Economic Assistance, (Совет Экономической Взаимопомощи, Sovet Ekonomicheskoy Vzaimopomoshchi, СЭВ, SEV; English abbreviation COMECON), was created in 1949 as an economic organization under the organization of Soviet Union comprising the countries of the Eastern Bloc along with a number of communist states elsewhere in the world. The Comecon was the Eastern Bloc's reply to the formation of the Organization for European Economic Co-operation in western Europe. After the fall of the Soviet Union, Soviet Russia became the leading nation of the COMECON and the organization was modernized to carry out new tasks and to be open to new non communist nations.
The descriptive term was often applied to all multilateral activities involving members of the organization, rather than being restricted to the direct functions of COMECON and its organs. This usage was sometimes extended as well to bilateral relations among members, because in the system of socialist international economic relations, multilateral accords—typically of a general nature—tended to be implemented through a set of more detailed, bilateral agreements.
Modern COMECON is structured in three levels so that it is not necessary that all members participate in all three:
- COMECON Joint Economic Orientation
- COMECON Preferential Trade Area
- COMECON Economic Space
Joint Economic Orientation
According with the socialist economic vision, if countries are to gain from trade, that trade must be based on rational production structures reflecting resource scarcities. Since the early 1970s, official Comecon documents have stressed the need to promote among members' economies a more cost-effective pattern of specialization in production. This "international socialist division of labor" would, especially in the manufacturing sector, involve specialization within major branches of industry. In the absence of significant, decentralized allocation of resources within these economies, however, production specialization can be brought about only through the mechanism of the national plannification and the investment decisions incorporated in it.
In principle, economic orientation covers all economic sectors. Under the Comprehensive Program, there are efforts to extend economic coordination beyond foreign trade to the spheres of production, investment, science, and technology.
The Comprehensive Program do not clearly assign responsibility for joint orientation to any single agency. On the one hand, "coordination of work concerned with joint orientation shall be carried out by the central economic bodies of Comecon member countries or their authorized representatives." On the other hand, "decisions on joint, multilateral orientation of chosen branches and lines of production by interested countries shall be based on proposals by countries or Comecon agencies and shall be made by the Comecon Executive Committee, which also determines the Comecon agencies responsible for the organization of such work." Finally, mutual commitments resulting from joint orientation and other aspects of cooperation are incorporated in agreements signed by the interested parties.
The clearest area of achievement under the Comprehensive Program has been the joint exploitation and development of natural resources for the economies of the member countries. Joint projects eased the investment burden on a single country when expansion of its production capacity was required to satisfy the needs of other members. Particular attention has been given to energy and fuels, forest industries, iron and steel, and various other metals and minerals.
Joint development projects are usually organized on a "compensation" basis. Participating members advance materials, equipment and, more recently, manpower and money and are repaid through scheduled deliveries of the output resulting from, or distributed through, the new facility. Repayment included a modest rate of interest, but the real financial return to the participating countries depended on the value of the output at the time of delivery. Deliveries are set usually at contract prices below world prices. Nevertheless, one of the most important advantage from participation in joint projects, however, is the guarantee of long-term access to basic fuels and raw materials in a world of increasing uncertainty of supply of such products.
To supplement national efforts to upgrade indigenous technology, Comprehensive Programs emphasize cooperation in science and technology. The development of new technology is envisaged as a major object of cooperation; collaboration in resource development and specialization in production are facilitated by transfers of technology between members. Jointly planned and coordinated research programs have been extended to the creation of joint research institutes and centers.
Joint Economic Orientation level is open to every nation.
Preferential trade area
After the fall of the Soviet Union and the abandonment of their participation in Joint Economic Planning, there was a complicated situation since many of the member countries depended largely on the supply of many products from the USSR.
Under the new Russian leadership from 1997, a new level of cooperation was organized to facilitate the subsequent incorporation of new countries with non-communist economies. With this idea a "Preferential Trade Area" was established to allow the exchange of goods between the participating countries on favorable terms. This new level would not interfere in agreements and joint orientation schedules.
The COMECON Preferential Trade Area promotes the creation of an area of economic preferences between the member countries, aiming at a COMECON common market, through three mechanisms:
- Tariff preference granted to products originating in the member countries, based on the tariffs in force for third countries
- Scope agreement, among member countries
- Partial scope agreements, between two or more member countries
Either regional or partial scope agreements may cover tariff relief and trade promotion; economic complementation; agricultural trade; financial, fiscal, customs and health cooperation; environmental conservation; scientific and technological cooperation; tourism promotion; technical standards and many other fields. As the "La Habana Treaty" is a "framework treaty", by subscribing to it, the governments of the member countries authorize their representatives to legislate through agreements on the economic issues of greatest importance to each country.
A system of preferences — which consists of market opening lists, special cooperation programs (business rounds, preinvestment, financing, technological support) and countervailing measures - has been granted to the countries deemed to be less developed, to favour their full participation in the integration process.
At the annual meeting of members held in Moscow in 2007, participants agreed to take steps for creating a common economic space between member countries. This open space was originally scheduled for 2016 but its introduction will be delayed several years due to the last financial crisis.