Technological Assistance to Eastern Europe 



The nature of political and economic changes in 

 Eastern Europe and the USSR, especially since late 

 1989, has presented the EC with unprecedented 

 opportunities, as well as a number of awkward 

 problems. After many years of rebuffing the Communist 

 countries' efforts to open relations with the Community, 

 the EC over the past two years signed mutual trade and 

 commercial cooperation agreements with Hungary, 

 Poland, Czechoslovakia, Bulgaria and the USSR. These 

 agreements are general in substance, providing umbrella 

 authority to engage subsequently in discussions on 

 specific types of cooperation. However, negotiations are 

 in progress with the new governments of Eastern Europe 

 to reaffirm and revise those agreements, specifically to 

 include mutual scientific and technological cooperation. 



Perhaps more importantly, the EC was charged by the 

 G-24 countries in mid- 1989 to take the lead in 

 organizing Western economic and financial aid to 

 Eastern Europe, as the latter undertakes the painful 

 process of reorganizing its economies for a 

 market-driven orientation. The EC's mechanism for 

 administering aid provided by the G-24 countries is 

 known as PHARE; the transfer of technological 

 know-how has been identified as a component of that 

 assistance. The Community is thus in the forefront for 

 assessing the positive aspects of East European 

 development on the future European economic and 

 security environment, as well as meeting the challenge 

 posed by change and turmoil to the east. 



The extension of favorable trade terms, capital for 

 industrial restructuring, and technology sufficient to 

 make East European products and services competitive 

 in Westem markets is considered imperative by many in 

 the EC to underwrite political democracy. Their absence 

 will risk the collapse of indigenous efforts by Eastern 

 Europe to evolve toward the Westem political and 

 economic system (and implicitly, risks the reimposition 

 of authoritarian rule). Yet the introduction of 

 market-oriented industrial production and services 

 methods is severely handicapped by the absence of an 

 advanced technological and managerial infrastructure to 

 implement those methods or utilize the available 

 technologies. 



The Challenge of Japanese Technological 

 Dominance 



A very present worry to Europeans for most of the 

 last decade has been the threat of eventual Japanese 

 dominance of European markets, in both capital and 

 consumer goods. A variety of means have been 

 attempted by individual nations to protect certain 

 industry segments against that threat, including quotas, 

 anti-dumping legislation, and local content requirements, 

 all with limited success. However, the observed 

 tendency in European Community is to move 

 forward — albeit haltingly — on its pledge to implement a 

 market-driven economy and free trading system 

 throughout the EC. Consequently, national barriers 

 targeted selectively and primarily against the Japanese 

 have begun to crumble. 



Designed in part to offset the looming window of 

 vulnerability to Japanese goods (and, by extension, U.S. 

 products), the Commission has instituted a restrictive 

 policy for participation in Community-funded R&D. 

 Companies, or "legal entities," qualify for participation 

 in EC-funded research programs only if they are 

 "European Community" entities, meaning a company 

 must maintain an "integrated presence" in the 

 Community encompassing a triad of R&D, production 

 and marketing/service facilities. Nevertheless, a 

 significant number of the larger Japanese firms are 

 already moving to overcome this restriction and have 

 expanded their previous production and marketing 

 operations in Europe to incorporate R&D facilities. 



The willingness of the Japanese to make this 

 commitment to European operations, along with the 

 equal willingness of major EC-based corporations to 

 enter joint ventures with Japanese firms or to acquiesce 

 in Japanese takeovers of smaller European competitors, 

 has given serious alarm to strategic economic and S&T 

 planners in the EC and the member states. The 

 successful encroachment by Japanese firms on the 

 emerging Single Market has made the Commission and 

 its allies in the member state governments dubious about 

 the feasibility of creating a protected environment for 

 European firms in advanced technologies. The situation 

 is also prompting concern in some quarters, particularly 

 relating to pre-competitive research, that the Community 

 needs to ensure continued open access to American 

 S&T. The concern has extended to Commission 

 initiatives to solicit American participation in the basic 

 research end of Community-funded programs on an 

 equal basis with participants from EC Member States. 



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