“Negotiating Association: Rational Choice and the explanation of the European

Community’s strategy in Eastern Europe, 1990-1991.”

Dimitris Papadimitriou d.papadimitriou@bradford.ac.uk

University of Bradford

Department of European Studies

West Yorkshire

BD7 1DP

Tel: 01274:233824

Fax: 01274: 235550

Paper presented to the Workshop on

Understanding the EU’s International Presence

ECPR Joint Sessions

6-11 April 2001

Grenoble, FRANCE

2

1. Introduction

Almost a decade has passed since the signing of the first Association agreements between the

(then) European Community and the Central and Eastern European countries (CEECs). This

important turning point in the history of the EC’s relations with Eastern Europe was made

possible by the recognition of the Strasbourg European Council (8-9 December 1989) that pre-

existing EC instruments in Eastern Europe such as the Trade and Co-operation agreements and

the G-24 assistance were no longer sufficient tools for the management of the escalating crisis in

the region following the fall of the Berlin Wall. Against this background, it instructed the

Commission to draft a new form of Association between the EC and those CEECs which were

committed to economic and political reform. Following more than eight months of internal

deliberations, the Commission’s proposals were published in August 1990 (COM(90), 27.9.1990)

and the Council’s negotiating mandate was given to the Commission in December 1990 (Agence

Europe, 20.12.90). The new Association agreements with the CEECs were to be given the

symbolic name ‘Europe’ agreements (EAs) and envisaged provisions for the comprehensive

regulation of trade relations between the two parties (eventually leading to the creation of a Free

Trade Area) as well as procedures and institutions for political consultation. Moreover, the EAs

provided for co-operation in a wide range of issues including finance, transport, culture and

environmental protection.

Poland, Hungary and Czechoslovakia were the first group of countries to begin Association

negotiations with the EC in February 1991, followed by Bulgaria and Romania in May 1992.

Subsequently, the EC negotiated Association agreements with the successor republics of the

former Czechoslovakia in 1993, the Baltic states in 1994 and Slovenia in 1995. Since their early

conception in 1990, the Europe agreements were hailed as the most clear manifestation of the

EC’s determination to assist the CEECs’ ‘return to Europe’. Yet, despite the initial optimism, the

EAs’ negotiations soon evolved to be a rather turbulent process, tarnished by delays, quarrels and

disillusionment, particularly as the EC often failed to match the expectations that the East

European applicants had attached to the Association negotiations.

In the nine years that followed the conclusion of the first wave of Association agreements, an

extensive literature has developed on the subject. The evolution of the EC-CEECs relations prior

to and after the fall of the Iron Curtain is already well manifested (Van Ham, 1993; Guggenbulh,

1995; Sedelmeier and Wallace, 1996; Mayhew, 1998). Moreover, a plethora of studies had

focused their attention on the economic (Baldwin et al, 1992; Rollo and Smith, 1993; Baldwin,

3

1994; Sapir 2000) and political (Pinter, 1991; Reinicke 1992; Inotai, 1994) rationale of the EC’s

strategy in Eastern Europe both in the specific case of the Association agreements and within the

wider context of East-West relations in post Cold War Europe. Studies relating to the provisions

as well as to the impact of the Association agreements on sectoral policies such as agriculture

(Tracy, 1992), competition (Van den Bossche, 1997) and others (Maresceau, 1997) are also

available. The same can also be argued about studies that view the Association agreements from

the perspective of individual (or groups of) East European applicants. In this respect the works of

Srawarska (1992), Drabek (1993), and Wallden (1993) offered useful insights into the

expectations, negotiating strategies and eventual disappointment of the CEECs who sought

Association with the EC.

Yet, despite the substantial body of literature available on the wider theme of the Association

agreements, our knowledge of this important turning point of post Cold War Europe remains

somehow incomplete. Perhaps the greatest difficulty in this respect is our inability to account

fully for the EC’s position during the Association bargain. There is little disagreement amongst

scholars in the field that the EC’s refusal to agree upon a generous package of trade concessions

in favour of its Eastern neighbours was in stark contrast to the rhetoric used by EC leaders prior

to the opening of the Association negotiations. Moreover, there is widespread consensus that the

EC’s protectionism in the negotiations was, if not completely unjustified, at least disproportionate

to the economic threat posed to the EC by the Association applicants (Baldwin et al, 1992; Rollo

and Smith, 1993). The same can also be argued in relation to the EC’s caution to agree upon a

more generous ‘political’ package for the CEECs – most notably the EC’s repeated refusal to

incorporate a specific membership clause into the agreements (Bonvicini et al, 1991; Inotai,

1994). Yet, despite making well informed arguments against the EC’s economic and political

strategy in Eastern Europe, the existing literature sheds little light upon the fundamental question

of why such policy came about. The EC’s caution is frequently explained with general references

to its ‘instinctive tendency towards protectionism’; ‘bold pursuit of self-interest’; or ‘lack of

imagination and strategic planning’.

On a different level, despite the rich empirical evidence available, the conceptualisation of the

Association negotiations has attracted, with few exceptions (Reinicke, 1992; Van Ham, 1993;

Guggenbulh, 1995), rather limited attention. That is certainly the case when it comes to the

examination of the Association negotiations through the lens of the ‘wider’ rational choice

4

tradition (Opt 1999 and Fierke and Nicklson, 1999).1 In recent years, game theoretic propositions

and multi-level bargaining models have provided useful insights into the study of a wide range of

issues relating to the EU’s integration process (Tsebelis, 1994; Dyson, Featherstone and

Michalopoulos, 1994; Schneider and Seybold, 1997; Radaelli, 1999). Nevertheless, similar

theoretical tools have only been used sporadically in the study of the EC’s relations with Eastern

Europe. Shaffer (1995), for instance, attempted an interesting three-level game analysis of the

EC-Visegrad Association negotiations, but according to his own words his model was in need of

more parsimony and empirical backing. Friis (1998), on the other hand, made reference to the

‘Europe Agreement game’, but the attention of his research was largely focused upon the post-

negotiation (that is the ratification) phase, rather than the actual Association negotiations.2

This paper seeks to provide a theoretically informed explanation of the EC’s strategy during the

Association negotiations. In doing so it will use a game theoretic representation of the

Association bargain as a means of highlighting and evaluating the factors that contributed to the

formation of the EC’s strategy in it. Whilst not claiming to have the final word in the field, it is

hoped that this paper will shed new light upon our understanding of the EC as an international

negotiator and will extend the use of theoretical tools from the ‘wider’ rational choice tradition to

the study of the EC’s relations with the post-communist Eastern Europe.

2. The EU as a Purposive Actor in Eastern Europe: methodological benefits and real life

shortcomings

A rational choice- inspired explanation of the EC’s position during the Association negotiations is

inextricably linked with the question of the EC’s rationality. ‘Full blown’ game theorists have

traditionally built their models upon assumptions of optimising behaviour based on strict

rationality requirements. This, they argued, ensures that their models possess both explanatory

and predictive powers - the latter being, of course, their much prized advantage over ‘story

telling’. Even what ‘full blown’ game theorists describe as ‘weak’ rationality requirements appear

to be a tall order for individual actors let alone complex multinational political entities:

impossibility of contradictory beliefs or preferences; impossibility of intransitive preferences and

1 The term ‘wider’ rational choice tradition will be used throughout this paper to describe the literature that

acknowledges the limitations caused by ‘bounded rationality’ (Simon 1976) on the notion of optimisation, but still

based its analysis on the assumption of purposive action driven by cost-benefit considerations. 2 In his earlier work, Friis (1997) looked at the actual negotiations of the Association agreements, but the game

theoretic element in this analysis is much weaker.

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conformity to the axioms of probability calculus (Tsebelis 1990: 24-27).3 The inability of the EC

to comply with the rationality requirements prescribed by ‘narrow’ rational choice is profound:

multiplicity of preferences and actors co-existing in a non-hierarchical order, a ‘constitutionally’

fragmented decision making process, and uncertainty (in terms of the availability and reliability of

data regarding the economic and political developments in the CEECs during the early stages of

transition) can easily substantiate such an assertion.

However, the impossibility of complying with the rationality requirements of ‘full blown’ game

theorists, does not necessarily strip rational choice from its relevance in explaining behaviour in

the international system. Scholars of the ‘wider’ rational choice tradition have argued about the

methodological benefits of “…relaxing the notion of optimisation, though still keeping the overall

framework of cost benefit analysis” (Fierke and Nicklson 1999: 3-4). What is lost by such a

compromise? Arguably the solidity of the predictive powers of game theory. Yet, as Sharpf

argues, the benefits may be substantial since a “…game-theoretic representation allows us to

describe and compare, at a very high level of abstraction but with great precision, extremely

diverse real-world constellations” (1997: 45). Still, even after the relaxation of the rationality

requirements, the assumption of purposive action is a necessary prerequisite for the utilisation of

game theoretic models as frameworks for understanding strategic interaction. In this sense the

conceptualisation the EC’s decision making process during the Association negotiations as a

‘garbage can’ (Cohen, March and Olsen, 1972, Kingdon 1984) would render a game theoretic

representation of the Association bargain obsolete.

Yet there is no evidence to suggest that the EC entered the Association negotiations as a non-

purposive, jelly-like, actor. The next section will provide a detailed analysis in order to highlight

the extent to which the EC’s strategy during the Association negotiations was affected by a

number of endogenous and exogenous factors. On a more general level, it is arguable that ever

since the EC-CMEA Joint Declaration in 1988 the EC’s strategy in Eastern Europe revealed some

long term patterns. The ‘guiding light’ for such a strategy was essentially determined by the

outcome of the EC’s internal debate between ‘wideners’ and ‘deepeners’ which, in the early

1990s, saw the former emerging victorious over the latter in all key players of the Association

process.

3 In addition to his ‘weak’ rationality requirements, Tsebelis presents what he describes as ‘strong’ rationality

requirements: (i) strategies that are mutually optimal in equilibrium; (ii) probabilities approximate objective

frequencies in equilibrium and (iii) beliefs approximate reality in equilibrium. Tsebelis (1990: 27-31).

6

In the Council, for example, the attempts of the ‘minimalist’ camp, led by Britain, to use

widening as means of diluting the integrationist agenda failed to gain meaningful support.

Margaret Thatcher’s passionate pleas4 for a fast-track integration of the CEECs into a Europe-

wide free trade area met with strong opposition by those member states committed to deepening.

The position of the ‘wideners’ was further undermined by the events leading to German

unification. The opening of the new IGC on Political Union as a means of tightening unified

Germany further to the process of European integration was difficult to resist, particularly since

some of the most ardent ‘wideners’ (i.e. Britain) had also been amongst the most fearful to accept

Chancellor Kohl’s demands for a fast track German unification.

The prioritisation of ‘deepening’ was even stronger within the Commission and the European

Parliament. President Delors, who since the late 1980s had invested much of his energy and

credibility to the EMU project, warned the Strasbourg European Council in December 1989 that

"since events are accelerating in the rest of Europe we must accelerate construction of the

European Community" (Speech/89/87, 7.12.89). Delors’ enthusiasm over the successful

conclusion of the new Treaty prior to any move towards widening was also shared, in principle,

by the vast majority of the Commissioners, who themselves had a vested interest in supporting

the 'deepening' of the Community.5 This uniformity of preferences within the Commission

became apparent in April 1991 when Commissioner for External Relations Frans Andriessen

floated his idea of ‘affiliated membership’6 in an attempt to offer an alternative to the

Scandinavian demands for full membership, but also to bridge the ongoing row between the EC

member states and the Association applicants over the inclusion (or not) of a membership clause

in the Preamble of the agreements. The proposal received little support within the Commission

and Andriessen was soon forced to retreat arguing that the concept of affiliated membership was

simply a personal idea and did not represent the Commission’s official position.7

4 See Margaret Thatcher's speech in the Guildhall on 13 November 1989 as quoted in Van Ham P. (1993: 138).

5 For a critique on how the EC policy makers’ addressed the debate of ‘widening’ vs ‘deepening’ in post-1989

Europe see Wallace (1991b). 6 For more details on the proposal see Andriessen's speech to the 69th Plenary Assembly of Eurochambers,

Speech/91/41, 19.4.91; and Agence Europe, 29/30.4.91, p. 11. 7 For more details on the reaction to the proposal see Agence Europe, 10/11.6. 91, pp. 5-7; The Financial Times,

"EC Partial Membership Suggested", 20.4.91; The Financial Times, " Commission Overture on Eastern Europe",

4.9.91; The Financial Times, "A New Wave of Eastern European Approaches", 6.9.91; Reinicke (1992: 107-109);

and Stawarska (1992: 80).

7

However, the prioritisation of ‘deepening’ should not lead to the conclusion that every detail of

the EC’s Association strategy was unanimously or uncontroversially agreed. On the contrary,

aspects of the EC’s Association strategy were fiercely contested both within and between the

EC’s institutions. The disagreements between ‘liberal’ and ‘protectionist’ elements within the

Council (Guggenbuhl 1995: 235) and the Commission (Sedelmeier 1994: 9) over the pace of

trade liberalisation with Eastern Europe are well documented. So too is the Commission’s

bureaucratic infighting over the channelling of assistance to Eastern Europe (Financial Times,

13.3.90), as is the EP’s struggle with the Commission and the Council over the inclusion (or not)

of a separate financial protocol in the EAs (Mayhew 1998: 137). Yet, none of these disagreements

threatened the overall consensus over the basic principles of the EC’s Association strategy. This

was to be a cautious approach aiming at stabilising the region but without committing the EC to

an ambitious widening project prior to the conclusion and ratification of the TEU. The

Association agreements would, therefore, include tight conditionality clauses for ensuring the

irreversibility of the transition process as well as measures for the better regulation of trade and

political relations between the two parties. Moreover, the EAs were to be cautious about the

question of membership and movement of people, and were to include a differentiated approach

on trade liberalisation according to the sensitivity of the products involved.

Against this background, the EC’s involvement in the Association negotiations resembled that of

an actor possessing ‘bounded rationality’ (Simon 1976).8 Whilst unable to comply with strict

rationality requirements, the EC can still be considered as a purposive and goal-oriented actor.

The very initiation of the Association process as a means of reducing uncertainty in post-

communist Eastern Europe is in itself indicative of strategic behaviour. The widespread

consensus within the EC over the prioritisation of the ‘deepening’ process clearly assisted the

crystallisation of the parameters upon which such a strategic behaviour was based. The ‘bounded

rationality’ assumption is, therefore, compatible both with the complex real-life environment9 in

which the EC elaborated its strategy in Eastern Europe and with the ‘wider’ rational choice

8 Herber Simon’s concept of ‘bounded rationality’ was based on the observation that ‘real behaviour’ always falls

short of ‘perfect rationality’. This is because: “(i) Rationality requires a complete knowledge and anticipation of the

consequences that will follow from each choice. In fact, knowledge of consequences is always fragmentary, (ii) since

those consequences lie in the future, imagination must supply the lack of experienced feeling in attaching value to

them. But values can be only imperfectly anticipated, (iii) rationality requires a choice among all possible alternative

behaviours. In actual behaviour, only a very few of all these possible alternatives ever come to mind”. (Simon 1976:

80-81). 9 Scharpf (1997) and Green and Shapiro (1994, 1995) have all identified the danger of imposing unrealistically strict

rationality requirements for the construction of formal models, which are then rendered inapplicable to real life

situations .

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tradition. In his classic After Hegemony, for example, Keohane acknowledged the compatibility

of ‘bounded rationality’ with perceptions of self-interest (1984: chapter 7) and associated his

regime theory with the efforts of international players to cope with the limitations caused by their

‘bounded rationality’ (1984: 131)

3. Why So Sensitive10

? Games in Multiple Arenas and Variable Payoffs

The Association negotiations between the Commission (on behalf of the EC) and the Visegrad

countries began in February 1991 (Agence Europe, 8.2.91) and concluded after ten rounds on 22

November 1991 (Bull- EC, 11-1991: 67). Over the course of the negotiations the EC came under

immense pressure from the Visegrad applicants to improve its offers on both the political and

economic aspects of the agreements. The EC’s refusal to match these expectations often caused

dismay amongst East European officials (Agence Europe, 4.4.91: 8) and on two occasions

brought the talks to the verge of collapse.11

Three main issues emerged as the most controversial

during the negotiations:

Trade arrangements for the ‘sensitive’ sectors. Despite the applicants’ demands for fast-track

trade liberalisation in all product categories the EC insisted on a more cautious opening of its

markets in a number of sensitive sectors including textiles, coal, steel and agriculture. As a

result, unlike the fast track liberalisation envisaged for industrial products, the EAs provided

for the complete elimination of EC tariffs within 6 years in the case of textiles, 5 years in the

case of steel and 4 years in the case of coal. Most importantly, agriculture was altogether

excluded from the Free Trade Area scheduled to be completed within 10 years. Concessions in

this sector were agreed in a separate protocol on a ‘product by product’ basis, while the

possibility of further improvements in the future was left open subject to a decision by

Association Council.12

The membership question. During the early stages of the Association negotiations the Visegrad

delegations had demanded the inclusion of a clear EC commitment to eastwards enlargement

10

Title borrowed from Rollo and Smith (1993). 11

The first stalemate of the talks, in late March 1991, came as a result of the Visegrads’ opposition to the EC’s offers

on ‘sensitive’ products; free movement of persons and the membership clause. For more details, see The Financial

Times, “East European Hopes of EC Integration Being Dashed", 26.3.91. The second stalemate occurred in

September 1991 over the EC’s offers on agricultural products. For more details see The Financial Times, "With

Friends Like These", 9.9.91. 12

For critiques on the EC’s trade protectionism during the Association negotiations see Baldwin et al.(1992),

Winters (1992), Messerlin (1993), Rollo and Smith (1993), Baldwin (1994).

9

in the Preamble of the agreements. It was argued that since the Association agreements with

Greece (1961) and Turkey (1963) had included specific references to accession being a

‘mutual’ objective,13

a similar clause should also be available in the Europe agreements. The

East European applicants’ hopes, however, were disappointed since the EC made clear that the

EAs should be separated from the question of accession and be treated as arrangements with

value on their own. The final wording of the EAs was to reflect this position. The Preamble of

the agreements made no reference to the automatic passage from Association to accession, or

to enlargement being a mutual objective. Instead, the agreements simply recognised that they

would contribute to the realisation of the candidates’ “ultimate objective” of EC

membership.14

Movement of workers. The Visegrads’ early demands for free movement of people at the end

of the 10-year transitional period envisaged for the completion of the FTA were rejected

outright by the Commission who also refused to propose legislation for the legalisation of all

illegal East European immigrants in the EC (Pinter 1991: 67-68). Against this background,

negotiations soon focused on the clause of non-discrimination, in other words, whether those

CEE nationals (and their families) already legally employed within the EC's territory, would

enjoy the same working rights as the EC nationals. Nevertheless, the Visegrads’ demands for

the application of the non-discrimination clause for both contributory and non-contributory

benefits were once again rejected by the Commission whose final offer provided for the

application of the non-discrimination clause only to contributory benefits.15

The final

agreement on freedom of movement was, therefore, an extremely cautious one. The Visegrads

only consolation was the EC’s promise that further improvements in relation to movement of

workers would be examined by the Association Council in the second phase of the transitional

period (subject to the economic situation in the Associated partners and the employment

situation in the Community).16

13

Art. 72 of the Greek agreement (Art 28 of the Turkish), for example, provided for "...as soon as the operation of

this Agreement has advanced far enough to justify envisaging full acceptance by (the Associated countries) of the

obligations arising out of the Treaty establishing the European Economic Community, the Contacting Parties shall

examine the possibility of the accession of (the Associated countries) to the Community". See European Communities

(1978). 14

For a critique on the EC’s refusal to offer a clear membership commitment to the Association applicants see

Bonvicini (1991) and Inotai (1994). 15

See, for example, par. 39 of the Bulgarian Association Agreement, COM (93) 45 final, 18/2/93, p. 17. 16

For an argument in favour of the EC’s decision to resist a more liberal regime on the movement of workers see

Baldwin et al. (1992).

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The EC’s tough position during the Association negotiations with the Visegrad applicants is, at

first glance, puzzling. Taking into consideration that the three countries’ combined share of the

EC’s total external trade in 1990 was just 2.37% (The Commission of the EC 1994: 545), why did

the EC fail to meet their demands for greater trade concessions? Moreover, taking into

consideration that agriculture, textiles and coal/steel products accounted for the majority of the

applicants’ exports to the EC, why did the latter chose to ‘penalise’ them by insisting on ‘special’

(that is more unfavourable) arrangements for these product categories? To put the question in

more general terms, what are the factors determining when and which issues will emerge as

‘sensitive’ and, therefore, will be perceived as vital for the EC’s interests during an international

bargain?

In order to address these questions, this paper borrows from Tsebelis' concept of ‘nested games’

(Tsebelis, 1988; 1990). The Association agreements were not negotiated in a vacuum, but run in

parallel with numerous other games in which the EC was involved at the time both at the

international and domestic level (see figure 1).

Figure 1. Timetable of the EC’s Multiple Games, 1990-1992

Visegrad EA Negotiations

GATT Negotiations

J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

1990 1991 1992

Bul/Rom EA Neg.

IGCs on Pol. Union and EMU

Moscow Coup Croatian Independence

Original deadline for conclusion Blair House

Deadlock Deadlock

Maastricht Summit

Mac Sharry's final proposals Mac Sharry's first proposals

Official opening of the IGCs

Bulgarian Deadlock

CAP Reform

Yugoslav Crisis

NATO’s Strategic Review NATO Rome Summit

Swedish EU application Swiss EU application

EEA agreementFormal opening Deadlock

EEA Negotiations

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The Association bargain can, therefore, be better conceptualised as being ‘nested’ within a Grand

game, which for purposes of analytical clarity, can be assumed to involve a series of games played

in three inter-connected arenas: the Domestic arena, the Association arena and the International

arena. In the Domestic arena, the most significant bargains included the two IGCs on EMU and

Political Union, the process of reforming the Common Agricultural Policy (CAP) as well as

measures to combat the effects of economic recession. In the International arena, the GATT

bargain was high on the economic agenda. The process of Yugoslavia’s disintegration, the August

1991 coup in Moscow and the redefinition of NATO’s role in the post cold war setting within the

Strategic Review dominated the security environment, whilst the EC’s relationship with the EFTA

countries was being re-defined within the process of the EEA negotiations. Finally, the

Association arena consisted of all those economic (e.g. trade liberalisation) and political (e.g.

membership clause) bargains that related to the wide range of items included in the negotiating

agenda of the EAs.

Because of the EC’s simultaneous involvement in all three inter-connected arenas, the distribution

of payoffs within the Grand game is not fixed. In other words, the EC’s strategy in a particular

game (or arena) and the payoffs it manages to secure from it, are inextricably linked with the EC’s

performance (and payoffs) in other games and vice versa (Tsebelis, 1988: 60). Tsebelis’ concepts

of games in multiple arenas with variable payoffs can provide a useful framework for the

understanding of some of the most striking paradoxes of the EC’ behaviour in the Association

bargain. Based on Tsebelis’ observation that "an optimal alternative in one arena (or game) will

not necessarily be optimal in respect to the entire network of arenas in which the actor is involved"

(1988: 9), this paper will seek to re-evaluate the assumption that the EC’s caution during the

Association bargain was unnecessarily punitive for the CEECs and as such a profoundly sub-

optimal strategy.

The explanation of the EC’s strategy during the Association negotiations in game theoretic terms

requires an elaborate discussion of the factors that determined the equilibrium within the Grand

game. Using a degree of abstraction that is necessary for the framing of strategic interaction

within extremely complex real life conditions, this paper puts forward five propositions for the

explanation of the different degrees of caution involved in the EC’s offers to the Association

applicants.

12

1. The larger the CEECs’ payoffs from the Association arena the smaller the EC’s payoffs in

both the International and the Domestic arenas.

This was the case for agriculture. The EA negotiations between the Commission and the

Visegrads over agricultural concessions coincided with a turbulent period for European

agriculture characterised by domestic quarrels over the Community’s strategy in the Uruguay

round and the proposed CAP reform. In the International arena, the EC’s protectionist agenda had

already caused the Uruguay Round to miss the completion target of December 1990 (envisaged

by the Punta del Este declaration) and left the EC isolated (Woolcock and Hodges 1996: 314). In

the Domestic arena, the situation of the EC’s agricultural sector was close to boiling point. In July

1991 Commissioner Ray Mac Sharry presented his final proposals for a comprehensive reform of

the CAP (Agence Europe, 12.7.91: 15) aiming at tackling some long term imbalances of

European agriculture (especially the heavy price subsidies and the huge surpluses in cereals, beef

and milk), but also facilitating the EC's negotiating position in the GATT negotiations. This

initiative, however, received a hostile reaction by the EC’s agricultural lobby which saw the

proposed price cuts and the prospect of reduced protection as a ‘capitulation’ to the US demands

in GATT (Agence Europe, 19.7.91: 12).

This state of affairs was most unfortunate for the CEECs’ demands for fast track liberalisation of

agricultural trade. A generous offer to the CEECs was bound to undermine the EC’s negotiating

position within GATT and leave it exposed to the US accusations of protectionist and

discriminatory practices. On the other hand, a liberal agricultural settlement with the Association

applicants was also certain to further infuriate the EC’s militant agricultural lobby and, therefore,

reduce the chances of it accepting the proposed CAP reform which was vital for the successful

completion of GATT and the reduction of CAP’s burden on the EC’s budget. The implications of

such an unfavourable conjunction for the Association applicants can be seen in the final text of

the EAs in which agriculture was altogether excluded from the proposed FTA, and trade

concessions were to be agreed on a product to product basis in a separate protocol attached to the

agreement.

2. The larger the CEECs’ payoffs from the Association arena, the smaller the EC’s payoffs from

the Association arena.

This was the case for free movement of workers. By the time the Association negotiations got

under way, the EC was already feeling the full impact of the seismic changes brought about by the

collapse of the Berlin Wall (Ullman 1991). In this absence of a clear military threat from the

13

former communist camp, the new post-cold war setting elevated soft-security issues such as

immigration to the top of the EC’s agenda in a period when the member states were negotiating

the abolition of the EC’s internal borders. Over the period 1991-1992, Western Europe received

more than 2 million immigrants, the majority of which fled from Eastern Europe and the former

Soviet Union (Financial Times, 23.3.93). In Germany alone the number of successful asylum

applications by CEE nationals since 1990 more than doubled reaching 438,000 in 1992, a new

record for the Federal Republic (Reinicke 1993: 192). Moreover, the problem was further

aggravated by the unknown number of East Europeans illegally working in the EC as well as by

the dramatic increase in the number of people who were forced to migrate as a result of the

Yugoslav crisis.17

The large increase in immigration figures from Eastern Europe coincided with an unfavourable

economic climate within the EC. Following a period of sustained growth during the second half

of the 1980s, by the beginning of the 1990s the EC economy was heading towards recession.18

As

growth stalled, unemployment began to rise putting further pressure on the member states’ social

security bills.19

On a different front, the ECJ’s ruling (ECJ 1991) on the eligibility of the spouses

of nationals originating from Associated countries who were legally employed in the EC to non-

contributory benefits further aggravated the member states’ concerns over the long term financial

implications of a more generous settlement with the CEECs in this field. Freedom of movement

was, therefore, a special item in the Association agenda in the sense that, unlike trade related

issues, the East European applicants were perceived as the main threat for the EC’s interests.

Alongside proposition No. 1, this conjunction was the most harmful for the CEECs’ Association

payoffs. This was clearly manifested in the final text of the EAs which provided only for

incremental changes to the pre-existing status quo in this field.

3. The larger the CEECs’ payoffs from the Association arena, the EC’s payoffs in both the

International and the Domestic arena remained mixed.

This was the case for textiles. Here, the prospect of greater trade liberalisation with the CEECs

(and for that matter with other international competitors within GATT) found the EC’s domestic

audience divided. Sectoral groups representing commerce which had lobbied the Commission

17

For example, from 78,854 in 1991, the number of refugees from the former Yugoslavia received by Germany

increased to 250,000 for 1992. On this see also The Financial Times, 23.3.93. 18

GDP growth for 1991 was a moderate 1.6%, while further deterioration was predicted for 1992-93 (by 1993, GDP

growth reached -0.5%). See Eurostat (1993).

14

hard to pursue a liberal strategy in GATT negotiations (Woolcock and Hodges 1996: 312) were

also supportive of the prospect of fast track liberalisation of textile trade with the Association

applicants (Agence Europe, 20.6.91: 14 and 3.9.91: 16). In both cases, commerce groups (which

suffered a substantial decrease of their market share in the late 1980s20

) saw the relaxation of

international trade protection as an essential element of the industry’s restructuring based on the

de-localisation of production to low-labour-cost countries through the development of Outward

Processing Trade (OPT). Yet such a liberal agenda was opposed by trade unions and textile

producer associations, particularly those representing small and medium-size business which

lacked the resources needed for relocating production abroad (Agence Europe, 13.7.91: 10;

6.12.91: 15 and 29.1.92: 15). Moreover, the relocation of production outside the EC was also

opposed by many of the EC’s regions which since the late 1970s had suffered the devastating

effects21

of the decline of the textile industry and which remained largely unconvinced by the

Commission’s promises that the Structural Funds would compensate those regions affected by the

industry’s restructuring. 22

The EC's Association strategy with regard to textile and clothing products had, therefore, to

compromise two conflicting interests. On one hand, the need to restructure the textile/clothing

industries (which was better served by the pursuit of a liberal agenda) and on the other, the need

to protect the EC's workforce and the EC's regions which were still dependent on the two

industries (which was better served by maintaining high levels of protection). Indeed, the

Commission's position during the EA negotiations clearly reflected this compromise: the textile

sector (unlike agriculture) was to be included in the proposed FTA, but unlike the fast track

liberalisation envisaged for industrial products, the complete elimination of EC tariffs on textile

imports from the Associated countries would be accomplished in 6 years.

4. The larger the CEECs payoffs from the Association arena, the smaller the EC’s payoffs from

either the International or the Domestic arena

These were the cases for the membership clause and for coal and steel products. As far as the

membership clause was concerned, a more generous offer to the Association applicants would

19

By 1991, social security bills amounted on average 27.1% of the EC’s GDP, an increase of 2% since 1989. See

Eurostat (1993, 1994). 20

For more details on the problems facing the EC’s textile industry see COM(93) 525 final, 27.10.1993. 21

During the period 1988-1992, for example, more than 300,000 jobs were lost in the textile/clothing sector. See

Commission of the EC (1994: 489-490).

15

undermine the EC’s position in the International arena, particularly vis á vis its EFTA partners

which since the late 1980s had geared their strategies towards fast-track EC accession.23

The EC,

however, gave the EFTAns’ demands a rather cool reception. Delors’ proposal in January 1989

(Agence Europe, 26.1.89) for the establishment of a European Economic Area (EEA) did give the

EFTAns access to the EC’s Single Market, but fell well short of a membership offer (Pedersen,

1994: chapter 4). In fact, from the outset the whole EEA project was widely regarded as an EC

attempt to avoid addressing the Austrian membership application (July 1989) while at the same

time deterring other EFTA countries from doing so (Wallace 1991: 270-272). The rationale

behind such delaying tactics was simple: the EC would be able to complete the 1992 programme

and negotiate Political Union and EMU, without the distraction of extending the single market or

addressing the question of EFTA membership with all its financial and institutional implications.

The EEA experience had demonstrated in the most clear manner the EC’s determination to

preserve its internal coherence and concentrate its efforts on the process of deepening. Against

this background, the Association applicants’ demands for a clear EC commitment on accession

were doomed. At a time when the EC had given such a cool reception to the membership request

by the politically and economically advanced EFTAns, how could it justify a more generous

wording for the Visegrad EAs in this field? The need for the pursuit of a consistent and coherent

EC line on the question of membership was clearly reflected in the Preamble of the Visegrad

agreements: accession into the EC was described as the applicants’ ‘ultimate objective’, not as an

EC objective or the natural progression of the Association agreements.

A similar case of what can be described as ‘moderated reluctance’ the Association applicants can

also be seen in the cases of coal and steel. This time the effects of a generous offer in the

Association arena were to be felt in the Domestic arena. The beginning of the 1990s found both

the coal and steel sectors in deep crisis. Coal had long lost its privileged position as the EC’s

main energy source. Steel too was rapidly losing its pre-eminence amongst manufacturing

industries. Economic recession at home had depressed demand and led to large over capacities,

whilst exports were severely hit by increased international competition (mainly from South-east

Asia and South America) and by the decision of the US government to impose severe anti-

22

See the speech by Commissioner responsible for Regional Policy Bruce Millan. IP/91/309, 15.4.91. See also the

speech by the Commissioner responsible for External Relations Frans Andriessen at the symposium "A Future for the

European Textile and Clothing Industries". Speech/90/20, 16.3.90. 23

Austria formally applied for EC membership in July 1989. It was followed by Sweden in July 1991, Switzerland in

May 1992 and Finland and Norway in November 1992.

16

dumping measures against EC steel producers (Sedelmeier 1995: 5). In an effort to bring the

situation under control, the Commission introduced painful restructuring programmes for both

industries. In exchange, increased regional funding (Agence Europe, 18-19.11.91: 8) and the

introduction of an Aid Code (authorising public aid only for the financing of social programmes,

research development and investments for environmental protection) were aimed at alleviating

some of the immense social consequences of the restructuring process. 24

Against this background, the all powerful coal and steel sectoral groups in the EC25

were

becoming increasingly apprehensive over the prospect of a significantly improved coal and steel

trade regime with Eastern Europe (Agence Europe, 8.3.91: 13; 10/11.6.91: 13; 20.9.91: 11). Such

apprehension was further aggravated by accusations that, during the period between 1991 to 1993,

heavily subsidised steel imports from Eastern Europe had depressed prices by up to 30%, thus

leaving the EC’s steel industries unable to compete (Barnes and Barnes 1995: 237). The turmoil

amongst the EC’s domestic audience combined with the high cost of combating the social

consequences of restructuring the coal and steel industries were evidently taken into consideration

when the EC formulated its offers to the Association candidates. The EC’s ‘moderated

reluctance’ in this case took the following form: inclusion of coal and steel products in the

proposed FTA with complete elimination of EC tariffs in these categories within 4 and 5 years

respectively.

5. The larger the CEECs’ payoffs from the Association arena, the larger the EC’s payoffs from

the Association arena.

This proposition refers to the overall strategic importance of the Association agreements. Since

their early conception in August 1990 the EAs were meant to be far more than just an instrument

for the regulation of trade between the two parties. The value of the agreements as a stabilising

force in the fragile post-communist Eastern Europe was recognised by both EC and East

European leaders.26

For the EC, the EAs were a confirmation of its willingness to assume a

greater political role in the post-cold-war setting. For the Association applicants, the EAs

24

It is estimated that between 1980 and 1990, employment in the steel industry fell by more than 40%. See Barnes

and Barnes (1995: 236). 25

The European Confederation of Iron and Steel Industries (EUROFER), for example, is one of the most influential

sectoral organisations in the EC representing more than 60% of the Community's steel production. It is also an almost

constitutionally recognised partner and policy adviser of the Commission’s Directorate General for Energy (DG

XVII). 26

According to the Commission the EAs were expected to strengthen "...the climate of confidence and stability

favouring political and economic reform...and the foundations of the new European Architecture". See COM(90) 398

final, 27.8.90, p. 3.

17

presented a platform for (and a proof of) their rapid ‘return to Europe’ with the ultimate objective

of full participation in the European structures.27

The fragile security environment in Europe was

arguably the CEECs’ greatest ally, often acting as a counterbalancing force against the EC’s

caution and protectionist tendencies during the EA negotiations.

The decisive impact of security considerations on the negotiating strategy of the EC became clear

during the ‘hot’ summer of 1991. Slovenia’s and Croatia’s unilateral declarations of

independence28

and the rapid escalation of the Yugoslav crisis into a full scale civil war had

already demonstrated the potentially destructive nationalist tendencies in Eastern Europe. The

August 1991 coup in Moscow and the apparent process of USSR’s disintegration sent further

shock-waves through Western capitals (Collinson et al. 1993: 42). The stagnant Association

negotiations clearly gained impetus from the new security environment in Europe.29

The revision

of the Commission’s negotiating mandate by the Council provided for further concessions across

a wide range of issues leaving the East European applicants with considerably improved payoffs

from the Association bargain.30

These five propositions can serve as a broad explanatory framework for the EC’s strategy during

the Association negotiations. Nevertheless, for a better understanding of the final equilibrium

reached within the Grand game, a number of additional parameters need also to be taken into

consideration:

The size of the EC’s payoffs from games in the Domestic and International arenas.

The higher the EC’s economic stakes in the International and Domestic arenas, the smaller the

likelihood of the EC ‘sacrificing’ them in favour of a generous deal for the Association

applicants. Viewed in isolation, the CEECs’ insignificant share (and consequently insignificant

threat) to the EC’s trade could have been seen as a negotiating advantage for the Association

applicants. However, taking into consideration the interdependence of payoffs within the different

27

On this, see the positions of senior Visegrad negotiators in CEPR (1992). 28

Both countries declared their independence from the Federal Republic of Yugoslavia on 25 June 1991. See

Hellenic Foundation for Defence and Foreign Policy (ELIAMEP) (1993: 102). 29

See, for example, Andriessen’s plea for a rapid conclusion of the Association negotiations as a means of

"...overcoming the sense of isolation felt in Central Europe against the background of turbulence in the Soviet Union

and Yugoslavia, and creating a feeling of belonging". Agence Europe, 7.9.91, p. 7 30

See The Financial Times, "Brussels Seeks Closer Links with EC's Eastern Neighbours", 22.8.91, p. 4 and Agence

Europe, 7.9.91, p. 7. The events in Yugoslavia and the USSR also assisted the Bulgarian and Romanian Association

bids as well as Albania’s request for the conclusion of a First Generation agreement with the EC. For more details see

Papadimitriou (1999: chapters 6 and 7).

18

arenas of the Grand game, the CEECs’ economic insignificance produced rather adverse effects

for their chances of securing a better Association deal. The limitations imposed by the EC’s

involvement in the GATT bargain over its ability to provide more generous offers to the CEECs

in agriculture and textiles offer a good example of this.

The strength of the EC’s opponents in the International and Domestic arenas.

The caution of the EC’s offers in the Association arena was profoundly affected by the strength of

the EC’s opposition in the Domestic and International arenas. Agriculture exemplifies this. Had

the EC found it easier to ‘bully’ its domestic (i.e. agricultural lobby) and international (i.e. the

US) opposition into more ‘convenient’ (for the EC) deals, the need for cautious offers to the

Association applicants would have been smaller. In this sense, the greater the strength of the EC’s

opponents in peripheral games, 31

the more detrimental the effects on the chances of the CEECs‘

to improve their payoffs from the Association bargain.

The potential for future damage attributed to the CEECs

Despite their small share in the EC’s external trade in 1990-91, the Association applicants were

treated as countries with a great export potential, an assumption based on their clear competitive

advantage over the EC in labour-intensive sectors such as textiles, steel/coal and agriculture.

While such fears were later proven unfounded,32

the CEECs’ ‘export potential’ clearly

contributed to the hardening of the EC’s position during the Association negotiations.

A. The timing of the bargain

Often, the timing the CEECs requests for improved EC offers was an important parameter for the

size of their payoffs. For example, the EC’s concessions in relation to the question of membership

were the result of the first deadlock in the first wave of Association negotiations in April 1991.

Had these concessions been discussed in September 1991 (under the pressure of the crisis in

Yugoslavia and the USSR), the Visegrads’ chances of securing a better deal would have been

considerably higher.

31

The term ‘peripheral’ is not used to indicate ‘value’, but instead in order to distinguish the variety of games within

the International and Domestic arenas from the ones played between the EC and the CEECs within the Association

arena. 32

On this see Papadimitriou (1999: chapter 4).

19

B. The East European applicants’ ability to resist the EC’s offers.

Considering the profound power asymmetry between the two negotiating parties, the extent to

which the EC’s offers would have radically changed had the Association applicants presented a

more united opposition remains debatable. Nevertheless, in the very few cases that the Visegrad

applicants stood united33

and determined to block the negotiations (and consequently threatened

the EC’s image as a ‘caring partner’), did manage to improve their payoffs from the Association

bargain.34

4. Conclusion

This paper has explored some of the reasons behind the EC’s inability to match its strong

rhetorical commitment to the reform process in Eastern Europe with generous economic and

political concessions within the context of the Association negotiations. This mismatch has been

one of the most paradoxical aspects of the EC’s strategy in Eastern Europe since 1989. How such

a mismatch manifested itself in the Europe agreements has been well covered by the existing

literature (Guggenbulh, 1995; Sedelmeier and Wallace, 1996; Maresceau, 1997; Mayhew, 1998)

which has also provided powerful arguments as to why the EC’s caution was bad economics

(Rollo and Smith, 1993) and politics (Inotai, 1994). This paper has sought to explain why such a

strategy came to be. In doing so, it has used an explanatory framework based on Tsebelis’ (1990)

concept of nested games and of games in multiple arenas with variable payoffs. Rather than

studying the Association bargain in isolation, it was argued that the interdependence between

games as well as the variable distribution of payoffs within the Grand game were crucial factors

for the understanding of the EC’s strategy in the Association negotiations. Thus, in most cases the

EC’s cautious Association offers had little to do with the actual ‘threat’ posed by the Visegrad

applicants, but were instead affected by the EC’s need to pursue a consistent strategy in a number

of domestic and international bargains which run in parallel to the Association negotiations. A

game theoretic representation of the Association negotiations offers a powerful tool for framing

the strategic interaction of the players involved and for understanding what, at first, appear to be

profoundly sub-optimal choices. Most importantly, game theoretic frameworks can assist the

conceptualisation of the contextual factors that shape international behaviour and thus put

substance to the often blurred and empty references to the notion of ‘self-interest’.

33

For more details on the internal divisions of the first and second wave of Association applicants see Mayhew

(1998: 42) and Papadimitriou (1999: chapter 7) respectively. 34

See, for example, the improved EC offers after the April and September 1991 deadlocks.

20

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