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Regional Outlook : Decay Behind a 'Silver Curtain' : The Wall may have fallen, but poverty still separates Eastern Europe from the West. Without more trade, the future looks grim.


KACZEWO, Poland — The dairy cases of Poland's grocery stores are stocked high with butter from Germany and the Netherlands--so high that native son Brunon Wardecki, who owns 13 black-and-white cows, cannot profitably sell butter even to his local market.

And he doesn't stand a chance of selling it in Western Europe. Dairy farmers there receive huge government handouts, allowing them to undersell their Eastern European competition. Besides, for the most part, Wardecki and his compatriots simply don't produce food that is sufficiently appealing and clean for Western European tastes.

It is a paradox of the new Europe: Although poverty-stricken Eastern Europe desperately needs to find new markets in the West, it is instead Western European exporters, frequently, who are prospering from the development of free-market economies in the East.

At stake is more than just the welfare of the woebegone former Soviet satellites. If Eastern Europeans cannot create a little Western prosperity in their own countries, they will seek it instead by flooding into the West--not only Western Europe but also that traditional haven, the United States. This was Polish President Lech Walesa's implicit threat when he warned last year that the Iron Curtain must not be replaced by a "silver curtain separating a rich West from a poor East."

Europe's economic divide may not finally be bridged until Eastern Europe's fledgling democracies become part of the European Community, which is now home to most of Western Europe's mightiest economic powers.

The "association agreements" signed last year by the EC and Poland, Czechoslovakia and Hungary declare EC membership to be the ultimate objective of those three countries. Eastern Europeans talk fondly of joining the EC in about a decade, once their democratic governments are firmly rooted, their free markets are functioning and their prosperity rises at least to the levels of EC members Portugal and Greece.

But the accords do not commit the EC to that goal--an omission that Richard Portes, director of London's Center for Economic Policy Research, calls potentially fatal for the East-West relationship.

Instead, the agreements gradually aim to create a free-trade area between West and East (agriculture excluded) after 10 years. But even here, economist L. Alan Winters of Britain's University of Birmingham says the accords' fine print, by protecting farmers and other Western European special interests, "threatens the recovery of the (Eastern European) economies and ultimately even their reform programs."

Since throwing off the Communist yoke in 1989, Poland and its neighbors have gone into sickening economic tailspins. Trade, even more than direct financial aid, is everyone's favorite solution; by buying Eastern goods, the West can help Eastern Europe pull itself up by its own bootstraps.

"We aren't asking for money," says Ladislav Valasek, a Czech trade negotiator with the European Community. "We want opportunity."

They are getting a little. Eastern Europe is selling more to its Western European neighbors than ever before; exports have roughly doubled since the 1989 revolutions.

But that isn't saying much, since trade had been so low before. And imports are also up--the EC actually enjoyed a small trade surplus with Eastern Europe last year.

The causes for limited trade can be found on both sides of Walesa's silver curtain.

The West is loath to open up markets--particularly in farm goods, textiles and steel--in which its own producers are already struggling. From French farmers to Spanish steelmakers, Western Europe's special interests are warning of unfair competition from countries where industries are heavily government-subsidized (never mind the massive subsidies that prevail in the EC) and wages remain relatively low.

But it is not only the West that is responsible for the East's difficulties. In the third year of its economic revolution, Eastern Europe is still struggling to find formulas for producing, transporting and marketing what Western Europe wants to buy.

Farmers must meet Western sanitary standards and sell their products more effectively--a buyer for a Belgian grocery chain says Eastern European exporters neglect even to carry samples of their goods. Manufacturers must also bring their goods up to snuff. Most Eastern European textile plants, to take one example, make little that anyone in the West wants to wear.

Here in Poland's dairy belt, Wardecki, 74, has surmounted some of these obstacles. The dairy farmer--whose living-room wall features a painting of his father on horseback killing a Bolshevik soldier during the 1920 war with the Soviet Union--says his operation, unlike many in Poland, exceeds the EC's standards for cleanliness. Most of Wardecki's milk is made into powder and sold in Latin America.

But much to his frustration, he can't compete with Western European butter.

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