Even with this last more rapid adjustment, however, CMEA prices have a high degree of obsolescence in world market terms. The result is the distinction between "hard" and "soft" commodities commonly made in intra-CMEA trade. Hard commodities are those that are essentially underpriced in world market terms and thus in short supply within the CMEA, whereas an incipient surplus of soft commodities exists in the CMEA-those that are relatively overpriced.

If Poland is selling hard commodities, it will normally demand hard commodities in return from a CMEA trading partner. Otherwise, it could do better to sell its hard commodities at more favorable terms of trade in the world market, Similarly, if Rumania plans to import soft commodities, some other member of the CMEA would be chosen as the supplier only if that supplier would accept soft commodities in exchange. So there is a natural tendency to exchange hard for hard, and soft for soft, commodities in a bilaterally balanced fashion.

Indeed, as long as a particular CPE can always sell hard commodities on the world market and buy soft ones, intra-CMEA trade is forced into a more rigidly bilateral mould. Hence the rapid liberalization of the foreign trade of communist countries with the West in the 1970s is quite consistent with increased bilateralism in trade between CMEA countriesl Effectively; CMEA trade is cleared multilaterally through the world market, which limits the losses in economic efficiency arising from bilateralism within the CMEA itself.

Recognizing the rapid obsolescence of moving averages of world prices denominating intra-CMEA trade, there are other difficulties with transferring price information from outside the bloc.

Homogeneous primary commodities such as oil, wheat, copper, and so forth usually have well-defined international prices--perhaps commonly quoted in a single international forex news currency such as the U.S. dollar on a recognized international commodity exchange in, say, Rotterdam or Chicago. Thus there is little difficulty in ascertaining what world prices actually are, and averaging them through time. And observers agree that relative primary commodity prices used by the CMEA seem to be approximately correct using this criterion.

However, there are no commonly recognized international price quotations for types of machinery or manufactured consumer durables. Indeed, homogeneous commodity classification systems simply don't exist for such manufactures as they do for the various grades of wheat. Furthermore, exports of industrial goods tend to be invoiced in the home currency of the capitalist exporter, if that currency is convertible.18 Hence, when exchange rates change in the short run, the "law of one price" is violated-even across capitalist countries with perfectly convertible currencies. Given that servicing and quality aspects of CMEA industrial goods may also vary markedly from their Western counterparts, what are the hapless negotiators within the CMEA to do in finding a mutually agreeable set of outside prices?

The answer seems to be that the formal multilateral pricing protocol of the  CMEA-as described by points (1) to (4)-breaks down for complex industrial goods. Machinery prices are established mainly on a bilateral basis between each pair of trading partners.

 To be sure, these bilateral negotiations use the prices of industrial goods denominated in Western convertible currencies as a point of reference. But the bargains struck for each pair of countries might involve quite different ruble prices. Since these separate bargains probably aggravate the distinction between hard and soft commodities within the CMEA as well as violating the notion of commonality in price setting, further impetus is given for keeping intra-CMEA trade on a strictly bilateral basis.

In summary, the unwillingness of CPEs to use international money (convertible currencies) as a means of payment forces intra bloc trade into a primarily bilateral pattern. However, this bilateral trade is not pure barter because international money still serves as a unit of account in establishing relative prices-in an imperfect but perhaps indispensable fashion.

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