European Neighbors Knock Louder On EC Doors. Non-EC members worry single market will isolate them

EUROPE'S Economic Community has many of its closest neighbors sweating. As the EC moves to erase internal borders after 1992, those outside the fringes of the 12-member grouping worry that they'll lose their ability to attract foreign investments and get cut off from what is soon to be the West's largest integrated market.

The economics are simple. Why should a Japanese firm build a computer plant in non-EC Austria, when it can plunk its money and machines into West Germany and gain access to half the continent in the process?

The Austrians aren't waiting to find out the answer to that one. They're expected to apply for EC membership this summer. Others could follow.

Indeed, the 1992 project has thrown the entire European Free Trade Association or EFTA - which unites Austria with five other non-EC European countries - into a near-crisis.

``We have to prove - and rather soon - that we're still a viable alternative to EC membership,'' says Hansj"org Renk, a spokesman for the Geneva-based association, whose members all have long-standing free-trade agreements with the EC.

EFTA was created in 1960 as a direct response to the forming of the EC, bringing together countries who for political reasons couldn't join the more extensive common market. EFTA focuses on creating free trade among its members and with the EC within the framework established by the General Agreement on Tariffs and Trade. While the EC is a customs union, with unified external tariffs, EFTA members set tariffs independently against countries outside the association.

Mr. Renk says EFTA and the EC have drawn up a list of 30 areas, including culture and the environment, where they hope to forge closer links. ``But EFTA won't transform itself into a mini-EC,'' he says. Indeed, the association has always had problems acting as a group. Members have little in common - other than an aversion to membership in the much larger EC.

Britain, Denmark, and Portugal are all founding EFTA members who later switched to the EC. Others joined the group in the meantime, keeping the total number of EFTA countries nearly steady. Three current members - Sweden, Norway, and Finland - often feel closer to one another as Scandinavians than they do to the Swiss, Austrians, and Icelanders.

The policy of East-West neutrality adhered to by most EFTA countries also poses a problem. Nations such as Switzerland and Sweden, although deeply meshed in global trade, still have trouble cooperating too closely with their neighbors, especially if this means going together with the pro-Western EC. Austria is neutral, but officials there insist there's no conflict with EC membership.

``If it's not possible to become a member [of the EC] without staying neutral - then we'll have to give up trying to join,'' says one Austrian official.

With Austria edging toward the EC, a push is on inside EFTA to make the group a more effective partner for the increasingly integrated Community. EFTA countries began formally meeting with the EC only in 1984, as a result of EC plans for a single European market.

After 1992, the Community plans to have unified standards for goods and services as well as freedom of movement for workers and students within the 12 EC countries. For a Swedish company like SAAB, for example, full EC integration could mean that the company will have no direct say in setting auto emission standards or other specifications that affect its industry within this market.

Jacques Delors, president of the EC Commission, has told EFTA it has to start speaking with one voice, if it hopes to gain influence with the Community. Even then, the EC has told all outsiders that they shouldn't expect the full benefits of membership.

Meanwhile, the economic ripples of 1992 are even reaching the countries of Eastern Europe - where COMECON, the East bloc's trading alliance, is also scrambling for closer ties to the Community. A recent trade pact between Hungary and the EC, for instance, gives Hungary an unprecedented opening to export food and industrial products to Western Europe.

Some European trade officials see a pattern emerging in which the EC sits at the core of concentric circles of trading partners - with the EFTA nations tied most closely to the EC, while East Europeans and other non-EC neighbors form looser links through bilateral deals.

``The Hungarians are openly talking about joining the EC, and the Yugoslavians are talking about stronger links to EFTA,'' says Renk, the EFTA spokesman.

Indeed, some analysts say economic reforms in the East are giving all Europeans more options. In the past, for example, the Soviets have spoken out against Austrian membership in the EC, citing that nation's 1955 pledge of ``permanent neutrality.'' Recently, however, the Soviets have toned down their position.

``Some even say the Soviets want Austria inside the EC,'' says one European diplomat, since that nation's position in Central Europe could make it a useful economic bridge between East and West.

Still, deciding to join the EC is only the start of a long process. Community officials in Brussels have said they don't want to wrangle over new memberships until they've sorted through the problems of economic integration, presumably pushing off such matters until after 1992.

There's also the problem of Turkey, which has already put in a bid for EC membership. Many experts say the Turkish application will be turned down, but they worry that this might cause deep resentment if other nations, such as Austria, are accepted in the same stroke.

As a result, Austria isn't expected to gain a seat at the EC table before the mid-1990s, at the earliest. And other non-EC European countries seeking admission wouldn't gain a spot until much later.