U.S. Executives Nudge Soviet Trade Barricade : News Analysis
Ever since the Russian Revolution, American business has borne an in-and-out role in the Soviet economy. Lenin opened the door, Stalin shut it. From Khrushchev to Gorbachev the door has swung but never easily nor widely. This week, nearly 300 of America’s corporate executives have assembled in Moscow for still another nudge.
The forum is the annual meeting of the U.S.-U.S.S.R. Trade and Economic Council, established during detente in 1973 as a joint Soviet-American group sanctioned by both governments. It includes high Soviet trade and banking officials as well as Americans. In alternate years, the council meets in Moscow.
This time, it convenes in the afterglow of Geneva. But how much warmth will radiate into the trenches of commerce from the meeting last month between President Reagan and General Secretary Mikhail S. Gorbachev? It could be little.
Gorbachev’s Directives
As one American executive pointed out, previous summits have been followed by Soviet invasions of Hungary, Czechoslovakia and Afghanistan as well as the emplacement of Soviet missiles in Cuba.
As the Soviet Union’s new leader, Gorbachev has issued some interesting directives. To double the size of the Soviet economy by the end of the century, he plans to rely heavily on modernizing existing plants. And that could mean the kind of technology at which the United States excels.
But the logic of trade is not always the logic of politics. In the case of Soviet-American trade, political constrictions such as the Jackson-Vanik Amendment (to pressure Moscow into allowing more Jews to emigrate) are a controlling moderator.
“What opportunities will open remain to be seen,” Armand Hammer, chairman of the board of Occidental Petroleum, said in an interview. “The jury is out. If Gorbachev feels he needs it, he will open up. He sees what the Chinese are doing”--achieving progress through opening to the West and internal change. “Will he let the Chinese get ahead of the Soviet Union? I don’t think so.”
Among industrial societies, the Soviet Union is the ultimate protectionist. From behind the wall of its non-convertible ruble, Moscow parcels out hard currency to import only what it needs urgently and cannot produce. Unlike China and parts of East Europe, it does not welcome joint ventures. But Americans with advanced technology or the ability to fulfill another need are invited to inquire.
So, amid red-carpet treatment, including a banquet in the Kremlin for a representative of each of the 120 U.S. corporations involved, the Americans this week will be made to feel welcome during their three-day session with Soviet officials. Among U.S. participants are some shrewd veterans experienced in the frustrations of trying to connect with the world’s second-largest economy.
The Americans are a premium group. They include Hammer of Occidental; Donald Kendall of Pepsico, C. William Verity of Armco, John J. Murphy of Dresser Industries, Lewis W. Lehr of 3M, Richard J. Mahoney of Monsanto, William P. Stiritz of Ralston Purina, Whitney MacMillan of Cargill, Robert V. Roosa of Brown Bros. Harriman and other notables from the manufacturing, banking and trading sectors.
Americans have much that the Soviets wish to buy, and the Soviets offer a market that Americans very much wish to reach. When legalities allow and the price is right, theoretical antagonism between American capitalists and Soviet communists dissolves, and many a deal has been struck.
Household Words
At one time, Hammer and Henry Ford literally were household words in the Russian lexicon. A Moscow factory established by Hammer in 1925 produced 72 million pencils a year, his name embossed on each; owning a “Hammer” was a kind of status symbol among children learning to write.
After Ford designed and helped to build an immense factory at Gorky to produce Model A cars and Model AA trucks, the word Fordizatsiya came to be used for assembly-line production. Later, as active boosters of Soviet-American trade, David Rockefeller, Averell Harriman and the late Cyrus Eaton also became names familiar to the Soviet public.
By the time Stalin began expelling American companies in the mid-1930s, other players in the Soviet economy included General Electric, Allis-Chalmers, Underwood Typewriter and U.S. Rubber. As pioneers, they had established commercial relations even before the United States extended diplomatic recognition.
But Stalin brought all that down, and revival has been slow. Even today, almost 33 years after Stalin’s death, U.S. business with the Soviet Union still amounts to little more than grain sales and Hammer’s unique 20-year contract, under which he sells about $500 million a year worth of superphosphoric acid (for fertilizer production) and buys a like amount of ammonia, potash and urea. Legal limits are imposed by U.S. restrictions on the export of advanced technology and a congressional ban on granting full trading privileges to countries that restrict emigration.
As recently as the early 1960s, only American Express maintained an office in Moscow, a token one-person operation without the authority even to issue an airline ticket.
Since then, a scant 25 other American companies have opened representative offices, about a quarter of them in the modernistic International Trade Center on the Moscow River, a three-tower complex of offices, hotel rooms and apartments organized by Hammer, designed by Welton Becket Associates of Los Angeles, built by Bechtel of San Francisco, financed by Chase Manhattan and the U.S. Export-Import Bank and principally occupied not by Americans, as Hammer had envisioned, but by Japanese and West Europeans.
All told, the Soviet Union buys about $27 billion worth of goods from hard currency countries every year. (Moscow’s hard currency exports, mainly oil and gas, run under that amount, but the trade deficit is offset through sales of arms, tourism and shipping.)
Ranks Second
Only because of grain sales, the United States ranks second among Western suppliers (after West Germany) with $3.3 billion in sales in 1984, or 12% of the total. Without the grain sales, which make up for shortfalls in the Soviet harvest, American exports would be less than half of Austria’s--and Japan would become No. 2. If Hammer’s contract also were subtracted, U.S. sales would barely make the chart, at less than $100 million.
Soviet officials fume over contracts canceled by U.S. companies to comply with then President Jimmy Carter’s economic sanctions after the invasion of Afghanistan and the imposition of martial law in Poland. Particularly galling to them was Carter’s revocation of Armco’s license in 1978 to build a $400-million specialty steel plant.
“In a planned economy like ours, the failure to honor contracts caused problems,” Vladimir Tchibirev, the Foreign Trade Ministry’s chief of trade with American countries, said in an interview. “We obtained what we needed (from other Western suppliers), but it cost us time. It also taught us the importance of having a reliable supplier who will live up to his contract, even though we are aware, in this instance, that it was the government and not the company at fault.”
This summer, with congressional amendment of the Export Administration Act, the United States guaranteed contract sanctity in all but extreme future circumstances. But other constraints on U.S. sales continue. One is the high value of the dollar compared to the currencies of major competitors that, unlike companies in the United States, also can offer government-backed credit packages. Another, of course, is licensing restrictions on high-technology exports.
“Unless the picture changes, I can see Japan and others increasing their share of our purchases,” Tchibirev said.
A number of American executives are frustrated. “They are fed up with the poor state of relations and feel there is room for improvement,” James H. Giffen, president of Mercator Trading Co., who also serves as president of the U.S.-U.S.S.R. Trade and Economic Council, said.
