Cutting the Barriers to U.S.-Soviet Trade

On the heels of the Reagan-Gorbachev summit, the Soviet Union last month enthusiastically welcomed a top-level delegation of more than 400 U.S. business leaders representing 120 American corporations.

Under the auspices of the U.S.-U.S.S.R. Trade and Economic Council, a binational organization that seeks to facilitate trade between the two countries, the conferees also included federal, state and local U.S. officials and more than 25 chief executive officers from Fortune 500 companies. General Secretary Mikhail S. Gorbachev hosted the delegation at a gala Kremlin dinner.

Figuratively and literally, the Soviets rolled out the red carpet. High-level meetings were arranged for all the companies that requested them. The events themselves ran smoothly, and Coca-Cola was substituted for vodka as the official toast-making beverage at luncheon--in deference to Gorbachev’s anti-alcohol campaign. Call girls were cleared out of the Mezhdunarodnaya Hotel while U.S. government officials were in town. Even the weather cooperated--it snowed most of the time, keeping the temperature at freezing instead of 10 or 20 degrees below.

The Americans responded with appropriate enthusiasm, in sharp contrast to the gloomy atmosphere of the council’s 1984 New York meeting. Major deals were explored, especially in energy and agribusiness areas; companies that had given up on the Soviet market as too politically risky were once again excited by its possibilities. As the Americans left on a Pan Am charter, sporting fur hats and coats and carrying samovars and peasant crafts, there was renewed optimism regarding our trade prospects.

What did all the midwinter camaraderie really amount to? The United States and the Soviet Union constitute the world’s two largest economies, yet, in 1984, trade between them amounted to only $3.9 billion, or roughly the same as American trade with Algeria. Seventy percent of the total reflected U.S. sales to the Soviets, and as much as 95% of those sales were agricultural; the balance were replacement parts for previously purchased U.S. equipment.

The 1984 U.S.-Soviet trade figures did not differ significantly from previous years. They are in sharp contrast, however, to the trade statistics of our allies. While U.S.-Soviet two-way trade rose from roughly $2 billion in 1975 to $3.9 billion in 1979, then dropped to $2.4 billion in 1983, Soviet deals with Germany, France, Italy and Britain--America’s major European trading partners----during the same period went from $9.3 billion to $21.1 billion. Machinery, capital equipment and technology dominating our allies’ exports, oil and gas accounting for most of their imports.

These dramatic differences cannot be explained by the overvalued dollar or the European proximity to Soviet buyers. Unlike the United States, U.S. allies have adopted a strong pro-Soviet trade stance, giving the Soviet Union both tariff privileges and government credits.

Although over the past 18 months the United States has taken a number of modest steps to encourage bilateral trade and has adopted a pro-trade rhetoric, Ambassador Arthur A. Hartman and Commerce Secretary Malcolm Baldrige both made clear in Moscow that the Administration’s efforts to promote bilateral trade will be constrained by “existing law and policy.”

This means that Soviet imports will continue to be denied non-discriminatory tariff treatment--a denial imposed on only a handful of communist countries. The financing available for Soviet purchases from the United State will still be severely restricted and the United States will continue to prohibit the export of oil and gas equipment and of a broad range of “dual use” high-technology products that might conceivably be useful to the Soviet military industry.

Each of these policies has caused U.S. exporters to lose major deals to their European and Japanese competitors, but the denial of most-favored-nation status, and particularly the manner in which it is denied, is probably the trade barrier that most aggravates the Soviets. President Richard M. Nixon guaranteed them most-favored-nation status as part of the 1972 trade agreement, but all hopes for normalization of trade status were dashed when the Congress passed the Jackson-Vanik amendments to the Trade Act of 1974, making most-favored-nation status conditional on open-emigration practices. The amendment has had little or no impact on Soviet emigration, which in fact declined significantly after its enactment; the Soviets see Jackson-Vanik as an intolerable interference in their domestic affairs.

The American executives are convinced that U.S. -Soviet trade in manufactured products could increase significantly if conditions were normalized. Baldrige maintains that U.S. sales of $5 billion could be readily achieved; the council puts the figure at $10 billion and U.S. business leaders experienced in the Soviet market say that estimate should be doubled. A number of large trade deals, notably in the energy sector, could be closed quickly if U.S. government approval were forthcoming.

Current U.S. policy toward Soviet trade is clearly contradictory--somewhat like the boy who waxes enthusiastic about the race but will only compete if he can make all the rules. To transform our new pro-trade rhetoric into reality and achieve the stability that expanded economic relations might bring to the bilateral relationship, the United States must remove some of the barriers to non-agricultural trade. The obvious starting points are for the Administration to back Baldrige’s efforts to lift the control on the export of oil and gas equipment and for Congress to revise Jackson-Vanik.

The ban on oil and gas equipment could be lifted if the President simply fails to renew the sanctions, which expire later this month. Jackson-Vanik is thornier. The statute should be repealed, but if that is politically unpalatable in an election year, it should at least be modified to give the President discretion in awarding most-favored-nation status if he finds progress toward freer emigration or other human-rights goals. Better yet, Congress could retain a human-rights assessment role, but separate that role from the trade relationship.

For many reasons, the Soviet Union is never likely to become a major U.S. trading partner. But significant growth in the trade relationship is both desirable and achievable. The business community, encouraged by the Administration’s new rhetoric, is ready to explore major deals with the Soviets. It is now time for the Administration and Congress to match the pro-trade rhetoric with new policy, removing the more onerous legal barriers.