U.S. Trade Law Overhaul Threatens to Make Soviet Deals More Difficult

Sarah C. Carey is a Washington attorney who specializes in U.S.-Soviet trade.

Congress is considering a massive overhaul of U.S. trade laws, hoping to create a level playing field for American companies participating in international trade and to open new markets. Like other nations, the United States is intent upon increasing exports and reducing its trade deficit.

Despite these objectives, pending trade bills do little to improve the U.S. position toward a potentially exploding market: the Soviet Union. In fact, several measures included in the bills threaten to worsen the current depressed state of U.S.-Soviet trade. The worst is a prohibition against the import to the United States of seven Soviet products on the grounds that they are produced with forced labor, a proposition that the U.S. State Department has labeled "economic warfare" and that the Commerce Department states cannot be substantiated.

Other measures include the extension of export controls to loans made by U.S. banks to the Soviet Union, the creation of new grounds for unfair-trade-practice challenges to Soviet and other planned economy imports and provisions that would make anti-dumping laws more readily available against imports from the Soviet Union, China and others, even though such imports are already subject to a disproportionate number of anti-dumping challenges.

If enacted, these proposals would overlay existing laws that discriminate against the Soviet Union as a trading partner by denying that country most-favored-nation status (the status shared by most countries, including Hungary and Romania in the Soviet Bloc), by prohibiting U.S. government financing and insurance for U.S.-Soviet trade deals, by limiting private bank credits to support Soviet trade transactions, by barring the import of specific Soviet products such as gold coins and furs and by restricting the export to the Soviet Union of a broad range of U.S. high-tech products.

The signal this legislative statement conveys to the Soviets--and to the rest of the world--is that the U.S. government opposes significant business involvement with the world's second-largest economy. This policy is reflected clearly in bilateral trade figures, declining for the past three years. In 1985 U.S.-Soviet trade totaled $2.8 billion, constituting only 1.9% of the Soviet Union's total foreign trade. Agricultural sales accounted for 77% of the United States total.

Unless a more positive legislative framework is created, U.S. companies will be denied full participation in one of the most significant foreign markets of the decade, opportunities that instead will go to our allies. And if proposals such as an amendment by Sen. William L. Armstrong (R-Colo.) to the pending omnibus trade bill, banning the import of items allegedly produced by slave labor (including agricultural machinery, gold ore, tractor generators, tea, crude petroleum, motor fuel and kerosene) are enacted, the Soviets may well reach the political decision that if they can't sell to the United States they won't buy from the United States and will turn to other markets.

At the same time, new trade opportunities appear from massive Soviet commitments to the modernization of industry and agriculture, combined with the far-reaching economic restructuring initiated by General Secretary Mikhail S. Gorbachev. Soviet and U.S. experts alike agree that the bilateral trade opportunities today far outstrip those of the detente period. Bilateral trade in 1979, at the height of detente, reached $4.5 billion. Projections for the near future range between $10 billion and $15 billion.

Gorbachev's economic reforms include a restructuring of Soviet foreign trade that contemplates direct dealings by ministries and enterprises responsible for manufactured products with overseas trading partners, the encouragement of foreign investment through participation in joint ventures with Soviet partners, decentralization of economic planning, increased autonomy for local enterprises, the creation of performance incentives for factories and workers (with corresponding disincentives for non-performance) and a revamping of the banking and pricing systems. There are plans to make the ruble convertible and to establish stock companies.

Although many of these changes will not be operational until 1998, taken together they open the Soviet economy to Westerners and attempt to make the Soviet foreign trade system more compatible with standard international trade practices. For those companies that can tolerate the ambiguities and risks that accompany massive social and economic reform (certainly superior to the political instability or economic decline that characterizes many foreign markets), the opportunities are significant.

Despite the lack of U.S. government endorsement, U.S. businesses and their Soviet counterparts are prepared to take advantage of the new opportunities, particularly the ability to form joint ventures with Soviet partners. Although public attention has focused on consumer goods, such as Pizza Huts or fashion designs, at least a score of major U.S. concerns (Combustion Engineering of Stamford, Conn., a Fortune 500 firm, last week signed the largest deal with the Soviets to date) are near to closing on joint ventures that will generate millions of dollars in annual earnings for U.S. partners.

The potential created by the Gorbachev economic reforms will not be realized and joint ventures now on the drawing boards will not materialize if U.S. legislation so restricts imports to the United States that the Soviet Union is forced to retaliate by limiting its purchases from the United States. Similarly, a failure by the United States to protect U.S. participants in long-term business relationships with the Soviets--from trade embargoes and sanctions--will make the risk of such endeavors intolerable.

The U.S.-Soviet relationship needs trade--for both political and economic reasons--and U.S. companies need new markets, if our trade deficit is to become manageable. It is time to stop using U.S. trade laws as a vehicle for insulting the Soviets and to begin to design a constructive framework for bilateral trade that protects U.S. strategic interests and, at the same time, encourages and protects trade in non-strategic areas.

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