When Trading With the Soviets, U.S. Government Is Bad for Business

Despite the opening of the Soviet Union as a major new market, despite the growing participation of major U.S. players in this market, Washington remains a major obstacle to bilateral progress.

Instead of viewing trade as part of the normalization of the relationship--one that brings more benefits to Washington than to Moscow, at least in terms of balance of payments--the U.S. government acts as though trade is a favor, a special dispensation to be bestowed only if the Soviets behave as we want them to, domestically and internationally.

The United States appears to be suffering from the delusion that by attaching strings to trade, similar to the strings typically attached during the ‘70s on federal grants to states and localities, we can influence or direct social and economic change in the Soviet Union.

Travel by U.S. business executives to Moscow and by Soviet businessmen to the United States has increased tenfold over the past two years. Some deals have been concluded; others are being negotiated in virtually all sectors--natural resource development, energy processing, hotels and tourism, medical equipment, chemicals, retail products, publishing, computers and electronics, even food processing.

U.S. state and local governments, local chambers of commerce and trade associations are exploring the newly opened market with enthusiasm. No surprise. The Soviet Union is the world’s second-largest economy; it has a population of almost 287 million with more rubles than there are products to buy, and it possesses the world’s largest natural-resource base.

Differences between our two economies frequently make it difficult to structure commercial transactions but those difficulties are not insurmountable--and they are not significantly different from difficulties encountered in other countries where the national government plays a major role in the economy and hard currency is either not available or in short supply.

In a recent speech to the U.S.-U.S.S.R Trade and Economic Council, Secretary of Commerce Robert A. Mosbacher carried the conditional U.S. government message on mutual trade.

He was reiterating the President’s position that if the Soviet Union codifies its laws “in accordance with international standards” (as determined by the United States) and implements them faithfully (as determined by the United States), then the Administration will work with Congress for a temporary waiver of the Jackson-Vanik Amendment. That amendment denies a country non-discriminatory tariff treatment if it restricts emigration. This message, hardly reassuring to businesses exploring long-term deals, was put forward as a major concession. Fortunately, a number of congressmen have introduced legislation supporting such a waiver.

Mosbacher also held out prospects of expanded trade with the Soviets if Mikhail S. Gorbachev’s government proceeds with price reform, devaluation of the ruble, decentralization of economic decision-making--and other reforms the Soviets have already declared as policy objectives to be implemented.

The secretary said, “We welcome the words and the beginning steps. We now look for deeds,” reflecting an apparent unawareness of radical reforms under way and the intensity of Soviet efforts to achieve the very goals he specified. The tone of Mosbacher’s remarks suggested that the United States was overseeing these developments as a sort of umpire, in order to determine whether or not U.S. businesses may participate on the newly opened playground. His tone seemed condescending and paternalistic.

Mosbacher also went out of the way to encourage Soviet cooperatives, a promising new form of private business in the Soviet Union. Because of their modest size and lack of manufacturing experience, however, cooperatives are often not ideal candidates for partnerships with major U.S. corporations.

The singling out of cooperatives (as opposed to enterprises, amalgamations, trading companies or other business organizations), is equivalent to the Soviets saying they favor business deals with American ESOPS--employee stock-ownership plans--because they are owned by the workers.

Finally, Mosbacher said at least five times, compounding a tautology, that expansion of trade must be on a commercial basis. None of the corporations in his audience could be accused of being charitable organizations; each ventures into the Soviet market out of economic imperatives. The major element of commercial risk in their participation is the United States itself--with its penchant to impede with trade sanctions and export control.

This is the time for the U.S. government to recognize the scope of Soviet economic reform in progress, as well as the significant market opportunities those reforms present. It is also time to formulate trade policy based on economic facts rather than a misperception that Washington can dictate Soviet domestic behavior.

An appropriate agenda might include:

-- Renegotiation of a bilateral trade and investment protection treaty, similar to the treaties U.S. allies are signing with the Soviets.

-- Renegotiation of the bilateral tax treaty (the current tax treaty does not cover the new business relationships, such as joint ventures, now permitted in the Soviet Union).

-- Repeal of legislative amendments that deny non-discriminatory tariff treatment or that prevent U.S. businesses from access to Export-Import Bank guarantees and credits to support deals made in the Soviet Union.

-- Streamlining of export controls to release products and technology available from other sources and not of direct military application.

-- Constructive encouragement of Soviet participation in the International Monetary Fund and World Bank.

-- Abandonment of the current petulant attitude toward Gorbachev’s economic and political initiatives.

“Commerce,” Benjamin Franklin argued, “is the great civilizer. We exchange ideas when we exchange fabrics.” Trade provides a lubricant that can relax tensions in other fields.

Instead of holding trade hostage to human rights or waiting for the Soviet Union to emulate capitalism, the United States should recognize the political and economic revolution occurring in the Soviet Union, to help create a level, attractive playing field for U.S. companies willing to participate.