Gorbachev Chides U.S. Over Trade : Economy: He tells congressmen of Soviet problems and presses for most-favored-nation status enjoyed by China.

In an extraordinary dialogue, Soviet President Mikhail S. Gorbachev expounded to congressional leaders Friday for more than an hour on his nation’s crippled economy and chided the United States for withholding from Moscow the trade benefits already enjoyed by China.

“What should we do for you to give us MFN?” he asked, referring to the most-favored-nation trading status sought by the Soviet Union. Then he added, with sarcasm: “Maybe we should introduce presidential rule in the Baltics and at least fire some rounds in the Baltics.”

The lawmakers listened intently and praised Gorbachev’s eloquence but insisted that Moscow first must relent in response to demands for independence by the Baltic states of Lithuania, Latvia and Estonia before approval of the trade status granting best-possible tariff rates on Soviet imports is assured.

“MFN’s a possibility, but so is snow,” said Senate Republican Leader Bob Dole of Kansas on a day with temperatures in the low 80s.

Later Friday, President Bush announced that the two leaders had signed a trade treaty intended to pave the way to normalized trade relations between the two countries, although it does not grant the most-favored-nation status that Gorbachev wants.

At times combative and at others genial, Gorbachev appeared self-assured and serene despite the economic and political crises bedeviling him at home, lawmakers said after his 90-minute breakfast session with Republican and Democratic leaders of the House and Senate.

“He does not appear to be a man who is beside himself with worry,” said House Democratic leader Richard A. Gephardt of Missouri. “Kind of like if you’re rebuilding your house. It’s a big mess while you’re going through it.”

But Dole added: “I think he desperately wants some give on the trade side. If he doesn’t get it (at the summit meetings), he’ll go home empty-handed.”

Gorbachev argued strongly for “a favorable gesture” from Congress on trade as well as loans to help develop the Soviet economy as it tries to make the transition to a Western-style, market-oriented system.

At the moment, he conceded, trade accords would provide a bigger political benefit than an actual economic advantage, since it would take years to build up what he called the “primitive” level of trade between the United States and the Soviet Union.

“We have a good relationship going, but we need some economic moves, some economic steps now,” the Soviet leader said at the session with legislative leaders.

Then, in a rare critical comment from a foreign leader, Gorbachev added: “We cannot wait for Congress and congressional leadership to mature. . . . Congress is a problem, I think, right now.”

“I am not going to beg for anything,” he declared at the outset of the meeting. “Certainly we are not asking for a free ride. We will be asking for normal credits and of course we will be (re)paying and paying the interest.”

Gorbachev also sharply rebuffed a suggestion by Gephardt that the Soviet legislature should give final approval to a new emigration law before the United States grants most-favored-nation status.

The Soviet leader said the law already has received a preliminary vote of approval.

“If you look at the reality of the situation, its provisions are in effect,” he said. “The flow of emigres from the Soviet Union is practically not braked. . . . Maybe you were looking for a pretext in order to put a brake on this process of adopting most-favored-nation treatment.”

Nearly all U.S. trading partners have been granted the special trading status, which provides lower tariff rates on imports to this country. But a 1974 law known as the Jackson-Vanik Amendment bars restoring it to Communist and East Bloc countries that have been deprived of it for restricting the free emigration of their citizens, unless they do away with the restrictions.

While the morning’s discussion of trade benefits ended in a standoff, the Soviet leader said his government would search for a solution to the Baltic crisis “without extreme measures” that would be consistent with Soviet constitutional processes.

Although Gorbachev said he is positive that Lithuanians would never vote to secede from the Soviet Union, he said that if they did: “Fine, fine, fine--let them do it, and we’ll agree.”

Dole, however, bluntly told Gorbachev that both Democrats and Republicans would raise questions about the Soviet Union’s sanctions against Lithuania as well as its policy toward independence moves by Latvia and Estonia if trade concessions were to be considered.

And Senate Democratic Leader George J. Mitchell (Me.) sharply disputed Gorbachev’s claim that Moscow’s treatment of Lithuania was comparable to the U.S. invasion of Panama to remove strongman Manuel A. Noriega.

“The fact of the matter is that the overwhelming majority of the Panamanian people received gratefully American forces which liberated them,” Mitchell said in response to Gorbachev’s dig. “And while you expressed your opinion that you don’t think that the majority of the Lithuanian people favor independence, I think most of us have a different opinion.”

But Senate Democratic Whip Alan Cranston (Calif.) later praised Gorbachev for restraint on the Lithuanian issue, adding: “He is plainly eager to work it out peacefully.”

The lively exchanges with Gorbachev were televised by Cable News Network, although the American participants said afterward they were not aware their remarks and Gorbachev’s long answers were being broadcast.

In an opening statement and during his replies to questions, the Soviet visitor challenged the widespread feelings in the West that the political and economic ferment in his country is undermining his leadership.

But he acknowledged that more rapid economic improvements are essential in the Soviet Union to keep the country stable.

“We have dismantled the old system, but we have not yet put in place a working system, a new system,” Gorbachev said. “Our ship has lost anchor and therefore we’re all a little sick.”

Soviet citizens, he added, are unprepared for a market-oriented economy and must become involved in the process of change in order to understand it. He suggested a Soviet-American brain-trust of economists and other scholars to help with the transition that he termed a “genuine revolution.”

As an example, he said, government subsidies have made bread so cheap in the Soviet Union--one-tenth the cost of bread in the United States--that it is used as footballs by boys in the street and fed to cattle. While the government plans to raise bread prices on July 1, it will compensate consumers with higher pay.

“People are not against the market per se,” he concluded. “What they want is for this to be done painlessly.”

On other issues, Gorbachev held out the prospect of a Soviet-American joint venture to produce commercial airliners as defense industries in both nations wind down military output in the years ahead.

On the Middle East, he recommended that the Americans start a dialogue with Palestine Liberation Organization Chairman Yasser Arafat as the most likely person to negotiate a peace agreement that would halt hostilities between Israel and Palestinians. The United States has started talks with the PLO through Arafat’s representatives but is considering breaking them off over Wednesday’s abortive raid on beaches near Tel Aviv by guerrillas belonging to a faction of the PLO.

Gorbachev said the Soviet Union is ready to guarantee the sovereignty of all nations in the region and recognize Israel if Israel would agree to an international conference to discuss Middle East disputes.