Soviets Fear Most-Favored Status Will Have Little Effect : Commerce: Remnants of old central-planning system continue to plague would-be trading partners.
Soviet leaders are eager for President Bush to grant their country most-favored-nation trading status at next week’s superpower summit, but even their own economists fear that the country’s problems are so grave that there may be no bottom-line benefit.
Although Soviet leaders are committed to moving to a free-market economy, remnants of the old system of central planning continue to plague would-be foreign partners--along with new problems that have come of the changes.
“This year is a turning point for trade because of the possibility that all the obstacles that existed in the past will be abandoned,” said Lev Z. Karpov, director of the economics department of the influential Moscow-based Institute of the U.S.A. and Canada. “There will not be an explosion, but there will be a gradual increase in trade.”
Although American businessmen have been flocking to the Soviet Union over the last few years looking for ways to bring their products to this country’s 290 million consumers, trade between the two countries in the first quarter of 1991 was only $1.7 billion, contrasted with almost $2 billion for the same period last year.
Trade “is the single most glaring untapped area of Soviet-American relations,” Foreign Ministry spokesman Vitaly I. Churkin said in an interview.
Some economists say, however, that the Soviet Union must first make many internal changes before it will be ready for large-scale trade with America.
“We need businessmen,” said Lev L. Lioubimov, head of the North American department of the Institute of World Economy and International Relations. “Our people need a new business mentality. We need political stability. We need a stable legal atmosphere for foreign investors and for domestic business, too.
“Only after this can we develop our economic relations. Then American businessmen will not come to the Soviet Union and go right back home--they will come and stay.”
Other problems for the Soviet Union’s trading partners include:
- The Soviet currency, the ruble, is not convertible to dollars or other foreign currencies, and import earnings are dropping so rapidly that trade must be carried out on the basis of barter.
- Although some laws have been passed to encourage foreign investment, the mechanisms to implement these laws have not yet been worked out, and many legal barriers still exist.
- The expenses of running a business in the Soviet Union are very high because office space is overpriced and everything from telefax paper to furniture must be brought from abroad or purchased here at inflated prices.
- Although the state no longer has a monopoly on exporting and importing, it is still very difficult for fledgling private Soviet firms to get the licenses they need to conduct foreign trade.
- The political situation, although more stable than it was six months ago, is still unpredictable.
“Every day there could be a new decree of the Soviet government, the Russian government or the city government that affects foreign business,” Lioubimov said. “This is not a stable legal situation--it is chaos.”
Some European governments have tried to encourage their companies to do business with the Soviet Union by setting up funds to guarantee their investments.
But “investment is still very risky,” Lioubimov said. “I’m doubtful that your businesses will come here without guarantees from your government, and I don’t think Bush will give these guarantees.”
Other Soviet experts in Soviet-American economic relations, however, say that the American side is at fault for the low level of trade between the two countries because it restricts advanced technology sales to the Soviet Union and has refused to grant it most-favored-nation status.
“Our trade for decades was very unbalanced because the legal circumstances for it were not based on reciprocal benefit or mutual equality,” said Karpov of the U.S.A. and Canada Institute. “Our exports--even in the best year for trade in the last two decades, 1989--were still only one-sixth of our imports from the United States.”
Under the 1974 Jackson-Vanik Amendment, the United States withheld tariff and trade benefits from the Soviet Union because the Soviets did not allow free emigration. This restriction was lifted last year, and Soviet emigration increased dramatically. In addition, the Soviet legislature recently enacted a law guaranteeing virtually all citizens the right to travel abroad and emigrate as of 1993.
The Soviet Union is now hoping that the Bush Administration will ask the Senate to ratify a new Soviet-American trade pact granting this country most-favored-nation trading status, thereby slashing tariffs on Soviet exports to the United States from an average of 34% to 6.7%.
Most-favored status could add between $150 million and $170 million to U.S.-Soviet trade, Igor Mordlinov of the Foreign Economic Relations Ministry told the Reuters news agency.
The peak year for exports and imports between the two countries was 1989, when trade hit $5 billion. In 1990, it fell to $4.2 billion, and if trade continues at the current rate, this year’s figure would be $3.7 billion, according to statistics complied by the U.S. Commerce Department. These figures all exceed the yearly trade average of $2.9 billion during the 1980s.
Lioubimov argues that even with trade incentives and lower tariffs, the Soviet Union cannot be a strong trade partner now, nor could it have been during recent decades.
“Jackson-Vanik was always a great excuse for our (Communist) Party bureaucrats,” Lioubimov said. “Our party bureaucrats could always say that Soviet-American economic relations were not developing because of the Jackson-Vanik clause, but in reality they have not developed because there is nothing to develop. What can we offer to trade?”
The Soviet Union’s economy is not capable of producing enough goods for domestic consumption, let alone for export. In the first half of this year, compared to the same period last year, the gross national product fell 10% and labor productivity dropped 11%, industrial production was down 6.2%, exports were down 23.4% and imports slumped by 48%, according to official statistics.
