US-SOVIET TRADE: POLITICAL AND ECONOMIC DETERMINANTS

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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP08S01350R000200520001-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 20
• Document Creation Date: December 22, 2016
• Document Release Date: February 28, 2012
• Sequence Number: 1
• Publication Date: April 1, 1985
• Content Type: REPORT

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Intelligence
US-Soviet Trade:
Political and
Economic Determinants
An Intelligence Assessment
Sccrct
SOV 85-10072X
April 1985
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Directorate of Secret
Intelligence
US-Soviet Trade:
Political and
Economic Determinants
An Intelligence Assessment
This paper was prepared by
Office of Soviet Analysis,
with contributions from SOVA.
Comments and queries are welcome and may be
directed to the Chief, Economic Performance
Division,
Secret
SOV 85-10072X
April 1985
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Key Judgments
Information available
as of 10 April 1985
was used in this report.
US-Soviet Trade:
Political and
Economic Determinants
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The ramifications of the scheduled late May 1985 meeting of the US-
USSR Joint Commercial Commission will be more political than econom-
ic. Although generally disappointed with the contributions of Western
technology and equipment to their overall economy, the Soviets continue to
hope for economic benefit in obtaining US technology and goods. More
important, they view increased trade with the United States as a necessary
adjunct to and facilitator of a general "normalization" of relations. They
also view renewed government-to-government trade negotiations as an
opportunity to gauge US commitment to the process of normalization.
Moscow probably expects the United States to show some flexibility on
trade matters and particularly hopes to obtain access to selected technol-
ogies and equipment. Although the Soviets may not expect substantial
progress on key issues?export control lists or restrictive trade practices?
they will look for, and probably will publicly acclaim, any positive
movement. Moscow thinks that any evidence of improved US-Soviet
economic relations will contribute to the American public's skepticism
about US defense programs and about administration resistance to Soviet
initiatives abroad. Last, the Soviets may hope that prospects of increased
trade could cause affected US businessmen to urge US policymakers to
adopt conciliatory positions on arms control issues or, similarly, to avoid
policy decisions that Moscow might view as hostile?such as stronger
controls by the Coordinating Committee for Multilateral Export Control
(COCOM) or an assertive human rights posture.
Although Moscow will undoubtedly agree to some commercial deals over
the next several months, economic realities constrain any rapid growth in
bilateral trade over the next several years:
? Moscow has developed alternative suppliers in Eastern and Western
Europe to reduce dependence on US goods; their proximity to the USSR,
moreover, gives them a marked advantage in raw materials trade and the
compensation deals that the Soviets favor.
? The Soviets will have a smaller capacity for hard currency earnings, at
least through 1990?largely a result of constraints on oil exports. Even if
monies were available, Moscow would continue to be selective in its
equipment imports, because of past problems in diffusing Western
technology.
iii Secret
soV 85-10072X
April 1985
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? Efforts to interest US businessmen in Soviet exports will probably
continue to be unsuccessful. Under almost any circumstances, however,
the United States will continue to be a major supplier of grain to the
USSR.
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Contents
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Key Judgments
111
Preface
vii
Trends in US-Soviet Trade Relations
1
Seeking Mutual Economic Gains
1
The Changing US Role
1
Soviet Leadership Attitudes Toward US-Soviet Trade
2
Renewed Interest in Trade With the United States
5
Prospects for Increased Bilateral Trade
6
Trade Impediments
6
Outlook for Upcoming Negotiations
8
Appendix
A Review of Soviet Statements on US-Soviet Trade, 1982-85
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Preface
At the May 1984 meeting of the US-USSR Trade and Economic
Council?a private organization composed of US businessmen and Soviet
foreign trade officials?the Soviets pressed hard for the resumption of
government-to-government talks, that is, a meeting of the US-USSR Joint
Commerciai Commission (JCC). Since then, the Soviets have maintained a
generally optimistic attitude about the promise of increased bilateral trade.
They were especially cooperative at the 8-11 January 1985 meeting in
Moscow of the US-USSR Working Group of Experts (under the JCC), and
a 20-21 May JCC meeting date?the first in six years?has been set.
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US-Soviet Trade:
Political and
Economic Determinants
Trends in US-Soviet Trade Relations
Seeking Mutual Economic Gains
Despite impressive economic growth in the 1960s,
Soviet leaders realized that the USSR lagged far
behind the West, especially the United States, in
areas such as computers, precision machine tools, and
energy equipment. They hoped that increased trade
with the West would help close the technology gap
and spur productivity growth throughout the econo-
my. In late 1973, Leonid Brezhnev described large-
scale cooperation between East and West as an
absolute "prerequisite" for coping with the
"scientific-technical revolution." Moscow apparently
also believed that increased trade with the West
would help raise domestic living standards. In particu-
lar, the Brezhnev program for upgrading the Soviet
diet and repeated serious harvest shortfalls required
large imports of Western agricultural products.
Expectations for large gains from increased East-
West trade were also high among Western business-
men. They viewed the USSR as an outlet for equip-
ment and machinery from underused capital goods
industries in the developed West and as a large
potential market for consumer goods. They also saw
the USSR as an important new source of energy
supplies and, to a lesser extent, of timber, various ores
and metals, diamonds, and other raw materials.
The Changing US Role
In the early 1970s, Moscow began to give preference
to US goods both for economic and political reasons,
often instructing its foreign trade organizations to
give priority to US firms. Soviet officials acknowl-
edged that machinery and equipment produced in the
United States were often the best in both quality and
state-of-the-art technology. US firms provided superi-
or aftersales support and service and were often
willing to provide long-term, on-site assistance as
needed as part of a package deal.
Moscow undoubtedly also hoped that the US business
community, which had a growing stake in stable US-
Soviet relations, would be able to exert pressure on the
1
US administration to adopt a more accommodating
posture toward the USSR. One US business leader
exemplified this hope when he said in the mid-1970s
that business leaders formed a strong constituency
capable "of standing up to the Jackson/Vanik alli-
ances and telling Congress that it is backing the
wrong horse?and in such strength that Congress will
listen."
A series of political and economic events beginning in
the mid-1970s changed both the volume and mood of
bilateral trade. As the Soviets accumulated experi-
ence with Western imports, they became more skepti-
cal that Western equipment and technology could
bring large gains in Soviet economic growth. They
were particularly disappointed at the slow pace of its
assimilation and its limited impact on other sectors.
This disappointment made a financially conservative
leadership in Moscow loath to support a continued
runup in its debt to the West. Soviet gross debt to the
West rose from $1.8 billion at the end of 1970 to
nearly $17 billion at the end of 1978. As a result, the
Soviets began to cut back significantly on new orders
in an attempt to put their financial house in order.
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US businessmen in general were reluctant to accept
deliveries of Soviet nonenergy exports in payment for
Western equipment and technology?the so-called
compensation agreements increasingly favored by
Moscow. Long distances made energy and raw mate-
rial exports impractical; manufactured exports did not
satisfy Western demands for production flexibility,
appearance, quality, spare parts availability, and af-
tersales services.
Politics also led to a slowdown in trade. The Steven-
son amendment to the Export-Import Bank Acts of
1974 made most-favored-nation (MFN) status a pre-
requisite for access to US Government credits and set
a ceiling on the amount of those credits. The Jackson-
Vanik amendment to the Trade Act of 1974, in turn,
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Table 1
USSR: Machinery and Equipment Orders
Million US $
1976
1977
1978
1979
1980
1981
1982
1983
1984
Total
6,000
3,800
2,800
2,675
2,600
6,870
3,745
2,237
1,091
US dollar share
785
311
560
277
232
267
86
27
71
US percent share
13
8
20
10
9
4
2
1
7
Energy equipment
1,700
323
825
190
400
4,320
1,325
835
67
US dollar share
321
97
368
35
21
54
1
1
1
US percent share
19
30
45
18
5
1
NEGL
NEGL
NEGL
Nonenergy equipment
4,300
3,477
1,975
2,485
2,200
2,550
2,420
1,410
1,024
US dollar share
464
214
192
242
211
213
85
21
70
US percent share
11
6
10
10
10
8
4
2
7
linked MFN status for Communist countries to more
liberal emigration policies. Advocates of increased
trade with the USSR did not succeed in removing
these Congressional restrictions. US economic sanc-
tions imposed in January 1980 in retaliation for the
Soviet invasion of Afghanistan and in December 1981
in response to the Soviet role in the imposition of
martial law in Poland were a further restraint on
bilateral trade. They also demonstrated the limits on
Moscow's ability to enlist US businessmen in support
of Soviet efforts to influence US policy.
These factors led to a stagnation in US-Soviet trade.
US machinery and equipment sales suffered the most,
plunging from a peak share of 20 percent of Soviet
orders in 1978 to about 1 percent in 1983 (see table 1).
US-Soviet agricultural trade,' despite the partial
grain embargo from January 1980 to April 1981, did
not suffer as much. Although the Soviets have suc-
cessfully diversified their sources of grain supplies,
Moscow can only partially meet its grain needs
elsewhere, especially in years of large grain imports.
As a result, the USSR continues to be the single
largest buyer of US grain (see table 2). In the July
1984?June 1985 marketing year, Moscow has already
'US-Soviet grain trade is conducted within the framework of a
long-term agreement (LTA) that specifies minimum urchase
requirements. The current LTA will run until 1988.
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committed itself to the purchase of more than 20
million metric tons of US grain at a cost of about $3
billion.
The loss of the United States as a major supplier of
machinery and equipment has not been without its
costs to Moscow. Despite the fact that US machinery
and equipment sales to the USSR have never been
significant either in dollars or as a share of total US
sales, they sometimes played a key role in selected
sectors. For example, large-scale joint projects, such
as the Kama River truck plant in the early 1970s and
the Kuybyshev drill-bit plant in the mid-1970s, result-
ed in much-needed products and also provided plant
setup and management models for Soviet planners
and designers to copy.
Soviet Leadership Attitudes
Toward US-Soviet Trade
Brezhnev was an enthusiastic advocate of expanding
East-West commercial ties, including those with the
United States, as an integral part of his detente
policy. As he said in 1976, "economic and scientific-
technical ties with the capitalist states strengthen and
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Table 2
USSR: Trends in Trade With
the United States
Million US $
1971-75
(average)
1976-80
(average)
1981
1982
1983
Soviet imports
Total
972
2,523
2,310
2,859
2,120
Agricultural products
590
1,745
1,614
2,146
1,475
Of which:
Grain
572
1,476
1,533
1,931
1,177
Raw materials
27
30
26
5
11
Manufactures
355
748
670
708
634
Of which:
Machinery
239
542
279
234
194
Chemicals
39
62
148
257
234
Soviet exports
Total
153
355
255
214
446
Agricultural products
2
2
3
NEGL
NEGL
Raw materials
44
139
5
1
111
Manufactures
107
214
247
213
335
Of which:
Chemicals
15
45
89
96
140
Source: Official Soviet foreign trade data.
broaden the material basis of the policy of peaceful
coexistence." Bullish prospects for trade with the
West were enshrined in the 1976-80 five-year plan.
As subsequent events unfolded?growing Soviet in-
debtedness, the Soviet perception of US linkage of
trade with political concessions, and so on?the Soviet
leadership developed a more jaundiced view of the
benefits of such trade and became acutely aware of
their vulnerability to Western economic pressures:
? The draft guidelines for 1981-85 outlined trade only
"with those developed capitalist countries that show
an interest in cooperation with the Soviet Union."
This constraint seemed to be aimed primarily
against the United States. Gosplan Chairman N.
Baybakov, at the October 1980 meeting of the
Supreme Soviet, deliberately omitted the United
States from a list of Western countries targeted for
product buy-back agreements.
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? Premier N. Tikhonov, in a speech to the 26th Party
Congress in 1981, made it clear that Moscow would
henceforth be more selective in its trading partners.
Moscow would give its business primarily to coun-
tries taking "a constructive approach to internation-
al economic cooperation," which, he added, thus far
excluded the United States.
Brezhnev's successors have taken an equally cautious
line on East-West trade in general and trade with the
United States in particular:
? At a Warsaw Pact Summit in January 1983, Gener-
al Secretary Yu. Andropov reportedly called for
reducing the dependence of all CEMA countries on
Western technology and credits. In December 1983,
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Soviet Conduct of Trade Relations
The Soviet Union generally sets the tone for and tries
to define the scope of its bilateral economic relation-
ships with Western countries by insisting on the
establishment of joint (or mixed) commercial com-
missions. Composed of midlevel and high-level repre-
sentatives of the respective governments, the delega-
tions to these commissions generally are able to sign
long-term trade agreements or to commit their gov-
ernments to the promotion of bilateral trade through
legislation, financing, or other means. For the most
part, these commissions meet on a regular basis?at
least once a year and often more frequently. The
West European and Japanese commissions have?to
various degrees?succeeded in stimulating bilateral
trade over the years. The January 1985 meeting of
the Japanese-Soviet JCC, for example, discussed
future cooperation in several large Siberian develop-
ment projects, and sizable contracts for other projects
were actually concluded during the meeting. The
construction of turnkey production facilities and in-
creased use of compensation agreements were items
on the agenda of the Franco-Soviet Mixed Commer-
cial Commission meeting held in Paris in early April
1985.
The US-USSR Joint Commercial Commission (JCC),
in contrast, has not met for six years?since the
invasion of Afghanistan?and the Soviets have ex-
pressed their unhappiness over this interruption in
government-to-government contact. Soviet officials?
who think of the JCC as the nonagricultural equiva-
lent of the US-USSR Grain Consultations?cite the
absence of such a forum as evidence of the US
propensity to link economic and noneconomic issues.
They claim that there never has been a good business
reason for the commission to cease meeting. Even
when the JCC was meeting regularly, however, the
USSR complained that the United States did not
attach sufficient importance to it.
The US-USSR Trade and Economic Council, a pri-
vate organization, has maintained commercial ties
between the two countries in the intervening period,
but the Soviets have found it to be an unsatisfactory
alternative to the JCC. The Soviets look at trade
with a much longer perspective?thinking in terms of
five- and 10-year plans?than do US businessmen,
who generally come to the negotiating table ready to
discuss a particular sale or contract. Moreover, US
businessmen cannot negotiate most of the policy
issues involved in overall US-Soviet commercial
relations.
Baybakov said that Soviet trade with socialist coun-
tries would increase by 10 percent in 1984, implying
that trade with capitalist countries would drop by
about the same percentage.
? Under General Secretary K. Chernenko, Moscow
continued to blame the United States for the stag-
nation in US-Soviet trade. Deputy Foreign Trade
Minister V. N. Sushkov, for example, said in June
1984 that the decline in bilateral trade relations was
the direct result of "America's continuing attempts
to use trade as an instrument of political pressure."
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Moscow's con-
tinued attempts to use economic issues to drive a
wedge between the United States and its allies. These
attempts received encouragement from the failure of
US efforts to block West European agreements to
purchase large quantities of Soviet natural gas and
from the willingness of West European governments
and corporations subsequently to defy US efforts to
prevent the sale to the USSR of equipment needed for
construction of the Siberia?to?Western Europe natu-
ral gas pipeline. Moscow believes that it has some
degree of leverage with Western Europe because of
the relative importance of its trade with the USSR.
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Potential Trade Leverage
Figure 1
Trade With USSR as a Share of
Total Trade Turnover, 1983
Percent
Italy
West Germany
France
Japan
United Kingdom
United States
Canada
305415 4-85
3 4
The potential for Soviet trade leverage?the ability
to wield influence that results from trade flows?over
the Western Allies appears to vary markedly. US
trade turnover with the USSR compared with total
US trade turnover was little more than 0.5 percent in
1983?one-eighth as much as Italy. The USSR's
potential leverage over the United States and Canada
is even smaller than this chart indicates because
agricultural trade constitutes a substantial portion of
total trade. Both Moscow and the West have tried to
free this trade from linkage with political issues.
Figure 2
USSR: Hard Currency Trade Balance,
Selected Countries, 1983
Billion US $
?2
Japan
Canada
United States
United Kingdom
France
West Germany
Italy
3
305416 4-85
Moreover, the USSR naturally has more leverage
over those countries running deficits in trade with
it?that is, those partners who depend on the USSR
for imports crucial to their domestic economies.
Soviet imports of US and Canadian grain and Japa-
nese pipe and pipelaying equipment have contributed
to repeated and sizable trade deficits with those
countries, while Moscow is running sharp surpluses
with those countries that are heavy importers of
Soviet energy.
Renewed Interest in Trade
With the United States
Against this decidedly unfriendly backdrop, Soviet
foreign trade officials and industrial managers have
recently indicated a renewed interest in expanding
trade relations (see the appendix for a review of the
Soviets' recent statements on bilateral trade). Al-
though US firms so far have been largely frozen out
of the bidding as primary contractors for major
projects during the 12th Five-Year Plan (1986-90),
5
Soviet officials in December 1984 held out prospects
that US firms might play a greater role in that plan
than they had in the 11th Five-Year Plan. They are,
moreover, pressing for rapid resolution of some of the
outstanding trade issues so that Soviet enterprises will
have time to incorporate US imports in their plan
calculations.
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During talks held in early December 1984, a high-
ranking Soviet official and US businessmen visiting
Moscow discussed 15 potential areas of cooperation?
including energy development projects and consumer
goods plants. In January 1985, the Soviet delegation
to the US-USSR Working Group of Experts meeting
in Moscow seemed willing to compromise and to
attempt solutions to longstanding problems?attitudes
that had been missing from official economic contacts
for several years. In fact, a number of small contracts
were awarded to US firms in late January and early
February, and Soviet foreign trade officials have
indicated to the US Commercial Office in Moscow
their willingness to once again participate in joint
commercial seminars. Also, Soviet trade and industry
officials have indicated continued high regard for US
technology and equipment.
This turnabout in Soviet attitudes roughly coincides
with the reversal last fall in Moscow's yearlong
refusal to return to nuclear arms control talks with
the United States. Some Soviet statements
strongly suggest that the two issues are
closely linked in the minds of the Soviet leadership?
that the change in trade policy was prompted in part
by the hope that US businessmen could be used to
influence the US negotiating position:
? Soviet press reporting on the Politburo meeting of 6
December 1984, which considered the results of
visits by two senior US business executives, noted
that Soviet leaders "viewed with understanding" the
interest of US business circles in "normalization."
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Prospects for Increased Bilateral Trade
Trade Impediments
Even if the political atmosphere continues to improve,
major impediments to sharp increases in bilateral
trade remain. They fall into three categories: shifts in
Soviet trade patterns and attitudes that stem directly
from the imposition of Western sanctions; unresolved
trade issues of longstanding concern; and changes in
basic Soviet economic perceptions and capabilities.
Trade Patterns and Attitudes. The Soviets raised the
issue of contract sanctity in response to Western trade
sanctions. They claimed that as long as they are
subject to US Government?imposed trade restrictions
that might force the abrogation of already signed
contracts, they consider US firms to be unreliable
suppliers. The Soviets remain especially bitter about
the January 1980 withdrawal of US export licensing
for the Novo Lipetsk steel mill contract that had been
signed only the month before. They have ventured two
solutions: that the US Government publicly commit
itself to a policy of enforcing sanctions only on future
contracts or, in the absence of such guarantees, that
US firms be willing to guarantee compensatory pay-
ment for interrupted deliveries. Thus far no US firms
have acceded to these demands. Precedent has been
set, however; in recent trade contracts with West
Germany, the Soviets have succeeded in inserting a
10-percent penalty clause for nonperformance that
results from any form of government action.
Partly in response to Western sanctions, new trade
relationships were developed with alternative suppli-
ers?both Eastern and Western?which reduced the
Soviet need and desire for US goods. As Soviet five-
year plans indicated, trade with Eastern Europe has
increased at the expense of trade with the West.
Although East European equipment is generally less
sophisticated than that available in the West, in many
instances it is better than comparable Soviet machin-
ery. For example, the USSR imports a large share of
its computer disk drives from Bulgaria; evidence
suggests that these units are superior in both quality
and level of technology to Soviet-produced disk drives.
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Moreover, manufactured goods produced in Eastern
Europe usually are closer in design and specification
to Soviet machinery and equipment than are Western
goods. Soviet end users have to make do with less than
state-of-the-art technology, but they are sure of even-
tual delivery, conserve limited hard currency re-
sources, and have easy access to the developers and
suppliers of the goods to assist in installation and
assimilation.
The Soviets also have diverted some of the trade
formerly conducted with the United States toward
Western Europe and Japan. This policy has allowed
the USSR to evade Western export controls: the
Soviets correctly perceive that the United States
applies controls more strictly than other Western
countries. Although this shift can be reversed?if
necessary by fiat?many US firms may find them-
selves competing where they previously had a pre-
ferred position in sales to Moscow.
Issues of Longstanding Concern. Trade controls and
the denial of most-favored-nation status are continu-
ing impediments to bilateral trade. Moscow claims
that the export controls imposed by the Coordinating
Committee for Multilateral Export Control
(COCOM) are unpredictable, because items can be
added to or deleted from the restricted list without
warning, and are irrational, because there appear to
be no reasonable or common criteria for generating
the list. In addition, the Soviets complain that they
cannot learn whether the items they would like to buy
will be granted an export license before they enter
into protracted negotiations with US firms. Moscow
has called for the limitation of restrictions to items
that are clearly and unambiguously strategic in na-
ture. In this connection, Soviet trade officials are
closely following the progress of the new Export
Administration Act through the US Congress because
of its relevance for future US policy in COCOM.
The lack of MFN status has been a constant irritant
to US-Soviet commercial contacts since the early
1970s and is particularly galling to Moscow because it
has been awarded to other Communist countries, for
example, Poland and China. Symbolically, it is impor-
tant to Moscow as an acknowledgment that the
United States finally considers the USSR an equal
7
trading partner. Economically, it would mean lower
tariffs on some items as well as access to Eximbank
credits (which are government backed and thus fre-
quently implicitly subsidized). Soviet trade officials
frequently ask rhetorically why they should do busi-
ness with the United States when they can obtain
credits?often at subsidized rates?elsewhere in the
West and also sell elsewhere tariff free. Moscow
insists that the US Congress should grant MFN
status to the USSR without any conditions attached.
Last October, for example, Al'bert V. Mel'nikov, then
acting Soviet trade representative in Washington,
declared that, if the United States was really interest-
ed in the development of bilateral trade, it should
treat the USSR as an equal trading partner in US
markets and normalize conditions both for US exports
to the Soviet Union and for Soviet exports to the
United States?achievable only by granting MFN
status.
Changes in Basic Economic Factors. Since the mid-
1970s, the Soviets' disappointment over the contribu-
tion of Western technology to industrial productivity
growth has cooled their enthusiasm for increased
bilateral trade. The expected growth did not material-
ize, partly because of problems in assimilating both
foreign equipment and new models of Soviet machin-
ery. The Soviet system of acquiring and applying new
technology is flawed at almost every step. It suffers
from inefficient decisionmaking, lack of incentive to
innovate, xenophobic leadership, and protracted con-
struction times. As a result, Moscow has become more
selective in its legal acquisition of Western technol-
ogies, seeking equipment that will, first, increase
defense industry capabilities and, second, break bot-
tlenecks in the energy and agro-industrial sectors.
The continued trade imbalance with the United
States is caused by the dominant US role as a grain
exporter and the Soviet inability to interest the US
business community in its exports. US businessmen
are reluctant to buy Soviet manufactures because of
their poor quality and an unreliable service network.
The US trade surplus is among the largest of any
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country that trades with the USSR. Between 1980
and 1983, the US trade surplus averaged more than
$2 billion annually, and in 1984 it was close to $3
billion. Soviet trade officials, as recently as December
1984, have cited this as a factor that inhibits the
signing of new contracts with US firms.
Finally, the USSR's hard currency import capacity
will be limited by declining oil exports and lower
world oil prices.2 Unless Moscow revises its cautious
borrowing policy, constraints on hard currency oil
exports could well force the USSR to reduce the
volume of imports from hard currency countries at
least through 1990. Although grain trade may be
protected, this factor will seriously limit a revival of
Soviet nongrain imports from the United States.
Setting the Agenda
Deputy Foreign Trade Minister Sushkov clearly indi-
cated some Soviet expectations for the upcoming
Joint Commercial Committee meeting in his discus-
sions with Commerce Secretary Baldridge and Under
Secretary Olmer. He expressed:
? An interest in whether trade would be part of any
subsequent summit, citing that progress in the trade
area could facilitate discussions in other areas as
well.
Outlook for Upcoming Negotiations
The Soviets will probably require some forward move-
ment on contentious trade issues when the JCC meets
in May 1984 as an affirmation of US willingness to
normalize US-Soviet relations. In addition to those
items discussed in this paper, they may table such
agenda items as the US ban on imports of Soviet furs,
the certification of nickel imports from the USSR,
continued US 14-day port call requirements, and US
refusal to recertify Aeroflot flights into this country.
They may be encouraged by recent actions in their
favor?the US Government's failure to ban imports of
selected Soviet goods on the grounds that forced labor
was used in their manufacture, the easing of certain
COCOM restrictions?on personal computers, for
example?and the March 1985 decision by the Inter-
national Trade Commission that Moscow was not
engaging in market disruption practices.
Moscow understands that more serious trade issues?
the granting of MFN status, a major reduction in
trade controls, or government guarantees of contract
sanctity?will probably not be fully resolved soon, but
it expects the United States to work toward their
eventual resolution. The MFN issue is more symbolic
than economic in nature, however, because Soviet
exports to the United States probably would be
affected only marginally. Soviet goods already enter
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A desire to have JCC discussions yield useful
results and forward progress. Although stating that
the USSR was not expecting major improvements,
he?'for the sake of public opinion in the
USSR"?felt it would be useful to see progress on
port access for Soviet ships and easing bans on US
imports of Soviet furs and nickel.
? The potential for US commercial participation in
major industrial projects, while he made it clear
that a major criterion would be assurances that
contracts would be carried out.
the United States either tariff free or at only slightly
higher than MFN rates. Soviet State Bank Chairman
V. Alkhimov appeared relaxed on this issue in Janu-
ary, noting in his discussions with US Department of
Commerce officials that Eximbank interest rates were
approaching the market rate anyway and that the
absence of MFN status released Moscow from any
obligation to repay its outstanding $625 million lend-
lease debt to the United States. Nevertheless, Soviet
negotiators will be looking for some evidence of US
willingness to seriously confront these issues and will
be ready to publicly trumpet even slight progress.
Moscow will also probably expect increased access to
some key equipment and technologies.
If any progress is made on these issues, we should see
some increase in US-Soviet trade from its currently
low level. US firms should benefit from the Soviets'
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acurel
continued need for large-scale imports of Western
technology and manufactured goods despite the disap-
pointing pace of its assimilation and dissemination.
The Soviets' domestic resource stringencies continue
to make intensive growth their primary goal, which
requires the infusion of highly productive new tech-
nologies. Soviet programs to improve the efficiency of
the agricultural sector will not diminish the demand
for US grain imports in the near term. Moreover, the
Soviets will continue to hope for political benefits
from maintaining trade ties with the United States.
It is extremely unlikely, however, that bilateral trade
will ever return to the relative volume or significance
that it enjoyed in the 1970s. The shifts in trade
patterns that Moscow initiated and its determination
not to be vulnerable to Western sanctions are major
impediments to its substantial revival. With the ex-
ception of a few important areas, such as state-of-the-
art offshore drilling equipment, the USSR can go
elsewhere for nearly equivalent machinery and tech-
nology and have these purchases financed by govern-
ment-backed credits. Another serious obstacle, which
will constrain the expansion of East-West trade in
general, is the smaller growth in Soviet import capaci-
ty, at least through 1990. Given the Soviets' desire to
limit their trade dependence on the United States, this
factor will also affect US-Soviet trade.
Moreover, the US business community?focused on
domestic expansion and burned once on Soviet
trade?will probably take a wait-and-see attitude:
? Bankers will remain skeptical of the benefits of
financing US-Soviet trade.
? Firms will continue to look for a major change in
Washington's attitude toward Moscow before com-
mitting themselves to major new trade initiatives.
? Firms will also look for signs from Gorbachev that
the Soviets are willing to lay more favorable founda-
tions for trade, such as allowing Western construc-
tion teams on turnkey projects or improving quality
control on Soviet exports
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Appendix
A Review of Soviet Statements
on US-Soviet Trade, 1982-85
The tenor of Soviet statements on trade with the
United States is difficult to characterize, because
Soviet officials have spoken both positively and nega-
tively, depending on the timing and the audience.
Their statements also have related to a broad range of
goods?from oilfield and other energy equipment to
more conventional food-processing equipment and
technology.
During the US-USSR Trade and Economic Council
(TEC) meetings in Moscow, November 1982, Soviet
officials said that the USSR intended to expand trade
with West European countries and Japan at the
expense of US industry. The officials claimed that
they were concerned that US trade would become
more political and did not want to be left without
well-established and reliable trading partners.
equally serviceable equipment from Western Europe
or Japan.
In early 1983 the Soviet foreign trade organization
Mashinoimport purchased 50 well-completion kits
from a US firm for delivery late in the year. Despite
efforts by Soviet officials to obtain oilfield equipment
from other countries, the well-perforation equipment
will be manufactured in and shipped from US facili-
ties. The Soviet official responsible for negotiating the
purchase said the decision to buy US equipment was
made on the basis of price alone. He indicated,
however, that Soviet officials were still concerned
about a US embargo of oilfield equipment sales to the
USSR, because US policy on granting export licenses
to the USSR is not clearly defined.
During those November meetings, the officials men-
tioned two main areas of trade interest: food process-
ing and agricultural machinery and equipment. The
US delegation presented the Soviets with a list of US-
made items not needing an export license. The head of
Gosplan made it clear that the United States would
not get its share of purchases because it was viewed as
an unreliable trading partner.
In a private meeting with a US member of the TEC in
late 1982, the chairman of the Soviet foreign trade
organization that imports and exports machine tools
and precision instruments inquired about US policy
toward trading with the Soviets and asked whether
COCOM regulations would be relaxed. He noted that
the USSR was extremely reluctant to enter into
purchase agreements for equipment that might not be
delivered. The Soviets see sanctions denying spare
parts and/or service as an additional deterrent to
trade with the United States. In a similar vein,
Nikolay G. Osipov, Deputy Minister of Foreign Trade
and Soviet cochairman of the TEC Small Business
Committee, claimed that US machine tools are highly
regarded in the USSR but that uncertainty about
availability had forced Moscow to manufacture its
own machine tools and spare parts or to obtain
11
In late June 1983, Vladimir N. Sushkov, Deputy
Minister of Foreign Trade, said he was pessimistic
about the future of US-Soviet trade. He indicated
that his pessimism stemmed primarily from conversa-
tions he had conducted with Soviet policymakers, who
were convinced that officials of the US administration
were not seriously interested in developing a disarma-
ment agreement with the Soviet Union. He labeled
the disarmament talks as the most important factor
affecting US-Soviet trade.
Georgiy S. Shchukin, General Director of the Soviet
foreign trade organization Prommashimport, stated
that one of his reasons for traveling to the United
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States in mid-1984 was to negotiate a contract to
purchase a milk carton manufacturing line from a US
company. When asked to provide a shopping list of
other types of US production line equipment that
Prommashimport was interested in purchasing,
Shchukin said he was interested in production lines
for small electromechanical motors, disposable ciga-
rette lighters, and typewriters.
At the World Petroleum Congress in London in
August 1983, Viktor I. Mishchevich, Director of the
Oil and Gas Equipment Department of the State
Committee on Science and Technology, questioned
the ability of US suppliers to guarantee that they
would be able to honor contractual agreements to
supply goods and services to the USSR. Because of
this uncertainty, he said, the Soviets would continue
to favor purchases of European, Canadian, or Japa-
nese oilfield technology over US goods whenever
possible.
During the Agribusiness-USA exhibit in Moscow in
October 1983, Sushkov stated that he had instructed
his subordinates in the Ministry of Foreign Trade and
in Soviet foreign trade organizations to attempt to
meet import requirements not with one-time large
purchases from US companies but with a stream of
small purchases from a variety of firms. In this way,
Sushkov stated, constant communication could be
maintained with the US business community at a
time when political tensions might cause diplomatic
channels to fail.
In late October 1983, Igor' Dubin, deputy chief of the
main administration for exploration of offshore oil
and gas fields of the Ministry of the Gas Industry,
requested price and delivery information on a subsea
production (Christmas tree) completion system. He
specified that the Christmas tree be of British manu-
facture to guarantee uninterrupted delivery?a refer-
ence to past US embargoes.
The Soviet commercial consul at the Soviet Consulate
in San Francisco, Boris M. Gustarev, told
that the USSR planned to be much more selective
about the import of US goods, including food products
formerly imported from the United States. Gustarev
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cited US trade barriers and the failure to grant most-
favored-nation (MFN) status to the USSR as the
primary reasons for the change in policy, and he also
noted the 12-to-1 trade imbalance.
In a late December 1984 meeting with the Austrian
commercial attache in Moscow, US Embassy officials
were told that Deputy Foreign Trade Minister Alek-
sey N. Manzhulo had played down the prospects for
increased Austrian-Soviet trade. Manzhulo indicated
that this resulted from a high-level decision to in-
crease the level of business with the United States at
the expense of other Western trading partners.
In late November 1984, Vladimir A. Yulin, an econo-
mist with the Institute of the USA and Canada of the
USSR Academy of Sciences, insisted
that the United States and the Soviet Union must
improve their trade relations. He agreed that expand-
ed trade would serve as a "peaceful opener" to
bilateral arms negotiations. Above all, Yulin stressed
that the USSR desired MFN status, and he extolled
the desirability of trade.
In a 30 December 1984 article, TASS Washington
correspondent Nikolay Turatenko said the US trade
deficit represents the unwillingness of the United
States to consider the lawful interests of other coun-
tries. He stressed that, although US business circles
were working energetically to put bilateral trade on a
stable basis, lack of MFN status for the USSR and
lack of contract sanctity guarantees remained major
obstacles to increased trade. Turatenko contrasted the
policy of the United States of continuing to exert
economic pressure on the USSR with the Soviet
policy of striving for normalized commercial relations.
Following the conclusion of the Working Group of
Experts meeting in Moscow on 8-10 January 1985,
Soviet delegation leader and Deputy Foreign Trade
Minister Sushkov said the talks confirmed the exis-
tence of broad possibilities for expanded trade. He
said the talks helped to identify the artificial obsta-
cles?none of which are the fault of the USSR?that
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should be removed to normalize conditions for the
development of bilateral trade. Sushkov specifically
cited US unreliability as a supplier because of the
various sanctions and embargoes of recent years and
said this situation had caused the USSR to divert
orders to other countries. Sushkov said the Soviet
Union stands for the extension of good relations with
the United States on the basis of equality and mutual
respect and also for increased trade and economic
contacts, but only if all artificial obstacles on this path
are removed.
A January 8 Izvestiya article by TASS economic
analyst Vladimir Dushenkin described the arrival of
the US delegation to the January 1985 Moscow
meetings and blamed the United States for a unilater-
al end to official trade contacts. Dushenkin noted the
declining share of the United States in Soviet foreign
trade, but he remarked on the renewed interest among
US firms in doing business with the USSR. He said
the progress of the trade talks would depend on how
constructive the US approach turned out to be.
In a private mid-January 1985 meeting with US
officials, Soviet Bank Chairman V. Alkhimov was
optimistic about the potential for US-Soviet trade,
noting especially the new possibilities not present in
years past. He likened the commissioning of the
Baikal-Amur Railway to the opening of the American
West, because it provides new access to valuable raw
materials where before there had been no infrastruc-
ture. Alkhimov was also relatively relaxed on the lack
of MFN treatment. He pointed out that Eximbank
interest rates were approaching the market rate any-
way and that the absence of MFN status released the
USSR from any obligation to repay its outstanding
$625 million lend-lease debt to the United States.
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