Despite Glad-Handing, U.S. Executives Wary of Expanded Soviet Trade

To unsuspecting American executives, today’s U.S.-Soviet business climate might look beguilingly like that of 1972: An election-year summit meeting in Moscow is coming up, and a conservative Republican in the White House is presiding over a warming trend in superpower relations.

The “detente” of the early 1970s is supplanted by Soviet leader Mikhail S. Gorbachev’s even more seductive policy of perestroika-- his promise of a Soviet society and economy restructured to be compatible with Western capitalism. Even more than 16 years ago, a vast, untapped market seems to be waiting for a flood of products labeled “Made in the U.S.A.”

But this year most business leaders, far from unsuspecting, are treading cautiously. They understand the inherent problems of trading with an economy driven not by the forces of the marketplace but by the political imperatives of a centralized bureaucracy.

“For them, trade is a political decision that can just as easily be turned off as on,” said Paula Stern, former chairman of the U.S. International Trade Commission.

Stern was a congressional aide during the 1970s, when Congress helped dampen the earlier U.S.-Soviet trade enthusiasm by insisting that the Soviets first relax their human rights policies and allow greater emigration of Jews and other minorities.

The 1974 Jackson-Vanik amendment, which denied the Soviets favorable trade status until they permitted more emigration, remains on the books today. But for the most part, skepticism in the United States about expanding trade with the Soviet Union is grounded in basic economics.

“There are inherent limits here, simply because the Soviets have so little to offer in trade in return,” said Helmut Sonnenfeldt, a Soviet affairs specialist at the Brookings Institution.

Further, Sonnenfeldt noted, the Soviets still have to rely on the sale of oil and gold for hard currency--except for what they can borrow from the West. He said a recent $2.1-billion line of credit from a West German bank would probably finance a short-term upgrade of Soviet consumer goods production “to get some goods on the shelves to tide over consumer impatience while Gorbachev tries to get his reforms in place.”

Sonnenfeldt, a close aide to Henry A. Kissinger during the heyday of detente, said American business executives are looking at perestroika “with a somewhat jaundiced eye. . . . So long as it remains a command economy, companies are going to realize that there can only be advantages later on--if Gorbachev prevails.”

Likewise, Sen. Bill Bradley (D-N.J.) predicted that U.S. executives would behave “as the cold, calculating capitalists most of them are. They are not romantic capitalists. They aren’t going to invest hundreds of millions of dollars in the Soviet Union until they see whether there is a supply system that works, whether they can maximize profits and repatriate them, hire and fire, and price to market.”

“For now,” Bradley said, “it’s a lot of talk, but not much deal. Companies should be investing in the Soviet Union the same way they would invest in Brazil or Belgium or New Jersey. If you’ve got 500 executives traveling to Moscow instead of to New Jersey, it’s because perestroika is the fashion now. There is curiosity because something is happening, and they go to see what is happening.”

Those 500 executives did not go alone. At the head of their delegation was Commerce Secretary C. William Verity Jr., a former president of Armco Steel, who led the executives in meetings with Soviet officials. The Soviets called for a U.S.-Soviet trade agreement, repeal of the Jackson-Vanik amendment and favored U.S. treatment of Soviet goods.

A trade consortium of seven U.S. companies, including such industrial giants as Ford, Kodak and Chevron, was announced with fanfare. Another major American firm, Honeywell, reached agreement on a joint venture to provide the Soviet mineral fertilizer production ministry with high-tech fertilizer production techniques and equipment. And Armand Hammer of Occidental Petroleum, a leader of the 1970s round of trade enthusiasm, reached a separate joint venture agreement to help the Soviets build two new plants to make plastic products.

Upon his return to Washington, Verity testified to the congressional Commission on Security and Cooperation in Europe that he had no intention of undercutting the Jackson-Vanik amendment.

At the same time, however, he pointed out that as a result of the amendment, Soviet goods reach U.S. markets at a disadvantage because they are hit with high tariffs. He speculated that the Soviets, for example, could successfully penetrate the American market with low-cost small trucks if the tariffs were relaxed.

“Trucks?” marveled Stern, who testified with Verity. “I have no idea what he was talking about.” She said lower tariffs would not help the Soviets sell their trucks because U.S. consumers would not want them at any price.

Tariffs Have No Effect

Jan Vanous, editor of PlanEcon Report, a research digest that tracks Soviet trade with the rest of the world, said tariffs have no effect on Soviet exports. “They are a raw material and energy exporter,” he said, “and the United States will never be a large market for them unless they learn how to play the (trading) game. The ball is in their court.”

During 1986, the last full year for which reliable information is available, PlanEcon reports that gold, oil, natural gas, lumber and diamonds accounted for 73% of all Soviet exports to industrialized free-market countries. That pattern, Vanous said, “is reminiscent of an underdeveloped Third World economy rather than a major industrialized economy.”

Using Soviet statistics, PlanEcon says total Soviet trade with the developed world in 1987 was $44.4 billion, roughly balanced between imports and exports. Its trade with the United States was a minuscule $1.9 billion, including only $442 million in exports. By contrast, U.S. trade with with non-Communist industrial countries exceeded $413 billion in 1987.

Even the enthusiasm generated by the Verity expedition is tempered. Honeywell’s joint venture to help produce chemical fertilizer in the Soviet Union, for example, merely augments a modest, moderately profitable operation that has been in place since the early 1970s. Michael R. Bonsignore, head of Honeywell’s international operations, told Congress earlier this month that the relationship has endured “through peaks and valleys of the (Soviet) political and business environments.”

Even the new Occidental Petroleum joint venture was based on a solid foundation in place from the 1970s. And, as with Honeywell’s operation, the Soviets must pay in hard currency--that is, dollars or other Western currencies, not rubles--for American goods.

James H. Giffen, president of Mercator Corp., which acted as merchant banker to the seven-company consortium announced in Moscow on April 13, declared at the time that formation of the group constituted “an unprecedented first step toward expanding beneficial, non-strategic trade between the United States and the Soviet Union.”

True Rapprochement Needed

A week later, reporting to a House Foreign Affairs subcommittee, he said: “If progress continues to be made, it might well be possible for trade between the two countries to rise from $1 billion per year to $5 billion, $10 billion or even $15 billion per year”--still a tiny fraction of U.S. trade with the rest of the world.

“For trade end economic relations to rise much beyond that point,” Giffen added, “I am afraid there would have to be a true political rapprochement between the two countries, something which will probably take a number of years before it can be accomplished.”

Or as Stern put it: “The Soviets can and do turn off the spigot any time. In the overall scheme of things, . . . this will be a drop in the bucket. I have as much interest as anyone in seeing that trade expand, and I don’t want to retard trade just on the ground it might retard the Soviet military. But I don’t see those 500 executives bringing back that many deals.”