To achieve his goal of integrating the Soviet Union into the global economy, General Secretary Mikhail S. Gorbachev has simultaneously centralized Soviet foreign policy while dramatically decentralizing foreign trade policy.
Like Hungary, 20 Soviet ministries and 70 major enterprises now have the right to trade directly with the West and Third World countries. Among the products affected by these radical reforms are automobiles, trucks, petrochemicals and refrigerators. It is now possible for foreign companies to own up to 49 percent of the equity in Soviet joint-venture companies.Repatriation of profits, reinvestment tax incentives, Third World operations, and expropriation protection are all part of the package. These joint ventures may own assets but not land or buildings which would be leased to them by the government. Mitsubishi and Nisho have already proposed joint ventures in lumber and food processing, Mitsui in cutting tools, and Maruichi in snack foods.
The Soviets have recently settled czarist debts to the United Kingdom to facilitate entry into the Eurobond market, sought observer status in the General Agreement on Tariffs and Trade as well as formal ties with the European Community, cooperated with the Organization of Petroleum Exporting Countries to drive up oil prices, and expressed interest in the International Monetary Fund and Chinese-like "special trade zones."
To increase bilateral trade with the Soviets the United States must recognize that the key to increased exports to the Soviets is a willingness to import more from them. The United States should grant most-favored-nation status to the Soviets and drop some of our discriminatory anti-Soviet trade restrictions including export controls, import controls, and credit restrictions. There is mounting evidence to suggest that the costs of these trade barriers far outweigh their benefits and that the real beneficiaries are Japan, West Germany, and China.
The Soviets want to buy more consumer goods, agricultural products, and technology from the United States, but to finance these purchases they must sell more to the United States. Several strategic options are available to them. Huge economies of scale and relatively low labor costs make it possible for the Soviets to be low cost suppliers in a number of U.S. markets including automobiles, chemicals, furniture, refrigerators, and fertilizer. Last year the Soviets sold 112,600 automobiles to the West including 17,000 each to France and the United Kingdom and 16,000 to Belgium. If granted MFN status by the United States, the popular Soviet auto Lada priced at $5,000 could easily penetrate the economy-conscious segment of the U.S. market. The U.S. government's decision to get out of the commercial satellite launching business has created new opportunities for Western European, Chinese, and Soviet firms. Although the Soviet Union's price for launching satellites is the lowest in the world, it is currently barred from launching U.S. satellites by the Reagan administration.
Product differentiation may represent another viable strategic option for the Soviets with products such as helicopters, hydrofoils, laser technology, pharmaceuticals, surgical instruments and furs. The Ka-26 helicopter has achieved a reputation for reliability, performance, and endurance in Japan, Sweden, France, and West Germany. It is best known for its ability to operate under severe weather conditions. Soviet sable, mink, lynx, and polar and silver fox are premium quality furs which command premium prices in the United States. Wines and brandies produced in the Soviet Republic of Georgia are among the best in the world. With relatively little effort, they could find a ready-market among U.S. "yuppies." The same is true of Georgian fabrics and oriental rugs.