76 C&EN JULY 10, 1967
EASTWEST TRADE
A C&EN
FEATURE
There is no reason for U.S. businessmen to act like shoe salesmen in a town full of barefooted children. For them, eastern Europe will not become the boom market that western Europe did
E A R L V . A N D E R S O N , SENIOR ASSOCIATE "Vessels ssels large may venture more
V but little boats should keep near shore." Benjamin Franklin, who has countless such gems to his credit, said that long before Communism was a dirty word. Sage old Ben, the story goes, was talking about fishing. But his words underscore the irony of the highly controversial and increasingly popular topic that is East-West trade. The U.S., largest ship of state afloat in the western world, has barely left the dock when it comes to trading with the Communists, while other western nations, hardly the size of her lifeboats by comparison, have ventured much further much faster. Total trade (that is, two-way trade) of the Free World, including the less-developed countries, with the eastern European bloc hit $12.5 billion in 1965 and has been growing at a healthy 12% per year since 1960. The U.S. share of this total, on the other hand, is barely noticeable at $280 million and has been fairly static with the exception of the bump made by the famous wheat sale in 1964. Most of our Free World trading partners—Britain, West Germany, Canada, Japan, France, even little Netherlands—outdistance us in trade with Communist Europe. Now a groundswell of opinion is erupting from within Government and industry that would change all this. The Administration, quite naturally, has political considerations foremost in its mind. Businessmen, just as naturally, are motivated by visions of increased profit. But whatever the reasons, attitudes toward doing business with Communist countries are swinging conspicuously from distaste to reluctance to desire. The distaste hasn't disappeared completely; nor has the reluctance. But the desire is more prevalent than ever. This desire to tap a virtually untapped market has come noticeably to the surface ever since President Johnson first proposed "building bridges to the East" in 1964. Since then, the East-West trade debate has become
one of the hottest topics in international business. Hardly a meeting with an international flavor goes by without some mention of East-West trade. Many are devoted to that topic alone. Every conceivable argument for and against increased trade with eastern Europe has been repeated countless times. (With very few exceptions, it is universally taken for granted that Cuba, Mainland China, North Korea, and North Vietnam are excluded from the U.S. version of East-West trade.) Conscientious and respected men stand on both sides of the issue. But, while the pros and cons of East-West trade are vigorously debated, scant attention has been given to a question which, for businessmen, is almost as important as "should we?" The question is, is it worth it? A long thread of hard-to-dismiss evidence woven into the East-West trade argument suggests that it may not be—that EastWest trade may be, as one chemical executive put it, "an overpublicized piece of small change." That executive, an international vice president for a large U.S. chemical company, efficiently summed up the
EDITOR
entire, complex East-West trade problem. More cautious than some of his counterparts, he checked to make sure he wasn't speaking for attribution, then said: "Sure, we have been selling to the Communists for about three years now, but not very much and only what the Government allows. We think that our eastern European business will increase, especially if they [the Congress] pass the East-West Trade Act, but it never will amount to very much. That vast, untapped market that everyone is talking about these days will remain untapped for a long, long time. Even with an East-West Trade Act, there are too many obstacles, on their side and ours. Let's face it, the whole issue is 90% political and 10% commercial." 90% political and 10% commercial, says this vice president. His ratio may not be precise because it is next to impossible to apply a yardstick to these terms. However, the emphasis on the political aspects of the East-West trade question is unmistakable. The Miller Report, product of a special committee (the Miller Committee) appointed by President Johnson in 1965 to study
U.S. East-West trade is small compared to others Exports to Sino-Soviet bloc, 1965 Value, % of total millions exports of dollars 4.7% $ 381 Canada 4.2 3,239 European OECD countries* 15.4 247 Austria 3.7 368 France 22.8 75 Greece 5.4 387 Italy 2.0 128 Netherlands 2.9 396 United Kingdom 5.3 970 West Germany 9.8 294 Australia 5.7 478 Japan 42.2 460 Yugoslavia 0.5 139 United States
Imports from Sino-Soviet bloc, 1965 Value, % of total millions imports of dollars $ 52 3,794 232 319 103 477 177 701 980 55 527 370 142
j
0.6% 4.3 11.0 3.1 9.0 6.5 2.4 4.3 5.5 1.6 6.5 28.7 0.7
* Organization for Economic Cooperation and Development. Source: OECD
JULY 10, 1967 C&EN 77
the East-West trade problem, put it in blunt and simple terms: "Trade with eastern Europe is politics in its broadest sense . . . it is not the amount of trade that is important but the politics of offering trade or of withholding trade." More recently, Undersecretary of State Nicholas deB. Katzenbach said, "Where reasons of economic gain might justify it [increased East-West trade], reasons of policy require it." If our international vice president is correct, the "obstacles on their side and ours" preclude any economic gain which might justify increased trade with Communist Europe. In fact, they might prevent any increase in trade itself. These obstacles, and they are formidable, warrant consideration by any U.S. businessman contemplating a quick profit surge in a virgin eastern European market. But it is impossible to consider these obstacles without first considering the policy which Mr. Katzenbach says requires increased trade with the East. That policy is embedded in the Administration's attitude toward EastWest trade, which, although still restrictive, has shifted from permissive to persuasive. It recognizes that fundamental changes are sweeping across eastern Europe and, consequently, favors what the Administration calls "the development of peaceful, nonstrategic trade with the Soviet Union and the other Communist countries of eastern Europe."
Changes in the East These changes in the East, as they are almost affectionately called, include, first and foremost, the MoscowPeking split. More important to the East-West trade issue, however, are developments within the satellite, or bloc countries themselves. A discernible rise in nationalism, political and economic reforms that suggest less direct control from Moscow, a decline in basic ideology, and emphasis on consumer goods and a higher standard of living—developments such as these are influencing the Administration to encourage more friendly contact through trade with eastern European countries. Through such friendly contact, including increased trade, according to the Administration, the U.S. can influence these countries to emulate western practices and drive an even bigger wedge between the satellite countries and the Soviet Union. In fact, many already believe that the term "satellite" no longer has any meaning. "The monolith is dead," is a popular cliche born of East-West trade debates. To be sure, not everybody attaches the significance to these changés that the Administration does. But Foy D. Kohler, Deputy Undersecretary of State who spent seven years in the Soviet Union as Minister-Counselor and Ambassador, reflects the Administration's thinking. He says that, al-
Exhibitions at eastern European trade fairs are one way to advertise products behind the Iron Curtain. This glass-walled structure, built in 1958, is the permanent American pavilion 78 C&EN JULY 10, 1967
though Communism still guides the political and economic systems of eastern Europe, the fact that Khrushchev and Stalin have been rejected indicates that the basic ideology is declining. Mr. Kohler recalls asking an eastern European professor why his ideology died so quickly. The professor replied, "Died so quickly? I think it took too long to die." The professor may be premature in pronouncing his ideology dead, but among the eastern bloc countries, at least, there are signs of growing disenchantment with a planned international economy. In 1949, Stalin created the Council of Mutual Economic Assistance (Comecon) with Bulgaria, Czechoslovakia, East Germany, Hungary, Poland, Romania, and the U.S.S.R. as members. It was Stalin's answer to western Europe's Organization for European Economic Cooperation and the Marshall Plan. More important, Comecon provided Moscow with a vehicle to plan and direct the economy of the group as a whole as well as its individual members. Under Stalin, Comecon was highly protectionist; trade with the western world was held to a minimum. Most of Comecon's trade was internal as each member country pushed, or was pushed, toward specialization or what their economic planners call effective division of labor. Comecon, however, hasn't produced the economic Utopia that its planners
at the Poznan, Poland, fairgrounds. U.S. products are displayed here during the Poznan International Trade Fair. Floor space for display totals 18,000 square feet
had promised. Smaller members resented the uneconomic trade arrangements which Moscow imposed upon them, arrangements which hampered efficiency and stunted their own economic growth. This resentment, coupled with an awakening nationalism, has spurred individual eastern European countries to rely more on their own internal planning systems. Regional economic planning within Comecon isn't extinct, but it is suffering as a result. About 6 3 % of Comecon's trade is still internal, but eastern European trade with the West has more than doubled since 1960. In many eastern European countries, especially Poland, Czechoslovakia, Hungary, and Bulgaria, economic reforms are emphasizing a form, if only a Communist form, of free enterprise and decentralized planning. The profit motive and reinvested earnings are becoming more popular. Some countries now invite outside capital, even western capital, and others have permitted joint ventures with western partners. Even the Soviets expect to experiment further with their Liberman Plan, a profit-motive plan formulated by Prof. Yevsei G. Liberman. Many Westerners interpret these trends as carbon copies of developments in Yugoslavia. Yugoslavia is not a Comecon member. It provided the first chink in the Communist monolithic armor when it turned from Moscow in 1948, and comes as close to capitalism as any Communist country. It is a member of the World Bank, the General Agreement on Tariffs and Trade, and the International Monetary Fund. Peaceful
engagement
The U.S., under President Truman, supported Marshall Tito's Yugoslav brand of Communism and his split with Moscow with both military and economic aid. Now, the Administration believes that developments in eastern Europe warrant launching a new "peace offensive" that includes, but is not limited to, increased trade with the Communist countries. That is what President Johnson's "Bridges to the East" policy is all about. A major misconception that has evolved out of East-West trade debate is that U.S. East-West trade policy is something unto itself, that the issue is either black or white. The attitude has developed that if, for instance, Congress passes an East-West trade bill, trade with eastern Europe will flourish; without such a bill, trade will evaporate. This country's East-West trade policy, however, doesn't stand by itself, nor is it a black-and-white issue. It is
Secretary of Commerce Alexander Trowbridge (right, gesturing with hands) briefs a group of businessmen from the greater Minneapolis area on East-West trade policy. Shortly after the briefing, the group left on a trade mission to the Soviet Union and other eastern European countries. The mission was the first officially sponsored by the Department of Commerce to the Soviet Union
part of overall U.S. foreign policy which includes checking Communist aggression with force if necessary. The point has been tested and proven on many occasions, among them Berlin, Korea, Cuba, and now Vietnam. But U.S. foreign policy also includes more subtle efforts to hold Communist ideology in check and to change it if possible. And it recognizes and has provisions for what has become another popular cliche, "degrees of Communism." This part of foreign policy extends back through three administrations and has expressed itself many times: • In 1956-57, President Eisenhower extended economic aid to Poland. • The U.S. and the Soviet Union in 1958 agreed to exchange scientists, scholars, cultural leaders, and exhibits. • A nuclear test ban treaty was signed in 1963. Bridges to the East In 1964, President Johnson announced his well-publicized intention "to build new bridges to eastern Europe—bridges of ideas, education, culture, trade, technical cooperation, and mutual understanding for world peace and prosperity." Many interpreted these intentions as a new policy. Instead, they were merely an acceleration of existing policy. Many who ordinarily would have supported President Johnson's bridgebuilding program soured on it because of the then-worsening Vietnam situation. Others thought that the moves
were—and still are—politically naive and useless. Nevertheless, the Administration has been able to erect several abutments for its bridge: • In 1964, the U.S. and the Soviet Union signed the Consular Treaty, the first bilateral agreement between the two countries since the end of World War II. It wasn't until this spring, however, that the Senate ratified the treaty. •Also in 1964, the U.S. signed a bilateral agreement with Romania, stripped thousands of products off the restricted list, and extended ExportImport Bank financing to that country. • Last year, the U.S. and the Soviet Union signed an Air Travel Agreement. • Last year was a banner year in easing East-West trade restrictions, too. In October, President Johnson announced that the Ex-Im Bank would begin extending commercial credits for industrial transactions to Czechoslovakia, Hungary, Poland, and Bulgaria. The Ex-Im Bank, said the President, would also stand ready to finance $50 million worth of machine tools for the automobile plant which Fiat is building in Russia. Although the tools, on record, are being sold to Fiat in Italy, there's no doubt about their final destination. The deal, biggest for the U.S. in East-West trade since the wheat sale, received the blessing of the House Banking Subcommittee in February. In October, the Commodity Control List (or positive list) was revised to JULY 10. 1967 C&EN
79
The East-West Trade Relations Act of 1 9 6 6 — instrument of foreign policy or a concession to the Communist world? Before Secretary of State Dean Rusk carried the proposed East-West Trade Relations Act of 1966 to Congress last May, President Johnson said, "The time has come for us to act, and act we should and act we must.11 Congress, however, chose not to act. Instead, the proposed legislation died inconspicuously as S. 3363 in the Senate Finance Committee and as H.R. 15212 in the House Ways and Means Committee. The act, according to its designers, would increase peaceful trade between the U.S. and Communist countries, help private U.S. firms conduct their business with the state trading agencies of these countries, and use this peaceful trade to advance the "long-range interest of the United States in peace and freedom." How would it accomplish all this? By giving the President authority to negotiate commercial agreements with individual Communist countries (except Communist China, North Korea, North Vietnam, Cuba, and East Germany) if it is in the national interest and if the U.S. receives benefits equivalent to those which it grants. These benefits might include adequate protection for U.S. industrial rights and processes, satisfactory arrangements to settle commercial disputes, the right to establish or expand U.S. trade and tourist promotion offices in these countries, and fair access and treatment for U.S. products in eastern markets. Safeguards have been written into the act. It limits each agreement to an initial period of three years, renewable for only three-year periods. Any agreement may be suspended or terminated upon reasonable notice. The East-West Trade Act doesn't alter the provisions of existing legislation dealing with trade with the Communists, such as the Battle Act and the Export Control Act. The most important provision of the act, however, permits the President to grant most-favored-nation (MFN) treatment to imports from Communist nations with which he has signed an agreement under the act. MFN status, however, remains effective only as long as the agreement is in effect.
permit about 400 "nonstrategic" items to move under general license to eastern European countries except East Germany. The products include food and agricultural products, fertilizers, chemicals, and a variety of manufactured items. While these restrictions were being relaxed, the first U.S. trade mission sponsored by the Department of Commerce was touring Bulgaria and Hungary. Time magazine sponsored another trip through eastern Europe for American businessmen, civic leaders, and journalists. And this May, the first U.S.-sponsored mission to the Soviet Union took off for Moscow. Organized by the Greater Minneapolis Chamber of Commerce, it also visited Poland, Romania, Yugoslavia, and Bulgaria. A group of California businessmen followed shortly after the Minneapolis contingent. East-West Trade Relations Act All of these developments helped to fan the East-West trade controversy. Administration spokesmen several ech80 C&EN JULY 10, 1967
elons deep have become the answer to a program chairman's prayer, accepting speaking invitations to promote the Administration's views on increased trade with eastern Europe. And, while they take to the rostrum, they wait patiently for the politically opportune time to resubmit to Congress their pet bridge-building piece of legislation, the East-West Trade Relations Act. Early in 1965, President Johnson appointed the Miller Committee, officially known by the cumbersome title, Special Committee on United States Trade Relations with Eastern European Countries and the Soviet Union, to study exactly what the name implies. J. Irwin Miller, board chairman of Cummins Engine Co., chaired the special committee; hence its popular name. The Miller Committee concluded that trade is one of few channels available for constructive contact with eastern Europe and that selective—it emphasized selectivity—trade with eastern European countries could have a favorable influence upon them. The
committee recommended that the President be given discretionary authority to negotiate commercial agreements with individual Communist countries and to extend nondiscriminatory, mostfavored-nation (MFN) tariff treatment to them in exchange for equivalent concessions. Around the framework of the committee's recommendations, the EastWest Trade Relations Act of 1966 was written and sent to Congress in May 1966. There it died in committee. Congressional pulsetakers think that it's highly unlikely that the Administration will submit a new version of the East-West Trade Act to Congress this year. Vietnam, they say, puts Congress in no mood to act favorably on the bill. The Middle East crisis doesn't help any, either. The Consular Treaty passed by an uncomfortably narrow margin and the Administration doesn't want to risk defeat. When the politically opportune time does come, the task of pushing a new bill through Congress will probably fall to Undersecretary of State Katzenbach, who has a good track record with touchy legislation as Attorney General. Restricted but legal Businessmen anxious to increase their exports to eastern Europe hope, of course, that Congress passes an East-West trade bill, either the one that was submitted last year or one like it. They are anxious, not only for the increased volume of trade that they think will follow, but for the conscience-easing effect that a Congressional blessing will tender. As one foreign trader put it, "It will make selling to the Communists seem more legal." Actually, trade with eastern Europe is and has been legal. Restricted but legal. The restrictions are woven into a web of laws and regulations that frequently are confusing and harassing, and occasionally conflicting. The two principal laws that restrict exports to Communist countries are the Export Control Act of 1949 and the Battle Act of 1951 (see box page 82). Together, they amount to a partial embargo on East-West trade in some cases, a complete embargo in others. An East-West Trade Act probably will not affect these restrictions one way or another. In fact, the EastWest Trade Relations Act of 1966 specifically stated that it would not alter the provisions of the Export Control Act or the Battle Act. Restrictions on items which American companies can sell to Communist countries will remain, and as long as they remain, they will impede large-
scale growth of East-West trade as far as this country is concerned. No doubt because they are such an important aspect of the East-West trade controversy, U.S. restrictions are a focal point of the pro-con debate. One view holds that our embargo, or even a partial embargo, has proved unworkable, is unworkable and unnecessary now, and is politically and morally wrong. Without the muscle of a military operation or a blockade, embargoes are bound to fail. Stalin proved this when he launched his allout campaign to buy up vitally needed materials from anybody willing to sell. Armed with an unlimited supply of hard cash and willing to pay whatever was necessary, he found many "reputable" businessmen willing to find loopholes in the law. A milder form of this argument is that the restrictions made sense when they first were imposed. Those years were the coldest of the cold war years and one crisis after another amounted to a virtual undeclared war. At that time, too, Europe and Japan hadn't recovered completely from World War II and the U.S. was by far the dominant source of materials, technology, and capital. But conditions have changed and so should our restrictions. Many of the materials which U.S. companies are not permitted to sell to Communist countries are freely available from other western nations. And besides, U.S. trade restrictions haven't prevented the impressive buildup of Soviet military strength, nor is offering or withholding trade likely to affect that strength. Those with the opposite point of view have an impressive set of arguments to support their own case: • First, it is nonsensical to believe
National Foreign Trade Council recommends increased East-West trade In its declaration adopted at the 53rd National Foreign Trade Convention last fall, the National Foreign Trade Council recommended increased East-West trade. The NFTC declaration, regarding trade with the Soviet Union and eastern Europe, reads, in part: "Consistent with the views and recommendations set forth by previous National Foreign Trade Conventions, this convention welcomes the renewed initiative of the United States Government in seeking to improve commercial relations with the Soviet Union and the separate countries of eastern Europe. By so doing the United States has demonstrated a clear and sincere desire to enlarge the area of peaceful cooperation between this nation, other western nations and those of eastern Europe, including the Soviet Union. However, the burden is on the latter countries, and on the Soviet Union in particular, to evidence in equally specific terms that they share these objectives and are, in fact, desirous of cooperating toward their fulfillment. Unless and until such indications are freely forthcoming, it is illusory to hope for material growth in trade. Trade, after all, tends to flourish only when mutual t r u s t and confidence prevail. "Subject to these limitations and to those imposed by considerations of national security, military or economic, carefully defined, the convention favors the relaxation of restrictions on export sales of nonstrategic goods and services to the Soviet Union and eastern Europe, and the extension of governmental guarantees on commercial credits to eastern European purchasers, but only if the proposed transactions are commercially initiated and the related credits are to be liquidated in conformity with normal commercial standards. Nothing as yet has occurred to change the convention's basic conviction that the provision of long-term credits to the Soviet Union is tantamount to subsidizing its economic growth and, directly or indirectly, to increasing its economic and military power. "Further, the convention reiterates that any relaxation of restrictions on exports to the Soviet Union and eastern Europe should not be extended to technical information or to products embodying advanced technology or know-how which could contribute to the military or economic power of those countries t o the detriment of the security of western nations."
The declaration committee of the 53rd Nationai Foreign Trade Convention ponders a draft resolution on trade with the Soviet Union and eastern Europe during a drafting ses-
sion last fall at the Waldorf-Astoria, New York City. Robert J. Dixson, chairman of the declaration committee and vice chairman, Johnson & Johnson International, presides JULY 10, 1967 C&EN 81
that withholding trade on moral or political grounds is wrong. Commer cial reasons have always taken a back seat to political reasons when one country trades with another and they always will. It was true in the Ken nedy round, which was initiated by the U.S. not so much for commercial gain as it was to cement a strong At lantic alliance with Europe. And poli tics is even more important in the EastWest trade issue. • Trying to separate the strategic from the nonstrategic is next to im possible. The extreme view is that even buttons can be used on military uniforms. Congressman Glenard P. Lipscomb says that calling it peaceful trade doesn't make it so, and calling something nonstrategic doesn't make it so, either. • There has been too much empha sis on the military aspects of the con trols. Although it is true that Com munist countries, particularly the Soviet Union, have been able to de velop their military capabilities despite U.S. trade restrictions, that doesn't mean that these restrictions didn't make it just a bit more difficult for them to do it. What's more, there is the economic war to consider. According to Rep. Lipscomb, items like fertilizer are as important to the Soviet Union as bul lets. The extra grain that the fertilizer will grow can be exchanged for hard currency which will put the Soviets in a better position to wage economic, if not military warfare against the U.S. We shouldn't, as Rep. Lipscomb puts it, supply the tools to dig our own economic graves. • Denying trade with the Commu nists is at least symbolic of U.S. efforts to resist Communist aggression, even if it isn't as important as military strength. Allowing trade with the Communists bestows a degree of "re spectability" upon them. • We shouldn't loosen our trade re strictions just because our western Al lies have. NATO, COCOM, and other agreements notwithstanding, our Allies trade much more freely with Commu nist countries than does the U.S. This includes countries like Cuba, Mainland China, North Korea, and North Viet nam, upon which the U.S. maintains a virtual embargo. It is true that our controls would be more effective if other western coun tries adhered strictly to them. Never theless, the U.S. should still try to be a leader and not a follower, even if the task is becoming more difficult and frustrating. It might be easier if we were more consistent. It is puzzling to other countries how we can chastize France for trading with Red China and Britain for trading with Cuba 82 C&EN JULY 10, 1967
U.S. traders with Communist countries face The U.S. businessman who exports to or imports from a Communist country is the most regulated businessman in the Free World. He faces an array of trade restrictions that date back to 1917, restrictions which are at best confusing and often overlapping. Opinions regarding these regulations are just as confusing and just as overlapping. They are sensible, foolish, necessary, unnecessary, too strict, not strict enough, needed 10 years ago but not now, depending upon whom you ask. The Trading with the Enemy Act was passed in 1917 and never re pealed. Enacted originally to embargo trade with Germany, the act still allows the President to issue regulations which affect trade and financial deals with Communist countries. Originally, the act was effective only in time of war, but in 1933 it was expanded to include national emer gencies. The U.S. has been in a declared state of emergency since 1941. The act was invoked against Communist China in December 1950, and later was extended to North Korea and North Vietnam. The Johnson Act, passed in 1934, prohibits U.S. citizens or corpora tions from lending money or selling bonds and securities (other than short-term) to any government which is in default on its obligations to the U.S. and is not a member of the International Monetary Fund or the World Bank (International Bank for Reconstruction and Development). However, government agencies such as the Export-Import Bank aren't affected by these regulations, if the President decides that loans are in the nation's interest and notifies Congress. For instance, financing was made available for the controversial $118 million wheat sales to Russia in 1964, but the Russians paid cash, for reasons of their own. Albania and Bulgaria owe no outstanding debts to the U.S.; loans to all other Communist countries come under the Johnson Act. The Export Control Act of 1949 is the principal law regulating exports to Communist countries. Passed when the cold war was going strong, it establishes export controls for both short-supply and security (that is, military and strategic) materials. In 1962, the act was extended to in clude controls on economically significant materials as well. The De partment of Commerce administers the act and maintains a Commodity Control List or "positive list" of products which normally cannot be ex ported to Communist countries. In order to prevent transshipments to these countries, a license is required to sell these products even to friendly countries. However, most exports to Canada do not require a license. Restrictions on exports to Communist China, Cuba, North Korea, and North Vietnam amount to a complete embargo. The Export Control Office issues two kinds of licenses. A general license is a broad authorization to export nonstrategic items contained in the Comprehensive Export Schedule. The exporter doesn't have to ap ply for a license, nor is a document, as such, issued. All products not covered by the general license require a validated license. The exporter must apply for a validated license and exports are limited to the countries stipulated in the license. To control exports of products on the positive list, the office divides the world into seven country groups. Canada, however, isn't included in any country group: Group S—Southern Rhodesia Group Τ—all countries of the Western Hemisphere except Cuba Group W—Poland and Romania Group X—Hong Kong and Macao Group Y—Albania, Bulgaria, Czechoslovakia, East Germany, Estonia,
confusing restrictions dating back to 1917 Hungary, U.S.S.R.
Latvia,
Lithuania, Outer
Mongolia, and the
Group Ζ—Communist China, Cuba, North Korea, and North Vietnam Group V—All other countries excluding Canada The Mutual Defense Assistance Control Act of 1951, or The Battle Act as it is called, supplements the Export Control Act. Its purpose, as spelled out in the act itself, is "to provide for the control by the United States and cooperating foreign nations of exports to any nation or com bination of nations threatening the security of the United States." In fact, it pressures other countries to embargo arms, ammunition, and other strategic materials destined for Communist countries. The pres sure comes from denying military, economic, and financial assistance to countries which don't comply. COCO Μ, a coordinating committee of 15 western allied countries (all NATO countries excluding Iceland and including Japan), is the principal tool for coordinating control of strategic materials in East-West trade. But it has lost much of its punch. The COCOM list of banned items has been revised and shortened so that it has lost much of its original effec tiveness. In the days of Stalin following World War II, the U.S. and six other nations formed a Consultative Group to develop uniform controls on strategic trade with Soviet-dominated areas. Later, seven other coun tries joined the group and, in 1950, the Coordinating Committee (COCOM) was formed as the permanent working committee of CG. After the Korean conflict started in 1950, COCOM extended its controls to include the Communist-dominated areas in the Far East. However, when the Korean truce was signed, and Stalin died, cold war tensions eased and western European countries looked upon the bloc countries as welcome outlets for their restored production facilities. COCOM's In ternational Embargo List was revised downward for Soviet-oriented coun tries of eastern Europe in 1954, but not for Communist Asia. In 1957, all COCOM countries except the U.S. eliminated this China differential and now use the same strategic lists for Communist areas of Europe and Asia. The most recent changes in the International Embargo List be came effective in August 1966. The COCOM lists are the minimum level of controls accepted by COCOM countries. Each country also has its own national lists. Since 1958, there has been a sharp difference between what other countries restrict and what the U.S. restricts. This difference is one of the prime causes of friction over East-West trade policy. The Agricultural Trade Development and Assistance Act of 1954 (P.L. 480) launched the Food for Peace Program. The program is de signed to assist "friendly nations," which generally excludes Communist countries. However, under a section of the act that calls for help to countries trying to free themselves from U.S.S.R. domination, P.L. 480 shipments have been sent to Poland and Yugoslavia. The Trade Expansion Act of 1962, which launched the Kennedy round of trade negotiations, also denies most-favored-nation (MFN) treatment to Communist-controlled countries. This restriction has been in effect, actually, since 1951. However, MFN privileges have been reinstated for Poland and Yugoslavia. Without MFN privileges, products of countries are assessed at duty rates set by the Tariff Act of 1930. This means that they are denied all of the tariff reductions that have been made through the years by various tariff-cutting conferences held by the Gen eral Agreement on Tariffs and Trade.
while we see our way clear to sell wheat to Russia. Eye on the market It's easy to understand why many U.S. businessmen want to put this country's East-West trade policy on the same footing as that of other coun tries. Since 1960, U.S. exports to eastern Europe have grown not at all. They were $194 million in 1960, $198 million in 1966, and topped the $200 million mark in 1964 only because of the special sale of wheat. Chemical exports managed to reach a meager $10 million in 1966. Our allies, meanwhile, have taken giant steps in their trade with eastern Europe. In 1960-65: • Western Europe's exports jumped 56% to $3.3 billion; its chemical ex ports more than doubled to $410 mil lion. • Japan and Canada have increased their exports at a fantastic rate, al though from a much smaller base. Canada's shipments jumped from $36 million to $280 million, while Japan moved from $64 million to $210 mil lion. • Canada's chemical exports are negligible but Japan has managed to parlay its $2 million in chemical ship ments in 1960 to a sizable $27 million in 1965. What is not so easy to understand, however, is that U.S. companies may not be able to enjoy this kind of growth, even if U.S. controls are mini mized. They certainly won't be re moved completely. The clue lies in performance. U.S. restrictions have been eased over a period of years. Roughly a third of U.S. exports to eastern Europe now move under general license rather than validated license (see box page 82). The Export Control Office, which ad ministers the control program, says that many licenses are granted for products which never get to be ex ported. Applications for licenses keep in creasing. Last year, 5330 applications were received for product licenses, 1550 for technical data. Combined, this is 2 1 % higher than in 1965. About 2 5 % more applications were approved in 1966 than there were in 1965. Much fewer were rejected. In fact, of all the applications for export licenses which the Office of Export Control receives, less than 5% by value and 5% by volume are denied. Alex ander Trowbridge, the new Secretary of Commerce, estimates that about 75% of the exports which our western allies ship to eastern Europe would be approved by the Export Control Office. Of course, the restrictions have some effect on the volume of trade. JULY 10, 1967 C&EN
83
Food and raw materials account for most of the U.S/s exports to eastern Europe y. s trade with eastern European countries, 1966, thousands of dollars u.s exports SITCÎ* description or imports Albania Bulgaria Czechoslovakia East Germany Hungary Poland Romania U.S.S.R. Total eastern Europe * 0 1 2 3 4
Ε 1 Ε I Ε I Ε I Ε
ϊ
Ε I Ε I Ε I Ε I
0
1
2
4
5
6
7
8
9
Total
$ 166 3 $ 13 $ 148 $ 2 109 109 6 91 $ 878 $ 4 968 78 3,631 404 310 249 4 44 $ 44 2,409 1,803 775 2 37,240 549 368 6,799 3 $ 283 6,983 370 588 4,581 6,729 21,648 856 18 163 1,861 1,237 1,610 1 99 24,861 252 4,125 904 371 1,545 616 108 7,996 916 587 339 429 11 2,646 173 10,047 466 510 1,139 179 171 67 2,943 806 15,567 6 5,445 1,196 2,448 1,257 480 52,924 6,894 200 6,063 19,700 13 1,007 5,352 212 82,492 1,956 12,796 1,005 1,817 9 27,202 8,434 934 1,497 15 521 1,438 26 4,528 481 23,233 4,883 7,599 1,203 4,080 331 194 41,668 16,214 2 1,397 29,797 19 459 153 48,755 $58,155 $2,560 $13,509 $10,242 $ 5,246 $24,555 $ 3,572 $ 687 $197,737 17 $ 9,400 $62,854 $ 7,680 $15,834 $1,014 $171,021 $25,958 $ 591 $
$ $ 1,586 $ 19 65 1,287 60 26,598 77 1,446 17,066 2,823 69 3 4,945 170 240 25,227 492 42,866 186 249 549 97 48 690 24 $75,769 $3,442 $47,147 $ 526
Standard International Trade Classification Food and live animals Beverages and tobacco Crude materials, inedible, except fuels Mineral fuels lutDricants, and related materials Oils and fats, animal and vegetable
Uncertainty about approval, delays, and red tape all combine to scare away some otherwise certain business. Nevertheless, if the Export Control Office's figures and Mr. Trowbridge's estimate are even approximately cor rect, U.S. companies should be send ing increasingly more material to east ern Europe, even under existing regulations. They aren't and the reasons lie out side U.S. trade restrictions. They lie in the controls the Communist coun tries impose upon East-West trade, in the way they conduct business, in the kinds of products they really want from the U.S., and in their ability—or lack of it—to pay for their purchases. Despite the changes in the East which have helped to spark the entire East-West trade issue, despite the in creasing emphasis on the profit motive and the diminishing influence of Mos cow on the other eastern European countries, centralized planning is still the vogue and a market-oriented economy is still remote. And the argument that the U.S. can influence their political way of life by increasing trade contacts with them seems to be at least counterbalanced by their own belief that they can use trade as a political and economic weapon against us. In 1955, Premier Khrushchev re marked, "We value trade least for eco nomic reasons and more for political reasons." This was only repeating 84 C&EN JULY 10, 1967
3
5 6 7 8 9
Chemicals Mar ufactured goods
