East-West Trade: Wielding a Tender Sword

The West's most effective weapon in the historic contest with Communism is not its costly and far-flung military establishment, but its superior capacity for economic progress. In a figurative sense, we can only conquer the East with the tender sword of commercial and industrial cooperation, and the human freedoms that go with it. The conquest will be even more tender in that deeply within the psyche it is deeply desired by the victim.

SO writes International Lawyer Samuel Pisar in the introduction to the French version of his new book, Commerce and Coexistence. The book, which has also appeared in West Germany and the U.S., is a comprehensive if sometimes overly optimistic guide to the promises of East-West trade. Its publication could hardly have been better timed. The Soviet Union is in the midst of a shopping spree that may be unparalleled in history.

In an effort to acquire the modern technology that they have failed to develop sufficiently themselves, the Soviets are dangling before the eyes of Western and Japanese businessmen trade deals amounting to some $12 billion over the next few years. They want to buy a heavy-truck factory from West Germany, a freight-containerization system from Britain and petrochemical plants from France. They are negotiating deals totaling more than $1 billion with the British for the construction of copper and nickel plants in Siberia and the modernization of the port of Murmansk. They are buying Italian machines for making a wide range of products, including drip-dry clothing, ice cream and bread sticks. In addition, the Russians hint that they intend to purchase abroad a vast line of equipment to furnish a dozen major airports and 200 smaller fields over the next 20 years.

East-West trade last year accounted for only 3.9% of the world's $273 billion flow of goods. Slight as it seems, the figure is extremely important politically. While the leaders of the Communist countries would certainly resist any attempt by the tender sword to slice into their control at home, they are nonetheless prepared to make diplomatic gestures in order to enhance trading opportunities with the West. The Soviet willingness to reach an accommodation regarding West Berlin (see THE WORLD) and the cordial treatment accorded France's President Georges Pompidou on his recent visit to Moscow reflected the desire for economic and scientific help from the West. Russia has also begun to forge two more economic links by opening trade negotiations in Moscow with Ireland and the Benelux countries.

The American Lag. There is a feast ahead in East-West trade, says Pisar, and he has written his book for those who want to partake of it. A Pole by birth, a survivor of Auschwitz, and a U.S. citizen by a special act of Congress, Pisar was a staff member of the Senate Foreign Trade Committee and later worked for the Kennedy Administration's trade task force. He wrote the proposals on East-West trade that became part of the 1962 Trade Expansion Act. Today, at 41, he is a Paris-based attorney whose clients include Borg Warner, RCA and South Africa's De Beers.

Pisar has served as counsel on many trade deals with the East, including the building of Pan Am's Intercontinental hotels in Bucharest and Budapest. He laments the fact that the U.S. lags far behind Western Europe and Japan in opening up trade with the East bloc. Until now, American corporations have been discouraged by the complexity of dealing with the Communists, as well as by criticism at home from stockholders and customers. The Soviets have sought to buy computers from IBM, but so far the company does not seem eager to do much business with them. Henry Ford was invited to build a truck plant in Russia, but he backed away from the proposal after Defense Secretary Melvin Laird publicly warned that Ford's trucks might ultimately end up rumbling down the Ho Chi Minh Trail. Pisar thinks that that was a mistake. He asks: "What could have been a greater admission of the economic failure of Communism than to invite Henry Ford, the epitome of American capitalism and patriotism, to come to the heart of the Soviet Union to show the Russians how to build trucks?"

Aimed at the Midriff. Pisar argues that increased economic contacts with the West will work important political changes on the Communist system. He rejects the old cold war tenet that trade with the East will enhance its military capacity; he points out that the Soviet Union has attained nuclear parity with the U.S. anyway. "What we sell them goes to their midriffs, not their biceps," says Pisar. "Trade will take the fuses out of their ideology." He believes that "increased trade helps the East to evolve into consumer societies, that a 'fat' Communist is a peaceful Communist."

While overstated, and in part naive as far as Russia is concerned, Pisar's thesis is more relevant to Yugoslavia, Poland and the other Eastern countries, where increased contacts are part of a reform that also entails a measure of political relaxation. A notable exception is Rumania, where President Nicolae Ceausescu combines a liberal, Western-oriented trade policy with a repressive domestic atmosphere at home. By the same token, the Soviet Union may well be shopping abroad for technology simply because it wants to avoid political liberalization.

As Columbia Sovietologist Severyn Bialer points out, if the Soviets were to try developing a wide spectrum of advanced technology on their own, they would have to give Russian scientists a freer climate of inquiry and increased intellectual exchanges with the outside world. The Kremlin's leaders are aware that West German Chancellor Willi Brandt, France's Pompidou and other Western statesmen hope to use trade as a means of converting Soviet society into one that would be consumer-oriented and less militant. But the Soviets are interested in trade only to enhance their economic strength and political power.

Even so, Moscow's decision to buy its way into modern technology represents a sharp break with established Soviet policy. From the mid-1930s onward, Stalin aimed at absolute Soviet autarky and a complete separation of the Communist market from the capitalist one. While Khrushchev bought a few industrial plants from the West, he also was eager to prove Communism's inherent superiority over capitalism by excelling in economic performance without outside help. Leonid Brezhnev and Aleksei Kosygin have been forced to concede that, despite its spectacular performance in space and the military, the Soviet Union remains an underdeveloped country that is lagging ever farther behind the West in petrochemicals, computers and other areas that will be crucial to economic development in the last part of the century.

In a rare use of pressure on Moscow, Eastern European countries helped push Russia to open up trade with the capitalists. The Eastern Europeans, whose industries in some respects are more developed than those in the Soviet Union, are already reaching out for urgently needed Western machinery and technology. Hungary, for example, has 42 joint industrial ventures with Western European firms, and Yugoslavia 28. Since the Russians realize that they cannot halt the present trend in Eastern Europe without a tremendous show of force, they have decided to join it. That way, they hope to exercise a degree of control over the development of East-bloc economic ties with the West.

Western European firms are already benefiting from trade with the East. As a result of Fiat's deal to build an $800 million auto plant in Russia's Togliattigrad on the Volga River, 140 other Italian firms received $200 million in orders for components. A similar fallout should result once Germany's Daimler-Benz and France's Renault begin a projected $1.5 billion heavy-truck plant. For the future, Pisar foresees the development of the "transideological corporation," in which, as he puts it, "capitalist and Communist interests have joint equity in a joint board of directors and joint management." There are several ventures like that already, but the disadvantage for Western businessmen is that the Eastern partner is the state, which retains complete veto rights over the corporation.

Pisar concedes that even "if international tensions could disappear with the wave of a magic wand," a number of obstacles would remain. The greatest is the fact that the Communist nations, with the exception of Yugoslavia, lack hard currency to pay for large-scale purchases from the West. Thus the deals must be worked out either as credit sales or barters. West Germany, Austria and Italy are already delivering pipelines against future deliveries of Ukrainian and Siberian natural gas.

The huge and unbending Communist trade bureaucracy is another barrier. Western businessmen usually must negotiate through trade officials and sometimes never even meet the plant manager who will use the equipment. Often the negotiations are also drawn out and wastefully time consuming. The rigidities of state planning are a further handicap. Recently, one West European automaker offered to sell Czechoslovakia autos at a 5% discount and to throw in three gas stations free--provided that the sale was for at least 6,000 cars. But since Prague's rigid plan called for only 5,648 autos to be bought abroad, the Czechoslovaks bought the smaller number from the automaker and paid a higher total price.

Furious at Washington. The West also maintains barriers. NATO and Japan still have long embargo lists of items, including some sophisticated machine tools and computers. (Thus IBM would have had to get exemptions from the embargo in order to do much business with the East.) Each member of the NATO committee can strongly pressure others to stop sales. Last month the British representatives were furious because Washington refused to allow a sale of two British-made computers worth $12 million to an atom-smashing center near Moscow.

The U.S. has its own, more extensive embargo list; it runs to 200 pages and includes automotive equipment and electronic components, which are in great demand in the East. Last year restrictions on more than 1,000 items were loosened; U.S. sales to the East are expected this year to climb 29% over 1969, reaching $320 million. By contrast, West Europe's sales to the East bloc were $5.8 billion last year, and the figure is rising at a 20% annual rate.

The Americans are being left behind in a market that shrewd Western European and Japanese businessmen obviously feel has potential. Siemens, Daimler-Benz, Renault, Fiat, Hitachi and many others sense a profitable long-term relationship with the East. The U.S. should not, of course, sell equipment of direct military value to the Communist bloc. But in other areas, Washington could sharply pare the embargo list. Equally important, the Administration could extend export insurance to East-bloc countries, much as Western European nations and Japan already do. The U.S. now gives most-favored-nation tariff treatment to Yugoslavia and Poland; Washington should extend that privilege to other Eastern countries as well. Increased trade alone will not bring East-West peace, but it may help U.S. companies. If the Communists cannot buy what they want in Cleveland or Manhattan, they can--and will--get it in Milan or DLisseldorf.

This file is automatically generated by a robot program, so reader's discretion is required.