C I.Z-.£a7 THE UNITED STATES ROLE IN EAST-WEST TRADE Problems and Prospects ^ T ° f ^ & * r 4TCS Of *" U.S. DEPARTMENT OF COMMERCE Digitized by the Internet Archive in 2012 with funding from LYRASIS Members and Sloan Foundation http://archive.org/details/unitedstatesroleOOunit THE UNITED STATES ROLE IN EAST-WEST TRADE Problems and Prospects An Assessment by Rogers Morton, Secretary of Commerce August 1975 U.S. DEPARTMENT OF COMMERCE For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, D.C., 20402. Price $2.15 In the first part of this decade, the United States began to work actively toward the expansion of trade relations with the Soviet Union, the People's Republic of China and the countries of Eastern Europe. Signif- icant progress has been made. However, the methods — and even the wisdom — of implementing this policy of trade expansion remain at issue in many quarters. The Trade Act of 1974 conditioned further normaliza- tion of commercial relations with the socialist countries on their emigration policies. This has impeded the expansion of our East-West trade, and, moreover, this legislation has been unsuccessful in achieving its humanitarian objectives. President Ford has made clear his position that remedial legislation is urgently needed in our national interest. There are misconceptions and misunderstandings concern- ing East-West trade and the U.S. role in that trade. However, I believe that a careful examination of the issues will lead to a judgment supporting continued efforts to normalize and expand our trading relations with the socialist world. In an effort to contribute to further public dialogue and a better understanding of this area, the Department of Commerce has prepared this assessment of "The U.S. Role in East-West Trade: Problems and Prospects." The basic text and its appendices attempt to define many of the issues and to provide supporting data in a compre- hensive fashion. It is my hope that this mid-decade assessment will aid in examination and resolution of the crucial issues in our East-West trade. Rogers Morton Page I . Introduction , ]_ II. The Potential for East-West Trade 1975-1980 .. 4 A . Recent Trade Volumes 4 B. U.S. Manufactured Good Exports, Volume and Composition 5 C. U.S. Imnorts from the Socialist Countries q D. New Forms of Commercial Transactions Between East and West: "Industrial Cooperation Arrangements" 11 E . Prospects for the Future 16 III . Major Issues Concerning the U.S. Role in East- West Trade 21 A. East-West Trade Controversial in U.S. and the Socialist World 21 B. The Benefits of Trade 25 C. Emigration Issue 28 D. Non-Discriminatory Tariff Treatment 29 E . Credits Issue 32 F. American Sales of Technology 42 IV. Summary and Conclusions 50 APPENDICES : A. History of East-West Trade B. Statistical Appendix C. Prospects for East-West Trade D. Functions and Operations of the Bureau of East-West Trade E. Current Soviet Indebtedness and the Future Availability of Credits from Western Europe and Japan F. Export Controls INTRODUCTION I would like to begin this assessment by clarifying the term "East-West Trade." My observation is that, 'to many individuals it means trade between the U.S. and the Soviet Union. In fact, East-West Trade is a multi-billion dollar exchange of goods and services between more than a dozen industrialized Western nations and nearly a dozen centrally planned socialist economies in Asia and Eastern Europe. 1/ Twelve years ago, in 1963, the two-way volume of this trade was small -- only about $7.3 billion. However, at a 197 4 total of about $43.5 billion it is now about six times the 1963 level, with prospects for continued rapid growth. For many years, the U.S. role in East-West trade was negligible. It is only in the last few years that we have begun to have some involvement, al- though even now the U.S. role is small. Our transi- tion from a passive to a more active role in East- West trade has been controversial and today, the fu- ture role of the U.S. in East-West trade is a subject of national importance and interest. 1/ As used in this assessment the Eastern countries in East-West trade are Bulgaria, Czechoslovakia, German Democratic Republic, Hungary, Poland, Romania, U.S.S.R., Mongolia, People's Republic of China and Albania. The Industrialized Western nations are: Canada, United States, Japan, Austria, Belgium-Luxembourq Denmark, France, Germany, Italy, Netherlands, Norway, Sweden, Switzerland, United Kingdom. Reflecting cold war tensions, commercial contact between the U.S. and the socialist countries was minimal during the decades of the 50 's and 60 's. A shift of U.S. policy began in 1969, when Congress replaced the Export Control Act of 1949 with the Export Administration Act of 1969, which, while con- tinuing some controls for security reasons, added a policy statement encouraging trade with countries with whom we have diplomatic or trading relations . Thus ended a long period of U.S. aloofness to trade with the socialist countries. There followed in 19 71 an ending of the U.S. trade embargo of the PRC and in 1972, a Presidential visit to the People's Republic of China. In 1972 the President visited the Soviet Union, and the following year the Soviet General Secretary, Leonid Brezhnev, returned the visit. Also in the early 1970' s the President and Congress moved to liberalize further export controls and to make available Export-Import Bank financing for the Soviet Union, Poland, and Romania. As a result of these and other Presidential and Congressional actions, U.S. exports to the East rose spectacularly , mainly by reason of a few large grain sales. The newspapers were filled with accounts of enormous prospective transactions by large U.S. corporations. To some it looked like smooth sailing ahead in the renewal and expansion of U.S. commercial relations with the East. But our active role in the trade was so new that we misjudged the speed and ease of its future growth. The euphoria of the early 7 0's ended with the debate over the Trade Act of 1974 and, in January of this year, with the Soviet announcement that it could not bring into force the 1972 U.S .-U.S.S .R. Trade Agreement. Prospects for increased trade with the Soviets and East Europeans, once seemingly so bright, began to dim. Now there is danger that the pendulum of attitudes will swing from euphoria to disillusionment. There are signs that some U.S. firms, confused by their percep- tion of U.S. Government attitudes and policies, and now more cognizant of the problems of doing business with centrally planned economies, are having second thoughts about moving aggressively into socialist country markets. A more detailed tracing of the history of the growth of East-West trade and the changing role of the United States is set forth in Appendix A to this statement. Taking an overview, however, it seems to me that, in the rapid movement of events of the last few years , we may have lost perspective in our view of East-West trade. I submit that, having rushed from hostility and indifference in the 1950's and 60's to euphoria in the early 1970 's, we must be careful now in the mid-1970's not to rush to disillusionment. It is most important that we understand that East-West trade — in its true sense, involving all socialist and Industrialized Western nations -- is going to continue to grow with or without U.S. involvement. We can influence, but not control, its content and its volume. East-West trade is going to be a significant factor in world commerce. While the U.S. role in this trade has been small, it has been controversial in this country. Unless this controversy and the policies that grew out of it can be resolved, our role will probably become even smaller and very significant trading opportunities and markets for U.S. goods may be lost. The potential economic and political effects of the policy choices we will make in the immediate future are so great that they deserve the most careful appraisal. In this assessment I hope to contribute to that appraisal. Part II will briefly analyze the potential of Eastern markets and our penetration of these markets vis-a-vis our Western competitors. In Part III, I will discuss the major issues that must be resolved to facilitate a fuller U.S. participation in East-West trade. I have also included several appendices which provide more detailed information on the subjects treated. II. THE POTENTIAL FOR EAST-WEST TRADE 19 75-19 80 A. Recent Trade Volumes An assessment of the prospects for East-West Trade and the U.S. role in that trade should begin with a brief look at recent trade volumes and an analysis of the current U.S. position. As noted earlier, East-West trade has risen spectac- ularly in recent years. In 1960, total East-West trade turnover was only $5.9 billion. By 19 70 trade between the East and the Industrialized West had grown to $16.1 billion, an increase of nearly 200 percent. Three years later, in 19 73, volume had grown to $30.8 billion, and 1974 volume increased 33.9 percent over 1973 to $43.5 billion. There is every indication that the Soviet Union and the other socialist countries of Eastern Europe and the PRC have decided to expand trade with the outside world as a means to modernize their industrial pro- duction and to increase the living standards of their people. Advance indications are that 19 75 trade with the West will jump markedly over 19 74 and that the new five-year plans, covering the 1976-1980 period, will continue the emphasis on an enlarged role for foreign trade. Thus, there is every reason to believe that East-West commerce will continue to expand in 19 75 and into the years beyond. Our own U.S. role in East-West trade has been small, though a few large grain sales may have given it a different image in the public's mind. U.S. trade with the East for recent years is summarized in Table 1. While U.S. exports to the East reached nearly $2.5 billion in 19 73, the major portion of our sales to the socialist countries have been agricultural goods. For the 1972-74 period, agricultural commodities accounted for nearly 74 percent of our total exports to the socialist group as a whole. Total East-West trade and the U.S. role are graphically portrayed in Chart 1. Chart 2 illustrates the agricultural vs. nonagricultural composition of U.S. exports in recent years. TABLE 1 U.S. TRADE WITH SOCIALIST COUNTRIES EXPORTS Millions of U.S. $ COUNTRY Total 1971 Total 1972 1973 Jan-Jun 1975 Albania Bulgaria Czechoslovakia German Dem. Rep. Hungary- Poland Romania 0.2 0.2 0.5 0.6 4.4 3.2 6.5 22.0 20.3 37.9 48.9 71.9 48.6 27.4 24.9 14.8 28.0 20.9 5.1 27.7 22.4 32.8 56.2 52.1 73.1 111.5 349.3 394.6 252.7 52.4 66.7 116.5 277.1 121.8 Total East Europe 220.4 267 7 605 2 819 9 480 USSR PRC MPR 160.5 483 60 6 2 1 r 187 689 Z 1 1 611 820 Z 9 5 525 147 Z 2 5 Total Socialist Countries 380.9 811 5 2 r 481 4 2 ,252 3 1 ,152 7 GENERAL IMPORTS Millions of U.S. $ 1971 1972 1973 1974 Jan-Jun 1975 Albania 0.3 0.5 0.5 0.5 1.7 Bulgaria 2.6 2.9 4.5 8.4 19.2 Czechoslovakia 23.6 28.0 35.2 45.6 17.0 German Dem.Rep. 10.1 10.3 10.5 14.1 5.0 Hungary 7.8 12.8 16.4 75.4 20.9 Poland 107.2 139.2 181.9 265.9 124.3 Romania 13.8 31.5 55.7 130.5 35.9 Total East Europe 165 4 225 2 304 7 540 4 224 USSR PRC MPR 56 4 8 9 6 95 32 4 3 9 214 64 1 6 8 349 114 1 5 7 5 133 73 8 7 Total Socialist Countries 227 7 353 8 585 1 1 r 006 1 431 5 Trade Balance 153 2 457 7 + 1 r 896 3 + 1 r 246 2 + 721 2 Trade Turnover 608 6 1,16-9 9 3 ,066 5 3 ,258 4 1,584 .2 CHART 1 EAST-WEST TRADE Billions of Dollars 1971 1972 Source: United Nation's data 1973 1974 CHART 2 U.S. EXPORTS TO U.S.S.R., PRC AND EASTERN EUROPE Billions of U.S. Dollars 3.0 _J Agricultural Exports 2.5 | Non-Agricultural Exports 2.48 - 2.25 2.0 1.5 - 1.0 0.88 0.77 - .5 0.51 0.38 0.19 0.17 1971 1972 1973 1974 Source: U.S. Census Bureau data; USDA agricultural, non-agricultural definitions A dollar's worth of agricultural exports has the same balance of trade benefits as a dollar derived from a manufactured goods sale and has beneficial employment effects as well. We expect that there will continue to be substantial agricultural sales in the future, an expectation reinforced by recent Soviet purchases of U.S. grain. While the total value of these sales is large, they nevertheless account for only a small portion of either total production or total U.S. exports of the items concerned. For example, by the end of July, 19 75, Soviet buyers had contracted for delivery of 16 5 million bushels of wheat and 185 million bushels of corn. These wheat sales represent less than 8 percent of total estimated 1975 U.S. production, the corn sales about 3 percent of expected production. Viewed another way, these sales to the U.S.S.R. represent only about 12 percent of our total 1974 exports to the world of wheat and about 14 percent of our corn exports, and should represent about the same portion of our 19 75 exports. The fact that these grain sales, at market prices and without benefit of any governmental credits, have caused such controversy is, I believe, testimony to the existence of misunderstandings by the American public concerning the benefits of East-West trade. B. U.S. MANUFACTURED GOODS EXPORTS, VOLUME COMPOSITION The ability of the U.S. to sell large volumes of agricultural products to the socialist countries and the controversy surrounding these sales has, however, obscured the fact that we are well behind our West European and Japanese competitors in developing exports of our manufactured goods to these countries. In 1973, 72.7 percent of the exports of the industri- alized West to the socialist countries were manufactured goods (SITC 5 through 8) .1/ Of the $12.4 billion total of these manufactured goods, $10.4 billion went to the U.S.S.R. and Eastern Europe and the remaining $2 billion to the People's Republic of China. , , SITC = Standard International Trade Classification, — an international nomenclature for description of the composition of trade. The 1973 shares of manufactured goods exports to each of the socialist countries by the U.S. and each of its competitors in the Industrialized West are shown in Table 2. Of the 19 7 3 Western manufactured goods going to the U.S.S.R. and Eastern Europe, the U.S. supplied only $374 million, giving it 3.6 percent of the total and ranking it tenth behind West Germany (40.9 percent) , France (10.0 percent), Italy (8.7 percent) and Japan, the United Kingdom, Austria, Belgium-Luxembourg, Switzerland and Sweden. In supplying $87 million (4.3 percent) of the West's shipments of manufactured goods to the People's Republic of China, the U.S. ranked fourth behind Japan (50.3 percent), the Federal Republic of Germany (15.3 percent) and the United Kingdom (9.4 percent). In 19 74, our manufactured goods exports to Eastern Europe and the U.S.S.R. rose by some 56 percent over 1973 to $578 million. However, total Western manu- factured goods exports to the same area rose at almost an identical rate, by 53.8 percent, to a new total of nearly $16 billion, while Western manufactured exports to the PRC rose 58.4 percent to $3.17 billion. The result was that the overall U.S. shares and relative standings in 19 74 remained almost identical to 19 73. In exports to the U.S.S.R. and Eastern Europe, our share of the total remained at 3.6 percent and our ranking tenth. Similarly, the U.S. share of manufactured goods exports to the PRC remained at 4.4 percent, although we edged from fourth ranking to third ranking supplier by a very narrow margin. The 19 74 shares of Western exports of manufactured goods to the socialist countries are shown in Table 3. The U.S. trade shares appearing in Tables 2 and 3 will be recognized as low and well below our competitive potential when viewed in the context of the fact that, in 19 73, the United States supplied about 16 percent of the Industrialized West's exports of manufactured goods to the world. 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B 3 H i o * 3 ^ °i a Tl ^1 J N a N u M P u m fa fc h Z CO W ^ Aside from agricultural commodities, U.S. shipments to the socialist countries during the past three years consisted primarily of such manufactured prod- ucts as various machine tools and equipment, pumps and compressors, aircraft and parts, automotive manufacturing equipment, and electrical machinery and apparatus. iy About one-half of all our manufactured goods exports to the socialist countries went to the U.S.S.R., one-third to Eastern Europe, and one-sixth to the People's Republic of China. Our total exports to this area during the three-year period were dis- tributed as follows: 4 2 percent to the Soviet Union, 30 percent to Eastern Europe, and 28 percent to the People's Republic of China. 1/ The composition of our trade with the socialist — countries is described in greater detail in the tables in Appendix B. C . U.S. Imports from the Socialist Countries, Composition and Volume During the last three years (1972-1974) of increasing trade with the socialist nations, the United States has accumulated a surplus on trade with them of almost $3.7 billion. Of this amount, $0.6 billion represented a surplus with Eastern Europe, $1.7 billion with the Soviet Union and almost $1.4 billion with the People's Republic of China. However, our imports from the socialist countries have been rising steadily since 1971, reaching about one percent of our total imports in 19 74. Imports from these countries during the 19 72-19 74 period amounted to over $1.9 billion, of which 55 percent came from Eastern Europe, 34 percent from the Soviet Union, and 11 percent from the People's Republic of China. For the most part, our imports from the socialist countries are raw materials items essential to feed our industrial machine. Additionally, the majority of our manufactured goods imports from these countries tend to be of a low technology nature and compete primarily against other foreign import sources, rather than against U.S. manufactures. Given the enormous unsatisfied consumer goods demands in their own markets, their problems in assimilating new technology and translating it into quality products, and their current lack of experience in selling in competitive markets, it seems apparent that the composition of socialist country exports to the U.S. will remain predominantly raw materials for several years. Further, the manufactures we do import from them will, for many years to come, for the most part simply displace other foreign products. The composition of total 1974 imports from the U.S.S.R. according to End Use Codes appears in Table 4. Table 4 Composition of 1974 U.S. Imports from Union of Soviet Socialist Republics QBE Code Description Foods, Feeds, and Beverages 1 Industrial Supplies and Materials 2 Capital Goods Except Automotive 3 Automotive Vehicles, Parts and Engines 4 Consumer Goods, Non-Food, Except Automotive 5 Imports , NES TOTAL Total 1974 ($ Millions) Percent of Totall/ $ 1.14 .3 328.6 94.0 1.7 .5 0.07 .02 16.9 1.2 4.8 .3 $349.6 100.0 Industrial Supplies and Materials, 2_/ a useful proxy for raw materials, represented 88.8 percent of our imports from the U.S.S.R. in 1973 and 94 percent in 1974. The vast majority of these industrial materials consisted of palladium, platinum, nickel, and petroleum products. Table 5 provides similar End Use Code descriptions of the composition of 19 74 imports from Eastern European countries (less the U.S.S.R.) and our imports from the PRC. Nearly 65 percent of 1974 U.S. imports from the Eastern European countries was foods, feeds and beverages, or industrial sup- plies and materials, while some 77.3 percent of 19 74 imports from the PRC fell into these same categories. Additional detail on the composition of U.S. trade with the socialist countries is provided in Appendix B. 1/ Totals may not add to 100 percent due to rounding. 2/ "Industrial Materials" (End Use Code 1) include: Fuels and lubricants, paper and paper base stocks, textile supplies and materials, industrial chemicals, lumber and other unfinished building materials , unfinished metals associated with durable goods outputs, and nonmetils associated with durable goods outputs. Composition of 1974 U.S. Imports from Eastern Europe and the People'.s Republic of China EE Less USSR OBE Code Description Food, feeds & beverages Industrial supplies & materials Capital goods Automotive vehicles & parts Consumer goods, non-food, except auto Imports NES TOTAL Millions of $ % of Total 1/ Millions of $ % of Totally 108.59 20.1 13.72 12.0 242.33 44.8 74.92 65.3 31.33 5.8 0.05 Z 4.95 0.9 Z Z 151.32 28.0 24.86 21.7 1.90 0.4 100.0 1.18 114.73 1.0 540.42 100.0 V Totals may not add to 10 percent due to rounding. 11 II. D. New Forms of Commercial Interaction Between East and West; "Industrial Cooperation Arrangements " The expansion of commerce between East and West involves more than a series of discrete export and import transactions between Western firms and the foreign trade organizations of the socialist countries. While the major portion of East-West trade continues to be individually negotiated import and export transactions, there is an ever increasing volume of commerce occurring under agreements that bind Western firms and socialist countries into longer term relationships that have come to be known as "Industrial Cooperation (IC) Arrangements." Basically, industrial cooperation, in an East-West trade context, denotes the economic relationships and activities arising from contracts extending over a number of years, between partners belonging to different economic systems, which go beyond the straightforward sale or purchase of goods and services. It includes those transactions in which the Eastern and Western parties engage in complementary or reciprocally matching operations in production, in the development and exchange of technology, in marketing, etc. While there is no fixed definition of IC, the following forms of business relationships are generally included: -- Licensing with payment in resultant products — Supply of complete plants or production lines with payments in resultant products (turn-key projects) — Co-production and specialization — Joint ventures (where permitted) -- Joint tendering or joint construction or similar projects. By some definitions, licensing arrangements, with lump sum cash or royalty payments, are also considered to be IC arrangements. In commerce between market economies, there is a relatively free flow of investment capital and technology across national borders in the normal process of foreign investment. In the socialist countries, however, the means of production are owned by the state and, although there are some exceptions in which minority interests can be owned by foreign parties, foreign investment is generally prohibited. IC arrangements are, therefore, to some degree a substitute means by which Western firms 12 can penetrate socialist markets and earn an additional return on their investment in the research and development of the technology involved. Although IC agreements are by no means limited to East- West trade, the large and increasing number of such agreements suggests that they may provide an especially effective vehicle for trade between Western market economies and the centrally planned socialist economies of the East. In most instances where IC arrangements are undertaken, the socialist country partner has achieved a relatively advanced stage of industrial production, but seeks to expand and/or upgrade its capabilities. The socialist partner may also lack the hard currency resources which would make possible long-term purchase from the West of finished goods or components, or the outright purchase of Western technology and/or equipment for domestic production of the end-product. By reason of their long-term nature and the frequently used product payback arrangements, IC arrangements provide a means whereby the socialist countries can, effectively, enlarge their current import capabilities within existing hard currency availabilities. At the same time, the Western partner to an IC arrangement recognizes the socialist country's hard currency problems as a serious obstacle to direct sales to it and sees the IC arrangement as a viable alternative. A host of other considerations may also motivate a Western firm to seek a cooperative arrangement with one or more socialist countries. These include the desire to develop additional sources of raw materials, intermediate items or finished components; and to maximize income from obsolescing or obsolete technology. Based on data developed earlier by the United Nations Economic Commission for Europe,!./ one unofficial source has estimated that there are probably now more than 1/ Analytical report on Industrial Cooperation Among Eastern European countries, Economic Commission for Europe, United Nations, Geneva 1973. 13 1000 such East-West arrangements in existence, involving virtually the entire spectrum of Western industry. However, a recent report from Hungary (one of the two socialist countries which permit limited joint ventures with Western firms) indicates that over 300 industrial cooperation agreements have been signed with Western partners, a figure that makes the 1000 estimate for the whole of Eastern Europe appear conservative. Of the 300 Hungarian agreements, about 170 involve West German firms, whereas probably not more than a half dozen can be attributed to U.S. firms. Our own research tends to confirm that this pattern of lagging U.S. involvement is generally applicable to the socialist countries as a whole. Surveys conducted during 1974/75 indicate that there may be a total of approximately 250 IC agreements between U.S. firms and socialist enterprises falling roughly into the narrow definition of industrial cooperation and perhaps another 75 involving licensing for cash lump sum or royalty payments. Even this relatively small number may overstate the degree of U.S. involvement, however, since it includes approximately 60 agreements negotiated through or managed by European subsidiaries. Research into this relatively new form of commerce between East and West is sparse, and definitions of industrial cooperation vary. Thus, one cannot use estimates by different sources to draw solid comparisons of U.S. involvement vs. that of our Japanese and West European competitors. However, given the data available, there is reason to believe that U.S. firms are playing a relatively small role in industrial cooperation agreements with the socialist countries. The reasons for the relatively small number of U.S. firms involved in this area reflect in part our traditional approach to East-West trade and may importantly influence our future role in that area as well. To begin, the U.S. is a late-comer to the markets of Eastern Europe and the U.S.S.R. : without the benefits of longstanding commercial relationships, the number of U.S. firms able or willing to commit themselves to long- term cooperative arrangements with the socialist countries would be expected to be small. Furthermore, in the past, the maintenance of stringent unilateral export controls placed a handicap on U.S. firms interested in marketing 14 technology and/or associated production equipment in these countries. Initial difficulties regarding adequacy of patent protection (now largely dispelled) and quality control (which now appear manageable) , together with U.S. business' traditional distrust of joint ventures which do not permit majority U.S. ownership, also have probably acted to produce some reluctance to enter into IC agreements . Over the longer term, however, it would seem that the U.S. could enjoy some competitive advantage in industrial cooperation arrangements, especially in licensing and co-production, since U.S. technology is highly respected and recognized as the source of much of the commercial technology currently in use in Europe. Further, in turnkey projects, the U.S. is recognized as perhaps the only logical source of some of the large-scale complexes being sought principally by the Soviet Union, but also by other Eastern European countries as well. Finally, the U.S. is viewed by East Europeans as a rich source of capital and managerial expertise for joint ventures, where these are allowed. There is, therefore, a substantial potential for U.S. firms in IC arrangements given an environment that permits them to compete on an equal basis with West European and Japanese suppliers. Among the actual agreements involving U.S. firms, somewhat over half involve licensing, most frequently for lump sum payment. Although the industry coverage , of these agreements is fairly broad, there are some significant concentrations in non-electrical machinery, chemicals and electrical machinery. It is principally the large multinational U.S. corporations which are involved in cooperative undertakings in more than one of the socialist countries, (of the number identified, 187 agreements involve firms in the Fortune 500 listing) with the greatest number concentrated in the U.S.S.R., followed by Poland, Romania, Hungary, Bulgaria, Czechoslovakia and the German Democratic Republic in that order. Although U.S. firms' motivations for entering into these IC agreements appear to vary, it is evident that Eastern Europe is viewed as a large potential market and that, in most instances, an industrial cooperation agreement appeared as the best, if not the only, entry vehicle compatible with the unique array of legal, political, and commercial problems in the host country. 15 As in other areas of trade with the socialist countries, the U.S. cannot decide whether there will be IC agreements between East and West. It is clear that competing firms in other Western nations seek such agreements and that IC arrangements will grow in number whether or not our U.S. firms are actively involved. If our participation in this new area of trade continues to lag, there will be significant losses to U.S. firms. For the future, there are indications that U.S. involvement is increasing. We have identified some 2 87 additional agreements which are currently being discussed or seriously negotiated. However, the rate at which U.S. involvement expands, and indeed, the ultimate disposition of a substantial portion of those nearly 300 agreements under consideration, may depend on lifting existing legislative restraints on Eximbank lending and the granting of non-discriminatory tariff treatment. If the U.S. is to expand its involvement in this area, a need for Eximbank participation is most evident both in regard to turnkey projects, and in other instances where the U.S. firm would play a sub-contracting role. Absent our ability to compete in financing U.S. exports for these projects, there will be increasing pressure to seek other partners or, in the case of a U.S. partner, to source the capital equipment export from European, Japanese or Canadian subsidiaries which can offer more attractive financing . More importantly, however, the continuation of the present discriminatory tariff structure strikes at one of the essential elements present in virtually all such agreements: the ability of the socialist country importer to pay for the purchase of U.S. technology/equipment through the export of products to the U.S. This also limits the ability of the U.S. partner to utilize Eastern European and Soviet sources as a complement to domestic production. It may also limit the ability of U.S. industry to acquire semi-processed raw materials (at advantageous prices) which embody substantial inputs of energy, and other raw material resources which are in short supply and are vital to several sectors of the U.S. economy. In short, given the present legal environment for trade, the very large commercial potential inherent in such relationships may be lost to the U.S. economy. 16 II. E. Prospects for the Future Prospects for future trade between the United States and socialist countries depend very much on how the U.S. finally resolves its internal debate on our participation in East-West trade. If no action is taken to improve the current legislative environment for trade with the socialist countries, the prospects for full realization of the potential benefits of trade with them appear to be limited. Lacking resolution of current problems, we expect our trade with the Soviet Union to continue growing slowly over the near term, albeit at a lesser rate than earlier. In the years ahead, growth could stop and levels could even decline. Our trade with Poland will probably continue to grow since that country now receives non-discrimina- tory tariff treatment, is eligible for Eximbank and Commodity Credit Corporation (CCC) credits, has large deposits of natural resources that enhance its hard cur- rency capabilities, and has set specific targets for expansion of trade with the U.S. Similarly, strong growth in trade with Romania should occur now that Congress has approved the U.S.- Romanian trade agreement. Romania, like Poland, appears particularly anxious to expand its ties with the U.S. and to improve its industrial capabilities by imports of U.S. goods and technology. With respect to most of the other Eastern European countries ( Bulgaria , Czechoslovakia , German Democratic Republic , and Hungary ) , our mutual trade will probably increase at some marginal rate over the near term, even with current legislative restrictions, if only due to expanded commercial contacts with the U.S. business community and increased political acceptance of trade with the U.S. over the longer term. How- ever, failure to improve the trading environment will at best lead to a slower rate of increase in our trade with these countries and could lead to a stagnation at, or a decline from, current levels. 17 Prospects for trade with the People ' s Republic of China are more complicated because of its current shortage of hard currencies and also because of unsettled political issues. U.S. trade with the PRC will decline in 1975 from 1974 levels, by reason of completion of large grain shipments re- sulting from purchases in 1973, and current hard currency difficulties. Nevertheless, we expect that over the longer term our trade with the PRC will resume its expansion, although probably at a slower rate than the one observed in recent years. Forecasting international trade levels is an ex- tremely hazardous business, particularly in an environment that is uncertain with respect to future trading relationships. But even a crude estimate may be useful in indicating the orders of magnitude achieveable if trade relations are normalized . Over the 1969-74 period, socialist country imports of manufactures from the Industrialized' West in- creased at an average annual rate of nearly 30 percent. Even this relatively high rate has tended to accelerate in more recent years, with the 1974 figure rising about 55 percent over the 1973 level. Although the annual growth rates obviously have varied over time and from country to country, the overall trend of rapidly rising imports of Western manufactures is evident across the board. A recent CIA study, "U.S .S .R. Long-Range Prospects for Hard Currency Trade"l/, deemed possible a Soviet import growth rate over the 197 5-80 period of up to 30 percent annually in current dollars, 20-25 percent per annum in real terms. 1/ "U.S.S.R. Long-Range Prospects for Hard Currency Trade" A (ER) 75-61 of January 1975, DOCEX, Exchange and Gift Division, Library of Congress, Washington, D. C. 20540 Further indication of the increasing momentum of East-West trade can be found in recent data concerning West Germany. Its trade with the Soviet Union, which in 1974 grew at a spectacular rate of 56 percent over 1973, is apparently still gathering momentum in 1975. It has been estimated that the value of contracts signed between Soviet buying agencies and German suppliers during the first three months of this year is equal to one-half total West German exports to the U.S.S.R. during the whole of 1974. In addition, West German exports to the Soviet Union for the January-April 1975 period evidently increased by 56 percent over the same three-month period in 1974. Against this background, a projection of a 15 percent average annual increase in imports from the West through 1980 appears conservative. Even under this assumption, however, by 1980, the annual level of manufactured goods imports from the West would exceed $45.5 billion (almost $21 billion for the Soviet Union alone) . Using the 15 percent annual growth rate assumption total purchases of manufactures from the West over the 1976-80 five-year plan could well exceed $175 billion. We are unable to set a firm figure as to what share of the manufactured goods import market the U.S. should be able to capture. It very much depends on the political and legal environment in which our trade with the socialist countries will take place and there is a high degree of uncertainty now as to what that environment will be in the future. However, we are convinced that the present U.S. market share of less than 4 percent of socialist country manufactured goods imports is too small. Given a more favorable environment provided by U.S. legislation, and an aggressive marketing program by U.S. businessmen, our share could be enlarged consider- ably. In fact, in 1973, the U.S. supplied some 16 percent of the Industrialized West's exports of manu- factured goods to the world. Thus, a U.S. market share for socialist country imports of, say, 10 percent by 1980, might be a reasonable goal and could mean 19 80 manufactured goods exports to the socialist countries of over $4.5 billion, compared with only 19 olightly over $717 million in 1974. The difference is substantial in terms of jobs, balance of pay- ments effects, and the profits needed for the rein- vestment required to keep American industry vital and growing . Appendix C contains a more detailed analysis of the prospects for an increased U.S. role in East-West trade . For the immediate future, I do not expect the dollar value of U.S. exports of manufactured goods to the socialist countries to decline. On the contrary, at least over the near term, these exports should continue to increase for two reasons. First of all, several large transactions begun in previous years are still in the manufacturing pipe- line and have not yet been reflected in our export statistics. These should begin to be reflected in trade statistics in the near future. Secondly, at least for the time being, the U.S.S.R. and other socialist countries will continue to do business with us, on a limited scale, when they have no other good alternative. To the extent that they see purchasing from the U.S. as necessary or particularly beneficial to their economic develop- ment, the Soviets and the East Europeans appear willing to accept the less than favorable conditions we set on such trade. That is, to the extent that their hard currency resources permit, they will con- tinue to buy from us where we have unique technology or capabilities, regardless of our inability to grant competitive credit terms and non-discriminatory tariff treatment. Even though the absolute volume of our exports of manufactured goods in East-West trade might continue to grow, given a continuation of the current trading environment, it is likely that our relative share will continue to decline. In that process, some U.S. firms which could be very competitive in a more favorable trading environment are going to lose some orders, and the U.S. is going to lose some job producing exports. The Soviet Union and the other socialist countries of Eastern Europe are now making the final decisions in the formulation of their five-year plans covering the 1976-1980 period. Involved are decisions about the directions their economic development will take, what lines of industry and services will be emphasized and, accordingly, what kinds of goods, machinery, equipment, processes and technology must be imported during the period in question. By year's end, these plans will be finalized and approved by the top economic managers and by the political leadership. In a centrally planned economy, the quantities and sources of imports are determined by centralized decisions, not by market forces. Planners every- where are uncomfortable with uncertainty and do everything they can to avoid it. Socialist planners are no exception. In the current environment, the U.S. is a large questionmark in the socialist country's evaluation of its potential trading partners. When procurement decisions are made in this kind of environment, we are going to lose some exports that we could have had in a different environment. We are already in a disadvantaged position in East- West trade because of our late start. Personalized trading relationships between Western European busi- nessmen and their counterparts in the Soviet and East European bureaucracies have been established and it will be difficult for us to gain an equal footing. However, there is no better time than the present to begin an effort to capture a larger share of East-West trade. I am hopeful that, after a thorough review of the issues, the Congress will see .fit to provide a trading environment in which U.S. business can compete in the socialist country markets on terms no less competitive than those confronted by Japanese and West European firms. The Department of Commerce and particularly the Bureau of East-West Trade stand ready to assist U.S. busi- nessmen in responding to the challenge of an increased U.S. role in East-West trade. Appendix D describes the functions and recent activities of the Bureau. 21 III. MAJOR ISSUES CONCERNING THE U S. ROLE IN EAST- -WEST TRADE A. East- -West Trade Controve rsia 1 in U .S and the Socialist World The issue of East-West trade has been a controversial one in this country. The emotional involvement of its proponents and opponents has been reflected in the intensity of the political debate surrounding it, both in the Administration and in the Congress. The controversy has not been resolved. With laudable objectives, the 1974 Trade Act linked further U.S. normalization of East-West commercial relations with a goal of "freedom of emigration." Specifically, this was reflected in a provision which prohibited the extension of non-discriminatory tariff treatment and government credits to any non- market economy country which does not permit free emigration. The Soviets, and subsequently most other socialist countries, refused to accept the conditions set out in the Trade Act as prerequisites to further normalization of commercial relations. The controversy over East-West trade continues in other areas as well. Beyond the emigration question, debate continues on the benefits and costs of tradincr with socialist countries; and the national security and economic effects of the sale of goods and technology to them. Additionally, others on the domestic political scene are debating the relative costs and benefits of government export credit support, and whether it is in the best interests of this country to extend normal export financing to our socialist rivals. Given an awareness of the controversy here in the United States over the East-West trade issue, it is important to be cognizant of an analagous debate taking place in the socialist world. There are indications of a debate within the Soviet Union as to whether Soviet trade with the. West (and especially with the U.S.) is in the Soviet Union's best interest; e.g., whether it is in the U.S.S.R. *s best interest to acquire technology from abroad, given the difficulty involved in assimilating that technology into the Soviet production processes. Opponents of expanded trade with the West, particularly trade with the U.S"., argue that by assimilating Western technology into the production process, there is a loss of incentive on the part of Soviet producers to devise new production processes. Moreover, they feel inputs of Western technology could seriously undermine the discipline inherent in a centrally-planned economic system. Furthermore, they believe one strength of a centrally planned economy is its resistance to the business cycles that periodically occur in Western market economies. In fact, the socialist economies have remained relatively free of the inflation and recession afflicting the West. Why, then, ask some Soviet leaders, should the Soviet Union now come to the rescue of the West with orders that will ease Western unemployment and risk importing the West's inflation? Although the details are uncertain, clearly some Soviet debate over the issue of U.S. -Soviet economic relations does exist. The dominant theme of the debate is that the Soviet Union cannot permit itself to become dependent on the U.S. for the technology needed for development. Given the tendencies of most of the other socialist countries of Eastern Europe to parallel the Soviet line on such questions, we can reasonably assume that similar debates are taking place in other socialist countries on political as well as on economic levels. In the other Eastern European countries our with- holding of non-discriminatory tariff treatment and credits might be viewed as a discouraging rebuff to their efforts to develop a more open relationship with the rest of the world. In recent years some have made substantial progress toward such a relationship through increased outside commercial contacts and through expanded participation in international economic organizations such as the GATT. But the world inflation that has raised the cost of raw materials, especially oil, is forcing some East-European countries into a greater economic dependence on the Soviet Union, where they can obtain essential supplies without spending scarce hard currency. The Soviet Union has long sought, through CMEAl/, to foster closer economic ties with the East European countries. The only alternative to tightening ties with the Soviet Union that these countries have is a continuation of the trade relations they have developed with Western countries like the United States. But, with the world inflation consuming their scarce hard currency for vital raw materials and capital equipment, and the increased burden of export commitments to the Soviet Union, their ability to trade with us and expand their Western contacts will be sharply diminished unless we offer them normal non-discriminatory tariff and credit conditions. It is ironical that, after years of pursuing policies that looked to an ultimate outward turning of the socialist bloc, which now seems apparent in its growing interest in international trade, our own actions and policies could support those in the socialist countries who would resist such an outward turning. In the PRC, the desirability of importing Western technology and equipment also has been a principal issue in an internal debate. Although the PRC has adopted a policy of placing heavy emphasis on self-reliance, foreign trade is considered a means to facilitate the implementation of such a policy. In early 19 74 the debate assumed increased intensity. There appears to be a general agreement amonq Chinese leaders that China could benefit from learning the advanced techniques of developed countries, but some of them argue against over- reliance on foreign sources to meet economic plans for growth and modernization. Although the genesis of the most recent debate is not known, it may have been triggered by several factors. One was the desire of Chinese planners to tighten the scrutiny of requests from factories to buy foreign equipment due to a foreign exchange shortage. Another factor might be the concern of Chinese authorities with the possibility that the incentive for the industrial sector to pioneer and propagate new techniques of its own would be dampened if foreign technology and equipment were imported in large quantities. 1/ Council for Mutual Economic Assistance (CMEA) 24 The debate has not resulted in a cessation of imports of technology and equipment. On the contrary, a number of recent official statements issued in Peking indicate that China's continuing policy calls for increasing foreign trade and imports. In sum, at the same time that we Americans have been vigorously debating the pros and cons of East-West trade, a similar debate has been going on in the socialist group. From my perspective, it seems that lacking an awareness of the total international scope of East-West trade, and perhaps also partly because of the emotional content of the related issues, we Americans have not seen the U.S. role in East-West trade in its true proportions. Whereas we may see ourselves as a major force in this trade, we are in reality a "bit player", with a role that may become still smaller in the future if we do not resolve our own internal controversy. 25 B. The Benefits of Trade Notwithstanding some degree of internal debate, there is no doubt but that the Soviet Union and the other socialist countries want to trade with us. And, provided we continue to satisfy national security considerations, we should be similarly interested in trading with them. Technology and industrialization have created an unprecedented degree of economic interdependence among nations. No nation is self-sufficient either in the raw materials and foods it requires to feed its industries and its people, or in the advanced technologies that are vital to the most efficient production of goods and services. Trade is a mechanism by which materials, services and techno- logies can be transmitted peacefully, to the mutual benefit of the trading parties. In more specific economic terms, what do the socialist countries expect to get from us and what do we expect to get from them in an expanded trading relationship? Clearly, the most important export we have to offer and what they want most is the high technology manu- factured goods in which we have strong and sometimes unique capabilities, and the related production technology and know-how itself, which they need to improve their own industrial base and the standard of living of their people. They also need, of course, to import foodstuffs to upgrade the diets of their people, and more important for the long run, food processing and food production technology and equip- ment . The socialist countries have "full employment", and yet their industrial systems are unable to satisfy their own needs for new capital goods, let alone the desires of their citizens for more and better consumer goods. Thus, they do not look upon us as a new market for their goods which would put to work under-utilized industrial capacity and labor resources. Rather, they seek to export as a means of generating the necessary foreign exchange to finance badly needed imports of high technology manufactured goods and services. The fact that we look at the socialist countries in quite the reverse way is a partial testimony to the existence of a natural potential trading relationship. Given that the U.S. has a high capacity to produce, possesses unemployed plant, equipment and labor resources, and is not self- sufficient in raw materials, we see the socialist countries basically as a new market for our manu- factures and agricultural products -- a new market that can put to work unemployed plant, equipment and labor, and also serve as a source of raw materials that must be imported to fuel our indus- trial system. In fact, because of the character of their imports and exports, the socialist countries are, in many ways, ideal trading partners for us. Our exports to them provide an extra return to U.S. industry and create new jobs and benefit our balance of payments. Conversely, our imports from the socialist countries are largely raw materials that must be imported, or low technology manufactured goods that tend to displace some other import, rather than a U.S. manufactured good. Trade between the U.S. and the socialist countries has, to date, shown a relatively large surplus in the U.S. account, nearly $3.7 billion over the 1972- 1974 period. However, because imports from the socialist countries in large measure tend to substitute for raw materials and goods that would come from some foreign source, even a trade that was statistically "balanced" would still be advantageous to the U.S. In other words, exports to socialist countries tend to be almost totally additive to our production and exports, while imports from them do not significantly enlarge our total imports. Thus, there are gains to both sides from trade and, conversely, losses to both sides to the extent that trade is limited by arbitrary restrictions. There can be no accurate calculus of who benefits most if trade does occur, nor of who loses most if trade does not occur. No such calculus is needed. The terms of the freer trade that we seek cannot be 27 governmental ly manipulated in any significant way. We should therefore relax artificial restrictions to the maximum degree that national security considerations permit, and let the self-interests of both parties decide what level of mutually beneficial trade will occur. From our viewpoint, however, we should be very careful in any assessments of the leverage our leader- ship position in some areas of technology can give us in extracting political concessions from potential trading partners. There is also a potential for socialist countries to apply "Reverse Leverage" on the U.S. The socialist countries are a group of nations whose population is about one-third of the world's total, who occupy about 2 5 percent of the earth's surface and who sit astride vast stores of the world's mineral wealth. In the long term, we cannot afford discriminatory trade practices that will limit our exports to markets of this size or that will handicap our access to the raw materials which they possess and we need. The economic penalties of handicapping ourselves in the competition for socialist country export markets deserve a few more words. Competitor Western nations are eager to trade with the socialist countries and generally do not attempt overtly to use their trade to extract political and other concessions. They will welcome any action we take that infringes upon our ability to compete. We cannot significantly affect the rising volume of East-West trade. It will proceed and enlarge with or without our partici- pation. We can, however, take actions that will limit our own involvement. III. C. The Emigration Issue Throughout the long legislative battle over the Trade Act of 1974, the Administration continually asserted that the attempt to link Eximbank credits and MFN to the internal policies of the socialist countries would not accomplish the humanitarian objectives intended by the Congress. Furthermore, it was felt that such action would have counter- productive results in the commercial field, and might weaken the rather fragile fiber of detente. The passage of time has revealed these fears to be justified. On January 14, the Soviet Union indicated that it could not accept a trading relationship based on the Trade Act of 1974 and would not put into force the 1972 U.S. -Soviet Commercial Agreement. The Soviets based this action on the grounds that the legislation was inconsistent with the 1972 Agreement, which had called for an unconditional elimination of discriminatory trade restrictions, and with the principle of non-interference in domestic affairs. The Soviet action was perceived by many as a setback to detente. Further damaging to our East-West commercial relations with the socialist countries has been the decision of most of the other socialist countries to support the Soviet line on the Trade Act. The effect has been to dampen the prospects for a normalization of U.S. trade relations with these socialist countries. 29 III. D. Non-Discriminatory Tariff Treatment There has been considerable discussion as to whether non-discriminatory tariff treatment is a truly critical trading privilege sought after by the socialist countries, and hence a powerful lever for extracting political concessions. Although MFN status could bring important benefits to the socialist countries, it is widely and incor- rectly seen by the U.S. public as an unusual con- cession that grants special privileges to the reci- pient. In fact, the extension of Most-Favored Nation Treatment to a socialist country does not mean that the recipient country will receive special benefits not received by our other trading partners. On the contrary, it would simply remove existing discrimina- tions by granting them the same treatment that is the principal foundation of any normal bilateral commercial relationship. Nevertheless, there is merit in considering the issue from both political and economic standpoints. On the political side, our failure to extend MFN to the socialist countries has been a blatantly discriminatory policy, especially when we consider that the U.S. does extend MFN to well over 100 of its trading partners, with the socialist countries the only major group to which we deny this treatment. Further, the U.S. is the only developed country that does not extend such treatment to the socialist nations. This continued discrimination represents a major obstacle to our goal of seeking a normalization of commercial relations with the socialist world. The traditional socialist position has been that MFN is an acknowledgment of normal commercial relationships analagous to diplomatic recognition. For the socialist countries non-discriminatory tariff treatment is not only a matter of pride, but is also an economic issue with long range importance to them. They recognize Western credit to finance their imports 30 is only a temporary expedient; they know that credits- must be repaid and that, in the final analysis, they can only be repaid through exports. A continued ex- pansion of East-West trade will require Western absorption of Eastern exports if these countries are to be able to pay for their imports. Looking ahead to the day when they expect an expanded export capa- bility, the socialist countries do not want their exports to be denied equality of treatment vis-a-vis other exporters to the U.S. market, the world's largest. Various studies have attempted to determine the economic effects of MFN on socialist country export potential. To date, Soviet exports to the West and to the U^S. have been largely raw materials . Thus, exports to the U.S. have been relatively unaffected by the absence of MFN, since U.S. tariff rates tend to escalate relative to the degree of processing, fiowever, the structure of Soviet exports is changing, reflecting a higher degree of processing in some items and greater emphasis on intermediate mamif actures and some finished products. At the same time, the U.S. is tending to import greater quantities of processed and semi-processed raw materials. Since these are subject to high non-MFN tariff rates, failure to extend MFN could hamper access to a valuable source of much-needed materials, such as aluminum, ferrochromium, manganese, copper, and petroleum products. Furthermore, it could prove injurious to possible U.S. -Soviet joint transactions, or industrial cooperation agreements, which may call for future U.S. imports of Soviet semi-manufactured products, as repayment for U.S. exports of equipment and technology used in the construction of Soviet production facilities. Other Soviet products that could benefit from an extension of MFN include: caviar, champagne, vodka, canned sea foods, inorganic chemicals, pig iron, manganese ores, machine tools, and ball bearings. 31 To a lesser extent, the following would also benefit: fuel oils, crude petroleum, nickel and alloys, distillate fuels and pulpwood. A recent study by the Bureau of East-West Trade indicates that granting of MFN treatment to the socialist countries would have a greater impact on East European than on Soviet exports to the U.S. Among the East European pro- ducts which would become more competitive in the U.S. market under non-discriminatory tariff rates are iron and steel products, leather products, clothing, alcoholic beverages, certain machinery and transport equipment, glassware, processed foods, and miscella- neous manufactured articles. Given the socialist countries needs for hard currency, if the U.S. grants lower MFN tariff rates, it can be assumed they will make an increased effort to export manufactured products as well as raw and semi-pro- cessed materials to the U.S. However, the socialist countries do not yet produce high quality, sophisticated manufactured goods in sufficient quantities to satisfy their own needs, let alone to cause serious disrup- tions to U.S. domestic industries. The days of the "economic cold war" are past, at least in the view of our Western competitors, who are aggressively seeking exports to the socialist countries and accordingly have removed their discri- minatory tariffs against socialist country imports. Thus, the socialist countries have significant alter- native markets to absorb their current limited export capabilities. It should therefore be recognized that MFN, although it has great economic and political significance, is not a powerful enough lever to achieve laudable U.S. political goals involving internal domestic issues in the socialist world. Accordingly, if the U.S. wishes to do business with the socialist group, then it should take all necessary steps to remove the legislative obstacles to providing non-discriminatory tariff status. 32 III. E. Credits Issue Another issue on which. I believe there is a great deal of misunderstanding is that of credit financing of exports to the socialist countries. As is the case in some of the other issues, most of the controversy involves our dealings with the Soviet Union. In my view, there are some myths that need to be dispelled because they seem to have contributed to a situation where we treat socialist buyers in a different way than we treat our other prospective international customers. The result is that we are significantly handicapped in our ability to export to socialist countries. I perceive two broad areas of concern regarding the financing of exports to the Soviet Union and other socialist countries: • First, a concern that vast amounts of funds have been or will be used to finance exports to the Soviets and other Eastern European countries. The concern seems to be that, somehow, the amounts loaned might not be repaid, or that capital might become short in U.S. markets as a consequence of lending to socialist borrowers or, at a minimum, that our own cost of borrowing will be driven up significantly by the drain from socialist borrowing. • Secondly, a concern that U.S. export financing involves a subsidization of the recipient. In retrospect, it is not difficult to understand the origins of concerns about enormous loans, particularly to the Soviets. In the euphoric days when a meaningful U.S. role in East-West trade first began to emerge and giant U.S. corporations were making their initial contacts with the Soviets after a lack of commercial intercourse for so many years, not only those transactions actually consumated were big news, but even the prospect of a deal was news. And the bigger the prospective deal, the bigger the news headline. We read about giant gas deals, huge fertilizer deals, and various other mammoth projects, 33 many of which would develop Soviet natural resources. Several transactions were seen as multi -billion dollar undertakings . Credit was generally noted as being necessary for these projects. At the same time, we were also reading about a large grain sale to the Soviet Union and a series of Eximbank transactions with the U.S.S.R. This steady flow of headlines relating to both actual and prospective transactions coincided with the rise in U.S. interest rates induced by steps to reduce domestic inflation. In this situation concern about U.S. financing of East-West trade understandably began to grow among the public and in the Congress. These concerns about enormous capital outflows, I believe, contributed to the limitations on additional Exim lending to the Soviet Union in the Export- Import Bank Amendments of 1974±/. In turn, their concerns also contributed to a general public wariness of East-West trade. The facts are, however, quite different from the image that raised the concerns. Taking the combined activities of private sector commercial banks and government credit facilities, neither the loans actually made nor the firm commitments to future loans are unduly large vis-a-vis our exports. Further, with respect to additional loans, it is clear that the U.S. is not a bottomless well of capital for financing exports to the Soviet Union, or the other socialist countries (or, for that matter, to any other foreign buyers of our exports) . Indeed, a number of factors limit our ability to finance exports to socialist countries and thus handicap our ability to export to them, compared to our industrialized Western competitors. To support these statements, I would first like to review loans and credits supporting sales to the socialist countries over the period since 1972 and also, the value of outstanding firm commitments to future loans. Table 6 summarizes loans and loan commitments to the socialist countries by U.S. commercial banks and through- various U.S. Government credit programs. 1/ The Export-Import Bank Amendment included a limit of $300 million on new loan commitments to the U.S.S.R., without further Congressional approval. It also stipulated that no funds could be applied to energy production facilities without Congressional approval, and limited to $40 million the amount that could be loaned for energy exploration projects. ra § . I: S <.: o x: B-nU 2g£ & cn£ ra «m& SaJ'c 34 As Table 6 indicates, while the Soviet Union is estimated to have firm commitments from U.S. commercial banks for about $750 million in additional future loans, the amount of loans actually disbursed as of June 30, 1975 was only $120.5 million. Of the original $549 million of CCC credits backing sales to the Soviet Union, V $342 million plus about $55 million of interest, had been repaid by June 30, 19 75 and only $208.1 million remained outstanding. Loans from the commercial banking system to the Eastern European countries are relatively small. Similarly, with only Poland and Romania having been eligible for Exim credits, Exim activity is low in that area. Thus, combined private-sector, Exim and CCC credits outstanding supporting exports to Eastern. Europe and the U.S.S.R. currently amounts to about $1.5 billion. 2/ When viewed alongside our 1972-74 exports to the socialist countries of some $5.6 billion, it is obvious that the bulk of our exports have been for cash or financed by short term credits . Traditionally, the PRC has emphasized self-reliance and has avoided using extensive credit in international trade. In the last few years, however, this policy has been relaxed. The Chinese have made extensive use of short term commercial credit to purchase agricultural and non-agricultural commodities; they have purchased between 1 and 1.5 billion dollars worth of complete plant on medium (5 year) credits 1/ Under the CCC Export Credit sales program, CCC does not make loans to foreign governments or foreign buyers. Rather, CCC finances exports of eligible U.S. agricultural commodities by purchasing private U.S. exporters 1 accounts receivable. All transactions are assured by irrevocable commercial letters of credit from acceptable banks assuring payment to CCC by authorizing CCC to draw drafts against such letters of credits when payment is due. Thus far, (June 30, 19 75) all drafts against letters of credit covering exports of agricultural commodities financed under CCC credit have been promptly honored. 2/ This calculation excludes commitments to future loans since these loans, when made, will support exports not yet reflected in export statistics. 35 financed by Japanese or European governmental banks; and, they have accepted inter-bank deposits at market interest rates. Except for short term financing of agricultural sales, little if any private credit has been sought for purchases from the U.S. The PRC is, of course, ineligible for any government credit program under the Trade Act of 1974. ' With respect to the concerns of some that we might, in the future supply too much credit to the socialist countries, I submit that our problem is quite the opposite. In financing our exports, we lack the capacity of Our competitors . Soviet outstanding medium- and long-term debt to the West was estimated to be $4.2 billion at the end of 19 74. Of that total the U.S. commercial banking system holds only about $350 million. Western lending to the U.S.S.R. is expected to grow steadily in the near future, given the recent growth in Soviet orders and the willingness of Western Europe and Japan to support their sales to the U.S.S.R. with large amounts of governmental ly backed credits. Offerings since the beginning of 19 74 include the f o 1 lowing : 1/ Billions of Dollars France 2.8 United Kingdom 2.3 Canada . 5 Italy .855 Japan 1.223 West Germany 1.1 U TOTAL $8,778 1/ As is noted in Appendix E, these credit offerings are of various types. Some general purpose credits can be drawn down over several years into the future, but additional credits might be granted as soon as these were exhausted or at expiration of the time limit for utilization. Other credits are made available to finance specific export transactions. 2/ The West German Government does not engage in direct loan export financing. However, it does provide commercial and political risk insurance on credits such as these, offered by a large private consortium. 36 In contrast, Poland and Romania are the only socialist countries to which our Government export credit agencies can now extend credit.!/ Further official credits for the Soviet Union are blocked, althouah approximately $34 8 million previously committed can be disbursed. A fuller explanation of the limits on U.S. capacity for financing exports to the socialist countries may be useful. The two principal sources of U.S. financing of exports of manufactured goods are normally our commercial banking system and the Export-Import Bank. Our commercial banking system is limited in the amounts it can lend to a single borrower, both by legal restrictions and by its own standards. Federally chartered (national) banks are restricted to lending a maximum of ten percent of their "gross capital funds" to a single borrower. Because each socialist country borrows through its foreign trade bank, 2/ each has been considered a single borrower. This effectively limits the amount that the U.S. banking system could have on loan at any one time to any one socialist country to a theoretical maximum of about $2.0 billion. 2/ There are, of course, a number of reasons why the system would never reach this theoretical maximum. These would include more profitable alternative uses of the available capital in other markets, and individual bank "country limits" on lending in a given country that are lower than the maximum that could be legally loaned. These country limits are the product of bankers ' natural desires to diversify their risks and a very effective barrier to the 1/ Yugoslavia also receives Exim credits, but is excluded from the definition of socialist countries applied by this statement. 2/ One notable exception exists. In the Fall of 19 74, the Polish Nonferrous Metallurgical Association acted as borrower with the Polish Foreign Trade Bank (Handlowy-w- Warszawie) as guarantor. 3/ Ten percent of the gross capital funds of the nations 60 largest banks sums to about $2.0 billion. 37 large volume of lending to socialist countries that some have foreseen. In fact, our soundings indicate that if the legal lending limit restriction were removed, it would not significantly expand the loan capital potentially available to socialist borrowers. Eximbank involvement also plays a multi-faceted role in augmenting and encouraging private sector financing activity which is especially significant in East-West trade. By taking longer maturities, Exim releases private sector resources for additional lending. By providing guarantees, Exim changes the character of the commercial risk and thus releases funds from legal lending limits. Finally, and perhaps most important, the involvement of Eximbank is taken by the private banking community as a measure of official confidence and support for commercial relations with a given borrower. Under present circumstances, it thus appears that the lack of Eximbank activity in lending to most of the socialist countries dampens the interest of commercial banks in this area, thus compounding the adverse impact on our competitive posture. Summed up then, the current theoretical maximum capacities of the commercial banking system and the Eximbank for lending to the U.S.S.R. would be as follows: Commercial Banking System -- Approximately $2.0 billion Eximbank - Undisbursed — .360 billion Loan (firm commitments) Eximbank - Available only — .300 billion if conditions of Trade Act met TOTAL $2.66 billion The practical maximum capacity is, of course, somewhat less, since it is highly unlikely that the commercial banking system could, even if it desired to do so, reach its theoretical capacity. Clearly, this kind of lending capacity cannot support any major portion of the gigantic deals that were publicized in the past, some of which continue to be discussed. Many of these transactions may still occur. However, supporting loan capital will, in all likelihood, have to come largely from outside the U.S., from outside normal U.S. export financing sources, or perhaps from Exim funds specifically authorized by Congress. In fact, without restored Eximbank participation, the U.S. system's lending capacity would be inadequate to finance an expanding regular trade, even without the very large individual transactions which could occur. The annual exports that could be financed by a pool of $2.0 billion of commercial bank loanable funds are, of course, a function of the length of lending terms on which exports are financed. The longer the average term of the loans, the less frequently the available funds turn over and the smaller the annual volume of exports it can finance. While it is impossible to predict accurately the loan terms (these vary with the kind of material exported and other conditions; e.g., capital goods are traditionally financed in inter- national trade on longer terms than consumer goods) , we estimate that $2.0 billion available from U.S. commercial banking sources might sustain an annual volume of from $500 million to $800 million of credit financed exports. Similarly, each $1 billion of Exim credit could, over the long-term, probably increase the annual exports supported by credit by $250 to $300 million.!./ We have no method by which we can estimate the capacity of the European and Japanese commercial banking systems for financing their exports to the socialist countries. However, the previously noted governmentally backed credits offered the U.S.S.R. give an indication of the willingness of foreign governments to back their exporters by strong action to supplement their private sector banks. 1/ In the capital good sales that predominate in exports to the socialist countries, Exim usually picks up the longer maturities, e.g., the 5 through 8 year portion of the loan. Thus, in the fifth year following disbursement of the loan and for each of years 6 through 8, one-fourth of the loaned principal would be returned and could be reloaned. Thus, over the long term, each $1 billion of loan capital to the Eximbank could make available about $250 million of export credits, assuming equal repayments in years 5 through 8. The amount of annual export credits available over the long term from $1 billion of capital would, of course, increase if the length of lending terms is decreased. 39 I would like to speak now to the issue of what some see as a subsidization of socialist countries, particularly the U.S.S.R. , through export financing. I think it needs to be understood that the use of credit in financing exports is common practice in international trade. Also, about one-half of the Industrialized West's exports to the socialist countries of Eastern Europe moves on some form of credit. As can be seen from Table 6 the vast majority of U.S. exports to the socialist countries has been paid for in cash or has been financed by the commercial banking system. Our commercial banking system is profit motivated. It uses its limited available capital to make those loans which, considering risk and other factors, it expects will yield the highest return. The profit motivated commercial banking system has no special desire to subsidize these countries. Rather, the socialist countries are simply a group of potential customers. The interest rates they are offered may be favorable relative to some other borrowers because of the excellent creditworthiness ratings these countries have achieved internationally. These high credit ratings stem from their excellent repayment records, as well as a presumed ability of centrally-planned economies to manage their exports and imports to assure repayment capability. But the rates they have been charged cannot in any way be considered as subsidies. While some early transactions were at rates which might now seem low, most recent lending has been at flexible rates which vary directly with the prime rate. There remains then, the issue of what some see as subsidization of socialist countries through export financing via governmental ly supported credits, i.e., Eximbank and Commodity Credit Corporation. From the data in Table 6, it is clear that the role of Governmental credits in financing trade with the socialist countries has been relatively small. The largest involvement of Governmental credits was for grain 3ales to the Soviets in the period July 1, 19 72 to August 31, 197 4. Here, Commodity Credit Corporation financing totaled $549.7 million, or approximately 40 percent of total sales of nearly $1.3 billion. The remainder was handled by cash payments or short term credits through the commercial banking system. The CCC credits were relatively short-term (3 years) and over half of the original obligations, plus interest, have already been repaid. 40 Even though the Exim role in financing our East-West trade" has to date been very small, there still remains the question of whether the loans made to date and those which will be made in the future involve a subsidy to the recipient. The controversy concerning Exim lending and whether or not it involves a subsidization of the borrower has long raged and will not be settled by this assessment. I would, however, like to make the following points. • The Export-Import Bank is not supported by tax dollars. • If there is an "opportunity cost" from increased capital costs stemming from Export- Import Bank borrowing in U.S. capital markets, then such increased capital costs are borne by all borrowers in the U.S. capital market, including U.S. business firms. • All Exim credits carry rates higher than Exim's average cost of funds. On this basis, there is no subsidy element in Exim's direct lending program. I would like also to emphasize that if we expect to get a reasonable share of the market in the socialist countries, until such time as competitors abandon similar practices, governmental ly backed export credits are necessary to compete for exports and the economic benefits they bring. From the national viewpoint, official support of export financing to meet similar actions by competitors is not unwise per se. On the contrary, if the benefits (jobs, balance of payments effect, profits, etc.) exceed the costs (higher costs of capital to other borrowers,) it is eminently good policy. There is ample evidence of the effects of our non-competitive- ness in credit. U.S. plants and workers are subject to losing contracts in three ways. In some instances credit availability and terms are the deciding factors in losing the sale to a foreign competitor. In other instances, to be competitive, a U.S. firm may be forced to manufacture the product in the plant of an European subsidiary in order to be eligible for Governmental credits available there. In a third situation, even though a U.S. firm may have unique technology or other factors which give it a clear advantage in winning a contract, the availability of Government credits in a Western European country provides a strong incentive to the socialist country to force the firm to manufacture the product in the plant of an European subsidiary. 41 The Soviets have developed a significant hard currency capability through their exports of oil and other raw- materials and from sales of gold. They can pay cash for large amounts of imports, but their needs are even greater than their cash capabilities. Now that they have made an opening to the West, they appear to be set on a course of absorbing Western imports to the fullest capacity of their hard currency and credit capabilities. The other Eastern European countries seem also intent on maximizing imports to the fullest extent that export earnings and credits will permit. Thus, although the U.S. cannot offer governmental credits to the U.S.S.R. and other ineligible socialist countries, where the U.S. manufacturer is either a unique or highly superior source, we will still continue to make sales to them, on a cash or commercial credit basis. However, on those items where our competitive edge is narrower, we are now losing sales because of our credit disadvantage and we will continue to lose them in the future. Finally, it should be noted that there are implications in the use of Governmental credits that go beyond pure economics. From the viewpoint of the socialist countries, by not making available normal exporter credits, the same kinds of credits that we do make available to our other trading partners, the U.S. continues to treat them as unworthy trading partners, giving further evidence that we do not wish to normalize our trading relationship with them. 42 III. F. American Sales of Technology The sale of U.S. technology to socialist countries, both in the form of high technology manufactures and in the form of data and know-how, is a subject of concern to many Americans and one of the basic issues in East-West trade. The need to continue effective regulation of the export of strategic items and technology is not at issue. The Export Administration Act of 1969, as amended, authorizes the President to control exports to the extent required in order, among other purposes, "to exercise the necessary vigilance over exports from the standpoint of their significance to the national security of the United States." Pursuant to this statute, and the regulations promulgated thereunder, the export from the U.S. to socialist countries of both strategic goods and data is effectively controlled. In addition, the U.S. participates in an international strategic control (COCOM) system operated by the NATO countries (except Iceland) and Japan. A description of the workings of these export control systems — both U.S. and COCOM — together with statistical data describing U.S. operations, is contained in Appendix F to this statement. The U.S. controls are administered primarily by the Commerce Department, in close cooperation with other Government agencies, especially the Departments of Defense and State. The administration of these controls is thorough, painstaking and complete, and is aimed at barring export transactions that would make a significant contribution to the military potential of the socialist countries . What is at issue, then, is the sale of non-strategic technology — in the form both of high technology goods and of technical data and know-how. Acquisitions of Western commercial technology by the socialist countries are generally accomplished through the following channels: technology embodied in high technology manufactures -purchase of machinery and equipment 43 -purchase of prototypes -purchase of turnkey plants acquisition of data and know-how -purchase of licenses for cash or by product payback -scientific and technical cooperation agreements -other forms of industrial cooperation agreements For the most part, socialist imports of Western technology in recent years have consisted principally of machinery, equipment and know-how needed to modernize production of basic industries (such as chemicals and automobiles) . Increasing concern for consumer welfare has also led to some purchases of technology (ranging from tableware to sausage plants) to increase the output and improve the quality of domestically produced consumer goods items. Although it is impossible to ascribe a dollar value to the whole range of such transfers, some approximations can be made relative to technology embodied in high technology manufactures, since these transfers are reflected in inter- national trade data. Data describing the dollar volume of direct socialist country imports from the industrialized Western countries in SITC product category 7, which includes machinery and transport equipment, can reasonably serve as a barometer of socialist imports of embodied technology. These imports have increased rapidly in the years since 1972, totalling some $7 billion in 1974. Although the rate of increase has varied substantially among the socialist countries, all evidence an increased demand for Western machinery and equipment embodying high technology. The U.S. share of these Western exports has been relatively small, $533 million in 1974, or about 7.6 percent of the $7 billion total of machinery and equipment going to the socialist countries. Although not all of these imports were motivated by a desire to obtain technology (for example, some imports may be needed simply to fill temporary shortfalls in domestic production of similar machinery or equipment embodying equivalent technology) , scarce hard currency resources would rarely be used for purchases unless a unique or more advanced Western technology embodied in the equipment is to be gained. 44 Efforts to measure the value or amount of flows of technology in the form of technical data from West to East are even more imperfect than in the case of tech- nology embodied in machinery and equipment. There is no standard Western system for gathering information on the transfer of technical data under license and no practical means of quantifying the value of the data transferred. Rather, one is effectively limited to observations of the number of licenses issued, coop- eration agreements signed, etc. as a barometer of activity. While even this kind of information is sketchy in its availability, every indication we have is that licensing and cooperation agreements between East and West are increasing rapidly. Given the U.S. position of technological leadership in many fields, and the high esteem in which the U.S. product is held by socialist buyers, if there is a further normalization and expansion of our trade relations with the socialist countries, both the dollar value of U.S. exports of technology to the socialist countries and our share of total Western technology exports could increase significantly over the 19 75t80 period. In that we are already selling some volume of non- strategic technology to socialist countries and since we may sell larger quantities if our trading relation- ship with them expands further, it is important to ask and answer a fundamental question: "Is it desirable for the United States to sell non-strategic technology to the socialist countries, either in the form of equip- ment or know-how?" The answer is that the reasons for selling non-strategic technology to the socialist countries are basically the same as those for any American export of goods or technology to non-socialist countries. Sales of technology and high technology goods produce dollar income that helps the U.S. balance of payments, supports the exchange rate of the dollar, and helps pay for energy and other imports. These sales represent normal, continuing business transactions that create jobs now and supply income for the new investment needed to develop new technology and thus assure future jobs. Competition among Western companies to make sales to the socialist countries is vigorous. But because the United 45 States is a world leader in many fields of technology/ American companies often win over their Western competitors in sales of goods embodying high technology. Such sales are frequently not one-time transactions. Rather, they tend to involve the buyer in using the seller's particular systems and thereby to develop a future need for more technology and equipment associated with these systems. Thus, sales of high technology goods and services, more than other kinds of sales, may lay the groundwork for additional future sales and the economic benefits such sales bring. A basic characteristic of world technological leadership is that it can be maintained only by consistently advancing the national level of technology efforts. Unfortunately for the world leader, technology is not static. Techno- logical leadership is not a commodity that can be main- tained by hoarding its use within a country's borders. Research laboratories around the globe are constantly pushing ahead the state of the art. In those fields of technology where the United States now has world leader- ship, it is only a matter of time before other countries reach and pass the present U.S. level. Consequently, to maintain our lead, U.S. companies must maintain a high level of investment in research and development. Selling technology in East-West trade provides American companies with revenue for their research and development and, at the same time, the prospect of sales to an enlarged world market including the East furnishes an additional incentive for these companies to invest in their research and development. Given the dynamic nature of technology, that which is transferred is frequently the older or obsolescing technology and transfers to subsidiary or peripheral producers add to its income producing life. Moreover, given the relative inaccessibility of socialist country markets and their perennial hard currency shortages, the U.S. firm frequently does not have the alternative of exporting consumer goods to them. Thus, sales of tech- nology may yield returns to the U.S. firm which could not be realized through product exports. Nor can the U.S. unilaterally impose an effective embargo on the transmission of non-strategic technology to socialist countries. If an American firm passes up a 46 sale of non-strategic technology in East-West trade, the same sale, or sale of a nearly equivalent technology may well be made by a competing company from another Western country. If selling non-strategic technology in East-West trade offers all these advantages, are there any drawbacks? Could, for example, acquisition of this technology so strengthen the socialist national economies as to endanger the U.S. national security? Could these coun- tries use the purchased technology to manufacture goods that would undersell American goods in third country markets because their centrally planned economies might ignore normal commercial constraints in their pricing? Could these countries flood the American market with low priced goods? Concerns about a strengthening of socialist economies usually involve the Soviet Union, by far the strongest socialist country economically and militarily. With respect to American sales of non-strategic technology to the Soviet Union, at least two considerations should be borne in mind. First of all, the American choice is not whether non-strategic technology will be sold to the Soviet Union. The Soviet Union buys the over-whelming majority of the Western technology it acquires from Western countries other than the United States. While comparable data are not available for the transfer of technology in the form of technical data, insofar as technology embodied in goods is concerned, during the years 19 69 through 19 7 3 the Soviet Union bought from American companies an average of 8 percent of the manu- factured goods tending to embody technology (SITC 7) it imported from the Industrialized West. Our competitors will continue their sales of non-strategic technology (strategic technology is jointly controlled by ourselves and our COCOM partners) regardless of what the United States decides to do. In most fields, companies of other Western nations sell products and technology com- parable to that available from the United States. In those few technological fields where the American product is clearly superior, there is likely to be available elsewhere in the West some serviceable, albeit not equally advanced model. Consequently, the essential American choice is not whether non-strategic technology is to be sold to the Soviet Union and other socialist countries, 47 but rather, whether American companies should participate in the benefits from these sales that are going to occur in any event . A second consideration is that the role in the Soviet economy of Western technology in general, and U.S. technology in particular, is less significant than many believe. As mentioned above, Soviet purchases of American manufactured goods — the kind of imports that embody technology — have been running close to eight percent of Soviet purchases of similar manufactured goods from the Industrialized West. More revealing, total imports by the Soviet Union of technology embodying manufactured goods from the Industrialized West were about one-half of one percent of the Soviet gross national product. Of course, these data alone do not reflect the total effects of transfers of technology. In those instances where purchased Western technology helps overcome particular bottlenecks in the Soviet economy, it may have a significance beyond that suggested by these percentage figures . But in terms of the total Soviet national economy, the impact is relatively small. More important, nowever, to those who are concerned about the possibility of transfers of technology providing the U.S.S.R. and other socialist countries a significant means of narrowing the East-West technology gap, or even of leap- frogging ahead of the West, is the fact that the impact of imported technology is limited in the U.S.S.R. and other socialist countries by the difficulties inherent in a centrally planned economic system. By reason of their severe incentive, organizational and infrastructure deficiencies, these countries have only a moderate capacity to absorb technology imported from abroad. Certainly, the net effect of acquiring Western technology is beneficial to the Soviet Union and the other socialist countries, or they would not spend valuable hard currency for this purpose. But just as certainly, the Western market economy system provides the incentive, organization and infrastructure to develop and implement still more advanced technology. The revenue obtained from sales of existing non-strategic technology is valuable to Western companies and the national economies they represent. What of the prospect of goods manufactured in socialist countries, using American technology, competing with American goods in third country markets or even in the U.S. market? Here again, because of its economic strength, most see the Soviet Union as the principal threat. However, for the 48 foreseeable future, Soviet imports of goods embodying U.S. technology are to aid Soviet production for domestic markets, where severe shortages exist. In most instances where they have produced relatively high technology goods for exports , difficulties with quality control and provision of after- sales servicing have significantly limited penetration of foreign markets. The other socialist countries have generally similar problems. As for a flooding of the domestic American market with low priced goods manufactured in socialist countries using American technology, again there should be no serious problem. Many imports into the United States from socialist countries have, to a greater or lesser degree, quality and after-sales servicing problems which limit their saleability in the U.S. market. Nevertheless, imports from socialist countries have obtained and will continue to obtain some small share of the domestic American market. However, in most instances, this share will not be gained at the expense of domestic American production, but rather will simply substitute for imports from other foreign sources. Additionally, there is one further and, if necessary, very firm line of defense for domestic American producers. The Trade Act of 1974 contains a market disruption section that applies only to products of communist countries. Pursuant to this section, in the event that imports from any of these countries disrupt a domestic American market, the President is authorized to impose restrictions or take various other actions on such imports to remedy the market disruption. A final consideration related to technology sales in East- West trade is that it is a two-way street. Most transfers of technology are, to be sure, from American companies to socialist countries. But American companies have also purchased from socialist sources technology that has proved valuable to these firms. Examples of this reverse flow of technology from the Soviet Union alone include underground coal gasification technology, a mechanical suturing device for use in operating rooms, an electro-magnetic aluminum casting technique, tunneling technology, pharmaceutical technology, and an evaporative process for cooling blast furnaces . In sum, sales of American technology to socialist countries involve only non-strategic technology -- U.S. and COCOM controls bar the transfer of strategic technology. The sale of non-strategic technology is an important source to American companies of revenue for research and develop- ment indispensable to maintaining America's technological leadership in the world. American sales of non-strategic technology also help to pay for our imports from abroad 49 and provide jobs here at home. The disadvantages of these technology sales seen by some — undue enhancement of the socialist economies or their capacity to produce goods that compete with American goods — exist more in theory than in fact. Indeed, selling non-strategic technology to the socialist countries is — and should continue to be — an especially effective way for the United States to capitalize on a comparative advantage that has developed out of our American economic system. SUMMARY In taking the measure of our situation, this is what I see. East-West trade is a global operation, involving all the industrialized Western nations and all the socialist countries. In 1974 its volume reached over $43 billion. We are late-comers to this trade and play only a minor role in it. The initiatives to expand commercial relations with the socialist countries of the world and our role in East-West trade, begun in the early 19 70 's, are now stagnating. Certain provisions of the Trade Act of 19 74 have made it extremely difficult to normalize commercial relations with most socialist countries. By discriminating against them, the provisions restricting the use of normal export credit and tariff practices affect not only the U.S. ability to complete in East-West trade, but these provisions and their impact on the American public have left some U.S. firms uncertain as to whether they should commit resources to East-West trade. The U.S. is and must continue to be a major trading nation. We must import to obtain the materials needed to fuel our production and we must export to utilize our productive capacity fully. As traders, we cannot afford to handicap our trading relationships with nearly a third of the world's population. Partly as a result of earlier aloofness, we are well behind our West European and Japanese competitors in the development of commerce with the socialist world. We have already lost significant trading opportunities. If we now fail to press forward the trade normalization initiatives of recent years, the economic costs of lost opportunities in the years ahead can be great indeed. I welcome a thorough review of the U.S. role in East-West trade by the Congress and the American public. I am confident that their informed judgment will support those steps necessary to achieve normalized commercial relation- ships with the socialist countries and an environment in which American business can successfully compete for an expanded share of the fast growing trade between the industrialized Western nations and the socialist countries. APPENDIX A HISTORY OF EAST-WEST TRADE The Pre-World War II Setting The beginnings of what we now call East-West trade go back to the 1920 's when Western industrial concerns became involved in development projects in the Soviet Union. Names we frequently hear today as leaders in East-West trade — Pullman, International Harvester, and Singer, to name a few — were among the participants in these first East-West commercial ventures. In 1931, a major portion of U.S. exports in certain commodity areas went to the U.S.S.R. For example, the Soviets took over 60 percent of U.S. machine tool exports and three-fourths of our tractor and forging equipment exports . In 19 34 the U.S. Export-Import Bank was formed specifically to finance trade with the U.S.S.R. The following year, the first U.S. -Soviet trade agreement was signed, granting the Soviet Union most-favored nation tariff treatment in exchange for a commitment to purchase a fixed amount of American products each year. At the same time the independent countries of Eastern Europe had become the scene of extensive economic activity by Western firms, including a number of U.S. companies. By 19 38 trade with the Soviet Union, Eastern Europe, and China accounted for a respectable 12 percent of the total trade of the developed Western countries and Japan. In percentage terms this was the high-water mark of "East-West trade," which has not been equalled since . World War II to 1950 During World War II the German occupation of large parts of Europe disrupted these established trade relations , which were never to be resumed in the same manner because of the changes wrought by the A- 2 war. Although little normal commercial trading between East and West took place during this period, the* alliance with the U.S.S.R. spurred the volume of shipments from the United States under the Lend- Lease program to a level unequalled by previous commercial trade between the two countries. In the immediate post-war period the total volume of trade in Eastern, as well as Western Europe, was greatly depressed by the destruction of the economies in the countries directly affected by the war. It was in this immediate post-war period that the U.S. attained what was to be its most sizeable share in East-West trade for two decades. 1950-1953 This period was characterized by unprecedented political East-West tensions, with East and West moving toward opposite poles in foreign economic policy as well as in their political relations. Not surprisingly, East-West trade reached its lowest ebb during this period. The expansion of Soviet political influence in Eastern Europe had been accompanied by a concerted effort to reorient the Eastern European countries ' trade toward the U.S.S.R. and toward one another. While in 19 48 Western Europe alone still accounted for nearly half of the Eastern European countries' trade (excluding the U.S.S.R.) , by 1953 their trade with the entire non-communist world had fallen to between 14 and 23 percent, with only Poland's share as high as 30 percent . On the part of the West this period saw the emergence of an economic containment policy as the United States launched a sophisticated pro- gram to control exports of U.S. goods and technology in 19 48, which was written into law with the passage of the Export Control Act in 1949. At that time the United States also enlisted its NATO allies (except Iceland) and later, Japan, in the formation of COCOM (Coordinating Committee) in order to establish ground rules for a common policy on export control and to standardize the list of items prohibited from export to communist states . In the Far East, U.S. trade with China continued at a significant level for a year after the establishment of the People's Republic of China in 19 49. From its inception, however, the PRC was recognized as a potential adversary and in July 1950 COCOM controls over items of strategic concern were imposed on China. Although the U.S. share of China's total trade exceeded 22 percent in 1950, it dropped precipitously at the end of the year following PRC entry into the Korean conflict. In December 1950, actions by the U.S. Government resulted in a total embargo on exports to China. By September 1952, multilateral COCOM controls over exports to China significantly exceeded controls to the other communist countries. As another result of the Korean hostilities, extension of most-favored-nation tariff treatment to communist countries was revoked in 19 51 by passage of the Trade Agreements Extension Act. 1953-1960 The departure of Stalin and the conclusion of the Korean War produced a climate more conducive to a renewed interest on both sides in East-West trade, particularly in Europe. In the West pressures for a unified stand on economic policy and export controls receded. National trading interests asserted themselves more strongly as Soviet and East European commercial overtures held out the promise of sizeable new outlets for Western European industrial goods at a time when industrial capacity in Western Europe was rapidly expanding. In the mid-50 's the U.S.S.R. and Eastern European countries negotiated a growing number of bilateral trade and payments agreements with some Western European nations on the basis of MFN . The U.S.S.R. began to place substantial orders for capital goods with the West Europeans, who generated pressures A- 4 to reduce the list of COCOM controlled items. The revisions agreed upon by mid-19 54 resulted in a one- third reduction in the number of items from the International List, but the U.S. chose to maintain a much more extensive list of goods subject to unilateral export controls. At the same time the U.S.S.R. was able to greatly expand its sale of raw materials, including oil, to Western Europe, which in turn enabled it to increase its orders of equipment from these countries. As a result of these changes, trade between West and East European countries, including the U.S.S.R., expanded considerably after 1954. There was no comparable overall expansion in U.S. commerce with East Europe during the second half of the 50 's. Beginning in 19 56, following the uprisings in Poland and Hungary, the United States began to differentiate its policy toward the individual communist countries. In 1957 a special policy toward Poland was initiated that resulted in PL-480 commodity sales for local currency totalling over half a billion dollars, a reduction of export controls to Poland, availability of 20-year credits through the Export-Import Bank, and eventually, at the end of 1960, restoration of U.S. MFN tariff treatment. With respect to the U.S.S.R., however, events during this decade and the general perception of the Soviet Union in this country prevented any effective effort to al L .er our policy, notwithstanding a number of indications of Soviet interest in reestablishing commercial ties. These included a letter in 19 58 by Soviet Premier Khrushchev to President Eisenhower proposing inter-governmental commercial negotiations to lay the groundwork for substantial exchanyes of industrial goods for raw materials and normalization of tariff and credit relations. While most COCOM members abolished export controls to China over and above those to Eastern Europe in 19 57, the United States continued a substantial embargo on trade with the PRC until 19 71. 1960-1969 During the 1960 's U.S. trade with the communist countries generally continued to stagnate. U.S. policies on East-West trade fell further out-of- step with those of our Western European allies and Japan, which were not affected for long or to the same extent by developments in Berlin, Cuba, Czechoslovakia and Vietnam. While Western Europe, Canada and Japan were trading with the East on the basis of MFN and were pro- gressively lowering quantitative import restrictions, the U.S. Congress in 1962 removed all Presidential discretion in the matter of restoring MFN to individual Eastern European countries. Although other Western nations were making available medium and long-term credits for Soviet and East European industrial purchases beginning in 196 3, with outstanding credits to the East amounting to over $2.5 billion by the end of the decade, the United States in 1968 legislated what amounted to an absolute prohibition on Eximbank export credits to the East for the duration of the Vietnam War. Waiver authority for the President was not restored until 1971. While West European grain shipments to Eastern Europe were eligible for export subsidies, the United States progressively restricted government financing of surplus farm products and in 196 4 cut off all government credits for agricultural exports to communist countries. Positive developments during the decade included a special Attorney General opinion permitting commercial financing by private firms of exports to the East, but in practice this did not prove a significant stimulus to trade. A special relationship with Romania A-6 began in 196 4, as that country assumed an increasingly independent foreign policy stance. A major wheat sale to the U.S.S.R. led to an upsurge in U.S. exports in 1964, but this remained a one-shot affair, because of subsequent imposition of special U.S. shipping require- ments placed on U.S. exports to Eastern Europe. Later a substantial sale of automotive equipment to the U.S.S.R. occurred. A bilateral civil air agreement with the U.S.S.R. was negotiated in 19 6 7 ushering in direct air service between the two countries. Efforts to effect a more basic change in U.S. East- West trade policy included a positive recommendation by the Presidentially appointed Miller Committee in 1965, the Administration's proposed East-West Trade Relations Act of 1966, and a proposed Reciprocal Trade Agreements Act introduced in the Senate in 196 8. Against the background of the growing bitterness of the conflict in Vietnam, however, these efforts were destined to wither on the vine. 1969 to Present Toward the end of the decade both the Administration and Congress began to move toward improving the conditions under which American firms could participate in the increasing opportunities offered by East- West trade. In the 1969 Export Administration Act, Congress included a specific endorsement of trade in peaceful goods between U.S. firms and all countries with which the United States had commercial relations. On the Administration's part, travel restrictions with respect to China were lifted in several stages per- mitting travel by Americans to the PRC in the spring of 19 71. Shipping and trade restrictions also were successively eased, leading to announcement of a list of commodities that could be freely traded and a June, 19 71 removal of Treasury Foreign Assets Control Regulations that had prohibited PRC imports into the United States. Sino-American commercial relations reached a take-off point with the signing of the Shanghai Communique on January 28, 1972, during the President's visit to China. The United States and China announced that they would begin working toward facilitating the progressive development of bilateral trade. Further progress was made in April 1972, when the PRC for the first time invited American firms to attend the Spring Chinese Export Commodities Fair held in Canton. American purchases at the fair represented the first direct trade between the two countries since 1949. A year later, a U.S. Liaison office in Peking officially opened, pursuant to a February 1973 joint communique. Although commercial relations between the United States and China have not yet been fully normalized, the volume of trade has expanded substantially. From a 1972 level of $32 million, United States imports from the PRC increased to $64.0 million in 1973 and $114.7 million in 1974. United States exports grew from $60.2 million in 1972, to $689.1 million in 1973 and to $S20.5 million in 1974. 1 A- 8 With respect to Eastern Europe, President Nixon's visit to Romania in August of 1969 , the first by a U.S. President to a Warsaw Pact country, focused attention on an area of the world which had long been neglected by U.S. businessmen and policymakers. Less than a year later Assistant Secretary of Commerce Harold Scott led the first U.S. Government trade mission to Eastern Europe to survey the potential for expanded trade. These initial efforts by the United States set the tone for the generally favorable developments which were to follow. Most notable have been the gains made with Romania and Poland. In April of 1971 the Secretary of Commerce visited Romania and in November of that year Romania was made eligible for Export-Import Bank credits. The following March, the loan guarantees and investment insurance programs of the Overseas Private Investment Corporation (OPIC) were made available to Romania. Romanian eligibility for these programs was suspended earlier this year as a result of the passage of the Trade Act, but has been restored with the signing of the U.S.- Romanian Trade Agreement. For their part the Romanians took a number of steps to expand and facilitate trade with the world. In November 1973 Romania became the first and only communist country to join the IMF and IBRD. Of more practical importance to the American businessman were Romanian measures to make their own trading system more accessible to foreign companies, culminating in the Romanian laws and regulations of 1971 and 19 72 permitting the formulation of joint ventures with foreign firms and the decree of 1971 which allowed foreign firms to establish their own offices in Romania. As a first step toward improving trade ties with the U.S.S.R. , the Secretary of Commerce in November 1971 headed a delegation to Moscow to explore major issues hampering U.S. -Soviet commercial relations, including Lend-Lease debt, tariff treatment and credits. A-9 A joint U.S. Department of Commerce/U.S .S. R. Ministry of Foreign Trade fact finding group, agreed upon during this visit, met in Washington in January 19 72 to study trade prospects - for specific products in both directions, joint pro- ject possibilities and the situation in patents and licensing. This was followed by the initia- tion in early April of U.S. -Soviet negotiations on a Lend-Lease settlement. When U.S.S.R. Minister of Foreign Trade Patolichev visited Commerce Secretary Peterson in May 1972, refinement of the major bilateral issues continued, setting the stage for actual negotiations on MFN, Eximbank financing, a possible trade agreement, grain sales and American participation in the development and sale of Soviet raw materials and other products . President Nixon and General Secretary Brezhnev were sufficiently encouraged by the progress in the dialogue on commercial and related economic issues that they included among the "Basic Principles of the Relations Between the United States and the Union of Soviet Socialist Republics," agreed upon at the first Moscow Summit, the following statement: "the United States and the Soviet Union regard commercial and economic ties as an important and necessary element in the strengthening of their bilateral relations and thus will actively pro- mote the growth of such ties . They will facilitate cooperation between the relevant organizations and enterprises of the two countries and the conclusion of appropriate agreements, including long-term ones . " To give effect to these principles, a Joint Com- mercial Commission was established, and given the specific charge of negotiating an overall trade agreement. The Trade Agreement itself was con- cluded at the second session of the Commission in October 1972, at which time concurrent settlement of the Lend-Lease debt and the Maritime Agreement were also announced. The Trade Agreement provided that the Soviets would place large orders in this country for "machinery, plant and equipment, agricultural products, industrial products and consumer goods." In fact, our total exports to the U.S.S.R. amounted to $1.2 billion in 1973, more than double the pre- vious year's level, and over $600 million in 1974. The Trade Agreement provided that government commercial offices could be opened in Moscow and Washington. The Soviets have opened a facility in Washington and our commercial office in Moscow has been open for business for 18 months. The Trade Agreement also stipulated that office faci- lities for private firms (in the case of the United States) and government trading (in the case of the U.S.S.R.) would be established. The Soviets are moving along with plans to construct such a complex in Moscow for visiting businessmen, and their pur- chasing commission office in New York has been in operation for two years. Eighteen U.S. companies have been accredited to open offices in Moscow. The agreement provides that both governments will cooperate in efforts to avoid disruption of their respective domestic markets through exports of products from the other partner country. In this connection the Soviet side agreed to a procedure under which, after consultations, it would not ship products to the United States which the U.S. Govern- ment has advised will cause, threaten, or contribute to disruption of its domestic markets. Finally, the Trade Agreement provided that each country will treat exports from the other country in a non-discriminatory fashion; i_ .e. , each country will treat the exports of the other as it does ex- ports from any other country. This is another way of saying that we agreed to grant each other most- favored-nation status. "MFN" is the keystone of the agreement, for without it the trade agreement cannot come into effect. A-ll At the same time as the trade agreement, but not as part of it, the United States and Soviet Governments negotiated arrangements to make available to each other on a reciprocal basis trade credit facilities which are usual and customary in the financing of exports. On the U.S. side this required a Presidential determination under the legislation then in effect, that it was in the national interest for the Eximbank to engage in transactions with the Soviet Union. The Soviets executed an operating agreement with Eximbank which provided that, with respect to all matters — amount of credit, interest rate, repayment provisions — they would be treated in the same manner as any other country. Eximbank policies concerning private participation in credit facilitation applied and all credits in excess of $10 million were subject to the usual review by the National Advisory Council. In our relations with the Soviet Union, another important development occurred at the second Moscow Summit with the signing on June 29, 1974, of the Long-Term Agreement to Facilitate Economic, Industrial and Technical Cooperation. Presently this is the only valid agreement between the United States and the U.S.S.R. concerning economic- commercial relations, since the Soviet Union decided in January 1975 not to bring into force the 19 72 Trade Agreement. In Eastern Europe the tempo of U. S .-Romanian economic relations quickened at the end of 19 73 with the visit of Romanian President Ceausescu to the United States. During President Ceausescu 's visit a Joint Statement on Economic, Industrial and Technological Cooperation was signed, containing a provision for the establishment of a bilateral U.S .-Romanian Economic Commission. The following April the Commission held its first session in Bucharest under the joint chairmanship of Secretary of Commerce Dent and Romanian Minister of Foreign Trade Patan. A second session is set for late October in Washington. Also during President Ceausescu 's A-12 visit, agreement was reached between the U.S. Chamber of Commerce and the Romanian Chamber of Foreign Trade to form a U.S . -Romanian Economic Council whose function would be to facilitate contact between U.S. and Romanian companies. The Council held its first meeting in May of 19 74 in Bucharest and had its second session in Washington in May of this year. President Ford visited Bucharest in August, 19 75. Perhaps the most significant development in our trade relations with Romania was the signature of the U.S.- Romanian Trade Agreement on April 2 of this year, after several months of careful negotiations. Now that Congress has approved the agreement, we believe that it will provide a firm basis for the further development of our economic relations with Romania, by establishing the principle of MFN treatment in our trade and clearing the way for Romanian access to Export- Import Bank credits. In the case of Poland our economic relations are normal in many respects, thanks to extensive efforts by the United States and Polish Governments in recent years. Poland and Romania are the only socialist countries which presently enjoy most- favored-nation treatment and are eligible for Export- Import Bank credit programs. In December of 19 71 Secretary of Commerce Stans visited Poland, to be followed six months later by President Nixon. During the President's visit the United States and Poland established the joint American Polish Trade Commission. The Commission held its first session in Warsaw in August of 1972 under the joint chairmanship of Secretary, of Commerce Peterson and Minister of Foreign Trade Olechowski. At the second Commission meeting in Washington in November of the same year several agreements were signed, including the opening up of Export-Import Bank credits to Poland. In October of last year Polish First Secretary Gierek paid an official visit to the United States and signed six agreements relating to economic and scientific matters. It was also at this time that the U.S. and Polish Chambers of Commerce established the joint Polish-U.S. Economic Council. President Ford visited Warsaw in July, 19 75. A-13 The Polish Government also has taken steps to improve working conditions for U.S. firms. As a result of discussions at the November 1972 Commission meeting, Poland allowed U.S. companies to have their own offices in Poland. Access to end-users, generally a problem for U.S. firms in the socialist countries, was less difficult in- Poland and has continued to improve over time. Relations with Hungary , after a slow start, also began to move forward rapidly at the beginning of the 1970 's. Signs of things to come in 19 70 were the agreement by the Hungarians to repay short-term credits extended by U.S. banks before World War II and the opening of a Hungarian trade office in New York in 1970. In September of 19 71 Postmaster General Winton Blount became the first U.S. Cabinet official to visit Hungary. 19 72 witnessed the signature of U.S .-Hungarian civil aviation agreement in May and the visit of Secretary of State Rogers in July. The following February, Hungarian Deputy Premier Valyi visited the United States at the invitation of Secretary Dent and signed an agreement settling U.S. financial claims on Hungary. Last November Hungarian Foreign Trade Minister Biro came to the United States. Parallel with these events on the official level, was a continually evolving liberalization of Hungary's foreign trade system, which made it one of the most easy for American businessmen to deal with among the socialist countries. Contact with end-users became increasingly less difficult, with a number of Hungarian producing enterprises gaining the right to deal directly in foreign trade. In 19 71 and 197 2 Hungary issued legislation permitting the establishment of joint ventures, and in 1973 it passed a law which allowed foreign firms to open their own offices in Hungary. To facilitate further direct contact between U.S. and Hungarian companies, the U.S. and Hungarian Chambers of Commerce formed a joint U.S .-Hungarian Economic Council in March of this year. A-14 Relations with Bulgaria and Czechoslovakia have moved more slowly than those with other Eastern European countries, but here too there is evidence of a desire to solve problems and expand trade. In the case of Czechoslovakia, we have not been able to take full advantage of the considerable potential for expansion of U.S. exports because of the failure to resolve outstanding financial issues and to intro- duce MFN and Export-Import Bank credits into our trade. MFN and Exim credits are also important problems in our commercial relations with Bulgaria. There has been some progress, however, in the form of measures taken by the Bulgarians to expand the possibilities for cooperation with foreign firms. Evidence of the improvement in U. S. -Bulgarian relations was the visit to Bulgaria of Secretary Dent in April of 1974, followed by the visit to the United States of Bulgarian Deputy Premier Ivan Popov in September. With respect to the German Democratic Republic, the most industrialized of all the Warsaw Pact countries, we have just begun to examine the possibilities for the expansion of trade. We are hopeful that in the future we can move toward a relationship which will produce greater possibilities for our companies and a general expansion of commercial activities between our two countries. SIGNIFICANT EVENTS IN U.S. EAST WEST TRADE 1949 1951 1969 1971 June 1972 Feb May June July Aug Oct COCOM Formed Export Control Act Foreign Assets Control Act PRC Embargo Trade Agreements Extension Act MFN for Warsaw Pact Countries Revoked During Korean Conflict Poland MFN Restored Export Administration Act Presidential Visit — Romania PRC Trade Permitted by U.S. Firm Foreign Subsidiaries U.S. Imports From PRC Allowed Grain Exports Eased to USSR, E.E. and PRC. Eximbank Operations Authorized, Romania Sec. Commerce Visits USSR $125 Million US-Soviet Grain Sale, First Since 1964 Soviets Resume Lend Lease Talks Presidential Visit PRC, Shanghai Communique US-USSR Cooperation Agreement In Science and Technology Presidential Visit USSR, Poland American-Polish Trade Commission Established US-USSR Grain Agreement, $750 Million CCC Credit 1st Meeting US-USSR Joint Commercial Commission — Moscow 1st Meeting American-Polish Trade Commission — Warsaw Eximbank Operations Authorized — USSR Jackson Amendment First Introduced US-USSR Maritime Agreement SIGNIFICANT EVENTS IN U.S. EAST WEST TRADE US-USSR Trade Agreement, 2nd Meeting Joint Commercial Commission — Washington US-USSR Lend Lease Agreement Eximbank Operations Authorized — Poland 2nd Meeting American-Polish Trade Commission — Washington 1973 May Inauguration of National Council US-China Trade US-PRC Establish Liaison Offices June General Secretary Brezhnev Visits U.S. Sep US-USSR Trade and Economic Council Established 3rd Session American-Polish Trade Commission — Warsaw Oct 3rd Meeting US-USSR Joint Commercial Commission — Moscow Dec House Passed Trade Act With Vanik Amendment American-Romanian Economic Commission Formed Romanian President Ceausescu U.S. Visit 1974 Apr i 1st Meeting American-Romanian Economic Commission — Bucharest May 4th Meeting US-USSR Joint Commercial Commission — Washington June Presidential Visit — Moscow US-USSR Economic, Industrial & Technological Agreement Sep U.S. -East Germany Establish Diplomatic Relations 4th Meeting American-Polish Trade Commission — Washington U.S. -Bulgarian Economic Council Formed Export Administration Act Amended Polish First Secretary Gierek Visits U.S. Kissinger-Jackson Emigration Letters Exchanged Presidential Visit — Vladivostok, USSR SIGNIFICANT EVENTS IN U.S. EAST WEST TRADE 1974 Trade Act Enacted Soviets Decline 1972 U.S. Commercial Agreement Feb Experts Meeting — Moscow Mar Hungarian-US Economic Council Formed Apr U.S. -Romanian Trade Agreement Signed, Submitted to Congress 5th Meeting US-USSR Joint Commercial Commission — Moscow July Presidential Visits — Poland; Romania U.S. Romanian Trade Agreement Approved by Congress. MFN for Romania 5th American-Polish Trade Commission Meeting — Warsaw 2nd Meeting American-Romanian Economic Council — Washington APPENDIX B STATISTICAL DATA ON TRADE OF THE SOCIALIST COUNTRIES WITH THE U.S. AND OTHER INDUSTRIALIZED WESTERN COUNTRIES The data is this Appendix were extracted from a May 1975 Bureau of East-West Trade publication, "Selected Trade and Economic Data of the Centrally Planned Economies." APPENDIX B TABLE OF CONTENTS Definitions and Abbreviations Major Eastern European Trading Relations - 197 3 Hajor PRC Trading Relations - 1973 U.S.S.R.: • Exports to and Imports from Selected Trading Groups • I.W. Country Shares in Manufactured Goods • Composition of Trade with the U.S. and Other I.W. Countries • Top Ten U.S.S.R. Imports from the U.S. Bulgaria: • I.W. Country Shares in Manufactured Goods • Composition of Trade with the U.S. and Other I.W. Countries • Top Ten Bulgarian Imports from the U.S. and Other I.W. Countries B-l B-2 B-3 B-4 B-5 B-6 B-7 B-8 B-9 Czechoslovakia: East Germany: i I.W. Country Shares in Manufactured Goods • Composition of Trade with the U.S. and Other I.W. Countries i Top Ten Czechoslovakian Imports from the U.S. I.W. Country Shares in Manufactured Goods Composition of Trade with the U.S. and Other I.W. Countries Top Ten East German Imports from the U.S. B-ll B- -12 B- -13 B- -14 B- -15 B- -16 Hungary: • I.W. Country Shares in Manu- B-17 factured Goods • Composition of Trade with U.S. B-18 and other I.W. Countries • Top Ten Hungarian Imports from the U.S. B-19 Poland: • I.W. Country Shares in Manu- factured Goods B-20 • Composition of Trade with U.S. and Other I.W. Countries B-21 • Top Ten Polish Imports from the U.S. B-22 Romania: • I.W. Country Shares in Manufactured Goods B-2 3 • Composition of Trade with U.S. and Other I.W. Countries B-24 • Top Ten Romanian Imports from the U.S. B-25 PRC: • I.W. Country Shares in Manufactured Goods • Composition of Trade with U.S. and Other I.W. Countries • Top Ten PRC Imports from the U.S. B-26 B-27 B-28 B-l DEFINITIONS AND ABBREVIATIONS Eastern Europe (E.E.) Bulgaria, Czechoslovakia, East Germany, Hungary, Poland, Romania PRC Centrally Planned Economies (CPE's) Industrialized West (I.W.) Other I.W. Other FT 155 SITC People's Republic of China U.S.S.R. , PRC, Eastern Europe Austria, Belgium- Luxembourg, Canada, Denmark, France, Italy, Japan, Netherlands, Norway, Sweden, Switzerland, United Kingdom, United States, West Germany I.W. minus U.S. Countries not included in the categories above Bureau of Census publication of U.S. imports (annual) Bureau of Census publication of U.S. exports (annual) Standard International Trade Classification Major Eastern European Trading Relations - 1973 1. Bulgaria, GDR, Czechoslovakia, Poland, Hungary, Romania. 2. Canada, W. Germany, France, United Kingdom, Belgium-Luxemburg, Sweden, Norway, Switzerland, Italy, Denmark, Austria, Netherlands, Japan. Country Handbooks; U.N Trade Data Major PRC Trading Relations - 1973 (Millions of Dollars) Sources: Country Handbooks; U.N. Trade Data a. 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