Modest recovery seen in U.S. trade with U.S.S.R. and Eastern Europe; trade talks enhance Soviet receptivity to U.S. goods

MODEST RECOVERY SEEN IN U.S. TRADE WITH U.S.S.R. AND EASTERN EUROPE

Trade Talks Enhance Soviet Receptivity To U.S. Goods

Stronger economic performance throughout the region, progress in East European debt management, and resumption of U.S.-Soviet trade discussions will aid continued modest recovery of U.S. trade with these countries. Following two years of decline, U.S. exports to Eastern Europe grew slightly in 1984. Exports to the Soviet Union increased substantially due to strong agricultural sales.

Although still sluggish, growth rate declines in the region have been arrested or reversed. An improved financial picture is permitting some easing of consumer and investment austerity and increased Western imports. This, as well as record trade surpluses with the United States, opens possibilities for modest growth of East European imports from the United States in 1985. Greater Soviet receptivity to U.S. suppliers following recent trade talks could add significantly to U.S. manufactured sales of nonstrategic goods to that market.

U.S.-U.S.S.R. Trade Discussions

The U.S.-U.S.S.R. Working Group of Experts met in January to discuss bilateral trade issues for the first time since 1978. The two governments exchanged views on the obstacles to trade and prospects for trade expansion.

Commerce Department Under Secretary Lionel Olmer, head of the U.S. delegation to Moscow, explained that the United States Government is interested in expanded U.S.-Soviet trade consistent with current export controls and other U.S. laws governing commercial relations. Both sides agreed to focus on areas where progress is possible and to consider whether a Joint Commercial Commission meeting at the cabinet level would be useful.

Areas in which U.S. companies and Soviet organizations might undertake projects or expand trade also were discussed in a preliminary fashion. Both sides believed there was significant overlapping of areas of interest.

Economies Adjusting

With the exception of Poland, the East European countries are making steady progress towards reducing overall hardcurrency debt levels. For the other five, debt was down from a 1980 peak of $46 billion to $33 billion at year-end 1984.

Romania, which rescheduled over $2 billion in 1982 and 1983, met its debt servicing obligations in 1984 and is expected to meet debt payments in 1985. Poland's situation, too, appears somewhat firmer. The easing of some Western sanctions has permitted the initialing recently of debt restructuring agreements with Western governments and resumption of discussions with the IMF about eventual membership.

Despite the considerable improvement, little new financing is anticipated for Eastern Europe in 1985; Western banks remain cautious and the national governments are now committed to debtreduction strategies.

Continued recovery will permit planners throughout the region more flexibility to administer economic remedies and to increase modest hard-currency imports if they so desire. Striving to secure longterm growth, Hungary's policymakers have approved further productivity and incentive-enhancing reforms. Taking advantage of productivity and energy conservation gains, GDR officials plan further shifts toward higher processing industries. Hungary, the GDR and Czechoslovakia are easing import restraints. Western investment and jointventure partners are being sought for projects in Eastern Europe and abroad.

The economies of the area will undergo considerable economic adjustment under their 1986-90 plans. This will be a transition year during which future policies will gradually emerge. Growth of exports and earnings in hard-currency markets will continue to be the principal constraint on the region's imports.

Trade Prospects

Growth in the United States and a concerted export drive by several countries resulted last year in increased U.S. imports from Eastern Europe, a trend which should continue. The high value of the dollar will continue to moderate increases in U.S. sales to Eastern Europe and the Soviet Union in 1985 as scarce hard-currency continues to buy more in Western Europe.

Recent changes in export controls also have implications for the 1985 trade outlook. In 1984, the United States and its COCOM partners reached agreement on new rules for exports of computers, telephone switching and electronic equipment, and precision instruments to the Soviet Union and Eastern Europe. Controls on many small computers and mainframe computers were relaxed, while controls were imposed on strategically significant technologies not previously covered. Revised U.S. control lists for electronic computer and related equipment, computer software, and communications switching equipment were published in the Federal Register of Dec. 31. 1984, and became effective Jan. 1, 1985. U.S. Government efforts to review applications more expeditiously also advanced.

Trade with the Soviet Union and Eastern Europe will continue to be a special type of business, in a limited varety of imports and exports, often traded under countertrade and buyback arrangements. Yet for companies that know the parameters and how to compete, 1985 offers a more promising outlook than has been seen in several years.

Table: U.S. Trade with East Europe incl. U.S.S.R.

COPYRIGHT 1985 U.S. Government Printing Office
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