Foreign trade of the Soviet Union
Encyclopedia
Soviet foreign trade played only a minor role in the Soviet economy. In 1985, for example, exports and imports each accounted for only 4 percent of the Soviet gross national product. The Soviet Union
maintained this low level because it could draw upon a large energy and raw material base, and because it historically had pursued a policy of self-sufficiency. Other foreign economic activity included economic aid programs, which primarily benefited the less developed Council for Mutual Economic Assistance (COMECON) countries of Cuba
, Mongolia
, and Vietnam
, and substantial borrowing from the West to supplement hard-currency export earnings.
The Soviet Union conducted the bulk of its foreign economic activities with communist countries, particularly those of Eastern Europe
. In 1988 Soviet trade with socialist countries amounted to 62 percent of total Soviet foreign trade. Between 1965 and 1988, trade with the Third World
made up a steady 10 to 15 percent of the Soviet Union's foreign trade. Trade with the industrialized West, especially the United States
, fluctuated, influenced by political relations between East and West, as well as by the Soviet Union's short-term needs. In the 1970s, during the period of détente, trade with the West gained in importance at the expense of trade with socialist countries. In the early and mid-1980s, when relations between the superpowers were poor, however, Soviet trade with the West decreased in favor of increased integration with Eastern Europe.
The manner in which the Soviet Union transacted trade varied from one trade partner to another. Soviet trade with the Western industrialized countries, except Finland
, and most Third World countries was conducted with hard currency, that is, currency that was freely convertible. Because the ruble was not freely convertible, the Soviet Union could only acquire hard currency by selling Soviet goods or gold on the world market for hard currency. Therefore, the volume of imports from countries using convertible currency depended on the amount of goods the Soviet Union exported for hard currency. Alternative methods of cooperation, such as barter, counter trade, industrial cooperation, or bilateral clearing agreements were much preferred. These methods were used in transactions with Finland, members of Comecon, the People's Republic of China
, Yugoslavia
, and a number of Third World countries.
Commodity composition of Soviet trade differed by region. The Soviet Union imported manufactured, agricultural, and consumer goods from socialist countries in exchange for energy and manufactured goods. The Soviet Union earned hard currency by exporting fuels and other primary products to the industrialized West and then used this currency to buy sophisticated manufactures and agricultural products, primarily grain. Trade with the Third World usually involved exchanging machinery and armaments for tropical foodstuffs and raw materials.
Soviet aid programs expanded steadily from 1965 to 1985. In 1985 the Soviet Union provided an estimated US$6.9 billion to the Third World in the form of direct cash, credit disbursements, or trade subsidies. The communist Third World, primarily Cuba, Mongolia, and Vietnam, received 85 percent of these funds. In the late 1980s, the Soviet Union reassessed its aid programs. In light of reduced political returns and domestic economic problems, the Soviet Union could ill afford ineffective disbursements of its limited resources. Moreover, dissatisfied with Soviet economic assistance, several Soviet client states opened trade discussions with Western countries.
In the 1980s, the Soviet Union needed considerable sums of hard currency to pay for food and capital goods imports and to support client states. What the country could not earn from exports or gold sales it borrowed through its banks in London
, Frankfurt
, Vienna
, Paris
, and Luxembourg
. Large grain imports pushed the Soviet debt quite high in 1981. Better harvests and lower import requirements redressed this imbalance in subsequent years. By late 1985, however, a decrease in oil revenues
nearly returned the Soviet debt to its 1981 level. At the end of that same year the Soviet Union owed US$31 billion (gross) to Western creditors, mostly commercial banks and other private sources.
In the late 1980s, the Soviet Union attempted to reduce its hard-currency debt by decreasing imports from the West and increasing oil and gas exports to the West. It also sought increased participation in international markets and organizations. In 1987 the Soviet Union formally requested observer status in the General Agreement on Tariffs and Trade
and in 1988 signed a normalization agreement with the European Economic Community
. Structural changes in the foreign trade bureaucracy, granting direct trading rights to select enterprises, and legislation establishing joint ventures with foreigners opened up the economy to the Western technical and managerial expertise necessary to achieve the goals established by General Secretary Mikhail Gorbachev
's program of economic restructuring (perestroika
).
in 1953 did the government accord importance to foreign trade activities. Before that time, the Bolsheviks' ideological opposition to external economic control, their refusal to pay Russia's World War I
debts, and the chaos of the Russian Civil War
(1918-21) kept trade to the minimum level required for the country's industrial development. Active Soviet trade operations began only in 1921, when the government established the People's Commissariat of Foreign Trade.
The commissariat's monopoly on internal and external foreign trade was loosened, beginning in 1921, when the New Economic Policy
(NEP) decentralized control of the economy. Although the commissariat remained the controlling center, the regime established other organizations to deal directly with foreign partners in the buying and selling of goods. These organizations included state import and export offices, joint stock companies, specialized import and export corporations, trusts, syndicates, cooperative organizations, and mixed-ownership companies.
The end of the NEP period, the beginning of the First Five-Year Plan
(1928-32), and the forced collectivization of agriculture beginning in 1929 marked the early Stalin era. The government restructured foreign trade operations according to Decree Number 358, issued in February 1930, which eliminated the decentralized, essentially private, trading practices of the NEP period and established a system of monopoly specialization. The government then organized a number of foreign trade corporations under the People's Commissariat of Foreign Trade, each with a monopoly over a specific group of commodities. The foreign trade monopoly appeared in article 14h of the 1936 Soviet Constitution
.
Stalin's policy restricted trade as it attempted to build socialism
in one country. Stalin feared the unpredictable movement and disruptive influence of such foreign market forces as demand and price fluctuations. Imports were restricted to factory equipment essential for the industrialization drive that began with the First Five-Year Plan.
World War II
virtually halted Soviet trade and the activity of most foreign trade corporations. Trade was conducted primarily through Soviet trade representatives in Britain and Iran and the Soviet Buying Commission in the United States. After the war, Britain
and other West European countries and the United States imposed drastic restrictions on trade with the Soviet Union. Thus, Soviet foreign trade corporations limited their efforts to Eastern Europe and China, establishing Soviet-owned companies in these countries and setting up joint-stock companies on very favorable terms. Comecon, founded in 1949, united the economies of Eastern Europe with that of the Soviet Union.
Soviet trade changed considerably in the post-Stalin era. Postwar industrialization and an expansion of foreign trade resulted in the proliferation of all-union foreign trade organizations (FTOs), the new name for foreign trade corporations and also known as foreign trade associations. In 1946 the People's Commissariat of Foreign Trade was reorganized into the Ministry of Foreign Trade. The Ministry of Foreign Trade, through its FTOs, retained the exclusive right to negotiate and sign contracts with foreigners and to draft foreign trade plans. The State Committee for Foreign Economic Relations (Gosudarstvennyi komitet po vneshnim ekonomicheskim sviaziam--GKES), created in 1955, managed all foreign aid programs and the export of complete factories through the FTOs subordinate to it. Certain ministries, however, had the right to deal directly with foreign partners through their own FTOs.
On January 17, 1988, Izvestiia reported the abolition of the Ministry of Foreign Trade and GKES. These two organizations were merged into the newly created Ministry of Foreign Economic Relations, which had responsibility for administering foreign trade policy and foreign aid agreements. Other legislation provided for the establishment of joint enterprises. The government retained its monopoly on foreign trade through a streamlined version of the Soviet foreign trade bureaucracy as it existed before the January 17 decree.
(CPSU) and the Council of Ministers, six central bodies, the Ministry of Foreign Economic Relations, and numerous FTOs together planned, regulated, monitored, and carried out all Soviet foreign economic activity.
Six central bodies under the Council of Ministers played important roles in foreign economic relations. The import and export of goods, services, and resources were managed by the State Planning Committee (Gosudarstvennyi planovyi komitet--Gosplan
), the State Committee for Material and Technical Supply (Gosudarstvennyi komitet po material'no-tekhnicheskomu snabzheniiu--Gossnab
), and the State Committee for Science and Technology (Gosudarstvennyi komitet po nauke i tekhnike--GKNT). Gosplan formulated all import and export plans, coordinated the allocation of investment and other resources, and had final authority over all decisions concerning foreign trade, including trade levels and commodity composition. Gossnab coordinated the allocation of resources not handled by Gosplan and, as the central agency responsible for matching supplies with customers, played a major role in selecting and allocating imports. GKNT negotiated technical cooperation agreements and monitored license and patent purchases and sales in order to introduce new technology into the Soviet economy.
The State Committee on Prices (Gosudarstvennyi komitet po tsenam--Goskomtsen
), the Ministry of Finance, and the State Bank
(Gosudarstvennyi bank--Gosbank
) held jurisdiction over the financing of foreign trade. Goskomtsen established prices for all imports and some exports. The Ministry of Finance controlled the balance of payments (see Glossary) and monitored the impact of foreign trade on the state budget. Finally, Gosbank set the exchange rate for the ruble and managed the system of exchange within the Soviet Union. Gosbank supervised the Foreign Economic Activity Bank (Vneshnii ekonomicheskii bank--Vneshekonombank; until January 1, 1988, known as the Foreign Trade Bank), which provided international banking services for Soviet FTOs.
Some industrial ministries or other agencies, however, had their own FTOs. As of early 1987, for example, forty-eight FTOs were under the jurisdiction of the Ministry of Foreign Trade and nine under the GKES, whereas the Ministry of the Maritime Fleet, the Ministry of the Fishing Industry, and the Ministry of Trade, among others, had their own FTOs. In addition, certain other agencies had their own FTOs: the Chamber of Commerce and Industry, which handled international trade exhibitions; the State Committee for Physical Culture and Sports; the Central Union of Cooperatives; the State Committee for Publishing Houses, Printing Plants, and the Book Trade; the State Committee for Cinematography; and the State Committee for Science and Technology.
Taking such problems into account, the Twenty-Seventh Party Congress in February-March 1986 declared that the party anticipated a step-by-step restructuring of [the country's] foreign trade in order to make exports and imports more effective. In August of the same year, the CPSU Central Committee and the Council of Ministers adopted the decree On Measures for Improving Management of External Economic Relations,"" which outlined drastic steps to change the structure of the foreign trade bureaucracy.
Also in August 1986, the Council of Ministers' State Foreign Economic Commission became a permanent body within the council, giving more authority and visibility to the commission, the domestic activities of which previously went largely unreported. The staff was augmented, and the chairman acquired a rank equivalent to that of deputy prime minister. The new charter stated that the commission's role was "to formulate and implement the country's foreign economic strategy so as to enhance its potential contributions to acceleration (uskorenie--see Glossary), strengthen the Soviet position in the world economy, and promote structured and organized development of economic cooperation with all groups of countries."
Until 1987 the forty-eight FTOs subordinate to the Ministry of Foreign Trade administered more than 90 percent of Soviet foreign trade turnover. In 1987 the ministry lost control of 20 percent of Soviet foreign trade turnover. The government granted direct foreign trade rights to twenty-one ministries and state committees, sixty-seven industrial enterprises, and eight interbranch scientific production complexes. Exporting enterprises gained the right to retain part of their hard-currency earnings. Each ministry or enterprise was to pay for its investment imports with its own hard currency, and the heads of ministries and enterprises became personally responsible for the efficient use of hard-currency funds. These measures gave enterprises more influence in import decision making.
On January 13, 1987, the Council of Ministers adopted the resolution ""On Questions Concerning the Creation, on U.S.S.R. Territory, and the Activities of Joint Enterprises, International Associations, and Organizations with the Participation of Soviet and Foreign Organizations, Firms, and Management Bodies,"" or, more simply, a law on joint ventures. This legislation opened up enterprises inside the Soviet Union for the first time since the Bolshevik Revolution (see Glossary), to foreign participation. Joint ventures were to facilitate the acquisition and assimilation of Western technology, managerial know-how, and marketing abilities. Optimistic about the economic effects of their new undertaking, Soviet officials declared that 85 to 90 percent of ""the most important types of machinery"" would meet world technical standards by 1990. The Soviet Union's vast natural resources and its lucrative, previously closed, domestic market attracted Western companies. By August 1988, more than 50 joint ventures were registered in the Soviet Union, and approximately 300 were under negotiation.
Nevertheless, numerous obstacles arose in the first eighteen months after the government adopted the joint venture law. Complaints by Western partners dealt with uncertainties concerning Soviet trade regulations, problems with the supply of goods, the dilemma of the nonconvertibility of the ruble, difficulties finding qualified Soviet managers, problems in projecting production costs (as of 1989 Soviet domestic prices were administratively set and not based on market forces), and even complications finding office space in Moscow. Soviet trade officials' efforts to accommodate these complaints have included the decentralization of the foreign trade bureaucracy, the establishment of a management institute in Moscow, price reforms, and various legal reforms.
Before Western businessmen could recover from the confusion and disruption caused by this series of reforms, a second series began in early 1988. Effective January 1, 1988, the Foreign Trade Bank (Vneshnii torgovii bank--Vneshtorgbank) was renamed the Foreign Economic Activity Bank (Vneshnii ekonomicheskii bank-- Vneshekonombank). The name change did not signify a major change in the bank's duties but simply more accurately reflected the nature of its operations. Vneshtorgbank had branched out from the simple management of foreign trade transactions to provide currency, credit, and accounting services as well. In a change from its previous duties, Vneshekonombank was required to administer new procedures dealing with Soviet firms that had recently acquired direct foreign trade rights.
Also on January 1, 1988, the New Enterprise Law went into effect, making enterprises economically accountable for their own business operations by 1989. According to this law, the government had the power to disband unprofitable businesses, and each ministry and its subordinate enterprises gained the responsibility for their own foreign trade activities. In addition, Gosplan, Gossnab, and GKNT relinquished some of their rights to allocate money and goods. Finally, the Ministry of Foreign Trade lost control of 15 percent more of its foreign trade turnover when fourteen additional enterprises and four other ministries acquired direct foreign trade rights.
Yet probably the most significant change in the foreign trade mechanism occurred on January 17, 1988, when Izvestiia announced the abolition of the Ministry of Foreign Trade and the GKES. The Ministry of Foreign Economic Relations, headed by Konstantin F. Katushev, former head of the GKES, assumed the duties of the two agencies. ""Thus, the state monopoly on foreign trade and its state-wide aspects remains centralized,"" reported the Soviet foreign trade monthly Vneshniaia torgovlia (Foreign Trade), ""while operational functions are continually being shifted to the business level."" In March 1988, the journal reported that approximately 20 percent of foreign trade turnover was handled by the eighty-one firms that had been granted the right to deal directly with foreigners.
Other reforms followed in April 1988, when the Central Committee and the Council of Ministers agreed on a new charter for the Chamber of Commerce and Industry. In general, the chamber monitored foreign trade conducted outside the new Ministry of Foreign Economic Relations. In addition, the chamber assisted Soviet production enterprises in locating Western partners and learning foreign trade practices.
Business with socialist countries was conducted on a bilateral, country-by-country basis in which imports balanced exports. Soviet oil exports to these countries bought machinery and equipment and industrial consumer goods, as well as political support without the expenditure of freely convertible foreign currency. In addition, Soviet aid programs, which took the form of direct loans or trade subsidies, almost exclusively involved socialist countries.
and to countereact trade boycotts imposed after World War II by the United States and by Britain and other West European countries. Ostensibly, Comecon was organized to coordinate economic and technical cooperation between the Soviet Union and the member countries. In reality, the Soviet Union's domination over Comecon activities reflected its economic, political, and military power. In 1989 Comecon comprised ten countries: the six original members-- Bulgaria, Czechoslovakia, Hungary, Poland, Romania, and the Soviet Union--plus the German Democratic Republic
(East Germany, which joined in 1950), Mongolia (1962), Cuba (1972), and Vietnam (1978). Albania, although it joined in February 1949, has not participated in Comecon activities since 1961.
Since 1949 the Soviet Union has traded primarily with other Comecon members. In 1960 the Soviet Union sent 56 percent of its exports to and received 58 percent of its imports from Comecon members. From that time, the volume of this trade has steadily increased, but the proportion of Soviet trade with Comecon members decreased as the Soviet Union sought to increase trade with Western industrialized countries. In contrast to 1960, trade with Comecon members accounted for only 42 percent of Soviet exports and 43 percent of Soviet imports in 1980.
The European members of Comecon have looked to the Soviet Union for oil; in turn, they have provided machinery, equipment, agricultural goods, industrial goods, and consumer goods to the Soviet Union. Because of the peculiarities of the Comecon pricing system, throughout the 1970s and early 1980s Comecon prices for Soviet oil were lower than world oil prices. Western specialists have debated the political motivation of this implicit price subsidy to Comecon members. The cohesiveness within Comecon members seemed remarkable when in 1985 the fall in the world price left Comecon members paying above-market prices for Soviet oil.
The membership of Cuba, Mongolia, and Vietnam in Comecon has served Soviet foreign policy interests more than the economic welfare of Comecon members. In general, the more economically developed European members have supported the three less developed members by providing a large market for their exports, often at above-market prices. Most of Cuba's sugar and nickel and all of Mongolia's copper and molybdenum have been imported by the Soviet Union. In addition, the Soviet Union has established naval and air bases in Cuba and Vietnam.
Since 1985 Gorbachev has called for an increase in trade with Comecon members. At the Twenty-Seventh Party Congress in FebruaryMarch 1986, both he and Prime Minister Nikolai Ryzhkov
stressed the need to improve cooperation with the socialist countries on the basis of Comecon's Comprehensive Program for Scientific and Technical Cooperation up to the Year 2000. This program stressed the self-sufficiency of Comecon countries in five key areas: electronics, automation of production, nuclear power, biotechnology, and development of new raw materials. It also called for improvement of plan coordination, joint planning, Comecon investment strategy, production specialization, and quality of machinery and equipment exported to the Soviet Union.
negotiated a formal agreement of cooperation with Comecon. This relationship allowed Yugoslavia to maintain its nonaligned position while acquiring almost all the rights and privileges of a full Comecon member. In the 1980s, the Soviet Union's trade relationship with Yugoslavia resembled its relationship with full members of Comecon. The Soviet Union exported fuel, ferrous metals, plastics, and fertilizer to Yugoslavia. Yugoslavia's machine-tool, power-engineering, shipbuilding, and consumer goods industries supplied the Soviet Union with soft-currency goods.
In the late 1970s and early 1980s, Yugoslavia became more dependent on Soviet oil, as hostilities in the Persian Gulf cut off its supply of Iraqi oil. In addition, from 1970 well into the 1980s actual trade with the Soviet Union exceeded planned trade volumes. Thus, in 1983 the Yugoslav government informed Soviet Prime Minister Nikolai Tikhonov
of its desire to decrease trade with the Soviet Union in the mid- to late 1980s. Because of the huge foreign currency debt accumulated by Yugoslavia from 1981 to 1985, however, the Soviet Union remained its most important trade partner in the late 1980s. In fact, for some Yugoslav products, such as shoes, the Soviet Union was the sole foreign buyer.
In the 1980s, the Soviet Union proved to be an ideal trade partner for China. China's exports were not competitive on the world market, and its foreign currency reserves were severely depleted by record foreign trade deficits in 1984 and 1985. Likewise, the Soviet Union, producing dated technology that was difficult to market in more industrially advanced countries and acquiring a growing hard-currency debt, eagerly pursued the Chinese market. Each country would sell the other goods it could not market elsewhere, and each could conserve scarce hard currency by bartering. The Soviet Union possessed machinery, equipment, and technical know-how to help China develop its fuel and mineral resources and power, transportation, and metallurgical industries. China could offer a wealth of raw materials, textiles, and agricultural and industrial consumer goods.
Stepped-up economic relations reflected Soviet flexibility in overcoming various political and administrative stumbling blocks. By mid-1988 Gorbachev was speaking of reducing Soviet troops on the Chinese border, Vietnam had removed half of its troops from Cambodia, and Soviet troops had begun their withdrawal from Afghanistan
. Reforms of the Soviet foreign trade complex established free trade zones (see Glossary) in the Soviet Far East and Soviet Central Asia, simplifying border trade between the two countries. Soviet trade officials persuaded the Chinese to expand business ties beyond border trade into joint ventures, coproduction contracts, and the export of surplus Chinese labor to the Soviet Union. The Peking Restaurant in Moscow, specializing in Chinese cuisine, became the first joint venture between the Soviet Union and China. In April 1988, China's minister of foreign economic relations and trade, Zheng Toubin, stated that China would continue to expand trade with the Soviet Union ""at a rapid pace,"" thus rewarding Soviet persistence in expanding trade with China.
, Canada
, Japan
, New Zealand
, South Africa
, and the United States. Soviet trade with industrialized countries, except Finland, consisted of simple purchases paid for on a cash or credit basis, direct exchange of one good for another (Pepsi-Cola for Stolichnaya vodka, for example), or industrial cooperation agreements in which foreign firms participated in the construction or operation of plants in the Soviet Union. In the latter instances, payments were rendered in the form of the output of new plants. By contrast, trade with Finland, which does not have a convertible currency, was conducted through bilateral clearing agreements, much like Soviet trade with its Comecon partners.
In the 1970s and 1980s, the Soviet Union relied heavily on various kinds of fuel exports to earn hard currency, and Western partners regarded the Soviet Union as an extremely reliable supplier of oil and natural gas. In the 1980s, the Soviet Union gave domestic priority to gas, coal, and nuclear power in order to free more oil reserves for export. This was necessary because of higher production costs and losses of convertible currency resulting from the drop in world oil price
. The development of natural gas for domestic and export use was also stimulated by these factors. Between 1970 and 1986, natural gas exports rose from 1 percent to 15 percent of total Soviet exports to the West.
Because of the inferior quality of Soviet goods, the Soviet Union was unsuccessful in increasing its exports of manufactured goods. In 1987 only 18 percent of Soviet manufactured goods met world technical standards. As an illustration of these problems in quality, Canadian customers who had purchased Soviet Belarus tractors often found that the tractors had to be overhauled on arrival before they could be sold on the Canadian market. In 1986 less than 5 percent of Soviet exports to the West consisted of machinery. Other Soviet nonfuel exports in the 1990s included timber, exported primarily to Japan, and chemicals, the export of which grew substantially in 1984 and 1985.
In the 1980s, Soviet imports from Western industrialized countries generally exceeded exports, although trade with the West decreased overall. One-half of Soviet agricultural imports were from developed countries, and these imports made up a considerable portion of total imports from the West. Industrial equipment formed one-quarter of Soviet imports from the West, and iron and steel products, particularly steel tubes for pipeline construction, made up most of the rest. Over the course of the 1980s, high-technology items gained in importance as well.
In the 1970s and 1980s, Soviet trade with the Western industrialized countries was more dynamic than was Soviet trade with other countries, as trade patterns fluctuated with political and economic changes. In the 1970s, the Soviet Union exchanged its energy and raw materials for Western capital goods, and growth in trade was substantial. Soviet exports jumped 55 percent, and imports jumped 207 percent. The Soviet Union ran a trade deficit with the West throughout this period.
In 1980 the Soviet Union exported slightly more to the West than it imported. After a temporary shortage of hard currency in 1981, the Soviet Union sought to improve its trade position with the industrialized countries by keeping imports at a steady level and by increasing exports. As a result, the Soviet Union began to run trade surpluses with most of its Western partners. Much of the income earned from fuel exports to Western Europe was used to pay off debts with the United States, Canada, and Australia, from which the Soviet Union had imported large quantities of grain.
In 1985 and 1986, trade with the West was suppressed because of heightened East-West political tensions, successful Soviet grain harvests, high Soviet oil production costs, a devalued United States dollar, and falling oil prices. Despite increases in oil and natural gas exports, the Soviet Union's primary hard-currency earners, the country was receiving less revenue from its exports to the West. The Soviet Union sold most of its oil and natural gas exports for United States dollars but bought most of its hardcurrency imports from Western Europe. The lower value of the United States dollar meant that the purchasing power of a barrel of Soviet crude oil, for example, was much lower than in the 1970s and early 1980s. In 1987 the purchasing power of a barrel of Soviet crude oil in exchange for West German goods had fallen to one-third of its purchasing power in 1984.
With the exception of grain, phosphates used in fertilizer production, and high-technology equipment, Soviet dependence on Western imports historically has been minimal. A growing hardcurrency debt of US$31 billion in 1986 led to reductions in imports from countries with hard currencies. In 1988 Gorbachev cautioned against dependence on Western technology because it required hard currency that ""we don't have."" He also warned that increased borrowing to pay for imports from the West would lead to dependence on international lending institutions.
In 1987 total trade between the United States and the Soviet Union amounted to US$2 billion. The Soviet Union exported chemicals, metals (including gold), and petroleum products in addition to fur skins, alcoholic beverages, and fish products to the United States and received agricultural goods--mostly grain-- and industrial equipment in return. The value of exports to the Soviet Union in 1987 amounted to US$1.5 billion, three-quarters of which consisted of agricultural products and one-quarter industrial equipment.
Competition from other parts of the world, improvements in Soviet grain production, and political disagreements between the two countries adversely affected American agricultural exports to the Soviet Union in the 1980s. In 1985 and 1986, trade was the lowest since 1973. The Soviet Union had turned to Canada and Western Europe for one-third of its grain supplies, as well as to Argentina, Eastern Europe, Australia, and China. United States government price subsidies helped to expand grain exports in 1987 and 1988.
The United States has long linked trade with the Soviet Union to its foreign policy toward the Soviet Union and, especially since the early 1980s, to Soviet human rights policies. In 1949, for example, the Coordinating Committee for Multilateral Export Controls ( CoCom--see Glossary) was established by Western governments to monitor the export of sensitive high technology that would improve military effectiveness of members of the Warsaw Pact
and certain other countries. The Jackson-Vanik Amendment
, which was attached to the 1974 Trade Reform Act, linked the granting of most-favored-nation to the right of Soviet Jews to emigrate.
In 1987 the United States had reason to reassess its trade policy toward the Soviet Union. The Soviet Union had restructured and decentralized authority for trade under the Ministry of Foreign Trade, made improvements in human rights policies, cooperated in arms control negotiations, and shown a willingness to experiment with joint ventures. Furthermore, the United States government recognized that restrictive trade policies were hurting its own economic interests. In April 1988, Soviet and American trade delegations met in Moscow to discuss possibilities for expanded trade. Through increased trade with the United States, the Soviet Union hoped to learn Western management, marketing, and manufacturing skills. Such skills would increase the ability of the Soviet Union to export manufactured goods, and thus earn hard currency, and would improve its competitiveness on the world market. The delegations declared that Soviet-American cooperation would be expanded in the areas of food processing, energy, construction equipment, medical products, and the service sector.
Although oil and gas were the primary Soviet exports to Western Europe, they represented only a small percentage of Western Europe's substantial fuel imports: Soviet oil provided 3 percent and natural gas 2 percent of the energy consumed in Western Europe. The completion of the Urengoy-Uzhgorod export pipeline project increased the importance of Soviet natural gas to Western Europe in the second half of the 1980s. In 1984 France, Austria, the Federal Republic of Germany (West Germany), and Italy began receiving natural gas from western Siberia through the pipeline, for which the Soviet Union was paid in hard currency, pumping equipment, and large-diameter pipe. By 1990 the Soviet Union expected to supply 3 percent of all natural gas imported by Western Europe, including 30 percent of West Germany's gas imports.
Unlike the United States, the countries of Western Europe have not viewed trade as a tool to influence Soviet domestic and foreign policies. Western Europe rejected the trade restrictions imposed by the United States after the Soviet invasion of Afghanistan in 1979 and the declaration of martial law in Poland in 1980. From 1980 to 1982, the United States embargoed the supply of equipment for the Urengoy-Pomary-Uzhgorod pipeline
, but Western Europe ignored United States pleas to do the same.
Despite the poor relations between the superpowers in the early and mid-1980s, Western Europe tried to improve international relations with the Soviet Union. One major step in this direction was the normalization of relations between Comecon and the European Economic Community (EEC). After fifteen years of negotiations, the EEC approved an accord that established formal relations with Comecon effective June 25, 1988. Although it did not establish bilateral trade relations, the agreement ""set the stage"" for the exchange of information. This accord marked Comecon's official recognition of the EEC.
Numerous controversies have thwarted Soviet-Japanese trade. The Toshiba affair, in which Japan was accused of shipping equipment to the Soviet Union that was prohibited by CoCom, caused Japanese-Soviet trade to decrease in 1987. In addition, the Japanese constantly prodded the Soviet Union to return the islands
off the Japanese island of Hokkaidō
that had come under Soviet control after World War II. For its part, the Soviet Union complained of the trade imbalance and static structure of Japanese-Soviet trade.
In the late 1980s, the Soviet Union tried to increase its exports to Japan and diversify the nature of the countries' relationship. Soviet proposals have included establishing joint enterprises to exploit natural resources in Siberia and the Soviet Far East, specifically, coal in the southern Yakutiya area of Siberia and petroleum on Sakhalin; cooperating in the monetary and credit fields; jointly surveying and studying marine resources and peaceful uses of space; and establishing joint activities in other countries. The Soviet Union also proposed branching out into joint ventures in the chemical and wood chip industries, electronics, machine tools, and fish processing
. The first Japanese-Soviet joint enterprise, a wood-processing plant in the Soviet Far East, began operation in March 1988. The Soviet Union provided the raw materials, and Japan supplied the technology, equipment, and managerial expertise.
and Vneshtorgbank
. A steady growth in trade between the two countries occurred throughout the 1970s and 1980s.
In the late 1980s, Finland was the Soviet Union's second most important trading partner among the Western nations, after West Germany. Trade with Finland, however, was based on bilateral clearing agreements rather than on exchange of hard currency used with other Western trading partners. In 1986 the Soviet Union shipped 4 percent of its exports to and received 3 percent of its imports from Finland. Finland provided the Soviet Union with ships, particularly those suited to Arctic conditions; heavy machinery; and consumer goods such as clothing, textiles, processed foodstuffs, and consumer durables. The Soviet Union exported oil, natural gas, and fuel and technology for the nuclear power industry.
The system of bilateral clearing agreements on which Soviet-Finnish trade was based required that any increase in Finnish imports from the Soviet Union be accompanied by a corresponding increase in exports to the Soviet Union in order to maintain the bilateral trade balance. At the beginning of the 1980s, Finland increased its imports of Soviet oil, which allowed it to increase its exports to the Soviet Union. This procedure accounted for the steady growth in Soviet-Finnish trade into the late 1980s. By 1988 about 90 percent of Soviet exports to Finland consisted of oil. Because the Finns imported more oil than they could consume domestically, they reexported it to other Scandinavia
n and West European countries. The Finns complained in late 1987 and early 1988 of a decline in Soviet ship orders and delinquent payments. The share of Finland's exports to the Soviet Union, which had previously been as high as 25 percent, dropped to 15 percent in 1988.
, Angola
, Iraq
, and Nicaragua
, but excludes the developing countries ruled by Marxist-Leninist parties, such as Cambodia
, Laos
, and Vietnam
. Soviet trade with the Third World has been marked by two characteristics. First, although the Soviet Union has generally played only a minor role in Third World trade, Soviet imports or exports have formed a large portion of the total trade of some countries. Second, the Soviet Union has concentrated its trade with the Third World in the hands of relatively few partners. For example, in 1987 India
, Iran
, Iraq
, Syria
, Argentina
, Egypt
, Turkey
, Afghanistan
, Nigeria
, and Malaysia together accounted for 75 percent of Soviet imports from and 80 percent of Soviet exports to the Third World.
Although Soviet trade with the Third World increased in volume from 1965 through 1985, it remained between 13 and 15 percent of total Soviet trade for exports and 10 and 12 percent for imports. The Third World's trade with the Soviet Union, however, decreased in the 1970s and into the 1980s. These data include Cuba, since the only figures available concerning Third World trade with the Soviet Union include Cuba. As a percentage of overall Third World trade, the Soviet Union's share fell from 3.9 percent in 1970 to 2.5 percent in 1981. Deducting Soviet trade with Cuba, which has been considerable, would show an even smaller role played by the Soviet Union in Third World trade. In the late 1980s, the Soviet Union sought arrangements that would allow it to maintain a level of trade that minimized the loss of hard currency.
, including arms sales, with the Third World was positive from 1980 through 1986. In fact, the Soviet Union's positive hard-currency trade balance with the Third World exceeded its hard-currency deficit with the Western industrialized countries in 1985 and 1986. For this reason, the Soviet Union showed an overall positive hardcurrency trade balance for these years.
Until the mid-1970s, bilateral clearing agreements were the primary means by which the Soviet Union settled accounts with its Third World partners. By the early 1980s, hard-currency payments had become the preferred means of settlement. Clearing agreements were used in less than half of all trade transactions. On occasion, the Soviet Union bartered arms for oil.
(South Yemen), and Turkey. From 1980 through 1984, fuel, mostly oil, made up approximately 33 percent of overall Soviet exports to the Third World, including 50 percent of its exports to Asia and 60 to 70 percent of its exports to Latin America. Since 1985 greater competition on the world market resulting from falling world oil prices and rising Soviet extraction costs has prompted the Soviet Union to try to replace its export of oil with manufactured goods.
The Soviet Union has been the largest arms exporter to the Third World for a number of years. Major arms customers were concentrated in the belt of countries that stretches from North Africa to India, close to the Soviet Union's southern border. Some 72 percent of Soviet weapons exports went to Algeria, India, Iraq, Libya, and Syria. Other important customers included Afghanistan, Angola, Ethiopia
, South Yemen, and the Yemen Arab Republic
(North Yemen). The Soviet Union lost arms customers in the 1980s, however, when Brazil and Egypt began to expand their arms sales to the Third World. India, which had experienced improvements in its hardcurrency balance in the 1980s, also started to buy arms from other suppliers. In an effort to retain its share of Indian arms customers, the Soviet Union continued to offer India its most sophisticated weapons at even more attractive rates.
The Soviet Union has long been an importer of Third World agricultural products. These imports increased dramatically after 1980 because of poor Soviet harvests from 1979 into the early 1980s and the United States grain embargo against the Soviet Union in 1980 and 1981. From 1980 to 1985, food and agricultural goods, half of them grain, made up 50 percent of Soviet imports from the Third World. In the first nine months of 1986, the decrease in grain purchases accounted for most of the 22 percent drop in imports from the Third World.
Africa and Latin America supplied most of the food imports other than grain. Throughout the 1980s, food imports steadily rose, but imports from individual countries fluctuated. Because of these fluctuations, the Soviet Union was often considered an unstable trade partner compared with Western customers.
Because the Soviet Union was a major producer and exporter of most of the world's minerals, its import requirements for many other commodities (nonferrous metals, in particular) were sporadic. Nonetheless, the Soviet Union was a stable importer of some minerals, particularly bauxite and phosphate rock. The Soviet Union imported up to 50 percent of its bauxite
from Guinea
, Guyana
, India, Indonesia, and Jamaica. Phosphate rock was abundant in the Soviet Union, but because extraction costs were high most of this mineral was imported from Morocco and Syria.
A decline in Soviet imports of manufactured goods in the 1970s led Third World countries to pressure the Soviet Union to increase the import of these goods in the 1980s. In 1982 the Soviet demand for Third World manufactures began to rise. By 1984 manufactured goods, including manufactured consumer goods, made up 25 percent of Soviet imports from the Third World.
Beginning in 1973, in an effort to earn hard currency, the Soviet Union began to import oil from Third World countries for reexport to Western industrialized countries. This activity slowed from 1980 to 1982, recovered in 1983 through 1985, and continued to increase in 1986. Late that year, the Soviet Union signed an agreement with the Organization of Petroleum Exporting Countries (OPEC) that restricted the amount of oil it could buy for reexport. By 1988 this agreement had not cut total Soviet oil receipts, however, because oil was paid to the Soviet Union as compensation in arms sales.
In 1987 about 50 percent of the Soviet Union's total identified exports to the Third World went to Asia, and India was the Soviet Union's biggest trade partner. In exchange for Soviet oil and oil products, India supplied food, raw agricultural material, clothing, textiles, and machinery. India was also the Soviet Union's sole significant Third World supplier of equipment and advanced technology, e.g., computers and copiers, much of which was produced by Indian subsidiaries of Western multinational corporations. Malaysia, another important partner of the Soviet Union in Asia, was an important supplier of rubber, palm oil, and tin.
From 1980 to 1983, Soviet exports to Africa increased slightly to 30 percent of its Third World exports and decreased thereafter. Imports from Africa fluctuated from 1980 to 1985 but remained at about 25 percent. Nigeria was the Soviet Union's only important trade partner in sub-Saharan Africa, receiving Soviet machinery and exporting cocoa.
Exports to Latin America
grew during the 1980s and reached 8 percent in 1985. Latin America's share of Soviet Third World imports was high (40 percent in 1982) because of large imports of Argentine grain. As the Soviet Union's main grain supplier, Argentina was the Soviet Union's most significant import partner in the Third World in 1980, 1981, and 1983. In 1986 the Soviet Union renewed its grain agreement with Argentina for another five years. However, because of a US$11 billion trade deficit with Argentina that the Soviet Union had amassed from 1980 through 1985 and the successful Soviet harvest of 1986, the Soviet Union cut its grain imports from Argentina drastically. In 1986 they were at a six-year low.
In 1986 the countries that had observer status in Comecon were Afghanistan, Angola, Ethiopia, Mozambique, Nicaragua, and South Yemen. These countries were all characterized by political instability, low GNP, and low export potential. The share of exports to this group rose from 14 percent of total Soviet identified exports to the Third World in 1980 to 28 percent in the first nine months of 1986. Afghanistan, a recipient of Soviet machinery and military equipment, was the Soviet Union's most significant partner in this group. By contrast, trade with Mozambique and South Yemen was negligible.
Countries that had privileged affiliations with Comecon countries were Algeria, Benin, Burma, Congo, Guinea (until 1984), Iraq, Madagascar, Nicaragua (1979-85), Nigeria, Syria, and Tanzania and, at times, Guinea-Bissau, Mali, Seychelles, and Zimbabwe. Throughout the 1980s, Soviet exports to these countries oscillated, for example, from 27 percent in 1981 to 15 percent in 1983. This fluctuation, as well as fluctuations in imports, was primarily a result of changes in trade with Iraq, a major Soviet arms-for-oil trading partner in the Third World.
delivered his report on the CPSU's economic policy on June 12, 1985, he noted that growth in exports, particularly machinery and equipment, was slow because the poor quality of Soviet goods prohibited them from being competitive on the world market. In the next three years, Gorbachev introduced many changes that would enable the foreign trade complex to better support his economic policy of acceleration. By May 1988, the structure of the Soviet foreign trade complex had been changed, and operations had been dramatically overhauled.
The price reform called for by the Twenty-Seventh Party Congress was an important step in improving Soviet international economic involvement. Soviet officials admitted that pricing was "economically unsubstantiated" and "unrealistic." They understood that although a fully convertible ruble would not be possible for some time, prices that more accurately reflected production costs, supply and demand, and world market prices were essential for developing a convertible currency. The nonconvertible ruble and the Soviet pricing system discouraged Western businessmen who could not accurately project production costs nor easily convert their ruble profits.
The new joint venture law, passed on January 13, 1987, opened up the Soviet economy to foreign participation, particularly in manufacturing. It was believed that the experience gained in such ventures would facilitate integration into the world economy. Specifically, through upgraded production processes, the Soviet Union could export more competitive manufactured goods and decrease its dependency on energy and raw materials to earn hard currency.
In August 1987, the Soviet Union formally requested observer status in the General Agreement on Tariffs and Trade(GATT). The Soviet Union also expressed its desire to join other international economic organizations and establish contacts with other regional groups. A major step in this direction occurred in 1988 when the Soviet Union signed a normalization agreement with the EEC. The Soviet government, however, professed no interest in joining the World Bank
or the International Monetary Fund
(IMF). Although Soviet officials claimed that the international monetary system "was not managed properly," it is more likely that IMF and World Bank regulations were the obstacles: both institutions required that members' currencies be freely convertible and that members provide accurate information concerning gold sales and economic performance.
Gorbachev transformed the role of foreign trade in the Soviet economy. Whereas imports previously were regarded exclusively as a vehicle to compensate for difficulties in the short term, Soviet economists under Gorbachev declared that imports should be regarded as alternatives to domestic investment and that exports should serve to gauge the technical level of domestic production. Foreign economic ties were to support growth in production beyond the capacities of the domestic economy. The Soviet Union could thus take a place in the world market that was commensurate with its scientific and technical progress and political weight.
, money laundering
and funding of Communist parties.
Examples:
Soviet Union
The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....
maintained this low level because it could draw upon a large energy and raw material base, and because it historically had pursued a policy of self-sufficiency. Other foreign economic activity included economic aid programs, which primarily benefited the less developed Council for Mutual Economic Assistance (COMECON) countries of Cuba
Cuba
The Republic of Cuba is an island nation in the Caribbean. The nation of Cuba consists of the main island of Cuba, the Isla de la Juventud, and several archipelagos. Havana is the largest city in Cuba and the country's capital. Santiago de Cuba is the second largest city...
, Mongolia
Mongolia
Mongolia is a landlocked country in East and Central Asia. It is bordered by Russia to the north and China to the south, east and west. Although Mongolia does not share a border with Kazakhstan, its western-most point is only from Kazakhstan's eastern tip. Ulan Bator, the capital and largest...
, and Vietnam
Vietnam
Vietnam – sometimes spelled Viet Nam , officially the Socialist Republic of Vietnam – is the easternmost country on the Indochina Peninsula in Southeast Asia. It is bordered by China to the north, Laos to the northwest, Cambodia to the southwest, and the South China Sea –...
, and substantial borrowing from the West to supplement hard-currency export earnings.
The Soviet Union conducted the bulk of its foreign economic activities with communist countries, particularly those of Eastern Europe
Eastern Europe
Eastern Europe is the eastern part of Europe. The term has widely disparate geopolitical, geographical, cultural and socioeconomic readings, which makes it highly context-dependent and even volatile, and there are "almost as many definitions of Eastern Europe as there are scholars of the region"...
. In 1988 Soviet trade with socialist countries amounted to 62 percent of total Soviet foreign trade. Between 1965 and 1988, trade with the Third World
Third World
The term Third World arose during the Cold War to define countries that remained non-aligned with either capitalism and NATO , or communism and the Soviet Union...
made up a steady 10 to 15 percent of the Soviet Union's foreign trade. Trade with the industrialized West, especially the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, fluctuated, influenced by political relations between East and West, as well as by the Soviet Union's short-term needs. In the 1970s, during the period of détente, trade with the West gained in importance at the expense of trade with socialist countries. In the early and mid-1980s, when relations between the superpowers were poor, however, Soviet trade with the West decreased in favor of increased integration with Eastern Europe.
The manner in which the Soviet Union transacted trade varied from one trade partner to another. Soviet trade with the Western industrialized countries, except Finland
Finland
Finland , officially the Republic of Finland, is a Nordic country situated in the Fennoscandian region of Northern Europe. It is bordered by Sweden in the west, Norway in the north and Russia in the east, while Estonia lies to its south across the Gulf of Finland.Around 5.4 million people reside...
, and most Third World countries was conducted with hard currency, that is, currency that was freely convertible. Because the ruble was not freely convertible, the Soviet Union could only acquire hard currency by selling Soviet goods or gold on the world market for hard currency. Therefore, the volume of imports from countries using convertible currency depended on the amount of goods the Soviet Union exported for hard currency. Alternative methods of cooperation, such as barter, counter trade, industrial cooperation, or bilateral clearing agreements were much preferred. These methods were used in transactions with Finland, members of Comecon, the People's Republic of China
People's Republic of China
China , officially the People's Republic of China , is the most populous country in the world, with over 1.3 billion citizens. Located in East Asia, the country covers approximately 9.6 million square kilometres...
, Yugoslavia
Yugoslavia
Yugoslavia refers to three political entities that existed successively on the western part of the Balkans during most of the 20th century....
, and a number of Third World countries.
Commodity composition of Soviet trade differed by region. The Soviet Union imported manufactured, agricultural, and consumer goods from socialist countries in exchange for energy and manufactured goods. The Soviet Union earned hard currency by exporting fuels and other primary products to the industrialized West and then used this currency to buy sophisticated manufactures and agricultural products, primarily grain. Trade with the Third World usually involved exchanging machinery and armaments for tropical foodstuffs and raw materials.
Soviet aid programs expanded steadily from 1965 to 1985. In 1985 the Soviet Union provided an estimated US$6.9 billion to the Third World in the form of direct cash, credit disbursements, or trade subsidies. The communist Third World, primarily Cuba, Mongolia, and Vietnam, received 85 percent of these funds. In the late 1980s, the Soviet Union reassessed its aid programs. In light of reduced political returns and domestic economic problems, the Soviet Union could ill afford ineffective disbursements of its limited resources. Moreover, dissatisfied with Soviet economic assistance, several Soviet client states opened trade discussions with Western countries.
In the 1980s, the Soviet Union needed considerable sums of hard currency to pay for food and capital goods imports and to support client states. What the country could not earn from exports or gold sales it borrowed through its banks in London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
, Frankfurt
Frankfurt
Frankfurt am Main , commonly known simply as Frankfurt, is the largest city in the German state of Hesse and the fifth-largest city in Germany, with a 2010 population of 688,249. The urban area had an estimated population of 2,300,000 in 2010...
, Vienna
Vienna
Vienna is the capital and largest city of the Republic of Austria and one of the nine states of Austria. Vienna is Austria's primary city, with a population of about 1.723 million , and is by far the largest city in Austria, as well as its cultural, economic, and political centre...
, Paris
Paris
Paris is the capital and largest city in France, situated on the river Seine, in northern France, at the heart of the Île-de-France region...
, and Luxembourg
Luxembourg
Luxembourg , officially the Grand Duchy of Luxembourg , is a landlocked country in western Europe, bordered by Belgium, France, and Germany. It has two principal regions: the Oesling in the North as part of the Ardennes massif, and the Gutland in the south...
. Large grain imports pushed the Soviet debt quite high in 1981. Better harvests and lower import requirements redressed this imbalance in subsequent years. By late 1985, however, a decrease in oil revenues
1980s oil glut
The 1980s oil glut was a serious surplus of crude oil caused by falling demand following the 1970s Energy Crisis. The world price of oil, which had peaked in 1980 at over US$35 per barrel , fell in 1986 from $27 to below $10...
nearly returned the Soviet debt to its 1981 level. At the end of that same year the Soviet Union owed US$31 billion (gross) to Western creditors, mostly commercial banks and other private sources.
In the late 1980s, the Soviet Union attempted to reduce its hard-currency debt by decreasing imports from the West and increasing oil and gas exports to the West. It also sought increased participation in international markets and organizations. In 1987 the Soviet Union formally requested observer status in the General Agreement on Tariffs and Trade
General Agreement on Tariffs and Trade
The General Agreement on Tariffs and Trade was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization . GATT was signed in 1947 and lasted until 1993, when it was replaced by the World...
and in 1988 signed a normalization agreement with the European Economic Community
European Economic Community
The European Economic Community The European Economic Community (EEC) The European Economic Community (EEC) (also known as the Common Market in the English-speaking world, renamed the European Community (EC) in 1993The information in this article primarily covers the EEC's time as an independent...
. Structural changes in the foreign trade bureaucracy, granting direct trading rights to select enterprises, and legislation establishing joint ventures with foreigners opened up the economy to the Western technical and managerial expertise necessary to achieve the goals established by General Secretary Mikhail Gorbachev
Mikhail Gorbachev
Mikhail Sergeyevich Gorbachev is a former Soviet statesman, having served as General Secretary of the Communist Party of the Soviet Union from 1985 until 1991, and as the last head of state of the USSR, having served from 1988 until its dissolution in 1991...
's program of economic restructuring (perestroika
Perestroika
Perestroika was a political movement within the Communist Party of the Soviet Union during 1980s, widely associated with the Soviet leader Mikhail Gorbachev...
).
Development of the state monopoly on foreign trade
The government of the Soviet Union has always held a monopoly on all foreign trade activity, but only after the death of Joseph StalinJoseph Stalin
Joseph Vissarionovich Stalin was the Premier of the Soviet Union from 6 May 1941 to 5 March 1953. He was among the Bolshevik revolutionaries who brought about the October Revolution and had held the position of first General Secretary of the Communist Party of the Soviet Union's Central Committee...
in 1953 did the government accord importance to foreign trade activities. Before that time, the Bolsheviks' ideological opposition to external economic control, their refusal to pay Russia's World War I
World War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
debts, and the chaos of the Russian Civil War
Russian Civil War
The Russian Civil War was a multi-party war that occurred within the former Russian Empire after the Russian provisional government collapsed to the Soviets, under the domination of the Bolshevik party. Soviet forces first assumed power in Petrograd The Russian Civil War (1917–1923) was a...
(1918-21) kept trade to the minimum level required for the country's industrial development. Active Soviet trade operations began only in 1921, when the government established the People's Commissariat of Foreign Trade.
The commissariat's monopoly on internal and external foreign trade was loosened, beginning in 1921, when the New Economic Policy
New Economic Policy
The New Economic Policy was an economic policy proposed by Vladimir Lenin, who called it state capitalism. Allowing some private ventures, the NEP allowed small animal businesses or smoke shops, for instance, to reopen for private profit while the state continued to control banks, foreign trade,...
(NEP) decentralized control of the economy. Although the commissariat remained the controlling center, the regime established other organizations to deal directly with foreign partners in the buying and selling of goods. These organizations included state import and export offices, joint stock companies, specialized import and export corporations, trusts, syndicates, cooperative organizations, and mixed-ownership companies.
The end of the NEP period, the beginning of the First Five-Year Plan
First Five-Year Plan
The First Five-Year Plan, or 1st Five-Year Plan, of the Union of Soviet Socialist Republics was a list of economic goals that was designed to strengthen the country's economy between 1928 and 1932, making the nation both militarily and industrially self-sufficient. "We are fifty or a hundred...
(1928-32), and the forced collectivization of agriculture beginning in 1929 marked the early Stalin era. The government restructured foreign trade operations according to Decree Number 358, issued in February 1930, which eliminated the decentralized, essentially private, trading practices of the NEP period and established a system of monopoly specialization. The government then organized a number of foreign trade corporations under the People's Commissariat of Foreign Trade, each with a monopoly over a specific group of commodities. The foreign trade monopoly appeared in article 14h of the 1936 Soviet Constitution
1936 Soviet Constitution
The 1936 Soviet constitution, adopted on December 5, 1936, and also known as the "Stalin" constitution, redesigned the government of the Soviet Union.- Basic provisions :...
.
Stalin's policy restricted trade as it attempted to build socialism
Socialism
Socialism is an economic system characterized by social ownership of the means of production and cooperative management of the economy; or a political philosophy advocating such a system. "Social ownership" may refer to any one of, or a combination of, the following: cooperative enterprises,...
in one country. Stalin feared the unpredictable movement and disruptive influence of such foreign market forces as demand and price fluctuations. Imports were restricted to factory equipment essential for the industrialization drive that began with the First Five-Year Plan.
World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
virtually halted Soviet trade and the activity of most foreign trade corporations. Trade was conducted primarily through Soviet trade representatives in Britain and Iran and the Soviet Buying Commission in the United States. After the war, Britain
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
and other West European countries and the United States imposed drastic restrictions on trade with the Soviet Union. Thus, Soviet foreign trade corporations limited their efforts to Eastern Europe and China, establishing Soviet-owned companies in these countries and setting up joint-stock companies on very favorable terms. Comecon, founded in 1949, united the economies of Eastern Europe with that of the Soviet Union.
Soviet trade changed considerably in the post-Stalin era. Postwar industrialization and an expansion of foreign trade resulted in the proliferation of all-union foreign trade organizations (FTOs), the new name for foreign trade corporations and also known as foreign trade associations. In 1946 the People's Commissariat of Foreign Trade was reorganized into the Ministry of Foreign Trade. The Ministry of Foreign Trade, through its FTOs, retained the exclusive right to negotiate and sign contracts with foreigners and to draft foreign trade plans. The State Committee for Foreign Economic Relations (Gosudarstvennyi komitet po vneshnim ekonomicheskim sviaziam--GKES), created in 1955, managed all foreign aid programs and the export of complete factories through the FTOs subordinate to it. Certain ministries, however, had the right to deal directly with foreign partners through their own FTOs.
On January 17, 1988, Izvestiia reported the abolition of the Ministry of Foreign Trade and GKES. These two organizations were merged into the newly created Ministry of Foreign Economic Relations, which had responsibility for administering foreign trade policy and foreign aid agreements. Other legislation provided for the establishment of joint enterprises. The government retained its monopoly on foreign trade through a streamlined version of the Soviet foreign trade bureaucracy as it existed before the January 17 decree.
Structure of the foreign trade bureaucarcy
In 1988 the foreign trade bureaucracy reflected the monopoly specification system created by the 1930 Decree Number 358. Under the authority of the Communist Party of the Soviet UnionCommunist Party of the Soviet Union
The Communist Party of the Soviet Union was the only legal, ruling political party in the Soviet Union and one of the largest communist organizations in the world...
(CPSU) and the Council of Ministers, six central bodies, the Ministry of Foreign Economic Relations, and numerous FTOs together planned, regulated, monitored, and carried out all Soviet foreign economic activity.
Administration
Although the CPSU has ultimate authority over all foreign economic activity, in the late 1980s administrative control was centralized in the Council of Ministers. More specifically, the council's State Foreign Economic Commission coordinated the activities of ministries and departments in the area of economic and scientific cooperation with socialist, developing, and developed capitalist states.Six central bodies under the Council of Ministers played important roles in foreign economic relations. The import and export of goods, services, and resources were managed by the State Planning Committee (Gosudarstvennyi planovyi komitet--Gosplan
Gosplan
Gosplan or State Planning Committee was the committee responsible for economic planning in the Soviet Union. The word "Gosplan" is an abbreviation for Gosudarstvenniy Komitet po Planirovaniyu...
), the State Committee for Material and Technical Supply (Gosudarstvennyi komitet po material'no-tekhnicheskomu snabzheniiu--Gossnab
Gossnab
Gossnab of USSR, State Supplies of the USSR was active in 1948-1953, 1965-1991. It was the state committee for material technical supply in the Soviet Union...
), and the State Committee for Science and Technology (Gosudarstvennyi komitet po nauke i tekhnike--GKNT). Gosplan formulated all import and export plans, coordinated the allocation of investment and other resources, and had final authority over all decisions concerning foreign trade, including trade levels and commodity composition. Gossnab coordinated the allocation of resources not handled by Gosplan and, as the central agency responsible for matching supplies with customers, played a major role in selecting and allocating imports. GKNT negotiated technical cooperation agreements and monitored license and patent purchases and sales in order to introduce new technology into the Soviet economy.
The State Committee on Prices (Gosudarstvennyi komitet po tsenam--Goskomtsen
Goskomtsen
Goskomtsen was the State Committee on Prices in the former Soviet Union. This governmental body regulated all prices, from agricultural to consumer goods and established prices for all imports and some exports....
), the Ministry of Finance, and the State Bank
Gosbank
Gosbank was the central bank of the Soviet Union and the only bank whatsoever in the entire Union from the 1930s until the year 1987. Gosbank was one of the three Soviet economic authorities, the other two being "Gosplan" and "Gossnab"...
(Gosudarstvennyi bank--Gosbank
Gosbank
Gosbank was the central bank of the Soviet Union and the only bank whatsoever in the entire Union from the 1930s until the year 1987. Gosbank was one of the three Soviet economic authorities, the other two being "Gosplan" and "Gossnab"...
) held jurisdiction over the financing of foreign trade. Goskomtsen established prices for all imports and some exports. The Ministry of Finance controlled the balance of payments (see Glossary) and monitored the impact of foreign trade on the state budget. Finally, Gosbank set the exchange rate for the ruble and managed the system of exchange within the Soviet Union. Gosbank supervised the Foreign Economic Activity Bank (Vneshnii ekonomicheskii bank--Vneshekonombank; until January 1, 1988, known as the Foreign Trade Bank), which provided international banking services for Soviet FTOs.
Operation
Until 1988 the two operative bodies involved solely and directly in foreign economic operations were GKES and the Ministry of Foreign Trade. The Ministry of Foreign Trade formulated draft import and export plans and regulated commodity trade. GKES supervised foreign aid programs and the export of complete plants. The Ministry of Foreign Trade or GKES had jurisdiction over most FTOs, which negotiated and signed commercial contracts with foreigners on behalf of individual enterprises. FTOs were generally organized by product, as had been the foreign trade corporations of the 1930s.Some industrial ministries or other agencies, however, had their own FTOs. As of early 1987, for example, forty-eight FTOs were under the jurisdiction of the Ministry of Foreign Trade and nine under the GKES, whereas the Ministry of the Maritime Fleet, the Ministry of the Fishing Industry, and the Ministry of Trade, among others, had their own FTOs. In addition, certain other agencies had their own FTOs: the Chamber of Commerce and Industry, which handled international trade exhibitions; the State Committee for Physical Culture and Sports; the Central Union of Cooperatives; the State Committee for Publishing Houses, Printing Plants, and the Book Trade; the State Committee for Cinematography; and the State Committee for Science and Technology.
Structural Reforms, 1986 to Mid-1988
The cumbersome foreign trade bureaucracy contributed to a number of problems that hindered the efficiency and effectiveness of foreign trade. The lack of direct contact between Soviet enterprises and their foreign customers or suppliers frustrated both parties by unnecessarily delaying contract negotiations and the specification of technical details. In a May 1986 interview with Izvestiia, the general director of the Ministry of Foreign Trade's All-Union Association for the Export and Import of Technical Equipment, Boris K. Pushkin, reported that after an enterprise submitted a request for a foreign item, two to three years were required before it was included in the import plan and funds were allocated for its purchase. In the interim, the needs of the enterprise had often changed. Pushkin stressed the need to free enterprises from unnecessary petty supervision and excessive regulation.Taking such problems into account, the Twenty-Seventh Party Congress in February-March 1986 declared that the party anticipated a step-by-step restructuring of [the country's] foreign trade in order to make exports and imports more effective. In August of the same year, the CPSU Central Committee and the Council of Ministers adopted the decree On Measures for Improving Management of External Economic Relations,"" which outlined drastic steps to change the structure of the foreign trade bureaucracy.
Also in August 1986, the Council of Ministers' State Foreign Economic Commission became a permanent body within the council, giving more authority and visibility to the commission, the domestic activities of which previously went largely unreported. The staff was augmented, and the chairman acquired a rank equivalent to that of deputy prime minister. The new charter stated that the commission's role was "to formulate and implement the country's foreign economic strategy so as to enhance its potential contributions to acceleration (uskorenie--see Glossary), strengthen the Soviet position in the world economy, and promote structured and organized development of economic cooperation with all groups of countries."
Until 1987 the forty-eight FTOs subordinate to the Ministry of Foreign Trade administered more than 90 percent of Soviet foreign trade turnover. In 1987 the ministry lost control of 20 percent of Soviet foreign trade turnover. The government granted direct foreign trade rights to twenty-one ministries and state committees, sixty-seven industrial enterprises, and eight interbranch scientific production complexes. Exporting enterprises gained the right to retain part of their hard-currency earnings. Each ministry or enterprise was to pay for its investment imports with its own hard currency, and the heads of ministries and enterprises became personally responsible for the efficient use of hard-currency funds. These measures gave enterprises more influence in import decision making.
On January 13, 1987, the Council of Ministers adopted the resolution ""On Questions Concerning the Creation, on U.S.S.R. Territory, and the Activities of Joint Enterprises, International Associations, and Organizations with the Participation of Soviet and Foreign Organizations, Firms, and Management Bodies,"" or, more simply, a law on joint ventures. This legislation opened up enterprises inside the Soviet Union for the first time since the Bolshevik Revolution (see Glossary), to foreign participation. Joint ventures were to facilitate the acquisition and assimilation of Western technology, managerial know-how, and marketing abilities. Optimistic about the economic effects of their new undertaking, Soviet officials declared that 85 to 90 percent of ""the most important types of machinery"" would meet world technical standards by 1990. The Soviet Union's vast natural resources and its lucrative, previously closed, domestic market attracted Western companies. By August 1988, more than 50 joint ventures were registered in the Soviet Union, and approximately 300 were under negotiation.
Nevertheless, numerous obstacles arose in the first eighteen months after the government adopted the joint venture law. Complaints by Western partners dealt with uncertainties concerning Soviet trade regulations, problems with the supply of goods, the dilemma of the nonconvertibility of the ruble, difficulties finding qualified Soviet managers, problems in projecting production costs (as of 1989 Soviet domestic prices were administratively set and not based on market forces), and even complications finding office space in Moscow. Soviet trade officials' efforts to accommodate these complaints have included the decentralization of the foreign trade bureaucracy, the establishment of a management institute in Moscow, price reforms, and various legal reforms.
Before Western businessmen could recover from the confusion and disruption caused by this series of reforms, a second series began in early 1988. Effective January 1, 1988, the Foreign Trade Bank (Vneshnii torgovii bank--Vneshtorgbank) was renamed the Foreign Economic Activity Bank (Vneshnii ekonomicheskii bank-- Vneshekonombank). The name change did not signify a major change in the bank's duties but simply more accurately reflected the nature of its operations. Vneshtorgbank had branched out from the simple management of foreign trade transactions to provide currency, credit, and accounting services as well. In a change from its previous duties, Vneshekonombank was required to administer new procedures dealing with Soviet firms that had recently acquired direct foreign trade rights.
Also on January 1, 1988, the New Enterprise Law went into effect, making enterprises economically accountable for their own business operations by 1989. According to this law, the government had the power to disband unprofitable businesses, and each ministry and its subordinate enterprises gained the responsibility for their own foreign trade activities. In addition, Gosplan, Gossnab, and GKNT relinquished some of their rights to allocate money and goods. Finally, the Ministry of Foreign Trade lost control of 15 percent more of its foreign trade turnover when fourteen additional enterprises and four other ministries acquired direct foreign trade rights.
Yet probably the most significant change in the foreign trade mechanism occurred on January 17, 1988, when Izvestiia announced the abolition of the Ministry of Foreign Trade and the GKES. The Ministry of Foreign Economic Relations, headed by Konstantin F. Katushev, former head of the GKES, assumed the duties of the two agencies. ""Thus, the state monopoly on foreign trade and its state-wide aspects remains centralized,"" reported the Soviet foreign trade monthly Vneshniaia torgovlia (Foreign Trade), ""while operational functions are continually being shifted to the business level."" In March 1988, the journal reported that approximately 20 percent of foreign trade turnover was handled by the eighty-one firms that had been granted the right to deal directly with foreigners.
Other reforms followed in April 1988, when the Central Committee and the Council of Ministers agreed on a new charter for the Chamber of Commerce and Industry. In general, the chamber monitored foreign trade conducted outside the new Ministry of Foreign Economic Relations. In addition, the chamber assisted Soviet production enterprises in locating Western partners and learning foreign trade practices.
Trade with socialist countries
In the late 1980s, the Soviet Union traded with fourteen socialist countries. The political and economic relationships between the Soviet Union and these countries determine the four groups into which these countries can be divided: members of Comecon; Yugoslavia; China; and the developing communist countries of Cambodia, Laos, and the Democratic People's Republic of Korea (North Korea).Business with socialist countries was conducted on a bilateral, country-by-country basis in which imports balanced exports. Soviet oil exports to these countries bought machinery and equipment and industrial consumer goods, as well as political support without the expenditure of freely convertible foreign currency. In addition, Soviet aid programs, which took the form of direct loans or trade subsidies, almost exclusively involved socialist countries.
The Council for Mutual Economic Assistance
The Soviet Union formed the Council for Mutual Economic Assistance (Comecon) in 1949, in part to discourage the countries of Eastern Europe from participating in the Marshall PlanMarshall Plan
The Marshall Plan was the large-scale American program to aid Europe where the United States gave monetary support to help rebuild European economies after the end of World War II in order to combat the spread of Soviet communism. The plan was in operation for four years beginning in April 1948...
and to countereact trade boycotts imposed after World War II by the United States and by Britain and other West European countries. Ostensibly, Comecon was organized to coordinate economic and technical cooperation between the Soviet Union and the member countries. In reality, the Soviet Union's domination over Comecon activities reflected its economic, political, and military power. In 1989 Comecon comprised ten countries: the six original members-- Bulgaria, Czechoslovakia, Hungary, Poland, Romania, and the Soviet Union--plus the German Democratic Republic
German Democratic Republic
The German Democratic Republic , informally called East Germany by West Germany and other countries, was a socialist state established in 1949 in the Soviet zone of occupied Germany, including East Berlin of the Allied-occupied capital city...
(East Germany, which joined in 1950), Mongolia (1962), Cuba (1972), and Vietnam (1978). Albania, although it joined in February 1949, has not participated in Comecon activities since 1961.
Since 1949 the Soviet Union has traded primarily with other Comecon members. In 1960 the Soviet Union sent 56 percent of its exports to and received 58 percent of its imports from Comecon members. From that time, the volume of this trade has steadily increased, but the proportion of Soviet trade with Comecon members decreased as the Soviet Union sought to increase trade with Western industrialized countries. In contrast to 1960, trade with Comecon members accounted for only 42 percent of Soviet exports and 43 percent of Soviet imports in 1980.
The European members of Comecon have looked to the Soviet Union for oil; in turn, they have provided machinery, equipment, agricultural goods, industrial goods, and consumer goods to the Soviet Union. Because of the peculiarities of the Comecon pricing system, throughout the 1970s and early 1980s Comecon prices for Soviet oil were lower than world oil prices. Western specialists have debated the political motivation of this implicit price subsidy to Comecon members. The cohesiveness within Comecon members seemed remarkable when in 1985 the fall in the world price left Comecon members paying above-market prices for Soviet oil.
The membership of Cuba, Mongolia, and Vietnam in Comecon has served Soviet foreign policy interests more than the economic welfare of Comecon members. In general, the more economically developed European members have supported the three less developed members by providing a large market for their exports, often at above-market prices. Most of Cuba's sugar and nickel and all of Mongolia's copper and molybdenum have been imported by the Soviet Union. In addition, the Soviet Union has established naval and air bases in Cuba and Vietnam.
Since 1985 Gorbachev has called for an increase in trade with Comecon members. At the Twenty-Seventh Party Congress in FebruaryMarch 1986, both he and Prime Minister Nikolai Ryzhkov
Nikolai Ryzhkov
Nikolai Ivanovich Ryzhkov was a Soviet official who became a Russian politician following the dissolution of the Soviet Union. He served as the last Chairman of the Council of Ministers or Premier of the Soviet Union from 1985 to 1991...
stressed the need to improve cooperation with the socialist countries on the basis of Comecon's Comprehensive Program for Scientific and Technical Cooperation up to the Year 2000. This program stressed the self-sufficiency of Comecon countries in five key areas: electronics, automation of production, nuclear power, biotechnology, and development of new raw materials. It also called for improvement of plan coordination, joint planning, Comecon investment strategy, production specialization, and quality of machinery and equipment exported to the Soviet Union.
Yugoslavia
In 1964 YugoslaviaYugoslavia
Yugoslavia refers to three political entities that existed successively on the western part of the Balkans during most of the 20th century....
negotiated a formal agreement of cooperation with Comecon. This relationship allowed Yugoslavia to maintain its nonaligned position while acquiring almost all the rights and privileges of a full Comecon member. In the 1980s, the Soviet Union's trade relationship with Yugoslavia resembled its relationship with full members of Comecon. The Soviet Union exported fuel, ferrous metals, plastics, and fertilizer to Yugoslavia. Yugoslavia's machine-tool, power-engineering, shipbuilding, and consumer goods industries supplied the Soviet Union with soft-currency goods.
In the late 1970s and early 1980s, Yugoslavia became more dependent on Soviet oil, as hostilities in the Persian Gulf cut off its supply of Iraqi oil. In addition, from 1970 well into the 1980s actual trade with the Soviet Union exceeded planned trade volumes. Thus, in 1983 the Yugoslav government informed Soviet Prime Minister Nikolai Tikhonov
Nikolai Tikhonov
Nikolai Aleksandrovich Tikhonov was a Soviet Russian-Ukrainian statesman during the Cold War. He served as Chairman of the Council of Ministers from 1980 to 1985, and as a First Deputy Chairman of the Council of Ministers, literally First Vice Premier, from 1976 to 1980...
of its desire to decrease trade with the Soviet Union in the mid- to late 1980s. Because of the huge foreign currency debt accumulated by Yugoslavia from 1981 to 1985, however, the Soviet Union remained its most important trade partner in the late 1980s. In fact, for some Yugoslav products, such as shoes, the Soviet Union was the sole foreign buyer.
China
In the 1950s, the Soviet Union claimed half of China's foreign trade. The political rift that developed between the two countries in the late 1950s culminated in 1960 with the withdrawal of more than 1,000 Soviet specialists from China and an official break in trade relations in 1964. Although it had been only an observer, China stopped attending Comecon sessions in 1961. Economic relations between the Soviet Union and China resumed in 1982. Primarily as a result of Soviet political concessions and pressures on the Chinese to expand trade, trade volume between the two countries increased tenfold between 1982 and 1987.In the 1980s, the Soviet Union proved to be an ideal trade partner for China. China's exports were not competitive on the world market, and its foreign currency reserves were severely depleted by record foreign trade deficits in 1984 and 1985. Likewise, the Soviet Union, producing dated technology that was difficult to market in more industrially advanced countries and acquiring a growing hard-currency debt, eagerly pursued the Chinese market. Each country would sell the other goods it could not market elsewhere, and each could conserve scarce hard currency by bartering. The Soviet Union possessed machinery, equipment, and technical know-how to help China develop its fuel and mineral resources and power, transportation, and metallurgical industries. China could offer a wealth of raw materials, textiles, and agricultural and industrial consumer goods.
Stepped-up economic relations reflected Soviet flexibility in overcoming various political and administrative stumbling blocks. By mid-1988 Gorbachev was speaking of reducing Soviet troops on the Chinese border, Vietnam had removed half of its troops from Cambodia, and Soviet troops had begun their withdrawal from Afghanistan
Afghanistan
Afghanistan , officially the Islamic Republic of Afghanistan, is a landlocked country located in the centre of Asia, forming South Asia, Central Asia and the Middle East. With a population of about 29 million, it has an area of , making it the 42nd most populous and 41st largest nation in the world...
. Reforms of the Soviet foreign trade complex established free trade zones (see Glossary) in the Soviet Far East and Soviet Central Asia, simplifying border trade between the two countries. Soviet trade officials persuaded the Chinese to expand business ties beyond border trade into joint ventures, coproduction contracts, and the export of surplus Chinese labor to the Soviet Union. The Peking Restaurant in Moscow, specializing in Chinese cuisine, became the first joint venture between the Soviet Union and China. In April 1988, China's minister of foreign economic relations and trade, Zheng Toubin, stated that China would continue to expand trade with the Soviet Union ""at a rapid pace,"" thus rewarding Soviet persistence in expanding trade with China.
Cambodia, Laos, and North Korea
Soviet economic relations with non-Comecon communist states have taken the form of aid and trade. In 1987 approximately 85 percent of Soviet aid went to the communist Third World. By far the largest share of these funds was absorbed by Cuba, Mongolia, and Vietnam. The rest was left to Cambodia, Laos, and North Korea. Pledges of Soviet aid increased steadily from 1985 through 1988 and were divided evenly between direct aid and trade subsidies. Commodity exchange was characterized by the Soviet Union's providing machinery, fuel, and transportation equipment in return for Laotian ores and concentrated metals, North Korean rolled ferrous metals and labor, and Cambodian rubber.Trade with Western industrialized countries
The Western industrialized countries include the countries of Western Europe, as well as AustraliaAustralia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
, Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
, Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
, New Zealand
New Zealand
New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses and numerous smaller islands. The country is situated some east of Australia across the Tasman Sea, and roughly south of the Pacific island nations of New Caledonia, Fiji, and Tonga...
, South Africa
South Africa
The Republic of South Africa is a country in southern Africa. Located at the southern tip of Africa, it is divided into nine provinces, with of coastline on the Atlantic and Indian oceans...
, and the United States. Soviet trade with industrialized countries, except Finland, consisted of simple purchases paid for on a cash or credit basis, direct exchange of one good for another (Pepsi-Cola for Stolichnaya vodka, for example), or industrial cooperation agreements in which foreign firms participated in the construction or operation of plants in the Soviet Union. In the latter instances, payments were rendered in the form of the output of new plants. By contrast, trade with Finland, which does not have a convertible currency, was conducted through bilateral clearing agreements, much like Soviet trade with its Comecon partners.
In the 1970s and 1980s, the Soviet Union relied heavily on various kinds of fuel exports to earn hard currency, and Western partners regarded the Soviet Union as an extremely reliable supplier of oil and natural gas. In the 1980s, the Soviet Union gave domestic priority to gas, coal, and nuclear power in order to free more oil reserves for export. This was necessary because of higher production costs and losses of convertible currency resulting from the drop in world oil price
1980s oil glut
The 1980s oil glut was a serious surplus of crude oil caused by falling demand following the 1970s Energy Crisis. The world price of oil, which had peaked in 1980 at over US$35 per barrel , fell in 1986 from $27 to below $10...
. The development of natural gas for domestic and export use was also stimulated by these factors. Between 1970 and 1986, natural gas exports rose from 1 percent to 15 percent of total Soviet exports to the West.
Because of the inferior quality of Soviet goods, the Soviet Union was unsuccessful in increasing its exports of manufactured goods. In 1987 only 18 percent of Soviet manufactured goods met world technical standards. As an illustration of these problems in quality, Canadian customers who had purchased Soviet Belarus tractors often found that the tractors had to be overhauled on arrival before they could be sold on the Canadian market. In 1986 less than 5 percent of Soviet exports to the West consisted of machinery. Other Soviet nonfuel exports in the 1990s included timber, exported primarily to Japan, and chemicals, the export of which grew substantially in 1984 and 1985.
In the 1980s, Soviet imports from Western industrialized countries generally exceeded exports, although trade with the West decreased overall. One-half of Soviet agricultural imports were from developed countries, and these imports made up a considerable portion of total imports from the West. Industrial equipment formed one-quarter of Soviet imports from the West, and iron and steel products, particularly steel tubes for pipeline construction, made up most of the rest. Over the course of the 1980s, high-technology items gained in importance as well.
In the 1970s and 1980s, Soviet trade with the Western industrialized countries was more dynamic than was Soviet trade with other countries, as trade patterns fluctuated with political and economic changes. In the 1970s, the Soviet Union exchanged its energy and raw materials for Western capital goods, and growth in trade was substantial. Soviet exports jumped 55 percent, and imports jumped 207 percent. The Soviet Union ran a trade deficit with the West throughout this period.
In 1980 the Soviet Union exported slightly more to the West than it imported. After a temporary shortage of hard currency in 1981, the Soviet Union sought to improve its trade position with the industrialized countries by keeping imports at a steady level and by increasing exports. As a result, the Soviet Union began to run trade surpluses with most of its Western partners. Much of the income earned from fuel exports to Western Europe was used to pay off debts with the United States, Canada, and Australia, from which the Soviet Union had imported large quantities of grain.
In 1985 and 1986, trade with the West was suppressed because of heightened East-West political tensions, successful Soviet grain harvests, high Soviet oil production costs, a devalued United States dollar, and falling oil prices. Despite increases in oil and natural gas exports, the Soviet Union's primary hard-currency earners, the country was receiving less revenue from its exports to the West. The Soviet Union sold most of its oil and natural gas exports for United States dollars but bought most of its hardcurrency imports from Western Europe. The lower value of the United States dollar meant that the purchasing power of a barrel of Soviet crude oil, for example, was much lower than in the 1970s and early 1980s. In 1987 the purchasing power of a barrel of Soviet crude oil in exchange for West German goods had fallen to one-third of its purchasing power in 1984.
With the exception of grain, phosphates used in fertilizer production, and high-technology equipment, Soviet dependence on Western imports historically has been minimal. A growing hardcurrency debt of US$31 billion in 1986 led to reductions in imports from countries with hard currencies. In 1988 Gorbachev cautioned against dependence on Western technology because it required hard currency that ""we don't have."" He also warned that increased borrowing to pay for imports from the West would lead to dependence on international lending institutions.
United States
Trade between the United States and the Soviet Union averaged about 1 percent of total trade for both countries through the 1970s and 1980s. Soviet-American trade peaked in 1979 at US$4.5 billion, exactly 1 percent of total United States trade. The Soviet Union continuously ran a trade deficit with the United States in the 1970s and early 1980s, but from 1985 through 1987 the Soviet Union cut imports from the United States while maintaining its level of exports to balance trade between the two countries.In 1987 total trade between the United States and the Soviet Union amounted to US$2 billion. The Soviet Union exported chemicals, metals (including gold), and petroleum products in addition to fur skins, alcoholic beverages, and fish products to the United States and received agricultural goods--mostly grain-- and industrial equipment in return. The value of exports to the Soviet Union in 1987 amounted to US$1.5 billion, three-quarters of which consisted of agricultural products and one-quarter industrial equipment.
Competition from other parts of the world, improvements in Soviet grain production, and political disagreements between the two countries adversely affected American agricultural exports to the Soviet Union in the 1980s. In 1985 and 1986, trade was the lowest since 1973. The Soviet Union had turned to Canada and Western Europe for one-third of its grain supplies, as well as to Argentina, Eastern Europe, Australia, and China. United States government price subsidies helped to expand grain exports in 1987 and 1988.
The United States has long linked trade with the Soviet Union to its foreign policy toward the Soviet Union and, especially since the early 1980s, to Soviet human rights policies. In 1949, for example, the Coordinating Committee for Multilateral Export Controls ( CoCom--see Glossary) was established by Western governments to monitor the export of sensitive high technology that would improve military effectiveness of members of the Warsaw Pact
Warsaw Pact
The Warsaw Treaty Organization of Friendship, Cooperation, and Mutual Assistance , or more commonly referred to as the Warsaw Pact, was a mutual defense treaty subscribed to by eight communist states in Eastern Europe...
and certain other countries. The Jackson-Vanik Amendment
Jackson-Vanik amendment
The Jackson–Vanik amendment is a 1974 provision in United States federal law, intended to affect U.S. trade relations with countries with non-market economies that restrict freedom of emigration and other human rights...
, which was attached to the 1974 Trade Reform Act, linked the granting of most-favored-nation to the right of Soviet Jews to emigrate.
In 1987 the United States had reason to reassess its trade policy toward the Soviet Union. The Soviet Union had restructured and decentralized authority for trade under the Ministry of Foreign Trade, made improvements in human rights policies, cooperated in arms control negotiations, and shown a willingness to experiment with joint ventures. Furthermore, the United States government recognized that restrictive trade policies were hurting its own economic interests. In April 1988, Soviet and American trade delegations met in Moscow to discuss possibilities for expanded trade. Through increased trade with the United States, the Soviet Union hoped to learn Western management, marketing, and manufacturing skills. Such skills would increase the ability of the Soviet Union to export manufactured goods, and thus earn hard currency, and would improve its competitiveness on the world market. The delegations declared that Soviet-American cooperation would be expanded in the areas of food processing, energy, construction equipment, medical products, and the service sector.
Western Europe
In the mid-1980s, West European exports to the Soviet Union were marginal, less than 0.5 percent of the combined gross national product of countries of the Organization for Economic Cooperation and Development. OECD countries provided the Soviet Union with high-technology and industrial equipment, chemicals, metals, and agricultural products. In return, Western Europe received oil and natural gas from the Soviet Union.Although oil and gas were the primary Soviet exports to Western Europe, they represented only a small percentage of Western Europe's substantial fuel imports: Soviet oil provided 3 percent and natural gas 2 percent of the energy consumed in Western Europe. The completion of the Urengoy-Uzhgorod export pipeline project increased the importance of Soviet natural gas to Western Europe in the second half of the 1980s. In 1984 France, Austria, the Federal Republic of Germany (West Germany), and Italy began receiving natural gas from western Siberia through the pipeline, for which the Soviet Union was paid in hard currency, pumping equipment, and large-diameter pipe. By 1990 the Soviet Union expected to supply 3 percent of all natural gas imported by Western Europe, including 30 percent of West Germany's gas imports.
Unlike the United States, the countries of Western Europe have not viewed trade as a tool to influence Soviet domestic and foreign policies. Western Europe rejected the trade restrictions imposed by the United States after the Soviet invasion of Afghanistan in 1979 and the declaration of martial law in Poland in 1980. From 1980 to 1982, the United States embargoed the supply of equipment for the Urengoy-Pomary-Uzhgorod pipeline
Urengoy-Pomary-Uzhgorod pipeline
The Urengoy–Pomary–Uzhgorod pipeline is one of Russia's main natural gas export pipelines, partially owned and operated by Ukraine.-History:...
, but Western Europe ignored United States pleas to do the same.
Despite the poor relations between the superpowers in the early and mid-1980s, Western Europe tried to improve international relations with the Soviet Union. One major step in this direction was the normalization of relations between Comecon and the European Economic Community (EEC). After fifteen years of negotiations, the EEC approved an accord that established formal relations with Comecon effective June 25, 1988. Although it did not establish bilateral trade relations, the agreement ""set the stage"" for the exchange of information. This accord marked Comecon's official recognition of the EEC.
Japan
In 1985 trade with the Soviet Union accounted for 1.6 percent of Japanese exports and 1 percent of Japanese imports; Japan was the Soviet Union's fourth most important Western trading partner. Japan's principal exports to the Soviet Union included steel (approximately 40 percent of Japan's exports to the Soviet Union), chemicals, and textiles. The Soviet Union exported timber, nonferrous metals, rare-earth metals, and fuel to Japan. In 1986, despite a reduction in trade between the two countries, the Soviet Union had a trade deficit with Japan. In 1987 trade dropped another 20 percent.Numerous controversies have thwarted Soviet-Japanese trade. The Toshiba affair, in which Japan was accused of shipping equipment to the Soviet Union that was prohibited by CoCom, caused Japanese-Soviet trade to decrease in 1987. In addition, the Japanese constantly prodded the Soviet Union to return the islands
Kuril Islands dispute
The Kuril Islands dispute , also known as the , is a dispute between Japan and Russia over sovereignty over the South Kuril Islands. The disputed islands, which were occupied by Soviet forces during the Manchurian Strategic Offensive Operation at the end of World War II, are under Russian...
off the Japanese island of Hokkaidō
Hokkaido
, formerly known as Ezo, Yezo, Yeso, or Yesso, is Japan's second largest island; it is also the largest and northernmost of Japan's 47 prefectural-level subdivisions. The Tsugaru Strait separates Hokkaido from Honshu, although the two islands are connected by the underwater railway Seikan Tunnel...
that had come under Soviet control after World War II. For its part, the Soviet Union complained of the trade imbalance and static structure of Japanese-Soviet trade.
In the late 1980s, the Soviet Union tried to increase its exports to Japan and diversify the nature of the countries' relationship. Soviet proposals have included establishing joint enterprises to exploit natural resources in Siberia and the Soviet Far East, specifically, coal in the southern Yakutiya area of Siberia and petroleum on Sakhalin; cooperating in the monetary and credit fields; jointly surveying and studying marine resources and peaceful uses of space; and establishing joint activities in other countries. The Soviet Union also proposed branching out into joint ventures in the chemical and wood chip industries, electronics, machine tools, and fish processing
Fish processing
The term fish processing refers to the processes associated with fish and fish products between the time fish are caught or harvested, and the time the final product is delivered to the customer...
. The first Japanese-Soviet joint enterprise, a wood-processing plant in the Soviet Far East, began operation in March 1988. The Soviet Union provided the raw materials, and Japan supplied the technology, equipment, and managerial expertise.
Finland
In contrast to the variable trade relationships the Soviet Union has had with other West European countries, its relationship with Finland has been somewhat stable because of five-year agreements that regulated trade between the countries. The first was established in 1947, and 1986 marked the beginning of the eighth. Accounting procedures and methods of payment were agreed upon every five years as well by the Bank of FinlandBank of Finland
The Bank of Finland is the central bank of Finland. It is the fourth oldest central bank in the world.-History:The Bank of Finland was established on 1 March in 1812 in the city of Turku by Alexander I of Russia. In 1819 it was relocated to Helsinki...
and Vneshtorgbank
Vneshtorgbank
Bank VTB , former Vneshtorgbank, is one of the leading universal banks of Russia and the largest in terms of authorized capital....
. A steady growth in trade between the two countries occurred throughout the 1970s and 1980s.
In the late 1980s, Finland was the Soviet Union's second most important trading partner among the Western nations, after West Germany. Trade with Finland, however, was based on bilateral clearing agreements rather than on exchange of hard currency used with other Western trading partners. In 1986 the Soviet Union shipped 4 percent of its exports to and received 3 percent of its imports from Finland. Finland provided the Soviet Union with ships, particularly those suited to Arctic conditions; heavy machinery; and consumer goods such as clothing, textiles, processed foodstuffs, and consumer durables. The Soviet Union exported oil, natural gas, and fuel and technology for the nuclear power industry.
The system of bilateral clearing agreements on which Soviet-Finnish trade was based required that any increase in Finnish imports from the Soviet Union be accompanied by a corresponding increase in exports to the Soviet Union in order to maintain the bilateral trade balance. At the beginning of the 1980s, Finland increased its imports of Soviet oil, which allowed it to increase its exports to the Soviet Union. This procedure accounted for the steady growth in Soviet-Finnish trade into the late 1980s. By 1988 about 90 percent of Soviet exports to Finland consisted of oil. Because the Finns imported more oil than they could consume domestically, they reexported it to other Scandinavia
Scandinavia
Scandinavia is a cultural, historical and ethno-linguistic region in northern Europe that includes the three kingdoms of Denmark, Norway and Sweden, characterized by their common ethno-cultural heritage and language. Modern Norway and Sweden proper are situated on the Scandinavian Peninsula,...
n and West European countries. The Finns complained in late 1987 and early 1988 of a decline in Soviet ship orders and delinquent payments. The share of Finland's exports to the Soviet Union, which had previously been as high as 25 percent, dropped to 15 percent in 1988.
Trade with Third World countries
The Third World embraces those countries the Soviet Union terms "developing countries." This category includes those countries of socialist orientation that have some sort of privileged economic affiliation with the Soviet Union, such as AfghanistanAfghanistan
Afghanistan , officially the Islamic Republic of Afghanistan, is a landlocked country located in the centre of Asia, forming South Asia, Central Asia and the Middle East. With a population of about 29 million, it has an area of , making it the 42nd most populous and 41st largest nation in the world...
, Angola
Angola
Angola, officially the Republic of Angola , is a country in south-central Africa bordered by Namibia on the south, the Democratic Republic of the Congo on the north, and Zambia on the east; its west coast is on the Atlantic Ocean with Luanda as its capital city...
, Iraq
Iraq
Iraq ; officially the Republic of Iraq is a country in Western Asia spanning most of the northwestern end of the Zagros mountain range, the eastern part of the Syrian Desert and the northern part of the Arabian Desert....
, and Nicaragua
Nicaragua
Nicaragua is the largest country in the Central American American isthmus, bordered by Honduras to the north and Costa Rica to the south. The country is situated between 11 and 14 degrees north of the Equator in the Northern Hemisphere, which places it entirely within the tropics. The Pacific Ocean...
, but excludes the developing countries ruled by Marxist-Leninist parties, such as Cambodia
Cambodia
Cambodia , officially known as the Kingdom of Cambodia, is a country located in the southern portion of the Indochina Peninsula in Southeast Asia...
, Laos
Laos
Laos Lao: ສາທາລະນະລັດ ປະຊາທິປະໄຕ ປະຊາຊົນລາວ Sathalanalat Paxathipatai Paxaxon Lao, officially the Lao People's Democratic Republic, is a landlocked country in Southeast Asia, bordered by Burma and China to the northwest, Vietnam to the east, Cambodia to the south and Thailand to the west...
, and Vietnam
Vietnam
Vietnam – sometimes spelled Viet Nam , officially the Socialist Republic of Vietnam – is the easternmost country on the Indochina Peninsula in Southeast Asia. It is bordered by China to the north, Laos to the northwest, Cambodia to the southwest, and the South China Sea –...
. Soviet trade with the Third World has been marked by two characteristics. First, although the Soviet Union has generally played only a minor role in Third World trade, Soviet imports or exports have formed a large portion of the total trade of some countries. Second, the Soviet Union has concentrated its trade with the Third World in the hands of relatively few partners. For example, in 1987 India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
, Iran
Iran
Iran , officially the Islamic Republic of Iran , is a country in Southern and Western Asia. The name "Iran" has been in use natively since the Sassanian era and came into use internationally in 1935, before which the country was known to the Western world as Persia...
, Iraq
Iraq
Iraq ; officially the Republic of Iraq is a country in Western Asia spanning most of the northwestern end of the Zagros mountain range, the eastern part of the Syrian Desert and the northern part of the Arabian Desert....
, Syria
Syria
Syria , officially the Syrian Arab Republic , is a country in Western Asia, bordering Lebanon and the Mediterranean Sea to the West, Turkey to the north, Iraq to the east, Jordan to the south, and Israel to the southwest....
, Argentina
Argentina
Argentina , officially the Argentine Republic , is the second largest country in South America by land area, after Brazil. It is constituted as a federation of 23 provinces and an autonomous city, Buenos Aires...
, Egypt
Egypt
Egypt , officially the Arab Republic of Egypt, Arabic: , is a country mainly in North Africa, with the Sinai Peninsula forming a land bridge in Southwest Asia. Egypt is thus a transcontinental country, and a major power in Africa, the Mediterranean Basin, the Middle East and the Muslim world...
, Turkey
Turkey
Turkey , known officially as the Republic of Turkey , is a Eurasian country located in Western Asia and in East Thrace in Southeastern Europe...
, Afghanistan
Afghanistan
Afghanistan , officially the Islamic Republic of Afghanistan, is a landlocked country located in the centre of Asia, forming South Asia, Central Asia and the Middle East. With a population of about 29 million, it has an area of , making it the 42nd most populous and 41st largest nation in the world...
, Nigeria
Nigeria
Nigeria , officially the Federal Republic of Nigeria, is a federal constitutional republic comprising 36 states and its Federal Capital Territory, Abuja. The country is located in West Africa and shares land borders with the Republic of Benin in the west, Chad and Cameroon in the east, and Niger in...
, and Malaysia together accounted for 75 percent of Soviet imports from and 80 percent of Soviet exports to the Third World.
Although Soviet trade with the Third World increased in volume from 1965 through 1985, it remained between 13 and 15 percent of total Soviet trade for exports and 10 and 12 percent for imports. The Third World's trade with the Soviet Union, however, decreased in the 1970s and into the 1980s. These data include Cuba, since the only figures available concerning Third World trade with the Soviet Union include Cuba. As a percentage of overall Third World trade, the Soviet Union's share fell from 3.9 percent in 1970 to 2.5 percent in 1981. Deducting Soviet trade with Cuba, which has been considerable, would show an even smaller role played by the Soviet Union in Third World trade. In the late 1980s, the Soviet Union sought arrangements that would allow it to maintain a level of trade that minimized the loss of hard currency.
Balance of Trade
During the 1980s, the Soviet Union exported more to Third World countries than it imported from them. Official Soviet statistics showed a trade deficit for this period, but arms and military equipment sales, which were not reported and are thus termed "unidentifiable" exports, accounted for approximately 50 percent of total exports to the Third World throughout the 1980s. Thus, the Soviet Union's hard-currency balance of tradeBalance of trade
The balance of trade is the difference between the monetary value of exports and imports of output in an economy over a certain period. It is the relationship between a nation's imports and exports...
, including arms sales, with the Third World was positive from 1980 through 1986. In fact, the Soviet Union's positive hard-currency trade balance with the Third World exceeded its hard-currency deficit with the Western industrialized countries in 1985 and 1986. For this reason, the Soviet Union showed an overall positive hardcurrency trade balance for these years.
Until the mid-1970s, bilateral clearing agreements were the primary means by which the Soviet Union settled accounts with its Third World partners. By the early 1980s, hard-currency payments had become the preferred means of settlement. Clearing agreements were used in less than half of all trade transactions. On occasion, the Soviet Union bartered arms for oil.
Composition of trade
Not including arms sales, machinery accounted for 20 percent of total sales to the Third World in 1985. Soviet exports of machinery took up an even higher relative share of total sales to Algeria, Iran, Nigeria, Pakistan, the People's Democratic Republic of YemenPeople's Democratic Republic of Yemen
The People's Democratic Republic of Yemen — also referred to as South Yemen, Democratic Yemen or Yemen — was a socialist republic in the present-day southern and eastern Provinces of Yemen...
(South Yemen), and Turkey. From 1980 through 1984, fuel, mostly oil, made up approximately 33 percent of overall Soviet exports to the Third World, including 50 percent of its exports to Asia and 60 to 70 percent of its exports to Latin America. Since 1985 greater competition on the world market resulting from falling world oil prices and rising Soviet extraction costs has prompted the Soviet Union to try to replace its export of oil with manufactured goods.
The Soviet Union has been the largest arms exporter to the Third World for a number of years. Major arms customers were concentrated in the belt of countries that stretches from North Africa to India, close to the Soviet Union's southern border. Some 72 percent of Soviet weapons exports went to Algeria, India, Iraq, Libya, and Syria. Other important customers included Afghanistan, Angola, Ethiopia
Ethiopia
Ethiopia , officially known as the Federal Democratic Republic of Ethiopia, is a country located in the Horn of Africa. It is the second-most populous nation in Africa, with over 82 million inhabitants, and the tenth-largest by area, occupying 1,100,000 km2...
, South Yemen, and the Yemen Arab Republic
Yemen Arab Republic
The Yemen Arab Republic , also known as North Yemen or Yemen , was a country from 1962 to 1990 in the western part of what is now Yemen...
(North Yemen). The Soviet Union lost arms customers in the 1980s, however, when Brazil and Egypt began to expand their arms sales to the Third World. India, which had experienced improvements in its hardcurrency balance in the 1980s, also started to buy arms from other suppliers. In an effort to retain its share of Indian arms customers, the Soviet Union continued to offer India its most sophisticated weapons at even more attractive rates.
The Soviet Union has long been an importer of Third World agricultural products. These imports increased dramatically after 1980 because of poor Soviet harvests from 1979 into the early 1980s and the United States grain embargo against the Soviet Union in 1980 and 1981. From 1980 to 1985, food and agricultural goods, half of them grain, made up 50 percent of Soviet imports from the Third World. In the first nine months of 1986, the decrease in grain purchases accounted for most of the 22 percent drop in imports from the Third World.
Africa and Latin America supplied most of the food imports other than grain. Throughout the 1980s, food imports steadily rose, but imports from individual countries fluctuated. Because of these fluctuations, the Soviet Union was often considered an unstable trade partner compared with Western customers.
Because the Soviet Union was a major producer and exporter of most of the world's minerals, its import requirements for many other commodities (nonferrous metals, in particular) were sporadic. Nonetheless, the Soviet Union was a stable importer of some minerals, particularly bauxite and phosphate rock. The Soviet Union imported up to 50 percent of its bauxite
Bauxite
Bauxite is an aluminium ore and is the main source of aluminium. This form of rock consists mostly of the minerals gibbsite Al3, boehmite γ-AlO, and diaspore α-AlO, in a mixture with the two iron oxides goethite and hematite, the clay mineral kaolinite, and small amounts of anatase TiO2...
from Guinea
Guinea
Guinea , officially the Republic of Guinea , is a country in West Africa. Formerly known as French Guinea , it is today sometimes called Guinea-Conakry to distinguish it from its neighbour Guinea-Bissau. Guinea is divided into eight administrative regions and subdivided into thirty-three prefectures...
, Guyana
Guyana
Guyana , officially the Co-operative Republic of Guyana, previously the colony of British Guiana, is a sovereign state on the northern coast of South America that is culturally part of the Anglophone Caribbean. Guyana was a former colony of the Dutch and of the British...
, India, Indonesia, and Jamaica. Phosphate rock was abundant in the Soviet Union, but because extraction costs were high most of this mineral was imported from Morocco and Syria.
A decline in Soviet imports of manufactured goods in the 1970s led Third World countries to pressure the Soviet Union to increase the import of these goods in the 1980s. In 1982 the Soviet demand for Third World manufactures began to rise. By 1984 manufactured goods, including manufactured consumer goods, made up 25 percent of Soviet imports from the Third World.
Beginning in 1973, in an effort to earn hard currency, the Soviet Union began to import oil from Third World countries for reexport to Western industrialized countries. This activity slowed from 1980 to 1982, recovered in 1983 through 1985, and continued to increase in 1986. Late that year, the Soviet Union signed an agreement with the Organization of Petroleum Exporting Countries (OPEC) that restricted the amount of oil it could buy for reexport. By 1988 this agreement had not cut total Soviet oil receipts, however, because oil was paid to the Soviet Union as compensation in arms sales.
Africa, Asia, and Latin America
During the 1980s, the geographical pattern of Soviet-Third World trade changed markedly. A decrease in trade with North Africa and the Middle East balanced a substantial increase in trade with sub-Saharan Africa, South Asia, and Latin America.In 1987 about 50 percent of the Soviet Union's total identified exports to the Third World went to Asia, and India was the Soviet Union's biggest trade partner. In exchange for Soviet oil and oil products, India supplied food, raw agricultural material, clothing, textiles, and machinery. India was also the Soviet Union's sole significant Third World supplier of equipment and advanced technology, e.g., computers and copiers, much of which was produced by Indian subsidiaries of Western multinational corporations. Malaysia, another important partner of the Soviet Union in Asia, was an important supplier of rubber, palm oil, and tin.
From 1980 to 1983, Soviet exports to Africa increased slightly to 30 percent of its Third World exports and decreased thereafter. Imports from Africa fluctuated from 1980 to 1985 but remained at about 25 percent. Nigeria was the Soviet Union's only important trade partner in sub-Saharan Africa, receiving Soviet machinery and exporting cocoa.
Exports to Latin America
Latin America
Latin America is a region of the Americas where Romance languages – particularly Spanish and Portuguese, and variably French – are primarily spoken. Latin America has an area of approximately 21,069,500 km² , almost 3.9% of the Earth's surface or 14.1% of its land surface area...
grew during the 1980s and reached 8 percent in 1985. Latin America's share of Soviet Third World imports was high (40 percent in 1982) because of large imports of Argentine grain. As the Soviet Union's main grain supplier, Argentina was the Soviet Union's most significant import partner in the Third World in 1980, 1981, and 1983. In 1986 the Soviet Union renewed its grain agreement with Argentina for another five years. However, because of a US$11 billion trade deficit with Argentina that the Soviet Union had amassed from 1980 through 1985 and the successful Soviet harvest of 1986, the Soviet Union cut its grain imports from Argentina drastically. In 1986 they were at a six-year low.
Countries of Socialist Orientation
The countries of socialist orientation can be categorized into two groups: those that had observer status in Comecon and those that were not observers but had privileged affiliations with Comecon member countries. The Soviet Union's trade with the Third World has always been heavily skewed toward countries of socialist orientation. Soviet aid provided most of the foreign capital for these countries and influenced their domestic economic development significantly. The Soviet Union often profited more politically than economically from this trade: most Soviet surpluses were not repaid but became clearing credit, longterm cooperation credit, or short-term commercial credit.In 1986 the countries that had observer status in Comecon were Afghanistan, Angola, Ethiopia, Mozambique, Nicaragua, and South Yemen. These countries were all characterized by political instability, low GNP, and low export potential. The share of exports to this group rose from 14 percent of total Soviet identified exports to the Third World in 1980 to 28 percent in the first nine months of 1986. Afghanistan, a recipient of Soviet machinery and military equipment, was the Soviet Union's most significant partner in this group. By contrast, trade with Mozambique and South Yemen was negligible.
Countries that had privileged affiliations with Comecon countries were Algeria, Benin, Burma, Congo, Guinea (until 1984), Iraq, Madagascar, Nicaragua (1979-85), Nigeria, Syria, and Tanzania and, at times, Guinea-Bissau, Mali, Seychelles, and Zimbabwe. Throughout the 1980s, Soviet exports to these countries oscillated, for example, from 27 percent in 1981 to 15 percent in 1983. This fluctuation, as well as fluctuations in imports, was primarily a result of changes in trade with Iraq, a major Soviet arms-for-oil trading partner in the Third World.
Trade with the Organization of Petroleum Exporting Countries
The Organization of Petroleum Exporting Countries (OPEC), particularly Iraq and Algeria, absorbed the largest share of the Soviet Union's "unidentified" exports. Although Soviet statistics usually showed a very low or negative trade balance with these countries, the balance was probably high because of arms sales. In the 1980s, some OPEC countries, particularly Iran and Iraq, together with Syria, which was not a member of OPEC, exchanged oil for Soviet arms and military equipment. Oil from these countries was resold to the West for hard currency. In the late 1980s, the Soviet Union attempted to increase its exports of nonmilitary goods to these countries. In May 1986, the Soviet Union and Iraq agreed to increase Soviet nonmilitary equipment sales, and in August 1986 an attempt was made to revive Iraqi gas sales.Gorbachev's economic reforms
When Mikhail GorbachevMikhail Gorbachev
Mikhail Sergeyevich Gorbachev is a former Soviet statesman, having served as General Secretary of the Communist Party of the Soviet Union from 1985 until 1991, and as the last head of state of the USSR, having served from 1988 until its dissolution in 1991...
delivered his report on the CPSU's economic policy on June 12, 1985, he noted that growth in exports, particularly machinery and equipment, was slow because the poor quality of Soviet goods prohibited them from being competitive on the world market. In the next three years, Gorbachev introduced many changes that would enable the foreign trade complex to better support his economic policy of acceleration. By May 1988, the structure of the Soviet foreign trade complex had been changed, and operations had been dramatically overhauled.
The price reform called for by the Twenty-Seventh Party Congress was an important step in improving Soviet international economic involvement. Soviet officials admitted that pricing was "economically unsubstantiated" and "unrealistic." They understood that although a fully convertible ruble would not be possible for some time, prices that more accurately reflected production costs, supply and demand, and world market prices were essential for developing a convertible currency. The nonconvertible ruble and the Soviet pricing system discouraged Western businessmen who could not accurately project production costs nor easily convert their ruble profits.
The new joint venture law, passed on January 13, 1987, opened up the Soviet economy to foreign participation, particularly in manufacturing. It was believed that the experience gained in such ventures would facilitate integration into the world economy. Specifically, through upgraded production processes, the Soviet Union could export more competitive manufactured goods and decrease its dependency on energy and raw materials to earn hard currency.
In August 1987, the Soviet Union formally requested observer status in the General Agreement on Tariffs and Trade(GATT). The Soviet Union also expressed its desire to join other international economic organizations and establish contacts with other regional groups. A major step in this direction occurred in 1988 when the Soviet Union signed a normalization agreement with the EEC. The Soviet government, however, professed no interest in joining the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
or the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
(IMF). Although Soviet officials claimed that the international monetary system "was not managed properly," it is more likely that IMF and World Bank regulations were the obstacles: both institutions required that members' currencies be freely convertible and that members provide accurate information concerning gold sales and economic performance.
Gorbachev transformed the role of foreign trade in the Soviet economy. Whereas imports previously were regarded exclusively as a vehicle to compensate for difficulties in the short term, Soviet economists under Gorbachev declared that imports should be regarded as alternatives to domestic investment and that exports should serve to gauge the technical level of domestic production. Foreign economic ties were to support growth in production beyond the capacities of the domestic economy. The Soviet Union could thus take a place in the world market that was commensurate with its scientific and technical progress and political weight.
Banks
The Soviet Union controlled a number of banks abroad. The banks were used in foreign trade, espionageEspionage
Espionage or spying involves an individual obtaining information that is considered secret or confidential without the permission of the holder of the information. Espionage is inherently clandestine, lest the legitimate holder of the information change plans or take other countermeasures once it...
, money laundering
Money laundering
Money laundering is the process of disguising illegal sources of money so that it looks like it came from legal sources. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount...
and funding of Communist parties.
Examples:
- Moscow Narodny Bank in London
- Banque Commerciale pour l'Europe du Nord, also called Eurobank, in Paris
- Garantie- und Kreditbank für den Osten in Berlin
- Ost-West HandelsbankOst-West HandelsbankOst-West Handelsbank AG was a Soviet-controlled bank in Frankfurt. It was acquired by VTB Bank and changed its name to VTB Bank Deutschland....
in Frankfurt - Wozchod Handelsbank in Zurich
- Donau BankDonau BankDonau Bank was a Soviet-controlled bank in Vienna, Austria.It was acquired by Russian VTB Bank in 2000. In 2006 the name was changed to VTB Bank AG.Suspected KGB agents Andrey Akimov and Alexander Medvedev worked at this bank....
in Vienna - East-West United Bank in Luxembourg