May 7, 1979

May 7, 1979 | Backgrounder on Trade, Economic Freedom

Most Favored Nation Status: Trade with Communist Nations


(Archived document, may contain errors)

83 May 7, 1979 MOS T FA VORED NA TION S TA TUS TRADE WITH COMMUNIST COUNTRIES INTRODUCTION While the main focus of congressional debate this year con- I cerning the framework of detente will be military policies, U. S commercial ties with the East (linked directly to U. S. political and security interests) will also be reviewed. The new U. S openings to the People's Republic of China (PRC) focuses atten tion once again on the issue .of extension of most-favored-nation MFN) status to non-market'economies an d has hastened discussion of this key trade principle I I I1 'I The Jackson-Vanik Amendment of the Trade Act of 1974 cur rently prohibits the President from extending most-favored-nation status to any non-market economy which practices discriminatory emigr a tion policies unless he receives "assurances" from the government that their policies are aimed toward a principle of free emigration. Soviet actions in the early 1970s gave rise to the linkage of.human rights and commercial policies in U. S legislation. B ut with the recent quest for entrance to the "China market" the Administration is subject to business pressures to lift the MFN restrictions and thus ease implementation of the normalization process with the PRC. The Administration to date has made no pol icy statement concerning MFN other than to urge that the U. S. follow an "evenhanded" policy in its commercial re lations with the Soviets and Chinese.

The positions taken in support of and in opposition to the Jackson-Vanik amendment which surfaced in 197 3/1974 remain virtual After a brief examination of the history of MFN in the U.S. commercial policy, this paper reviews the status of the USSR and the PRC as well as the "dilemma" the U.S. faces in de termining whether or not to extend to MFN to these cou n tries ly unchanged r. 2 MFN AS A COMPONENT OF U. S. COMMERCIAL POLICY The U. S. application of the most-favored-nation principle in international trade dates back to 1778 with the signing of a joint commercial agreement with France. The treaty provided th a t The Most Christian King and the United,States engage mutually not to grant any particular favor to other nations in respect of commerce and navigation, which shall not im mediately become common to the other party which shall enjoy the same favor, freel y, if the concession was freely made, or on allowing the same compensation, if the conces- sion was conditional 1 The U. S. thus adhered to a "conditional" MFN policy whereby each party agreed not to grant any exclusive favors to a third party.

Similar provisions were included in commercial treaties signed with Prussia in 1785 and Sweden in 17

93. It is important to note that MFN treatment does not imply a status synonynous with its name. In other words, most-favored-nation treatment affords a third party the same trade privileges with all other trading partners receiving MFN status that the benefactor shares In 1919 the U. S. Tariff Commission report advocating uncon Reciprocity and Commercial Treaties con- ditional MFN,entitled cluded that The United Sta tes should ask no special favors and should grant no special favors. It should exercise its powers and should impose its penalties, not for the purpose of securing discrimination in its favor, but to prevent dis crimination to its disadvantage.

It was not until 1923 that the U. S. shifted to a policy of granting unconditional MFN treatment to contracting partners, thus advocating the principle of "equality of treatment."

MFN status was conceived legislatively in the Fordney-McCumber Tariff Act of 1922, imp lemented the following year. The move to ward this philosophy was prompted by the growing competitiveness U. S. exports faced on the world market as U. S. exports shifted from predominately agricultural goods and into more industrial goods the principle o f "equality of treatment" into U. S. domestic law. This Act required the U. S. to generalize all concessions with respect to like products in trade agreed to pursuant to the guidelines set forth in the Act. The President was allowed two exceptions in accor d ing MFN concessions, one being in the case of Unconditional The Reciprocal Trade Agreements Act of 1934 incorporated 1. Jacob Viner, International Economics Studies (G1encoe;Illinois: The Free Press, 19511, p. 19. 3 foreign discrimination against U. S. co m merce, and the other "be cause of other acts or policies which in his opinion tend to defeat the purpose set forth" in the Act.2 This second exemption could be taken quite broadly to include any actions which were not consistent with promoting internation a l free trade tion was enacted the Administration stated that it would consider only those discriminatory actions as pertinent reasons for sus pension of MFN Soon after this legisla The most-favored-nation principle is a key element of the General Agreemen ts of Tariffs and Trade (GATT) and was outlined in Article One of the agreement as adhered to by its signatories.

MFN adaptation is perhaps the widest use of the concept.

One with respect to custom duties or any kind of charges connected with exports or i mports declares any advantage, favour, privilege, or immunity grant or destined for any other country shall be accorded immedia tedly and unconditionally to the like produce originating in or destined for the territories. of all other contracting par ties This Article ed by any dontracting party to any product originating in Qualifications of this provision follow Article One MFN AND COMMUNIST COUNTRIES President with the option of using MFN for political leverage.

Act directed the President to The Trade A greements Extension Act of 1951 first provided the The suspend, withdraw, or prevent the application of any reduction in any rate of duty, of.binding or any existing customs or ex cise treatment, o,r other concession contained in any trade agreement to im ports from the Union.of the Soviet Socialist Republics and to imports from any nation or area dominated or controlled by the foreign government or foreign organization controlling the world communist movement.

Following this legislation, MFN provisions wer e next altered by the Trade Expansion Act of 1962 (TEA which required the President to withold MFN,from "any country or area dominated or controlled by Communism exemptions being granted for those nations already accord ed MFN status. felt such action wou l d promote the independence of that nation from lso the President could grant MFN treatment if he I 2 Chapel Hill William B. Kelly, Jr., ed., Studies in. United States Commercial Policy University of North Carolina Press 19631, p. 95. the sphere of communi st influence, thereby furthering U. S. natioq a1 interests.

On October 18, 1972, the U. S. and the Soviet Union signed an agreement which arranged for the settlement of the Soviet Lend Lease debt at $722 million, conditional on enabling legislation by the U. S. Congress which included granting of MFN status. A joint U. S.-Soviet Commercial Commission was formed in 1972 but these new attempts at U. S.-Soviet cooperation were short lived after American officials learned that the Soviets had begun charging a h eavy exit visa fee, ostensibly for repayment of educa tion costsof any citizen wishing to emigrate. Senator Henry Jack son (D.-Wash backed by a broad coalition consisting of congres sional members concerned over the application of a strong U. s human righ t s policy, conservatives warning against the adverse effects of technology transfers to the East, and members of the National Conference on Soviet Jewry, introduced in 1972 an amend ment to the "East-West Trade Exchange Act of 1971 stating the provisions w h ich are now included in the Trade Act of 1974 In spite of the Soviet warnings against U. S. interference in its internal affairs, the House followed Jackson's initiative and introduced similar legislation. Thus, the foundation for the fight against the pr ovision extending MFN to communist coun tries on a bilateral basis after examination of economic considera tions, as included in the Trade Reform Act of 1973 (later renamed the Trade Act of 1974],.was laid in 19

72. In 1974 the Jackson-Vanik Amendment was, on a roll call vote, suppor.ted by 78 senators and 319 House members, denoting a solid consensus on the linkage of emigration and U. S. commercial policy.

Included in Section 402 (a) of the Trade Act of 1974 is the following additional provision concerni ng non-market economies which maintain discriminatory emigration policies. These countries shall not participate in any program of the Government of the United States which extendscredits or credit guarantees or in vestment guarantees, directly or indirec tly, and the President of the United States shall not conclude any commercial agreement with any such country." This would include funding from any govern ment agency such as the Export-Import Bank.

As a carry-over from the Jackson-Vanik A mendment, Section 613 of the Trade Act of 1974 set an aggregate ceiling of $300 million for the extension of export credit to the Soviet Union by any U. S government agency, except the Commodity Credit Corporation, without prior congressional approval.

The Export-Import Bank Act of 1945 was subsequently amended not only in adherence to the $300 million ceiling but also to require a presidential determination for each .transaction of a loan extension to a communist nation in excess. of $50 million.

These l imits are currently enforced for both the PRC and USSR 5 RECENT 'CONGRESSIONAL ACTION In early February 1979, Senator Adlai Stevenson (D.-I11 and Congressman Les AuCoin (D.-Oreg introduced similar bills which would, if enacted, "facilitate expanded trade with the USSR and the PRC" as perceived by Stevenson, and alter the con struction of the Jackson-Vanik Amendment waiver clause in what AuCoin called a "positive" manner.

Jackson-Vanik Amendment waiver clause, Section 402 of the Trade Act of 1974, along with amendments to the Export-Import Bank Act of 19

45. The revisions called for in these bills would allow the President to waive the Jackson-Vanik Amendment if he determined upon examination of, the actual policies of prospective governments that their act ions would lead "substantially" to ful fill the free emigration ideal set forth in the Jackson-Vanik Amendment waiver period be extended from one to five years with "12-month periods for first-time waivers. It Section 613 of the Trade Act of 1974, which c u rrently places a ceiling on credit extension specifically to the USSR, would be deleted under the provisions of both bills. Additionally, these bills call for the revision of the Export-Import Bank Act of 1945, as amended, raising the limit prior to a req uired presi dential determination from $50 to $100 million and would raise the aggregate ceiling for all communist nations to $2 billion.

In the press release accompanying the summary of Senator Stevenson's bill, the Senator notes that granting MFN to the PRC will not immediately render that nation capable of financing all of its imports through a sudden surge in exported commodities.

Adhering to the Administration's policy of maintaining an "even handed" policy in commercial relations with the USSR and th e PRC Stevenson continues by stating the important role the Export Import Bank financing will play, yet he does not mention the ac tual emigration policies of the two nations nor their general human rights positions, to which all lending must give conside r a tion Both S. 339 and H.R. 1835 advocate two changes in the Secondly, both Stevenson and AuCoin propose that the Congressman AuCoin made the following statement on the House floor preceding the introduction of his bill Trading with a nation, and granting that country most favored-nation status, does not mean we approve of that nation's policies, whether emigration or economic. It simply means we have equal opportunities to exchange goods on an equal basis for the mutual benefit of both parties This is tru l y a situa tion where we have everything to gain and nothing to lose by taking this action Congressional Record, February 5, 1979 p. H 454 The remainder of this discussion will address the notion of.the 6 equality of benefits as expressed above by Congress man AuCoin.

It appears questionable that a precise cost/benefit analysis is quantifiable in this context, much less that one can ascertain any concrete results .in terms of the true beneficiary POLITICAL CONSIDERATIONS Even the most simplistic definition o f international trade assumes that the two or more nations engaging in it e'xpect to benefit mutually from the exchange. One must first consider the underlying motive for seeking foreign commercial ventures, as this determines the ultimate benefits a gove rnment derives from the exchange.

A noted Soviet authority on foreign trade was quoted in 1973 as having said Due to the basic antagonism between communism and capi talism, trade between the East and West will always be in fluenced, if not dom,inated, by p olitical considerations and motivations. The USSR's foreign trade policy is an integral part of its foreign policy.3 One can go back further to 1957 where-the following statement was attributed to Nikita Khrushchev We declare war upon you (the United Stat es) in the peaceful field of trade." Can the U. S now assume this declaration is no longer valid?

An Americsn Soviet scholar, Robert Loring Allen, concluded his 1960 study with the same basic premise The Soviet Union uses all of its foreign economic poli c ies and relations consistently'and exclusively to promote the interests of the Soviet state and the philosophy'on which it is founded Triteas this may seem it remains highly important to bear in mind that no other nation in 4 the world has this posture As trade is a state monopoly in both the USSR and the PRC, it would appear to be merely an appendage of an overall domestic or internal policy aimed towards promoting industrialization and military fortification 3 1st Session, July $0, 1973, p. H 5896.

Quote attributed to A. P. Chevynkov, Congressional Record, 93rd Cong 4. Robert Loring Allen, Soviet Economic Warfare (Washington, D.C.: Public Affairs Press, 1960); p. 3 1 7 Daniel Yergin, a proponent of increasing Soviet exposure to the industrialized West su r prisingly raises no serious objections to the Jackson-Vanik amendment. He cogently summarizes the views of many in stating When all was said and done, the Jackson-Vanik amendment was seeking only a small concession, affecting not internal affairs, but rat h er the point of tangency of internal and external affairs. It was merely asking the Soviets to live up to what they had, in any event, said they would live up to in the form of their general assent over the years to the Universal Declaration of Human Righ ts.

During the 1973 debate on this linkage of MFN to emigration poli cies, George Meany testified before the Senate Foreign Relations Committee as spokesman for the AFL-CIO. while opposed to granting MFN to communist nations for fear of added competition f rom pro ducts produced with "slave Jabor" he, too, stressed the point that the U. S. would be giving up a trade concess.ion for nothing.in re turn. Meany declared: we're against granting the Soviet Union most-favored nation treatment. It is not one of our most favored nations.

Yet, it is being proposed today that we grant the Soviet Union MFN status in exchange for their agreement to liberalize their emigration policies. In other words, we will bribe the Soviet Union to do what it is already obligated to d o under international law. 6 MFN AND HUMAN RIGHTS Although the debate involving MFN and the Trade Act of 1974 preceded the Carter Administration, the President gave his support to this linkage early on, as in fact would be consistent with his strong human rights stance. During the second round of debates between presidential candidates Gerald Ford and Jimmy Carter on October 6, 1976, Carter addressed the issue of morality in foreign policy and declared In the case of the Helsinki agreement--it may h'ave be en a good agreement at the beginning, but we have failefl to en force the so-called basket three part, which ensures the 5. Daniel Yergin, "Politics and Soviet-American Trade: The Three Question"

Foreign Affairs, Vol. 55 (April 19771, p. 531 6. Department of International Affairs, AFL-CIO, Free Trade Union News, Vol 29, No. 9 (October 19741, pp. 6-7. a right of people to migrate, to join their families, to be free, to speak out.

In his inaugural a ddress, President Carter preached of a firm U. S human rights policy stating Our commitment to human rights must be absolute...be cause we are free, we can never be indifferent to the fate of freedom elsewhere. Our moral sense dictates a clear-cut prefere nce for those societies who share with us an abiding respect for individual human rights.

As recentlyasDecember 1978, the President reiterated. his strong commitment to this philosophy in. proclaiming As long as I am President, the Government of the United States will continue throughout the world to enhance human rights no force on earth can separate us from that commit ment.

The freedom of a citizen of one country to emigrate from that country should be one of the most fundamental guarantees granted with respect to human rights. The Soviet Union in 1948 signed the United Nations Universal Declaration on Human Rights and in 1968 agreed to sign the International Covenant on Civil and Political Rights. Article Twelve of this Covenant declared that everyone s hould be allowed to leave any country, including his own I Basket three of the Helsinki Agreements was aimed at promo ting the free exchange of not only goods and ideas, but, more importantly, of people. Consequently, the Jackson-Vanik Amendment is in cha racter with the U. S. support of human rights and attempts only to stress that the U. S. will not overlook violations of the above agreements in formulating its commercial policies with re spective nations.

Critics of the Jackson-Vanik Amendment are quick to make refer ence to the immediate decline in emigration from the Soviet Union following enactment of the 1974 Trade Act. As the figures below indicate, however, there has been a small but steady increase since 1975 in the rate of emigration. This number has grown despite the constant reminders bg the Soviets that their internal policies are not influenced by American moralist "preaching." Questions grow ing out of examination of these figures are raised by both opponents and proponents of the Amendment. F or instance, some contend that the Soviet Union will never again reach the 1973 emigration rate unless t,he U. S. extends MFN.' But others ask, why should.the U. S now decide to extend MFN when the emigration rates have not approach ed the Jackson benchma r k level of 60,000 per year, nor have the Soviets openly improved their general human rights policies I 9 Emigration From the' USSR Left on Israeli Direct Direct Visa To U. S. To Germany TOTAL 1973 34,818 758 4 400 39,976 1974 20,376 1,029 6,300 27,705 197 5 13,'721 1,162 5 800 20,683 1976 14 262 2,574 9 600 26,436 1977 16,738 2 047 9,200 27 I 985 1978 28,864 1,709 8,500 39 073 1979 11 977 1st Quarter 1 Source: Figures obtained from the Cornmission on Security and Cooperation in Europe which monitors emigrat ion from countries who were signatories of the Helsinki Agreements.

Notes: The figures in the first column are people who left the USSR on Israeli Visas; 95 percent were Jewish is significantly larger than previous years as it is comprised mainly of Armeni ans who had planned to enter Lebanon but were unable to because of Lebanon's closed borders.

M. Goshko Dobrynin, U.S. Officials Meet Amid Signs of Easing Trade"

April 28, 1979, pg. A101 stresses the significance of an average monthly rate of 4,000 Jewish emigrants from the USSR so far this year. However at this rate the year end total for 1979 will still fall significantly short of the 60,000 benchmark figure discussed in the Jackson-Vanik Amendment debate The 1976 figure for emigration to the U.S A rece n t article in The Washington Post, (John ECONOMIC IMPLICATIONS OF MFN There appears to be a question on the part of some U.S:Govern ment agencies and private organizations engaged in international trade as to the exact economic effect the granting of MFN t o the USSR will have. Predictions for continual trade with the USSR and expanded trade with the PRC regardless of their non-MFN status tend to weaken the necessity for granting MFN for U.S. economic gains mitted special reports to the Congress on the impac t of granting most-favored-nation status to the Soviet Union and the PRC, respec tively by granting MFN to the USSR, U.S. imports were not likely to in crease substantially due to the lower tariff rates applied to the majority. of products the U.S. imports from the Soviets. The re port went on to state that at present the higher U.S. tariffs resulting from non-MFN status for the Soviets were restricting in any noticeable quantity only unwrought magnesium, binoculars knotted carpets, and electronic valves an d tubes. The basis of In April and May 1977, the International Trade Commission sub With regard to the Soviet Union the report concluded that 10 this conclusion em'erged from the statistics indicating that other western industrialized nations import more o f these goods than the U. S., thus the inference that the U. S. would otherwise im port these products in similar quantities is questionable items the L S. imports, or would likely import, from the Soviet Union can scarcely be considered vital to U. S. sec urity interests.

According to the report, in 1974 U. S. imports from the USSR total led $344 million, and of'this total, 76 percent was composed of duty-free items, and another 17 percent required# only small ad ditional tariffs These While indicating that by granting MFN to the PRC the Chinese may decide to increase their trade with the U. S., a similar Inter national Trade Commission (ITC) report more.importantly states that U. S. trade with China will remain a very minor percentage of U. S total world t r ade for many years. 8 In a letter to Richard Bolling, Chairman of the Joint Economic Committee on April 13, 1978, Secretary of Commerce Juanita Kreps enclosed' answers to questions previously submitted to the Depart ment of Commerce regarding the benefits of East-West trade the questions was the following: "What promotion of commercial relations is likely to be effective in terms of credit relaxed trade restrictions, and improved business facilities She replied Among A purely economic analysis suggests tha t providing of Export-Import Bank credits and Most-Favored-Nation tariff treatment to those communist countries which do not presently receive them (Poland, Romania, and Yugoslavia do) would not directly lead to large increases in U. S. trade with the com m unist countries lheeconomic effect of granting MFN on com munist country exports to the u. s. would also be quite small at least in the near future communist country exports--particularly those of the Soviet Union--are raw and semi-finished products which incur low U.S tariffs even under the non-MFN schedule.9 This is because a large part of 7. U.S. Congress, 95th Cong., 1st Session, Committee on Ways and Means Special Report to the Congress and the East-West Foreign Trade Board, U.S.

International Trade Commission, April 13, 1977, "Probable Impact on U.S.

Trade of Granting Most-Favored-Nation Treatment to the USSR p. 8-9 8. U.S. Congress, House Committee on Ways and Means, 95th Congress, 1st Session, Special Report to the Congress and the East-West Trade Board on Implications for U.S. Trade of Granting Most-Favored-Nation Treatment to the People's Republic of China," U.S. International Trade Commission May, 1977, p. 3 9. U.S. Congress, Joint Economic Committee Print, "Issues in East-West Commerical Relati o ns, A Compendium of Papers," 95th Congress, 2nd Session January 12, 1979, p. 295 11 Samuel Pisar, an international lawyer well known for his encouragement of East-West trade, objectively analyses the ap plicability of the concept of MFN to non-market econ omies in his book, Co-existence and Commerce.

Most-favored-nation treatment promises--whether ex changed under national legislation, bilateral treaties of friendship, commerce and navigation, or multilateral ar rangements such as the GATT--acquire a rather distorted meaning in relations with centrally planned economies In a totally planned economy, where the trading party and the regulating body are organic parts of the same whole neither a most-favored-nation nor a national treatment understanding can amo unt to more than a theoretical assur ance for firms and citizens of the market economy which has granted a reciprocal counter concession.

C. William Verity, American Co-Chairman of the non-governmental U.S.-USSR Trade and Economic Council-predicted U.S.-So viet two--way trade would double in volume from the record 1978 level regardless of whether or not the Jackson-Vanik Amendment is repeal ed.11 U. s. exports to the Soviet Union rose by 39 percent over 1977 figures last year, reaching $2.25 billion while e x ports to China grew to $818.2 million in 1978.12 If the U. S. trade with these nations is steadily growing, and no major expansion will accompany the extension of MFN status to the two nations, there would appear to be no economic motivation to hasten suc h a policy action.

I FINANCIAL CONS I DERATIONS If granting of MFN to the Soviet Union and/or the PRC, and any expansion in U. S. trade resulting therefrom,.is not to become another component of U. S. foreign economic assistance, it is first necessary to determine the econo m ic solvency of the nations. West ern industrialized nations have difficulty ascertaining the econo mic capabilities of centrally planned economies, especially of the Soviet Union as the non-convertible status of its currency makes it difficult to estimate the value of Russian reserve assets. In addition, secrecy surrounds the amount of gold the Soviets possess although. speculqted value is $7 to $8 billion 10. Samuel Pisar, Co-existence and Commerce: Guidelines for Transactions Between East and West (New Y o rk: McGraw-Hill, 19701, p. 196 11. Washington Post, December 8, 1978 12 Trade Between U.S Communist Countries Rose Sharply in 1978 Wall Street Journal, March 15, 1979, p. 20. 12 Lenin's autarchic statement we must save the gold in the USSR, sell it at the highest price Boastnotbe'fore but after the battle should not be assumed to have been buried with him.

In 1973 the retiring president of the U. S. Export-Import Bank warned, "it would be short-sighted if the Bank under a new lead er decided to provide mas sive credits to the Soviet Union without getting full disclosure of how much gold and hard monetary reserves the Soviet Union holds Washington Post, October 13, 1973 If the Soviet Union does maintain a supply of gold, then the U.S and other western nation s should be demanding payment in gold for all exports to that country.

With respect to the Chinese, the estimates of that country's reserve assets, prior to the recent months of heavy contract pur chases was $2 to $3 billion, with no hint of gold stockpiles.

After a sudden spurt in commercial deals with the PRC, contract offers from the Chinese have declined slightly as the total amount of newly incurred obligations was realized by the government A January 1979 study released by the Chase Manhattan Bank es timated a Soviet deficit with western industrialized nations close to $3 billion in 1978, with a $2.5-$3.5 billion debt likely in 1979 and 1980.13 Figures on the cumulative total of East bloc debt to the West vary in range from $40 to $50 billion, but all ex perts agree the amount will increase.

Examining two key factors in the debt servicing potential of the PRC and USSR, the export potential and potential for reduc ing imports, provides no assurances for debt elimination. l4 The hard currency earnings of both countries have been recently com prised of raw material, mineral, and textile exports. What ad ditional items for export the West may consider purchasing in large quantitiesis unclear. Furthermore, imports of capital and technology have risen in bot h nations. Indeed, the politically motivated quest for high technology goods, along'with the necessity of grain and foodstuff imports both in the PRC and Soviet Union would mitigate against any significant import reduction.

The table :below, which'exhibits the types and quantities of U. S. imports from the PRC and the Soviet Union over the past five years, clearly shows that even with increased trade between the U. S and these countries, there is nothing substantial the U. S. needs in 13. "International Fi n ance Chase Manhattan Bank, Vol. XIV, No. 2, January 22, 1979 14. For a detailed review of the debt servicing capacity of Eastern Europe and discussion of these factors, see Richard Portes, "East Europe's Debt to the West: Interdependence Is a Wo-Way Stree t ," Foreign Affairs, July, 1977 13 be a sudden and the way of were to sur- imports (unless there prising growth in the oil export capability of both countries] that would match the importance the PRC and Soviet Union attach to in creased credits and techno l ogy imports from the West U.S. TRADE WITH CENTRALLY PLANNED ECONOMIES: TOP 15 (FOR 1977) EXPORTS AN0 IMPORTS, 1972-77; BY COUNTRY; AN0 BY SlTC 2 OlClT COMMODITY CODE-Conlinued Dollar amounts in U.S. dollars1 Percent of 1977 lolal 1977 SlTC 1972 1973 1974 1 975 1976 U.S. Peneral imoorts from Ihe Pwole's Republic of China Textile yarn labrics made up articlei Crude animil and v;gelabls materials, n.e.s Miscellaneous manutacluied articles. n.e.s 65 29 89 84 07 17.9 15.2 12.7 12.6 5.7 4.9 4. 3 3.7 3.0 2.8 2.3 2 . 3 1.7 1.3 1.3 9 932 488 8' 871' 396 2: 089: 465 3.181.663 I, 859,603 6 164 532 I 610 451 1: 776: 887 213 541 1,036,606 2,728,695 7' 735'040 1' 566' 728 8: 030: 038 119: 628 36 382 550 25'678' 462 25' 540' 405 11' 488' 742 8: 136: 955 7,539,658 6,107.767 5 644 917 4' 660' 769 4' 660' 335 2' 6 19' 857 30' 758' 024 10' 000' 459 3' 517'268 2: sal: 314 Clothing Cofiee tea cocoa spices and manulactures thereol Enplok'and p;rolechnic products Fruit and vegetables Textile fibers and lheir wasle NO~~WIOUS metals Es s ential oils and perfume malerials; loilelriss; cleansers Noiiinelalllc mineral manufacturer, n.0.s Metallic ores and metal scrap 57 05 26 68 55 66 28 03 59 a5 tootwear fi:h and fish preparations Cliemical materials and products, n.0.s U.S. general Imports liom Ihe U.S.S.R Pelroleum and petroleum products Nonferrous metals hlelsllic ores and metal scrap Nonmolallic minxal manulacturss, n.e.s Miscellaneous manuhctured articles. n.e.s Hides, skins and foreskins, undressed Chamlcal elements and compounds Bever a ges Crude lertilirers and crude minerals except luels precious sloner Paper paperboard and manulacture8 thereat Michiber other lhan eleclric Wood an%cork manufactures. eacept lurnilure Cheniical materials and products, n.e.s Tobacco and tobacco manufactur e s I 33 68 28 66 89 21 93 51 11 27 64 71 63 59 12 7,561,935 46 596 185 14: 056: 418 15 627 103 2: 816: 113 3,013 937 1,107 469 176'982 35' 162 671 723 530 799: 303 187' 150 48: 226 18: 578 75 579 951 6: 029: 361 20 591 067 3: 597: 286 3,143 149 1 361 459 5 1 9' 958 63'673 42: 226 1.327.089 497,255 93'831' io8 I: 737' 512 1,1171 321 27.3 64 064 121 60: 209: 246 25.7 35 243 291 15.0 10: 019: 502 1.3 8,363.383 3.6 5 600 506 2.4 3 305 510 1.4 3' 292' 957 1.4 25'611' 149 10.9 3: 349: 281 1.4 2' 782' 497 1.2 2' 564 ' 680 1.1 2' 406' 3W 1.0 1' 789' 178 .8 1: 622: 645 .I Source: Joint Economic Committee, "Compendium op. cit., pp. 213-214.

An increasingly popular Soviet effort is to engage in counter trade or concession deals ment made by Western nations or technical eq uipment is payment in the form of products produced in the future by the new firm officials, according to one source, have estimated these types of deals will occupy approximately 40 trade between the years 1976-1980. 1g Recipients of this type of bar ter have no defense against delivery of shoddy quality products nor can the benefits derived from these future consumption items possibly match the strategic importance of capital and equipment received by the non-market economies This means the return on cap i tal invest Soviet ercent of the U. S.-Soviet total The free emigration philosophy contained in the Trade Act of 1974 applies to any lending agency of the U. S. Government. The Ex credit it can port-Import Bank is currently limited on the amount of America n Committee on East-West Accordr Just For The Pressl

15. Vol. 1. 14 extend to any non-market economy with discriminatory emigration policies The Bank created originally with the specific in tention of facilitating Soviet purchases of U.S. exports, ex tend ed direct credit to the USSR for exports whose total value reached 1,042.1 million in 1978.

Import Bank financed $469 million, with actual disbursement of 433.9 million. Outstanding loans to the Soviet Union total 432.7 million.16 While this amount is neg ligible when viewed in contrast to overall U.S. credit extension, it is significant to point out that the interest rates charged on these credits to the Soviets is much lower than commercial rates available to the'U.S. citizens. Until 1974, when the inter e st rates were changed, the Export-Import Bank provided direct credit at 6 percent interest and in 1978 the Bank elected to lower interest rates (or 7.75-8.75) from 8-9 percent. All of these changes have occured while the commercial rate for U.S borrowers h as climbed steadily fluctuating depending upon use between 8-11 percent While discussing the financial obligations the U.S. incurs with East-West trade, the most poignant example to date is the 1972 U.S.-Soviet grain deal. According to one authority, the American public suffered costs amounting to $3.3 billion ov a nine-month period for the 1972/73 Soviet grain purchases.

The experience questions the potential for any beneficial com mercial agreements between the two nations Of this 'total value the Export fri The dim prospects for continued Soviet or Chinese economic growth without further outside financial backing raises the more serious question of how far one nation can extend credit before the role of lender and debtor are reversed. Although Richard N i xon and Henry Kissinger were strong proponents of the theory that commercial relations between the U.S. and USSR would create a "web of vested interests Nixon warned Congress in 1973 that "the current trend toward detente with the Soviet Union and China m ay not prove durable."

What would become of U.S. investments in these nations if detente seriously eroded In fact, as some of the more tenuous arguments for lifting the MFN ban declare, it becomes harder and harder for large banks to refuse credit extensio n to the Soviets, and now the Chinese, when U.S. exports contracts are involved. Who is maintain ing leverage over whom in this type of circumstance 16. Joint Economic Committee, "Compendium op. cit., p. 209 17. Miles Costick, Economics of Detente and U.S .-Soviet Grain'Trade (Washing ton, D.C The Heritage Foundation, 1976), p.

31. Also see Costick Strategic Dimension of East-West Trade (Washington, D.C ACWF Task Force on Strategic Trade, 1978) for a discussion of Soviet benefits gained through past and cu rrent East-West trade practices. k 'I 15 CONCLUSION Most-favored-nation trade status has necessarily acquired a political significance which complicates further the difficult task of accurately assessing the economic benefits the U. S. could expect to rec eive upon granting MFN to non-market economies. The current restrictions on granting MFN are embodied in the Jackson-.

Vanik Amendment to the Trade Act of 1974, linking emigration poli cies with U. S. trade concessions. Trade matters already promise to occ upy much of the time of the Congress this spring with the upcoming review of the Multilateral Trade Negotiation package discussion of the Export Administration Act of 1969 which expires in September, and a general debate on East-West trade will transpire f rom the Senate SALT debate as the entire framework of detente comes under review There does not appear to be any consensus on behalf of the Administration and various agencies connected with East-West trade nor businessmen in the field, nor academicians, t hat the U.S. can expect to benefit economically from extension of MFN to the USSR or PRC. Furthermore, no evidence available to date substantiates claims that the Soviets or the Chinese have free emigration policies or have eased prosecuting human rights v iolations. If one attempts to piece together the scant information on these two economies and views this in connection with recent foreign policy actions (parti cularly the continued Soviet aid to Afghanistan and the Chinese invasion of Vietnam it is diff i cult to advocate that the U.S should, in effect, reward these actions by granting ElFN. It now appears that the Carter Administration is leaning toward support of MF" concessions. Worried parties cite this move as the next progres sion inthe inconsistent a pplication of the Administration's human rights policy, following the recent reversal on U.S. sales of com puters to Tass (originally blocked in 1978 as a protest against the trhl s of dissidents Anatoly Shcharansky and Alexander Ginzburg j Linkage of emi g ration policies with U.S. trade concessions has not had any major ill-effects on the U.S. economy since 1975 And as an interesting article recently contended There is nothing wrong with buying people's freedom which is what the .Jackson amend ment amounts to. On the contrary, it is an objective worthy of a democratic society."l8 Should the issue of MFN extension come be fore the Congress, in the form of a possible revision of the exis ting legislation or as vote on'a presisential waiver of the Jackson 18. Carl Gershman Selling Them The Rope, Business and the Soviets Commentary April 1979, p. 45 technology transfer, a difficult problem in East-West trade.

An excellent discussion of the question of 16 Vanik Amendment, it would perhaps be more appropriate to center the debate not around the issue of how much leverage the U.S. can obtain through dangling the ME" concession, but rather what would the U.S be gi ving up freely at this time, if MFN were extended to the PRC or USSR?

Susan P. Woodard Policy Analyst

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