By contrast, trade with Finland, which did not have a convertible currency at that time, was conducted through bilateral clearing agreements, much like Soviet trade with its Comecon partners.[1]
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.[1]
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.[1]
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.[1]
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.[1]
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.[1]
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.[1]
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.[1]
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.[1]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.[1]
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.[1]
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.[1]
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.[1]
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.[1]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.[1]
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.[1]
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.[1]
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.[1]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 HokkaidÅ 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.[1]
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.[1]
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 Finland and Vneshtorgbank. A steady growth in trade between the two countries occurred throughout the 1970s and 1980s.[1]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.[1]
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 Scandinavian 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.[1]
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