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Text File | 1994-05-02 | 18KB | 340 lines

<text> <title> Former Soviet Union: World Trade Outlook </title> <article> <hdr> World Trade Outlook 1992: Former Soviet Union Collapse of Soviet Union Opens Opportunities in Independent States </hdr> <body> By Timothy J. Smith The dramatic transition of the Soviet Union into its constituent republics as Independent States opens historic opportunities for the rapid development of U.S. trade and investment. The United States now has diplomatic relations with all of the constituent republics* and is beginning to establish a bilateral framework for trade and investment, starting with a trade agreement providing reciprocal MFN tariff treatment. U.S. exports 1991--$3.6 billion U.S. imports 1991--$813 million In 1992 Russia, Ukraine, Kazakhstan, and other Independent States are ending 70 years of isolation from the industrial West. Many of these governments are implementing radical political and market-oriented reforms to integrate their countries into the world economy. The International Monetary Fund (IMF) may admit Russia as a full member as early as April. The other Independent States are also working with the IMF. U.S. trade and investment in the former Soviet Union will increase slightly in 1992 partly because of the opening of U.S. government-backed financing programs. At the same time, U.S. companies must cope with volatile business conditions where currency exchange rates and regulations, taxes, and export and import regulations are changing almost daily. U.S. exports will increase this year above the 1991 level of $3.6 billion for the former Soviet Union, especially in hard currency producing sectors or areas the new governments consider development priorities, such as agribusiness, oil and oil processing equipment, telecommunications, transportation, and health care. American companies are increasingly popular and exports of consumer goods may also increase as governments switch priorities from defense to civilian needs and enterprises exercise new latitude for buying consumer goods for their employees. Agricultural products, which account for about two-thirds of U.S. exports, should stay roughly at last year's level of $2.4 billion, depending on harvest conditions and availability of credits. U.S. exports will also increase as the Independent States look to industrial Western countries for needed infusions of technology and assistance. Last year Western exporters won 58 percent of the import market, compared to the 30 percent share to which they were limited in the 1970s and 1980s. A number of U.S. exports dramatically increased: footwear rose 628 percent to $14 million, plastics 568 percent to $37 million, medicines 133 percent to $45 million, and telecommunications equipment 253 percent to $22 million. Machinery and transport equipment exports registered another year of significant growth. The United States has already opened an Embassy in each Independent State (except Georgia). Now, we have offered to bring into force the trade agreement concluded with the Soviet Union in 1990 and to discuss investment and tax treaties. The trade agreement would provide reciprocal MFN tariff treatment as well as guarantees for American companies in intellectual property protection, business facilitation, and other areas. U.S. government financing and guarantee programs will help exporters and investors reduce risk. When agreements are concluded with the Independent States, U.S. exporters and investors will gain access to the Overseas Private Investment Corporation's (OPIC) programs, including direct loans, loan guarantees, and insurance. The U.S. Trade and Development Program (TDP) will fund feasibility studies, training programs, and other projects involving U.S. companies. In February, Eximbank opened its short- and medium-term insurance, credit, and loan guarantee programs for exports to Russia and is expected to extend its programs to other Independent States. The Independent States will soon be members of the European Bank for Reconstruction and Development (EBRD). The EBRD directs a majority of its funding to the nascent private sector and privatization of state enterprises; additional funds will support improvements in infrastructure and the environment. Little, if any, commercial financing is available at present because of the poor credit rating of the Independent States. When Russia becomes a member of the IMF, however, it will have access to IMF and World Bank resources. Western government and commercial banks will give preferred treatment to projects that will generate their own financing, e.g., through producing and exporting oil. When project financing cannot be arranged, U.S. companies will need to find projects that have enough standing with host governments to be selected over competing deals for the sovereign guarantees which are required by many Western government and commercial banks. The decentralization of decision-making authority and the increasing autonomy of enterprises and organizations open new export opportunities. U.S. companies can now sell directly to established enterprises and organizations, which in many cases control hard currency reserves formerly allocated by Soviet ministries. The big challenge this year will be finding who has money to spend on imports. Enterprises now hold 50 percent or more of hard currency funds, in contrast to earlier years when the Soviet central government controlled 90 percent of import funds. Economic performance will decline further in 1992. The collapse of the Soviet central government's role in coordinating commerce between the economically-integrated republics, along with the centrally administered ties between enterprises, will worsen short-term prospects. According to the State Statistical Committee, industrial production and GNP for the Commonwealth of Independent States fell by 8 and 17 percent respectively last year. Oil production and exports, the leading source of hard currency revenues, may continue to fall, and the Independent States will struggle with managing external debt. Companies that do not exercise extreme caution in arranging payment terms may face unpleasant surprises in 1992 as financial uncertainty prevails. Until the situation clarifies, advance payment will be the preferred option. When hard currency shortages prevent payment in advance, purchase of commercial insurance and/or linkage of shipping schedules to payment performance may be alternatives. In addition to hard currency shortages and payments arrears, companies will continue to face serious obstacles to trade and investment posed by limited and outdated infrastructure, lack of market and commercial information, and currency inconvertibility. Companies must be prepared to cope with these long-standing obstacles, as well as new uncertainties introduced by frequently changing laws, regulations, and taxes. New U.S. technical assistance programs will encourage stable commercial environments conducive to trade and investment. One example of this type of program is Commerce's Special American Business Internship Training Program (SABIT). Commerce has received foreign assistance funding to expand SABIT, which places English-speaking managers from the Independent States in three-to-six-month management internships in American companies. Awards will cover roundtrip airfare from Moscow to the internship site and provide a stipend to cover meals and incidentals for up to six months. (For additional information, call the SABIT program on 202-482-0073.) In 1992, the Commerce Department will target trade promotion opportunities in resource-rich areas throughout the Independent States. In Moscow, May 19-27, Commerce and the Trade and Economic Council will cosponsor the "Neftegas '92" petroleum equipment exhibit and the "USA '92" exhibit. A food processing trade m