591 



activities. The State not only performs the regulatory function com- 

 mon to all Governments, but also acts as manufacturer, merchant, and 

 banker. A fundamental problem of the U.S. businessman trading with 

 the Soviet Union or of a government agency attempting to regulate 

 and promote such trade is that of operating in an entirely new com- 

 mercial environment. Westerners who have traded with the Soviet 

 Union frequently complain that Soviet institutions are not conducive 

 to normal commercial ties. 



One feature of Soviet state trading to which Western businessmen 

 object is the necessity of dealing with Soviet foreign trade enterprises. 

 The foreign businessman is prevented from conducting business di- 

 rectly with Soviet producers, consumers and distributors. Instead, he 

 must deal with middlemen in the foreign trade apparatus who may 

 lack firsthand information about items being bought or sold. Although 

 Soviet foreign trade enterprises are specialized according to export 

 or import lines, they often cannot give the foreigner exact specifica- 

 tions for the import needs and export offerings of domestic enterprises. 

 In addition, since Soviet foreign trade enterprises have no domestic 

 competitors, they can exercise monopolistic bargaining power when 

 dealing with a single foreign company. The U.S. businessman has the 

 choice of dealing with a Soviet export-import monopoly or not dealing 

 at all. The Soviet foreign trade enterprise, on the other hand, is free 

 to take advantage of the competition among American companies or 

 between American companies and their foreign competitors. 



Another Soviet institution which encumbers commercial ties with 

 the West is central economic planning. As Soviet production and con- 

 sumption are centrall} 7 planned, the U.S. businessman cannot estimate 

 potential supply and demand conditions in the Soviet economy. Nor 

 can he judge, on the basis of arbitrary Soviet prices, which goods are 

 marketable in the Soviet Union. Centrally planned foreign trade can 

 also be extremely unstable because the government sometimes uses 

 trade to dispose of unplanned surpluses or to meet unplanned short- 

 ages. Furthermore, since there is no necessary link between cost of 

 production and price in the Soviet economy, it is difficult for U.S. 

 Government agencies to regulate dumping or market disruption on the 

 part of Soviet exporters. The U.S. -Soviet trade treaty addresses the 

 latter problem by establishing a procedure for imposing import quotas 

 or other restrictions for preventing market disruptions. 



Soviet isolation from the international trade community also creates 

 problems for Western companies seeking to buy from or sell to the 

 Soviet Union. The Soviet Union lacks some of the fundamental re- 

 quirements for unencumbered foreign trade transactions, such as a 

 convertible currency and a realistic exchange rate. The 1972 agree- 

 ment in which Pepsi Co., Inc., agreed to market Soviet vodka in the 

 United States in return for a Pepsi Cola franchise in the Soviet Union 

 typifies many Soviet foreign trade transactions. This characteristic 

 often leads Soviet foreign trade enterprises to insist on barter trade, 

 tied transactions, and other clumsy arrangements. Another Soviet de- 

 ficiency which results from its traditional isolation from Western mar- 

 kets is the lack of a basic foreign trade infrastructure for Soviet- 

 American trade. Such basic requirements as office space, communica- 

 tions services, and advertising facilities are virtually nonexistent. In 

 the 1972 commercial agreement, provisions were made to alleviate this 



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