Moscow Wants a Deal

AS U.S. Agriculture Secretary Earl Butz left Moscow last week after an unprecedented 90-minute talk with Soviet Party Leader Leonid Brezhnev, he characterized the conversation as "warm, frank and friendly." For once those diplomatic cliches seemed apt. With President Nixon's visit scarcely a month away, Brezhnev, who never before has talked so long with an American official, was making a major gesture of cordiality toward the U.S. He also was emphasizing Moscow's desire for a big increase in trade with the U.S.--a desire that Washington shares.

Butz later predicted that the Soviets might buy as much as $200 million worth of American wheat and feed grains every year for the next decade. That puffy prediction was bound to please American farmers--but how would the Russians raise the money? Butz suggested to Brezhnev that the Soviet Union might consider paying for the grains by exporting its surplus of Siberian natural gas to the U.S. It was, of course, too early to agree on a deal that would cost at least $5 billion for plants, pipelines and ships, with most of the cost borne by the Russians. Nonetheless, Butz left behind a team of experts who are negotiating the terms of a big grain deal, which may be signed, along with an agreement limiting anti-ballistic missiles, during Nixon's visit beginning May 22.

Buying Spree. The U.S. needs to catch up with other non-Communist nations, which find the Soviet Union an expanding and often profitable market. Hoping to modernize outmoded industries, the Russians have bought scores of modern plants and equipment abroad: synthetic-fiber factories from Britain, chemical factories from Japan, and $250 million in equipment from Italy's Fiat for an auto plant, which is now turning out nearly 1,000 cars a day. West Germany last year sold $460 million worth of goods to the Soviets, followed by Japan ($375 million) and Italy and France (each nearly $300 million). But U.S. exports to Russia were only $160 million.

This could be greatly increased because Russian experts profess a preference for U.S. technology, and they are fascinated by the prospect of dealing with powerful American corporations. Moscow is especially keen to buy U.S. oil-drilling and refining processes, chemical plants, automated machine tools, food-packing equipment, and road-building machinery. The Kremlin would like--and will probably get--help from American firms in setting up the long-delayed Kama heavy truck factory. Pittsburgh's Swindell-Dressier Co. has won a $10 million contract for designing the arc furnaces for the plant.

There is progress on some other fronts. Collins Radio has landed a contract to install navigation and communication equipment on every Russian Yak-40 jetliner that is sold in non-Communist countries; the deal is worth $150,000 a plane. Joy Manufacturing Co. has sold several million dollars worth of the latest automated mining equipment. ITT will send a team to Moscow this month to discuss what it might do for the Soviets' underdeveloped communication systems. The Brunswick Corp. is even equipping a 24-lane bowling alley in Moscow.

One big obstacle to trade is that the Russians have had little to market in the U.S.--only $56 million worth last year. Unfortunately their manufactured goods are generally shoddy and not in much demand, even in the East bloc. But Moscow would like to sell jetliners (including the supersonic Tu-144), wristwatches, cameras, pharmaceutical supplies, medical instruments--and the natural gas that Butz bubbled about. Soviet experts have conferred with men from Tenneco and Texas Eastern Transmission about shipping Siberian gas to the U.S. It could be pipelined to Murmansk, liquefied and shipped to the U.S. East Coast in special tankers.

First, however, fundamental issues between the two nations must be resolved. Many of them are hangovers from cold war days when the U.S. believed that trade could aid Communist war-making potential. But the Communists developed a tremendous potential anyhow, and most diplomats now argue that greater trade may help ease political tensions. Among the issues:

LEND-LEASE DEBTS. The Soviets have yet to pay back the first kopeck on the U.S.'s $10.8 billion lend-lease aid provided during World War II. The real issue centers around payment for "civilian" goods, which accounted for one-quarter of the total. The Russians must at least partly clear up this default before Nixon can offer them Government-backed U.S. Export-Import Bank loans. The lend-lease talks were broken off in 1960 but, at Soviet request, talks have just been resumed in Washington. The U.S. has offered to settle for $800 million, but it wants hard Western currency. The Russians are willing to make a payment of $300 million and want it to be in rubles or raw materials. Prospects for a compromise soon seem good.

CREDIT TERMS. On the grain deals, the Soviets seek ten-year credits at an interest rate of 2 or 3% v. the prevailing average U.S. rate of 6%. The Russians are unlikely to get specially low interest rates, but Butz hinted that if they offer to make really big purchases in the U.S., Washington might devise a combination Government-private credit for five to seven years.

M.F.N. STATUS. The Soviets are eager to get back the "most favored nation" trading status with the U.S., which they lost in the cold war. M.F.N. status would cut the tariffs by 50% or more on some Soviet exports. So far the U.S. has granted M.F.N. standing to only two Communist countries, Poland and Yugoslavia. Washington would be wise to extend M.F.N. treatment to all of Eastern Europe, including the Soviet Union, to tear down trade barriers.

Above all, the U.S. must get rid of its old concept that trade is a cold war weapon. It makes no sense to continue to forbid U.S. companies to sell computers and other sophisticated equipment to the Communist countries when the Communists can buy the same sort of equipment through other Western sources. Similarly, it is self-defeating for U.S. businessmen to be forced to fill out reams of questionnaires and licensing applications for trade with Russia when such delays result in lost sales. Minnesota Mining and Manufacturing was a recent victim of U.S. bureaucracy. Though it developed magnetic tape, it lost a substantial sale to the Russians because its export license remained mired for so long in Washington offices that the Soviets took their business to 3M's imitators in Western Europe.

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