The Arrival of a New Era

U.S. trade with the Communist world last year totaled $612 million, less than the nation's commerce with Colombia. If the events of last week are any indication, however, a new era has begun for East-West trade. The Commerce Department, urged on by President Nixon, granted the Boeing Co. a license to export $150 million worth of jet equipment to China. Representatives of dozens of U.S. firms returned from a high-level meeting in Warsaw aimed at substantially increasing U.S. trade with Eastern Europe. Then, at week's end the White House announced a blockbuster: the Soviet Union has signed a threeyear, $750 million agreement for the purchase of American grains--on terms extremely favorable to the U.S. It was the largest grain deal ever made between two countries.

The Russians need grain because their own harvests are not expected to fill quotas set in the current Five-Year Plan, especially for feed-grains used in meat production. Under last week's agreement, which was announced at the Western White House by National Security Adviser Henry Kissinger, Moscow can buy any combination of U.S. wheat, corn, sorghum, rye, oats and barley that it chooses, at the going market rate. The Soviets' biggest concession was to accept the same financing that the Agriculture Department's Commodity Credit Corporation gives any other customer: 6 1/8% annually, with the entire loan repaid within three years after the last delivery. As recently as Nixon's summit trip to Moscow in May, Soviet negotiators were insisting on interest rates only half as large. Said Agriculture Secretary Earl Butz, who showed American farms to Soviet Agriculture Minister Vladimir Matskevich last fall: "The agreement does not involve subsidies to the Russians."

The Soviet purchases will boost 1972-1975 grain exports by 17% above their average for the past three years ($1.5 billion), which should bring many an expectant smile to grain-belt farmers. Moreover, since the U.S. did not agree to buy anything from the Russians in return, the deal will wipe off $250 million of the nation's horrendous balance-of-payments deficits during each of the next three years. Commerce Secretary Peter G. Peterson will try to build on the momentum later this month, when he is scheduled to visit Moscow to discuss other trade matters. He will likely find the Soviets expecting the U.S. to offer bigger concessions next time, but at least one specific new step is anticipated during his visit: agreement on a joint East-West Trade Commission whose job would be to increase U.S.-Soviet trade.

Workhorse. Meanwhile, nine Boeing representatives have been in Peking negotiating with Russia's eastern neighbor since April for the sale of ten Boeing 707 jetliners--four passenger models and six cargo versions. The White House expects the deal to be closed next month. The hard-bargaining Chinese will pay in cash with Western currencies for the planes, a supply of spare parts and training for Chinese crews. Ultimately, the Chinese may need 80 more planes, and they have already expressed interest in a Boeing 747 jumbo jet.

Boeing has also been vying with McDonnell Douglas, Lockheed, British Aircraft Corp., France's Aerospatiale and the Soviet Union's Aviaexport. What gave Boeing a wing up on its rivals at the moment? For one thing, the Chinese have observed plenty of long-range 707s in service to China with Air France and Pakistan International, and they liked the reliable workhorse.

Nixon has taken a special interest in pushing the Boeing deal, in keeping with his intention to improve U.S. ties with China. Pentagon officials tried to shoot down the Boeing sale last month on the grounds that the six cargo models could be used to ferry military supplies to North Viet Nam. But Nixon had his technology counselor, William Magruder, silence the obstructionists.

While Boeing executives were negotiating in Peking, some 200 officials of Western firms, most of them American, were jawing in Warsaw with about 100 managers of state enterprises, economists and trade officials in from East Europe. The roster of capitalists read like a who's who of corporate aristocracy: Boeing, First National City Bank, Du Pont, Chrysler, Bank of America, NCR, Monsanto, Avon, Coca-Cola and Sperry Rand, as well as Unilever, Renault, Fiat, Industrial Bank of Japan and British-American Tobacco. The gathering explored solutions to the problems that prevent increased EastWest trade--barriers like government trade restrictions and the East's shortage of hard currency.

Eastern European officials said that they are in the mood for joint ventures. A Polish economist, Zbigniew Kamecki, suggested an arrangement that would circumvent Warsaw's rules against joint ownership: a plant could be set up in Poland by a Western firm, operated by a holding company headquartered in the West but technically owned by Poland. The venture would be financed with hard currency by the Western firm, and both partners -would share the profits. Author Samuel Pisar (Coexistence and Commerce), co-chairman of the conference, suggested that such hybrids are the key to much more East-West trade. Indeed, Gulf Oil officers are discussing what could be a $3 billion joint undertaking with Japan and the Soviet Union to exploit the west Siberian oilfields of Tyumen.

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