WESTERN COMPETITION FOR SOVIET CONTRACTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T01058R000507600001-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 31
• Document Creation Date: December 22, 2016
• Document Release Date: April 28, 2010
• Sequence Number: 1
• Publication Date: May 6, 1985
• Content Type: REPORT

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DOC NO $S- 6 92 A
P&PDCY
State Dept. review
completed
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DIRECICRATE CF INMLIGENCE
6 May 1985
Western Competition for Soviet Contracts
Summry
Soviet orders for machinery and equipment in 1984 reached their lowest
level in over a decade due to Nbscow's disappointment with the overall
benefits of previously imported equipment and their desire to reduce
dependence in the wake of Western sanctions. Nevertheless, the USSR continues
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The Soviets are currently involved in intensive project negotiations with
Western firms which are likely to result in sizable contracts in the near
future. Judging from ongoing negotiations and our assessment of Soviet
domestic shortfalls, technology and equipment purchases will be concentrated
during the 12th F'P in:
o Oil and gasfield equipment to stem the falling oil production,
increase offshore exploration, and accelerate natural gas production.
o Chemical equipment to boost Soviet fertilizer and synthetic fiber
production.
o Agricultural production and food processing equipment to support
may be directed to Chief, Econanic Performance Division
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Once import priorities are set and allowances made for broader political
considerations, the typical Soviet purchasing strategy is to obtain the needed
technology and equipment on the best terms possible.
o Nbscon?, for its part, has paid lip service to Western demands for
preferential treatment such as redressing trade imbalances.
o While Moscow used the lure of major contracts to keep West Europeans
from adopting US proposals to limit energy and advanced technology
trade, contracts ultimately went to those firms offering the best
comiercial terms.
This manorandum was written by the Economic Performance Division, SOYA with
contributions from Strategic Policy Division, SOYA, West European Division,
ELBA and Northeast Asia Division, C EA. Comments and queries are welcane and 25X1
consumer welfare goals.
-SOYA M - 85 - 10092X
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West European firms--who generally have the necessary technology, offer
attractive financing, and have longstanding ties with Soviet buyers--are
likely to.continue to get the lion's share of Soviet business. While Japanese
technology is highly carpetitive, Japanese unwillingness to agree to Soviet
countertrade demands will limit their equipnent sales.
Recently the USSR has tantalized US businessmen with the prospects of
lucrative deals and have toned down allegations that [S suppliers are
unreliable. This marks a sharp reversal fran recent years when US-imposed
sanctions and export controls led Moscow to consciously and openly avoid US
businesses. Improved US-Soviet relations coupled with sane movement on the
sanctity issues could open the door for increased US sales especially where
the United States has a clearcut technological advantage--indeed sane small
deals have already been concluded--but events over the last ten years have
eroded the canpetitive position of LS firms and thus it is not likely that the
United States will regain the position in Soviet trade it once had.
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Contents
Surinary ........................................................
Current Trade Position .........................................1
Outlook for Hard Currency Imports .............................. 2
Status of Project Negotiations .................................4
Competing Western Interests ....................................5
Political Considerations ....................................... 9
LDC Role in Soviet Trade ......................................13
Outlook for the US ............................................ 15
Appendix B Attitudes of Western Governments Toward Trade with
the USSR ...................................................... 27
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Current Trade Position
The USSR's surplus on hard currency trade fell only slightly
in 1984 to $4.3 billion in spite of record imports of grain and a
decline in the value of hard currency exports of arms to the less
developed countries (LDCs). Imports of machinery and equipment
and of pipe fell substantially because of the completion of
deliveries for the Siberia-to-Western Europe gas pipeline.
Purchases of non-grain agricultural products also declined. The
value of oil exports increased slightly as a 5.5 percent rise in
volume more than offset a 3 percent decline in average prices.
The USSR continued to run trade surpluses with nearly all of
its West European partners, the largest being with Italy ($2.3
billion), West German ($1.4 billion), and the Netherlands ($1.6
billion) (see figure 1). Moreover, most of the USSR's hard
currency credits continued to be provided by West European
countries. Moscow also ran surpluses with most LDCs. The
countries with which the Soviets ran deficits were--for the most
part--the ones from which they imported sizable amounts of
agricultural products (the United States, Australia, Canada,
Argentina, and Brazil). The USSR has used the bulk of its excess
earnings from energy exports to Western Europe to pay for imports
from those countries with which it is in deficit.
About 83 percent of Soviet exports to the West European
countries consist of oil and oil products and natural gas.
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USSR: Hard Currency 'Made Balance,
Selected Countries, 1984
minion US Dollars
3000 n
IN
United Canada Japan United France
States Kingdom
M
West Neth. Ifdy
Germany
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Nearly all of the USSR's imports from these countries, on the
other hand, consist of machinery and equipment and other
manufactures and semi-manufactures. Real imports of machinery
and equipment declined an estimated 40 percent in 1977-81, rose
more than 50 percent with deliveries for the new gas export
pipeline in 1982-83, and declined roughly 15 percent in 1984.
- West European countries--most of which are facing high
unemployment and economic stagnation--have been pressing Moscow
to step up its purchases but to little avail. But because these
countries must import oil and gas, they have little leverage in
forcing Moscow's hand. The other possible energy suppliers are
not apt to increase imports from Western Europe either. The
USSR, for its part, will continue to welcome these surpluses
since they can be used to help pay for purchases of grain and
other agricultural goods from countries such as the US that are
unlikely to try to narrow their surpluses by greatly increasing
imports from the Soviet Union.
Outlook for Hard Currency Imports
Beyond 1985, our projections of Soviet oil production and
availability for export spell trouble for the. Soviet hard
currency payments position. Unless Moscow revises its cautious
borrowing policy, constraints on exporting oil for hard currency
could well force the USSR to reduce the volume of imports from
hard currency countries at least through 1990. But our analysis,
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under the worst case scenario for energy exports, imports from
the West could drop by as much as 20 percent over the remainder
of the decade.' Our best guess is that Moscow will face a less
severe drop in energy exports and will step up borrowing somewhat
to keep import volumes at roughly current levels.
The extent to which the 1982 Food Program succeeds in making
the USSR more self-sufficient in agricultural production will
largely determine how much the Soviets can spend on
nonagricultural goods. With hard currency resources limited
Moscow will have to choose between competing domestic
requirements.
o As a first priority, we believe the USSR will try to
import sufficient quantities of grain and feedstuffs to
keep the livestock program on track.
o Its second objective probably will be the industrial
materials needed to prevent production bottlenecks, and
the equipment and technology to help develop and exploit
energy sources.
o Its third priority might well be equipment and technology
While Moscow no doubt expects much of the increase in
imports of machinery and equipment to come from Eastern Europe,
which now provides about two-thirds of such imports, it is likely
for other key areas.
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to continue to import sizable quantities from hard currency
countries. These purchases totaled $7 billion in 1983. The
Soviets will need Western machinery and equipment for the energy
industries, agricultural and food processing industries, machine
tool production, construction and transportation projects,
process control and other electronics industries, and chemical
production. If unable to acquire Western machinery and
technology, the Soviets could go it alone, but would sustain
appreciable lossses in quality, reliability, and productivity in
some sectors.
Status of'Project Negotiations
Current Soviet project negotiations with Western firms
indicate that Soviet purchases of machinery and equipment for the
next five-year plan will focus heavily on energy-related
equipment and technology. Of the more than $20 billion in
potential sales to the USSR, over 70 percent are for the energy
sector.
The USSR has expressed the most interest in Western
participation in the development of major oil and gas fields.
Initial contracts for Tenghiz and Astrakhan II have already been
signed and additional contracts for this project as well as
Karachaganak are expected to be awarded soon. Other projects
such as the Barents Sea Petroleum Development project and the
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Irkutsk and North Star liquified natural gas projects are in
early stages of discussion but have the potential for generating
billions of dollars in orders by the end of the century.
There has also been a resurgence of Soviet interest in
purchases of Western technology and equipment for the chemical
sector, particularly in the form of turnkey projects. We expect
that purchases for the 12th Five Year Plan could exceed $2
billion. The USSR is also negotiating projects in the
metallurgy, automotive, electronics, and machine tool sectors
which are designed to selectively improve the quality and
assortment of output in those sectors.
Finally, the adoption of the Food Program in 1982 has
resulted in increased interest in Western equipment and
technology in the agricultural and food processing sectors.
Although most of Moscow's increased imports are likely to come
from Eastern Europe, purchases from Western firms of selective
types of equipment are likely to expand. Because most of the
projects will be on a much smaller scale than those projects
being negotiated in the energy and heavy industry sectors--under
$50 million--the relative share of these purchases in total
Soviet orders will remain small.
Competing Western Interests
The major contenders for projects likely to be signed in the
near future are German, French, Italian, and Japanese firms. The
West Germans, as in the past, will probably capture the lion's
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share of the
year plan.
contracts for projects included in the next five
The French are also likely to win sizable contracts with the
Soviets. It was announced in early April, for example, that
contracts for the gas processing plant at Astrakhan and the gas
desulphurization unit at Tenghiz, valued at $400 million, would
be signed soon. Meanwhile, the Italians have already signed
contracts worth about $300 million this year and negotiations for
several other contracts worth over $2 billion are reportedly
approaching conclusion.
The West Europeans currently have an edge over other
competitors in obtaining lucrative Soviet orders. Their
governments have long pursued a policy of expanding trade with
the USSR. Government-backed credits at attractive interest rates
are frequently offered and COCOM restrictions are generally less
rigidly interpreted than in the US. In contrast, US policy since
the mid-1970s and particularly the 1980 and 1982 sanctions have
driven the USSR to find alternatives to US grain and machinery
and equipment. US firms received only 4 percent of Soviet
equipment orders last year compared to a 25 percent share in the
.early 1970s. Similarly, since the 1980 partial US grain embargo,
the US share in total Soviet grain imports has been below 40
percent compared to an average of about 60 percent throughout the
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1970s. The Japanese government has likewise discouraged expanded
trade relations but to a lesser extent than the United States.
The geographic proximity of Europe and Japan to the USSR and
their import requirements for most essential raw materials make
these countries more amenable to Soviet desires for countertrade
arrangements. If, as we expect, the USSR's hard currency
position deteriorates, Soviet officials could well increase the
efforts to negotiate such arrangements in order to assure their
ability to pay for the required technology. Joint Soviet-
Japanese development of Siberian resources, in particular, will
depend on these types of arrangements. Japanese businessmen,
however, do not see sufficient future demand for Siberian
resources to justify expanded cooperation on that basis. Thus,
many of the projects proposed by the Soviets will proceed slowly
at best and the Japanese role in Soviet projects during the 12th
Five-Year Plan will likely be limited compared to the European.
The trade deficits that most West European countries have
run with the USSR in recent years may also give these countries
an added advantage in their efforts to secure Soviet business,
albeit marginal. Despite agreements signed in early 1984
committing the USSR to balance its trade with both France and
Italy, equipment orders have not been forthcoming. Indeed,
Renault recently cancelled a deal to design and construct an
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automobile plant after the Soviets placed most of the actual
equipment orders for this plant with West German firms. In
contrast, French pressure may have been partially behind the
increased EC--mainly French--grain sales to the USSR during the
1984/85 marketing year (July-June) but subsidized prices and the
strong US dollar also made EC grain competitive. Aside from
France and Italy, other West European countries have not made
much of an issue over the trade imbalances.2 (see Appendix B for
a discussion of selected developed countries' attitudes toward
On the other side of the coin, non-European developed
countries--US, Canada, Japan and Australia being the most
important--generally run sizable trade surpluses with the USSR.
Soviet officials have cited these large surpluses as being a
hindrance to trade expansion and have pressed firms in these
countries to purchase Soviet commodities to at least partially
offset Soviet purchases from these firms. In a rare statement of
candor, however, Deputy Foreign Trade Minister Zhuravlev stated
that the large US trade surplus is not a problem because -the USSR
could not produce what the United States needed. As long as
Moscow requires the products produced by these countries,
trade with the USSR).
2 In an economic sense, bilaterally balanced trade is not a
necessary criteria for a sound trade position. Many countries,
however use the issue of bilateral trade deficits to increase
exports. The issue takes on a greater urgency when a country,
such as France or Italy, runs a chronic trade deficit in its
overall trade.
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particularly the agricultural commodities supplied by the United
States, Canada, and Argentina, these surpluses will remain
large.
Political Considerations
Once import priorities are set and allowances are made for
broader political considerations, the USSR's purchasing strategy
is to obtain the needed items on the best commercial terms
possible. While political considerations have influenced the
choice of countries from which firms are requested to bid for
Soviet projects (and the choice of-firms within those countries),
the subsequent choice among competing offers has almost
invariably been made by foreign trade functionaries according to
select economic criteria.
o The decison to seek a foreign source for a particular
type of plant and equipment is made as part of the
overall economic planning process; individual ministerial
"wish-lists" are prioritized according to broader
production goals and foreign exchange availabilities.
o Although industrial representatives may provide initial
guidance regarding potential suppliers and technical
evaluation of foreign bids, the responsibility for
conmericial negotiations is closely guarded by Ministry
of Foreign Trade personnel.
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Judging by the emphasis given to select aspects of
commercial negotiations, Ministry of Foreign Trade officials are
held responsible for demonstrating that they met the technical
demands of the industrial ministry--guaranteed delivery and on
site performance of imported equipment--at the "best" terms
available--lowest purchase price and availability of long-term
loans carrying a low nominal rate of interest. (see intext table
on politics in Soviet Negotiating Strategies).
In Western Europe commercial considerations clearly have
been reinforced by Soviet hopes that closer trade ties would
complement longstanding political efforts to'divide the United
States from its allies. These hopes received encouragement in
the early 1980$ from the failure of US efforts to block West
European agreements to purchase large quantities of Soviet
natural gas, and from the subsequent willingness of West European
governments and corporations to defy US efforts to prevent the
sale to the USSR of gas pipeline construction equipment. Ongoing
Soviet efforts to circumvent US restrictions on high-technology
exports by purchases in Western Europe undoubtedly have this
political goal in mind, along with the principal goal of securing
denied technology for economic and strategic reasons.
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Politics in Soviet Negotiating Strategies
US Embassy officials say that they frequently cannot tell
whether commerical concerns--credit terms, interest rates, and
reliable delivery--or political factors have more influence on
the awarding of contracts.
commerical terms are probably at the heart of Soviet 25X1
negotiating strategy. Nevertheless, Soviet trade experts inject
politics into negotiations both as a ploy to obtain better terms
by wearing down negotiators with superflous demands and as a
political message for other governments. The US Embassy in
Moscow has noted that in the case of a single import commodity,
the Soviets--to obtain better terms--may tell a Japenese exporter
that his government supports the United States too much, a German
exporter that he should object to the Pershing II, and a Canadian
that his country's trade surplus with the USSR is- too big. Since
the early 1970s Ministry of Foreign Trade leaders have repeatedly
argued with US diplomats and businessmen that credit
restrictions, US trade legislation, and other US Government
actions and policies are barriers to expanded US-Soviet trade.
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officials of FTOs have 25X1
become more discriminating in selecting foreign firms since
economic sanctions were imposed after the Soviet invasion of
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Afghanistan in 1979; those sanctions resulted in delayed
deliveries of equipment and long, fruitless negotiations.
According to one Western business journal, a European company
with a longstanding relationship with purchasing officials might
win a contract even if another competitor, particularly a US
firm,- offered cheaper terms, reasonable financing, or a better
product because the Soviets trusted that European company to make
every effort to deliver on time.
We note, however, that Soviet trade officials sometimes
follow these strategies inconsistently. Some deputy foreign
trade ministers, FTO officials, and industrial leaders at times
lobby with their superiors for favored US firms with whom they
have done considerable business in the past, according to US
Embassy commercial officers. At other times, under pressure from
the Kremlin, they refuse to deal with those same firms.
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The Soviets sometimes attempt to use their trade ties with
Western Europe as a stick rather than a carrot for political
purposes. In recent weeks, Soviet officials have indicated that
West German trade with the USSR will suffer if West Germany
continues to support the United States on the Strategic Defense
Initiative and other security issues. The Soviets, however,
invoked similar threats during their campaign in 1983 to dissuade
West Germany from approving NATO INF deployments, then backed
away from implementing them after the Bundestag made its
affirmative decision.
A number of Soviet statements indicate that calls for
improved trade ties with the United States have been motivated by
hope of using businessmen to influence US policies, including US
positions at the arms control talks in Geneva.
visiting Politburo member
Shcherbitskiy claimed in a meeting with US officials in early
March that progress in the talks could result in increased
bilateral trade.
LDC Role in Soviet Trade
In general, the USSR runs a sizable surplus in its trade
with the less developed countries. Military exports account for
almost 70 percent of Soviet exports to the LDCs while imports
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consist primarily of agricultural commodities and fuels. Because
those countries--mainly in the Middle East and Africa--which
actually run large deficits in their trade with the USSR
generally have little to offer and are dependent on Moscow for
their arms supplies, they are in no position to pressure Moscow
In contrast, Soviet trade with LDCs in Latin America and the
Far East has usually been in deficit. These countries are the
major LDC suppliers of agricultural commodities to the USSR. At
the same time, the generally poor quality of Soviet manufactured
goods and the distance that separates these countries from the
USSR make Soviet exports generally unattractive. The USSR has
complained about these imbalances and have gone so far as to
state that future purchases from Argentina and Brazil--two of its
largest LDC trade partners--depend on efforts by those countries
to increase imports from the USSR. Imports from Latin American
and the Far East have indeed fallen since their peak in 1981, but
largely due to an overall reduction in agricultural imports and
falling world commodity prices rather than a deliberate shift in
into increasing imports from them.
These same countries can and, to some extent, do provide
Moscow with an alternative to the developed West not only for
agricultural products but also some manufactured commodities
including machinery and equipment. While imports of manufactures
other than textiles remain small--only about $530 million in
trade away from these regions.
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1983--the Soviets have shown increased interest in such
commodities in recent years. Brazilian start-up devices were
used on the Siberia-to-Western Europe pipeline, for example, and
in late 1982 the USSR reportedly purchased $100-$125 million
worth of offshore oil equipment from a Singapore firm. It is
unlikely, however, that such interest will soon translate into
either sizable or sustained purchases, given traditional Soviet
preferences for dealing with established firms in the
industrialized West, its penchant for advanced technology, and
the aftersales services that only the larger firms in the West
can provide.
Outlook for the US
Although few of the major contracts currently being
negotiated will probably be awarded to US firms, there are
increasing opportunities for US firms to expand their sales to
the USSR. According to the US embassy in Moscow, since the
January Working Group meeting of the Joint Commercial Commission,
Soviet foreign trade organizations are no longer withholding bid
invitations and a number of US firms have been requested to bid
on major projects. A few firms have actually signed contracts
recently--though the dollar amounts involved have been relatively
small. Soviet officials have also toned down allegations that US
suppliers are unreliable. This shift in Soviet attitude combined
with the continued Soviet belief that US technology and equipment
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are superior will put US firms in an improved position to compete
against foreign firms.
Soviet traders have shown particular interest in US
petroleum equipment such as electric submersible oil pumps, oil-
refining technology and equipment, a plant for sour gas
processing, and a facility to-manufacture subsea oil and gas
production equipment. In addition, Western firms bidding as
prime contractors for major field development projects are
soliciting US suppliers as subcontractors. Gorbachev's role in
the Soviet agricultural sector in recent years may spur Soviet
efforts to obtain Western technology for this sector and the
large US agribusiness sector probably will give US firths an
advantage over other Western firms.
Despite these increased opportunities for US business, the
US is not likely to regain the position it held in the early
1970's. Events over the last ten years have eroded US
competitiveness. Moscow has since developed and deepened its
ties with non-US firms and Soviet concern over the reliability of
US suppliers will take a long time to dispel. In addition,the
hard currency stringencies which we anticipate that Moscow will
face at least through 1990 will constrain the size of the pie
which the US must share with Moscow's other hard currency trading
partners.3
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Appendix B
Attitudes of Western Governments Toward Trade with the USSR
West Germany
Bonn is currently not overly concerned about its trade
deficit with the USSR and is not appplying pressure on Moscow to
end the imbalance. The West German trade deficit increased from
$954 million in 1983 to $1.4 billion last year-4 Bonn continues
West Germany has not initiated any projects or set up any
special credit facilities to boost exports to the USSR.
Officially-backed export credits are available to the USSR and to
other countries with good credit ratings. During a Jar}uary 1985
meeting of the Soviet-German Joint Economic Commission in Bonn,
West German participation in development projects during the 12th
FYP was discussed. The West Germans expect, as in the past
Soviet plans, to capture a large portion of the Soviet
to run a comfortable global trade surplus.
Bonn may focus more on its trade imbalance with the USSR if
the deficit becomes structural. Gas deliveries over the next
decade will rise about 25% in volume, while West German exports
associated with pipeline development are winding down. If its
contracts.
This memorandum uses Soviet official trade statistics only.
Soviet data can differ substantially from Western statistics.
For example, West German trade data show that the trade balance
shifted from a $240 million surplus in 1983 to a $750 million
deficit in 1984. Much of the large discrepancies can be
explained by differences in reporting of oil trade.
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global trade surplus is reduced by a future decline in the US
dollar, Bonn might begin to actively pressure Moscow to buy more
West German products. 25X1
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France
In contrast, France has complained the most to the Soviets
over its continuing trade deficit. Although France recorded a
trade surplus with the USSR through 1978, after the second oil
shock the trade balance has been consistently in the red. The
deficit peaked at $1.4 billion in 1982 and exceeded $800 million
last year. Energy imports, which account for over 85% of French
imports from the Soviet Union, increased by-10 percent in 1984 as
deliveries from the Siberian pipeline project began; gas imports
are scheduled to increase again this year. On the export side,
almost one-half of all French sales to the USSR are agricultural
goods, while semi-manfactured goods and finished manufactured
goods each account for about another 25 percent. 25X1
France and the USSR signed an agreement in early 1984 that
committed the Soviets to move toward balancing trade by
increasing their purchases from the French. Nonetheless, exports
to the USSR in 1984 fell in volume terms. From the French
perspective, the most disturbing trend in Franco-Soviet trade is
the Soviet failure to place orders for capital equipment. Orders
have fallen from over $1.5 billion in 1981 to less than $120
million last year--the lowest level since the late 1960s. 25X1
Until recently, the French had done little more than
verbally protest over the deficit problem. In the last several
weeks, however, they have adopted a more active approach.
Renault has cancelled a deal to build an automobile plant,
stating publicly that the Soviets had placed most of their
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equipment orders with West German firms, rather than with Renault
or other French companies. In addition, press stories before the
early April meeting of the Franco-Soviet Large Commission meeting
suggested that France would reduce purchases of natural gas if
Moscow did not increase imports of French capital equipment.
At the same time, the French will continue to actively court
the Soviets as customers. Paris is currently trying to get the
Soviets to accept credits in European Currency Units in order to
offer lower interest rates and compete more effectively with the
FRG. After the early April meeting, Foreign Trade Minister
Cresson said she wanted to wipe out the bilateral deficit this
year and expected contracts for French gas equipment worth over
$400 million to be signed soon.
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United Kingdom
Britain does not view its trade deficit with the USSR as a
serious problem. The deficit with the Soviets grew from $216
million in 1970 to $430 million in 1979. After enjoying a
surplus in 1980 and 1981, Britain's trade reverted to a deficit
in 1982 which was $750 million last year, down slightly from
1983.
Despite their relative lack of concern, the British are
attempting to increase exports to the USSR. London and Moscow
recently have resumed trade talks curtailed following the Soviet
invasion of Afghanistan. British companies hope to land major
contracts to sell petrochemical, chemical, and biotechnology
processes to the Soviets this year. In his December visit to
London, General Secretary Gorbachev said he saw "good
opportunities" for British companies in the areas of machinery,
agriculture, food processing, and chemicals in the Soviet
In the past, the UK has been willing to offer attractive
credit terms to promote exports to the USSR and we believe London
will continue using exports credits to increase trade in the
future. In 1983, for example, the government Export Credits
Guarantee Department (ECGD) offered a Soviet company financing
for the purchase of oil field equipment at 7.5 percent, well
below the market rate. Such terms represent a common practice of
the ECGD and are not unique to trade with the Soviets.
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Italy
Like the French, the Italians have been greatly disturbed by
the size of the Soviet trade surplus, although they have yet to
take strong measures to deal with the problem. The trade
imbalance with the USSR has been increasing steadily since
1974. The deficit climbed over the billion-dollar plateau in
1980, and last year's deficit reached a record $2.3 billion.
Because of the lack of progress in reducing the trade
imbalance, Italian officials considered cutting back on fuel
purchases during 1984, according to the US Embassy in Rome. More
recently, however, they appear to have shelved this option
because Italy faces a possible protracted renegotiation of its
gas contract with Algeria that may make Soviet supplies more
necessary.
In this regard, the Siberian gas accord, pushed strongly by
the Italian business community, was accompanied by a commercial
agreement committing the Soviets to cut the $2.1 billion 1983
deficit in half by 1986 and to spend the income from the new gas
contract on Italian goods and services. The Soviet commitment
was made, however, with the stipulation that Italian goods be
competitive both in price and financing. A multitude of
cooperation and collaboration agreements followed in almost every
industrial field but, despite initial business euphoria. over the
prospects of stepped up sales, actual contract signings have not
lived up to expectations.
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Nonetheless, Italian officials remain optimistic that they
are on the verge of expanding exports to the Soviet Union and
cutting back the trade deficit. Numerous small contracts were
signed in 1984, and two fairly large contracts have been
concluded this year. One contract, a joint venture between an
Austrian and an Italian firm, is for producing steel cord for
radial tires. The contract is valued at $220 million for the
Italian firm Danieli, which absorbed one point to lower the
financing cost to 7.5 percent over five years. The Italian
company Cogolo will construct three shoe factories in the USSR
Italian officials also report that negotiations are underway
for about $5 billion in additional contracts. Several contracts
are reportedly ready to be signed, including the construction of
a one milion metric ton-a-year turnkey steel plant at Volgograd
valued at about $1 billion, a $200-million oil-drilling-pipe
plant, a $750 million coal slurry pipeline project in
Novosibirsk, and up to $750 million in contracts for automotive
and agricultural equipment.
Italian companies also hope to conclude contracts for turn-
key textile, chemical, and agroindustrial projects. IRI, the
Italian state holding company, expects to participate in Soviet
plans to modernize its steel industry, and the Soviets have
expresed interest in Italian technology for flexible
manufacturing equipment, automated assembly lines and gas
injection equipment to increase output from aging oil fields.
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Japan
Since 1982, trade between Japan and the Soviet Union has
fallen sharply. Following a 20 percent drop from 1982 to 1983,
two-way trade in 1984 declined another 12 percent to $3.6
billion, with a Japanese surplus of $1.5 million. The Soviet
share of Japan's 1984 global trade was only 1.5 percent of
exports and 1.0 percent of imports.
Japan has traditionally imported primary products from the
USSR, but Japanese demand for Soviet goods has not been boosted
by the recovery of the Japanese economy. Japanese interest in
Soviet energy projects is based principally on the desire to sell
equipment rather than to purchase coal, oil, or natural gas.
On the other hand, Soviet efforts to expand exports,
especially of non-energy items has led Moscow to push strongly
for counterpurchase or barter trade, which the Japanese have
rejected. In addition, Tokyo has refused Soviet requests for a
major reduction in the interest rates charged by the Japanese on
deferred payments for imports. Japan's own policies to support
US moves to check Soviet initiatives, moreover, have discouraged
expanded trade relations. The net effect of Tokyo's behavior has
been to shelve official trade and economic contacts with the
Soviets. As recent changes in US-Soviet relations and in Soviet
leadership have emerged, both Prime Minister Nakasone and Foreign
Minister Abe have made smoothing relations with Moscow a
priority. In fact, the resumption of political and economic
exchanges since mid-1984 has been viewed in Japan and elsewhere
as a thaw in relations between Tokyo and Moscow.
25X1
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Japanese industrial leaders--especially in the trading
companies--anticipate that the expanding bilateral dialogue,
Gorbachev's rise to power,and the preparations under way for a
new Soviet five year plan will bring increased trade. We
believe, however, that Japanese industry, although willing to
discuss new development projects, will be slow to make
commitments. Ongoing joint resource development ventures are
progressing slowly, if at all. Japanese equipment manfacturers
are interested in sales to the Soviet Union, which such projects
promote, but problems in developing the Siberian infrastructure
and continued low demand for Siberian resources will continue to
discourage a larger Japanese role in Siberian joint
development.
ZS
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