Soviet Union-TRADE WITH WESTERN INDUSTRIALIZED COUNTRIES

The Western industrialized countries include the countries of Western Europe, as well as Australia, Canada, Japan, New Zealand, South Africa, and the United States (see table 47, Appendix A). Soviet trade with industrialized countries, except Finland, consisted of simple purchases paid for on a cash or credit basis, direct exchange of one good for another (Pepsi-Cola for Stolichnaya vodka, for example), or industrial cooperation agreements in which foreign firms participated in the construction or operation of plants in the Soviet Union. In the latter instances, payments were rendered in the form of the output of new plants. By contrast, trade with Finland, which does not have a convertible currency, was conducted through bilateral clearing agreements, much like Soviet trade with its Comecon partners.

In the 1970s and 1980s, the Soviet Union relied heavily on various kinds of fuel exports to earn hard currency, and Western partners regarded the Soviet Union as an extremely reliable supplier of oil and natural gas. In the 1980s, the Soviet Union gave domestic priority to gas, coal, and nuclear power in order to free more oil reserves for export. This was necessary because of higher production costs and losses of convertible currency resulting from the drop in world oil prices. The development of natural gas for domestic and export use was also stimulated by these factors. Between 1970 and 1986, natural gas exports rose from 1 percent to 15 percent of total Soviet exports to the West.

Because of the inferior quality of Soviet goods, the Soviet Union was unsuccessful in increasing its exports of manufactured goods. In 1987 only 18 percent of Soviet manufactured goods met world technical standards. As an illustration of these problems in quality, Canadian customers who had purchased Soviet Belarus tractors often found that the tractors had to be overhauled on arrival before they could be sold on the Canadian market. In 1986 less than 5 percent of Soviet exports to the West consisted of machinery. Other Soviet nonfuel exports in the 1990s included timber, exported primarily to Japan, and chemicals, the export of which grew substantially in 1984 and 1985.

In the 1980s, Soviet imports from Western industrialized countries generally exceeded exports, although trade with the West decreased overall. One-half of Soviet agricultural imports were from developed countries, and these imports made up a considerable portion of total imports from the West. Industrial equipment formed one-quarter of Soviet imports from the West, and iron and steel products, particularly steel tubes for pipeline construction, made up most of the rest. Over the course of the 1980s, high-technology items gained in importance as well.

In the 1970s and 1980s, Soviet trade with the Western industrialized countries was more dynamic than was Soviet trade with other countries, as trade patterns fluctuated with political and economic changes. In the 1970s, the Soviet Union exchanged its energy and raw materials for Western capital goods, and growth in trade was substantial. Soviet exports jumped 55 percent, and imports jumped 207 percent. The Soviet Union ran a trade deficit with the West throughout this period.

In 1980 the Soviet Union exported slightly more to the West than it imported. After a temporary shortage of hard currency in 1981, the Soviet Union sought to improve its trade position with the industrialized countries by keeping imports at a steady level and by increasing exports. As a result, the Soviet Union began to run trade surpluses with most of its Western partners. Much of the income earned from fuel exports to Western Europe was used to pay off debts with the United States, Canada, and Australia, from which the Soviet Union had imported large quantities of grain.

In 1985 and 1986, trade with the West was suppressed because of heightened East-West political tensions, successful Soviet grain harvests, high Soviet oil production costs, a devalued United States dollar, and falling oil prices. Despite increases in oil and natural gas exports, the Soviet Union's primary hard-currency earners, the country was receiving less revenue from its exports to the West. The Soviet Union sold most of its oil and natural gas exports for United States dollars but bought most of its hardcurrency imports from Western Europe. The lower value of the United States dollar meant that the purchasing power of a barrel of Soviet crude oil, for example, was much lower than in the 1970s and early 1980s. In 1987 the purchasing power of a barrel of Soviet crude oil in exchange for West German goods had fallen to one-third of its purchasing power in 1984.

With the exception of grain, phosphates used in fertilizer production, and high-technology equipment, Soviet dependence on Western imports historically has been minimal. A growing hardcurrency debt of US$31 billion in 1986 led to reductions in imports from countries with hard currencies. In 1988 Gorbachev cautioned against dependence on Western technology because it required hard currency that ""we don't have."" He also warned that increased borrowing to pay for imports from the West would lead to dependence on international lending institutions.

Data as of May 1989