US Companies See Missed Chances

CHANGES in Eastern Europe are profoundly affecting bank and business plans in the West and Far East. European banks are beefing up their presence on the eastern side of the continent to capitalize on the credit needs of the newly reforming economies. Eastern Europe's vast pool of skilled cheap labor, depressed prices, and natural resources are increasingly magnetic to Western Europe and the Far East. Japan, the world's largest exporter of money, has the capacity to invest substantially in Eastern Europe.

The United States business community is concerned that domestic constraints and international competition will cause the US to miss some of the opportunities, both in public- and private-sector participation.

The primary reason for concern is what critics say has been the Bush administration's reluctance to commit itself forcefully to the sweeping reforms in much of the Warsaw bloc. ``US firms are missing a great deal in terms of investment opportunities,'' says economist Jan Vanous of Washington-based PlanEcon Inc., an economic consulting firm concentrating on Eastern Europe and the Soviet Union.

Exporters are shackled

US laws prohibit high-technology trade and official credits to the Soviets, shackling US would-be exporters to and investors in the Soviet Union.

After his Nov. 16 meeting with Commerce Secretary Robert Mosbacher in Washington, Soviet Minister for Foreign Economic Relations Konstantin Katushev called attention to the impact on US-Soviet trade of these restrictions, and in particular the fact that the US does not currently grant most-favored nation (MFN) trade status to Moscow.

``If we deduct grain imports, which amount to $2 billion, from our total trade with the United States, we are left with only $1.1 billion - equivalent to trade volume between the US and some less developed country. Our turnover with West Germany is $7.58 billion; with Finland it is $6 billion and with France, Italy and other West German trade partners it is $4 billion,'' the Soviet minister said. ``With all of those countries we have intergovernmental agreements.''

However, at the Malta summit of President Bush and Soviet leader Mikhail Gorbachev, Mr. Bush promised to give the Soviet Union the much lower MFN tariffs once the Soviet parliament passes a law providing a new liberal emigration policy. He also indicated that Washington would support granting the Soviets observer status at the General Agreement on Tariffs and Trade, the Geneva-based organization that regulates international trade, once the current round of trade talks winds up. That is scheduled for the end of 1990.

Mr. Katushev said most-favored-nation status ``will positively affect our trade with the US.''

The European Community, by comparison, already has negotiated, basically, most-favored-nation agreements with Hungary, Poland, and most recently the Soviet Union. ``The effort now is to liberalize and complete the MFN status and to get rid of quotas,'' says Ella Krucoff of the EC Commission's Washington office.

The EC has long-standing less advantageous non-preferential agreements with Czechoslovakia and Romania, and it is currently negotiating one with Bulgaria. Yesterday EC Vice President Franz Andriessen traveled to East Germany to discuss a similar deal with trade officials there.

Jackson-Vanik Amendment

The US denied the Soviet Union MFN status in 1975 under the Jackson-Vanik Amendment to the Trade Act. The amendment was an expression of US discontent with Moscow's restrictive emigration policy.

But with this effort to punish the Soviets, ``the US hit Czechoslovakia and East Germany hard'' as well, says Mr. Vanous. He hastens to add that granting MFN status to the Soviets and other East European countries would just be a first step.

The United States has quotas that protect domestic producers from imports, regardless of origin. ``If we allow these countries to compete here fairly and squarely, some of them could gain sizable market-share,'' Vanous says.

Referring to the much-maligned quality of East European manufactured goods, an argument that they would not sell well in the US, he becomes impatient: ``It's a fiction that everything produced there is low quality. Besides, not everyone in the US shops in Bloomingdales.''

On the heels of the Soviet's obtaining a Jackson-Vanik waiver will be official financing. The US Export-Import Bank is poised to establish a mechanism for providing export credit, guarantees, and insurance to US exporters to the Soviet Union.

Meanwhile, Japanese and South Koreans are eyeing Eastern Europe as a means of breaking new ground into the Soviet and Western European markets.

The Europeans are generally way ahead of the US, says Vanous, but he points to a recent, and notable exception. US firms, with combined deals worth $350 million, are taking the lead in Hungary, ``where the government is embracing Western investors.''

General Electric Co. has negotiated a $150 million agreement for a majority stake in Tungsram, the Hungarian lighting equipment manufacturer. Japanese and West German investors rank second and third, respectively.

US proponents of a go-slow approach toward Eastern Europe are concerned about snags in perestroika (restructuring) and are reticent about transferring high technology to recent adversaries.

Western technology is crucial to Soviet modernization (and that of East European industry in general) and successful integration into the world economy. Strongly influenced by the US Department of Defense, the Bush Administration so far is stringently adhering to the guidelines of the Coordinating Committee on Multilateral Export Control (CoCom). Composed of the US and the major Western allies, including Japan, CoCom was established in 1952 to prevent advanced technology transfers to the Soviet Union and other adversaries.

If CoCom regulations were streamlined, say export proponents, there would be fewer problems with European and Japanese compliance. US exporters would reap bigger revenues in the East European market.

``Export controls are a national security matter and should not be a deterrent to building trade relations in non-strategic areas,'' Mr. Mosbacher commented last month.

But even legally exportable technology goes through time-consuming review periods that cost US manufacturers contracts and stakes in the Soviet market, says Terrence Dittrich, a consultant on export licensing to Eastern Europe.

US exports delayed 120 days

After submitting an export license application, the US manufacturer typically waits 120 days for approvals that often must come from the Commerce, State, and Defense Departments. Japan's Ministry of International Trade and Industry takes four days to review and approve the same exports; the average time in Europe is two weeks.

``We should have higher fences and fewer [regulated] goods,'' argues Congressman Lee Hamilton (D) of Indiana. ``We've tied ourselves in knots by trying to restrict the flow of everything. For a long time we've had ideological hang-ups. You don't find similar doubts in the Western European community.''

If the US doesn't reconsider CoCom, other countries may. Henry Nau, co-director of the US-Japan Economic Agenda, says, ``Given past European dissatisfaction with the US-dominated export control regime, there is the distinct possibility that the Europeans - especially given the momentum of EC 1992 - will launch a major challenge to CoCom.... Western European countries and Japan generally perceive more opportunities and less risk in trading with the Soviet Union.... They generally resist controls for foreign policy purposes.''

A Monitor series explores the reaction in the US government and private sector to the reforms in East Europe and the Soviet Union. What are the risks and opportunities?

Today - The viability of US-Soviet joint ventures has been questionable so far, but the biggest one yet has just been signed.

Tuesday - Constraints at home have US companies worrying that they will lose out on trade with the Soviet Union and Eastern Europe.

Wednesday - The Bush administration's cautious posture on East Europe's reforms is the result of prudence - or does it result from ``ideological hang-ups?''