THE latest development in United States-Soviet Union business cooperation is the quintessential ``deal'' the Soviets have been looking for. Substantial Western investment, technology transfers, and on-site training for an export-oriented (and hard currency-earning) project are all part of the Soviets' joint venture with Combustion Engineering Inc. and Finland's Neste Corporation. Last week the multinationals pledged a collective $300 million toward the construction and operation of a $2 billion Siberian petrochemical plant.
The deal is atypical for US firms because it involves an investment many times greater than all previous US post-World War II participations in the Soviet Union combined. But the 18-month lag in signing an agreement makes it very typical indeed.
Promoted by Moscow as perestroika (restructuring) at work, joint ventures between Americans and Soviets often have generated more press coverage than results.
This is not for lack of US interest. ``The US business community has been much quicker to respond to changes in the Soviet Union than the US government,'' says Senator Max Baucus (D) of Montana, chairman of the Subcommittee on International Trade.
Emphasizing the opportunities rather then the risks, he says joint ventures provide the US business community with ``access to a $2.4 trillion annual market for 286 million people.'' Not including the Combustion Engineering deal, US firms have invested $23 million in joint ventures, and ``they open the door to US exports to the Soviet Union and build a long-term US commercial presence,'' he says.
But the realities of the Soviet system are sobering.
``Of the 1,000 new-to-market firms that have come into [the] office, well over 900 have met with complete failure and gave no indication of ever returning,'' according to a report from the foreign commercial service at the United States Embassy in Moscow. ``Another 50 still hold out but have little hope of success; the last 50 either have signed contracts or have some potential for sales.''
There is an important distinction between the number of agreements signed, the amount of tentative investment, and the amount actually invested. By the end of 1988, 13 US-Soviet joint ventures were established, out of 191 signed agreements. The $23 million cited by Senator Baucus is out of the signed potential of $441 million, says David Kemme, an economist at the Institute for East-West Security Studies.
The greatest barriers for implementing joint ventures in the Soviet Union are the inconvertibility of the ruble, and the difficulty in repatriating profits, observes Senator Richard Lugar (R) of Indiana. ``These problems are so fundamental, they stand front and center.'' As a practical matter, he adds, there is only so much US businessmen can expect from the ``sophisticated barter arrangements with the Soviet Union.''
Investors banking on a revamped, market-driven Soviet economy will be sorely disappointed, predicts Roger Robinson, a former banker and past director of international economic affairs for the National Security Council during the Reagan Administration.
``Gorbachev's reforms are seriously stalled for the following reasons: the absence of markets, the crushing embrace of central planning emanating from Moscow under the auspices of the Council for Mutual Economic Assistance (CMEA), and the region's debt burden. These are the macro reasons why joint ventures will run into a lot of trouble.
``The main thrust of the Soviet full court press on joint ventures is enhancement of Soviet foreign exchange earnings,'' adds Mr. Robinson.
If the Soviets are making exceptions with their currency, observes a US trade official, referring to the recent devaluation of the ruble for tourists and hard currency arrangements with certain joint venture partners, then ``the ruble's value is a little more realistic.''
Honeywell is one American firm that is taking advantage of that Soviet flexibility. It won an $8 million, high-priority contract to supply automation processors for fertilizer and petrochemical production and a water treatment plant.
The Soviets pay Honeywell in hard currency for what it supplies from abroad, about 80 percent of the project. The remaining 20 percent, including installation and start-up, will be done by local Soviet labor and will be paid for in rubles. The project will cost Honeywell only $1 million plus supplies from abroad.
Firms like Honeywell, whose annual sales in 1988 were $7 billion, are the companies that can sustain long-term presence in the Soviet Union, says Mr. Kemme.
``US firms generally want 20 to 35 percent profit margins,'' he says, and a 35 percent return is not forthcoming in the Soviet Union. ``The larger firms, like Occidental or Pepsico, can absorb lower rates of return. But most US firms adopt a short-term view - they take the money and get out. The Soviets must attract US firms to stay and reinvest their profits in the USSR.''
The US chemical giant Monsanto sold $100 million worth of chemicals and herbicides this year, says chairman Richard Mahoney. In a countertrade deal with the Soviets, Monsanto receives phosphates in return. The phosphates were not up to par, says Mr. Mahoney, so he engaged his firm in Soviet plant improvements, a joint venture which Mahoney calls a ``science project.'' The Soviets regard such ventures as a means of modernizing industry.
Monsanto's experience in the Soviet Union is useful research, says Mahoney. ``You have to be there now,'' he says, in order to do business over the long term.
``There is a great deal of hope that perestroika will see investments made now - profitable later,'' says former Washington Congressman Don Bonker, who, as a consultant with APCO Associates, orchestrates joint ventures.
``Everything is difficult,'' Mr. Bonker admits. ``There is no business culture or infrastructure in the country. It's very tough. The ruble's worthless outside of the country, and it's not worth much more inside the country. But for the adventurous US company, there are plenty of opportunities.''
Robinson says that workers' strikes and the possibility that price controls will be imposed (private cooperatives have been vilified by the public as price gougers) are poor signs for foreign, much less domestic concerns, he says.
Referring to the fashionable corporate executive, Bonker relates the observation of a Muscovite: ``US businessmen come in by the truckloads, spend three days at the Intel Hotel, meet some Soviets through the hotel's revolving door, and then leave.''
Monsanto's Mahoney says he sees the same faces in the hotel lobby. They come with great expectations, he says, and then realize ``Hey, there's no money here.''
Like two huge Japanese Sumo wrestlers pacing their ring, tossing salt in the air, the United States and the Soviet Union are eyeing each other, tentatively exploring the risks of greater economic contact. Will the meeting be a bone-crunching business clash, or a gentlemanly bow to each other?
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?''