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East-West trade and the regional development of Siberia and the Soviet Far East Bradshaw, Michael Joseph 1987

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EAST-WEST TRADE AND THE REGIONAL DEVELOPMENT OF SIBERIA AND THE SOVIET FAR EAST By MICHAEL JOSEPH BRADSHAW B . S c . ( H o n s . ) , The U n i v e r s i t y of Birmingham, 1980 M . A . , The U n i v e r s i t y of C a l g a r y , 1982 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY i n THE FACULTY OF GRADUATE STUDIES (Department of Geography) We a c c e p t t h i s t h e s i s as conforming to the r e q u i r e d s t a n d a r d THE UNIVERSITY OF BRITISH COLUMBIA A p r i l 198 7 © M i c h a e l Joseph Bradshaw, 1987 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department of Geography The University of British Columbia 1956 Main Mall Vancouver, Canada V6T 1Y3 Date 28th A p r i l , 1987 A b s t r a c t S t u d i e s of the r o l e of East-West trade i n S o v i e t economic development o f t e n assume t h a t S i b e r i a and the Far E a s t p l a y an im p o r t a n t r o l e i n t r a d i n g r e l a t i o n s , but few s t u d i e s have examined the e x t e n t of t h a t r o l e and the r e l a t i o n s h i p between trade and economic development w i t h i n the r e g i o n . T h i s s t u d y a d d r e s s e s two i n t e r r e l a t e d q u e s t i o n s : f i r s t l y , what i s the r o l e of S i b e r i a and the Far E a s t i n trade w i t h the West, and s e c o n d l y , what i s the r o l e of East-West trade i n S i b e r i a n development. R e g i o n a l t r a d e p a r t i c i p a t i o n d a t a a re not a v a i l a b l e . The s t u d y t h e r e f o r e examines the c o m p o s i t i o n of S o v i e t trade w i t h the West and the i n d u s t r i a l s t r u c t u r e of the S i b e r i a n economy, i n o r d e r to deduce the e x t e n t of r e g i o n a l p a r t i c i p a t i o n i n t r a d e . S o v i e t e x p o r t s to the West are dominated by n a t u r a l ' r e s o u r c e s , w h i l e i m p o r t s from the West comprise m a c h i n e r y and equipment, manufactured goods and a g r i c u l t u r a l p r o d u c t s . A n a l y s i s of the S i b e r i a n economy r e v e a l s a s p e c i a l i s a t i o n i n the p r o d u c t i o n and p r o c e s s i n g of n a t u r a l r e s o u r c e s . E s t i m a t e s of e x p o r t p a r t i c i p a t i o n show' t h a t s i n c e the l a t e 1970s the r e g i o n has become the S o v i e t Union's most i m p o r t a n t source of f o r e i g n c u r r e n c y . Imports of Western t e c h n o l o g y are shown to p l a y an i m p o r t a n t p a r t i n n a t u r a l r e s o u r c e p r o d u c t i o n and i n the c r e a t i o n of S i b e r i a ' s T e r r i t o r i a l - P r o d u c t i o n Complexes. In many i n s t a n c e s compensation agreements t i e the use of im p o r t s to e x p o r t p r o d u c t i o n . O v e r a l l the va l u e of S i b e r i a n e x p o r t s exceeds the c o s t of im p o r t s of Western t e c h n o l o g y , so t h a t the r e g i o n g e n e r a t e s a i i s i z e a b l e f o r e i g n c u r r e n c y s u r p l u s . In c o n c l u s i o n , a s i m p l e model of the t r a d e and development p r o c e s s i s p r e s e n t e d which r e l a t e s the p a t t e r n of f o r e i g n t r a d e p a r t i c i p a t i o n to the p r o c e s s of r e g i o n a l development. The impact of Western i m p o r t s i s f e l t m a i n l y i n the European core r e g i o n where they p r o v i d e a d d i t i o n a l r e s o u r c e s to feed the p o p u l a t i o n and r e n o v a t e the i n d u s t r i a l base; the impact of e x p o r t s to the West i s f e l t m a i n l y i n S i b e r i a and the Far E a s t where they i n c r e a s e demands f o r n a t u r a l r e s o u r c e p r o d u c t i o n . Thus, East-West t r a d e s e r v e s to p e r p e t u a t e the e x i s t i n g c o r e - p e r i p h e r y p a t t e r n of S o v i e t r e g i o n a l development. i i i T a b l e o f C o n t e n t s Page A b s t r a c t i i T a b l e o f C o n t e n t s i v L i s t o f T a b l e s i x L i s t o f F i g u r e s x i i Acknowledgment x i v T r a n s l i t e r a t i o n System xv C h a p t e r 1 E a s t - W e s t T r a d e and S i b e r i a n D e v e l o p m e n t : 1 An I n t r o d u c t i o n 1.1. The N a t i o n a l Economic Context 3 1.1.1. Economic Slow Down 3 1.1.2. I n t e n s i f i c a t i o n of the Economy....... 6 1.1.3. The S h i f t Eastwards.. 8 1.2. Approaches to the Study of East-West Trade and.. 10 S o v i e t Economic Development 1.3. A Study of East-West Trade and S i b e r i a n . . . . 17 Development 1.4. Data Sources and Problems 21 Note s 26 C h a p t e r 2 S o v i e t T r a d e R e l a t i o n s w i t h the West 27 2.1. F o r e i g n Trade Under C e n t r a l P l a n n i n g 27 2.1.1. The O r g a n i s a t i o n of S o v i e t F o r e i g n Trade 28 2.1.2. The F o r e i g n Trade P r i c i n g System .. 31 2.1.3. C o u n t e r t r a d e and Compensation Agreements 33 2.2. The P a t t e r n and S t r u c t u r e of East-West Trade 38 2.2.1. The G e o g r a p h i c a l D i s t r i b u t i o n of S o v i e t . . . . 39 F o r e i g n Trade 2.2.2. The S t r u c t u r e of S o v i e t F o r e i g n Trade. 47 2.3. S o v i e t Trade w i t h the I n d u s t r i a l i s e d West 52 i v T a b l e o f C o n t e n t s ( c o n t i n u e d ) Page 2 . 3 . 1 . S o v i e t F u e l E x p o r t s to the I n d u s t r i a l i s e d . . . . . 55 West 2 . 3 . 2 . S o v i e t Non-Fue l E x p o r t s to the 60 I n d u s t r i a l i s e d West 2 . 3 . 3 . S o v i e t Imports from the I n d u s t r i a l i s e d W e s t . . . 74 2 . 3 . 4 . Machinery and Equipment Imports 74 2 . 3 . 5 . P ipe and P i p e l i n e Equipment Imports 81 2 . 3 . 6 . G r a i n Imports 85 2.4 C o n c l u s i o n s /. 85 Notes 87 C h a p t e r 3 The R o l e o f S i b e r i a and t h e F a r E a s t i n t h e 88 N a t i o n a l Economy 3 . 1 . The S t r u c t u r e of the Economies of S i b e r i a and t h e . . . . 88 Far E a s t 3 . 2 . The F u e l s - E n e r g y Complex 95 3 . 2 . 1 . The O i l I n d u s t r y 98 3 . 2 . 2 . The N a t u r a l Gas I n d u s t r y 102 3 . 2 . 3 . The C o a l I n d u s t r y . . • • • • 105 3 . 2 . 4 . E l e c t r i c i t y G e n e r a t i o n • • • •. 108 3 . 3 . Raw M a t e r i a l P r o d u c t i o n and P r o c e s s i n g •• 112 3 . 3 . 1 . F e r r o u s M e t a l l u r g y 112 3 . 3 . 2 . N o n - F e r r o u s M e t a l l u r g y 113 3.3.3-. The Chemical I n d u s t r y 117 3 . 3 . 4 . The F o r e s t I n d u s t r y 121 3 . 4 . P r o d u c t i o n of F i n i s h e d Goods 128 3 . 4 . 1 . The M a c h i n e - B u i l d i n g I n d u s t r y 128 3 . 4 . 2 . The Food I n d u s t r i e s 131 3 . 5 . C o n c l u s i o n s 134 Notes 137 v T a b l e o f C o n t e n t s ( c o n t i n u e d ) Page C h a p t e r 4 The S p a t i a l S t r u c t u r e o f t h e S i b e r i a n Economy 138 4 . 1 . The Concept of the T e r r i t o r i a l - P r o d u c t i o n C o m p l e x . . . . 139 4 .2 . T e r r i t o r i a l - P r o d u c t i o n Complexes and S i b e r i a n 146 Development 4 . 2 . 1 . The West S i b e r i a n TPC . 149 4 . 2 . 2 . The A n g a r a - Y e n i sey System 153 4 . 2 . 3 . BAM and the South Y a k u t i a n TPC 157 4 . 2 . 4 . Summary: The Role of TPCs i n S i b e r i a 159 4 . 3 . The S i b e r i a n T r a n s p o r t a t i o n System 160 4 .4 . The S p a t i a l S t r u c t u r e of S i b e r i a n D e v e l o p m e n t . . . . . . . . 162 Notes 179 C h a p t e r 5 S i b e r i a and t h e F a r E a s t and E x p o r t s to t h e 180 West 5 . 1 . The Role Of S i b e r i a and the F a r E a s t i n E x p o r t s t o . . . 181 the West 5 .2 . S i b e r i a n Fue l M i n e r a l E x p o r t s to the W e s t . . . . 182 5 . 2 . 1 . S i b e r i a n O i l E x p o r t s 184 5 . 2 . 2 . S i b e r i a n N a t u r a l Gas E x p o r t s 187 5 . 2 . 3 . S i b e r i a n C o a l E x p o r t s 190 5 . 3 . S i b e r i a n Non-Fue l M i n e r a l E x p o r t s to the West 193 5 . 3 . 1 . N i c k e l , P l a t i n u m Group Meta l s and A l u m i n u m . . . . 194 E x p o r t s 5 . 3 . 2 . Diamond E x p o r t s • • • • 201 5 . 3 . 3 . Gold E x p o r t s 203 5 .4 . S i b e r i a n F o r e s t P r o d u c t s E x p o r t s . 205 5 . 5 . Other S i b e r i a n E x p o r t s 214 5 . 5 . 1 . F i s h E x p o r t s 214 5 . 5 . 2 . Fur E x p o r t s . 216 5 . 5 . 3 . Chemica l E x p o r t s 217 v i T a b l e o f C o n t e n t s ( c o n t i n u e d ) Page 5 . 5 . 4 . The T r a n s - S i b e r i a n L a n d b r i d g e . . . . . . . . . 219 5 . 6 . The Role of S i b e r i a and the F a r E a s t i n E x p o r t s t o . . . 221 the West: A Summary 5 . 7 . The S p a t i a l D i s t r i b u t i o n of S i b e r i a n E x p o r t . . . . 225 P r o d u c t i o n 5 .8 . C o n c l u s i o n s 230 Notes 233 C h a p t e r 6 S o v i e t I m p o r t s o f W e s t e r n T e c h n o l o g y and 234 S i b e r i a n Development 6 . 1 . The Role of Western Technology i n the I n d u s t r i a l . . . . 234 Development of S i b e r i a and the Far E a s t 6 .2 . Western Technology Imports to the S i b e r i a n F u e l . . . . 235 M i n e r a l s I n d u s t r i e s 6 . 2 . 1 . O i l and Gas E x p l o r a t i o n 237 6 . 2 . 2 . O i l and Gas P r o d u c t i o n 247 6 . 2 . 3 . O i l and Gas T r a n s p o r t a t i o n 253 6 . 2 . 4 . The Urengoy E x p o r t P i p e l i n e . . . . . 260 6 . 2 . 5 . The S i b e r i a n C o a l I n d u s t r y 265 6 . 2 . 6 . The South Y a k u t i a n C o a l Complex 268 6 . 3 . Western Technology Imports and M i n i n g . 274 6 . 3 . 1 . The N o r i l ' s k M e t a l l u r g i c a l Combine 277 6 . 3 . 2 . The Sayan Aluminum Complex 280 6 .4 . The F o r e s t I n d u s t r y 282 6 . 4 . 1 . S o v i e t - J a p a n e s e F o r e s t r y Agreements . . 285 6 . 4 . 2 . C o n c l u s i o n s 291 6 .5 . Western Technology i n the S i b e r i a n Chemica l 293 I n d u s t r y 6 . 6 . T r a n s p o r t a t i o n . . . . 309 6 . 6 . 1 . The Northern Sea Route . . 309 6 . 6 . 2 . Nakhodka-Vostochnyy. . . 320 v i i T a b l e o f C o n t e n t s ( c o n t i n u e d ) Page 6.6.3. The Baykal-Amur R a i l w a y 322 6.7. The S p a t i a l D i s t r i b u t i o n of Western Technology i n . . . . 324 S i b e r i a and the Far Ea s t 6.8. The Role of Western Technology i n S i b e r i a n . . . . 328 Development: C o n c l u s i o n s J Motes . . 330 C h a p t e r 7 C o n c l u s i o n s 33 4 7.1. East-West Trade and S i b e r i a n Development 334 7.1.1. The Role of S i b e r i a i n East-West Trade 334 7.1.2. The Role of East-West Trade i n S i b e r i a n . . . . 335 Development 7.1.3. The Role of Western Technology i n S i b e r i a n . . . . 338 Development 7.2. East-West Trade and S o v i e t Economic Performance........'342 7.2.1. The Trade and Development P r o c e s s . . . . 343 7.2.2. East-West R e l a t i o n s : P o l i c y I m p l i c a t i o n s . 350 7.3. I n d u s t r i a l L o c a t i o n and R e g i o n a l Development 352 7.3.1. Contemporary S o v i e t R e g i o n a l Development 353 7.3.2. The S o v i e t I n d u s t r i a l System and S p a t i a l . . . . 359 D e c i s i o n - M a k i n g R e f e r e n c e s 36 8 Appendix 1 Exchange Rates 389 Appendix 2 S i b e r i a and the Far E a s t i n N a t i o n a l 3 90 Economic P l a n s r v i i i L i s t o f T a b l e s Page 2.1 S o v i e t T r a d i n g P a r t n e r s , 1970-1985 42 2.2 D i s t r i b u t i o n o f S o v i e t. F o r e i g n T r a d e Among t h e . . . 44 I n d u s t r i a l i s e d C a p i t a l i s t N a t i o n s , 1970-1985 2.3 S t r u c t u r e o f S o v i e t E x p o r t s , 1970-1985 48 2.4 S t r u c t u r e o f S o v i e t I m p o r t s , 19 7 0 - 1 9 8 5 . . . . . . . 49 2.5 S t r u c t u r e o f S o v i e t F o r e i g n C u r r e n c y T r a d e , 1970-... 51 1983 2.6 R o l e o f F o r e i g n C u r r e n c y T r a d e i n T o t a l S o v i e t . . . 53 F o r e i g n T r a d e , by Commodity, 1970-1983 2.7 The Commodity S t r u c t u r e o f S o v i e t T r a d e w i t h t h e . . . . 54 OECD N a t i o n s 2.8 S o v i e t O i l E x p o r t s , 19 71-19 84 .... 56 2.9 S o v i e t P r o d u c t i o n and T r a d e i n G o l d , 1970-1983 61 2.10 S o v i e t P r o d u c t i o n and T r a d e i n P l a t i n u m G r o u p . . . . 64 M e t a l s , 1975-1984 2.11 S o v i e t Diamond P r o d u c t i o n and T r a d e , 1976-1984 67 r 2.12 S o v i e t O u t p u t and T r a d e i n S e l e c t e d F o r e s t . . . . 69 P r o d u c t s , 1970-1984 2.13 R o l e o f M a c h i n e r y and E q u i p m e n t I m p o r t s i n S o v i e t . . . 75 T r a d e w i t h t h e I n d u s t r i a l i s e d West, 1970-1985 2.14 M a c h i n e r y O r d e r s P l a c e d w i t h t h e Hard C u r r e n c y . . . . 79 C o u n t r i e s , 1976-1978 2.15 S o v i e t I m p o r t s o f Wheat and C o a r s e G r a i n , 1972-... 85 1983 3.1 The S t r u c t u r e o f S i b e r i a n I n d u s t r y , 1960-1975 90 3.2 The S t r u c t u r e o f S i b e r i a n I n d u s t r y , 1970-1985 91 3.3 The S h a r e o f S i b e r i a n I n d u s t r i a l P r o d u c t i o n i n . . . . 93 t h e N a t i o n a l Economy 3.4 S i b e r i a ' s S h a r e i n t h e G r o w t h o f I n d u s t r i a l . . . . 94 O u t p u t by F i v e - Y e a r P l a n P e r i o d 3.5 The R o l e o f S i b e r i a i n the N a t i o n a l Economy a t . . . . 96 t h e End o f t h e N i n t h F i v e - Y e a r P l a n (1975) i x L i s t of Tables (continued) Page 3.6 The G e o g r a p h i c a l S h i f t i n S o v i e t O i l and G a s . . . 99 P r o d u c t i o n 3.7 The G e o g r a p h i c a l D i s t r i b u t i o n of S o v i e t C o a l . . . 106 P r o d u c t i o n , 1965-1985 3.8 R e g i o n a l D i s t r i b u t i o n of Chemcia l and 118 P e t r o c h e m i c a l P r o d u c t i o n 3.9 The G e o g r a p h i c a l D i s t r i b u t i o n of Major C o n i f e r o u s . . . 123 Spec i e s 3.10 The Role of S i b e r i a and the Far E a s t i n t h e . . . . 126 S o v i e t F o r e s t Products . Indus t r y i 3.11 The Branch S t r u c t u r e of the M a c h i n e - B u i l d i n g . . . . 130 I n d u s t r y i n the USSR and West S i b e r i a 3.12 The Role of S i b e r i a and the Far E a s t i n t h e . . . . 135 N a t i o n a l Economy 4.1 O f f i c i a l l y Recognised T e r r i t o r i a l - P r o d u c t i o n . . . . 147 Complexes, 1970-1990 4.2 R e g i o n a l i s a t i o n Scheme f o r S i b e r i a and the F a r . . . . 171 Eas t 4.3 P o p u l a t i o n C h a r a c t e r i s t i c s of S i b e r i a and the F a r . . . 172 E a s t , 1970-1985 4.4 G e o g r a p h i c a l D i s t r i b u t i o n of S i b e r i a n I n v e s t m e n t , . . . 177 1966-1980 5.1 Key S o v i e t E x p o r t s to the OECD 183 5.2 The Role of S i b e r i a i n S o v i e t O i l E x p o r t s to t h e . . . . 185 West • .. 5.3 The Role of S i b e r i a i n S o v i e t Gas E x p o r t s to t h e . . . . 189 West 5.4 S o v i e t Coa l E x p o r t s to the West 192 5.5 S i b e r i a n Non-Ferrous Meta l E x p o r t s to the O E C D . . . . . . 196 5.6 E s t i m a t e d C a p a c i t y and P r o d u c t i o n of A l u m i n u m . . . 200 P l a n t s i n S i b e r i a 5.7 The S p a t i a l D i s t r i b u t i o n of S o v i e t G o l d . . . . . 204 P r o d u c t i o n 5.8 S i b e r i a n F o r e s t Product s E x p o r t s to the W e s t . . . . . . . . 211 x L i s t o f T a b l e s ( c o n t i n u e d ) Page 5.9 E s t i m a t e d F o r e i g n Currency E a r n i n g s from t h e . . . 222 T r a n s - S i b e r i a n Landbr idge 5.10 S i b e r i a ' s Share of E x p o r t s to the OECD. 223 5.11 The S p a t i a l D i s t r i b u t i o n of S i b e r i a n E x p o r t . . . . 232 P r o d u c t i o n i n 1980 6.1 S o v i e t Pipe Imports , 1975-1985 256 6.2 Major Equipment Orders for the Urengoy E x p o r t . . . 263 P i p e l i n e 6.3 Equipment f o r the South Y a k u t i a n C o a l Complex 270 6.4 Heavy Equipment Imports for Non-Fue l M i n e r a l s . . . . 275 M i n i n g 6.5 Japanese Equipment D e l i v e r i e s under the F a r . . . . 287 E a s t e r n F o r e s t r y Development Agreements 6.6 S o v i e t Chemica l Equipment Imports from the W e s t , . . . 295 1970-1984 6.7 Western Equipment Imports to the S i b e r i a n C h e m i c a l . . 297 I n d u s t r y 6.8 S o v i e t P r o d u c t i o n of S e l e c t e d C h e m i c a l s , 1 9 7 0 - . . . . 304 19 83 6.9 I c e b r e a k e r s S u p p l i e d to the S o v i e t Union b y . . . 311 W a r t s i l a , 1960-1986 x i L i s t o f F i g u r e s Page 1.1 S i b e r i a and the Far E a s t 2 1.2 Approaches to the Study of Eas t -Wes t Trade a n d . . . . 11 Technology T r a n s f e r 1.3 A Schematic Framework f o r the Study of E a s t - W e s t . . . . 19 Trade and S i b e r i a n Development 2.1 The F o r e i g n Trade Bureaucracy 29 2.2 The S t r u c t u r e of a Compensation Agreements 35 2.3 The Recent Growth of S o v i e t F o r e i g n T r a d e , 1 9 7 0 - . . . . 40 1985 2.4 The G e o g r a p h i c a l D i s t r i b u t i o n of S o v i e t F o r e i g n . . . . 41 T r a d e , 1970-1985 2.5 The Role of Machinery and Equipment Imports i n . . . . 77 Trade wi th the I n d u s t r i a l i s e d West, 1975-1985 2.6 The Role G r a i n Trade i n Imports from the 82 West, 1975-1985 3.1 Energy Resources i n S i b e r i a and the F a r E a s t 97 3.2 The Changing Role of S i b e r i a and the Far E a s t i n . . . . 100 S o v i e t O i l and Gas P r o d u c t i o n 3.3 The Development Of the S o v i e t O i l and Gas P i p e l i n e . . . 104 Ne tworks 3.4 The S i b e r i a n Power G e n e r a t i o n and T r a n s m i s s i o n . . . . 109 System 3.5 Major M i n e r a l D e p o s i t s and Ore Bodies i n S i b e r i a . . . . 115 and the Far Eas t 3.6 The P e t r o c h e m i c a l s I n d u s t r y . . 120 4.1 The L i n k a g e s w i t h i n a T e r r i t o r i a l - P r o d u c t i o n 144 Complex 4.2 The West S i b e r i a n TPC Dur ing the 11th F i v e - Y e a r . . . . 150 P l a n 4.3 The A n g a r a - Y e n i s e y System D u r i n g the 11th F i v e - . . . . 154 Year P l a n 4.4 The S i b e r i a n T r a n s p o r t a t i o n System 162 4.6 Economic R e g i o n a l i s a t i o n of S i b e r i a and the F a r . . . 170 E a s t x i i L i s t o f F i g u r e s ( c o n t i n u e d ) Page 6.1 I c e b r e a k e r s S u p p l i e d by W a r t s i l a , 1960-1986 312 6.2 N o r i l ' s k C l a s s SA-15 I c e - S t r e n g t h e n e d F r e i g h t e r 318 7.1 The Trade and Development P r o c e s s 344 7.2 A Simple C l a s s i f i c a t i o n of I n d u s t r i a l Systems 360 7.3 The F o r c e s I n f l u e n c i n g S o v i e t R e g i o n a l Development... 366 x i i i Acknowledgment I would l i k e to thank R o b e r t N o r t h ffor b e i n g my s u p e r v i s o r and f o r a l l t h e time and e f f o r t he has p u t i n t o my work. I would a l s o l i k e to thank the members o f my Ph.D. c o m m i t t e e : J o h n Chapman and Ken D e n i k e i n Geography, P a u l Marantz i n P o l i t i c a l S c i e n c e , and Roger H a y t e r from Simon F r a s e r U n i v e r s i t y . In a d d i t i o n to t h o s e who have s e r v e d on my committee, a number o f o t h e r i n d i v i d u a l s have p r o v i d e d v a l u a b l e t u i t i o n and s u p p o r t , i n p a r t i c u l a r B r e n t o n B a r r , J a n S o l e c k i , and D e n i s Shaw. I am a l s o g r a t e f u l to P r o f e s s o r Ye. N. P e r t s i k and P e t e r B o l ' s h e k o v o f the D e p a r t m e n t o f Economic Geography o f the USSR, Moscow S t a t e U n i v e r s i t y . A number o f i n s t i t u t i o n s have p r o v i d e d f u n d i n g f o r my r e s e a r c h . The Department o f Geography p r o v i d e d T.A. a p p o i n t m e n t s when they were most needed, and G r a d u a t e S t u d i e s awarded me a Summer U n i v e r s i t y G r a d u a t e F e l l o w s h i p . I am v e r y g r a t e f u l to the Iza a k W a l t o n Kill-am M e m o r i a l Fund and t h e U.B.C. K i l l a m Committee f o r a w a r d i n g me a K i l l a m P r e d o c t o r a l F e l l o w s h i p . The B r i t i s h C o u n c i l , t h r o u g h t h e i r Exchange S c h o l a r s h i p s , a l l o w e d me to spend f i v e months a t Moscow S t a t e U n i v e r s i t y . I would l i k e to e x p r e s s my p e r s o n a l t h a n k s to the f a c u l t y , s t a f f and g r a d u a t e s t u d e n t s i n the Geography Department a t U.B.C. f o r p r o v i d i n g an i n t e r e s t i n g e n v i r o n m e n t w i t h i n w h i c h to work. S p e c i a l t h a n k s a r e a l s o due to R i c h a r d and C a r o l i n e f o r i n t r o d u c i n g me to the d e l i g h t s o f the " P i v a B a r " and the "Banya". F i n a l l y , thank you C a r o l i n e f o r a l l y o u r s u p p o r t and encour a g e m e n t . I would l i k e to d e d i c a t e t h i s t h e s i s to my p a r e n t s and to the memory o f my g r a n d p a r e n t s . x i v T r a n s l i t e r a t i o n System The t r a n s l i t e r a t i o n system used i n t h i s s t u d y i s one approved by the U.S. Board o f Geographic names. A a a a B 6 £ 6. b B B e V r r r g IX n a d E e E e ye , e e e ye , e >X >K ;K X" z h o 3 3 3 z H H •M Ii- i ft H fl ii y K K K X k JI JI JI A 1 M M M JA in 11 H li n n 0 O 0 o o n n n n P p P p P r c c c c s T T T rn t y y y y u 0 cl) 0 (fi f X X v X k h u u U li t s q u c h UJ UJ 111 UI s h . m ai hi W s h c h "b h V it bl hi bl 11 y b b r o b i 3 3 3 3 e 10 !0 K) 10 y u 51 H fl y a T r a n s l i t e r a t e d as ye a t the b e g i n n i n g o f a word, a f t e r v o w e l s , and a f t e r b and *b; e l s e w h e r e as e. xv 1 C h a p t e r 1 E a s t - W e s t T r a d e and S i b e r i a n D e v e l o p m e n t : An I n t r o d u c t i o n In r e c e n t y e a r s the q u e s t i o n of the r o l e of East-West tr a d e i n S o v i e t economic development has become the source of c o n s i d e r a b l e disagreement among the governments of the i n d u s t r i a l i s e d West. The i s s u e of S i b e r i a n development, and i n p a r t i c u l a r Western i n v o l v e m e n t i n S i b e r i a n energy p r o j e c t s , has been a t the c e n t r e of t h i s p o l i t i c a l debate. Many s t u d i e s of f o r e i g n t r a d e and S o v i e t economic development have assumed t h a t S i b e r i a and the Far E a s t p l a y an i m p o r t a n t r o l e i n S o v i e t trade w i t h the i n d u s t r i a l i s e d West, but few have a c t u a l l y f o c used on the r e l a t i o n s h i p between East-West t r a d e and S i b e r i a n development. T h i s study a d d r e s s e s two i n t e r r e l a t e d q u e s t i o n s : f i r s t l y , what i s the r o l e of S i b e r i a and the Far E a s t i n S o v i e t t r a d e w i t h the West, and s e c o n d l y , what i s the r o l e of E a s t -West tr a d e i n S i b e r i a n development? To answer the f i r s t q u e s t i o n the s t u d y examines the c o n t r i b u t i o n of S i b e r i a n i n d u s t r y to S o v i e t e x p o r t s to the West and the share of Western i m p o r t s used w i t h i n the r e g i o n . In answer to the second q u e s t i o n the s t u d y d e s c r i b e s and e v a l u a t e s the r o l e of e x p o r t p r o d u c t i o n and Western i m p o r t s i n the economic development of S i b e r i a and the Far E a s t . In t h i s s t u d y S i b e r i a n development r e f e r s to the development of the West S i b e r i a n , E a s t S i b e r i a n and Far E a s t e r n Economic Regions (see F i g u r e 1.1). F i g u r e 1 .1 S i b e r i a and the Far E a s t 3 T h i s i n t r o d u c t o r y c h a p t e r p r o v i d e s the g e n e r a l c o n t e x t f o r the s tudy and d e s c r i p t i o n of the r e s e a r c h procedure and the s t r u c t u r e of the t h e s i s . The f i r s t s e c t i o n p r e s e n t s a b r i e f review of S o v i e t economic development s i n c e the mid-1960s, p l a c i n g the s tudy w i t h i n the n a t i o n a l economic c o n t e x t . The second s e c t i o n rev iews the v a r i o u s approaches to the s tudy of f o r e i g n trade and S o v i e t economic development, p r o v i d i n g the academic c o n t e x t . The approach adopted by t h i s s tudy and the s t r u c t u r e of the t h e s i s are d e s c r i b e d i n the t h i r d s e c t i o n . The f i n a l s e c t i o n d i s c u s s e s the data sources used and the problems a s s o c i a t e d w i t h them. 1 .1 . The N a t i o n a l E c o n o m i c C o n t e x t Both S i b e r i a n development and the S o v i e t t r a d i n g r e l a t i o n s wi th the i n d u s t r i a l i s e d West need to be seen w i t h i n the g e n e r a l context of S o v i e t economic development . The f o l l o w i n g d i s c u s s i o n focuses upon the f a c t o r s tha t have i n f l u e n c e d the p a t t e r n of S i b e r i a n development and the r o l e of f o r e i g n trade i n the S o v i e t economy. 1 . 1 . 1 . E c o n o m i c Slow Down S i n c e the e a r l y 1970s the S o v i e t economy has e x p e r i e n c e d f a l t e r i n g growth r a t e s . While the economy has c o n t i n u e d to grow i t has been a t much reduced r a t e s . Both S o v i e t and Western measures i n d i c a t e t h i s ( E l l m a n , 1986). The growth r a t e of net m a t e r i a l product has d e c l i n e d from 7.7 p e r c e n t d u r i n g the 1966-1970 p e r i o d to 5.7 percent d u r i n g the 1971-1975 p e r i o d 1 •and 4.2 percent between 1976 and 1980 (Hanson, 1985, p. 31) . E s t i m a t e s of S o v i e t gross n a t i o n a l product made by the U . S . C e n t r a l I n t e l l i g e n c e Agency (CIA) show a s i m i l a r downward 4 t r e n d , from 5.3 p e r c e n t i n 1966-1970 to 2.7 p e r c e n t between 1976 and 1980 (Hanson, 1985, p. 3 1 ) . Other economic i n d i c a t o r s such as i n d u s t r i a l output and l a b o u r p r o d u c t i v i t y e x h i b i t s i m i l a r d e c l i n e s i n growth r a t e s d u r i n g the 1970s. While there does seem to have been some improvement d u r i n g the e a r l y 1980s, i t i s u n l i k e l y tha t growth r a t e s w i l l i n c r e a s e s u b s t a n t i a l l y d u r i n g the second h a l f of the 1980s. No s i n g l e f a c t o r can e x p l a i n the slow down of the S o v i e t economy. Rather i t i s the r e s u l t of a combinat ion of f a c t o r s . F i r s t i s the ag ing of the c a p i t a l s t o c k . In the S o v i e t Union p r o d u c t i v e c a p a c i t y i s kept i n o p e r a t i o n f o r much l o n g e r p e r i o d s than i s the p r a c t i c e i n the West. The average r e t i r e m e n t r a t e of S o v i e t c a p i t a l s tock was 1 .3 -1 .7 p e r c e n t per annum d u r i n g the 1961-1981 p e r i o d , when the average annua l r e t i r e m e n t r a t e i n the U n i t e d S t a t e s was 3.7. percent ( L e g g e t t , 1983, p . 1 4 3 ) . As a consequence much of S o v i e t i n d u s t r y i s a n t i q u a t e d by Western s tandards and produces o b s o l e t e p r o d u c t s . Because of the age of the p l a n t and equipment l a r g e e x p e n d i t u r e s on maintenance and e x c e s s i v e consumption of energy and m a t e r i a l i n p u t s have reduced the e f f i c i e n c y of p r o d u c t i o n and the p r o d u c t i v i t y of l a b o u r . The second c o n t r i b u t i n g f a c t o r i s the f a i l u r e of the l a b o u r f o r c e to y i e l d s i g n i f i c a n t p r o d u c t i v i t y i n c r e a s e s . T h i s i s due p a r t l y to the ag ing of the c a p i t a l s t o c k , but i t a l s o r e f l e c t s a l a c k of d i s c i p l i n e and work e t h i c . A f a i l u r e to d e l i v e r the n e c e s s a r y consumer goods to reward h i g h e r p r o d u c t i v i t y has l e d to apathy on the p a r t of the w o r k f o r c e . When the l a b o u r force c o n t i n u e d to grow, a lack of i n d i v i d u a l 5 p r o d u c t i v i t y c o u l d be compensated f o r by i n c r e a s i n g the s i z e of the l a b o u r f o r c e . However, the r a t e of growth of the l a b o u r f o r c e d e c l i n e d to l e s s than 2 p e r c e n t per annum i n the l a t e 1970s and i n the 1980s to l e s s than 1 percent per annum (Hohmann, 1986, p. 131) . These aggregate f i g u r e s hide l a r g e r e g i o n a l v a r i a t i o n s i n p o p u l a t i o n growth, wi th the European r e g i o n s e x p e r i e n c i n g a lmost zero p o p u l a t i o n growth and the C e n t r a l A s i a n r e p u b l i c s e x p e r i e n c i n g r a p i d p o p u l a t i o n i n c r e a s e s . As a consequence Western a n a l y s t s p r e d i c t a s u b s t a n t i a l net decrease i n the s i z e of the l a b o u r force of the R u s s i a n F e d e r a t i o n (RSFSR) d u r i n g the l a t e 1980s and e a r l y 1990s. The s i g n i f i c a n c e of these demographic trends i s even more apparent when one r e a l i s e s that the European r e g i o n s ( i n c l u d i n g the Caucasus) accounts for over 75 percent of the t o t a l p o p u l a t i o n and 80 p e r c e n t of the i n d u s t r i a l c a p a c i t y of the S o v i e t U n i o n . The net r e s u l t i s tha t the i n d u s t r i a l h e a r t l a n d of the S o v i e t Union i s e x p e r i e n c i n g a l a b o u r s h o r t a g e . T h i r d i s the f a c t that c a p i t a l i n p u t / o u t p u t r a t i o s have d e t e r i o r a t e d - - t h a t i s more and more investment has been r e q u i r e d to s u s t a i n or i n c r e a s e o u t p u t . The i n p u t / o u t p u t r a t i o for S o v i e t i n d u s t r y as a whole has i n c r e a s e d from 1.9 i n 1965 2 to 3.3 i n 1980. Growth i n the f u e l i n d u s t r i e s has been p a r t i c u l a r l y expens ive wi th the i n p u t / o u t p u t r a t i o i n c r e a s i n g from 3.4 i n 1965 to 4.8 i n 1980 ( L e g g e t t , 1982, p . 133) . F u r t h e r i n d i c a t i o n of the i n c r e a s i n g c o s t of o b t a i n i n g energy r e s o u r c e s i s the f a c t tha t the energy s e c t o r ' s share of t o t a l i n d u s t r i a l investment i n c r e a s e d from 18.4 percent i n 1975 to 6 26.6 p e r c e n t i n 1984 ( F e y t e l ' m a n , 1985, p. 50) . Increase s i n a g r i c u l t u r a l p r o d u c t i o n have a l s o been very c o s t l y wi th r a t i o s r i s i n g from 6.8 i n 1965 to 2.9 i n 1980. The i n c r e a s i n g c a p i t a l i n t e n s i t y of a g r i c u l t u r e has not been matched by i n c r e a s e s i n l a b o u r p r o d u c t i v i t y and p r o d u c t i o n . The poor performance of S o v i e t a g r i c u l t u r e has not o n l y been a d r a i n on the domest ic economy, but has r e q u i r e d c o s t l y i m p o r t s . In g e n e r a l , the d e t e r i o r a t i o n of i n p u t / o u t p u t r a t i o s r e f l e c t s both the ag ing of the c a p i t a l s tock and the n e c e s s i t y of having to deve lop new r e s o u r c e s i n undeveloped r e g i o n s . Such development r e q u i r e s s u b s t a n t i a l investment i n n o n - p r o d u c t i v e i tems i n c l u d i n g t r a n s p o r t a t i o n and s o c i o - e c o n o m i c i n f r a s t r u c t u r e . F i n a l l y , the i n c r e a s i n g c o s t of r e source p r o d u c t i o n has been an even g r e a t e r burden because the r a t e of growth of c a p i t a l investment has d e c l i n e d . The growth r a t e of funds commited to c a p i t a l investment d e c l i n e d from 6.0 percent per annum i n 1968 to 2,2 p e r c e n t i n 1980 (Rumer, 1982, p . 54) . As a r e s u l t i n c r e a s i n g demands f o r investment were p l a c e d upon the economy a t a time when the economy was unable to meet those demands. As a consequence p lan t a r g e t s were not met, even though they had been reduced , and growth r a t e s d e c l i n e d . 1 . 1 . 2 . I n t e n s i f i c a t i o n of the Economy Faced w i t h the s i t u a t i o n of be ing unable to i n c r e a s e output by i n c r e a s i n g i n p u t s , r e c e n t economic p o l i c y has s t r e s s e d the need to make b e t t e r use of a v a i l a b l e r e s o u r c e s . Thus , throughout the 1970s p o l i c i e s were aimed a t c o n v e r t i n g the S o v i e t economy from an "extensive" mode of development to an " i n t e n s i v e " mode tha t emphasizes i n c r e a s e d l a b o u r 7 p r o d u c t i v i t y and t e c h n o l o g i c a l e f f i c i e n c y . U n d e r t h e b a n n e r o f t h e " S c i e n t i f i c T e c h n i c a l R e v o l u t i o n " (STR) e m p h a s i s has been p l a c e d on t h e q u a l i t y o f p r o d u c t i o n , l a b o u r p r o d u c t i v i t y , r e n o v a t i o n o f e x i s t i n g i n d u s t r i a l c a p a c i t y , a n d t h e i n t r o d u c t i o n o f modern t e c h n o l o g y . I n 1970 t h e s h a r e o f i n d u s t r i a l i n v e s t m e n t a l l o c a t e d t o r e n o v a t i o n and e x p a n s i o n o f e x i s t i n g e n t e r p r i s e s was 58 p e r c e n t , b u t by 1980 t h a t f i g u r e had r i s e n t o 78 p e r c e n t . Rumer ( 1 9 8 2 , p. 59) has c o n c l u d e d t h a t d e s p i t e i n c r e a s e d i n v e s t m e n t , none o f t h e g o a l s o f t h e 1970s r e n o v a t i o n p o l i c y were met.. The r e a s o n f o r t h i s f a i l u r e p r o b a b l y l i e s w i t h t h e f a c t t h a t t h e i n t e n s i v e mode o f d e v e l o p m e n t was s i m p l y g r a f t e d upon t h e e x i s t i n g s y s t e m w i t h o u t m a j o r e c o n o m i c r e f o r m s . The i n d u s t r i a l m i n i s t r i e s were a b l e t o c i r c u m v e n t t h e r e n o v a t i o n p o l i c y a nd use r e n o v a t i o n f u n d s t o b u i l d new p l a n t s , b u t w i t h o u t r e t i r i n g o l d p l a n t s s i n c e t h a t w o u l d have l e d t o s h o r t - t e r m r e d u c t i o n s i n o u t p u t . G e o g r a p h i c a l l y t h e p o l i c y o f i n t e n s i f i c a t i o n has w o r k e d t o t h e a d v a n t a g e o f t h e E u r o p e a n r e g i o n s s i m p l y b e c a u s e 80 p e r c e n t o f t h e e x i s t i n g i n d u s t r i a l c a p a c i t y i s l o c a t e d t h e r e . The i m p o r t o f W e s t e r n t e c h n o l o g y h a s a l s o been an i m p o r t a n t p a r t o f t h e i n t e n s i f i c a t i o n p r o c e s s . W e s t e r n t e c h n o l o g y has been i m p o r t e d a s an a l t e r n a t i v e t o d o m e s t i c i n n o v a t i o n , i n t h e hope t h a t i t w o u l d p r o v i d e r a p i d i n c r e a s e s i n p r o d u c t i v e c a p a c i t y and t e c h n o l o g i c a l e f f i c i e n c y . However, i n t h e l a t e 1970s i m p o r t s were r e d u c e d b e c a u s e W e s t e r n t e c h n o l o g y d i d n o t seem t o be p r o v i d i n g t h e d e s i r e d r e s u l t s , and c o m p e t i n g demands on f o r e i g n c u r r e n c y a r i s i n g f r o m t h e need t o i m p o r t f o o d were d r a i n i n g f o r e i g n c u r r e n c y r e s e r v e s . I n 8 many i n s t a n c e s the l a c k of r a d i c a l economic reform eroded the b e n e f i t s of imported Western t e c h n o l o g y . In the p e r i o d s i n c e B r e z h n e v ' s d e a t h . (November 1982), i n t e n s i f i c a t i o n has remained the b a s i s of S o v i e t economic p o l i c y . Andropov ' s b r i e f l e a d e r s h i p aimed to improve l a b o u r d i s c i p l i n e and the e f f i c i e n c y of the p l a n n i n g system, but h i s s u c c e s s o r Chernenko f a i l e d to c a r r y these p o l i c i e s through . In March 1985 M i k h a i l Gorbachev i n h e r i t e d a n e a r - s t a g n a n t economy t h a t had succeeded i n r e s i s t i n g change. Gorbachev ' s economic p o l i c y a l s o s t r e s s e s i n t e n s i f i c a t i o n through i n c r e a s e d l a b o u r d i s c i p l i n e and t e c h n o l o g i c a l r e n o v a t i o n ( K o n t o r o v i c h , 1985, p . 18) . I t i s too e a r l y to judge whether Gorbachev has the p o l i t i c a l power to conv ince the economic bureaucracy of the b e n e f i t s of the i n t e n s i v e mode of development . 1 . 1 . 3 . The S h i f t Eastwards At the same time as the i n t e n s i f i c a t i o n s t r a t e g y was b e i n g a p p l i e d to the European core r e g i o n , the changing geography of r e s o u r c e p r o d u c t i o n f o r c e d the S o v i e t Union to i n i t i a t e new r e s o u r c e developments i n i t s e a s t e r n r e g i o n s . As the more a c c e s s i b l e i n d u s t r i a l r e s o u r c e s , such as the Donbass c o a l f i e l d and the V o l g a - U r a l s o i l f i e l d , became d e p l e t e d , r e s o u r c e s i n S i b e r i a and C e n t r a l A s i a have had to be d e v e l o p e d . R e g i o n a l i n t e r e s t groups saw the changing geography of r e source p r o d u c t i o n as an o p p o r t u n i t y to lobby f o r g r e a t e r r e g i o n a l s e l f - s u f f i c i e n c y and economic d i v e r s i t y . In p a r t i c u l a r academics and p l a n n e r s concerned with the development of S i b e r i a pushed f o r the comprehensive development of the S i b e r i a n economy. They argued that the most e f f i c i e n t way to 9 deve lop S i b e r i a n r e s o u r c e s was to c r e a t e a d i v e r s i f i e d r e g i o n a l economy tha t both produced and processed the r e g i o n ' s n a t u r a l r e s o u r c e s . In response to t h i s p r o - S i b e r i a n l o b b y , i n what has become known as the "East-West debate", pro -Europeans countered tha t the comprehensive development of S i b e r i a was too c o s t l y and that the f u l l p o t e n t i a l of European r e s o u r c e s was yet to be r e a l i s e d . In a c t u a l i t y n e i t h e r s i d e has been a b l e to c l a i m t o t a l v i c t o r y , but the p a t t e r n of events has favoured the European r e g i o n s . The STR has l ed to the r e n o v a t i o n of e x i s t i n g c a p a c i t y i n the European r e g i o n s , whi l e investment i n S i b e r i a has been c o n c e n t r a t e d on the p r o d u c t i o n of r e s o u r c e s f o r the n a t i o n a l economy, paying minimal a t t e n t i o n to d i v e r s i f i c a t i o n . Thus , i t i s w i t h i n a context of d e c l i n i n g economic growth and i n c r e a s i n g and competing demands f o r l a b o u r and c a p i t a l t h a t t h i s s tudy i s s e t . In a r e g i o n a l development contex t S o v i e t p l a n n e r s have been faced with the task of hav ing to renovate the i n d u s t r i a l h e a r t l a n d of the European USSR a t the same time as hav ing to extend the r e s o u r c e p r o d u c t i o n f r o n t i e r i n t o remote n o r t h e r n and e a s t e r n r e g i o n s . Increased trade w i t h the West i s an important component of both the r e n o v a t i o n of the European USSR and the development of S i b e r i a n r e s o u r c e p o t e n t i a l . I t i s the task of t h i s s tudy to examine the i n t e r r e l a t i o n s h i p between Eas t -Wes t trade and S i b e r i a n development , and assess i t s i m p l i c a t i o n s f o r S o v i e t r e g i o n a l and i n d u s t r i a l development . i o 1.2 . A p p r o a c h e s t o t h e S t u d y o f E a s t - W e s t T r a d e and S o v i e t Economic Development S t u d i e s of the r o l e of f o r e i g n trade i n S o v i e t economic development have been conducted a t d i f f e r e n t s c a l e s , u s i n g a number of d i f f e r e n t approaches . F i g u r e 1.2 p r o v i d e s a framework f o r e v a l u a t i n g the w r i t i n g s by both Western and S o v i e t au thors on f o r e i g n trade and economic development, and serves to i l l u s t r a t e the v a r i o u s approaches that have been adopted i n the l a s t 15 y e a r s . Three s c a l e s of i n v e s t i g a t i o n are i d e n t i f i e d : the macro-s c a l e of the n a t i o n a l economy of the USSR, the meso-sca le of the i n d i v i d u a l i n d u s t r y or r e g i o n (which c o u l d i n c l u d e Union R e p u b l i c s a n d / o r Economic Regions) and the m i c r o - s c a l e of i n d i v i d u a l i n d u s t r i a l complexes , . t e r r i t o r i a l - p r o d u c t i o n complexes (TPCs) or s u b - r e g i o n s such as the Kuzbass or the A n g a r a - Y e n i s e y system. In a d d i t i o n to these s c a l e s , two b a s i c approaches are i d e n t i f i e d . The s e c t o r a l approach examines the impact of trade and technology t r a n s f e r from the p o i n t of view of the v a r i o u s i n d u s t r i a l s e c t o r s that comprise the n a t i o n a l economy, whi l e the s p a t i a l approach i s concerned with the r o l e of trade and technology t r a n s f e r i n the v a r i o u s g e o g r a p h i c a l r e g i o n s tha t comprise the S o v i e t U n i o n . A b r i e f review of the r e s e a r c h conducted a t the v a r i o u s s c a l e s serves to c l a r i f y the d i s t i n c t i o n between the s e c t o r a l and s p a t i a l approaches and a l s o p r o v i d e s the academic context f o r the p r e s e n t s t u d y . The v a r i o u s c a t e g o r i e s on F i g u r e 1.2 are not mutua l ly e x c l u s i v e , and some r e s e a r c h p r o j e c t s have combined a number of d i f f e r e n t s c a l e s and approaches . S e c t o r a l s t u d i e s a t the m a c r o - s c a l e have employed SECTORAL SPATIAL MACRO S o v i e t I n d u s t r y S o v i e t Space NATIONAL Economy ECONOMY MESO S p e c i f i c I n d u s t r y S p e c i f i c Region REGIONAL ECONOMY MICRO INDUSTRIAL COMPLEX F i g u r e 1.2 Approaches to the Study of Eas t -West Trade and Technology T r a n s f e r 12 econometr i c models to determine the aggregate impact of machinery imports from the West on the performance of S o v i e t i n d u s t r y . Gomulka and Nove's (1984) review of these s t u d i e s i n d i c a t e s tha t they are f r a u g h t w i t h m e t h o d o l o g i c a l problems; a n a l y s e s u s i n g s i m i l a r data s e t s have produced c o n t r a d i c t o r y r e s u l t s . In the contex t of the p r e s e n t s tudy these econometr ic a n a l y s e s are of l i m i t e d use because they are based on a b s t r a c t models of the S o v i e t economy. S p a t i a l s t u d i e s a t the m a c r o - s c a l e have at tempted to determine the r o l e of f o r e i g n trade i n the r e g i o n a l development of the USSR. They are c l a s s i f i e d here a t the n a t i o n a l s c a l e because they focus upon the e n t i r e n a t i o n a l economy, r a t h e r than a s p e c i f i c r e g i o n . N o r t h ' s (1983, pp. 99-100) s tudy of the r e g i o n a l i m p l i c a t i o n s of S o v i e t f o r e i g n trade w i t h both the s o c i a l i s t and c a p i t a l i s t n a t i o n s suggests a scheme of d i r e c t and i n d i r e c t impacts to a s ses s the r o l e of f o r e i g n trade on S o v i e t r e g i o n a l development . D i r e c t impacts are " t y p i f i e d by investment i n mines and f a c t o r i e s , and i n the t r a n s p o r t a t i o n f a c i l i t i e s s e r v i n g them i n o r d e r to enable them to e x p o r t . " The use of imported f a c t o r y equipment i s a l s o c o n s i d e r e d a d i r e c t impact . I n d i r e c t e f f e c t s are more complex and i n c l u d e investment i n t r a n s p o r t a t i o n that not on ly enables trade but b e n e f i t s a r e g i o n by i n c r e a s i n g i t s a t t r a c t i v e n e s s to domest ic i n d u s t r y . In a d d i t i o n , the i n c r e a s e d demand generated by e x p o r t s may enable the s h i f t to a new technology or the s h i f t to an a l t e r n a t i v e p a t t e r n of s u p p l y . The s p a t i a l d i s t r i b u t i o n of such impacts i s dependent upon the s t r u c t u r e of f o r e i g n trade and the s e c t o r a l s t r u c t u r e of the v a r i o u s r e g i o n s w i t h i n 13 the S o v i e t U n i o n . D e s p i t e s p e c i f i c mention of i m p o r t s , N o r t h ' s s tudy was concerned mainly w i t h the s p a t i a l impact of expor t p r o d u c t i o n , and r e l a t i v e l y >• l i t t l e a t t e n t i o n was p a i d to the impact of i m p o r t s . A s i m i l a r b i a s towards expor t p r o d u c t i o n i s found i n S o v i e t work on f o r e i g n trade and r e g i o n a l development , f o r example, Avde ichev and Zaytsev (1976) and Nekrasov (1981). Not s u p r i s i n g l y , S o v i e t authors tend to c o n c e n t r a t e on the s p a t i a l i m p l i c a t i o n s of " s o c i a l i s t i n t e g r a t i o n " and the " i n t e r n a t i o n a l d i v i s i o n of l a b o u r " . D i s c u s s i o n of Western imports i s u s u a l l y c o n f i n e d to the d e s c r i p t i o n of compensat ion agreements , as i n the work of Kromyshev (1983, pp . 152-162) . S o v i e t s t u d i e s of the r e g i o n a l d i s t r i b u t i o n of f o r e i g n trade p a r t i c i p a t i o n seem more concerned with what shou ld be expor ted from c e r t a i n r e g i o n s r a t h e r than what i s a c t u a l l y e x p o r t e d , and c o n s e q u e n t l y they p r o v i d e l i t t l e data on r e g i o n a l trade p a r t i c i p a t i o n . The v a s t m a j o r i t y of s e c t o r a l s t u d i e s have been case s t u d i e s conducted a t the m e s o - s c a l e . Most have examined the r o l e of Western technology i n the development of p a r t i c u l a r i n d u s t r i e s , and they have c o n c e n t r a t e d upon those s e c t o r s that have been the major r e c i p i e n t s of Western technology ( H o l l i d a y , 1984). For example, H o l l i d a y (1979) examined the automotive i n d u s t r y , Sobes lavsky and Beaz ley (1980) the chemica l i n d u s t r y , and Hanson (1980) the m i n e r a l f e r t i l i z e r i n d u s t r y . These s e c t o r a l case s t u d i e s suggest t h a t , d e s p i t e be ing a very s m a l l component of t o t a l inves tment , imports of Western machinery and equipment can have a s i g n i f i c a n t impact on the performance of t a r g e t i n d u s t r i e s . W i t h i n p a r t i c u l a r i n d u s t r i e s Western imports 14 are thus used to overcome " s e c t o r a l b o t t l e n e c k s " , by p r o v i d i n g the t echno logy neces sary to r a p i d l y improve and expand p r o d u c t i v e c a p a c i t y . Hanson (1981, p . 144) has d e f i n e d the "net impact" of Western technology upon the S o v i e t economy as b e i n g : " . . . the c o n t r i b u t i o n to output of the imported technology over and above what c o u l d have been a c h i e v e d w i t h the same q u a l i t y of c a p i t a l and l a b o u r i n p u t s , u t i l i s i n g the best t echno logy d o m e s t i c a l l y a v a i l a b l e a t the same time as i m p o r t a t i o n . " Hanson f u r t h e r s u b d i v i d e s t h i s net impact i n t o d i r e c t and i n d i r e c t impact s . D i r e c t impacts are the "net increment i n output a t t r i b u t a b l e to the s u p e r i o r i t y of imported t e c h n o l o g y . " I n d i r e c t impacts r e f e r to the "knock-on" e f f e c t t h a t r e s u l t s from the use of s u p e r i o r , more p r o d u c t i v e , i n p u t s i n a s s o c i a t e d i n d u s t r y and i n the economy i n g e n e r a l . Hanson has suggested tha t the h i g h e r e f f i c i e n c y a s s o c i a t e d wi th Western t echno logy i s o f t e n reduced by sys temic problems w i t h i n the S o v i e t economy, such as poor c o o r d i n a t i o n , low q u a l i t y i n p u t s , l ong l e a d t imes and so on. In an attempt to overcome such problems , p r o j e c t s u s i n g Western technology a r e 1 o f t e n a s s i g n e d h igh p r i o r i t y . Hardt and H o l l i d a y (1977), on the b a s i s of H o l l i d a y ' s s tudy of the S o v i e t automotive i n d u s t r y , have p r o v i d e d an a l t e r n a t i v e c o n c e p t u a l framework f o r e v a l u a t i o n of the impact of Western i m p o r t s . They have suggested that imports of Western technology p r o v i d e " r e s o u r c e - r e l e a s i n g " b e n e f i t s by r e d u c i n g the requirements for domest ic machinery i n a p a r t i c u l a r c o n t e x t ; but a t the same time imports are "resource-demanding" i n the sense that they generate a d d i t i o n a l demands f o r i n p u t s (above and beyond that which would be demanded by a domest ic e q u i v a l e n t ) . T h e r e f o r e , f o r imports to 15 be b e n e f i c i a l to the S o v i e t economy r e s o u r c e - r e l e a s i n g b e n e f i t s must be g r e a t e r than resource-demanding c o s t s . Hardt and H o l l i d a y were a l s o concerned wi th the dynamic impact of technology t r a n s f e r and suggested that imports are o f t en used to meet p r i o r i t y t a r g e t s w i t h i n a p a r t i c u l a r time frame. Thus , imports p r o v i d e a "quick f i x" e n a b l i n g more r a p i d development of p a r t i c u l a r i n d u s t r i e s or r e g i o n s than would be p o s s i b l e u s i n g domest ic r e s o u r c e s a l o n e . Given that most case s t u d i e s have examined h i g h - p r i o r i t y s e c t o r s that e x h i b i t a r e l a t i v e l y h igh degree of import dependence i t i s not s u p r i s i n g tha t they i d e n t i f y a p o s i t i v e impact . Other case s t u d i e s , such as B r a d e n ' s (1981) s tudy of the r e l a t i v e l y low p r i o r i t y f o r e s t p r o d u c t s s e c t o r , which employed an econometr ic a n a l y s i s a t the s e c t o r a l l e v e l , have conc luded that imported technology does not n e c e s s a r i l y perform any more e f f e c t i v e l y than domest ic equipment. A somewhat d i f f e r e n t approach i s taken by some of the s t u d i e s i n the A s s o c i a t i o n of American Geographers P r o j e c t on S o v i e t N a t u r a l Resources i n the World Economy (Jensen, R . G . e_t a l . 1983) . The c o n t r i b u t i o n of i n d i v i d u a l r e s o u r c e s e c t o r s to f o r e i g n trade was e v a l u a t e d and p a r t i c u l a r a t t e n t i o n was p a i d to the r e g i o n a l d i s t r i b u t i o n of p r o d u c t i o n , thus combining both j . ' s e c t o r a l and r e g i o n a l approaches . However, these studies' were o r g a n i s e d by s e c t o r r a t h e r than r e g i o n . There are few meso-sca le s p a t i a l s t u d i e s that c o n c e n t r a t e on the r o l e of Eas t -West trade i n the development of a p a r t i c u l a r r e g i o n . A r e c e n t Economist I n t e l l i g e n c e U n i t study by K i r b y (1984) has as sessed the re source p o t e n t i a l of S i b e r i a 16 and the F a r E a s t from the p o i n t of view of i t s p r e s e n t and p o t e n t i a l c o n t r i b u t i o n to f o r e i g n c u r r e n c y t r a d e , but i t n e i t h e r addres se s the r o l e of imports i n any d e t a i l , nor c o n s i d e r s the impact of f o r e i g n trade on S i b e r i a n development . An e a r l i e r s tudy by Mathieson (1979) p r o v i d e d a d e s c r i p t i o n of Japanese involvement i n S i b e r i a n development, but f a i l e d to e v a l u a t e the importance of such trade i n the r e g i o n a l development of S i b e r i a and the Far E a s t . S o v i e t s t u d i e s on the r o l e of Eas t -Wes t trade a t the r e g i o n a l s c a l e seem to c o n c e n t r a t e on the r o l e of P a c i f i c B a s i n trade i n the economic development of the S o v i e t Far E a s t , f o r example, A l e x a n d r o v , (1984) and Shlyk (1986) . T h i s r e f l e c t s the f a c t t h a t because of the l a r g e s i z e of the r e g i o n and i t s remoteness , expans ion of the expor t base of the Far E a s t i s an o f f i c i a l l y accepted development p o l i c y , whereas i n o t h e r r e g i o n s the o n l y e x t e r n a l i n f l u e n c e that i s acknowledged i s the impact of economic i n t e g r a t i o n w i t h i n the C o u n c i l f o r Mutual Economic A s s i s s t a n c e (CMEA). Again these s t u d i e s tend to c o n c e n t r a t e on the r o l e of e x p o r t s , pay ing l i t t l e a t t e n t i o n to the impact of Western imports beyond the d e s c r i p t i o n of compensat ion d e a l s . At the m i c r o - s c a l e the d i s t i n c t i o n between s e c t o r a l and s p a t i a l approaches i s not as apparent s i n c e both approaches focus upon i n d i v i d u a l p l a n t s and complexes . At p r e s e n t most m i c r o - s c a l e s t u d i e s are a component of s e c t o r a l case s t u d i e s , the bes t example be ing H o l l i d a y ' s (1979) s tudy of the automobi le i n d u s t r y which examined the Vo lga automobi le p l a n t and the Kama R i v e r truck p l a n t . Other s t u d i e s have made p a s s i n g r e f e r e n c e to the r o l e of Western t echno logy i n the . 1 7 c r e a t i o n of TPCs and the importance of f o r e i g n c u r r e n c y e a r n i n g s from the West S i b e r i a n o i l and gas complex o r the N o r i l ' s k m e t a l l u r g i c a l combine, but few attempt to determine the exact nature of that c o n t r i b u t i o n . In sum, i t can be s a i d tha t the e x i s t i n g s t u d i e s of E a s t -West trade and economic development seldom presen t a comprehensive p i c t u r e of the trade and development p r o c e s s . S e c t o r a l s t u d i e s are predominant ly case s t u d i e s tha t focus on the r o l e of imported technology i n a p a r t i c u l a r i n d u s t r y ; whi l e s p a t i a l s t u d i e s tend to c o n c e n t r a t e on the impact of expor t p r o d u c t i o n and pay l i t t l e a t t e n t i o n to the r o l e of i m p o r t s . As a r e s u l t few s t u d i e s address the q u e s t i o n of the i n t e r r e l a t i o n s h i p between imports and e x p o r t s and the s e c t o r s and r e g i o n s tha t produce goods for expor t o r r e c e i v e i m p o r t s . 1.3. A Study of Eas t -Wes t Trade and S i b e r i a n Development T h i s s tudy combines the s e c t o r a l and s p a t i a l approaches d e s c r i b e d above to examine the impact of Eas t -Wes t trade on S i b e r i a n development . The s t a r t i n g p o i n t i s the idea that S o v i e t trade w i t h the West has a d i s t i n c t s p a t i a l impact upon the S o v i e t economy. J u s t as s t u d i e s by Western economists have focused on the r o l e of Eas t -Wes t trade i n the development of p a r t i c u l a r i n d u s t r i e s , t h i s s tudy examines the r o l e of E a s t -West trade i n promoting the development of a p a r t i c u l a r r e g i o n . The c e n t r a l h y p o t h e s i s of t h i s s tudy i s t h a t S o v i e t trade wi th the i n d u s t r i a l i s e d West has promoted a h i g h e r l e v e l of economic development w i t h i n S i b e r i a and the Far E a s t ; f i r s t l y , by c r e a t i n g a d d i t i o n a l demands f o r S i b e r i a ' s n a t u r a l r e s o u r c e s ; and s e c o n d l y , by p r o v i d i n g some of the t echno logy and equipment 18 r e q u i r e d to deve lop the r e g i o n ' s n a t u r a l r e s o u r c e s , ( A l a c k of r e g i o n a l i n d u s t r i a l p r o d u c t i o n and trade p a r t i c i p a t i o n data make i t i m p o s s i b l e to c a l c u l a t e d i r e c t l y the r o l e of f o r e i g n trade i n the S i b e r i a n economy. T h e r e f o r e i t i s neces sary to examine the commodity c o m p o s i t i o n o f Eas t -Wes t trade and the s e c t o r a l s t r u c t u r e and n a t i o n a l share of S i b e r i a n i n d u s t r y to a r r i v e a t e s t i m a t e s of r e g i o n a l trade p a r t i c i p a t i o n . The g e n e r a l approach and s t r u c t u r e of t h i s s tudy are i l l u s t r a t e d i n F i g u r e 1 .3 . The s t a r t i n g p o i n t i s an examinat ion of the s t r u c t u r e of S o v i e t trade r e l a t i o n s w i th the i n d u s t r i a l i s e d West. Chapter 2 p r o v i d e s a g e n e r a l i n t r o d u c t i o n to f o r e i g n trade under c e n t r a l p l a n n i n g and d e s c r i b e s the p a t t e r n of Western involvement and the commodity s t r u c t u r e of e x p o r t s to and imports from the i n d u s t r i a l i s e d West. The s t r u c t u r e of Eas t -Wes t trade hav ing been de termined , the next s t ep i s to examine the s t r u c t u r e of the S i b e r i a n economy and i t s r o l e i n the n a t i o n a l economic system. The f i r s t p a r t of Chapter 3 examines the g e n e r a l s t r u c t u r e of the r e g i o n a l economies of West S i b e r i a , E a s t S i b e r i a and the F a r E a s t . The remainder of the c h a p t e r presen t s a d e t a i l e d s e c t o r a l a n a l y s i s of S i b e r i a n i n d u s t r i a l development and the r o l e of the v a r i o u s s e c t o r s i n the n a t i o n a l economy. The c o n c l u s i o n to Chapter 3 i d e n t i f i e s the n a t i o n a l s p e c i a l i s a t i o n s of S i b e r i a and the Far E a s t . To enable e v a l u a t i o n of the impact of trade p a r t i c i p a t i o n on the v a r i o u s s u b - r e g i o n s and i n d u s t r i a l complexes that comprise the S i b e r i a n economy, Chapter 4 focuses upon the s p a t i a l d i s t r i b u t i o n of S i b e r i a n i n d u s t r y . The f i r s t s e c t i o n SECTORAL SPATIAL MACRO (NATIONAL ECONOMY) MESO (SIBFE) MICRO (TPCs & Sub-Regions) STRUCTURE OF EAST-WEST TRADE REGIONAL DISTRIBUTION OF TRADE PARTICIPATION ROLE OF SIBERIA IN NATIONAL ECONOMY PATTERN OF SIBERIAN INDUSTRIAL DEVELOPMENT SIBERIA'S ROLE IN EAST-WEST TRADE SPATIAL DISTRIBUTION OF EXPORT PRODUCTION & WESTERN IMPORTS ROLE OF EXPORT PRODUCTION AND WESTERN TECHNOLOGY IN THE DEVELOPMENT OF TPCs AND SUB-REGIONS F i g u r e 1.3 A Schematic Framework f o r the Study of E a s t - W e s t Trade and S i b e r i a n Development 20 of Chapter 4 examines the concept of the T e r r i t o r a l - P r o d u c t i o n Complex ( T P C ) . The second s e c t i o n examines the r o l e of the TPC i n S i b e r i a n development . The t h i r d s e c t i o n examines the S i b e r i a n t r a n s p o r t a t i o n system which p l a y s a c r u c i a l r o l e i n shaping the p a t t e r n of S i b e r i a n development and e n a b l i n g f o r e i g n t r a d e . In the f i n a l s e c t i o n the f i n d i n g s of Chapters 3 and 4 are combined to deve lop a r e g i o n a l i s a t i o n scheme t h a t d e s c r i b e s the s t r u c t u r e of S i b e r i a ' s r e g i o n a l economies . Having de termined the commodity s t r u c t u r e of S o v i e t trade wi th the West, and the p a t t e r n , s t r u c t u r e , and n a t i o n a l importance of the S i b e r i a n economy, i t i s p o s s i b l e to e s t i m a t e the r o l e of the r e g i o n i n Eas t -West t r a d e . Chapter 5 examines S i b e r i a ' s c o n t r i b u t i o n to e x p o r t s to the i n d u s t r i a l i s e d West. The chapter a n a l y s e s the c o n t r i b u t i o n of S i b e r i a and the Far E a s t to the p r o d u c t i o n of commodit ies f o r e x p o r t to the i n d u s t r i a l i s e d West; and , u s i n g the r e g i o n a l i s a t i o n scheme presented i n Chapter 4, d e s c r i b e s the s p a t i a l d i s t r i b u t i o n o f expor t p r o d u c t i o n w i t h i n S i b e r i a and the Far E a s t . Chapter 6 examines the r o l e of Western technology imports i n S i b e r i a n development , f o l l o w i n g the same procedure as wi th e x p o r t s . The c h a p t e r examines the r o l e of Western technology i n S i b e r i a n development, and d e s c r i b e s the s p a t i a l d i s t r i b u t i o n of Western technology w i t h i n S i b e r i a and the F a r E a s t . The s tudy adopts a broad d e f i n i t i o n of t echno logy which i n c l u d e s both i n d u s t r i a l p r o c e s s e s and the import of equipment, such as b u l l d o z e r s and p i p e l a y e r s . In c o n c l u s i o n , Chapter 7 r e t u r n s to the two q u e s t i o n s posed a t the b e g i n n i n g of the s tudy and d i s c u s s e s the 21 r e l a t i o n s h i p between Eas t -Wes t trade and S i b e r i a n development . A s imple model of the trade and development proces s i s presented tha t r e l a t e s f o r e i g n trade p a r t i c i p a t i o n to the p a t t e r n of r e g i o n a l development i n the S o v i e t U n i o n . The f i n a l s e c t i o n of Chapter 7 d i s c u s s e s the v a r i o u s f o r c e s tha t i n f l u e n c e the process of r e g i o n a l development under S o v i e t s o c i a l i s m . 1.4 D a t a S o u r c e s and P r o b l e m s Any g e o g r a p h i c a l s tudy on the S o v i e t Union i n e v i t a b l y faces the problem of a l a c k of i n f o r m a t i o n on the s p a t i a l d i s t r i b u t i o n of economic a c t i v i t y . T h i s s e c t i o n d e s c r i b e s the v a r i o u s sources of i n f o r m a t i o n tha t have been used i n t h i s s tudy and the problems a s s o c i a t e d w i t h them. The i n f o r m a t i o n i n t h i s s tudy can be c l a s s i f i e d i n two ways: f i r s t , i n f o r m a t i o n from S o v i e t sources and i n f o r m a t i o n from Western s o u r c e s ; and second, i n f o r m a t i o n on East -West trade and i n f o r m a t i o n on S i b e r i a n development . S t a t i s t i c s on S o v i e t trade wi th the i n d u s t r i a l i s e d West have been o b t a i n e d from the S o v i e t F o r e i g n Trade Handbook Vne_shny_ay_a t o r g o v l y a v SSSR ( F o r e i g n Trade i n the USSR), which i s p u b l i s h e d a n n u a l l y . Other S o v i e t s o u r c e s on trade i n c l u d e a r t i c l e s i n the f o r e i g n trade j o u r n a l Vneshnyaya t o r g o v l y a , which i s p u b l i s h e d monthly . While there are s c h o l a r l y books and a r t i c l e s by S o v i e t a u t h o r s on S o v i e t f o r e i g n t r a d e , these are of l i m i t e d use because they tend to c o n c e n t r a t e on trade wi th o t h e r s o c i a l i s t n a t i o n s . F o r p o l i t i c a l r e a s o n s , S o v i e t s t u d i e s of Eas t -West trade tend to exaggerate the "mutual b e n e f i t s " of trade and seldom p r o v i d e much d e t a i l on the use of Western 22 t echno logy i n the S o v i e t economy. Because S o v i e t f o r e i g n trade s t a t i s t i c s do not p r o v i d e complete coverage of trade r e l a t i o n s w i t h the West, i t i s neces sary to supplement S o v i e t sources w i t h Western data on f o r e i g n t r a d e . In t h i s s tudy f o r e i g n trade s t a t i s t i c s from the O r g a n i s a t i o n f o r Economic C o -o p e r a t i o n and Development (OECD) are used , as w e l l as CIA s t a t i s t i c s and data from more s p e c i a l i s e d sources such as the U . S . . Bureau of Mines and the academic l i t e r a t u r e on S o v i e t t r a d e . There e x i s t s no comprehensive source of i n f o r m a t i o n on Western s a l e s of p l a n t and equipment to the S o v i e t U n i o n . T h e r e f o r e , i t has been neces sary to conduct an e x h a u s t i v e s e a r c h of Western trade and i n d u s t r i a l j o u r n a l s to o b t a i n i n f o r m a t i o n on s a l e s . S p e c i a l i s t trade j o u r n a l s , such as i.!i£.i.Q e-§ s- E a s t e r n Europe and EastWest M a r k e t s , p r o v i d e i n f o r m a t i o n on c o n t r a c t s and s a l e s . S p e c i a l i s t government r e p o r t s , such as the U . S . O f f i c e of Technology Assessment 's (OTA) s tudy of technology t r a n s f e r and S o v i e t energy a v a i l a b i l i t y , p r o v i d e a u s e f u l source of i n f o r m a t i o n , as do s t u d i e s by Western s c h o l a r s . By combining S o v i e t and Western sources i t has been p o s s i b l e to o b t a i n a c l e a r u n d e r s t a n d i n g of the s t r u c t u r e of trade and the r o l e of Western technology i n S i b e r i a n i n d u s t r y . I n f o r m a t i o n on S i b e r i a n development has proved harder to o b t a i n , main ly because of the absence of r e g i o n a l p r o d u c t i o n s t a t i s t i c s . A f i v e - m o n t h r e s e a r c h f e l l o w s h i p to the Department of the Economic Geography of the USSR, a t Moscow Sta te U n i v e r s i t y , p r o v i d e d an o p p o r t u n i t y to conduct a d e t a i l e d survey of the Russ ian - language l i t e r a t u r e on S i b e r i a n 23 development . U n f o r t u n a t e l y b u r e a u c r a t i c problems thwarted at tempts to t a l k wi th academics a t S i b e r i a n r e s e a r c h i n s t i t u t e s a t N o v o s i b i r s k and I r k u t s k . Whi le the review of the S o v i e t l i t e r a t u r e p r o v i d e d l i t t l e i n the way of c o n c r e t e s t a t i s t i c a l i n f o r m a t i o n , i t d i d p r o v i d e a g e n e r a l d e s c r i p t i o n of the s t r u c t u r e of the S i b e r i a n economy and the r o l e of the r e g i o n i n the n a t i o n a l economy. The m a j o r i t y of the S o v i e t works used i n t h i s s tudy have been p u b l i s h e d by the S i b e r i a n branch of the Academy of S c i e n c e s . U n f o r t u n a t e l y , even these s t u d i e s r e l y upon percentages and i n d i c e s to d e s c r i b e economic s t r u c t u r e and performance r a t h e r than a b s o l u t e f i g u r e s . Due to t h i s l a c k of hard d a t a , Western s t u d i e s on S i b e r i a n development present l i t t l e i n the way of r i g o r o u s e m p i r i c a l a n a l y s i s but have to r e l y on d e t a i l e d d e s c r i p t i o n and a n e c d o t a l e v i d e n c e . In a d d i t i o n to the b a s i c problem of data a v a i l a b i l i t y , one must a l s o be /aware of the problems of r e l i a b i l i t y and c o m p a r a b i l i t y of the data that have been o b t a i n e d . In the West we tend to assume tha t S o v i e t s t a t i s t i c s are not r e l i a b l e because they have been manipulated to serve p o l i t i c a l ends . (For a d i s c u s s i o n of S o v i e t s t a t i s t i c s and t h e i r a c c u r a c y see J a s n y , ( 1962 ), Treml and H a r d t , ( 1972 ) , and Nove, ( 1978), pp. 348-359). No doubt many S o v i e t measures are i n a c c u r a t e , p r o b a b l y as a r e s u l t of poor measurement as much as d i s i n f o r m a t i o n , and s t a t i s t i c a l handbooks h ide a b s o l u t e data wi th percentage measures and i n d i c e s . As a r e s u l t , the S o v i e t economic handbooks p r o v i d e some of the bes t examples of how to manipula te d a t a . In r e c e n t years the q u e s t i o n of i n f l a t i o n has become p a r t i c u l a r l y p r o b l e m a t i c , wi th some Western a n a l y s t s 24 s u g g e s t i n g that i f i n f l a t i o n were p r o p e r l y accounted f o r then the S o v i e t economy ceased to grow i n 1979. N e v e r t h e l e s s , i t appears that many S o v i e t academics and p l a n n e r s have to r e l y on those same handbooks, s u g g e s t i n g that they are the bes t a v a i l a b l e . Of c o u r s e , the r e l i a b i l t y of Western measures of S o v i e t economic development i s a l s o an i s s u e . In o r d e r to minimize these d i f f i c u l t i e s both S o v i e t and Western data are used whenever p o s s i b l e . The problem of c o m p a r a b i l i t y a r i s e s when u s i n g a v a r i e t y of data s o u r c e s . S o v i e t f o r e i g n trade data and Western OECD trade data are not d i r e c t l y comparable . F i r s t l y , they use d i f f e r e n t commodity c l a s s i f i c a t i o n systems. The S o v i e t data are o r g a n i s e d a c c o r d i n g to the F o r e i g n Trade Nomenclature (FTN) and the OECD data by the S tandard I n d u s t r i a l Trade C l a s s i f i c a t i o n ( S I T C ) . (For an e x p l a n a t i o n of the FTN system see K o s t i n s k y , 1974.) S e c o n d l y , they use d i f f e r e n t monetary u n i t s . The S o v i e t trade data are r e p o r t e d i n f o r e i g n trade r o u b l e s , and the OECD data i n U . S . d o l l a r s . A l though there i s a d o l l a r c o n v e r s i o n r a t e f o r the r o u b l e , i t i s not an i n t e r n a t i o n a l c u r r e n c y and the r a t e i s set by the S o v i e t S ta te bank. To f u r t h e r c o m p l i c a t e the s i t u a t i o n , the f o r e i g n trade r o u b l e i s not comparable wi th the domest ic r o u b l e . The f o r e i g n trade p r i c i n g system i s d i s c u s s e d i n Chapter 2. Throughout t h i s s tudy v a l u e s of imports and expor t s are expressed i n U . S . d o l l a r s a n d / o r f o r e i g n trade r o u b l e s (See Appendix 1 f o r c o n v e r s i o n r a t e s ) . S i m i l a r problems of c o m p a r a b i l i t y occur when u s i n g p h y s i c a l measures. The U n i t e d S t a t e s uses d i f f e r e n t u n i t s from Western E u r o p e , Japan and the S o v i e t Union (the U . S . b i l l i o n i s used i n 25 t h i s s t u d y ) . Un le s s o therwise s t a t e d , m e t r i c u n i t s are used i n t h i s s tudy; when measures are c o n v e r t e d from U . S . u n i t s both the i m p e r i a l and m e t r i c measures are p r o v i d e d . Because of the problems of a v a i l a b i l i t y , r e l i a b i l i t y and c o m p a r a b i l i t y , a t t e n t i o n must be p a i d to the s o u r c e s of i n f o r m a t i o n and the types of measure used , p a r t i c u l a r l y when comparing d a t a . D e s p i t e these problems i t has been p o s s i b l e to c o l l e c t s u f f i c i e n t i n f o r m a t i o n to examine the r e l a t i o n s h i p between Eas t -West trade and S i b e r i a n development. 26 N o t e s 1. Net m a t e r i a l product i s the S o v i e t e q u i v a l e n t of GNP, but exc ludes s e r v i c e s not d i r e c t l y connected w i t h p h y s i c a l p r o d u c t i o n . 2. These r a t i o s are based on CIA s t a t i s t i c s and were c a l c u l a t e d by d i v i d i n g va lues of gross f i x e d c a p i t a l s tock by va lues of o u t p u t . The i n c r e a s e i n the r a t i o s suggests an i n c r e a s i n g l e v e l of c a p i t a l i n t e n s i t y i n S o v i e t i n d u s t r y . 2 7 C h a p t e r 2 S o v i e t T r a d e R e l a t i o n s w i t h t h e West The f i r s t s t e p i n t h i s study of East-West trade and S i b e r i a n development i s to examine the n a t u r e of S o v i e t t r a d i n g r e l a t i o n s w i t h the i n d u s t r i a l i s e d West. T h i s C hapter p r o v i d e s the n e c e s s a r y i n f o r m a t i o n on the s t r u c t u r e and p a t t e r n of E a s t -West trade to e s t i m a t e the l e v e l of S i b e r i a n p a r t i c i p a t i o n . The o r g a n i s a t i o n of S o v i e t f o r e i g n t r a d e , the b u r e a u c r a t i c and f i n a n c i a l system c o n t r o l l i n g t r a d e , and some of the more i m a g i n a t i v e forms of t r a d i n g agreement, such as compensation agreements, are d e s c r i b e d i n the f i r s t s e c t i o n . The remainder of the c h a p t e r p r e s e n t s i n f o r m a t i o n on the n a t u r e of S o v i e t f o r e i g n t r a d e , the p a t t e r n of Western involvement and the commodity s t r u c t u r e of e x p o r t s to and i m p o r t s from the i n d u s t r i a l i s e d West. 2.1. F o r e i g n T r a d e Under C e n t r a l P l a n n i n g The f o r e i g n economic r e l a t i o n s of the S o v i e t Union a r e managed and c o n t r o l l e d by the c e n t r a l p l a n n i n g system through the M i n i s t r y of F o r e i g n Trade and not the i n d u s t r i a l m i n i s t r i e s o r i n d u s t r i a l e n t e r p r i s e s , T h i s s t a t e monopoly of f o r e i g n trade has been i n e x i s t e n c e s i n c e the e a r l y days of the S o v i e t Union, and i t s s t r u c t u r e has remained e s s e n t i a l l y the same s i n c e the 1930s. However, i n September 1936 the f o r e i g n trade b u r e a u c r a c y underwent a l i m i t e d r e f o r m , g i v i n g the i n d u s t r i a l m i n i s t r i e s and e n t e r p r i s e s g r e a t e r freedom to manage t h e i r own t r a d i n g r e l a t i o n s . S i n c e these changes d i d not come i n t o e f f e c t u n t i l J a n u a r y 1, 1987 they are not c o n s i d e r e d i n t h i s s t u d y . 28 2.1.1. The O r g a n i s a t i o n o f S o v i e t F o r e i g n T r a d e • S o v i e t f o r e i g n trade i s managed by a complex b u r e a u c r a t i c system. Only a b r i e f overview of the major a g e n c i e s i s presented h e r e . (For more d e t a i l e d a n a l y s i s see G r u z i n o v , 1975 and G a r d n e r , 1982.) F i g u r e 2.1 o f f e r s a s i m p l i f i e d view of the f o r e i g n trade b u r e a u c r a c y . At the p i n n a c l e of the system stands the l e a d e r s h i p of the Communist P a r t y of the S o v i e t U n i o n . For the S o v i e t l e a d e r s h i p f o r e i g n economic r e l a t i o n s have an important p a r t to. p l a y i n both domest ic economic p o l i c y and f o r e i g n p o l i c y (see P a r r o t t , 1983). At the next l e v e l are the v a r i o u s bodies r e s p o n s i b l e for p l a n n i n g the S o v i e t economy. F o r e i g n trade p o l i c y i s i n t e g r a t e d i n t o n a t i o n a l economic p l a n s by Gosplan USSR (the s t a t e p l a n n i n g committee) whi le the f i n a n c i a l i n t e r a c t i o n s a s s o c i a t e d w i t h trade are the r e s p o n s i b i l i t y of the f i n a n c i a l p l a n n i n g a g e n c i e s , which a l s o determine the p r i c i n g system used to account f o r f o r e i g n goods i n the domest ic economy. At the base of the system are the v a r i o u s agenc ie s tha t implement f o r e i g n trade p o l i c y , the most important be ing the M i n i s t r y of F o r e i g n Trade (MFT). The MFT i n t e g r a t e s the f o r e i g n trade p o l i c y d i c t a t e d by the P a r t y and Gosplan with the o p e r a t i o n s of the i n d u s t r i a l m i n i s t r i e s and t h e i r a s s o c i a t e d e n t e r p r i s e s . The MFT i s i n s t r u m e n t a l i n both the f o r m u l a t i o n and the implementat ion of f o r e i g n trade p l a n s . The s t a t e p l a n n i n g a g e n c i e s and the MFT prepare a number of p lans r e l a t e d to f o r e i g n t r a d e , the most important be ing expor t and import p l a n s , p l a n s f o r t r a n s a c t i o n s between F o r e i g n Trade O r g a n i s a t i o n s and the C O M M I S S I O N S F O R E I C N E C O N O M I C Q U E S T I O N S CMT.A A F F A I R S P H Y S I C A L P L A N N I N G A G E N C I E S S T A T E C O M M I T T E E S S C I E N C E .AND T E C H N O L O G Y S U P P L Y ( C 0 S S N A 3 ) P L A N N I N C ( C O S P L A N ) C O M N l . ' N I S T P A R T Y L E A D E R S H I P C O U N C I L O F M I N I S T E R S F I N A N C I A L P L A N N I N G A G E N C I E S P R I C E S F I N A N C E M I N I S T R Y S T A T E B A N K ( C O S 3 A N K ) O P E R A T I V E A C E N C I E S I  O T H E R A C E N C I E S I N D U S T R I A L M I N I S T R I E S S T A T E C O M M I T T E E F O R . F O R E I C N E C O N O M I C R E L A T I O N S M I N I S T R Y O F F O R E I C N T R A D E F O R E I C N T R A D E B A N K ( V N E S K T O R G B A N K ) F O R E I C N T R A D E O R G A N I Z A T I O N S ( F T O s ) A S S O C -I A T I O N S F T O s Z A G R A N P O S T A V K I F T O , _ E N T E R P R I S E S F i g u r e 2.1 The F o r e i g n Trade Bureaucracy Source : Gardner , H . S . (1982), S o v i e t F o r e i g n T r a d e : The D e c i s i o n P r o c e s s . The Hague: K l u w e r - N i j h o f f P u b . , p . 2. 30 domest ic economy, p l a n s f o r d e l i v e r y of equipment and m a t e r i a l s for p r o j e c t s b u i l t abroad wi th S o v i e t t e c h n i c a l p a r t i c i p a t i o n , and p l a n s f o r CMEA i n t e g r a t i o n (Gardner , 1982, p . 8 ) . Once the p lans have been drawn up the MFT i s r e s p o n s i b l e for t h e i r implementa t i on . The most important a c t o r s a t t h i s s tage are the F o r e i g n Trade O r g a n i s a t i o n s ( F T O ) . The m a j o r i t y o f FTOs are s u b o r d i n a t e to the MFT but are f i n a n c i a l l y independent , c o v e r i n g t h e i r c o s t s w i t h fees and commissions (Treml and K o s t i n s k y , 1982, p . 3 ) . The FTOs a lone are r e s p o n s i b l e f o r n e g o t i a t i n g and s i g n i n g c o n t r a c t s w i th f o r e i g n companies; t h e r e f o r e , the i n d u s t r i a l m i n i s t r i e s have to conduct t h e i r f o r e i g n trade through the FTOs. The most important f ea t u re of the FTO system i s that i t s erves to i n s u l a t e the S o v i e t i n d u s t r i a l e n t e r p r i s e from the i n t e r n a t i o n a l economic env ironment . An i n d u s t r i a l e n t e r p r i s e p r o d u c i n g goods f o r expor t has l i t t l e or no c o n t a c t w i th the f o r e i g n p u r c h a s e r , because the FTO handles the t r a n s a c t i o n . L i k e w i s e the FTO handles the purchase of f o r e i g n p l a n t and equipment—whi le i n d u s t r i a l m i n i s t r i e s and e n t e r p r i s e s may reques t equipment, the FTO i s r e s p o n s i b l e f o r i t s procurement (Wove, 1977, p . 2 6 9 ) . Because of t h i s i s o l a t i o n e x p o r t e r s are unable to r e a c t q u i c k l y to the needs of a f o r e i g n buyer and imported goods o f t e n f a i l to meet the needs of the r e c i p i e n t e n t e r p r i s e . Because of the complex b u r e a u c r a t i c system r e g u l a t i n g t r a d e , problems of poor i n t e g r a t i o n and departmenta l i sm plague f o r e i g n economic r e l a t i o n s as much as they do the domest ic economy. I t i s these types of problems that the r e c e n t changes i n the f o r e i g n trade bureaucracy are in tended to s o l v e . S e c t o r s that expor t goods 31 which earn f o r e i g n c u r r e n c y may have a g r e a t e r chance of r e c e i v i n g Western t echno logy than s e c t o r s s e r v i n g the domest ic market . However, because goods produced f o r expor t u s u a l l y have to meet much h i g h e r q u a l i t y c o n t r o l s tandards they are o f t e n more expens ive and troublesome to produce , so, d e s p i t e the bonuses and h i g h e r p r i c e s o f f e r e d , e n t e r p r i s e managers may c o n s i d e r e x p o r t p r o d u c t i o n to be more t r o u b l e than i t i s worth . P r o d u c t i o n of raw m a t e r i a l s f o r e x p o r t i s a r e l a t i v e l y s imple task and may reap s u b s t a n t i a l economic and p o l i t i c a l rewards for the m i n i s t r i e s i n v o l v e d . I t i s c l e a r that the management of f o r e i g n trade i s a very complex task and i n v o l v e s a . g r e a t number of a c t o r s , each wi th t h e i r own ves t ed i n t e r e s t s . 2.1.2. The F o r e i g n Trade P r i c i n g System Because the system of p r i c e s used i n the S o v i e t economy i s based on d i f f e r e n t concepts and serves a d i f f e r e n t purpose than p r i c e s i n Western market economies , i t i s neces sary to have s epara te e x t e r n a l f o r e i g n trade p r i c e s and i n t e r n a l domest ic p r i c e s ( B o r n s t e i n 1976). The s i t u a t i o n i s f u r t h e r c o m p l i c a t e d by the f a c t tha t the r o u b l e i s not a c o n v e r t i b l e c u r r e n c y , so that when d e a l i n g i n i n t e r n a t i o n a l markets S o v i e t t r a d e r s have to use a c o n v e r t i b l e c u r r e n c y , u s u a l l y U . S . d o l l a r s . T h i s a l s o means that to buy goods i n the i n t e r n a t i o n a l market the S o v i e t Union must f i r s t earn the necessary c o n v e r t i b l e c u r r e n c y . For any good traded i n f o r e i g n markets by the S o v i e t Union there are three p r i c e s : f i r s t , the p r i c e p a i d o r r e c e i v e d f o r a good i n the wor ld market expressed i n the r e l e v a n t f o r e i g n c u r r e n c y ; second, the same p r i c e conver ted i n t o f o r e i g n trade r o u b l e s on the b a s i s of an o f f i c i a l exchange r a t e 32 (see Appendix 1) and t h i r d , the domest ic p r i c e p a i d to the producer of an export i tem or p a i d by the r e c i p i e n t of an imported good. Treml and K o s t i n s k y (1982) have suggested that domest ic r a t h e r than f o r e i g n trade r o u b l e p r i c e s shou ld be used to e v a l u a t e the r o l e of f o r e i g n trade i n the S o v i e t economy. On the b a s i s of such c a l c u l a t i o n s they have conc luded f o r e i g n trade p l a y s a much g r e a t e r r o l e i n the S o v i e t economy than p r e v i o u s l y thought . For example, Treml (1983, p . 40) has conc luded t h a t i n 1980 more than 20 percen t of c a p i t a l investment i n machinery and equipment was of f o r e i g n o r i g i n . The domest ic r o u b l e p r i c e of an imported good i s l i k e l y to be h i g h e r than the f o r e i g n trade r o u b l e p u r c h a s i n g p r i c e s . In o t h e r words the government e x e r t s a tax on i m p o r t s . At the same t ime, the p r i c e p a i d to e n t e r p r i s e s f o r expor t goods may d i f f e r from the f o r e i g n trade p r i c e o b t a i n e d i n wor ld markets . For example, the domest ic p r i c e for o i l has been below the wor ld p r i c e . I f p l a n n i n g d e c i s i o n s are based on domest ic p r i c e s , the r o l e of S i b e r i a n o i l e x p o r t s i s u n d e r v a l u e d . T r e m l ' s c o n c l u s i o n s r e g a r d i n g the l e v e l of f o r e i g n trade p a r t i c i p a t i o n are not u n i v e r s a l l y accepted by Western e c o n o m i s t s . Vanous (1983, p . 97) has suggested that "world p r i c e s " and f o r e i g n trade r o u b l e s shou ld be used when c a l c u l a t i n g the r o l e of f o r e i g n trade i n the S o v i e t economy. Whatever the c o r r e c t p o s i t i o n , i t i s important to r e a l i s e that there are c o n s i d e r a b l e d i f f e r e n c e s between f o r e i g n trade p r i c e s and domest ic p r i c e s . The s p a t i a l conseqences of such p r i c e d i s t o r t i o n s may be to reduce the impact of re source e x p o r t s i n 33 c e r t a i n s e c t o r s and r e g i o n s , or to i n f l a t e the c o s t of investment i n complexes u s i n g imported p l a n t and equipment . In m e t h o d o l o g i c a l terms, one must e x e r c i s e c a u t i o n when u s i n g f o r e i g n trade data to determine the va lue of expor t p r o d u c t i o n i n c e r t a i n r e g i o n s or s e c t o r s , p a r t i c u l a r l y when r e l a t i n g i t to data based on domest ic p r i c e s . 2.1.3. C o u n t e r t r a d e and C o m p e n s a t i o n Agreements Given that the S o v i e t Union must f i r s t expor t to pay f o r i m p o r t s , the l e v e l of t echno logy t r a n s f e r i s l a r g e l y determined by the amount of revenue earned by e x p o r t s . U n t i l the l a t e 1970s the S o v i e t Union purchased as much Western t echno logy as i t c o u l d a f f o r d and sought o t h e r means to purchase technology wi thout spending f o r e i g n c u r r e n c y earned by e x p o r t s . The S o v i e t Union has p a r t i c i p a t e d i n v a r i o u s forms of c o u n t e r t r a d e that enable Western goods and techno logy to be p a i d f o r wi th d e l i v e r i e s of p r o d u c t . The most important forms of c o u n t e r t r a d e are counterpurchase and compensat ion agreements ( Z a l e s k i and W e i n e r t , 1980, pp. 262-271) . Under a counterpurchase agreement a Western s e l l e r p r o v i d e s the e a s t e r n buyer wi th t echno logy , p l a n t and equipment or product s and agrees to purchase e a s t e r n goods equa l to a percentage of the va lue of the s a l e s c o n t r a c t . The agreement i n v o l v e s two separate c o n t r a c t s , one f o r the s a l e of the Western p r o d u c t s and a second f o r the purchase of the e a s t e r n p r o d u c t . The e a s t e r n p a r t n e r u s u a l l y buys the Western goods us ing Western c r e d i t s , o n l y p a r t of which i s p a i d o f f w i th d e l i v e r i e s of p r o d u c t . An important a t t r i b u t e of counterpurchase agreements i s that the e a s t e r n goods i n v o l v e d 34 are not produced u s i n g Western equipment purchased under the agreement. Examples of trade under such agreements i n c l u d e Peps i C o l a for vodka , and whale meat f o r f i s h i n g equipment . Compensation agreements d i f f e r from counterpurchase agreements because the product which pays f o r the p l a n t and equipment i s u s u a l l y produced u s i n g tha t imported equipment . The U . N . Economic Commission for Europe (1982, pp. 172-173) d e f i n e s a compensat ion agreement as : "A s p e c i f i c k i n d of l o n g - t e r m economic c o n t r a c t between two or more p a r t n e r s from d i f f e r e n t c o u n t r i e s p r o v i d i n g d e l i v e r i e s , as a r u l e on c r e d i t , from one p a r t n e r of complete equipment, l i c e n c e s and know-how for the c o n s t r u c t i o n of i n d u s t r i a l i n s t a l l a t i o n s and , from the o t h e r p a r t n e r , f o r c o u n t e r - d e l i v e r i e s over s e v e r a l years of product s r e s u l t i n g from these i n s t a l l a t i o n s (or of r e l a t e d p r o d u c t s r e s u l t i n g from o t h e r i n s t a l l a t i o n s ) i n t o t a l or p a r t payment for the p r e v i o u s l y - i m p o r t e d equipment and t e c h n i c a l documentat ion" . Common c h a r a c t e r i s t i c s of S o v i e t - W e s t e r n compensat ion agreements are that they are l a r g e - s c a l e , c a p i t a l i n t e n s i v e and predominant ly i n the pr imary and b a s i c i n d u s t r i a l s e c t o r s ( B a r c l a y , 1979). C o n t r a c t s are n e g o t i a t e d on a c a s e - b y - c a s e b a s i s and there i s no set c o n t r a c t u a l format . The g e n e r a l i s e d s t r u c t u r e of compensation agreements i s presented i n F i g u r e 2 . 2 . In the f i r s t s tage (1) the Western f i r m agrees to s e l l p l a n t and equipment to the S o v i e t U n i o n . I t shou ld be noted tha t wh i l e one Western company may s i g n the c o n t r a c t i t o f t e n s u b - c o n t r a c t s p a r t s of the d e a l to o t h e r Western companies . In the second stage (2) the Western f i r m agrees to purchase some of the p l a n t ' s o u t p u t , f o r i t s own use or for s a l e i n Western markets . The t h i r d stage (3) i n v o l v e s n e g o t i a t i o n between the S o v i e t Union ( f o r which there i s a 35 W E S T E R N FIRM W E S T E R N B A N K O h-< CO -2 < DC o LU Q < cr H -z. CD LU CC O . S O V I E T I N D U S T R I A L E N T E R P R I S E The Movement o f C o n t r a c t s , C r e d i t s and Money The Movement o f P l a n t and P r o d u c t 1. The Western F i r m c o n t r a c t s t o s e l l p l a n t and equipment t o an E a s t e r n P a r t n e r . 2. The Western F i r m c o n t r a c t s t o purchase some o f the p l a n t ' s o u t p u t once p r o d u c t i o n has begun. 3 . The E a s t e r n P a r t n e r n e g o t i a t e s w i t h the Western Bank(s) f o r c r e d i t w i t h which t o purchase Western p l a n t and equipment. 4. Western E a n k ( s ) e x t e n d purchase c r e d i t s t o the E a s t e r n P a r t n e r . 5 . The Western F i r m d e l i v e r s p l a n t and equipment. 6 . Western Bank(s) pay the Western F i r m f o r p l a n t and equipment. 7 . When p r o d u c t i o n b e g i n s , the E a s t e r n P a r t n e r d e l i v e r s p a r t o f the p r o d u c t i o n t o the Western F i r m . 8. The Western F i r m pays the E a s t e r n P a r t n e r f o r the d e l i v e r i e s o f p r o d u c t . 9. The E a s t e r n P a r t n e r r epays the Bank c r e d i t . F i g u r e 2.2. The S t r u c t u r e o f a Compensation Agreement 36 s p e c i a l department i n the M i n i s t r y of F o r e i g n Trade) and Western banks f o r c r e d i t w i th which to buy p l a n t and equipment . Because of the b a r g a i n i n g power of the S o v i e t Union and the va lue of these agreements , as w e l l as t h e i r p o l i t i c a l s i g n i f i c a n c e , c r e d i t i s o f t e n s u p p l i e d below market r a t e s . In many cases government-supported c r e d i t f a c i l i t i e s such as the Japanese E x p o r t - I m p o r t (EXIM) Bank p r o v i d e c r e d i t . Having secured the neces sary c r e d i t ( 4 ) , the Western p a r t n e r d e l i v e r s the p l a n t and equipment (5 ) and i s p a i d by the Western bank ( 6 ) . Once the p l a n t i s i n o p e r a t i o n ( there may be a c o n s i d e r a b l e amount of time between d e l i v e r y of p l a n t and s t a r t - u p ) p a r t of i t s p r o d u c t i o n i s s u p p l i e d to the Western f i r m ( 7 ) , which then makes payment f o r the product to the S o v i e t p a r t n e r ( 8 ) , who i n turn pays o f f the Western bank ( 9 ) . The s u p p l y of Western p l a n t under a compensation agreement p r o v i d e s a number of advantages , not l e a s t of which i s the f a c t that the Western p a r t n e r has a ves ted i n t e r e s t i n the s u c c e s s f u l i n s t a l l a t i o n and o p e r a t i o n of the p l a n t . In a d d i t i o n the Western technology i s u s u a l l y s u p p l i e d i n the form of a "Turnkey P l a n t " , which means that the Western p a r t n e r i s r e s p o n s i b l e f o r the c o n s t r u c t i o n of the p r o d u c t i o n f a c i l i t y and a l l the S o v i e t p a r t n e r need do i s "turn the key" to s t a r t o p e r a t i o n . The purchase of turnkey p l a n t s has a number of p o t e n t i a l advantages for the S o v i e t U n i o n . F i r s t , they q u i c k l y c r e a t e new p r o d u c t i o n f a c i l i t i e s and enable r a p i d expans ion of o u t p u t . Second, a d d i t i o n s of Western technology enhance l a b o u r p r o d u c t i v i t y i n the r e c i p i e n t i n d u s t r y by improv ing the e f f i c i e n c y of p r o d u c t i o n . T h i r d , r e l a t e d to the p r e v i o u s 37 p o i n t , turnkey p l a n t s can improve the i n p u t / o u t p u t r a t i o of the r e c i p i e n t i n d u s t r y . F o u r t h , turnkey p l a n t s can a c t as an example of the b e n e f i t s of t e c h n o l o g i c a l i n n o v a t i o n , thus s t i m u l a t i n g the domestic i n n o v a t i o n p r o c e s s . F i n a l l y , once compensation agreements have been made, the h i g h - q u a l i t y p r o d u c t s of the p l a n t can be e x p o r t e d to generate f u r t h e r f o r e i g n c u r r e n c y . Compensation agreements are not the o n l y means of o b t a i n i n g t u r n k e y p l a n t s , but they do r e p r e s e n t the p r e f e r r e d form of turnkey p l a n t a c q u i s i t i o n . By the e a r l y 1980s, 65 p r o j e c t s were b e i n g b u i l t i n the S o v i e t Union on the b a s i s of compensation agreements ( N i r s h a , 1981, p. 38). One S o v i e t source e s t i m a t e s t h a t s i n c e 1970 more than 10 b i l l i o n r o u b l e s worth of equipment, t e c h n i c a l d ocumentation, pipe and m a t e r i a l s have been d e l i v e r e d under compensation agreements ( Z h e b r o v s k i y and Ponomarov, 1986, p. 18). During 1978 no compensation agreements were s i g n e d , and o n l y one agreement was reached i n 1979 ( B r a i n a r d , 1983). T h i s r e f l e c t s a b a c k l a s h a g a i n s t Western imports which i s d i s c u s s e d l a t e r i n t h i s c h a p t e r , but i t a l s o i n d i c a t e s t h a t t h e r e must have been a l a r g e number of agreements n e g o t i a t e d i n the e a r l y 1970s. An a d d i t i o n a l r e ason f o r the d e c l i n i n g number of compensation agreements i s t h a t the d e p r e s s i o n - s t r u c k i n d u s t r i e s of the West no l o n g e r wished to secure f u r t h e r s u p p l i e s of raw and semi-processed m a t e r i a l s . From the S o v i e t v i e w p o i n t compensation agreements have p r o v i d e d an i m p o r t a n t means of complementing domes t i c investment and i n c r e a s i n g the p r o d u c t i v e c a p a c i t i e s of key i n d u s t r i e s . For the purposes of t h i s s t u d y the p o p u l a r i t y of l a r g e - s c a l e compensation 38 agreements as a means of d e v e l o p i n g S i b e r i a n r e s o u r c e s i s p a r t i c u l a r l y f o r t u i t o u s because i t enables i d e n t i f i c a t i o n of both the s e c t o r s and r e g i o n s that have been r e c i p i e n t s of Western technology or producers of e x p o r t s . The s t a t e monopoly over f o r e i g n trade enables the S o v i e t l e a d e r s h i p to m a i n t a i n c o n t r o l over the l e v e l and s t r u c t u r e of trade w i t h the West in such a way as to meet the needs of the S o v i e t economy. I t i s t h i s c e n t r a l c o n t r o l , more than a n y t h i n g e l s e , that d i s t i n g u i s h e s f o r e i g n trade under s o c i a l i s m from f o r e i g n trade i n the economies of the i n d u s t r i a l i s e d West. While c e n t r a l c o n t r o l enab les p l a n n e r s to use f o r e i g n trade to s o l v e s p e c i f i c problems i n the n a t i o n a l economy, such as inadequate g r a i n p r o d u c t i o n , i t r e q u i r e s a complex b u r e a u c r a t i c system that may a c t u a l l y reduce the e f f i c i e n c y of t r a d i n g r e l a t i o n s between the S o v i e t Union and the West. 2.2. The P a t t e r n and S t r u c t u r e of E a s t - W e s t T r a d e . S i n c e the Second World War the S o v i e t Union has become a more a c t i v e p a r t i c i p a n t in the i n t e r n a t i o n a l trade a r e n a . But the S o v i e t Union cannot be c o n s i d e r e d a major t r a d i n g n a t i o n . Desp i te be ing the w o r l d ' s second l a r g e s t economy, i n 1980 the S o v i e t Union ranked e i g h t h i n the va lue of i t s f o r e i g n trade (Nor th , 1983, p. 9 7 ) . In the immediate post -war years the growth of S o v i e t f o r e i g n trade was a s s o c i a t e d w i t h the expans ion and c o n s o l i d a t i o n of the E a s t e r n B l o c . The "Cold War" b lockade s e v e r e l y r e s t r i c t e d the p o t e n t i a l f o r Eas t -Wes t t r a d e . Dur ing the l a t e 1960s there was a change of a t t i t u d e on the p a r t of the S o v i e t l e a d e r s h i p towards Eas t -West t r a d e . The s i g n i n g of a l a r g e technology trade agreement wi th the I t a l i a n 39 automobi le f i r m FIAT i n 1965 marked a new era i n Eas t -Wes t trade r e l a t i o n s (see H o l l i d a y , 1979). The B r e z h n e v - K o s y g i n l e a d e r s h i p p e r c e i v e d i n c r e a s e d trade w i t h the West as a means of r e v i t a l i s i n g a s t a g n a t i n g domest ic economy by p r o v i d i n g much-needed t e c h n o l o g i c a l i n n o v a t i o n . Western l e a d e r s , i n p a r t i c u l a r i n the Un i t ed S t a t e s , saw i n c r e a s e d trade wi th the S o v i e t Union as a means of f o s t e r i n g an economic in terdependence that would enable the West to i n f l u e n c e S o v i e t p o l i c y . The combinat ion of these a t t i t u d e s c o n t r i b u t e d to the f i r s t Brezhnev-Nixon Summit i n May 1972 and the era of d e t e n t e . I t i s the purpose of t h i s s e c t i o n to examine the e v o l u t i o n of East -West trade s i n c e the e a r l y 1970s . ' While the emphasis i s upon economic a s p e c t s , p o l i t i c a l a s p e c t s are not ignored as they exer t great i n f l u e n c e upon the p a t t e r n of t r a d e . 2 . 2 . 1 . The G e o g r a p h i c a l D i s t r i b u t i o n o f S o v i e t F o r e i g n T r a d e Since the 1970s there has been a s teady i n c r e a s e i n the value of S o v i e t f o r e i g n trade (see F i g u r e 2 . 3 ) . Whi le p a r t of t h i s i n c r e a s e can be a s c r i b e d to i n f l a t i o n and m a n i p u l a t i o n of exchange r a t e s , there can be no doubt that f o r e i g n trade i s more important to the S o v i e t economy in the 1980s than i t was i n the 1960s. S o v i e t f o r e i g n trade a c c o u n t i n g p r a c t i c e s d i s t o r t the va lue of CMEA t r a d e , and m a n i p u l a t i o n s of the r o u b l e / d o l l a r exchange r a te may undervalue trade w i t h the West. N e v e r t h e l e s s , d u r i n g the 1970s trade wi th the West became more important whi l e the share of trade wi th the d e v e l o p i n g n a t i o n s remained r e l a t i v e l y s t a b l e (see Tab le 2.1 and F i g u r e 2 . 4 ) . In a l l cases there was a l a r g e i n c r e a s e i n the t o t a l va lue of t r a d e . 1 50 1 00 .o o 50 T o t a l T r a d e 1970 75 Y e a r 80 T o t a l E x p o r t s Tota l Impor ts Tota l T rade with Wes t 85 F i g u r e 2 . 3 . The Recent Growth of S o v i e t F o r e i g n T r a d e , 1970-1985 Source: : M i n i s t e r s t v o Vneshney T o r g o v l i ( v a r i o u s y e a r s ) , Vneshnyaya  t o r g o v l y a SSSR. Moscow: F i n a n s y i S t a t i s t i k a . 4^. O 100 03 O c OJ o OJ o. Indust r ia l ly D e v e l o p e d Cap i ta l i s t N a t i o n s D e v e l o p i n g N a t i o n s O t h e r S o c i a l i s t N a t i o n s C M E A 1970 Y e a r F i g u r e 2.4 The G e o g r a p h i c a l D i s t r i b u t i o n o f S o v i e t F o r e i g n Trade, 1970-1985 Source: M i n i s t e r s t v o Vneshney T o r g o v l i ( v a r i o u s y e a r s ) , Vneshnyaya t o r g o v l y a SSSR. Moscow: F i n a n s y i S t a t i s t i k a . 4 2 T a b l e 2.1 S o v i e t T r a d i n g P a r t n e r s , 1970-1985 1970 1975 1980 1981 1982 1983 1984 1985 ( V a l u e o f T o t a l T r a d e T u r n o v e r , B i l l i o n F o r e i g n T r a d e R o u b l e s ) T r a d i n g B l o c S o c i a l i s t C o u n t r i e s 14. 4 28 . 5 50.6 57 . 9 , 65.0 71 . 4 80.3 86.5 a CMEA Members 12. 3 26 . 2 45.8 52. 2 58.7 65. 3 72 . 8 77.7 O t h e r S o c i a l i s t 2 . 1 2 . 4 4 . 8 5 . 8 6 . 3 6 . 1 7 . 5 8.8 I n d u s t r i a l i sed C a p i t a l i s t N a t i o n s 4 . 7 15 . 8 31.6 35. 3 37.7 38 . 4 40.9 37.9 D e v e l o p i n g N a t i o n s 3. 0 6. 3 11.9 16. 5 16.9 17 . 7 18.5 17.2 T o t a l 22 . 1 50. 6 94 . 1 109 . 7 119.6 127 . 5 139.7 141.6 ( P e r c e n t o f T o t a l ' T r a d e T u r n o v e r ) T r a d i n g B l o c S o c i a l i s t C o u n t r i e s 65. 2 56 . 3 53.7 52 . 8 54.3 56 .0 57.5 61.1 a CMEA Members 55. 6 51 . 8 48.6 47 .6 49.1 51 . 2 52.1 54.8 O t h e r S o c i a l i s t 9 . 6 4 . 5 5 . 1 5 . 2 5.2 4 . 8 5.4 6 . 3 I n d u s t r i a l i sed C a p i t a l i s t N a t i o n s 21 . 3 31 . 3 33.6 32 . 2 31.6 30 . 1 29 . 3 26.7 D e v e l o p i n g N a t i o n s 13. 5 12 . 4 12.7 15 . 0 14.1 13 .9 13.2 12.2 T o t a l 100 100 100 100 100 100 100 100 S o u r c e : M i n i s t e r s t v o V n e s h n e y T o r g o v l i ( v a r i o u s y e a r s ) , V n e s h n y a y a to r g o v l y a SSSR. Moscow: F i n a n s y i S t a t i s t i k a . a. A f t e r 1972 Cuba i s i n c l u d e d i n CMEA f i g u r e s . 43 During t h i s p e r i o d of expanding East-West t r a d e t h e r e has been c o n s i d e r a b l e f l u x among the major Western t r a d i n g p a r t n e r s . T a b l e 2.2 p r e s e n t s the share of the major Western i n d u s t r i a l i s e d n a t i o n s i n t o t a l S o v i e t f o r e i g n t r a d e . In the e a r l y 1970s the major t r a d i n g p a r t n e r s were the n a t i o n s of Western Europe, most n o t a b l y Great B r i t a i n , I t a l y , West Germany and F i n l a n d as w e l l as Japan. In many s t u d i e s of East-West trade F i n l a n d i s t r e a t e d as a s p e c i a l case because S o v i e t -F i n n i s h trade i s based on a b i l a t e r a l c l e a r i n g system, annual trade p r o t o c o l s and f i v e - y e a r trade agreements (Ruoho, 1985, pp. 26-28). In a d d i t i o n F i n l a n d i s not a member of CoCom, the committee r e s p o n s i b l e f o r m o n i t o r i n g s t r a t e g i c trade w i t h the E a s t ( M c l n t y r e and C u p i t t , 1980). However, F i n l a n d does observe the r e - e x p o r t r e s t r i c t i o n s s e t by a c o u n t r y of o r i g i n . T h i s means t h a t w h i l e F i n l a n d would not abide by a s t r a t e g i c embargo imposed by the U n i t e d S t a t e s , she would not r e - e x p o r t U n i t e d S t a t e s p r o d u c t s s u b j e c t to t h a t embargo. Thus, S o v i e t - F i n n i s h t e c h n o l o g y trade can be a f f e c t e d by Western p o l i c y towards technology t r a n s f e r . While the b i l a t e r a l t r a d i n g system w i t h F i n l a n d means t h a t the S o v i e t Union can a c q u i r e h i g h - t e c h n o l o g y Western p r o d u c t s w i t h o u t spending f o r e i g n c u r r e n c y , the S o v i e t Union has to p r o v i d e e x p o r t s to F i n l a n d to pay f o r those i m p o r t s . T h e r e f o r e , i n t h i s study F i n l a n d i s c o n s i d e r e d t o g e t h e r w i t h the o t h e r West European n a t i o n s . By the mid-1970s the share of the major Western p a r t n e r s i n S o v i e t trade had i n c r e a s e d and the U n i t e d S t a t e s had j o i n e d the ranks of the major t r a d e p a r t n e r s . In 1975 West Germany was the most i m p o r t a n t t r a d i n g p a r t n e r , f o l l o w e d by Japan, Table 2.2 D i s t r i b u t i o n of S o v i e t F o r e i g n Trade Among the I n d u s t r i a l i s e d C a p i t a l i s t Nat ions ,1970-1985 (As a Percen t of T o t a l Trade T u r n o v e r ) 1970 1975 1980 1981 1982 1983 1984 1985 T o t a l 21.3 31.3 33 . 6 32.2 31.6 30.1 29 . 3 26.7 Inc luding:^ A u s t r ia 0.7 0.9 1.0 1.2 1.0 1 . 1 1 . 2 1. 2 Belgium 0.7 1.0 1.3 1.1 1.3 1.3 1.2 1.0 Grea t B r i t a i n 2.9 1.9 1.9 1.4 1.3 1.4 1. 6 1.3 I t a l y 2.1 2.8 3.2 3.2 3.4 3.5 3.2 2.7 Canada 0.6 0.9 1.1 1.3 1.2 1.0 1.0 0.7 Ne t h e r l a n d s 1.0 0.9 1.5 1.4 1.6 1.3 1.4 0.9 U n i t e d S t a t e s 0.7 3.2 1.6 1.7 1.9 1.5 2.2 1.9 West Germany 2.5 5.5 6.1 5.5 5.5 5.5 5.4 5.0 F i n l a nd 2.4 3.5 4.1 4.6 4.3 4.1 3.4 3.5 Fra nee 1.9 2.6 4.0 3.8 3.0 3.2 3 . 0 2 . 7 Sweden 1.1 1.1 0.7 0.6 0.6 0.7 0.6 0.6 Ja pa n 3.0 3.8 2.9 2.8 3.2 2.3 2.1 2.3 Source : M i n i s t e r s t v g Vneshney T o r g o v l i ( v a r i o u s y e a r s ) , Vneshnyaya  t o r g o v l y a SSSR. Moscow: F inansy i S t a t i s t i k a . 45 F i n l a n d , the U n i t e d S t a t e s and France . But by the b e g i n n i n g of the 1980s the p a t t e r n had changed yet a g a i n . West Germany remained the most i m p o r t a n t partner: f o l l o w e d by F i n l a n d and France, but trade w i t h the U n i t e d S t a t e s and Japan had d e c l i n e d . The downward t r e n d i n S o v i e t - A m e r i c a n t r a d e was t r i g g e r e d by both p o l i t i c a l a c t i o n s i n the U n i t e d S t a t e s and American response to S o v i e t f o r e i g n p o l i c y . In December 1974 the U n i t e d S t a t e s Congress passed the E x p o r t - I m p o r t Bank Amendments and the Trade Act of 1974. The s o - c a l l e d "Jackson-Vanik" Amendment made the g r a n t i n g of Most-Favoured N a t i o n s t a t u s to the S o v i e t Union c o n d i t i o n a l upon S o v i e t e m i g r a t i o n p o l i c y ( w i t h p a r t i c u l a r r e f e r e n c e to J e w i s h e m i g r a t i o n ) , and the "Stevenson" Amendment s e t an o v e r a l l c e i l i n g of $ 300 m i l l i o n on E x p o r t Import Bank c r e d i t s to the USSR w i t h even lower l i m i t s f o r energy p r o j e c t s . F o l l o w i n g these moves the S o v i e t Union r e d i r e c t e d much of i t s t r a d e away from the U n i t e d S t a t e s towards Western Europe and Japan. The major e x c e p t i o n was the import of g r a i n from the U n i t e d S t a t e s : the poor S o v i e t h a r v e s t s i n 1975 and 1979 ser v e d to b o l s t e r the l e v e l of S o v i e t - A m e r i c a n t r a d e . The S o v i e t i n v a s i o n of A f g h a n i s t a n o c c u r r e d i n December 1979, and prompted economic s a n c t i o n s a g a i n s t the S o v i e t Union, i n c l u d i n g a g r a i n embargo, and a b o y c o t t of the 1980 Olympic games i n Moscow. The U n i t e d S t a t e s c a l l e d upon her Western a l l i e s to s u p p o r t s a n c t i o n s a g a i n s t the S o v i e t Union. The response was mixed, not because of disagreement over condemnation of S o v i e t a c t i o n s i n A f g h a n i s t a n , but because many West European governments d i d not agree i n p r i n c i p l e w i t h trade s a n c t i o n s and a l s o had a much 46 g r e a t e r s t a k e i n East-West t r a d e . D e s p i t e s a n c t i o n s European trade w i t h the S o v i e t Union c o n t i n u e d to expand. The Japanese Government responded to the U n i t e d S t a t e s ' s a n c t i o n s by-s t o p p i n g S o v i e t a c c e s s to government c r e d i t . T h i s a c t i o n hampered many S i b e r i a n r e s o u r c e p r o j e c t s and l e d to the downturn i n S o v i e t - J a p a n e s e trade i n the e a r l y 1980s d e p i c t e d i n T a ble 2.2. Japanese c r e d i t f a c i l i t i e s were r e s t o r e d i n 1985. In A p r i l 1981 the Reagan A d m i n i s t r a t i o n l i f t e d the g r a i n embargo i n s t i g a t e d by the C a r t e r a d m i n i s t r a t i o n , but the d e c l a r a t i o n of m a r t i a l law i n Poland l e d to economic s a n c t i o n s i n December 1981. The West European n a t i o n s and Japan a g a i n q u e s t i o n e d the e f f e c t i v e n e s s of s a n c t i o n s . As a r e s u l t P r e s i d e n t Reagan attempted to s t o p the e x p o r t of U n i t e d S t a t e s l i c e n s e d e n e r g y - r e l a t e d technology to the S o v i e t Union by West European and Japanese companies. The r e s u l t i n g disagreement has become known as the " S i b e r i a n P i p e l i n e C o n t r o v e r s y " a f t e r the Urengoy e x p o r t p i p e l i n e t h a t was the focus of t h i s debate over East-West t r a d e . The p i p e l i n e d e a l i s d e a l t w i t h i n Chapter 6 of t h i s s t u d y . At p r e s e n t i t i s s u f f i c i e n t to note t h a t the c o n t r o v e r s y s e r v e d to f u r t h e r p o l a r i s e the American and European p o s i t i o n s on East-West t r a d e . These a c t i o n s have reduced the r o l e of the U n i t e d S t a t e s so t h a t East-West t r a d e now p r e d o m i n a n t l y c o ncerns West European and Japanese b u s i n e s s . The U n i t e d S t a t e s i s no l o n g e r a b l e to i n f l u e n c e Western t r a d e w i t h the S o v i e t Union d i r e c t l y . Even i n g r a i n trade the S o v i e t Union has attempted to d i v e r s i f y her s o u r c e s , thus r e d u c i n g the l e v e l of dependence on the U n i t e d S t a t e s . In the c o n t e x t of 47 t h i s study the focus of Eas t -West trade upon Western Europe and Japan has important g e o g r a p h i c a l i m p l i c a t i o n s . G e o g r a p h i c a l l y the<; West European market can be c o n s i d e r e d an e x t e n s i o n of the E a s t European market; whi le Japan i s l o c a t e d i n c l o s e p r o x i m i t y to the r e s o u r c e r i c h e s of the Far E a s t . Both the Western European n a t i o n s and Japan are major t r a d i n g economies dependent on imported energy r e s o u r c e s and raw m a t e r i a l s . T h e r e f o r e there e x i s t s a complementar i ty tha t promotes t r a d e . The U n i t e d S t a t e s on the o t h e r hand i s both g e o g r a p h i c a l l y removed and r e l a t i v e l y s e l f - s u f f i c i e n t . The r a m i f i c a t i o n s of the g e o g r a p h i c a l p a t t e r n of Eas t -West trade are more apparent when one examines the commodity s t r u c t u r e of S o v i e t f o r e i g n t r a d e . 2.2.2. The S t r u c t u r e of S o v i e t F o r e i g n Trade The g e n e r a l s t r u c t u r e of S o v i e t f o r e i g n trade i s presented i n T a b l e s 2.3 and 2 . 4 . These data i n c l u d e a l l t r a d i n g groups: CMEA members, o t h e r s o c i a l i s t n a t i o n s , the i n d u s t r i a l i s e d c a p i t a l i s t n a t i o n s and the d e v e l o p i n g n a t i o n s . S o v i e t e x p o r t s are dominated by trade i n energy r e s o u r c e s and raw m a t e r i a l s , which have i n c r e a s e d i n importance s i n c e 1970. The main reason for the i n c r e a s e d share of energy expor t s i s the r a p i d i n c r e a s e i n t h e i r va lue on wor ld markets as the r e s u l t of OPEC p r i c e i n c r e a s e s . The export of energy and raw m a t e r i a l s i s p a r t i c u l a r l y impor tant i n S o v i e t trade wi th E a s t e r n Europe and the i n d u s t r i a l i s e d West, whi le machinery expor t s are more important i n trade w i t h the d e v e l o p i n g n a t i o n s . The reason f o r t h i s i s the i n a b i l i t y of S o v i e t manufactured goods to compete s u c c e s s f u l l y i n Western markets . s Table 2.3 S t r u c t u r e of S o v i e t E x p o r t s , 1970-1985 (As a Percent of T o t a l Imports) 1970 1975 1980 1981 1982 1983 1984 1985 Machinery , Equipment 21.5 18.7 15.8 13.7 12.9 12.5 12.5 13.6 & Means of T r a n s p o r t Fue l & E l e c t r i c i t y 15.6 31.4 46.9 50.2 52.3 53.7 54.4 52.8 Ores , C o n c e n t r a t e s , 19.6 14.3 8.8 8.0 7.4 7.5 7.2 7.5 Metals & Metal Product s Chemical P r o d u c t s , 3.5 3.5 3.3 3.5 3.1 3.1 3.5 3.9 F e r t i l i z e r s and Rubber F o r e s t P r o d u c t s , & 6.5 5.7 4.1 3.3 2.8 2.8 2.8 3.0 C e l l u l o s e , Paper Products a T e x t i l e s Raw M a t e r i a l s 3.8 3.1 1.9 2.0 1.8 1.4 1.2 1.3 & Semi-Manufactures Food & Raw M a t e r i a l s 8.4 4.8 1.9 2.0 1.6 1.5 1.5 1.5 for t h e i r p r o d u c t i o n Consumer Manufactures 2.7 3.1 2.5 1.8 1.9 1.8 1.8 2.0 Source: M i n i s t e r t v o Vneshney T o r g o v l i ( v a r i o u s y e a r s ) , Vneshnyaya  t o r g o v l y a SSSR. Moscow: F i n a n s y i S t a t i s t i k a . a . Inc ludes f u r s and s k i n s . Table 2.4 S t r u c t u r e of S o v i e t Imports , 1970-1985 (As a Percent of T o t a l Imports) 1970 1975 1980 1981 1982 1983 1984 1985 Machinery , Equipment 35.5 33.9 33.9 30.2 34.4 38.2 36.6 37.2 & Means of T r a n s p o r t F u e l & E l e c t r i c i t y 2.0 4.0 3.0 3.6 4.6 5.6 6.1 5.3 O r e s , C o n c e n t r a t e s , 9.6 11.5 10.8 10.0 9.9 8.8 8.3 8.3 Metals & Metal P r o d u c t s Chemical P r o d u c t s , 5.7 4.7 5.3 5.2 4.4 4.6 4.5 5.0 F e r t i l i z e r s , & Rubber F o r e s t P r o d u c t s , & 2.1 2.2 2.0 1.8 1.5 1.3 1.2 1.3 C e l l u l o s e , Paper Products T e x t i l e s Raw M a t e r i a l s 4.8 2.4 2.2 1.7 1.6 2.1 1.6 1.7 & Semi-Manufactures Food & Raw M a t e r i a l s 15.8 23.0 24.2 27.7 23.7 20.5 22.5 21.2 for t h e i r p r o d u c t i o n Consumer Manufactures 18.3 13.0 12.1 12.9 12.7 11.5 11.7 12.4 Source: M i n i s t e r s t v o Vneshney T o r g o v l i ( v a r i o u s y e a r s ) , Vneshnyaya  t o r g o v l y a SSSR. Moscow: F inansy i S t a t i s t i k a . 50 The s t r u c t u r e of S o v i e t imports i s very d i f f e r e n t wi th the most important items be ing machinery and equipment and food p r o d u c t s . The m a j o r i t y of S o v i e t machinery imports come from o t h e r CMEA members, w i t h the i n d u s t r i a l i s e d West a c c o u n t i n g f o r 25-30 p e r c e n t . Food product s are imported from the major Western g r a i n producers (Uni ted S t a t e s , Canada, A r g e n t i n a arid the European Community) as w e l l as the d e v e l o p i n g n a t i o n s . The commodity c o m p o s i t i o n of S o v i e t f o r e i g n c u r r e n c y trade i s shown i n T a b l e 2 . 5 . The p a t t e r n i s s i m i l a r to tha t of t o t a l t r a d e , w i t h energy and raw m a t e r i a l s dominat ing e x p o r t s and machinery and a g r i c u l t u r a l imports making up the m a j o r i t y of i m p o r t s . The very r a p i d i n c r e a s e i n the va lue of energy e x p o r t s i s i l l u s t r a t e d by the f a c t that i n 1970 petro leum and petro leum p r o d u c t s and n a t u r a l gas earned $ 444 m i l l i o n or 18.3 percent of t o t a l f o r e i g n c u r r e n c y i m p o r t s , whi le by 1983 the va lue of o i l and gas e x p o r t s had reached $ 18.7 b i l l i o n or 71.4 percent of t o t a l f o r e i g n c u r r e n c y e x p o r t s . Other important f o r e i g n c u r r e n c y e x p o r t s i n c l u d e wood and wood p r o d u c t s and diamonds. A l s o of importance are e x p o r t s of n o n - f u e l m i n e r a l s which are not i d e n t i f i e d s e p a r a t e l y i n S o v i e t s t a t i s t i c s . F i n a l l y , f o r e i g n c u r r e n c y earned by g o l d s a l e s and arms s a l e s i s not i n c l u d e d i n S o v i e t trade s t a t i s t i c s . Whi le the va lue of f o r e i g n c u r r e n c y machinery and equipment imports has r i s e n s i n c e 1970, t h e i r share of t o t a l imports has f l u c t u a t e d . A g r i c u l t u r a l p r o d u c t s i n c r e a s e d i n importance d u r i n g the 1970s and g r a i n imports are now a major import i t e m . Inc luded i n f e r r o u s metals imports (Table 2.5) are imports of s t e e l p i p e . F u r t h e r i n s i g h t i n t o the importance 51 Table 2.5 a S t r u c t u r e of S o v i e t Foreign Currency Trade, 1970-1983 (By Value', M i l l i o n $ U.S., and Percent of T o t a l ) 1970 1975 1980 1983 V a l u e P e r c e n t V a l u e P e r c e n t V a l u e P e r c e n t V a l u e P e r c e n t Exports 2, 424 100 8,280 100 23,584 100 26,243 100 Petroleum & 4 30 17 . 7 3,391 40. 9 12,295 52 . 1 15,527 59.2 Petroleum Products Na t u r a l Gas 14 0. 6 220 2 . 7 2 ,704 11 . 5 3,194 12.2 Coal & Coke 106 4 . 4 402 4 . 9 366 1. 5 177 0.7 Machinery & Equip. 193 7 . 9 647 7 . 8 1 , 468 6 . 2 1,932 7.4 Ferrous Metals 137 5 . 7 164 2. 0 246 1. 0 201 0.8 Wood & Wood Products 389 16. 0 739 8 . 9 1,500 6 . 4 853 3.2 Chemicals 64 2 . 6 243 2. 9 758 3. 2 691 2.6 A g r i c u l t u r a l Products 192 7 . 9 547 6. 6 458 2. 1 328 1 . 2 Diamonds 175 7 . 2 478 5. 8 1 , 304 5. 5 na na Other 724 30. 0 1,449 17. 5 2,485 10. 5 3,340 12.7 Imports 2, 984 100 14,577 100 26,070 100 27,715 100 Gr a i n 101 3. 4 2,323 15. 9 4,548 17. 5 4,859 17.5 Other Ag. Products 657 22. 0 1,760 12. 1 4,717 18. 1 4,242 15.3 Machinery & Equip. 967 32. 4 4,593 31. 5 6,039 23. 2 6,998 2 5.3 R o l l e d Ferrous Metal 303 10. 2 2,627 18 . 0 3,606 13. 8 3,712 13.4 Chemicals 215 7. 2 722 5. 0 1,646 6 . 3 1,431 5.2 Consumer Goods 392 13 . 1 630 4 . 3 1,123 4 . 3 1,171 4 . 2 Other 349 1 1 . 7 1,922 13. 2 4,391 16 . 8 5,302 19.1 Sources: CIA ( 1983 ), Ha ndbook of Economic S t a t i s t i c s , 1983 . Washington, D.C: GPO, p. 68. CIA ( 1985a), Ha ndbook of Economic S t a t i s t i c s , 198 5. Washington, D.C: GPO, p. 70. a. These data are based on S o v i e t s t a t i s t i c s and include a l l c o u n t r i e s t r a d i n g with the So v i e t Union on a f o r e i g n currency b a s i s as of January 1, 1980. 52 of Eas t -Wes t trade i s gained by examining the share of f o r e i g n c u r r e n c y trade i n each commodity group (see Tab le 2 . 6 ) . The importance of energy re source and raw m a t e r i a l e x p o r t s as a source of c o n v e r t i b l e c u r r e n c y i s emphasised by t h e i r h igh share of t o t a l e x p o r t s . For example, s i n c e the mid 1970s f o r e i g n c u r r e n c y s a l e s of o i l have accounted f o r over 40 p e r c e n t of a l l o i l e x p o r t s . The s p e c i a l r o l e of Eas t -Wes t trade i s even more apparent when examining S o v i e t f o r e i g n c u r r e n c y i m p o r t s . F o r e i g n trade imports account f o r the v a s t m a j o r i t y of g r a i n imports and a l a r g e p a r t of r o l l e d f e r r o u s metals and chemica l i m p o r t s . The r e l a t i v e l y low share of machinery imports r e f l e c t s the importance of CMEA trade as a source of machinery and equipment. 2 . 3 . S o v i e t Trade w i t h the I n d u s t r i a l i s e d West Eas t -Wes t trade i s dominated by a r e l a t i v e l y s m a l l group of c o u n t r i e s . A c c o r d i n g to S o v i e t f o r e i g n trade s t a t i s t i c s s i n c e 1970 West Germany, F i n l a n d , I t a l y , F r a n c e , Grea t B r i t a i n , Japan and the U n i t e d S t a t e s toge ther have, on average , accounted f o r 70 percent of S o v i e t trade w i t h the i n d u s t r i a l i s e d West. The commodity s t r u c t u r e of that trade i s presented i n T a b l e 2 . 7 . By removing trade wi th the d e v e l o p i n g n a t i o n s the share of food imports i s reduced , whi l e the importance of manufactured good and equipment imports i s i n c r e a s e d . In the case of S o v i e t e x p o r t s , removal of the d e v e l o p i n g n a t i o n s serves to f u r t h e r reduce the share of machinery e x p o r t s , whi le expor t s of energy and raw m a t e r i a l s assume g r e a t e r importance . S ince the mid-1970s energy r e s o u r c e s have r e p l a c e d raw m a t e r i a l s as the most important 53 Table 2.6 a Role of F o r e i g n Currency Trade in T o t a l S o v i e t F o r e i g n T r a d e , by Commodity, 1970-1983 ( F o r e i g n C u r r e n c y Trade as a Percent of T o t a l Trade) 1970 1975 1980 1981 1982 1983 E x p o r t s : 19 25 31 30 30 29 Petroleum and Petroleum P r o d u c t s 29 41 43 40 42 41 N a t u r a l Gas 27 34 48 i 52 45 38 Coa l & Coke 26 29 22 11 8 10 Machinery & Equipment 7 10 12 14 17 17 F e r r o u s M e t a l s 10 6 7 5 7 5 Wood & Wood Product s 47 39 49 37 30 30 Chemica ls 19 26 38 32 30 30 A g r i c u l t u r a l Product s 14 23 17 19 16 14 Other 18 17 17 21 18 15 Imports: 25 39 36 38 35 34 Gra i n 75 87 92 88 23 23 R o l l e d F e r r o u s M e t a l s 51 79 78 84 88 77 Chemica ls 50 5 4 5 6 53 37 52 Consumer goods 16 11 10 10 3 11 Other 20 12 48 44 3 6 42 Sources : CIA ( 1983 ) , Handbook of Economic S t a t i s t i c s , 19 83 . Washington, D . C : GPO, p. 68. CIA ( 1985a), Handbook of Economic Sta t i s t i c s , 198 5. Washington, D . C : GPO, p. 70. a . In S o v i e t trade s t a t i s t i c s the importance of hard c u r r e n c y trade i s o v e r s t a t e d for expor t s and u n d e r s t a t e d f o r imports because of the a r t i f i c i a l p r i c e s used i n trade wi th the CMEA. 54 Table 2.7 The Commodity S t r u c t u r e o£ S o v i e t Trade with the OECD Nations (Percentage of S o v i e t T o t a l Imports and Exports) SITC SECTIONS 1970-1975 Average 1976-1980 Average 1981-1984 Average SOVIET IMPORTS FROM OECD Food and Live Animals (0) 15.4 Beverages and Tobacco (1) 0.6 Crude M a t e r i a l s , except f u e l (2) 5.9 Miner a l Fuels and Energy (3) 0.2 Animal and Vegetable O i l s and Fats (4) 0.1 Chemicals (5) 8.6 Manufactured Goods, by M a t e r i a l (6) 29.6 Machinery & T r a n s p o r t a t i o n Equip. (7) 32.2 Mi s c e l l a n e o u s Manufactures (8) 6.4 N o n - C l a s s i f i e d (9) 1.0 TOTAL (0-9) 100.0 SOVIET EXPORTS TO OECD 17.8 0. 4 . 0. 0 . 9. 28.8 33.0 4.8 0 . 7 100.0 25. 0 . 4 , 1.0 0.6 8 . 7 27.3 26 .1 5 . 2 1.0 100.0 Food and Li v e Animals (0) Beverages and Tobacco (1) Crude M a t e r i a l s , except Fuel (2) Mineral Fuels and Energy (3) Animal and Vegetable O i l s and Fats (4) Chemicals (5) Manufactured Goods, by M a t e r i a l (6) Machinery and T r a n s p o r t a t i o n Equip. (7) Mi s c e l l a n e o u s Manufactures (8) N o n - C l a s s i f i e d (9) TOTAL (0-9) 3 . 0. 29. 39. 1 . 3 . 16 , 4 . 0.8 0.7 100.0 1.2 0.2 16.3 61.8 0.3 5.8 9.5 3 . 5 0.7 0.7 100.0 0.9 0.1 8 . 2 78 . 7 (0.04) 4 . 1 100.0 Source: OECD ( v a r i o u s y e a r s ) , S e r i e s '^C'^L Trade" by Commodi ty. OECD: P a r i s , a. OECD data are organised by the SITC system. 55 source of f o r e i g n c u r r e n c y . In the f o l l o w i n g d i s c u s s i o n the major sources of f o r e i g n c u r r e n c y and the s t r u c t u r e of S o v i e t import s are examined. 2 .3 .1 S o v i e t F u e l E x p o r t s to the I n d u s t r i a l i s e d West In r e c e n t y e a r s by f a r the most important source of f o r e i g n c u r r e n c y f o r the S o v i e t Union has been the export of petro leum and petro leum p r o d u c t s . The major market f o r S o v i e t o i l expor t s has been Western Europe (see T a b l e 2 . 8 ) . In 1979 the S o v i e t share of West European imports of crude o i l was 3.9 percent (245 m i l l i o n tons) and of o i l product s 16.5 percent (19.1 m i l l i o n tons) (Hannigan and M c M i l l a n , 1984, p . 80) . The S o v i e t Union has reaped great b e n e f i t from the r a p i d i n c r e a s e i n o i l p r i c e s brought about by the a c t i o n s of OPEC. The va lue of S o v i e t o i l e x p o r t s has i n c r e a s e d at a much f a s t e r r a t e than has volume. Between 1970 and 1983 f o r e i g n c u r r e n c y revenue from o i l expor t s (crude o i l and o i l produc t s ) i n c r e a s e d from $ 430 m i l l i o n to $ 15.5 b i l l i o n , w h i l e between 1971 and 1983 the volume of expor t s of crude o i l and o i l product s to non-communist c o u n t r i e s i n c r e a s e d from 50 m i l l i o n tons to 90.4 m i l l i o n tons (see Tab le 2 . 8 ) . These w i n d f a l l p r o f i t s have p l a y e d a very important r o l e i n f i n a n c i n g the expans ion of Eas t -West t r a d e . D u r i n g the f i r s t h a l f of the 1980s the S o v i e t Union c o n t i n u e d to expand expor t s of o i l to the West. A c c o r d i n g to OECD f i g u r e s , S o v i e t e x p o r t s of o i l and o i l p r o d u c t s to OECD n a t i o n s rose from 53.5 m i l l i o n tons i n 1981 to 69 m i l l i o n tons i n 1982 and 78 m i l l i o n tons in 1983 ( G o r s t , 1985, p . 5 7 ) . E x p o r t s peaked at 81.4 m i l l i o n tons i n 1984, and d u r i n g 1985 ) 56 Table 2.8 S o v i e t O i l Exports, 1971-1984 a ( M i l l i o n Tons per year) 1971 1975 1980 1981 1982 1983 1984 b T o t a l Exports 105. 5 130. 0 163. 9 161. 2 169. 5 183 . 4 188 . 4 Communist C o u n t r i e s 55. 5 77. 5 99. 6 100. 2 91. 3 93. 0 94 . 5 Non-Communist C o u n t r i e s 50. 0 52 . 5 64 . 3 61. 2 78. 2 90 . 4 93. 9 Western Europe 33. 9 3 3 . 8 56. 6 52. 2 67. 1 77. 6 79. 8 I n c l u d i n g : F i n l a n d 8 . 6 6 . 9 9 . 7 9 . 9 11. 4 11. 7 10. 4 France 3 . 8 2. 9 8 . 4 8 . 1 7 . 0 8 . 4 7 . 8 T t a l y 9 . 1 6. 2 6 . 9 6 . 7 8. 6 9. 8 12. 1 Netherlands 0 . 8 2 . 3 7 . 3 8 . 3 12. 6 13. 5 13 . 6 Swede n 5. 1 4 . 5 2. 4 1 . 3 2. 4 4 . 2 2. 5 West Germany 5. 7 7 . 4 6. 9 5. 0 8. 6 10. 6 12. 0 Exports to Western Europe 32. 1 26. 0 34. 5 32. 4 39. 8 42. 3 42. 4 as a percent of t o t a l e xports Sources: Scherer, J.L. ed. (1984), USSR Facts and Figures Annual, Vol.8. Gulf Breeze F l . : Academic I n t e r n a t i o n a l Press, pp. 148-149. Scherer, J.L. ed. ( 1986), USSR Fac ts and F i g u r e s Annual,  V o l . 10. GulE Breeze FL.: Academic I n t e r n a t i o n a l Press, p. 108. a . b. Converted from b a r r e l s per day and rounded up. P r e l i m i n a r y f i g u r e s . 57 S o v i e t o i l e x p o r t revenue d e c l i n e d f o r the f i r s t time s i n c e 1958. The t o t a l volume of o i l expor t s d u r i n g 1985 was 165-175 m i l l i o n tons , compared to t o t a l e x p o r t s of 188.4 m i l l i o n tons i n 1984. Volume f i g u r e s are not a v a i l a b l e f o r expor t s to the West, but the va lue of o i l e x p o r t s to non-communist c o u n t r i e s f e l l from $ 17.6 b i l l i o n i n 1984 to $ 14.1 b i l l i o n i n 1985, a 1 f a l l of $ 3.5 b i l l i o n . As t h i s f a l l occured w e l l ahead of the c o l l a p s e i n o i l p r i c e s i n e a r l y 1986 i t i s p r o b a b l y r e l a t e d to domest ic p r o d u c t i o n and t r a n s p o r t a t i o n problems . S o v i e t o i l p r o d u c t i o n has been i n d e c l i n e s i n c e 1983 when i t reached 616 m i l l i o n tons a y e a r . In 1984 p r o d u c t i o n f e l l to 613 m i l l i o n tons a year and i n 1985 to 595 m i l l i o n tons , 33 m i l l i o n tons 2 s h o r t of the 1985 p lan t a r g e t of 628 m i l l i o n t o n s . N e v e r t h e l e s s , between 1983 and 1984 the volume of e x p o r t s to the West i n c r e a s e d d e s p i t e f a l l i n g p r o d u c t i o n , a c l e a r i n d i c a t i o n of the v i t a l r o l e of o i l e x p o r t s i n S o v i e t f o r e i g n c u r r e n c y t r a d e . J u s t as the S o v i e t Union b e n e f i t e d from the 1974 and 1979 o i l shocks , i t w i l l undoubtedly s u f f e r from the t h i r d o i l shock and the r a p i d r e d u c t i o n i n p r i c e . D u r i n g the f i r s t few months of 1986 the S o v i e t Union d i d not s e l l o i l on the World market , but i t r e - e n t e r e d the market i n A p r i l 1986. Faced w i t h p r o d u c t i o n problems and f a l t e r i n g o i l p r i c e s the S o v i e t Union d e c i d e d i n the l a t e 1970s to expand f o r e i g n c u r r e n c y e x p o r t s of n a t u r a l gas . The n a t u r a l gas r e s e r v e s of the S o v i e t Un ion , e s t i m a t e d a t 35 t r i l l i o n c u b i c metres i n 1982, r e p r e s e n t o n e - t h i r d of the w o r l d ' s proven r e s e r v e s ( R u s s e l l , 1983, p. 131) . In the space of 15 years the S o v i e t Union has gone from be ing a net impor ter 58 of n a t u r a l gas to the w o r l d ' s l a r g e s t producer and second l a r g e s t e x p o r t e r a f t e r the N e t h e r l a n d s . The r a p i d expans ion of S o v i e t n a t u r a l gas p r o d u c t i o n i s examined l a t e r i n t h i s s t u d y . At p r e s e n t we are concerned wi th i t s r o l e i n f o r e i g n c u r r e n c y e x p o r t s . As wi th o i l e x p o r t s , Western Europe i s the most important market a c c o u n t i n g f o r 44.5 p e r c e n t of a l l S o v i e t gas e x p o r t s i n 1983 ( S c h e r e r , 1986, p. 109) . A c c o r d i n g to OECD energy s t a t i s t i c s , the volume of e x p o r t s to the OECD (OECD Europe consumes a l l S o v i e t gas e x p o r t s to the OECD) has i n c r e a s e d from 1.0 b i l l i o n c u b i c metres i n 1970 to 25.3 b i l l i o n •3 c u b i c metres i n 1983. However, i t shou ld be noted that n a t u r a l gas i s not as t r a n s p o r t a b l e as o i l . P i p e l i n e s are the o n l y e f f i c i e n t means of t r a n s p o r t a t i o n , and t h i s l i m i t s the markets to which S o v i e t gas can be s o l d . C o n s t r u c t i o n of l o n g -d i s t a n c e gas p i p e l i n e s i s very e x p e n s i v e , and once i n s t a l l e d such p i p l e i n e s are i n f l e x i b l e . Sea t r a n s p o r t a t i o n r e q u i r e s t h a t the gas be l i q u i f i e d which i s c o s t l y . Dur ing the 1970s there were a number of p r o j e c t s proposed to expor t l i q u i f i e d n a t u r a l gas (LNG) from the S o v i e t Union to the U n i t e d S t a t e s , but they never came to f r u i t i o n . E x p o r t s of LNG to Japan from the S a k h a l i n r e g i o n may begin i n the 1990s. In the meantime Western Europe r e p r e s e n t s the most important f o r e i g n c u r r e n c y market f o r S o v i e t n a t u r a l gas . S ince the mid-1970s the S o v i e t Union has imported l a r g e amounts of l a r g e d iameter p ipe to c o n s t r u c t the p i p e l i n e networks necessary to t r a n s p o r t S i b e r i a n o i l and gas to domest ic and e x p o r t markets . Much of t h i s p ipe was purchased through g a s - f o r - p i p e d e a l s , whereby the c r e d i t s u p p l i e d by a i 59 Western source to purchase pipe i s p a i d back by e v e n t u a l d e l i v e r i e s of n a t u r a l gas . Now that the p i p e l i n e systems are complete the p a y - o f f stage of these d e a l s has been reached , and gas e x p o r t s to the West are l i k e l y to expand i n the second h a l f of the 1980s. S i n c e the i n i t i a l d e a l s were s igned West European demand for gas has d e c l i n e d and the S o v i e t Union now has more gas to e x p o r t that i t can s e l l . In 1983 one Western a n a l y s t (S tern 1983, p. 380) f o r e c a s t that Western Europe c o u l d be i m p o r t i n g 65 b i l l i o n c u b i c metres of n a t u r a l gas from the S o v i e t Union by 1990. However, s i n c e then some of the West European n a t i o n s have reduced t h e i r commitments to buy S o v i e t gas , and by l a t e 1984 the S o v i e t Union had f i r m c o n t r a c t s for e x p o r t of o n l y 21 b i l l i o n c u b i c metres a y e a r . E x p o r t s are now not expected to exceed 30 b i l l i o n c u b i c metres i n 1990 ( S t e r n , 1985, pp . 52-53) . O b v i o u s l y the c o l l a p s e of o i l p r i c e s w i l l have a n e g a t i v e e f f e c t on both the demand f o r and p r i c e of n a t u r a l gas . D e s p i t e the e x i s t e n c e of a f l o o r p r i c e f o r S o v i e t gas e x p o r t s to Western Europe the f u t u r e of f o r e i g n c u r r e n c y revenues from o i l and gas i s i m p o s s i b l e to p r e d i c t . In sum, wh i l e the r a p i d i n c r e a s e i n energy p r i c e s d u r i n g the 1970s and e a r l y 1980s enabled the S o v i e t Union to i n c r e a s e i t s f o r e i g n c u r r e n c y e x p o r t s s u b s t a n t i a l l y , r e l i a n c e on the v o l a t i l e energy market f o r over 70 p e r c e n t of f o r e i g n c u r r e n c y income i n c u r s a r i s k , and a l l i n d i c a t i o n s are that d u r i n g the second h a l f of the 1980s domest ic p r o d u c t i o n problems and reduced p r i c e s w i l l s e v e r e l y reduce the va lue of S o v i e t f o r e i g n c u r r e n c y energy e x p o r t s . 60 2.3.2. S o v i e t Non-Fuel Exports to the I n d u s t r i a l i s e d West The o t h e r major sources of f o r e i g n c u r r e n c y are e x p o r t s of n o n - f u e l m i n e r a l s , wood and wood p r o d u c t s , arms and s e r v i c e s . The economics of S o v i e t n o n - f u e l m i n e r a l r e s o u r c e s are d i f f i c u l t to fathom because the S o v i e t Union g e n e r a l l y p a r t i c i p a t e s i n the m i n e r a l s markets to generate f o r e i g n c u r r e n c y to cover balance of payments requ irements o n l y when n e c e s s a r y . The reason f o r t h i s i s t h a t e x p o r t s are not n e c e s s a r i l y s u r p l u s p r o d u c t i o n and i n many cases c o u l d r e a d i l y be consumed i n the domest ic market ( B a l l i n g e r , 1985, p . 163). S o v i e t m i n e r a l development p o l i c y i s based on the goa l of maximum s e l f - s u f f i c i e n c y , and c o s t i s a secondary c o n s i d e r a t i o n . M i n e r a l d e p o s i t s are o f t e n deve loped under c o n d i t i o n s t h a t would not be c o n s i d e r e d economic i n market economies . Here we are concerned wi th those m i n e r a l s that are the more important sources of f o r e i g n c u r r e n c y , namely g o l d , p l a t i n u m group metals and diamonds. The S o v i e t Union does not r e l e a s e o f f i c i a l s t a t i s t i c s on g o l d r e s e r v e s , p r o d u c t i o n and t r a d e , but the CIA produces annual e s t i m a t e s of a l l these . These e s t i m a t e s are presented i n Tab le 2 .9 , a long wi th the p r o d u c t i o n e s t i m a t e s suggested by M i c h a e l K a s e r , a l e a d i n g Western e x p e r t on the S o v i e t g o l d i n d u s t r y . For a d i s c u s s i o n of the d i f f e r e n c e s between the two s e t s of e s t i m a t e s and the changes i n the CIA e s t i m a t e s see Kaser (1983, pp. 584-587) . The S o v i e t Union i s the w o r l d ' s second l a r g e s t producer of go ld a f t e r South A f r i c a and has i n c r e a s i n g l y used g o l d s a l e s to o b t a i n f o r e i g n c u r r e n c y . Over the p e r i o d 1960-1979 g o l d s a l e s , on average , accounted f o r 14 Table 2.9 S o v i e t P r o d u c t i o n and Trade i n G o l d , 1970-1983 1970 1975 1976 19 77 1978 1979 1980 1981 1982 1983 Gold P r o d u c t i o n ( M e t r i c Tons) a Kaser K r -264 308 321 325 330 335 344 na na na D C CIA e s t . 218 258 276 285 296 207 317 326 329 333 c Reserves (CIA) 1,631 1,899 1, 797 1, 702 1,527 1,581 1,811 1,889 2, 118 2 ,391 GoId Expor t s M e t r i c Tons - 141 341 338 422 223 70 290 203 93 c a M i l l i o n $ - 725 1,379 1,618 2,522 1,490 1,780 2 ,700 1,100 750 E x p o r t s as a. - 54.7 123.6 118.6 142.6 107.8 22.1 89.0 na na percent of output (CIA e s t . ) Sources : a . Kaser , M. (1983), "Soviet Gold Mining I n d u s t r y , " i n S o v i e t  Na t u r a l Re source s i n the World Economy. E d i t e d by R . G . J e n s e n , T . Shabad, and A.W. Wr i gh t . C h i c a g o : U n i v e r s i t y of Chicago P r e s s , pp. 585-587. b. CIA ( 19 83 ) , Handbook of Economic S t a t i s t i c s , 1983 . Washington, D . C : GPO, p. 71. c . CIA (198 5a) , Handbook of Economic S t a t i s t i c s , 1985. Washington, D . C : GPO, p. 72-73 . d . East -West ( F o r t n i g h t l y B u l l e t i n ) (19 84) , Number 315, May 10, p . 3 . e. M i l l i n g - S t a n l e y , G. (1986), " G o l d , " M i n i n g Annual Review, p . 1 9 . 62 percent of the t o t a l va lue of f o r e i g n c u r r e n c y expor t s (Hewett, 1983, p . 286) . However, the l e v e l of S o v i e t g o l d s a l e s i n any one year i s very d i f f i c u l t to p r e d i c t because the S o v i e t Union uses go ld to meet f i n a n c i a l requ irements as they a r i s e . D e s p i t e i t s l a r g e p r o d u c t i o n the S o v i e t Union i s not a p r i c e s e t t e r on the i n t e r n a t i o n a l g o l d market . Gold s a l e s p l a y a s p e c i a l r o l e i n b a l a n c i n g S o v i e t trade w i t h the West, but the p a t t e r n of S o v i e t g o l d s a l e s i s d i f f i c u l t to unders tand because i t i s not always the case that g o l d i s s o l d to meet s h o r t - t e r m cash needs, nor t h a t the S o v i e t Union s e l l s g o l d to make maximum p r o f i t . For example, f o l l o w i n g the d i s a s t r o u s h a r v e s t of 1975 the S o v i e t Union appears to have chosen commercia l c r e d i t s r a t h e r than g o l d s a l e s to f i n a n c e imports of g r a i n from the West, the reason b e i n g that g o l d p r i c e s were not h i g h enough to warrant l a r g e -s c a l e s a l e s ( E r i c s o n and M i l l e r , 1979, p. 230) . Kaser (1984, p. 167) has suggested that i n d e f i c i t s i t u a t i o n s the p r i c e of g o l d i n f l u e n c e s the c h o i c e between g o l d s a l e s and b o r r o w i n g . As g o l d p r i c e s peaked i n 1980 and S o v i e t g o l d expor t s i n 1978 i t would seem tha t max imisa t ion of p o t e n t i a l revenue i s not as important as meeting s h o r t - t e r m cash s h o r t a g e s . However, the data i n T a b l e 2.9 do suggest that i n the p e r i o d 1976-1978 the S o v i e t Union d ipped i n t o i t s g o l d r e s e r v e s (assuming of course t h a t the CIA e s t i m a t e s are c o r r e c t ) to b e n e f i t from i n c r e a s i n g g o l d p r i c e s . The d e c l i n e i n 1980 c o i n c i d e s wi th i n c r e a s e d o i l revenues as a r e s u l t of the 1979 OPEC p r i c e i n c r e a s e . When g o l d p r i c e s s t a r t e d to f a l l i n the 1980s the trade ga ins from g o l d e x p o r t s p r o b a b l y d e c l i n e d ; Kaser (1984, p . 171) has 63 suggested tha t w i th d e c l i n i n g world p r i c e s and i n c r e a s i n g domest ic c o s t s go ld e x p o r t s were p r o b a b l y not v i a b l e a t 1982 p r i c e s . However, domest ic c o s t c o n s i d e r a t i o n s are f a r l e s s important than the f o r e i g n c u r r e n c y ba lance of payments. The v i t a l r o l e of g o l d e x p o r t s i s r e f l e c t e d by the f a c t than i n 1981, when the S o v i e t Union r e g i s t e r e d a r e c o r d net debt to the West of $12.5 b i l l i o n (CIA, 1983, p. 71) , the S o v i e t Union r a i s e d i t s g o l d s a l e s to over 80 p e r c e n t of i t s output even though the p r i c e of g o l d had f a l l e n over o n e - t h i r d . Thus , the ex t en t to which g o l d s a l e s are used to ba lance the books would seem to depend on the s i z e of the debt and the p r i c e of g o l d . More r e c e n t data on g o l d s a l e s are not a v a i l a b l e , but C o n s o l i d a t e d G o l d f i e l d s L t d . (1986, p. 27) suggests tha t a f t e r e x c e p t i o n a l l y low g o l d s a l e s i n 1983, s a l e s r e t u r n e d to around 200 tons i n 1984 and 1985. However, i n the f i r s t few months of 1986 g o l d s a l e s were r u n n i n g ahead of p r o d u c t i o n , s u g g e s t i n g that r e s e r v e s were be ing used to compensate f o r d e c l i n i n g o i l and gas revenues . In 1980 the S o v i e t Union produced 47.5 p e r c e n t of the t o t a l wor ld p r o d u c t i o n of p la t inum group meta l s , the remain ing p r o d u c t i o n be ing accounted f o r by South A f r i c a (45.3 percent ) and Canada (6.0 p e r c e n t ) . Data on p l a t i n u m group metal p r o d u c t i o n are as s c a r c e as i n f o r m a t i o n on g o l d , but there seems to be a s i n g l e agreed-upon Western e s t imate of S o v i e t p r o d u c t i o n (Kaser , 1984, p . 16) . These data are presented i n T a b l e 2 .10 . Japan and the U n i t e d S t a t e s are the p r i n c i p a l markets f o r S o v i e t e x p o r t s of p l a t i n u m group metals (Shabad, 1983a, p . 266) . While the S o v i e t Union has exported p la t inum T a b l e 2.10 S o v i e t P r o d u c t i o n and Trade i n P l a t i n u m Group M e t a l s , 1975-1984 ( M e t r i c Tons) 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 P r o d u c t i o n World 178 186 196 197 202 213 215 211 206 219 South A f r i c a 81 84 89 89 94 96.4 96.7 91.8 83 . 6 90 . 2 S o v i e t Union 8 2 87 90 95 100 101 104 109 112 115 E x p o r t s South A f r i c a 58 68 70 81 99 89.5 87.6 79.8 73 . 9 91 S o v i e t Union 56 81 79 74 87 46. 1 46.5 53.2 53.4 57.6 Sources: Kaser, M. (1984), "The S o v i e t Impact on World Trade i n Gold and P l a t i n u m , " i n The S o v i e t Impac t on Commodi ty  Markets. E d i t e d by M.M. K o s t e c k i . " L o n d o n : M c M i l l a n , p. 163. B r i t i s h G e o l o g i c a l Survey (1986), World M i n e r a l S t a t i s t i c s , 1976-1984. NERC, London: HMSO, pp. 200-201. 65 s i n c e the 1950s, o n l y d u r i n g the 1970s has i t become a major a c t o r on the wor ld market . In 1974 p la t inum e x p o r t s to the i n d u s t r i a l i s e d West were va lued a t $ 371 m i l l i o n (Adams, 1983, pp . 551) . P l a t i n u m i s more v a l u a b l e than g o l d and e x p e r i e n c e d s i m i l a r p r i c e i n c r e a s e s d u r i n g the 1970s. The spot p r i c e of p l a t i n u m was $ 105-106 per t roy ounce i n 1972, peaked at $ 905 per ounce i n 1979, and has s i n c e f a l l e n to $475 (Adams, 1983, p. 583) . A c c o r d i n g to Western sources (Table 2.10) p l a t i n u m group metal e x p o r t s peaked i n 1979 a t 87 tons and then f e l l i n 1980-1982, o n l y to p i c k up s l i g h t l y i n 1982-1983—a p a t t e r n very s i m i l a r to g o l d s a l e s . No e s t i m a t e s of S o v i e t p l a t i n u m r e s e r v e s are p u b l i s h e d i n the West, but Kaser (1983, p . 166) has e s t imated tha t e x p o r t s to the West c o n s t i t u t e d 68 p e r c e n t of S o v i e t p r o d u c t i o n i n 1975 and 87 percent i n 1979. S ince then e x p o r t s have d e c l i n e d and p r o d u c t i o n has i n c r e a s e d , so i t i s l i k e l y that r e s e r v e s have i n c r e a s e d , a l though i t i s a l s o p o s s i b l e t h a t i n c r e a s i n g domest ic demand has absorbed much of the i n c r e a s e d p r o d u c t i o n (Adams, 1983, p . 553) . U n t i l the 1950s the S o v i e t Union d i d not produce diamonds, but i n response to the Cold-War s t r a t e g i c trade embargo S t a l i n s t a r t e d a s e a r c h f o r a domest ic source of diamonds. In 1955 ( the Mirny (Peace) K i m b e r l i t e Pipe was d i s c o v e r e d i n Y a k u t i a and by the e a r l y 1960s diamonds were produced from Y a k u t i a n mines ( E p s t e i n , 1982). In 1962 the S o v i e t Union agreed to s e l l v i r t u a l l y a l l i t s uncut gem diamonds to De B e e r s , the South A f r i c a n diamond c a r t e l , thus b e n e f i t i n g from the monopoly p o s i t i o n of De B e e r s . S i n c e i t i s d i f f i c u l t to d i s t i n g u i s h S o v i e t uncut diamonds 66 from o t h e r diamonds and the S o v i e t Union does not r e l e a s e i n f o r m a t i o n on diamond s a l e s , data on S o v i e t diamond d e a l i n g s a r e s c a r c e and u n r e l i a b l e . S o v i e t uncut diamonds are marketed through De B e e r s ' o p e r a t i o n i n London and shou ld f i g u r e i n B r i t i s h trade r e t u r n s . In the l a t e 1960s the S o v i e t Union a l s o began to market cut diamonds known as " S i l v e r Bears" through t r a d e r s i n Antwerp and l a t e r the Middle E a s t . A c c o r d i n g to the data presented i n T a b l e 2 . 5 , diamonds earned $ 175 m i l l i o n and accounted for 7.2 percent of f o r e i g n c u r r e n c y e x p o r t s i n 1970. By 1975 e x p o r t s had r i s e n to $ 478 m i l l i o n but o n l y accounted f o r 5.8 percent of t o t a l e x p o r t s . In 1980, the l a s t year data are a v a i l a b l e , diamond e x p o r t s earned $ 1.3 b i l l i o n , c o m p r i s i n g 5.5 percent of t o t a l e x p o r t s . The very r a p i d i n c r e a s e i n the va lue of diamond e x p o r t s i s a l s o shown i n the data i n T a b l e 2 .11 . These data are from the B r i t i s h G e o l o g i c a l survey (1985, p . 11) , but a more r e c e n t p u b l i c a t i o n by them (1986, p. 79) , which r e c o r d s e x p o r t s by c a r a t s r a t h e r than v a l u e , shows the volume of e x p o r t s i n 1980 to be lower than the volume i n 1981. Given tha t the diamond market was depressed a t tha t time the d i s c r e p a n c y between volume and va lue of e x p o r t s i n 1980 i s d i f f i c u l t to e x p l a i n . The data i n T a b l e 2.11 have been conver ted from pounds s t e r l i n g and the pound was very s t r o n g a g a i n s t the d o l l a r i n 1980, but t h i s a lone does not e x p l a i n the sudden i n c r e a s e . To f u r t h e r c o m p l i c a t e the s i t u a t i o n the CIA va lue of $ 1.3 b i l l i o n would seem to agree wi th the B r i t i s h f i g u r e . E i t h e r both va lue f i g u r e s are i n c o r r e c t or the volume f i g u r e i s i n c o r r e c t . I t i s p r o b a b l y safe to conc lude tha t i n 1980 s a l e s were h i g h e r than u s u a l , but Table 2.11 a S o v i e t Diamond P r o d u c t i o n and T r a d e , 1976-1984 1976 1977 1978 1979 1980 1981 1982 1983 1984 P r o d u c t i o n 9.9 10.3 10.5 10.7 10.9 10.6 10.7 10.8 11.0 ( M i l l i o n C a r a t s ) Expor t s b ( M i l l i o n $) Gem 521.9 633.2 380.5 314.8 1 ,305.5 225.7 na na na I n d u s t r i a l 1.4 1.4 0.8 0.3 0.2 13.9 na na na T o t a l 523.3 634.6 381.3 315.1 1 ,305.7 239.6 na na na Sources : I n s t i t u t e of G e o l o g i c a l S c i e n c e s (1982), World M i n e r a l  S t a t i s t i c s , 1976-1980. NERC, London: HMSO. p . 11. B r i t i s h G e o l o g i c a l Survey ( 1985), World M i ne ra1  S t a t i s t i c s , 1981-1983. NERC, London: HMSO, p. 11. B r i t i s h G e o l o g i c a l Survey ( 1986), World Mi n e r a l  S t a t i s t i c s , 1980-1984. NERC, London: HMSO, p. 78 a. Does not inc lude s y n t h e t i c diamonds. b . See Appendix 1 for exchange r a t e s . 68 the exact va lue of those s a l e s i s unknown. Andleman (1982, pp. 86-87) has p r o v i d e d a p o s s i b l e e x p l a n a t i o n f o r the i n c r e a s e i n s a l e s . In the l a t e 1970s the agreement w i t h De Beers was undermined as the S o v i e t Union s t a r t e d to s e l l l a r g e q u a n t i t i e s of diamonds, d e s p i t e the f a c t that demand and p r i c e s were f a l l i n g . To p r o t e c t t h e i r p o s i t i o n De Beers had to buy up the s u r p l u s . More r e c e n t data are not a v a i l a b l e , but a r e c e n t r e p o r t by De Beers suggests that the S o v i e t Union has reduced s a l e s of c e r t a i n grades of cut s t o n e s , h a v i n g p r e v i o u s l y 4 g l u t t e d the market . I t i s perhaps more than a c o i n c i d e n c e t h a t the very h igh diamond s a l e s i n 1980 c o i n c i d e d wi th low s a l e s of go ld and p l a t i n u m . I t i s p o s s i b l e tha t the monopoly p o s i t i o n of De Beers made the diamond market a more p r o f i t a b l e ( . . . t a r g e t f o r "dumping" than o t h e r commodity markets as De Beers was l i k e l y to have to buy up s u r p l u s . The S o v i e t Union i s one of the W o r l d ' s l e a d i n g t imber p r o d u c e r s , but the bulk of i t s p r o d u c t i o n i s consumed d o m e s t i c a l l y , w i t h o n l y 5-8 percent of i t s roundwood and sawnwood b e i n g expor ted (see T a b l e 2 . 1 2 ) . N e v e r t h e l e s s , wood and wood p r o d u c t s e x p o r t s are an impor tant source of f o r e i g n c u r r e n c y . In 1970 wood and wood product s earned $ 389 m i l l i o n o r 16 p e r c e n t of a l l f o r e i g n c u r r e n c y expor t income. (In the same year o i l and o i l product s earned $ 430 m i l l i o n ) . In 1983 wood and wood p r o d u c t s earned $ 853 m i l l i o n but o n l y accounted for 3.2 percent of t o t a l expor t s (see T a b l e 2 . 5 ) . The most important Western markets f o r wood and wood p r o d u c t s are Western Europe and J a p a n - - S o v i e t trade accounts f o r o n e - f i f t h of Western E u r o p e ' s imports of sawnwood (Eronen, 1983, p . 205). T a b l e 2.12 S o v i e t O u t p u t and T r a d e o f S e l e c t e d F o r e s t P r o d u c t s , 1970-1984 1970 1975 1980 1984 P r o d . E x p o r t P r o d . E x p o r t P r o d . E x p o r t P r o d . E x p o r t C o m m e r c i a l Round Wood 199 15.3 313 16.9 278 13.9 na 15.6 ( M i l l i o n C u b i c M e t r e s ) Sawnwood 116 8.0 116 7.8 98 7.0 97.3 7.2 ( M i l l i o n C u b i c M e t r e s ) W oodpulp ( T h o u s a n d C u b i c M e t r e s ) 5,110. 448 6,815 515 7,123 820 8,153 1,010 P a p e r ( T h o u s a n d C u b i c M e t r e s ) 4,185 475 5,215 617 5,288 647 5,862 674 P a p e r b o a r d ( T h o u s a n d C u b i c M e t r e s ) 2,516 247 3,368 308 3,445 3 72 3,889 372 P l y w o o d ( T h o u s a n d C u b i c M e t r e s ) 2,045 281 2,196 303 2,022 314 2,132 317 S o u r c e s : S habad, T. ( 1 9 8 3 ) , "The S o v i e t P o t e n t i a l i n N a t u r a l R e s o u r c e s : An O v e r v i e w , " i n S o v i e t N a t u r a l R e s o u r c e s i n t h e  W o r l d Economy. E d i t e d by R.G. J e n s e n , T. S h a b a d , T. and A.W W r i g h t . C h i c a g o : U n i v e r s i t y o f C h i c a g o P r e s s , p. 262. T s e n t r a l ' n o y e S t a t i s t i c h e s k o y e U p r a v l e n i y e ( 1 9 8 5 ) , N a r o d n o y e k h o z y a y s t v o SSSR v 19 84 g_. Moscow: F i n a n s y i S t a t i s t i k a . p. 188-189. M i n i s t e r s t v o V n e s h n e y T o r g o v l i ( 1 9 8 5 ) , V n e s h n y a y a t o r g o v l y a SSSR, v 1984 g_. Moscow: F i n a n s y i S t a t i s t i k a , pp. 69-72. 70 The data i n T a b l e 12.12 i n c l u d e a l l S o v i e t e x p o r t s of wood and wood p r o d u c t s . In terms of Eas t -Wes t trade the most important i tems are roundwood and sawnwood, the l e a s t proces sed wood p r o d u c t s . Whi le e x p o r t s of more processed p r o d u c t s , p a r t i c u l a r l y woodpulp, have i n c r e a s e d , E a s t e r n Europe i s the major market . F o r example, i n 1983 the major West European t r a d i n g p a r t n e r s accounted f o r o n l y 28 p e r c e n t of S o v i e t e x p o r t s of s u l p h a t e p u l p . Among the Western n a t i o n s Japan accounts for the bulk of roundwood, consuming 42 percent of roundwood e x p o r t s i n 1983. Much of t h i s trade i s a s s o c i a t e d wi th compensat ion agreements under which Japan p r o v i d e s machinery and equipment f o r the e x p l o i t a t i o n of S o v i e t t imber r e s o u r c e s . The o t h e r major Western t r a d i n g p a r t n e r i s F i n l a n d , which f o r example takes 35 p e r c e n t of S o v i e t plywood e x p o r t s (Sbabad, 1983, p. 262) . While the S o v i e t Union would l i k e to d i v e r s i f y i t s wood p r o d u c t s trade w i t h the West, a combinat ion of domest ic supp ly problems and c o m p e t i t i o n has served to r e t a i n the t r a d i t i o n a l r e l i a n c e on l o w - v a l u e - a d d e d p r o d u c t s . Indeed, f o r c o u n t r i e s such as J a p a n , the w i l l i n g n e s s on the p a r t of the S o v i e t Union to s e l l r e l a t i v e l y unprocessed t imber may be a major a t t r a c t i o n , as o t h e r s u p p l i e r s , such as I n d o n e s i a , have .stopped the expor t of unprocessed t i m b e r . In sum, e x p o r t s of wood and wood product s are an important source of f o r e i g n c u r r e n c y f o r the S o v i e t U n i o n , w i t h the major markets b e i n g Western Europe and J a p a n . The m a j o r i t y of e x p o r t s are i n the form of roundwood and sawntimber, w i t h very l i t t l e trade i n h i g h e r - v a l u e - a d d e d p r o d u c t s . S i n c e the e a r l y 1970s the export of chemica l p r o d u c t s has 71 become an i n c r e a s i n g l y v a l u a b l e source of f o r e i g n c u r r e n c y . A c c o r d i n g to the data in Tab le 2.5 the f o r e i g n c u r r e n c y va lue has i n c r e a s e d from $ 64 m i l l i o n in 1970 to $ 691 m i l l i o n i n 1983. Because of the i n c r e a s e in the va lue of f u e l e x p o r t s , chemica l s have not i n c r e a s e d t h e i r share of t o t a l e x p o r t s . The U n i t e d S t a t e s and Western Europe are the most important f o r e i g n c u r r e n c y markets f o r S o v i e t chemica l e x p o r t s , a c c o u n t i n g f o r about 40 percent of S o v i e t chemica l product expor t s d u r i n g the e a r l y 1980s. Much of t h i s trade i s r e l a t e d to compensat ion buy-back . A c c o r d i n g to B o r i n (1980) i n 1979 o n e - t h i r d of S o v i e t chemica l e x p o r t s were r e l a t e d to compensation payments. The m a j o r i t y of compensation p r o j e c t s are o n l y j u s t s t a r t i n g to make d e l i v e r i e s . The U . N . Economic Commission f o r Europe (1982) e s t i m a t e d that i n 1985 buy-back expor t s to the West would be worth $ 660 m i l l i o n . S o v i e t trade data show e x p o r t s of chemica l product s to the West to have been worth over $ 800 m i l l i o n i n 1985. The f i n a l components of S o v i e t f o r e i g n c u r r e n c y e x p o r t s c o n s i d e r e d here are arms s a l e s and the sa l e of t r a n s p o r t a t i o n s e r v i c e s . Whi le S o v i e t armament s a l e s are predominant ly w i t h the d e v e l o p i n g n a t i o n s , they r e q u i r e mention because they are becoming an i n c r e a s i n g l y important source of f o r e i g n c u r r e n c y . Dur ing the 1970s there was an i n c r e a s i n g c o m m e r c i a l i s a t i o n of S o v i e t arms s a l e s . Between 1977 and 1981 f o r e i g n c u r r e n c y t r a n s a c t i o n s accounted for more than 80 percent of a l l arms e x p o r t s . The f o r e i g n c u r r e n c y value of arms s a l e s i n c r e a s e d from $ 400 m i l l i o n i n 1970 to $ 4.2 b i l l i o n i n 1981 (Kanet , 1983, p . 185) . In 1979 $ 10.4 b i l l i o n worth of arms were 72 e x p o r t e d , $ 6.6 b i l l i o n of wich were d e l i v e r e d to d e v e l o p i n g n a t i o n s , mainly on a f o r e i g n c u r r e n c y b a s i s (Kanet , 1983, p. 185). While arms s a l e s may prov ide a more s t a b l e source of f o r e i g n c u r r e n c y than commodity e x p o r t s , they are c o n t r o l l e d by p o l i t i c a l r a t h e r than economic r e a s o n i n g and have a l i m i t e d market . In a d d i t i o n the ga ins from trade may be minimal because p r o d u c t i o n of armaments i s more c o s t l y and may r e q u i r e g r e a t e r l e v e l s of h i g h - q u a l i t y i n p u t s than raw m a t e r i a l e x p o r t p r o d u c t i o n . As S o v i e t p a r t i c i p a t i o n i n the g l o b a l economic system has i n c r e a s e d so has the S o v i e t merchant f l e e t , which quadrup led i n s i z e between 1961 and 1977 (Carr 1979, p . 666) . The S o v i e t merchant f l e e t earns f o r e i g n currency both from the d e l i v e r y of S o v i e t cargoes and from c r o s s trade cargoes (moving goods f o r o ther n a t i o n s ) . In 1977 the S o v i e t merchant f l e e t earned $980 m i l l i o n which accounted f o r 7 percent of the S o v i e t U n i o n ' s f o r e i g n c u r r e n c y income, 72 percent of t h i s income came from d e l i v e r y of S o v i e t e x p o r t s and 28 percent from the c a r r i a g e of c r o s s trade cargoes ( C a r r , 1979, p. 668) . S ince then both the l e v e l of trade and the s i z e of the S o v i e t merchant f l e e t have i n c r e a s e d , and by the l a t e 1970s s h i p p i n g and t r a n s p o r t a t i o n s e r v i c e s are e s t imated to have earned almost $ 1 b i l l i o n (Hewett, 1983, p. 288) . Inc luded i n t h i s f i g u r e are e a r n i n g s from the T r a n s - S i b e r i a n C o n t a i n e r Landbr idge S e r v i c e , which was s t a r t e d i n 1971 to move c o n t a i n e r s between Europe and the Far E a s t . D e t a i l s of the route and i t s development are presented i n Chapter 5. In terms of f o r e i g n c u r r e n c y e a r n i n g s the route i s e s t imated to have earned an average of 57 m i l l i o n f o r e i g n 7 3 t rade r o u b l e s per year ($ 78.5 m i l l i o n at .1982 r a t e s ) d u r i n g i t s f i r s t twelve years of f u l l o p e r a t i o n , wi th t o t a l e a r n i n g s d u r i n g tha t p e r i o d of 678.6 m i l l i o n r o u b l e s , $ 934.7 m i l l i o n a t 1982 r a t e s (Mote, 1984b). With the comple t ion of the BAM r a i l w a y and improvements i n the management of the system, the l a n d b r i d g e may i n c r e a s e i t s revenues d u r i n g the second h a l f of the 1980s. A c c o r d i n g to OECD data (Table 2 . 7 ) , S o v i e t e x p o r t s of crude m a t e r i a l s ( i n c l u d i n g wood and wood p r o d u c t s ) and m i n e r a l f u e l s and energy on average accounted f o r 86.9 percent of t o t a l e x p o r t s to the i n d u s t r i a l i s e d West d u r i n g the 1981-1984 p e r i o d . In the p e r i o d s i n c e 1970 the c o m p o s i t i o n of those e x p o r t s has changed wi th o i l and o i l p r o d u c t s becoming the s i n g l e most important source of f o r e i g n c u r r e n c y i n trade wi th the West. Given tha t the purpose of these e x p o r t s i s to f a c i l i t a t e imports from the West, i t i s necessary to examine the nature of those imports to a p p r e c i a t e f u l l y the r o l e of trade i n the S o v i e t economy. 2 . 3 . 3 . S o v i e t Imports from the I n d u s t r i a l i s e d West S o v i e t imports from the i n d u s t r i a l i s e d West are predominant ly machinery and t r a n s p o r t a t i o n equipment, manufactured goods ( i n c l u d i n g p ipe) and food p r o d u c t s . A c c o r d i n g to OECD data (Table 2.7) these commodity groups have accounted f o r almost 80 percent of t o t a l imports from the West s i n c e 1970. T h i s a n a l y s i s c o n c e n t r a t e s on imports of machinery and equipment, l a r g e d iameter pipe and g r a i n . The S o v i e t Union has been a net impor ter of machinery and i n d u s t r i a l consumer goods s i n c e the Second World War, but has o n l y become a net 74 i m p o r t e r of food p r o d u c t s s i n c e the e a r l y 1960s (Smith , 1985, p . 107) . In the f o l l o w i n g a n a l y s i s the major Western p a r t n e r s and the p a t t e r n of trade are examined, and the s e c t o r s that r e c e i v e the m a j o r i t y of machinery and equipment imports are i d e n t i f i e d . 2.3 . 4 . Machinery and Equipment Imports Western a n a l y s t s such as H o l l i d a y (1979) and Hanson (1981) have suggested tha t there has been a change i n S o v i e t a t t i t u d e s towards the i m p o r t a t i o n of Western machinery and equipment, both i n terms of the s c a l e of trade and the r o l e of Western technology i n the S o v i e t economy s i n c e the 1960s. The f o l l o w i n g d i s c u s s i o n o u t l i n e s the r o l e of Western machinery i n t o t a l machinery i m p o r t s , the g e o g r a p h i c a l d i s t r i b u t i o n of the major t r a d i n g p a r t n e r s , the types of machinery imported and the changing l e v e l of imports in the p e r i o d s i n c e 1970. The data i n T a b l e 2.13 i l l u s t r a t e the r o l e of machinery imports from West Germany, F i n l a n d , I t a l y , F r a n c e , Great B r i t a i n , Japan and the U n i t e d S t a t e s i n t o t a l machinery i m p o r t s . D u r i n g the p e r i o d 1970-1984 the i n d u s t r i a l i s e d West s u p p l i e d an average of 30 p e r c e n t of t o t a l imports of machinery , equipment and means of t r a n s p o r t a t i o n . The f l u c t u a t i o n s i n the l e v e l of machinery trade are d i s c u s s e d l a t e r i n t h i s s e c t i o n . Among the n a t i o n s of the i n d u s t r i a l i s e d West the most important sources of machinery and equipment are West Germany, F r a n c e , F i n l a n d and J a p a n . The U n i t e d S t a t e s became an impor tant trade p a r t n e r i n the mid-1970s, d u r i n g the p e r i o d of d e t e n t e , but f o l l o w i n g American at tempts to use trade f o r p o l i t i c a l ends imports from the U n i t e d S t a t e s d e c l i n e d . By Table 2.13 Role of Machinery and Equipment Imports i n S o v i e t Trade w i t h the I n d u s t r i a l i s e d West, 1970-1985 1970 - 1975 1980 1981 1982 1983 1984 1985 T o t a l Machinery 813 3,104 4,110 3,790 5,166 5,802 4,954 4,625 Imports ( M i l l i o n Roubles) a Machinery Imports 32.1 32.0 26.1 22.0 27.4 31.0 25.3 24.0 as a percent of t o t a l imports from the West Source: M i n i s t e r s t v o Vneshn'ey T o r g o v l i ( v a r i o u s y e a r s ) , Vneshnyaya t o r g o v l y a SSSR. Moscow: F inansy i S t a t i s t i k a . a . The i n d u s t r i a l i s e d West i s d e f i n e d as West Germany, F i n l a n d , I t a l y , F r a n c e , Great B r i t a i n , J a p a n , and the U n i t e d S t a t e s . 76 the 1980s over 93 percent of S o v i e t imports of machinery and equipment from n o n - s o c i a l i s t c o u n t r i e s came from Western Europe and Japan (Smith 1985, p . 110) . Because of the S o v i e t - F i n n i s h b i l a t e r a l trade agreement, F i n l a n d i s a somewhat d i f f e r e n t case from the r e s t of Western Europe . When F i n n i s h trade i s o m i t t e d , Western Europe accounted f o r 63.4 percent i n 1982 and 84 percent i n 1984 (Hanson, 1985, p . 35) . As a r e s u l t of data problems and the nature of the S o v i e t p r i c e system i t i s very d i f f i c u l t to a s se s s the r o l e of Western machinery imports i n t o t a l S o v i e t machinery inves tments . Hanson (.1981, p . 129 and 1985 , p . 38) has attempted to determine the share of Western imports as a percentage of t o t a l equipment investment in the f o l l o w i n g y e a r , though h i s c a l c u l a t i o n s do not compensate f o r d i f f e r e n c e s i n f o r e i g n trade and domest ic r o u b l e p r i c e s . Hanson c a l c u l a t e s that the share of imports ( i n c l u d i n g p ipe) peaked at around 8 percent of S o v i e t inves tments i n 1976 and subsequent ly f e l l to 4.3 percent i n 1981, o n l y to p i c k up to an e s t i m a t e d 8.9 percent i n 1983. The consensus among Western a n a l y s t s seems to be that whi le imports of Western machinery p l a y a r e l a t i v e l y minor r o l e i n terms of t o t a l machinery investments i n any g iven y e a r , the f a c t that they embody "Western technology" and are c o n c e n t r a t e d w i t h i n a few i n d u s t r i a l s e c t o r s tends to i n c r e a s e t h e i r impact . H o l l i d a y (1984, p . 57) , on the b a s i s of a survey of Western l i t e r a t u r e , has conc luded that the machinery and equipment f o r the c h e m i c a l , au tomot ive , o i l and gas, metalworking and m e t a l l u r g i c a l , e l e c t r o n i c , s h i p p i n g , mining and c o n s t r u c t i o n s e c t o r s were the most important types of equipment imports i 1 1 r— 1 1 1 1 1 ~] 1 1 1 1 • I 970 75 80 85 Year F i g u r e 2.5 Role of Machinery and Equipment Imports i n Trade with the I n d u s t r i a l i s e d West. Source: C a l c u l a t e d from M i n i s t e r s t v o Vneshney T o r g o v l i ( v a r i o u s y e a r s ) , Vneshnvava t o r g o v l y a SSSR. Moscow: Finansy i S t a t i s t i k a . 78 d u r i n g the l a t e 1970s (see T a b l e 2 . 1 4 ) . Hanson (1981, pp. 134-139) has a l s o examined the s e c t o r a l d i s t r i b u t i o n of Western tec h n o l o g y i m p o r t s and has suggested t h a t those s e c t o r s showing a "high import dependence" are c h e m i c a l s , f o r e s t r y , l i g h t i n d u s t r y and s h i p p i n g . The O f f i c e of Technology Assessment (OTA) (1982, p. 204) has examined the r o l e of Western t e c h n o l o g y i m p o r t s i n the S o v i e t energy i n d u s t r i e s and con c l u d e d t h a t the major r e c i p i e n t s i n the energy s e c t o r a r e the o i l and gas i n d u s t r i e s . Imports of Western t e c h n o l o g y have a l s o p l a y e d an i m p o r t a n t p a r t i n the exp a n s i o n of the S o v i e t automotive i n d u s t r y (see H o l l i d a y , 1979 and 1985). The changing r o l e of machinery i m p o r t s i n S o v i e t trade w i t h the West i s i l l u s t r a t e d by F i g u r e 2.5. Machinery i m p o r t s c omprised a r i s i n g p r o p o r t i o n of imp o r t s d u r i n g the e a r l y 1970s, p e a k i n g a t 40 p e r c e n t of a l l Western i m p o r t s i n 1977. They then e x p e r i e n c e d a r a p i d d e c l i n e f a l l i n g to 22 pe r c e n t i n 1981. They r e c o v e r e d through 1982-1983, o n l y to d e c l i n e a g a i n i n 1984 and 1985. The f l u c t u a t i o n s i n the t o t a l v a l u e of im p o r t s , p a r t i c u l a r l y i f one a l l o w s f o r i n f l a t i o n , show t h a t t h e r e were both a b s o l u t e and r e l a t i v e d e c l i n e s i n the l e v e l of machinery i m p o r t s a f t e r 1977. The f a c t t h a t t h i s d e c l i n e o c c u r r e d w e l l i n advance of the i n v a s i o n of A f g h a n i s t a n and the subsequent economic s a n c t i o n s s u g g e s t s t h a t i t was the r e s u l t of a change i n S o v i e t p o l i c y towards machinery impor t s from the West. Western a n a l y s t s have o f f e r e d a number of e x p l a n a t i o n s f o r t h i s change i n S o v i e t a t t i t u d e s . One s u g g e s t i o n i s t h a t i n c r e a s i n g debt to the West f o r c e d c u t - b a c k s i n i m p o r t s . A c c o r d i n g to the CIA (1983, p. 71) the S o v i e t Union's net debt Table 2.14 Machinery Orders P l a c e d w i t h Hard Currency C o u n t r i e s , 1976-1978 ( M i l l i o n US $) 1976 1977 1978 Value P e r c e n t Value P e r c e n t Value P e r c e n t T o t a l Machinery Imports 5,991 100 3,816 100 2,803 100 Of Which: Chemical & P e t r o c h e m i c a l 1,818 30 .3 1,628 42. 7 902 32. 2 O i l & N a t u r a l Gas 1,688 28 . 2 308 8 . 1 832 29 . 7 Met a l Working & M e t a l l u r g y 1,028 17 . 2 641 16 . 8 348 12. 4 Timber and Wood 146 2 . 4 65 1 . 7 86 3 . 1 Automotive 355 5 .9 183 4 . 8 115 4 . 1 S h i p s and P o r t Equipment 283 4 . 7 67 1 . 8 127 4. 5 Food P r o c e s s i n g 63 1 .0 155 4 . 1 17 0. 6 Min n i n g and C o n s t r u c t i o n 120 2 .0 147 3. 9 118 4. 2 Ma n u f a c t u r i n g of Consumer Goods 121 2 .0 78 2 . 0 44 1 . 6 E l e c t r o n i c s 55 0 . 9 193 5. 1 179 6 . 4 E l e c t r i c i ty 63 1 .0 138 3 . 6 6 0. 2 Source: Adapted from H o l l i d a y , G.D. (1984), T r a n s f e r of Technology .^£2!E W e s t JL° E a s t : A Survey of S e c t o r a l Case S t u d i e s . P a r i s : OECD, p. 58. 30 to the West reached a h i g h of $11.2 b i l l i o n i n 1977 but was s u b s e q u e n t l y reduced to $9.2 b i l l i o n i n 1980. M a r r i s (1984, p. 1 2 ) . s u g g e s t s t h a t d e s p i t e improved e x p o r t revenues, the e v e r -i n c r e a s i n g c o s t of g r a i n i m p o r t s f o r c e d the S o v i e t l e a d e r s h i p to c ut back o t h e r i m p o r t s or i n c r e a s e the l e v e l of debt. Machinery i m p o r t s were t h e r e f o r e reduced. T h i s e x p l a n a t i o n i s q u e s t i o n a b l e because, as we have seen i n the d i s c u s s i o n of e x p o r t s , the S o v i e t Union d i d not seek to i n c r e a s e revenues from g o l d s a l e s i n 1980 when p r i c e s were a t a r e c o r d h i g h . I f the cut-back d i d not r e s u l t from an i n a b i l i t y to pay, the cause was p r o b a b l y a p o l i c y d e c i s i o n to reduce machinery i m p o r t s from the West. B r a i n a r d (1983, pp. 671-671) has suggested t h a t the l a r g e - s c a l e i m p o r t ' o f Western te c h n o l o g y d u r i n g the 1970s had caused an " i n d i g e s t i o n " problem w i t h i n the S o v i e t economy. Imported p l a n t and equipment p l a c e d " r e s o u r c e demands" on the d o m e s t i c economy t h a t c o u l d not be met, so o t h e r s e c t o r s s u f f e r e d and the imported t e c h n o l o g y d i d not perform as w e l l as e x p e c t e d . Hanson i n i t i a l l y proposed a balance-of-payments e x p l a n a t i o n (Hanson 1982a, p. 171), but l a t e r c o n c l u d e d t h a t f i n a n c i a l grounds a l o n e c o u l d not e x p l a i n the cut-back and t h e r e f o r e deduced a change i n S o v i e t p o l i c y (Hanson, 1982b, p. 2 3 ) . A c c o r d i n g to Hanson (1982b, p. 35) t h e r e was a change i n S o v i e t a t t i t u d e s towards Western t e c h n o l o g y i m p o r t s s i m p l y because the " t e c h n o l o g i c a l f i x " d i d not appear to be r e a p i n g the a n t i c i p a t e d b e n e f i t s . Goldman (1982, pp 254-256) s u p p o r t s t h i s p o s i t i o n and m a i n t a i n s t h a t Western equipment o f t e n o n l y o p e r a t e d a t o n l y 40 p e r c e n t of the c a p a c i t y a c h i e v e d i n the West. O b v i o u s l y t h i s poor performance i s c l o s e l y r e l a t e d to 81 the " i n d i g e s t i o n " problem mentioned by B r a i n a r d . The r e a l reason f o r the d e c l i n e i n imports p r o b a b l y l i e s somewhere between the f i n a n c i a l e x p l a n a t i o n and changing S o v i e t p o l i c y . The upswing i n o r d e r s d u r i n g 1981 i s r e l a t e d to the Urengoy p i p e l i n e and the subsequent d e c l i n e i n o r d e r s does not i n d i c a t e there w i l l be a r e t u r n to the l a r g e s c a l e imports of the 1970s. 2.3.5. Pipe and P i p e l i n e Equipment Imports S i n c e the e a r l y 1970s the S o v i e t Union has expanded i t s o i l and gas p i p e l i n e systems. Domestic p r o d u c t i o n f a c i l i t i e s have been unable to supp ly the r e q u i r e d q u a n t i t i e s of p ipe and equipment, and the S o v i e t Union has turned to the West to o b t a i n the neces sary i n p u t s . Western p ipe producers were e x p e r i e n c i n g r e c e s s i o n and were more than w i l l i n g to supp ly the neces sary p r o d u c t s . The a c t u a l l e v e l of p ipe imports i s d i f f i c u l t to de termine , f i r s t l y , because a l l types of p ipe are i n c l u d e d under a g e n e r a l heading i n S o v i e t f o r e i g n trade s t a t i s t i c s , and s e c o n d l y , because i t i s not p o s s i b l e to determine what percentage of p ipe imports are from the West. A more d e t a i l e d d i s c u s s i o n of pipe imports i s presented i n Chapter 6. Here i t i s s u f f i c i e n t to note that the most important sources of p ipe imports have been West Germany, I t a l y , France and J a p a n . Compressor s t a t i o n s , a l t h o u g h based on American t e c h n o l o g y , have been purchased from West European companies , and p i p e l a y i n g equipment has been purchased from the Un i t ed S t a t e s and J a p a n . 2.3.6. G r a i n Imports The t h i r d and f i n a l component of S o v i e t imports under c o n s i d e r a t i o n here i s g r a i n i m p o r t s . F i g u r e 2.6 i l l u s t r a t e s 50 40 o ca G C3 o o 3 0 F i g u r e 2.6 The Role o f G r a i n Trade i n Imports from the West, 1970-1985 Source: C a l c u l a t e d from M i n i s t e r s t v o Vneshney T o r g o v l i ( v a r i o u s y e a r s ) , Vneshnyaya t o r g o v l y a SSSR. Moscow: F i n a n s t i S t a t i s t i k a . 00 83 the r o l e of g r a i n trade i n S o v i e t imports from the West, whi l e T a b l e 2.15 p r o v i d e s data on the volume of g r a i n imports and the major Western s u p p l i e r s . P r i o r to the 1970s the S o v i e t Union was not a r e g u l a r buyer on the wor ld g r a i n market . D u r i n g the 1970s the S o v i e t Union r e s o r t e d to imports of g r a i n to compensate f o r poor domest ic h a r v e s t s , p a r t i c u l a r l y i n 1972, 1975 and 1979. F o l l o w i n g two d i s a s t r o u s h a r v e s t s i n 1972 and 1975 i t would seem that S o v i e t p o l i c y makers r e a l i s e d that they would be unable to improve l i v i n g s tandards w h i l e hav ing to r e l y on domest ic sources of f e e d s t u f f s . Thus , whi le i n the e a r l y 1970s S o v i e t g r a i n imports were d i r e c t r e a c t i o n s to s h o r t - t e r m requ irements brought about by poor h a r v e s t s , i n the l a t e 1970s and e a r l y 1980s the S o v i e t U n i o n , b e n e f i t i n g from i n c r e a s e d o i l revenues and a g l o b a l s u r p l u s of g r a i n , d e c i d e d to use r e g u l a r imports to s u s t a i n improvements i n s tandards of l i v i n g (Bryne, et a l . , 1982 , p.61 and M a l i s h , 1985, p . 210) . The i n c r e a s i n g r o l e of g r a i n imports i s i n d i c a t e d by the f a c t that i n 1975 (the year of a bad h a r v e s t ) imports of g r a i n accounted f o r 8.1 percent of t o t a l g r a i n a v a i l a b l e i n the S o v i e t U n i o n , but by 1981 the e s t i m a t e d share of imported g r a i n was 20.4 p e r c e n t , d e s p i t e the f a c t tha t t o t a l domest ic p r o d u c t i o n was 20 m i l l i o n tons h i g h e r than i n 1975 (Vanous, 1982, p. 8 ) . I t i s c l e a r that s i n c e 1977 g r a i n imports have p layed a more important r o l e i n t o t a l i m p o r t s . At the same time the share of machinery imports has been d e c l i n i n g . Whi le g r a i n imports d i d d e c l i n e i n 1983, the l e v e l i n c r e a s e d i n 1984, and the U n i t e d S t a t e s Department of A g r i c u l t u r e e s t i m a t e s that 5 g r a i n imports i n 1985 were 39 m i l l i o n t o n s . S o v i e t Imports of Table 2.15 Wheat and Coarse G r a i n , ( M i l l i o n Tons) 1972-1983 19 72- 1973- 1974- 1975- 1976- 1977- 1978- 1979- 1980- 1981- 1982 1973 1974 1975 1976 1977 1978 1979 1980 1981. 1983 1983 T o t a l Imports 22.5 10.9 5.5 25.7 10.1 18 . 4 15.1 25.9 39 . 5 39 . 9 31.8 Imports from: 13.7 7 . 9 2 . 3 13.9 7.4 12.5 11.2 9.9 8 . 7 14.7 6 . 2 United States 0 . 1 0.3 1. 8 1. 4 0.3 2.7 1. 4 6.3 14.9 9 . 5 8 . 6 Argen t i na 5 . 1 1.8 0.3 4.5 1.4 1.9 2.1 3.0 7 . 7 8 . 7 8 . 7 Canada 0 . 9 0 . 1 0.9 2.0 0.5 0.3 0.1 4 .1 2.9 2 . 4 1.0 Au s t r a l i a 1.9 0.5 0.1 0.5 0.2 0.2 0 . 2 0.9 1. 6 2 . 4 4.0 EEC 0 . 8 0.3 0.1 3.0 0.3 0.8 0.1 1 . 9 3 . 7 2 . 2 3 . 3 Other United S t a t e s as 60.8 72.8 41.8 54 .1 73 . 3 68.0 74 . 2 38.2 22.0 37.0 19.4 percent of t o t a l Source: Adapted from Scherer, J.L. ed. (1984), USSR Facts and Figures  Annual, V o l . 8