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Russia: Financial Crisis Bound To Hit East-West Trade

Washington, 21 October 1998 (RFE/RL) -- The latest U.S. trade figures paint the picture up to the Russian financial crisis. They show that two-way trade with the nations of Central/East Europe and Central Asia through the end of August grew a healthy 20 percent compared to 1997. But the future may not be so bright.

The latest figures show that bilateral trade of over $17.72 billion was heavier on exports to the U.S. than purchases from America. U.S. imports from the countries of the region grew by 13 percent while U.S. exports to the region rose just 8.8 percent.

Broken down more specifically, however, the picture begins to change. U.S. trade with Russia in the first eight months of this year rose nearly 40 percent to $6.629 billion and Russia's exports to the U.S. rose by 41 percent compared to the year before.

But U.S. trade with the other nations of the former Soviet Union declined one percent to $1,908 billion. Most of that loss was a decline in American exports to the region. The former Soviet countries saw their sales to the U.S. actually increase by 24 percent compared to 1997.

Similar differences show up in the two-way trade with the nations of Central and Eastern Europe, not including Russia, Ukraine or Belarus. Total trade with the non-soviet East Europe countries rose 7.6 percent, but that was made up of a nearly 21 percent increase in sales to the U.S. and a 6.8 percent decline in American imports.

What interests everyone, however, is what will happen when the next trade figures begin to reflect the first full month after the Russian financial crisis, which hit August 17.

The Director of the U.S. Chamber of Commerce's International Division for Eurasia, Gary Littman, says it will surely be worse. He said in an RFE/RL interview that U.S. trade with Romania, the Czech Republic, Poland and Hungary will probably flatten or fall somewhat in the next year due to indirect impacts of the Russian crisis:

Littman says these countries will find it far more difficult to get trade financing as international sources have been drying up. He says some specific companies in the region with large exposure to Russian markets will also be feeling a ripple effect.

Littman says that in all the countries of East and Central Europe and Central Asia, imports of American goods will certainly fall:

Littman says U.S. exports to the region will decline considerably, not so much immediately, but in November and December. At the same time, Russian exports to the U.S. will rise because Russian producers, especially of commodities like aluminum and steel, are rushing to unload their inventories to quickly gain dollars.

Littman says Russian imports of American goods will certainly drop dramatically as well. Russia's neighbor, Ukraine, is another serious case. Ukraine's trade with the U.S. is much smaller -- just under $715 million in the first eight months of this year -- but that was still a solid 17 percent increase over 1997. That included a rise in exports to the U.S. of nearly 24 percent and an increase in imports of U.S. goods by nearly nine percent. But the outlook with Ukraine is not good, says Littman:

Littman says Ukraine is a really difficult case because 40 percent of the country's trade is with Russia, mostly barter and not transparent. Ukraine has lost its major market for sugar (Russia), so it will be less able to buy goods from other countries like the U.S.

U.S. trade with countries such as Armenia, Georgia, Kazakhstan and Uzbekistan is tiny when compared to that even of Ukraine, but Littman says that it will feel some impact:

Littman says Georgia and Armenia have successfully reoriented their trade toward western Europe, but they do not have very diverse trading patterns -- they depend on only one or two products like wine or cotton -- but still should not be hit hard by the Russian crisis.

A far bigger problem for all of the former Soviet countries, says Littman, is the fact that the financial crisis has dramatically altered the image of these countries in the eyes of U.S. business.

Littman says U.S. investors and traders see all of these countries as constituting a much greater risk than 10 months ago. So people will be more cautious in selecting trading partners, deals will slow down and trade volume will probably go down for the entire region just because of the business thinking.

Unmentioned so far is the expected additional damage to the exports to the U.S. from most countries of the region that could be caused by the recent expiration of a special program known as GSP (General System of Preferences). GSP allows 149 designed developing countries to sell over 4,500 specified products in the U.S. free of tariffs.

In 1996, the last year for which statistics are available, 15 countries in the region sold at least 75 percent of their exports into the U.S. under the GSP program.(Czech Republic, Slovakia, Latvia, Lithuania, Poland, Russia, Kazakhstan, Kyrgyz Republic, Uzbekistan, Croatia, Macedonia, Albania, Romania and Bulgaria)

Several of those, including Uzbekistan, Macedonia and Albania, sold over 98 percent of their exports to the U.S. under the duty-free program.

The program expired on June 30 and a bill pending in the last hours of the U.S. Congress' session, would extend it another year, retroactive to July 1. That pending legislation has allowed goods to continue to flow into the U.S. duty free. But if congress does not approve, the benefit will end immediately and many countries of Central and East Europe and Central Asia could see their exports to the U.S. hit by another serious blow.