Foreign Trade of The Soviet Union - Structure of The Foreign Trade Bureaucarcy - Structural Reforms, 1986 To Mid-1988

Structural Reforms, 1986 To Mid-1988

The cumbersome foreign trade bureaucracy contributed to a number of problems that hindered the efficiency and effectiveness of foreign trade. The lack of direct contact between Soviet enterprises and their foreign customers or suppliers frustrated both parties by unnecessarily delaying contract negotiations and the specification of technical details. In a May 1986 interview with Izvestiia, the general director of the Ministry of Foreign Trade's All-Union Association for the Export and Import of Technical Equipment, Boris K. Pushkin, reported that after an enterprise submitted a request for a foreign item, two to three years were required before it was included in the import plan and funds were allocated for its purchase. In the interim, the needs of the enterprise had often changed. Pushkin stressed the need to free enterprises from unnecessary petty supervision and excessive regulation.

Taking such problems into account, the Twenty-Seventh Party Congress in February–March 1986 declared that the party anticipated a step-by-step restructuring of foreign trade in order to make exports and imports more effective. In August of the same year, the CPSU Central Committee and the Council of Ministers adopted the decree On Measures for Improving Management of External Economic Relations,"" which outlined drastic steps to change the structure of the foreign trade bureaucracy.

Also in August 1986, the Council of Ministers' State Foreign Economic Commission became a permanent body within the council, giving more authority and visibility to the commission, the domestic activities of which previously went largely unreported. The staff was augmented, and the chairman acquired a rank equivalent to that of deputy prime minister. The new charter stated that the commission's role was "to formulate and implement the country's foreign economic strategy so as to enhance its potential contributions to acceleration (uskorenie--see Glossary), strengthen the Soviet position in the world economy, and promote structured and organized development of economic cooperation with all groups of countries."

Until 1987 the forty-eight FTOs subordinate to the Ministry of Foreign Trade administered more than 90 percent of Soviet foreign trade turnover. In 1987 the ministry lost control of 20 percent of Soviet foreign trade turnover. The government granted direct foreign trade rights to twenty-one ministries and state committees, sixty-seven industrial enterprises, and eight interbranch scientific production complexes. Exporting enterprises gained the right to retain part of their hard-currency earnings. Each ministry or enterprise was to pay for its investment imports with its own hard currency, and the heads of ministries and enterprises became personally responsible for the efficient use of hard-currency funds. These measures gave enterprises more influence in import decision making.

On January 13, 1987, the Council of Ministers adopted the resolution ""On Questions Concerning the Creation, on U.S.S.R. Territory, and the Activities of Joint Enterprises, International Associations, and Organizations with the Participation of Soviet and Foreign Organizations, Firms, and Management Bodies,"" or, more simply, a law on joint ventures. This legislation opened up enterprises inside the Soviet Union for the first time since the Bolshevik Revolution (see Glossary), to foreign participation. Joint ventures were to facilitate the acquisition and assimilation of Western technology, managerial know-how, and marketing abilities. Optimistic about the economic effects of their new undertaking, Soviet officials declared that 85 to 90 percent of ""the most important types of machinery"" would meet world technical standards by 1990. The Soviet Union's vast natural resources and its lucrative, previously closed, domestic market attracted Western companies. By August 1988, more than 50 joint ventures were registered in the Soviet Union, and approximately 300 were under negotiation.

Nevertheless, numerous obstacles arose in the first eighteen months after the government adopted the joint venture law. Complaints by Western partners dealt with uncertainties concerning Soviet trade regulations, problems with the supply of goods, the dilemma of the nonconvertibility of the ruble, difficulties finding qualified Soviet managers, problems in projecting production costs (as of 1989 Soviet domestic prices were administratively set and not based on market forces), and even complications finding office space in Moscow. Soviet trade officials' efforts to accommodate these complaints have included the decentralization of the foreign trade bureaucracy, the establishment of a management institute in Moscow, price reforms, and various legal reforms.

Before Western businessmen could recover from the confusion and disruption caused by this series of reforms, a second series began in early 1988. Effective January 1, 1988, the Foreign Trade Bank (Vneshnii torgovii bank—Vneshtorgbank) was renamed the Foreign Economic Activity Bank (Vneshnii ekonomicheskii bank-- Vneshekonombank). The name change did not signify a major change in the bank's duties but simply more accurately reflected the nature of its operations. Vneshtorgbank had branched out from the simple management of foreign trade transactions to provide currency, credit, and accounting services as well. In a change from its previous duties, Vneshekonombank was required to administer new procedures dealing with Soviet firms that had recently acquired direct foreign trade rights.

Also on January 1, 1988, the New Enterprise Law went into effect, making enterprises economically accountable for their own business operations by 1989. According to this law, the government had the power to disband unprofitable businesses, and each ministry and its subordinate enterprises gained the responsibility for their own foreign trade activities. In addition, Gosplan, Gossnab, and GKNT relinquished some of their rights to allocate money and goods. Finally, the Ministry of Foreign Trade lost control of 15 percent more of its foreign trade turnover when fourteen additional enterprises and four other ministries acquired direct foreign trade rights.

Yet probably the most significant change in the foreign trade mechanism occurred on January 17, 1988, when Izvestiia announced the abolition of the Ministry of Foreign Trade and the GKES. The Ministry of Foreign Economic Relations, headed by Konstantin F. Katushev, former head of the GKES, assumed the duties of the two agencies. ""Thus, the state monopoly on foreign trade and its state-wide aspects remains centralized,"" reported the Soviet foreign trade monthly Vneshniaia torgovlia (Foreign Trade), ""while operational functions are continually being shifted to the business level."" In March 1988, the journal reported that approximately 20 percent of foreign trade turnover was handled by the eighty-one firms that had been granted the right to deal directly with foreigners.

Other reforms followed in April 1988, when the Central Committee and the Council of Ministers agreed on a new charter for the Chamber of Commerce and Industry. In general, the chamber monitored foreign trade conducted outside the new Ministry of Foreign Economic Relations. In addition, the chamber assisted Soviet production enterprises in locating Western partners and learning foreign trade practices.

Read more about this topic:  Foreign Trade Of The Soviet Union, Structure of The Foreign Trade Bureaucarcy

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