Bush Brings Incentives To Soviet Businessmen

THE pep talk President Bush gave Soviet businessmen yesterday morning hinted of a classic American Rotary Club breakfast.It indicates an important new audience Mr. Bush wants to reach in constructing a new era of cooperation with the Soviets - not diplomats and politicians but people who buy and sell. "As entrepreneurs, businessmen, and risk-takers, you hold the key to the future prosperity of the Soviet Union," he told them. The breakfast also shows how early the stirrings of private enterprise still are. While Bush extolled the virtues of the free market, most of the Soviet businessmen present in fact represented companies owned by some level of government. "We are not yet ready to trade with America," said Svyatoflav Fyodorov, a leading Soviet entrepreneur and eye surgeon, after the breakfast. "We are tied from head to toe by taxes, licenses." Bush brought a handful of proposals and agreements to the Soviet Union this week for building a foundation for normalized economic relations between the world's most formidable erstwhile military rivals. The American moves will not inject capital into the deteriorating Soviet economy, according to analysts in the United States. But they do remove barriers and encourage expanded US-Soviet trade ties. The most symbolic US move was Bush's announcement that he will submit to Congress the free-trade agreement that Bush and President Mikhail Gorbachev signed last year in Washington. The agreement clears the way for dramatically lower tariffs on Soviet imports to the US. The Soviets now pay the highest tariffs in post-depression US history. Soviets estimate that the reduced tariffs will increase Soviet exports to the US by $150 million a year. While US-Soviet trade is only $4 billion a year - about 0.5 percent of US foreign trade and 1 percent of Soviet foreign trade, these hoped-for links hold a larger importance. For Americans, integrating the Soviets into the world economy offers a way to align the interests of the two superpowers while demilitarizing the Soviet economy. For the Soviets, the US offers a source of financing and earnings for economic reforms. One important development here for aspiring American investors in the Soviet Union is Bush's promise to seek repeal of cold-war limits of $300 million on Export-Import Bank credit guarantees supporting exports to the Soviet Union. Demand for these guarantees has soared in the past two years as the Soviet economy has liberalized access to foreign investment. One of the most difficult obstacles to US-Soviet joint ventures is lack of financing, since commercial loans - without the US credit guarantees - have dried up. Repealing the limits on these guarantees, says Robert Cullen, editor of a newsletter on Soviet-American trade, "suggests Bush has been looking hard for ways to help Gorbachev." Bush and Mr. Gorbachev talked about specific economic projects, including a joint oil exploration venture between Chevron and the Soviet republic of Kazakhstan. The Chevron deal is the keystone to Soviet joint ventures with a consortium of five major US companies. Announced a year ago, none of the joint ventures has come together yet. One problem for foreign businesses in the Soviet Union may be resolved as part of the new union treaty between nine republics and the central Soviet government. Businesses faced the possibility of heavy taxes from both the republics and the central government that could have wiped out almost two-thirds of profits. But Gorbachev and Russian Republic President Boris Yeltsin have reportedly agreed that the republics would levy taxes, then pass a share on to the central government. The snag that had delayed Bush's submitting the trade agreement to Congress has also been resolved. The agreement Bush will submit contains what the administration calls "strong intellectual property-rights protection." This is the kind of legal and political orderliness that American businesses seek more of in the Soviet Union. Gorbachev's spokesman, Vitaly Ignatenko, recounted his comments to Bush: "Paradoxical as it may seem, we want more economic dependence on the US, but this is not from a feeling o f inferiority. We want to be more predictable to your people. We want to be understood. We want to develop our economy on a big scale." For Bush's part, he has missed few opportunities to remind the Soviets that their integration into the world economy depends on their market and democratic reforms. The Soviets had some complaints of their own about US obstacles to trade, particularly the COCOM (an international body on export control) restrictions on sharing defense-related technologies.