East bloc likes earning capitalist dollars. Planned economies keep prices down, share of US market up
Consumers in the United States, eager to find a price or quality advantage among the imports pouring in, are increasingly thinking ``East.'' New York?, you ask. East Asia?
Try Eastern Europe.
The falling value of the US dollar has pushed up the cost of imports around 19 percent since 1985, according to the Commerce Department. That's particularly true for products from Western Europe and Japan, which tend to export luxury items to the US, including cars, electronic equipment, and computer products. Import costs for goods from those areas are scooting upward, sometimes sharply.
Not surprisingly, given the dollar's slide, imports from Eastern Europe are also rising in cost, although in many cases the price hikes are far less than for goods from Western Europe and Japan. This means American consumers may find some real bargains in products from Eastern Europe, trade analysts say.
Total US trade with the six nations of Eastern Europe considered to be in the East bloc ``was slightly in excess of $2.3 billion in 1987,'' says Kevin Boyd, a Commerce Department economist. The six are Bulgaria, Czechoslovakia, East Germany, Hungary, Poland, and Romania.
In addition, the US also maintains substantial two-way trade with nonaligned Yugoslavia, which is not an East bloc nation, but - for most Americans - is included in most discussions of Eastern European trade. Products from Yugoslavia continue to gain broad acceptance within the US. For 1986 - for which final trade figures are available - two-way US trade with Yugoslavia was around $1.2 billion, Mr. Boyd says.
Volume of trade small, but rising
The volume of US trade with the six East bloc nations is small, concedes Franklin Vargo, the Commerce Department's deputy assistant secretary for Europe. But, he notes, imports from the six nations have started to climb again, following the drop in imports in the early 1980s, when the US and Soviet Union were at loggerheads over such issues as the Soviet invasion of Afghanistan and the crackdown on the Solidarity trade union movement in Poland.
Both importers and retailers report that prices of Eastern European products appear to be holding steady more than imports from other regions. Why? The strong governmental role in Eastern European economies means central planning boards are instrumental in determining the price structure of products. For many Eastern European enterprises, winning market share in Western nations - or merely gaining access to Western nations in the first place - is as important as turning a profit.
Moreover, although Eastern European nations share a common geographical relationship, they are quite distinct. Quality - and the type of goods offered for export - can vary dramatically from country to country.
Take Yugos, those sometimes-scoffed-at economy cars from nonaligned, non-East bloc Yugoslavia.
Car enthusiasts may grumble about the quality of the Yugo. But price is quite another matter. The base price for the model GV is still considered the lowest-priced import in the US. When the car was first introduced into the US in 1985, the model GV had a base price of $3,990. That lasted into 1987, when the base price was boosted slightly, to $4,199.
Since Yugo officials reckon the average transaction price - what the customer pays at the retail counter - at about $4,700, the Yugo is far less expensive than such low-cost imports as South Korea's Hyundai, where a typical transaction price can reach $8,000 or more.
Sales of Yugos started off very slowly, around 3,500 in 1985; they rose to 36,000 in 1986, and reached 49,000 last year. ``We are very encouraged,'' says Fran Jacobs, a spokesman for Yugo America, in Upper Saddle River, N.J. Given the car's low cost, ``the US public seems particularly receptive at looking at Yugos in a period of uncertain economic times,'' Mr. Jacobs says.
Yugos are now sold by some 330 dealers in 49 states. A dealer network will eventually be established in Wyoming, Jacobs says. And a new Yugo convertible, priced at $8,300, will be introduced into the US this summer.
Yugos are not the only products from Yugoslavia or the other nations of Eastern Europe now doing well in the United States, though they are perhaps the most visible.
``Yugoslavian imports into the US were up 30 percent last year,'' says Nola Raper, executive administrator with the US-Yugoslav Economic Council Inc., in Washington.
Roger Valentino, president of Associated Office Products, in Oxon Hills, Md., sells Yugoslavian bookcases and other office products. ``The wholesale cost of [Yugoslavian-made] Norson bookcase products,'' he notes, ``has fallen 12 percent'' in the past two years. That has meant steady prices at the retail level, despite increases in inflation for the economy as a whole. He also notes that two Yugoslavian bookcase makers, Hale and Norson, are now ``competing among themselves'' to keep costs down.
Polish ham sales cooking again
Sales of some highly regarded Eastern European products have been hams, says Robert Bauer, vice-president of Polfoods Corporation, the importer of Polish agricultural products into the US. Before Warsaw's crackdown on Solidarity, Polish hams were big sellers in the US; at one point, in the late 1970s, it was the market leader among imports.
After the crackdown, and during the period of strained political relations between Washington and Warsaw, import tonnage and sales dropped. Now in this period of improved relations, with the White House lifting economic sanctions against Poland, that pattern is changing, and imports of Krakus hams rose 5 percent from 1986 to 1987, Mr. Bauer says.
During the same period the tonnage of Danish hams, the current import leader, fell by roughly 17 percent, Bauer adds.
US imports of other Eastern European pork products have risen in volume during the past two years, including hams from Yugoslavia and Hungary. Imports of Romanian pork, according to the Commerce Department, doubled in tonnage during the two years.
For US companies, Eastern Europe represents an area of economic opportunity, Vargo believes. Imports from Eastern Europe include consumer and agricultural goods; apparel items, such as jogging shoes and dress shoes; sporting goods, including skis; and heavy industrial products, such as steel and machine goods.
``The main challenge for the Eastern European nations,'' he says, ``remains the need for internal economic reform,'' such as has been promised in Poland.
Given time, argues Vargo, economic reforms will translate into a better consumer orientation. At present, some East bloc factories are not able to follow through on delivery schedules; there are frequent production bottlenecks; quality control is often lacking.
Despite the low level of trade between the US and Eastern Europe, more and more major companies are undertaking or considering doing business within the region, including McDonalds, General Electric, International Business Machines, General Motors, Marriott, Boeing, and Apple Computer.
US trade deficit, here, too
The overall trade balance is heavily stacked in favor of Eastern Europe. During 1987, for example, US companies exported $716 million worth of goods to the region, compared to a hefty $2.3 billion of US exports in 1980. But imports from the six communist nations of Eastern Europe last year reached $l.6 billion, up from $1.1 billion in 1980.
Three nations - Hungary, Poland, and Romania - are at the center of most US-East bloc trade. Together, they absorb two-thirds of US exports to the region, and provide 80 percent of the region's exports to the US.
Nonaligned Yugoslavia imported around $527 million of US goods in 1986, the most recent year for which final figures are available. Exports were around $713 million.
As Vargo noted before a congressional committee looking into East-West trade late last year, just recouping the lost US market share in Eastern Europe ``would boost US exports by $1 billion, creating 25,000 additional US jobs.''
In Poland alone, according to Vargo, more than 500 enterprises are now allowed to trade with the US and other Western nations. When it comes to Eastern Europe's other main noncommunist trading region - Western Europe - there are also difficult hurdles, says Vargo, including supply reliability.
European companies doing business with the East bloc ``can't count on goods or spare parts being supplied,'' he notes.