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HIGH-VALUE EXPORTS SURGE
by Padraic J. Sweeney

U.S. exporters reaped the rewards of economic change in 1994, as
shipments of high-value added products to the Newly Independent
States (NIS) of the former Soviet Union surged to record levels. 
U.S. exports of manufactured goods and processed foods grew
strongly in 1994 (see graph--in print edition only--).  Russia's
new private sector is driving this growth: new Russian airlines
accounted for much of the growth in sales of U.S. manufactures,
while private importers and wholesalers moved record volumes of
United States consumer-oriented foods.  The cancellation of
Russian Government import subsidies for grain meant that sales of
bulk agricultural products continued to fall sharply in 1994,
resulting in a modest overall decline in U.S. exports last year. 

Opportunities for U.S. exporters were greatest in 1994 in areas
where there was virtually no trade at all during the Soviet era. 
Aircraft and parts led U.S. exports of manufactured goods,
despite protectionist tariffs imposed by Russia in July.  Poultry
and other meats found a booming new market in Russia, as local
consumers turned decisively to high-quality U.S. products. 
Moreover, since the U.S. still has a relatively small market
share for many consumer-oriented food products, prospects for
growth in this area are significant.  Russia remained the leading
NIS destination for U.S. exports, importing 76 percent of all
U.S. products shipped to that part of the world. 

U.S. exports of manufactured goods to the NIS totaled $1.99
billion in the first nine months of 1994, up more than 12 percent
over the same period in 1993.  Sales of aircraft and parts rose
to more than $422 million by September, of which $341 million
were shipped to Russia.  Despite a burdensome tariff regime,
several Russian airlines bought or leased U.S. commercial
aircraft in 1994, and a number of similar transactions are
pending.  Exports of offshore drilling equipment, railroad
equipment, tractors, parts for metalworking equipment, computer
parts, photographic equipment, and electronic components also
grew sharply. 

Russia emerged as one of the leading U.S. export markets for
consumer-oriented foods.  Poultry meats, red meats, and snack
foods accounted for nearly 70 percent of total U.S. exports of
processed foods.  The market for U.S. consumer-ready food is
chiefly the small but significant number of well-heeled Russian
consumers who buy imported foods on a regular basis, augmented by
a much larger number of consumers who make occasional purchases
of such products.  There is considerable opportunity for growth
in this market, since U.S. exports account for only a small
portion of all consumer-ready food products imported by Russia. 
Foundation for Growth

The largest NIS market, Russia, has enjoyed comfortable surpluses
in recent years in its foreign trade and international payments
positions.  These surpluses are possible because of Russia's
relatively strong position as an exporter of fuels, raw
materials, and semifinished products.  Russia and other NIS
countries are turning increasingly toward Western suppliers for
imports, and away from their traditional Soviet-era trading
partners.  Poor-quality local goods, the mutual inconvertibility
of NIS currencies and the unreliability of traditional NIS
suppliers are leading these countries in the direction not only
of U.S., but EU, Japanese, and other suppliers.  Finally, the
inability of local manufacturers to meet consumer demand for
high-quality products, especially consumer-oriented food products
fueled the growth of U.S. exports. 

Constraints on U.S. Exports

Despite their successes in 1994, U.S. exporters continue to face
difficult conditions in Russia and other NIS countries.  U.S
exporters remain particularly vulnerable to often exorbitant
customs duties and other fees imposed by NIS governments.  Steep
Russian tariffs imposed on a variety of products in July are a
major case in point.  Particularly hard hit by this move were
aircraft and parts, which were subjected to a 50 percent tariff,
automobiles (46 percent tariff) and confectionery products (30
percent tariff).   

In the case of aircraft, the Russian Government is allowing
exceptions to the tariff on a case-by-case basis, and a number of
Russian airlines have used the exceptions to purchase or lease
U.S.-manufactured aircraft.  Automobile exports were very hard
hit, however, falling from nearly $119 million in 1993 to $33
million during the first nine months of 1994.  Confectionery
exports have also suffered.  In addition to the overall tariff
regime, exports of tobacco and alcoholic beverages became the
subject of a rigorous excise tax regime in Russia at the end of
December.   

The U.S. Government is working with the Government of Russia to
improve conditions for U.S. exports.  These efforts are being
made via a number of channels, in particular through the
U.S.-Russia Business Development Committee, chaired by Secretary
of Commerce Ronald Brown.
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