1 We shall not consider in detail here the question of congressional authorization. Congressional action will be required to permit the United States to grant MFN treatment to imports from the Soviet Union. Implementing legislation may also be necessary or desirable to carry out certain other provisions of the Trade Agreement, notably the “safeguards” clause (Art. 3).

An Agreement Regarding Commercial Relations between the United States and USSR was effected by an exchange of notes signed July 13, 1935, 49 Stat. (pt. 2) 3805; E.A.S. 81; 162 L.N.T.S. 92, and continued in force until July 13, 1937 by an exchange of notes dated July 11, 1936, 50 Stat. (pt. 2) 1433; E.A.S. 96; 172 L.N.T.S. 434. A new one-year Agreement was signed on Aug. 4, 1937, 50 Stat, (pt 2) 1619; E.A.S. 105; 182 L.N.T.S. 113, and extended annually until 1942 by a series of exchanges of notes. An exchange of notes dated July 31, 1942, 56 Stat. 1575; E.A.S. 265; 102 U.N.T.S. 274, provided for further extension of the Agreement until Aug. 6, 1943 and thereafter terminable upon six months’ written notice.

Pursuant to a direction to the President contained in Section 5 of the Trade Agreements Extension Act of 1951, 65 Stat. 73 (1951), notice of termination of the 1942 Agreement was given by the United States in a note dated June 23, 1951, and the Agreement was thus terminated on Dec. 23, 1951. In accordance with Section 231(a) of the Trade Expansion Act of 1962, as amended, 19 U.S.C. §1861(a) (1970), the President continues to be prevented from extending to the USSR and other Communist countries (except Yugoslavia and Poland) the more favorable tariff rates or duty-free treatment that have been granted by the United States since 1930 under reciprocal trade agreements legislation.

2 12 U.S.C. §635(b)(2) (1970). Section 2(b)(2) prohibits the Bank from participating in any export credit transactions with Communist countries unless the President determines such transactions are in the national interest and so reports to Congress within 30 days. At the time of the Determination made in favor of the USSR, the only Communist countries having access to the Bank were Yugoslavia and Romania. The Presidential determinations made thus far have provided for country wide waivers rather than for transaction, dollar limit, or other more narrow authorizations.

3 Press Conference by Secretary of State Rogers, July 18, 1972; text contained in White House Press Release on the trade agreement and related arrangements, July 18, 1972.

4 For the text of the Agreement see 67 Dept. State Bull. 595 (1972).

5 Concerning the legal framework of US-USSR trade, see Pisar, S., Coexistence and Commerce 75–138 (1970)Google Scholar; Berman, , The Legal Framework of Trade Between Planned and Market Economies: The Soviet-American Example , 24 Law & Contemp. Prob. 482 (1959)CrossRefGoogle Scholar; Metzgeb, , Federal Regulation and Prohibition of Trade with Iron Curtain Countries , 29 Law & Contemp. Prob. 1000 (1964)Google Scholar; Behman, & Gahson, , United States Export Controls—Past, Present and Future , 67 Colcm. L. Rev. 791 (1967)Google Scholar; and Mcquade, , United States Trade with Eastern Europe: Its Prospects and Parameters , 3 Law & Pol. Int’l Bus. 42, 71–100 (1971)Google Scholar; and Hoya, , The Legal Framework of Soviet Foreign Trade , 56 Minn. L. Rev. 1 (1971)Google Scholar.

6 The texts of the various US-USSR agreements announced on Oct. 18, 1972 are appended to a White House Fact Sheet on the negotiations released on that date, and are reproduced in 67 Dept. State Bull. 592 (1972).

7 66 Dept. State Bull. 898, 899 (1972); Reprinted in 66 AJIL 920 (1972) and 11 ILM 756 (1972).

8 66 DEPT. STATE BULL. 898 (1972).

9 At the Aug. meeting the two sides agreed upon “Terms of Reference and Rules of Procedure for the Commission” (not published). These provide for meetings at least once each year, alternately in Washington and Moscow. Each Section, which is headed by an Executive Secretary, may invite advisers and experts to participate at any meeting of the Commission. The Commission is to operate on the principle of mutual agreement and may establish Joint Working Groups to consider specific matters.

The members of the U.S. delegation at the Aug. meeting included, in addition to Secretary Peterson, Under Secretary of Commerce James T. Lynn; Deputy Under Secretary of Treasury Jack F. Bennett; Assistant Secretary of Commerce Andrew E. Gibson; Special Assistant to the Secretary of Commerce James L. Mitchell; State Department Deputy Legal Adviser Charles N. Brower; Deputy Assistant Secretary of Commerce Steven Lazarus; and other Executive Branch officers.

10 Soviet foreign trade is planned and directed by state agencies, with actual trade operations conducted by about fifty FTO’s. Soviet imports serve primarily to supplement internal production and are integrated into the planning process. The principal function of Soviet exports to industriahzed market countries is to earn the necessary foreign exchange to pay for imports. Comparatively little attention is given to foreign demand. The Soviet economic system is isolated from the competitive stimulus of free trade, and the state trade monopoly greatly facilitates the use of international trade as an instrument of foreign policy. The organization and functioning of state trading is discussed in Knapp, , The Function, Organization and Activities of Foreign Trade Corporations in the European Socialist Countries , in The Sources of the Law of International Trade 52 (Schmitthoff, C., ed. 1964)Google Scholar (hereinafter cited as Sources of Law); Schmitthoff, The Law of International Trade, Its Growth, Formulation and Operation, in Sources of Law, supra, at 3; Berman, supra note 5 at 483–504; Hoya, supra note 5; and Grzybowski, , The Foreign Trade Regime in the Comecon Countries Today , 4 N.Y.U.J. Int’l L. & Politics 183 (1971)Google Scholar.

11 See, e.g., Art. XIV(2), Treaty of Friendship, Commerce and Navigation between the United States and the Federal Republic of Germany, Oct. 29, 1954, 7 U.S.T. 1839 (Pt. 2,1956); T.I.A.S. 3593.

12 This exception protects the United States in the event it takes action under one of the GATT provisions authorizing exceptions to the GATT (e.g. Arts. VI, XII, XX, XXI). The exception also covers U.S. preferences to the Philippines (GATT Art. 1:2) and action taken by the United States pursuant to the waiver procedure of GATT Art. XXV:5 in derogation of the MFN rules of Art. 1 of the Trade Agreement, such as the US-Canadian Agreement Concerning Automotive Products, Jan. 16, 1965, 17 U.S.T. 1372 (Pt. 1,1966); T.I.A.S. 6093.

13 See, e.g., Art. XIV, Treaty of Friendship, Commerce and Navigation between the United States and the Federal Republic of Germany, supra note 11. The question of MFN in the East-West trade context was considered in Domke, and Hazard, , State Trading and the Most-Favored Nation Clause , 52 AJIL 55 (1958)Google Scholar, and Hoya, supra note 5 at 23–28.

14 Export Administration Act of 1969, 12 U.S.C. §635 et seq. (1970), as amended by the Equal Export Opportunity Act, P.L. 92–412, 86 Stat. 644 (1972). Concerning national security controls over U.S. exports, see: Behman & Gahson, supra note 5; McQuade, supra note 5; and “Export Controls—A National Security Standard?” 12 Va. J. Int’l. L. 92 (1971).

15 Press Conference by Secretary of Commerce, Oct. 18, 1972.

16 Detailed statistics on U.S. trade with the Soviet Union and other Communist countries are contained in the Department of State’s annual “Battle Act” reports to Congress, submitted in compliance with Sec. 302(b) of the Mutual Defense Assistance Control Act of 1951, as amended, 22 U.S.C. §§1612–13d (1970).

17 Since the mid-1960’s the USSR increasingly has entered into cooperative ventures with Western firms, typically by means of production sharing or joint marketing arrangements. Production sharing is an arrangement that involves joint manufacturing or assembly as an integral part of the venture. Under a common type of production sharing agreement, the Western firm provides capital, equipment, and marketing facilities, and the USSR supplies plant labor, raw materials, and some equipment. A joint marketing arrangement usually involves the formation of a company to sell Soviet goods in the West, in markets that might otherwise be closed to it. Under a “joint venture” arrangement (the Soviets refer to this as “industrial cooperation”) the Western firm supplies equipment and technology on credit for a Soviet developmental project, typically involving raw materials. Repayment with interest is generally in the product at prearranged prices. A long term contract to supply products to the Western country following credit repayment may also be concluded. The Western firm involved participates neither in ownership nor in overall management of the project. Other trade techniques can include parallel trading, i.e., taking Soviet goods in full or partial payment for products sold there (normally the goods received are unrelated to the goods sold), and switch trading, which typically involves sales in return for credits or commercial paper which can be discounted for hard currency. See McQade, supra note 5 at 58–59.

18 Thus, at the Second Session of the Joint US-USSR Commercial Commission, the U.S. Section reported the formation within the Executive Branch of a task force on Soviet gas projects to coordinate consideration of such projects. The Commission created a new Joint Working Group to review and facilitate consideration of such projects. Summary Minutes of Second Session (unpublished.)

19 The implementing procedure also provides for each government to take certain measures to control exports from its country of products that are the subject of consultations. Annex 1, Para. 3(a). By a separate exchange of letters it is made clear that the U.S. Government can meet its obligations in this regard by making available to U.S. exporters information provided by the Soviet Government regarding quantitative import limitations or other conditions. The Soviet Government, however, has confirmed that it will limit or establish conditions on exports from the USSR if requested to do so by the U.S. Government in accordance with the implementation Annex.

20 19 U.S.C. 5160 et seq. (1970).

21 19 U.S.C. §1303 (1970).

22 7 U.S.C. §1854 (1970).

23 19 U.S.C. §1901 (1970).

24 Trade Agreement Between New Zealand and the USSR, Aug. 1, 1963, New Zealand Treaty Series (1963), No. 19, 486 U.N.T.S. 27.

25 Cf. Article 4 of the Long-Term Trade Agreement between the USSR and Italy, Jan. 1, 1970, (unofficial English translation on file with the Department of State). Also, unlike a number of other trade agreements between the USSR and Western nations, the US-USSR Agreement does not contain any provision regarding the basis for establishing the prices of goods supplied under the Agreement. Most of the other agreements contain a clause referring to “world prices.” See; e.g., Art. 3 of the Long-Term Trade Agreement between the USSR and Italy.

26 67 Dept. State Bull. 593 (1972).

27 Trade Agreement, Art. 5(3). In a letter to Soviet Minister of Foreign Trade Patolichev dated Oct. 18, 1972, Secretary of Commerce Peterson explained that in view of certain provisions in U.S. law prohibiting writs or process against representatives of foreign states (22 U.S.C. §§252–54 (1970)), it was inappropriate for the Trade Representation, its officers and staff to participate directly in the negotiation, execution, or fulfillment of trade transactions or otherwise carry on trade. The Secretary added that at such time as the United States shall have become a party to the 1961 Vienna Convention on Diplomatic Relations (500 U.N.T.S. 95) and U.S. legislation shall have been revised to accord fully with the terms of Arts. 29–45 of that Convention regarding diplomatic privileges and immunities, the U.S. Government will be prepared to give favorable consideration to amending the US-USSR Trade Agreement to permit officers and members of the administrative, technical, and service staffs of the U.S. Commercial Office in Moscow and the USSR Trade Representation in Washington to participate directly in the negotiation, execution, and fulfillment of trade transactions and otherwise carry on trade.

The Secretary’s comment may indicate that the United States will seek legislation complementary to the Convention which would, inter alia, repeal 22 U.S.C. §§252–54 and authorize the Executive to enter into bilateral agreements on a reciprocal basis containing more favorable privileges and immunities than are required under the Convention. 22 U.S.C. §§252–54 assures foreign representatives immunity from service of process, while the Convention recognizes certain exceptions to this immunity (see, e.g., Art. 31(1 )(c) ). Article 47(2) of the Convention provides a basis for each government to deny immunity from civil jurisdiction to agents of the other if they participate directly in trade transactions. Presumably, the U.S. Government would only agree to permit the Trade Representation to conclude or guarantee contracts on the condition that it not enjoy immunity from civil jurisdiction.

28 Instructions, Para. 1.

28 For the views of United States commentators on the question of the separate legal identity of Soviet FTO’s, see Berman, supra note 5 at 487–90; Pisah, supra note 5 at 265–38, 484–85 rule 9; Hoya, supra note 5 at 7–8,18–19.

In two U.S. cases Soviet defendants successfully pleaded sovereign immunity, but neither case involved a Soviet FTO. Lorina v. The Rossia, File 18767 (E.D.N.Y. 1948) (libel of ship owned by Soviet Ministry of Marine Fleet; complaint dismissed without opinion; see Berman, supra note 5 at 490 n.21); Weilamann v. Chase Manhattan Bank 192 N.Y.S. 2d 469 (Sup. Ct. 1959) (dismissal on grounds of sovereign immunity of attachment of funds of Soviet State Bank and Soviet Foreign Trade Bank).

30 Agreement Between the United States and Russia Regulating the Position of Corporations and other Commercial Associations, June 25/12, 1904, 36 Stat. (Pt. 2) 2163; T.S. 526; 2 T.I.A.S. 1534.

31 See, e.g., 14 Whiteman, , Digest of International Law 302–16 (1970)Google Scholar.

32 In one recent case the Department of State transmitted to a court a representation of separateness of legal identity. In Prelude Corp. v. The Owner of M/V ATLANTIC and other named Vessels, Known as the USSR (N. D. Cal. 1971), 65 AJIL 806 (1971), 13 Harv. J. Int’l L. 316 (1972), a writ of attachment was issued permitting the seizure in the port of San Francisco of the Soviet freighter Suleyman Stalsky, in connection with a suit brought by a company which alleged that Soviet fishing vessels had damaged its lobster fishing equipment off the coast of Massachusetts. The Soviet Ambassador furnished a statement to the Department of State that:

The vessel Suleiman Stalsky belongs to the Far East Steamship Company which is a legal entity charged with independent responsibility for its obligations. This company deals exclusively in transporting cargo on various routes of the Pacific Ocean, including routes Japan-Canada-the United States and Japan-the United States. No fishing vessels belong to the Company and it absolutely does not carry on fishing activities either in the Pacific or in the Atlantic Oceans, or in any other place.

The Far East Steamship Company under Article 13 of the Basic Civil Law of the USSR and the Union Republics, is not responsible for state debts, while the state is not responsible for the debts of the Company.

The Department of State informed the court that it “accepts as true” the representations contained in the Soviet Ambassador’s statement. The court vacated the attachment on grounds of improper service of process and did not reach the substantive issues involved in the case.

A State Department letter which “accept[ed] as true” diplomatic representations of the Soviet Government as to ownership and use of realty in the City of Glen Cove, Long Island, New York was transmitted to the court, and the diplomatic immunity of the premises and occupants upheld, in United States v. City of Glen Cove, Civ. Action No. 70-C-1188 (E.D.N.Y.) (Unreported Memorandum Decision, Jan. 7, 1971). The district court’s ruling in City of Glen Cove was affirmed by the Court of Appeals for the Second Circuit on Nov. 29, 1971.

Soviet tribunals have also considered the question of the separate legal status of Soviet FTO’s. See Jordan Investment Ltd. v. V/O Soivznefteksport (1958), reported in Domke, , The Israeli-Soviet Oil Arbitration , 53 AJIL 787 (1959)Google Scholar. Cf. Behman, , Force Majeure and the Denial of an Export License under Soviet Law: A Comment on Jordan Investments Ltd. v. Soivznefteksport , 73 Harv. L. Rev. 1128 (1960)Google Scholar; and Behman, , Excuse for Non-performance in the Light of Contract Practices in International Trade , 63 Colum. L. Rev. 1413 (1963)Google Scholar.

33 See Leff, , The Foreign Trade Arbitration Commission of the USSR and the West, in American Arbitration Association; New Strategies for Peaceful Resolution of International Business Disputes at 143 (1971)Google Scholar, and Pisar, supra note 5, Chapters 20–24.

34 This approach was taken in a 1956 agreement between the Soviet All-Union Chamber of Commerce and the Japanese Commercial Arbitration Association, recommending an arbitration clause for inclusion in contracts between Soviet FTO’s and Japanese firms.

35 See Aksen, American Arbitration Accession Arrives in the Age of Aquarius: United States Implements United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, in New Strategies for Peaceful Resolution of International Business Disputes, supra note 32 at 37.

36 484 U.N.T.S. 364 (1963–64); see Pointet, , The Geneva Convention on International Commercial Arbitration , in Sanders, 3 International Commercial Arbitration, at 262 (1965)Google Scholar.

37 U N Docs. E/ECE/625/Rev. 1; E/ECE/TRADE/81/Rev. 1; UN Sales No. E.70.II.E/MIM.14.

38 Acceptance of the ECE rules does not require participation in the European Convention. The rules are analyzed in Benjamin, , New Arbitration Rules for Use in International Trade , in Sanders, International Commercial Arbitration, at 324 (1965)Google Scholar.

89 One intriguing possibility was to establish a new commercial arbitral mechanism specifically designed to meet the needs of trade and commerce between the United States and the USSR. Under this approach, US-USSR commercial arbitration tribunals would be established to operate under agreed rules of procedure (perhaps patterned along the lines of the ECE rules), including provision for ensuring that an impartial, competent arbitral tribunal would be constituted by a mutually agreed authority, and that arbitration could take place even if one of the two parties refused to cooperate. The availability of such a mechanism pursuant to the Trade Agreement would help to insulate U.S. firms from competitive pressures to agree to relatively unattractive contract provisions on arbitration—or to contracts not containing any reference to arbitration.

40 Art. 7 of the Trade Agreement provides in part:

Both Governments encourage the adoption of arbitration for the settlement of disputes arising out of international commercial transactions concluded between natural and legal persons of the United States of America and foreign trade organizations of the Union of Soviet Socialist Republics, such arbitration to be provided for by agreements in contracts between such persons and organizations, or, if it has not been so provided, to be provided for in separate agreements between them in writing executed in the form required for the contract itself, such agreements:

(a) to provide for arbitration under the Arbitration Rules of the Economic Commission for Europe of January 20, 1966, in which case such agreement should also designate an Appointing Authority in a country other than the Union of Soviet Socialist Republics for the appointment of an arbitrator or arbitrators in accordance with those Rules; and

(b) to specify as the place of arbitration a place in a country other than the United States or America or the Union of Soviet Socialist Republics that is a party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards....

41 Art. 7(1). Art. 7, para. 2, requires each government to ensure that corporations, stock companies, and other industrial or financial commercial organizations, including FTO’s, domiciled and regularly organized in conformity with the laws in force in the other country, have the right to appear before courts of the former, whether for the purpose of bringing an action or of defending themselves against one, including but not limited to, cases arising out of or relating to transactions contemplated by the Agreement. Each government is also required to accord MFN treatment with respect to these rights. This protection conforms to that already available under numbered para. 1 of the 1904 Agreement Between the United States and Russia Regulating the Position of Corporations and other Commercial Associations, supra note 29. However, the 1904 Agreement makes no provision for MFN protection.

42 See ECE rules, Arts. 4 and 8.

43 For an analysis of the Rules of Procedure of the International Chamber of Commerce, see Cohn, , The Rules of Arbitration of the International Chamber of Commerce , 14 Int’l & Comp. L. Q. 132 (1965)Google Scholar. Convenient summaries of various national arbitration procedures are contained in Sanders, International Commercial Arbitration, Vols. I and II. (1960).

44 The arbitration provision of the US-USSR Trade Agreement does not specify that arbitral activities carried out during the period the Agreement is in force shall be reported to the Joint Commercial Commission. Voluntary reporting by U.S. firms and Soviet FTO’s would facilitate monitoring of implementation of the Agreement by the two governments through the Joint Commercial Commission.

45 A number of Soviet trade agreements with other Western countries also include provision for periodic consultation. See, e.g., Article 5 of the Long-Term Trade Agreement between the USSR and Italy, supra note 24.

46 See note 9, supra.

47 Art. 9 (1).

48 Legislation was proposed during the last session of Congress which would have authorized the extension of MFN treatment to the USSR on a reciprocal basis (see, e.g., H.R. 15075, introduced by Congressman Moorhead). A bill was also introduced for an “East-West Trade Relations Act of 1972” (H.R. 13606, proposed by Congressman Findley), which would have authorized commercial agreements providing MFN treatment with the USSR as well as other Communist countries with which the United States has diplomatic relations. The Johnson Administration first proposed an “East-West Trade Relations Act” in 1966, but the proposal was not enacted by Congress. See 54 Dept. State Bull. 838 (1966), and for a helpful analysis see Berman, & Garson, , Possible Effects of the Proposed East-West Trade Relations Act upon US Import, Export, and Credit Controls , 20 Vand. L. Rev. 279 (1967)Google Scholar.

Congress might also wish to reexamine various legislative restrictions bearing upon US-USSR trade, e.g., those concerning sales of agricultural commodities under Title I of the Agricultural Trade and Development Assistance Act of 1954, as amended, 7 U.S.C. §1691 et seq. (1970), and the Johnson Act, discussed infra. If Congress decides to authorize the extension of MFN to the Soviet Union, it should also reconsider the current restriction on importation of seven kinds of skins from the USSR, imposed by Sec. 11 of the 1951 Trade Agreements Extension Act, 65 Stat. 75 (1951), 19 U.S.C. §1202 (1970) (Headnote 4, Part 5, Subpart B of the Tariff Schedule).

49 Art. 9(1).

50 The three year term conforms to Sec. 255 of the Trade Expansion Act, 76 Stat. 880 (1962), 19 U.S.C. §1885 (1970).

51 Eximbank processes specific applications for credits and guaranties on a case-bycase basis. Presumably, this practice will continue to be followed with respect to the USSR. It is also worth noting that the various statutory requirements imposed on the Bank with respect to its operations will be applicable mutatis mutandis to the USSR. Thus, the Bank’s loans covering exports to the USSR would generally have to be for specific purposes, and, in the judgment of the Board of Directors, offer reasonable assurance of repayment, so far as may be consistent with the carrying out of the Bank’s general banking functions under 12 U.S.C. §635(a) (1970). Export Expansion Finance Act of 1971, §l(b), P.L. 92–126, 86 Stat. 345 (1971), amending 12 U.S.C. §635(b)(1) (1970).

52 Minister Patolichev’s letter states in pertinent part:

Such reciprocity encompasses all commercial terms and conditions of export financing, including cash payment, interest, and repayment period requirements, except that any guarantee required shall be either from a first class commercial bank or other private financial institution, satisfactory to the USSR export financing instrumentality and not from the US Government or any instrumentality thereof.

Attached to the letter is a memorandum describing the forms of credit then currently available to purchasers of machinery and equipment from the USSR.

The Overseas Private Investment Corporation (OPIC), established by Congress in 1969 to mobilize and facilitate US private capital and skills in less developed friendly countries, is barred from involvement in the USSR and other Communist countries (except Yugoslavia and Romania) by the terms of the 1961 Foreign Assistance Act, as amended. See 22 U.S.C. §§2191–2200a, 2370 (1970), and Sec. 104(b) of the Foreign Assistance Act of 1971, P.L. 91–652, 84 Stat. 1942 (1971).

53 22 U.S.C. §§1611–13d (1970).

54 42 Op. A.G. No. 15 at 11 (1963).

55 Under Sec. 11 of the Export-Import Bank Act of 1945, as amended, 12 U.S.C. §635h (1970), transactions in which Eximbank participates are exempt from the provisions of the Johnson Act. Nor is the Act applicable to private insurance companies acting through the Foreign Credit Insurance Association, when they participate with Eximbank in the issuance of guaranties.

56 37 Op. A.G. 505, 512 (1934).

57 42 Op. A.G. No. 15 at 4 (1963).

58 42 Op. A.G. No. 27 at 5 (1967).

59 39 Op. A.G. 398, 401–02 (1939).

60 Additional agreements may well be concluded as the work of the Joint US-USSR Commercial Commission progresses. The Summary Minutes of the Second Session of the Commission (supra note 18) record a Commission decision that three joint working groups, including one on licenses, patents, copyrights, and taxation, should continue their work in the interval before the next session of the Commission. The White House Fact Sheet on the recently concluded negotiations, (supra note 6) reported “significant progress” on “the copyright and tax treaty issues,” and predicted “additional major progress on these issues” prior to the next Commission meeting. 67 Dept. State Bull. 595 (1972).