COLD WAR PROBLEMS - ECONOMIC PENETRATION (Sanitized)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP62S00545A000100090059-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 35
• Document Creation Date: December 9, 2016
• Document Release Date: August 30, 2000
• Sequence Number: 59
• Publication Date: September 25, 1958
• Content Type: REPORT

Approved For Release 2000/09/11 : CIA-RDP62S00545A000100090059-3
COLE WAR PROBLEMS - ECONOMIC PENETRATION
25X1A
Central Intelligence Agency
25 September 1958
S E-C-R-E-T
Approved For Release 2000/09/11 : CIA-RDP62S00545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62S00545A000100090059-3
Page
1. New Soviet Policy Tool .
2. U. S. Internal Organization. . . . . . . . . . . . . 2
3. Soviet Capabilities for Trade and Aid. . . . . . . . . 4
4. Soviet motivations . . . . . . . . . . . . . . . . . . 6
Characteristics of Bloc Aid Programs . . . . . . . . . 11
6. Sources of Inforstion on Bloc Economic Aid. . . . . . 13
7. Special Problems of Bloc Arms Deals. . . . . . . . . . 15
8. Sources of Data on Trade . . . . . . . . . . . . . . . 16
9. New Tasks for Intelligence . . . . . . . . . . . . 18
10. Strategic Trade Controls . . . . . . . 19
. . 0 . . -r . . 24
Table 1 - Selected Sino-Soviet Bloc Developmental. Pro-
jects in Underdeveloped Countries of the Free
World l July 1958. . . . . . . . . . . .
Table 2 - Summary of Sino-Soviet Bloc Economic Credits
and Grants to Underdeveloped Countries of the
Free World 1 January 1954 - 1 July 1958 .. .
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
25 September 1958
Cold War Problems - Economic Penetration
Introduction
In discussing the intelligence approach to cold war problems,
particularly Bloc economic penetration, we have selected six questions
which appear to offer possibilities for fruitful syndicate dis-
cussion. These are.
1. What are wino-Soviet Bloc capabilities for trade and
development aid?
2. What are the Bloc's motivations for engaging in an
economic penetration offensive?
3. What are the Bloc's internal and external organizational
arrangements for carrying out this offensive?
4. What are the primary sources of data on Bloc trade
and .aid, and how useful are they for intelligence purposes?
5. What special problems are created for intelligence by
Bloc arms deals in the Free World?
6. What effect have strategic trade controls had on trade
between the West and the Bloc?
I shall discuss each of these briefly in the next few minutes.
However, it requires no modesty on my part to say that what follows
is no more than an introduction to the subjects.
S-E-C-R-E-T
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
New Soviet Policy Tool
What the Soviets call "peaceful competition" with the West,
particularly Sino-Soviet Bloc trade and development aid to under-
developed countries, is a reflection of the more subtle foreign
policy of Khrushchev as compared to Stalin.
The goals of international communism remain unchanged. There
has been no slackening of subversive activity or of military re-
search and development on advanced weapons systems. Soviet leader-
ship, however, presents a peaceful face to the world -- Khrushchev's
remark, "to the slogan which says 'let us arm' we reply with the
slogan 'let us trade'."
Increases in trade have been spectacular. Since 1954, Soviet
trade with underdeveloped countries is up 500 per cent; total
Soviet trade with the West is up 100 per cent. Further, the Bloc
last year accounted for 36 per cent of Egypt's trade, 33 per cent
of that of Iceland, 40 per cent of Afghanistan's., and nearly 25
per cent of Yugoslav trade. It succeeded in obtaining a sub-
stantial share of the trade of Syria, Burma, Iran, Turkey and
Ceylon.
U.S. Internal Organization For Cold War Intelligence
It became clear to us three years ago that the USSR and
other members of the Bloc had embarked upon a long-run program of
economic penetration. At that time, we revamped our internal
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
organization to provide the essential intelligence support to
government policymakers.
As the Bloc program grew, and the magnitude of the threat be-
came clearer, we broadened our list of consumers far beyond the
Executive branch of the government8 Not only was it important
for Congress to be informed, but also influential, business groups
and the public in general. The Soviet economic challenge, in the
wards of our Director, Mr. Allen Dulles, had become the most
serious challenge our country faced in peacetime.
The pattern of coordinated reporting is now well established.
Since February 1956, a working group under the Economic Intelligence
Committee has turned out a detailed report every two weeks. This
working group is composed of representatives of the Department
of State,. CIA, the International Cooperation Administration, the
Military Services, and the Departments of Treasury, Commerce and
Agriculture. Additionally, there is an analytical summary every
six months, and a special quarterly report to the President's
Council on Foreign Economic Policy. (See Chart 1)
This organizational arrangement provides a mechanism for
combining the political, military and economic facets of Soviet
penetration activities. Although there is no rigid division of
labor between agencies, there are obvious areas of primacy of
interest. The Department.of State, for example, bears the primary
_3_
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
5-E-C-R-E-T
responsibility for political analysis, while the Department of
Defense prepares all estimates on illicit trading of Bloc arms.
On a broader basis, an annual. National Intelligence Estimate
is produced which covers not only the size, impact and intensity
of Bloc penetration activities, but also relates this offensive
to the capabilities, motivations and internal policies of the
Soviets.
Soviet Capabilities for Trade and Aid
We concluded in 1956 that the Soviets possessed a far
greater economic potential for trade and development aid than
they had utilized so far. There were many doubters in our
country - people who sincerely believed that the Soviet economy
was too weak to engage in economic assistance. However, events
in Syria, Egypt, India and Indonesia have borne out the validity
of our early estimate.
With respect to trade, total exports of the USSR in 1957
were about $4 billions, or 2. per cent of gross national product.
This compares with $18 billions for the U.S., or 4,j per cent of
GNP. The Soviet Union, then, is not a "trading nation" in the
Western sense. Most USSR trade is still with the Bloc; about
25 per cent is with the Free World. Furthermore, 70 per cent of
Soviet Free World exports in 1957 went to developed nations,
particularly to Western Europe, rather than to underdeveloped
countries.
-4-
S-E-C-R E-T
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
The European Satellites, in proportion to total domestic out-
put, carry on far more trade than does the Soviet Union. Their
Free World exports to underdeveloped nations amounted to over
.$700 millions in 1957,
Communist China is still sending a very high proportion of
total exports to the Bloc, about 80 per cent. However, it is a
country whose economy is developing very rapidly, and its 1957
exports to underdeveloped Free World nations of about $500 millions
are noteworthy because of the trend of increase than because of
the absolute magnitude.
The credit and grant program to underdeveloped areas has
totalled only about $2 billions since 1954 for all Bloc countries.
The USSR itself has extended about $1.2 billions. The present
Soviet credit program to underdeveloped areas would have to be
increased four times over present levels to reach one.per cent
of present industrial production in the USSR. If credits to the
European Satellites are added to the Soviet bill, the annual out-
flow has still been only about $1 billion over the past two years.
This is between two and three per cent of estimated Soviet military
expenditures.
The limitation so far seems primarily to have been the willing-
ness of Free World countries to accept Soviet offers. This has
been true in the case of Turkey and Iran. In Africa, offers to
the Sudan, Morocco, Tunisia, and Lybia have been largely unaccepted,
-5-
S-E-C-R-E-T
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
S-E-C-R-EaT
despite internal pressures for economic development and a growing
need for foreign assistance to carry out such programs.
Soviet Motivations
Why are the Soviets pushing for increased trade with the
Free World and pursuing a development aid program in the Middle
East, Asia and.. Africa?
First, trade with the industrial, west appears to be motivated
primarily by economic considerations. This is implicit in
Khrushchev's recent frank admission that through an expansion of
imports from the West, "The Soviet Union could be given the
opportunity of uic,~ cker fulfillment of its program for the con-
struction of new chemical enterprises without wasting time on
creation of plans and mastering of the production of new types of
equipment." Thus, while the USSR could manage without Western
machinery, the advanced technology embodied in such equipment would
accelerate the modernization of backward Soviet industries.
This new Soviet move is fully consistent with the traditional
Soviet practice of tapping the technological resources of the West
to facilitate its own economic growth.
In payment for stepped up imports of machinery, the Soviets
have entered Western commodity markets on an unprecedented scale.
Here aluminum, tin, asbestos, petroleum and other Soviet commodities
have had a disruptive impact, resulting in considerable speculation
that the new Communist policy was one of deliberate economic
6
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62S00545A000100090059-3
warfare. Our conclusion has been to the contrary - that Soviet
exports of industrial raw materials were a logical commercial
method of payment for Western equipment.
Bloc trade with underdeveloped areas has a less definitive
economic orientation, because the character of-the export surplus
from these areas is sufficiently similar that choice among them
provides the Soviets with a highly permissive situation. Because
of the wide range of choice, we tend to identify this trade as
politically motivated as opposed to the economic motivation for
trade with Western Europe. I think that this is open to question.
There is.equally a considerable opportunity for choice in Soviet
trade with Western Europe. The USSR has always conducted this
trade so as to maximize the political opportunity available from
Only in this sense has political priority paired with
political opportunity assumed -- and may be expected to assume
an important role in Soviet trade with underdeveloped countries.
Soviet participation in. the development of these areas, and assum-
ption of a part of the market for their products, contributes
directly to the wealth and industrial strength of the USSR.
Nbreover, Soviet ability to control internal production and dis-
tribution and Soviet willingness to negotiate trade on a bilateral
basis enhances their opportunity to acquire an increasing share
of the foreign trade of underdeveloped countries.
-7-
S-E-C-R-E-T
Approved For Release 2000/09/11 : CIA-RDP62S00545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
Perhaps it would be clearer to say that Soviet trade is a
social decision or has social motivation. To identify the motives
or decisions as wholly "economic" or "political" comes awesomely
25X1A close to
favorite -- and I had hoped Inaccurate
characterization of economists as those who have an irrational
passion for dispassionate rationality.
The basic aspiration of many underdeveloped countries to re-
main neutral and to play off East and West has been aided by the
Bloc program, since it offers tangible evidence that there is an
alternative group of countries with whom they can have a wide
range of economic relations on attractive terms. Specifically, it
has already strengthened the bargaining positions of certain of
these countries in their relations with the West, whether in
economic assistance or for more military aid.
You may have heard of the grass hut meeting of the tribal
leaders in one of the "least developed" African states. The
chief tells his followers,
"Now, here's the plan. We ask the Russians to
send cultural ambassadors. The West gets worried and
asks for equal representation, and we invite them. Then,
when we get all, those white men in here, we eat them up."
The economic offensive has not as yet made any of these
countries subservient to the USSR, but it has contributed to mak-
ing some of them, more responsive to the influence of the Communists
-8-
S E-C-R-E-T
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
S C-R-E-T
and less responsive to that of the West. This could have an
important strategic impact through the cancellation of Western
military base rights in the Middle East and Africa. The eventual
Soviet objective is, of course, to bring these countries into the
Communist Camp. However, at present Soviet policy calls for the
support of the "national bourgeoisie" in these nations -- Nasser,
Soekarno, and Nehru -- just as they once supported Chaing Kai
Shek. There is much political hay to be made by supporting the
present leaders in their various frictions with the industrial
West.
The Soviets have been quick to take advantage of the diffi-
culties that one - product economies get themselves into. Take,
for example, their fishing in the troubled waters of Iceland. In
five years, Soviet imports from Iceland increased from nothing to
one-third of what that nation had to sell. The Soviet loan offer
of $25,000,000 at 2 per cent interest for twenty years at first
blush seems small. But when we remember that Iceland is a country
of only y 160,000 people, this offer amounted to 150 .per capita,
an amazing amount of money. On a per capita basis, it would be
equivalent to a loan offer of nearly $7 billions for a country
such as prance. It is not surprising that Communist influence
and prestige have grown in Iceland..
While difficult to measure, there has been a major psycholog-
ical impact in the underdeveloped countries. Military aid and
-9-
S E-C-R-E-T
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
prestige projects have had the greatest impact. The economic drive,
in concert with its industrial and scientific accomplishments,
has enhanced Bloc prestige by giving substance to its claims that
it is devoted to peace, that it is overtaking the West, and that
it represents the wave of the future.
The economic offensive has also provided the Soviet Union
with assets which may in time be useful in some areas as part of
its overall effort to move countries beyond neutralism toward
closer alignment with the USSR and the Bloc. The increased size
of diplomatic missions, as in their embassy in Montevideo and
Djakarta, makes it easier to spread the Communist faith. However,
with few exceptions, we have not found Bloc technicians engaging
in subversive activities. Present trade and aid programs do, of
course, provide future levers of influence.
The economic offensive has affected the fortunes of local
Communists differently in different countries. In a number of
countries, the economic drive has aided their cause by increasing
Communist respectability, lessening apprehensions concerning Soviet
objectives, and providing additional instruments both for propa-
gating Communist ideas and increasing subversive potential.
Communist influence has also been abetted by the influx of Bloc
technicians and by a greater flow of local trainees to Bloc
countries for instruction. ~ , - a--,4
S E-C-R E-T
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
The USSR, as the leading country in the Bloc, and Communist
China, as a potential contender for supremacy within the Bloc,
have greater stakes than the European Satellites in the political
cold war. Because of their need for agricultural and industrial
raw materials, the European Satellites activities have been more
heavily weighted by economic considerations. China has the
special incentive of gaining greater recognition on the world
scene, and is adapting its foreign trade to its political aspira-
tions. A recent incident makes this clear. After negotiating
exchange agreement with industrialists in Japan amounting to near-
ly $200 millions, China suddenly placed an embargo on all trade
with Japan, a transparent move intended to force the Eishi govern-
ment in Japan to extend a greater degree of recognition to China.
The rice-rubber agreement with Ceylon under which China paid
premiums for rubber totaling more than $50 millions over a five
year period was motivated by obvious aspirations to break Western
trade controls.
Characteristics of Bloc Aid Programs
We have found a number of common characteristics in the Bloc
development aid programs in underdeveloped nations. First of all,
their prescription is applied on an Integrated basis - a line of
credit, plus technical assistance and training, and in most cases,
a commitment to long-term trade. The ability to repay in commodi-
ties of the underdeveloped nation has great appeal, particularly
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
if it is having difficulty in marketing exportable products at
adequate prices.
Secondly, the Soviet program is almost entirely a credit pro-
gram. Interest rates are low - 2 or 22 per cent. Repayment
usually begins after the project is completed. Amortization is
usually over a 12 year period. While our Western interest rates
are higher, our repayment terms are often far longer, running
from 30 to 40 years.
Thirdly, the Soviet program usually covers only the foreign
exchange costs of a project. Financing the balance of the project
must come from internal resources. Western development loans
have assisted in providing some of the internal financial require-
ments through various devices.
Fourthly, Bloc economic credits are usually related to
industrial development. They are for sugar mills, cement plants
and textile mills rather than for sanitation, sewage, or housing
development.
Fifthly, these industrial programs are aimed at increasing
the public, or socialized sector of the economy, rather than the
private, or free enterprise, sector. Thus the Russian built
Indian steel at Bhilai is a government owned plant, whereas the
U.S. built plant at Jamshedpur is a privately owned expansion of
- 12 -
S F-C-R-E-T
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
Finally, they are independent of military pacts. No Free
World underdeveloped country receiving Bloc military or economic
assistance is a member of a Bloc. military alliance. This practice
disarms many; it lends at least surface credence to the Soviet line
that, "There is nobody here but us peace loving,Russians," as
the military and economic technicians pour in.
Sources of Information on Bloc Economic Aid
Aside from the difficult question of attempting to disting-
uish which part of the Bloo'e economic penetration activities in
underdeveloped countries is motivated by political ends,
we have encountered rather formidable difficulties in estimating
the magnitude of Bloc economic assistance to underdeveloped
countries. Considerable information is usually available from
open sources regarding the amounts of economic assistance which
Bloc countries promise to deliver to Free World countries. Soviet
agreements in particular are widely publicized., especially when
large lines of credit are extended. Surely by now, a large
portion of the population of the Free World must know that
Afghanistan has received a $100 millions credit and Egypt a $175
millions credit from the USSR. More important for our purposes,
however, the actual texts of many of the large agreements have
been officially released.
But even when no value figures are announced, sufficient infor-
mation is usually available through reports prepared by our attaches
-13 -
S-E-C-R-E-T
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
so that we can estimate the approximate total cost and the foreign
exchange component of an economic assistance agreement. Also,
reports obtained through either overt or covert channels from
Western industrial firms who have commercial contacts in under-
developed countries can provide such data. The cost of the petro-
leum refinery Czechoslovakia is building in Syria, for example,
was estimated in part on the basis of information we obtained from
a Free World corporation whose bid on the project was rejected.
We are confident that our estimates of the value of economic
assistance promised by the Bloc to underdeveloped countries is
fairly accurate. We believe that our estimate of the total is
within 5 per cent of the correct figure and that our estimates for
individual countries are no more than 10 per cent in error.
The confidence that we have in our. estimates of Bloc perform-
ance on assistance agreements is considerably less than this. So
far, however, we have published estimates of only the minimum
amount of assistance actually provided. Such an estimate is of
some value, but it provides inadequate answers to several, press-
ing questions. In particular, it does not enable us to determine
the amount of indebtedness or the rate of loan amortization of a
country receiving credits from the Bloc.
The major cause of the difficulty in assessing the innplemen-
tation of Bloc assistance agreements is the lack of information.
-1l -
S E-C-RE-T
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
projects with U.S. attaches.
Debt statements and ministerial reports of recipient countries
Occasionally are helpful. It is exceptional. for officials in
underdeveloped countries to be candid in. discussions of Soviet
We also feel the need for much more
information on the success the Soviets may be having in attempts
to create an image of respectibility, peace and progress, and
the only real champion of underdeveloped countries.
Special Problems of Bloc Arms Deals
Estimations of the value of military assistance involve con-
siderably greater difficulties than estimates of. economic assist-
ance. The publicity attending the signature of an economic
assistance agreement is notably absent from the negotiation of
military agreements.
When Bloc prices of specific
military items are available we use them to convert our estimates
of physical units to value terms. In some instances, we have had
to use U.S. prices for similar items in order to arrive at an
estimate for total military assistance. Consequently, these
- 15 -
S E-C R-E-T
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
S-F-C-R-B-T
estimates may be considerably in error. We believe that our esti-
mates in terms of physical units are reasonably accurate, but we
are aware that our estimates in terms of value my, be in error
by 25 per cent or more.
The most significant consequence of having questionable value
estimates is that we cannot determine with precision the financial
indebtedness to the Bloc of those countries receiving Bloc
military assistance. There would be much intelligence significance,
for example, in a reliable determination of the amount of cotton
Egypt is shipping each year in repayment for the arms it has received
from the Bloc. The difficulties involved in determining the
indebtedness, especially in the case of Egypt, are compounded by
the fact that some of the arms delivered have been obsolete, some
have been sold at a discount, and some apparently have been given
without charge. Moreover, some of the Bloc arms shipped to Eft
and Syria have been sent on to be used in other areas. Although
we believe that the amount involved is small, we are not certain
who ultimately will pay for the goods.
Sources of Data on Trade r
Collection of trade data is considerably simplified by the
fact that most Free World countries issue periodic reports on
the value and pattern of their foreign commerce. We do not have
to depend solely on Communist orbit sources for data on Bloc
trade with Free World countries. Statements issued by Bloc
16
S E--C-R E_T
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
countries, as well as information obtained through clandestine
sources, provide a means of cross-checking sources. When there
is a difference between an estimate we have made on the basis of
official Free World compilations and a claim made by a Bloc country,
we do not automatically assume that the Communists are lying.
Our early estimate of Soviet shipments of machinery and
transport equipment to underdeveloped countries in 1956, for
example, was approximately 20 per cent of the amount claimed by
the USSR. The discrepancy between the Soviet figure and our
early estimate, we ultimately concluded, was probably a matter
of item classification. Underdeveloped countries often have
untidy or inexact customs procedures. Even when a standard
classification system is used, customs officials are frequently
lax in establishing proper criteria to be used by their operating
personnel. Indian practices are particularly annoying in this
respect. In their official reports of commodity imports as much
as two-thirds of total imports from the USSR have been. listed in
the ?tall other," an unspecified category. Since among the under-
developed countries India is a major customer of the Bloc, the
errors in India's commodity reporting may have considerable impact
on our estimates of total Bloc trade.
Other underdeveloped countries have similar bad habits. Most
of them publish trade data in a very leisurely fashion. None. is
up to date in releasing statistics on commodities. No country
_17_
s E-C RE-T
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
includes in its reports shipments of military items. There are
the usual problems of reexports by third nations, compounded in
the Soviet case by the employment of brokers and trading fronts
for sensitive transactions. Finally, countries which have
multiple exchange rates, such as Egypt and Argentina, cause
particular difficulties when we attempt to evaluate their trade
in terms of dollars.
New Tasks for Intelligence
It is not enough for intelligence to measure current trends
in Bloc trade and aid. We have, in addition, the important task
of anticipating future Soviet moves, of pointing out where
economic, military or political problem areas are developing
which could present the Bloc with opportunities for exploiting
weaknesses. , This must be done early in the game if Western
policymakers are to have an opportunity to move in first or to
capitalize on some action of the Bloc.
Finally, there is a need for detailed performance informs-
tion on Bloc development programs. Part of all our governments'
efforts in underdeveloped nations is to persuade these newly.
emerging countries, to highlight the dangers of deAling with the
Bloc, and to point out the advantages of dealing with the West
wherever possible. So we need to report not only that country
X received a cement plant from the Bloc, but also to report the
plant's cost, reliability,' quality of product and relative
-18-
S-E- R-E-T
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
efficiency.
Both in the anticipation of future Bloc moves, and in the
detailed analysis of Bloc development aid performance to date, I
believe that we in the intelligence field need to do a lot more
work.
Strategic Trade Controls
The other side of the cold war coin is the strategic trade
control program. We in CIA play a major role in providing the
inter-agency committee structure of the U.S. Government with
intelligence support in the development and enforcement of
international and U.S. security export controls against the
Sino'Soviet Bloc. This intelligence support consists primarily
of estimating the significance of certain Free World commodities.,
technology, and services to the war potential of the Bloc. U.S.
unilateral controls, as you are aware, are broader than the
multilateral controls.
There are two major interagency committees involved in the
control of strategic exports. One committee deals with problems
concerning maltilaterial export controls and their enforcement,
and the other committee handles problems relating to unilateral
export controls and their enforcement. The CIA participates in
an advisory capacity at each level of these committees up
the National Security Council. (See Chart 1)
19
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62S00545A000100090059-3
S-E C R-R-T
The Soviet leadership repeatedly has inveighed against
Western export restrictions for their alleged inhibiting effects
both on the level of trade and on the improvement of political
relations between the Bloc and the West,* Soviet claims that
export restrictions., particularly those of the U.S., have caused
the low level of trade over-simplify and distort the picture.
Despite controls, there has remained a wide area free of
restrictions in which the Soviet Union could trade m? provided
it had the will to do so forts of European COCOM countries
even excluding clandestine trade to the USSR have increased
consistently since 1950, with the; single exception of 1953 when
they declined by about 10 per cent below the 1952 level. By
1957 they were ls. tines the 1950 level -? the year controls were
instituted. Obviously, OOCOM controls as such have not been a
serious damper on Soviet imports when: the USSR has felt it
politically expedient or economically advantageous to import
from the West. Similarly., the fifteen fold increase in Soviet
c e~ n fSe- s , has eiiaphaslzed that the"Soviet Union's
desire to expand trade with the Unt6d States was `not the result
of any , die particular economic need but rather represented primarily
political goals. In an interview with five visiting US Senators
on 12 September 1955, he declared, "We do not want your machines
to create atomic energy or to build bydrogen or atomic bombs, we
have plenty of machines ourselves that can do that. With us questions
of trade are not mainly economic. They are political. We want
more trade because we think that it will help to improve political
relatioans. "
Approved For Release 2000/09/11s4162S00545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62S00545A000100090059-3
purchases from the U.S. in 1957 compared with 1955 has occurred
despite the absence of any noticeable modification of U.B. ex-
port policy vie a vie the USSR.
Thus the low level of US-Soviet trade cannot be attributed
to any one factor unless it be the political climate surrounding
US-USSR relations in general. The traditional. Soviet objective
of self-sufficiency for the. pled economy of the USSR, the
virtual boycott on purchases from the U.S. during. the period
1950-55 (perhaps in the hope that the near cessation of such
purchases would stimulate commercial pressure for relaxation,
of controls) and a deliberate Soviet design to divert purchases,
where alternative markets were available, to areas where they
would reap more significant political rewards, have all been a
greater depressant on US-Soviet trade than either U.S. controls
or the attitude of the U.S. business community.
Reports on Bloc exports and imports are. often useful in
pointing to economic strengths or weaknesses in the Bloc. One
can easily exaggerate an apparent economic strength or weakness
by relying solely on commodity trade data. The USSR, in
particular has sometimes exported machinery and equipment known.
to'be in domestic short supply (rolling mills and agricultural
machinery, for instance) when such exports have been judged to
be of net Soviet advantage. Similarly, in Soviet purchases from
- 21
Approved For Release 2000/09/1 P:- IR-RIIP_AS00545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
underdeveloped nations, it is only normal prudence not to seize
on eery import of foodstuffs or industrial raw materials as
absolute proof of economic weakness
commodity studies of Bloc foreign trade will rarely reveal
anything more than specific short-term soft spots in the production
pattern. This type of information is useful for trade control
purposes, but it is inadequate as an indicator of the
capability of the Bloc to achieve its objectives in the cold war.
The basic capability of the Bloc is revealed only in a close
survey of its economic structure and its production and growth
characteristics. The basic facts are the $180 billions of
current gross national product for the USSR and the annual
growth rate of about 10 per cent in Soviet industry; a GNP of
nearly $70 billions for the European Satellites and of over $60
billions for China.
Institutional characteristics, in particular the bilateral
nature of Soviet trade, the isolation of the Soviet price
structure, and, the inconvertibility of the rouble, may cause
serious problems in the future Free World trade of the USSR.
They have not seemed to be a serious constraint an far.
To determine Bloc economic weaknesses and strengths, and
to estimate the impact of the strategic trade control program
s a whole., we look primarily to Soviet domestic production
SE -RET
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
capabilities. The large and rapidiy expanding production
Capacity Of the USSR,, c l e n d by the European Satellites
and to an increasing extent by Cowi:st China is impressive.
23
Approved For Release 2000/09/34E 62S00545A000100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
m
G
cd
0 i
a)
0 rn
N
P -H
i i
1
L
0
ICI
0 F
v
?r
i ?{
1vl~i
+?
rr1
+a
NI
+~I
)
-H
a au
O ~
e
o
I
I
~I
Oll
a
0H
W ?0o
H
r
v
UJ
I~
I
il
I I
M Ulu
141 NI4
I ICI
C)
a~
I
I I
i I HI
11 riQ-I W
i
L
CH Q) I I a) q)
T
X10
01+
4 ~
c
+ i
cu -P
.
e~
c
d
-
of
i~
iEl
H
9
T
9 -OP
H -P
H
~0y 4 e0a
U
r-1 FH
jNppprov elease 2000/09/11 : CIA-RDP62SO0545A000100090059-3
A 0+? -P
t~ a a d c?~ r~
7 0
w
 Approved For Release 2000/09/11: R P6 SO 45A000100090059-3
cA s [PIED
Selected Si,no-Soviet Bloc Developmental Projects
in Underdeveloped Countries of the Free World
1 July 1958 a/
Free World
Country Bloc Country
Project
Egypt Czechoslovakia Ceramics factory
Water filtration plant
Shoe factory
Cement plant
9 bridges
Bicycle factory
East Germany High-tension line
Hungary El Tabbin power station
Nile River bridge
3 small revolving bridges
Poland Oil storage tanks (Z1)
Swing bridges
USSR Atomic energy laboratory
Oil research plant
Projects under $175-million line
of credit,
3 textile factories
Ethiopia Bulgaria Meat packing plant
a. Including projects financed under commercial credits and long-term
credits extended both to governments and to private organizations,
Construction projects are included after preliminary surveys have
been made.
.-25-
Approved For Release 2000/09/11 : CIA-RDP62S00545A000100090059-3
UNCLASSIFIED
 Approved For Release 2000/09/11 : ON QPfis ppj t 000100090059-3
Selected Sino-Soviet Bloc Developmental Projects
in Underdeveloped Countries of the Free World
1 July 1958
(Continued)
Free World
Country Bloc Country
Project
Syria Bulgaria
Czechoslovakia
East Germany
Grain elevators
Port development
2 sugar refineries
Petroleum refinery
Weaving mill
Textile factory
Textile equipment
Cement plant
USSR Textile machinery
Iran USSR Hydroelectric and irrigation
projects
Grain elevator
Port dredging, Bandar Pahlevi
Poland
Sugar mill
Greece Czechoslovakia Telephone installations
Turkey Czechoslovakia Ceramics plant
Diesel motor factory
Cotton mill
Textile factory
Brick factory
-26-
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
UNCLASSIFIED
 Approved For Release 2000/09/11: CIQ -Q602PQ05 100090059-3
ASSB
Selected Sino-Soviet Bloc Developmental Projects
in. Underdeveloped Countries of the Free World
1 July 1958
(Continued)
Free World
Country Bloc Country
Project
East Germany
Hungary
Poland
USSR
Yemen Czechoslovakia
Communist China
East Germany
USSR
Sudan East Germany
Afghanistan USSR
Wool spinning mill
Tractor hall and water tower
4 textile factories
Vegetable oil plant
Power plant
Flour mill
2 powerplants
Glass factory
Cement factory
Road construction
Textile factory
Telephone and electric power net-
work
Port construction
Cotton mill
Silos, flour, mill, and bakery
Silo, Pul-i-Khum,ri
Municipal and public works:
Road paving, Kabul
Asphalt factory, Kabul
- 27 -
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
UNCLASSIFIED
 Approved For Release 2000/09/11: CIAfflefffflffib00090059-3
Selected Sino-Soviet Bloc Developmental Projects
in Underdeveloped Countries of the Free World
1 July 1958
(Continued)
Free World
Country Bloc Country
Project
Afghanistan USSR Projects under $100-million line
(Continued) of credit-
Salang Pass road
Bagram airfield
Jungalot machine shop complex.
Physics and chemical laboratory
Naghlu hydroelectric project
Pul.-i-,Khumri II hydroelectric
project
Kabul fertilizer plant
Herat and Put-i-Khumri vehicle
repair shops
Mazar-i-Sharif glass factory
Kabul airport
Darunta irrigation project
Sardeh, Palto, and Kharwar
irrigation darns
3 POL storage tanks
Port of Qizil Qala
Petroleum exploration
Afghanistan Czechoslovakia Jabal-us-Sera, cement plant
Pul-i-Khumri cement plant
Kandahar fruit cannery
Kabul brick and tile kiln
Kabul and Herat tanneries
Kabul shoe factory
Baghlan cheese factory
Coal mining equipment
-28-
Approved For Release 2000/09/11 : Cl P62S00545A000100090059-3
CLASSIFIED
 Approved For Release 2000/09/11: Cl INEMIMB 00090059-3
Selected Sino-Soviet Bloc Developmental Projects
in Underdeveloped Countries of the Free World
I July 1958
(Continued)
Free World
Country Bloc Country
Project
Burma USSR Technological Institute
Hospital, Taunggyi
Hotel, Rangoon
Farm implement factory
2 irrigation dams
Communist China 2 textile factories
Ceylon Czechoslovakia Cane sugar factory
Central workshop for buses
India USSR Bhilai steel plant
Projects under $126-million line
of credit:
Heavy machine building plant
Poworplant for lignite project
Korba coalfield development
Optical glass factory
Petroleum exploration
Bombay Technological Institute
(under UN),
Oil drilling
29
Approved For Release 2000/09/11 : CIA-RDP62S00545A000100090059-3
UNCLASSIFIED
 Approved For Release 2000/09/11 : CIAr,2OQMQ.')00090059-3
Selected Sino-Soviet Bloc Developmental Projects
in Underdeveloped Countries of the Free World
1 July 1958
(Continued)
Free World
Country Bloc Country
Project
India Czechoslovakia Sugar refinery, Panipat
(Continued) Sugar mill, Assam
Cement plant, Assam
Sugar refinery, Madras
Thermal power station
Foundry forge project
Sugar refinery, Tanjore
Capital equipment for manufacture
of electric motors
East Germany Textile machinery
Raw film factory
Rumania Petroleum refinery
Oil drilling
Indonesia Czechoslovakia Tire factory
East Germany Sugar refinery
USSR Glass factory
Projects under $100-million line
of credit:
10 ships
2 tankers
Poland 24 ships
..30-
Approved For Release 2000/09/11 : CI&RgpjASQ05 55 0 100090059-3
 Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
UNCLASSIFIED
Selected Sino-Soviet Bloc Developmental Projects
in Underdeveloped Countries of the Free World
1 July 1958
(Continued)
Free World
Country- Bloc Country
Project
Pakistan Czechoslovakia Expansion of cement plant in West
Pakistan
Iceland Czechoslovakia Hydroelectric units and power
transformer stations
East Germany Fishing vessels
Projects under $110-million in-
vestment credit.
Yugoslavia USSR Coal mining combine b/
Nitrogen fertilizer plant b/
USSR and East Aluminum combine
Germany
USSR Nuclear reactor
Argentina Czechoslovakia Coal-washing plant
b. 'Progress suspended in May 1958 as the result of the "postpone-
ment" of the unutilized balances of the Soviet $110-million investment
credit and the joint Soviet-East German $175-million credit.
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
UNCLASSIFIED
 Approved For Release 2000/09/11: Clt fflfflo1}Q y 00090059-3
Summary of Sino-Soviet Bloc Economic Credits and Grants*
to Underdeveloped Countries of the Free World
1 January 1954 - 1 July 1958
Million US $
Area and Country
Extended
Obligated
Middle East and Africa
Egypt
255
255
Iran
3
3
Syria
194
27
Turkey
10
7
Yemen
16
12
Total
478
304
Soi.th and Southeast Asia
Afghanistan
128
110
Burma
42
2
Cambodia
22
22
Ceylon
50
19
India
336
302
Indonesia
165
79
Nepal
13
13
Pakistan
2
2
Total
758
549
Europe
Iceland
5
5
Yugoslavia
220
159
225
164
* Does not include military credits and grants,
- 32
Approved For Release 2000/09/11 : CIA-RDP62SO0545A000100090059-3
UNCLASSIFIED
 Approved For Release 2000/09/11: CIaffE$O"b 00090059-3
Summary of Sino -Soi.riet Bloc Economic Credits and Grants
to Underdeveloped Countries of the Free World
1 January 1954 - 1 July 1958
(Continued)
Million US I
' Area and Country Extended Obligated
Argentina 6
Brazil 2
Grand total 1,469 1,025
- 33 -
Approved For Release 2000/09/11 : CIA-RDP62S00545A000100090059-3
UNCLASSIFIED