COMPARISON OF RELATIVE COSTS OF PRODUCTION IN THE BLOC AND THE WEST FOR SELECTED COMMODITY CATEGORIES ON THE INTERNATIONAL EXPORT CONTROL LISTS

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Document Number (FOIA) /ESDN (CREST): 
CIA-RDP64-00014A000100240006-0
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RIFPUB
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S
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12
Document Creation Date: 
November 9, 2016
Document Release Date: 
July 13, 1998
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6
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REPORT
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PDF icon CIA-RDP64-00014A000100240006-0.pdf503.37 KB
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Approves F r Release: - L 'o4-0001400100240006-0 arison of Relative Costs of Production in the Bloc and the West for Selected Commodity Categories on the International Export Control Lists The conclusions described below should be considered preliminary and subject to much more exhaustive research than has been possible within the time of the requesto Since available intelligence for some areas of the Bloc economy is more complete than for others, the degree of confidence to be placed in the conclusions pies. The following discussion is consequently divided into two parts: those commodity preliminary, aPi from those commodity groups for which conclusions about relative cost are based on less than adequate evidence. For those commodity groups not mentioned not even a priori deductions about relative costs are possible. It should be remembered that even within those commodity groups showing average or low relative costs of production, any particular commodity item which may be a prototype, embodying advanced technology not employed in the USSR, should be viewed as *ne of relatively high costs. Many items on the control list may be of this natures Reasonably Certain Conclusions. 1. Commodities of high production costs in the Bloc as compared to the US: Coaxial Cable (1525) Magnetic Materials (1631) Aluminum (1636) Cobalt (1648) Colunbium (1649) Copper (165+1) mercury (1655) Molybdenum (1658) Nickel (1661) groups about which relative cost information is reasonably certain, although -Approved For Release : CIA-RDP64-00014AO00100240006-0 Mee" ppen S-PI.C.-R-E-T BismuthA?yj-ja~ecF r Release : CIA-RDP64-00014400100240006-0 For the above materials Bloc prices are high as compared with Western prices, and Bloc costs (on the Western definition) are believed to be at least equal to prices. High',Bloc costs are to be explained in terms of low quality ones, inconvenient geographic locations, a low rate of capital equipment in relation to 3a bor, and a relatively inefficient use of machinery. 2. Commodities of average costs In the Bloc as compared with the US: Petroleum products,* Low-carbon ferrochrome (3640 Heavy (basic ) chemicals (phenol 3753) The petroleum and chemical industries in the Bloc are modern and well-equipped, the products on which they concentrate are produced as efficiently as in the US. Both the range of petroleum products produced in bulk and techniques of production in the Bloc are the equivalent of that in the US, with perhaps some lag in Bloc technology in refining aviation gasolines.* On the other hand, until recently Bloc efforts have been concentrated on the production of the basic chemicals; the specialty chemicals, of more complex processes, have only recently come into production and in this sphere Bloc technology appears to lag behind the US3Bloc costs to be high as compared with US costs.* B. Very Preliminary Conclusions (based on less than adequate evidence) The following conclusions are based primarily on price information, with little knowledge of Bloc costs against which to test price ratios. 1. Commodities of probably high production costs in the Bloc as compared with the US: Chemicals other than basic chemicals: (1732 hydrogen peroxide; 276s toluol; 3715 borax**) Alloys carrying specified percentages of molybdenum, cobalt, columbium, tantalum and nickel. (1635) * See B-1 Approved For Release : Cl -RDP64-00014A000100240006-0 * See Appendix I Approved Fr Release : I - DP64-00014 40 0100240006-0 Aviation gasoline (1773) Precision bearings (1601) Seamless steel drill pipe (ll54) wee2 aba q See B-3 below, 3 S-E RsE-T Approved For Release : CIA-RDP64-00014AO00100240006-0 Approvedr Release : CIA-RDP64-0001400100240006-0 20 Ooanodities of probably average production costs in the Bloc as compared with the US: Communication and locating equipment* Electronic Components* Measuring and testing equipment* Electrical and Power generating equipment* Trucks (1450) Steel Bloo4ing Mill** Barium Nitrate (1713) Boric Acid (3715)4 Welded or seamless Steel line pipe (2154 and 3154) 3. ;ommodities of Probably low production costs in the Bloc as compared with the US: Horizontal Boring Mills,, 75 & 65 (2003)**** Antifriction bearings***** (1601) ny'tems not on the control list are included in these groups; specific commodities on the control list in these groups may be of higf: relative costa See Appendix IV See Appendix I See Appendix III; for other machine tools on the control list available evidence is insufficient even for a guess. ***** See B.1 above0 4 SECRET Approved For Release : CIA-RDP64-00014AO00100240006-0 Approved r Release : C1 -RDP64-00014( 0100240006-0 Methodology Io order to estimate the economic benefits which the Bloc does, or would, derive from East-West trade in various commodity groups, it would be most desireable to compare production costs in that Bloc country which is the lowest cost producer in the group with costs of the low-cost producer in the West. Intelligence re- lating to Bloc costs of'production, however, is very scarce, spotty in coverage and in most cases qualitative rather than quantitative in natured Existing information of various kinds has been drawn upon in this survey. Where information on relative prices exists, it has been used in the absence of cost data, if there were any supplementary knowledge indicating that, on the whole, the price of this commodity in the Bloc is closely related to cost. If, for example, a ruble-dollar price ratio indicated that commodity X is of high relative price in the Bloc, and if it is believed that cost is at least equal to price, then it follows that relative. costs must be high also, Or again,, if the price ratio is low, (or average,) if this industry is an established industry using mass production techniques to turnout commodities of good quality, if there is no evidence of subsidies, then it can be deduced that this is.a commodity of low (or average) relative costs. If the commodity in question is one which embodies advanced technology in the West,iand if it is not produced in the USSR, by definition it would be of high relative cost because of the research and development expenses which the Bloc would have to incur to produce it, Existing price information relates almost entirely to the year 19), bO h for ruble prices and dollar prices, In assigning commodities to cost categories; price movements since 1950 have been considered; since only little is known about current prices in the Bloc, however, the resulting margin of error may be sizeable, ;,Only three broad categories of cost, therefore, are justified;,a more precise ranking is not poss1bleo Approved For Relee c1&1 DP64-00014A000100240006-0 S-E-C-R-E-T Approvedr Release : CIA-RDP64-000140100240006-0 Coat information on machinery items in particular is no only difficult to obtain, but even when once obtained, whether cost data for the US and USSR are comparable depends on the components of cost in each case as well as on the com- parability of the items whose cost is being compared,, A machine typically construct- ed on contract to do a specific job in a specific location is likely to be different in some regard from every other similar machine custom-produced, Moreover, such equipment is most often produced in plants which turn out a variety of products; in these cases the apportionment of overhead is always somewhat arbitrary and such practice may vary among producers in the US as well as between US and USSR producers. Such ambiguities in the meaning of cost, as well as in the relation of prices to costs, which are still unresolved, imply that conclusions about the relative costs of production of most machinery items are only informed guesses, highly tentative,, and subject. to considerable change with further research. 6 S-E-C-R.E-T Approved For Release : CIA-RDP64-00014AO00100240006-0 Approved r Release : CI/A--RDP64-000140 0100240006-0 S?E+4-ZL-E- APPENDIX Is Borax (Withdrawn) 7 S-E-Cat-L-T Approved For Release : CIA-RDP64-00014AO00100240006-0 Approve%a&eIfseC6; F,RPp0 0100240006-0 Production of copper in the USSR, which appears to be the lowest cost producer in the Bloc, is of high relative cost compared with the US for three reasons: (1) the nature of copper mining operations in USSR compared to the US (2) the lesser quantity and quality of machinery used (3) the lower efficiency with which machinery is used. In addition, copper costs in the USSR would be high relative to costs in the lowestq-cost producers in the West (Chile and Rhodesia) because of the lower quality of the 'JSSR copper deposits. On the average in the US 100 tons of ore must be processed to obtain one ton of metal; in the USSR only about 90 tons are required per ton of metal. US ores, however are of family low quality. In Rhodesia only about 10 tons of ore would be required for one ton of metal, while in Chile about 80 tons of ore,would yield one ton of metal. (1) The process of mining copper in the USSR imposes higher costs on Soviet copper production than is the case in the US, because copper mining requires primarily difficult underground operations in the USSR as compared with primarily open-pit operations in the US. The Soviet Union has only one sizeable open pit mine; well over one half of Soviet copper output is based on the more costly underground operations. (2) While the Soviet Union does not lag behind the Westin technological knowledge relating to themI,nh g and processing of copper ores, it does lag behind the West in the application of this technology. Both open-pit and underground opera- tions are less mechanized in the Soviet Union and many of the machine types currently used in the USSR are obsolete by US standards. In general, more labor and less capital is used per unit of output in the.USSR than in the West. (3) Not only is somewhat outmoded equipment used in the USSR, but in addition the efficiency with .hich this machinery is operated and maintained is lower than in the West. Metal recover from ore is lower by 5 or 10 percent. Approved For Rele ?Q?jj . DP64-00014A000100240006-0 Approves iF r Release : CIA-RDP64-00014, 00100240006-0 ' h?is, the com r ieon of primarily underground operatio s in USSR against open-pit operations in the US, the fact of inferior quantity and quality) of the machine.:,-y used and the lower efficiency with which it is used, support the conclusL on that copper is an undustry of high relative cost in the USSR. Re,au a of high material costs, costs of producing copper wire in the Soviet Union are likely to be high in relation to coats In the West. Also a higher rate of rejects, (poorer quality control) contributes to higher relative USSR costs. The USSR is currently experiencing a shortage of wire-rAll equipment which pro- bably will be alleviated, at least in parts by imports from 7ast Germany. Apart from the cost of copper, however, and poorer quality control, there is no other apparent reason for production costs of copper wi to be relatively high. Approved For Release : CIA-RDP64-00014AO00100240006-0 Ap fs f3Rel 41 18 00100240006-0 Very scant information suggests that horizontal boring mills are produced in the USSR as efficiently as the average of Soviet machine tool output. For the machinery items in which they have concentrated, costs and prices both have fallen by about 50 percent over the past 5 years. Even in 19b9, however, when Soviet prices were considerably higher than they are currently, ruble?dol.lar price tatios for machine tool items were among the lowest for all commodity production. Currently 85 and 110 mm. models of horizontal boring mills are estimated to bear price ratios in the range of 3 to 5 rubles to one dollar. Thus, even if price in the Soviet Union is only one-half of cost, which presumption seems mos; un.? likely, horizontal boring mills are produced at no more than average relative costs, and it is more probable that they are of low relative cost. For the most advanced types of machine tools, including the. larger models of horizontal boring mills, we have no price or cost information. Moreover, available intelligence lacks a complete description of many Soviet models of machine tools, thus making comparison with US models, at least in part, somewhat arbitrary. Ever where complete specifications of Soviet models are available, Soviet machines are often different in important details from Tt8 or other Western counter-parts, 3.0 S-E-C-R-E-T Approved For Release : CIA-RDP64-00014AO00100240006-0 Approve 4 pr Rehease0 i4-RDP64-00014 00100240006-0 Appendix IV: Rolling Mills Not only is information on both prices and costs for Soviet rolling mill equipment virtually non-existent, but the problem of comparing these custom- manufactured items is complex, For the following major categories of ferrous and non-ferrous rolling mills no data are available: hot and cold continous sheet and strip, bar, rod, pipe, wheel, wire, rail-structural, plate and temper mills. In the remaining category of bloom, billet, and slab mills a crude compari- son of 1950 ruble and dollar prices indicates a price ratio in the range of average relative prices. The mill for which a ruble price is available is a 40 inch9 two high, reversing blooming mill weighing 4456 metric tons. This price ratio is about the same as that for general industrial equipment (USSR product- mix), as would be expected in view of the successful results in blooming mill construction achieved by the Soviet machine builders. Since there is no evidence of subsidies, it can be tentatively concluded that blooming mills, are of average cost in the Bloc as compared with the yst. On the other hand., it can be deduced. that other types of. rolling mills would be at least of somewhat higher relative costs in the Bloc, The West has hadfar greater experience in constructing both hot and cold continous strip mills, which entail very complex production techniques. These and some other types of rolling.mills have only recently come into production in the Bloc; not all those which have been produced embody the degree of advanced technology found.in Western equipment. This latter would be especially true of cold rolled mills for which sensitive controls are necessary. The tentative conclusion can, therefore, be drawn that, among the various types of rolling mills, continuous hot.and cold mills are of high relative costs in the toe. u Approved For Re CAA-RDP64-00014A000100240006-0 6-E-G -R-E-T Approvecpr Release : CIA-RDP64-00014 j00100240006-0 Appendix V: Shipbuilding Widely scattered information relating to the cost of production of a few ocean-going and harbor craft in the USSR, toget1er with qualitative information about the nature of shipbuilding operations in the Soviet Union, suggest that shipbuilding is an industry of average relativef costs in the Bloc as compared with The fact that the USSR has been importing vessels from the West despite being able to produce ships efficiently is a matter that is unexplained. 5-E-+C-R-E-T Approved For Release : CIA-RDP64-00014AO00100240006-0