DISCRIMINATION IN EASTERN EUROPE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP67-00059A000400250003-7
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 13
• Document Creation Date: November 17, 2016
• Document Release Date: August 6, 2000
• Sequence Number: 3
• Publication Date: May 16, 1949
• Content Type: SPEECH

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Social Council, and elsewhere, representatives of the US have given full an
complete answers, but the charges are repeated and the answers ignored. This
repetition of charges,. with studied failure to note the reply, is not the
procedure practiced by one who sincerely wishes to resolve a problem) it is
the technique of the propagandist,.
A charge of improper or unfair discrimination is in essence a charge of
violating rules of conduct which are accepted by the .marker of the charge.
You cannot call a man to account for breaking a law unless you yourself accept
its validity! So a bona fide charge of trade discrimination must be based
on an acceptance by the accuser of certain principles.
The principles which lie at the foundation 6f mutually beneficial economic
relations between countries are those enunciated in the Draft Charter for an
International Trade Organization, the fruit of much careful effort on the part
of countries genuinely Interested in the expansion of multilateral, non-
discriminatory trade, The principles of the Charter are essentially simple
onus,
They includes, first, the establishment and maintenance of a peaceful
world community, and second$ a recognition that the various parts of the world
differ in resources, climate, skills, and traditions, and therefore have
special opportunities to produce certain types of goods, Thus the greatest
benefit for all is assured by encouraging each area to develop of its own free
,,,will its special potentialities and to exchange its products with other areas
on terms of mutually beneficial economic advantage; at the same time, it is to
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RADE RELATIONS
Turning first to trade, we find at once that certain eastern European
nations have not been allowed to trade in the pattern obviously most
advantageous to them. These nations have described themselves in meetings
of this commission as the relatively under-developed economies of Europe.
They have requested this conrnissionts sympathetic interest and assistance
in fostering their economic development and have accused the United States of
retarding their development. In reply,we would suggest a glance at the
pattern of eastern European trade to observe how and by what nation the rate
of eastern European economic development is being retarded. During the
current trade year, according to available data, eastern European countries
will exchange with each other an estimated S2.1 billion in goods as compared
with $1.6 billion during the previous year and as compared with something
less than $2 billion, or the predominant share of the $2.1 billion total,
represents the Soviet Union's imports from exports to other countries of
eastern Europe. Naturall
it cannot be expected that any large percentage
of the total goods to be exchanged within eastern Europe will be machinery and
equipment of the type necessary for economic development. As a matter of fact,
it is only about.lO percent of the total; and more than a quarter of this
limited amount consists of machinery and equipment destined for import into
the USSR From the other countries of eastern Europe. The Soviet Union does
furnish some industrial equipment to the other countries, but we hear many
complaints-softly spoken--about late deliveries, poor quality, and
antiquated technical standards. Most of the Soviet experts to these countries
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?o fuels, raw materials, and foodstuffs--easeful in many ways s certainly, but
not the sort of commodities which really promote economic development in under-
developed aroas. And in many cases those raw materials are furnished only so
that the smaller countries may process then into finished goods for re-export
to the ' U SR, often as reparations.
Is this the logical trade pattern to promote eastern European econo .ic
develop 4ent? If not tied upin politically-conceived bilateral trade ro-
Tatioriships in eastern Europe, could not more advantageous markets be found
for nuch of the coal, petroleum, timber, Zrain and potash scheduled for
export from the smaller nations of eastern Europe? Of course, they could.
Left to establish trade relations of greatest advantage to them, eastern
European countries would not trade scarce and important raw materials with
countries substantially similar economics. The word for exchange under these
conditions is not "trade" at all but simply exploitation and this is not the
type of activity that will most rapidly foster economic development. Parti-
cularly at this time, the smaller countries of eastern Europe, left to pursue
their own and not the Soviet Union's advantage, would find their terms of
trade with other parts of the world especially favorable. The foodstuffs and
raw materials eastern Europe exports have boon in short supply on world markets
and their prices have advanced, in comparison with pre-war, relatively more
than have prices of the manufactured goods eastern Europe normally would import.
Thus, perhaps as much as a billion dollars of ghat is now traded among eastern
Erropean nations could be directed to other parts of the world, In exchange,
eastern Europe could receive the typical exports of more industrialized countries
goods that would be of genuine value in economic development.
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Both tradd and economic development of eastern European nations along
the lines of most benefit to them obviously would not serve the present
purposes of the Soviet Union and its apparent political and economic
objectives in Eastern Europe, which seem to involve the impoverishment of
the smaller countries. The volume of USSR trade with other eastern European
countries has been increasing since the end of World War II. Offering little
in the way of goods needed for development, the USSR is nevertheless a large
taker of eastern Europe's most important commodities, consuming.8 million
tons of eastern Europe's coal, one million tons of petroleum, over 500,000
cubic meters of timber, more than 1/3 the aluminum, 60% of the lead, and so
on down the list. The USSR thus not only absorbs an abnormal share of the
saleable commodities of eastern Europe, but it also seeks to create a
pattern of economic dependence of these countries upon the Soviet Union. It
also tends to minimize trade relations between the smaller countries, so
that it can hold in its hand all the major channels of trade. The usefulness
of this pattern in achieving political ends is so obvious that it requires
no further comment.
This artificially expanded network of eastern Europ=ean trade has, for
the USSR, numerous other uses. There is, for example, a very interesting
movement of petroleum, timber, aluminum, lead, newsprint, and iron and steel,
which the USSR imports in larger quantities acid exports in smaller quantities
in its trade with other countries of eastern Europe. According to available
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reports, the USSR reaps a price advantage on its middlemen dealings in, for
example, coal. A similar middleman profit is reputedly obtained by the USSR
by the purchase of cotton on world markets for resale at a higher price under
one of its eastern European trade agreements. Frequently, it is reported,
the USSR supplies low grade cotton, rancid butter, inferior gasoline, in
return for the most important goods eastern Europe has available for export,
Such practices, profiting the strong at the expense of the weak, indicate
something nearer to Seventeenth Century colonial relations than to the
"economic cooperation and assistance",, which the Soviet Union describes as
characteristic of economic relations among the countries of eastern Europe.
INVESTMENT RELATIONS
Even more revealing of the true character of economic relations among
countries of eatern Europe are the discriminatory practices and special privi-
leges set forth in the joint-company agreements between the Soviet Union and
certain countries of eastern Europe.. Available data illustrate in clear-cut
form how the strong partner, the USSR, manages through these arrangements to
obtain treatment bettern than that extended to national. enterprises, and
vastly more favorable than that given to the next most-favored-foreign nation.
As an example of a country in bondage to Soviet imperialism, let us look
at Hungary. In Annext I of the December 1947 economic collaboration agree-
ment between Hungary and the USSR, the joint Soviet-Hungarian companies,
Soviet enterprises, and other enterprises with less than 50% Soviet
participation, are authvrized to conclude contracts for the processing of-raw
materials imported from the USSR. Most of the finished products can then be
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exported to the USSR or other countries, entirely according to Soviet plans
and without control by the Hungarian Government. Thus, Hungarian workers and
capital can be utilized purely for Soviet purposes and in accordance with
Soviet desires.
In Annex II of the same agreement, the Soviet Union is given the right to
take out of Hungary all profits and dividends due it as a result of its
participation to the extend of 50% or more in enterprises located in Hungaryr,
The fact that profits of Soviet corporations may be transferred out of Hungary
is not as noteworthy as the fact that they are to be transferred in advance
of actual earnings and that in certain cases the Hungarian Government has
guaranteed that the corporation will make a profit. "Profits and Dividends"
are terms borrowed, of course, from other economic systems that prevail out-
side 6f eastern Europe. In the western world, however, profits are the
payment of capital investment and for the attendant risk of depletion or loss
of this capital. By their very nature, profits are the residual of a
business venture and cannot be determined in advance. It is clear, there-
fore, that the transferable earnings of Soviet corporations in Hungary are
not, in fact, "profits", but another form of "tribute" that is currently
being exacted from the people of Hungary by the Government of the USSR..
The supra-national privileges granted Soviet joint, companies illustrate
again that it is Soviet exploitation and not "democratic cooperation" that
prevails in eastern Europe. In Hungary, however, national regulations are
allowed to affect the operations of corporations in which the Soviet Union
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has a financial interest. To insure that joint companies' shall be properly
understood and conducted as operations by and for the Soviet share of the,
partnership, the so-called "Joint" companies are permitted to import all
necessary, matsvias and fuel without the requirement of a government import
license and the National Bank is thenoobliged to lend them the necessary
foreign exchange. The joint companies also may conclude export-import
compensation agreeents without the supervision or consent of the local
government. Thus., the joint bauxite-aluminum company, controlling over
90% of Hungary's important bauxite resources and itself controlled by the
Soviet Union, has the final decision as to who shall export bauxite from the
country. In order to complete the pattern of special privilege, the joint
companies, as might be expected are exempt from all the property and)income
taxes that are required of other Hungarian companies. The Soviet delegate
this morning said his government favored the principles of equality between
trading partners. It would be interesting if he would telinus what privileges
Hungary enjoys within the Soviet Union which are equal.to the privileges which
the Soviet Union enjoys in Hungary.
These joint companies control a very substantial segment of the total
natural and capital resources in bauxite, aluminum, timber, petroleum? textile,
manufacturing plant, and transportation facilities in the countries in which
they operate. Soviet insistence that joint-company operations result in
immediate benefits in goods and profits for. the U:+SR prevents their
contributing in any significant degree to the present or future development
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of the local economy. These countries hence :oust manage their resources for
the benefit of the Soviet Union, rather than for their on economic
development and future welfare.
Soviet penetration and control over the economies of Hungary and Rumania
are not by any means limited to a pre-emptive utilization of present
resources. The Soviet-Hungarian bauxite and aluminum company, for example,
occupies a preferential position, in relation to all Hungarian and foreign
interests, with respect to exploration for bauxite deposits. Annex III of
the 1947 agreement states that "all requdsts to the ,Minister for Industry by
other companies and enterpriese asking for the right to explore for bauxite
deposits must be reported to the joint Soviet-Hungarian Bauxite and Aluminum
Company within 15 days in order that it may determine whether it desires the
right to explore for bauxite on the territory designated by the applicant".
Similar exclusive privileges exist for joint Soviet petroleum companies in
-these two countries.
Capitalists of the weatern world, so often accused of exploitation and
imperialism, could never expect under any circumstances to arrive at so
profitable a system of foreign investment as the Soviet Union has achieved
through the use of these companies. Without expenditure of its own capital,
without risk, and without any opposition, the Soviet Union achieves a long-
term control over essential resources, and a guaranteed "profit" from their
exploitation.
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1'# ONSPORTATION POLICY.
Turning next to transportation problems, we find yet another instance of
discrimination in eastern Europe. At the 1948 Danube Conference, a Soviet-
dictated so-called Danube convention was rejected by the United States, Great
Bz'itain, and France, as a backward step in the conduct of international
relations affecting transport,, and as an outright betrayal of the Basic
interests of the Danube peoples. In drafting its convention, the Soviet Union
aimed at the establishment of special Soviet interests on the Danube, to the
direst disadvantage of riparian states. The United States was not and will not
be a party to that betrayal.
Although the initial clauses of the convention give limited recognition to
"freedom of navigation" and "non-discriminatory treatment", the convention
fails completely to give specific implementation to these concepts. In
reality, international control of Danube shipping and the prewar free movement
of goods over this important waterway, a traffic that was of benefit to all
European nations, are now to be abandoned. Control of Danube waters within
the boundaries of each of the riparian states now reverts to national control
and national control that is in the hands of joint companies operating, as we
have seen, for the Soviet half and not for the riparian states' half of the
bargain. Thus, under the Soviet convention, use of port facilities can be
arranged only by agreement with transport agencies. In important Danube
countries such as Hungary and Rumania, these are companies with 50% Soviet
ownership, with Soviet General Managers, and, if fact, under almost 100% Sovi t
control. In the,-,same way as the other Soviet joint companies, the transport
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companies occupy a privileged and usually monopolistic position.
Thus,
he USSR, by its political hegemony over a majority of riparian states,
has captured for its own use- and for its own ends this highly important channel
of intra-European trade. This can put an end to the Danube's usefulness as a
channel of east-west trade, and it provides another example of how, by whom, and
for whom discrimination is practiced in Europe today.
I have said the charge of discrimination essentially means that the accuser
accepts agreed principles, and that the purpose of bringing the charge is to
solve the problem; I have indicated the discriminatory nature of Soviet economic
relations with smaller countries in eastern Europe. Vwhy do these countries not
speak up in their own behalf in forums such as thus? Why do they not seek out
the real cause of their economic troubles, and why do they talk about principles
which do not seem to be at home in the eastern European atmosphere? It is only
human tc complain and to discuss one's grievances, but the only complaints we
hear from the smaller Eastern countries are those directed to the wrong address.
In conclusion, I should like to express the hope which I think inspires all
peace-loving peoples everywhere--that the commerce of Europe and of the world
should be conducted with a minimum of restrictions, and for the greatest mutual
benefit of purchasers and seller. Europe is entitled to expect that such peace-
ful trade will result in better levels of living and in the improvement of
human welfare. If we work patiently and' cooperatively, according to the
principles of the UN Charger, we may hope to reach the point at which all
nations abide by such universally accepted rules as those of the charter for
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an ITO. In that future day-which is really within our reach--we may
confidently expect that the evils of d.iscrimination$ special privilege,
and colonial exploitation will no long hamper the free and cooperative
economic development of sovereign peoples.
IT: CP:MHarrison:ac
TWCArmastrong 5/4/49
EURB 4i Jackson
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