THE CURRENT SITUATION IN THE FREE TERRITORY OF TRIESTE
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5,ECRET--
3-8 63 8
CENTRAL INTELLIGENCE AGENCY
THE CURRENT SITUATION IN
THE FREE TERRITORY OF TRIESTE
This dooutcdnt has b-cn
approved for relimn
the HISTORICAL RVIEI Itgitr:: Of:
the Central Intelligma3 11.9..ney.
Dato.11-Z412,
11112 944
ORE 23-48
Published on
15 APRIL 1948
COPY NO.75
FOR THE ASSISTANT DIRECTOR
FOR REPORTS AND ESTIMATES .
Doeumaa
'NO CHANGE
ECLASSIF
Class. CHANGED
DDA
Auth: DD
.asEent---
Date:
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S.Loolicir
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ORE 23,48
THE CURRENT SITUATION IN THE FREE TERRITORY OF TRIESTE
SUMMARY
The emergence of Trieste as a major international trouble spot derives from the
postwar conflict between East and West. Since the Italian Peace Treaty compromise
which created the Free Territory of Trieste under United Nations control, the big
powers have had direct responsibility for achieving a peaceful settlement in Trieste
which would satisfy Italian national pride and Yugoslav/Communist expansionist aims.
The US, by associating itself with the tripartite proposal for the return of the
Territory to Italy and by its anti-Communist stand in Europe, is committed to prevent-
ing the Territory from coming under Yugoslav control. Final Soviet reaction to the
tripartite proposal will await the outcome of the Italian elections in April. In the
event of a Communist victory, Soviet policy will be concerned primarily with effecting
the withdrawal of US-UK occupation troops. In pursuance of this objective, the USSR
may attempt to force the US, UK, and France to abide by their pre-electoral proposal. If
the Communists are defeated, however, the USSR may follow one of two courses. The
Kremlin may maintain the status quo in order to avoid giving the appearance of failure
to stand by one of its Satellites; or it may agree to a modification of the Western pro-
posal in the hope that, after the withdrawal of US-UK troops, Italy may lack the
strength to prevent subsequent Yugoslav/Communist penetration of the area.
Meanwhile, regardless of the ultimate disposition of the area, the US and UK now
bear the major responsibility for obstructing Yugoslav designs on the Territory. Unless
the current trend toward rapid economic deterioration in Trieste is reversed, either the
UN or Italy will become heir to an area so economically depressed that it will be an
easy prey for subsequent Communist infiltration. AMG estimates that such a develop-
ment can be prevented only by the allocation of US funds either directly or through
Italy's European Recovery Program allotment, with which to rehabilitate Trieste's
shipping and manufacturing interests. Even such a course is not certain to be suc-
cessful, because of the unlikelihood that the Territory can, in the foreseeable future,
become economically self-sufficient under UN control or regain its prewar activity if
incorporated with the Italian economy.
NOTE: The information in this report is as of 12 April 1948.
The intelligence organizations of the Departments of State, Navy, and the Air Force
have concurred in this report; at the time of publication no official statement had been
received from the Department of the Army.
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THE CURRENT SITUATION IN THE FREE TERRITORY OF TRIESTE
1. THE IMPORTANCE OF TRIESTE.
The emergence of Trieste as a major international trouble spot derives from the
postwar conflict between East and West, aggravated in Trieste by purely chauvinistic
considerations, rather than from Trieste's intrinsic value or strategic importance to any
of the disputants. Although of major significance before the War as the principal
Mediterranean outlet for the commerce of Central Europe, Trieste today is of vital im-
portance neither to Yugoslavia nor to Italy. Italy's trade has shifted westward and
can be adequately handled by other ports, while Yugoslavia's needs can eventually be
served by Fiume. Trieste's industry is of minor significance.
Because the Italian Peace Treaty has placed the area under United Nations control,
the peaceful solution of the Trieste problem is and will continue to be a big-power
responsibility. In order for the UN to create a peaceful Trieste, it would have to find a
solution which, in addition to resolving the area's ethnological complexities, would
satisfy simultaneously Italian nationalism, which could never brook permanent loss
of Trieste, and Yugoslav Communist expansionism which desires Trieste as an outpost
of Communism.
Meanwhile, the US is directly committed to preserve peace in the area until a
permanent solution is found and must be a party to any such solution. Although
Trieste in itself is of little strategic importance to the US, a Communist or Yugoslav
victory there would be interpreted as an indication of US inability to support its anti-
Communist stand, and would have a discouraging effect on non-Communists in Western
Europe.
2. ORIGIN OF THE FREE TERRITORY OF TRIESTE.
The compromise represented in the Free Territory of Trieste (FTT) under the
control of the United Nations was written into the Italian Peace Treaty because it was
the only solution for Trieste acceptable to the four major signatories (US, UK, France
and the USSR). Full implementation of this part of the Peace Treaty, however, is
unlikely as long as the US and the USSR fail to reach a settlement in Europe.
Consideration of the Trieste problem in the Italian Peace Treaty grew out of the
need to rectify the ethnically unjust prewar Italo-Yugoslav border and out of
Yugoslavia's attempt, in the last stages of World War II, to seize the entire Italian
province of Venezia Giulia. When Allied troops of the British Eighth Army in 1945
finally obliged the Yugoslav Army to withdraw to a line east of the city of Trieste, it
was agreed that the US-UK would occupy that part of the disputed territory west of
what was at that time designated the Morgan Line (Zone A), while Yugoslav troops
would occupy Zone B comprising former Italian territory between the new line and the
prewar Italo-Yugoslav border. (See map.)
The Italo-Yugoslav boundary north of the city of Trieste finally established by the
Peace Treaty was west of the Morgan Line, ceding to Yugoslavia former Italian territory
populated predominantly by ethnic Slays. The impasse resulting from Soviet insistence
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that the Italian city of Trieste also be ceded to Yugoslavia was finally resolved by agree-
ment to create a free territory under United Nations control to be administered by a
Governor appointed by the Security Council. Pending appointment of the Governor that
part of the Free Territory (including the city of Trieste) formerly in Zone A would
continue to be administered and occupied by Anglo-American forces, while Yugoslav
troops would occupy that part of the Territory formerly in Zone B. This arrangement,
designed purely to provide for interim trusteeship over the area, has been prolonged
by the inability of the Security Council to reach agreement on a Governor. Meanwhile,
conditions in the Free Territory have deteriorated to such an extent that, even if a
Governor were appointed by the UN, successful government of the area by the United
Nations would be a virtual impossibility.
The impasse over the selection of a Governor has been the result of US-UK insist-
ence that a man be chosen who could be counted on to resist Yugoslav/Communist
encroachments, and Soviet refusal to consider the appointment of a man without leftist
leanings. The recent US-UK-French recommendation that the Territory be returned
to Italy was prompted by the realization that agreement on a Governor was unlikely
and was made in the hope of hastening some settlement which would prevent the area
from falling to Yugoslavia.
3. THE POLITICAL SITUATION.
a. US-UK Zone.
The political climate in the city of Trieste, which contains more than 70% of
the Free Territory's entire population, has always been dominated by racism and nation-
alism rather than by political ideologies. While still part of the Austro-Hungarian
empire, Italians and Slays struggled to maintain their respective cultures; this ethnic
dispute continued after the area became a part of Italy following World War I. Today,
the historical struggle between Italians and Slays has been both intensified and compli-
cated by the ideological conflict between Communists and non-Communists. Thus the
major powers have established a new state in which for either nationalist or ideological
reasons, or both, the entire population is divided between those who hope for return of
the area to Italy and those who wish for eventual cession of the area to Yugoslavia.
Normally it would be expected that any election in the city of Trieste would
reflect the overwhelming Italian majority (85% of the city's 270,000 people) . Under
present circumstances, however, there are many Italians who follow the Communist
line, even in the knowledge that the Party is the chief promoter of cession of the Terri-
tory to Yugoslavia. In a city election, enough of them would vote Communist to give
that party about 35% of the vote; in a plebiscite confined to the issue of cession, how-
ever, Communist strength would be considerably reduced by the defection of Italians
who would feel compelled to support the claims of their homeland.
Communist party membership in Trieste is numerically small. The Party's
importance, however, is out of all proportion to its numbers (4,000) and is the result
of tactics employed by Communist parties throughout the world.
The Party is under the direct control of the Yugoslav Communist Party, is well
disciplined, and is well supplied with money. It has established 23 "cultural clubs"
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and controls seven political organizations and seven newspapers. The most important
organization through which the Communist Party exerts political influence is the Italo-
Slovene Anti-Fascist Union with an estimated membership of 60,000. It is this organi-
zation which is most active in trying to undermine the authority of the Allied Military
Government, to destroy Trieste's faltering economy, and to penetrate the local govern-
ing bodies appointed by AMG.
The continued high level of unemployment and the general economic stagna-
tion in Trieste have enabled the Communists to gain the support of many workers who
have been attracted by promises of high wages and better living conditions. The Com-
munist-dominated Sindicati Unici claims a membership of 40,000 drawn mainly from
manual laborers in the shipyards and the city's manufacturing establishments. The
Communists have thus far used their control of this union mainly to stage strikes for
purely political reasons.
AMG has thus far been able to prevent the Communists from causing any major
disturbances, and Communist strength is insufficient to seize control of the area as long
as US-UK troops remain. If the area's economy continues to deteriorate, however, the
influence of the Communists will increase to such an extent that they might become a
serious threat to internal peace and order. Meanwhile, the Communists will continue
their efforts to undermine the authority of AMG, to penetrate civil and business organi-
zations in Trieste, and to work actively toward furthering eventual Yugoslav hegemony
over the entire Free Territory of Trieste.
Non-Communists in Trieste have suffered in comparison with the Communists
by their lack of unified, aggressive leadership, by their failure to formulate any clearly
defined goals other than the return of Trieste to Italy, and by their need for funds with
which to combat the active Communist program. With the exception of the small anti-
Tito Slovene Democratic Union, most non-Communists in Trieste are Italians who
belong to parties which are more or less extensions of the parent bodies in Italy.
Although they are united in theoretical opposition to Communism, antagonism between
the extreme rightist and the moderate elements among them has weakened the Italian
cause. The Italians' strongest political instrument is the nationalist association, Lega
Nationale, with approximately 50,000 members. Moreover, the non-Communists have
thus far successfully prevented the Communists from penetrating the Italian-sponsored
trade union, Camera del Lavoro, which claims a membership of 40,000 composed prin-
cipally of white-collar employees.
The recent tripartite recommendation for the return of Trieste to Italy has
considerably strengthened the morale of the non-Communist, pro-Italian population.
Moreover, it has intensified the issue of nationalism (Italian vs. Yugoslav) while simul-
taneously minimizing the importance of the purely ideological phase of the struggle.
The immediate effect of this development has been to weaken the Slav-Communist
political position.
b. Yugoslav Zone.
Political conditions in the Yugoslav-occupied Zone have become indistinguish-
able from those in Yugoslavia proper. Civil liberties have been abolished. All political
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parties unwilling to follow the Communist line have been eliminated. Many Italians
in the area have been repatriated to Italy, expelled, or imprisoned. Politically, there-
fore, the union of the Yugoslav Zone with the US-UK Zone either under Italy or the
United Nations would entail great difficulties. Moreover, such a union would con-
stitute a serious threat to the security of the Territory by greatly increasing the relative
strength of the Slav/Communist element.
4. ECONOMIC SITUATION.
a. US-UK Zone.
Economic as well as political considerations played a part in the four-power
compromise establishing Trieste as an international port under United Nations control.
It was felt at the time that Trieste could regain its prewar status as the Mediterranean
outlet for Central Europe and thereby maintain itself as a self-sufficient economic unit.
The conflicting political aspirations of Italy and Yugoslavia, however, make it unlikely
that Trieste in the foreseeable future could attain economic prosperity or independence.
under UN control.
Economically, the Free Territory of Trieste is primarily dependent upon its port
activities. The city of Trieste has excellent harbor facilities and is connected with
the Danube basin by two rail lines. In 1947, however, maritime activity in Trieste was
only 45% of the 1938 traffic. Much of this tonnage was accounted for by US relief
supplies for Italy, Austria, and Trieste, although there has been a gradual increase in
commercial traffic. Moreover, there has been a decline in locally owned shipping.
Before the war, 600,000 tons of shipping were registered in Trieste. War losses re-
duced this to 115,000, most of which has since been transferred to Italian registry,
resulting in the loss not only of shipping revenues but of marine insurance and related
business.
In addition to its port activity, the city of Trieste was formerly supported in
part by a sizeable shipbuilding industry and several manufacturing enterprises, prin-
cipally food-canning, woodworking, jute and hemp factories, a steel mill, and an oil
refinery. These are currently operating at approximately 60% of their prewar level.
As a consequence of this general economic stagnation, approximately 25% of
Trieste's labor force of 105,000 is unemployed; the cost of living is rising steadily, and
a daily per capita food ration of 2,200 calories is maintained only by US relief supplies
equivalent to 1,490 calories per day per person. Because the revival of Trieste's econ-
omy is dependent on the economic restoration of Europe generally, unemployment and
the cost of living in Trieste can be ameliorated temporarily only by a program of public
works and relief.
Continued economic stagnation in Trieste may have serious political and stra-
tegic implications, depending upon the ultimate disposition of the area. As long as the
US and UK administer the area, economic deterioration increases the difficulties of
preventing internal disorders and makes AMG more vulnerable to attacks by the Com-
munists. Continuation of the present downward trend would also make it far more
difficult for either the United Nations or Italy to control the inevitable social unrest and
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economic disorder which would follow. Thus, Communist penetration would be facili-
tated, and eventual control of the city by Yugoslavia would become more likely.
AMG is currently handicapped in its efforts to restore the economy of the area
because it is powerless to cope with the basic causes of the city's economic plight. The
generally low level of economic activity in Europe must be raised if Trieste's maritime
activity is to approach prewar levels. Restoration of Europe's economy, however, will
not in itself revive Trieste's port activity because the Communist governments which
now rule the majority of the European countries upon which Trieste formerly depended
can be expected to favor the Yugoslav port of Fiume, which Yugoslavia is attempting
to develop as the principal Mediterranean outlet for the Satellites.
Neither can AMG take any effective steps to nullify the detrimental effects on
Trieste's economy which result from AMG's limited powers as a trustee for the UN and
from its dependence on Italy. AMG is not empowered to underwrite the purchase of
vessels by Trieste firms and has not the funds to make loans for the rehabilitation of
Trieste's manufacturing enterprises. Nor can AMG prevent the flight of Italian capital
to Italy, which is caused by the fear that Yugoslavia may eventually gain control of
the city. Even more important, AMG is financially dependent upon Italy. Italy has
finally agreed to meet the normal administrative deficit of the US-UK Zone and to
supply the Zone's foreign exchange needs. Italy, however, will meet AMG's special
needs (such as public works, loans to industry, etc.) only after consultation with AMG
as to the exact amount required. Thus AMG must obtain Italian concurrence before
it can take any effective steps beyond those necessary to prevent the outbreak of disease
and unrest. In view of the recent tripartite proposal, even a non-Communist govern-
ment in Italy is unlikely to approve of excessive expenditures in an area which may
fall to Yugoslavia or may soon be returned to Italy. (The consequences if AMG became
dependent on a Communist Italy need no elaboration.) Consequently, any long-range
plans by AMG to restore the economy of Trieste to a level approximating that of prewar
are unlikely to be supported in full by Italy unless the US makes the funds available
through the European Recovery Program.
The recently approved US Foreign Aid Program for Trieste ($20,000,000 through
June 1949) is designed only to prevent economic retrogression rather than to make the
area self-sufficient under international control. Soviet agreement to a Governor accept-
able to the West and the full implementation of the Peace Treaty provisions would not
eliminate the racial and ideological conflict within the area. Consequently, Italian
capital would still avoid the city, and Yugoslavia would continue its efforts to under-
mine the UN administration in the hope of gaining eventual control.
Trieste as a part of a non-Communist Italy would also face economic difficulties.
Although the expense of maintaining a separate administration would be eliminated,
Italy must adopt strong measures if Trieste's economy is to be successfully integrated
with that of Italy. The present flight of Italian capital from the area can be reversed
only if Italy demonstrates its ability to control and check Yugoslav Communist agita-
tion and infiltration. Moreover, in view of the decline of Eastern European traffic
through Trieste, Italy mUst concentrate on the development of the city's manufacturing
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SE,41
industries and on their integration into the Italian economy, rather than on any futile
attempt to restore port activity to prewar levels.
b. Yugoslav Zone.
The economy of the Yugoslav Zone of the Free Territory has been incorporated
into that of Yugoslavia. In this primarily agricultural district, the Yugoslav authorities
have disregarded the provisions of the Peace Treaty by promulgating agrarian reforms
aimed at the complete communization of the Territory. Peasants are required to turn
over 60% of their produce to the local Communist cooperative, the remainder to be
kept for personal use and for resowing. No sales may be made in the open market in
the northern zone where prices are considerably higher than the official Yugoslav rate.
Similarly, fishermen are required to sell their catch to the cooperative at the equivalent
of seven US cents per pound; the cooperative in turn sells it for thirty cents on the
Trieste market. Basic commodities are strictly rationed. As the Yugoslav zone has its
own currency, which has no legal backing and is therefore unacceptable to residents
of the northern zone, inhabitants of the southern zone are unable to purchase surplus
foodstuffs from the' other part of the Free Territory.
Thus, economically as well as politically, Yugoslav actions have created nearly
insuperable obstacles to the eventual union of the two zones.
5. PROBABLE FUTURE DEVELOPMENTS.
The tripartite recommendation for the return of the Free Territory of Trieste to
Italy will not result in any change in the status quo, at least until after the Italian elec-
tions. Since implementation of the proposal will require Security Council approval, it
is improbable that the USSR will either reject or accept the proposal until a new govern-
ment assumes office in Italy. Rather, the USSR will continue its attempts to counteract
the effects of the tripartite announcement in Italy by accusing the US of deliberately
offering something to Italy which it alone cannot give. Moreover, the USSR will con-
fuse the issue by questioning the motives of the US in making the proposal and by
hinting at the advisability of additional amendments to the Italian Peace Treaty in an
attempt to embarrass the US. Such activity might include re-emphasizing Soviet sup-
port for the return of former Italian colonies to Italy, offering to return some of the
Italian warships allotted to the USSR, or relinquishing its reparations claims on Italy.
Any such suggestions, however, would probably imply that their implementation de-
pended upon the election of a Communist government and would in no way commit the
USSR to definite action in the event of a Communist defeat.
Final Soviet reaction to the tripartite proposal will be determined by the out-
come of the 18 April elections in Italy. in the event of a Communist victory in Italy,
the disposition of Trieste as regards Italy or Yugoslavia would be completely academic
from the USSR's point of view. Under these circumstances, Soviet policy would be
directed primarily at effecting the withdrawal of US-UK troops from the area. Thus
the USSR would probably press the US, UK, and France to live up to their pre-election
proposal. After the United Nations had relinquished its control over the Free Territory,
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SEXT
the USSR could force Italy and Yugoslavia to effect whatever settlement of the problem
best suited the USSR's over-all strategic policy.
If the Communists are defeated in the Italian elections, the Soviet Union's
policy toward Trieste will depend primarily on the Kremlin's estimate of US intentions
and capabilities in the area. If the Kremlin believes that, even without the appoint-
ment of a Governor by the Security Council, the US and UK will continue to occupy
their zone and to subsidize its economy, the USSR may agree to return at least the
US-UK Zone to Italy. If the USSR offered such a compromise, it would be in the belief
that Trieste under Italian control, without US-UK troops in the area, would be less of
an obstacle to Communist/Yugoslav infiltration. On the other hand, the Kremlin,
feeling that Italy may be able to thwart Communist designs, may refuse to agree to any
proposal which would give the appearance, at least, of failure to stand by one of its
Satellites. This consideration may influence the USSR to preserve the status quo
indefinitely, in order at least to deny the port of Trieste to Italy. A final solution of
the Trieste problem would therefore not be reached until such time as the US and the
USSR reach agreement on an over-all European settlement, including Germany and
Austria.
In the event of a Communist defeat in Italy, and maintenance of the status quo
responsibility for preventing Yugoslavia from obtaining control of the area vAii rest
primarily upon the US and UK. Although US-UK troops can maintain internal order
under the present arrangement, the danger of unrest and disturbances will be greatly
increased unless the current trend of economic deterioration is reversed. Because
neither Italy nor Yugoslavia will have the incentive to promote the economic rehabili-
tation of the area, the US during this interim period will be forced either to make the
necessary funds for economic recovery available to the FTT through direct subsidy or
to Italy through the European Recovery Program, or else be prepared to have the Terri-
tory become an easy prey for Communist infiltration.
Meanwhile, Yugoslavia can be expected to continue its efforts to gain control of the
area by exerting the maximum political and economic pressure on the US-UK Zone.
Although Yugoslavia is not expected to launch an overt military attack on Trieste,
regardless of the result of the Italian elections, the danger of a border incident with
Yu,goslav forces will persist as long as Allied troops remain in the area. In case of open
conflict between the US and the USSR, Allied occupation forces, which number only
10,000, would be quickly overcome by the estimated 75,000 Yugoslav troops currently
stationed in northwestern Yugoslavia.
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DISTRIBUTION
The President
Secretary of State
Chief of Staff to Commander in Chief
Secretary of Defense
Secretary of the Army
Secretary of the Navy
Secretary of the Air Force
Executive Secretary, National Security Council
Chairman, National Security Resources Board
Chief of Staff, US Army
Chief of Naval Operations
Chief of Staff, US Air Force
Director of Plans and Operations, General Staff, US Army
Deputy Chief of Naval Operations (Operations)
Director of Plans and Operations, US Air Force
Special Assistant to the Secretary of State, Research and Intelligence
Director of Intelligence, General Staff, US Army
Chief of Naval Intelligence
Director of Intelligence, US Air Force
Secretary, Joint Chiefs of Staff
Secretary, Joint Intelligence Group
Secretary, State-Army-Navy-Air Force Coordinating Committee
Executive Secretary, Military Liaison Committee to the Atomic Energy Commission
Director of Security and Intelligence, Atomic Energy Commission
Chief, Acquisition and Distribution, OICD, Department of State
L. Declassified and Approved For Release 2013/05/23: CIA-RDP78-01617A003100180001-7
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Declassified and Approved For Release 2013/05/23: CIA-RDP78-01617A003100-180001-7
U. S. GOVERNMNNT PRINTING OFFICE
2380-8-1.948
Declassified and Approved For Release 2013/05/23: CIA-RDP78-01617A003100180001-7