SOVIET EXPLOITATION OF CZECHOSLOVAKIA IN FOREIGN TRADE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78-03061A000400020025-0
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 47
• Document Creation Date: November 11, 2016
• Document Release Date: August 4, 1998
• Sequence Number: 25
• Publication Date: October 6, 1968
• Content Type: REPORT

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6 October 1968
SOVIET EXPLOITATION OF CZECHOSLOVAKIA IN FOREIGN TRADE
CPYRGHT
I
By A.J.
Example of Foreign Trade Policy as Interpreted by Communists
The desire on the part of the Czechoslovakian people to introduce
,reforms, whose realization abruptly terminated with the country's
occupation, not unlike the uprising in Hungary in 1956, had important.
economic implications in addition to its political-philosophical
background. Again, as in Hungary, the most important cause is to be
found in the Soviet exploitation as applied to foreign trade. The
following article will outline shortly some points of emphasis of these
relationships.
Im posed Foreign-Trade Prices
It is generally known that the "socialist brother countries" are
.greatly dependent on Soviet foreign trade which by-no means always
operates to the advantage of both partners, but rather unilaterally in
favor of the Soviet Union. In the case of Czechoslovakia, the following
picture emerges. Table 1 lists some classes of goods including Soviet
export prices charged to Czechoslovakia as well as those charged the free
Western world. The classes of goods selected cover major Soviet export
items.
For the goods listed, the prices which must be paid by the CSSR
.are almost without exception higher. If we consider the entire range
of foreign trade, the ratio is reversed only'for a few main categories.
Conversely, the weighted average CSSR price level for export goods to the
USSR is about 35 percent lower than for the export of the same goods from
Western countries to the USSR. Only five items could be evaluated regard-
ing Soviet imports from the CSSR, as a result of the somewhat unreliable Russian
statistirc (T_nh1n 7l
Export-Prices of Soviet Goods,'1966
(in DM)
Table 1
Exports
to the CSSR to Western countries
Bituminous coal
50.2
32.0.
Anthracite
56.8
66.1
Crude oil
68.4
40.9
Gasoline
123
65.6
Petroleum
130
122
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y 0.016 per kw/hr:
per ton
per ton
per ton
per ton
per ton
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-ca ore 844
Chromium ore
Pyrite
Pig iron
Primary aluminum pig
,Ap.atite concentrate
Cement
Saw wood
Plywood sheets
Cotton fiber
(Source:
1305
330
2060
1920
749
1954
179
515
3100
Vnyeshchnyaya Torgovlya SS.SR
8-03061 A(M4P.Vnb 20025-0
999
128
1540
1883
630
324.
136
426
2380
tsa 1966
per ton
per ton
per ton
per ton
per ton
per ton
per m3
per m3
per ton
god. Mqscow, 1967)
Table 2
Import Prices for Czechoslovakian Goods, 1966
(in DM)
Imports from Imports from .
the CSSR Western countries
Power transformers 1.19 4.68 per kVA
Calcium carbide 72.5 77.5 per ton
Vellum paper 438 375 per ton
Corduroy fabric 5.95 4.90 per meter
Woolen textiles 18.50 31.20 per meter
77ie price differential, also weighted, shows that the CSSR purchases
from Russia at prices 1130 higher than from the West.
Heavy USSR'Debt
In spite of the distorted "terms of trade," i.e. in,spite of the
import prices, raised on the average, and export prices depressed in their
majority, in their foreign trade with the Soviet Union, the CSSR continues
chalking up a more or less positive balance in its trade with the Soviet
Union (Table 3).
Table' S
CSSR Foreign Trade with the Soviet Union
(in millions of DM).
CSSR exports
CSSR imports Positive balance
1960
2603
2522
81
1961
2788
2605
173..
1962
3296'
3080"
216
1963
3800
3391
409
1964
3872
3600
272
1965
4140
3700
440'
1966
3683
3675
8
(Source: Vnyeshchnyaya Torgovlya SSSR 1962 , 1964, 1966)
Developments show that the trade balances during the 1960's were
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always positive, i.e. that Czechoslovakia's foreign trade with t e oviet!
Union has led to a continuous increase of -the Russian foreign trade debt
owed the CSSR. It rose almost uninterruptedly until 1965.? 1966 brought
about a sudden change in this trend, together with a considerable decline
in overall export and import values. The fact that small Czechoslovakia
supplied more than 1.700 billion DM more to the USSR during the statistically-
covered seven years of this decade than it imported from there, is a further
indication for the very unilateral structure of the bilateral Soviet-
Czechoslovakian trade.
Economic "Tribute"
The inflated prices charged for goods imported from the USSR and
tho depressed prices paid for Czechoslovakian export goods as well as
the enormous debt owed by the USSR to Czechoslovakia are evidently the
reflex of a certain trade policy. Prices have been "negotiated" and
are not based on the world market.price_level. To what degree the
C:zccho:~lovakian-Russian trade is distorted by these absurd price relations,
is shown in Table 4.
Distortion of CSSR-USSR Foreign Trade in 1966,
(in millions of DM)
CSSR exports
CSSR imports
Balance
Current prices 3683
3675
+ 8
Without price discrimination
7838
2227
+5611
USSR's foreign trade advan-
tage due to distorted terms
of trade
4155
1448
+5603
CIhccho::loval:ian national income in 1965, according to communist
stat:i stics, amounted to )u.6 billion DIM. As seen from Table 4, this
amournt, without the practices of USSR foreign trade, should lie 5.6
hi.llion OM higher, i.e. more than 11% higher. Evidently, this does
not only apply to 1965. Each year, due to the distorted foreign trade
prices, the USSR "siphons off" increasing amounts of the Czechoslovakian
national product. It should be clearly pointed out that this "siphoning"
effect is not limited to the CSSR. This system prevails vis-a-vis all
countries of the Eastern European bloc, wherein the CSSR for many years
has been one of the preferred East bloc countries. Hungary and --in
earlier days Albania--have for many years been subject to much more
rigorous foreign trade practices.
Precarious Quality
During the early March days of this year, the well-known Czechoslovak-
ian economist Pravoslav Selucky made the following statement during an
interview on radio Prague concerning the restructuring of Czechoslovakia's
economic life: It is extremely unhealthy for Czechoslovakia to buy
equipment and machinery from the Soviet Union which can by no means compete
with domestic engineering and technological quality, and thus there-is
no need for this equipment. This statement also applies to the raw materials
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pt1~ is d bd y t~e 'C SR from the us whic --an this must be especially
emphasized--amount to 71% of Russian shipments, while only 28% consists of
machinery and industrial equipment and 1% of consumer, goods.
As an example, let us list two items which by far make up the most
important Russian exports to the CSSR, namely crude oil and iron ore.
Soviet crude oil has an unreasonably high sulfur content which forces
Czechoslovakian and satellite oil refineries to build additional costly
equipment: The Krivoi-Rog iron ores of the USSR, on the other hand, have
an exceedingly high silicon content which has the following effect: in
Czechoslovakian as well as other Eastern bloc blast furnaces, limestone
and coke consumption is exceedingly high. Under these conditions, the
blast furnaces break down much more frequently than in the West, which
obviously leads to additiona:: costs. Production costs, compared to
Western standards, are much higher. To the low quality we must also
add that in the border transshipment railroad depot of Cierna nad Tisou,
iron ore shipments from the USSR are covered with ice from October to
March and the Soviet authorities do not permit heating the cars. They
are therefore weighed including snow and ice, so that for almost half
of each year snow and ice are sold at the price of iron!
While the Soviets, therefore, are rather generous in the sale of
their products, the behavior of Soviet acceptance commissions upon taking
over Czechoslovakian goods is much more pedantic. The fact that, for
example, Czechoslovakian machinery provided with Russian bearings is
frequently not accepted and the addition of West European bearings is
demanded, will be mentioned merely as a uniuue feature. The commissions
complain even about minute scratches on the surface lacquer of a machine
and defuse acceptance of whole shipments due to minute irregularities.
They then charge the particular company with the contractually agreed
generally very high conventional fines.
Secret Uranium-Ore and Armament Shipments
Upon studying Russian foreign trade statistics with some care, it
is noted that there are no items concerning weapons and ammunitions
(similar to item 93, Brussels Foreign Trade Nomenclature), i.e. they
are not listed. However, it is known that Czechoslovakia as well as the
.GDR and Hungary produce considerable amounts of weapons and armaments
and a large part of these are exported to the USSR. These items cannot
be found in the foreign-trade statistics published yearly in Moscow.
An item which is probably even'more important valuewise which does
not appear in Russian foreign-trade statistics are uranium concentrate
shipments from satellite countries. There are major uranium ore deposits
in the Bohemian-Moravian basin and particularly in the Carpathian basin.
By far, the biggest uranium producer in the Eastern bloc is Hungary.
However, Czechoslovakia too has major uranium reserves both in the Czech
basin as well as in southern Slovakia, which obviously are being exploited.
They are being concentrated in major dressing plants and then exported
down to the last kilogram to the USSR. Although officially the quantities
involved are not listed, in Hungary's case, following the 1956 uprising,
mmiy details regarding uranium mining filtered through to the West. This
year, Czechoslovakia yielded interesting data regarding its uranium
wealth. The most interesting item on this appeared on 21 April 1968 in
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 CPYRGHT
Sv of 'deFe') Refesseal 9?9./4D8/ tiCIA RDR.7E8-(x30& 4098 0025-0
Rez, V. Pckarck, wrote about the uranium ore problen of the CSSR.
CSSR annual production is given as 10,000 tons of uranium oxide (U303).
This is barely less than the US' production in 1964 (11,847 tons). In
this article, rather uncomfortable questions are asked of the Soviets, for
example "why do we export raw ore (or practically raw) like the under-
developed Congo? Why don't we export pure uranium or uranium fuel under
much more advantageous conditions? We are in a position to prepare these
and it would be no problem for our chemical industry to provide the
necessary equipment."
When it was determined that the average level of.CSSR export prices
to the Soviet Union was about 1130 lower than if this country exported
directly to the West, it is easily seen that the Soviets are trying
rather clumsily to maintain the price of uranium-ore shipments low.
Frozen Credits
CSSR foreign trade with the Soviet Union resulted in a positive
balance of 1.7 billion DM in the 60s This amount may be considered
frozen, since there is little hope for this trend to ever change. In
addition to the enormous losses created by Russian price discrimination,
Czechoslovakia is also bearing the results of the bilateral trade system
created within the Eastern bloc by the Soviets. In the Comecon, the
CSSR has always been a good supplier. As a result, as stated by finance
minister Sucharda on 19 April in Prague, Soviet credits in the Comecon
bank in Moscow add up to several billion kroners. The fact that the
development aid given by Czechoslovakia under pressure by the USSR also
amounts to "several billion kroners" shall only be mentioned briefly.
To top off these practices, under extreme pressure by the USSR, an
agreement was signed on 23 September 1966 in Moscow whereby Czechoslovakia
assumes the obligation to grant a 2.2 billion DM loan to expand crude-oil
production in Siberia, with repayments starting in 1975. Thus, Czechoslo-
vakia is financing the production of relatively low-grade Russian crude
oil and is then forced to accept this oil together with other East-bloc
countries from the USSR as has been the case for many years!
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NEUE ZURCHER ZEITUNG
6 October 1968
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rague
18 May 1968
"Reflections Before Sunday: Question Marks About COMECON"
(Interview of Dr. Viteslav Vinklarek, deputy minister for national economic
planning and Czechoslovak representative in the bureau of the COMECON
Executive Committee.)
Question: What is your opinion on the position of the Czechoslovak
economy among the COMECON countries?
Answer: We must realize two characteristics of our position in the world.
First, that Czechoslovakia has an inadequate and incomprehensive raw ma-
terial base, is short of agricultural soil per capita, and has an unfavor-
able position from the viewpoint of transportation. Thus we must import
foodstuffs and raw materials and export the maximum possible finished pro-
ducts preferably to nearby markets. With the aid of the socialist coun-
tries and particularly COMECON we have essentially solved this problem.
Second, in view of the relatively small size of our domestic market we
need an extensive exchange of all types of finished products. "We need
them in the most varied forms. We need imports of technically advanced
machinery and equipment and of attractive specialization and cooperation
in production, and so forth. So far we have failed in this effort."
It has been frequently pointed out in the past that the orientation toward
the socialist market has lowered and still lowers exactingness about qual-
ity of Czechoslovak products. I do not think that this is completely
accurate, because what is decisive is the problem of what is, and even
more, what will be the quality of the market of the COMECON member
countries. We know that Italian, French, British, and Japanese companies
are wooing the Soviet market like a rich bride. Why should we abandon
the field to them? The quality of the socialist market is growing rapidly.
Question: Thus in your opinion what matters is not only that we more
effectively penetrate dollar markets but that we preserve the socialist
markets?
Answer: Certainly we strive to sell our products on the developed East
European markets, but at the same time we shall have to strive for the
strengthening and developing of our position in the USSR and on the markets
of the other COMECON countries.
Question: And what prevents us from using our opportunities among the
COMECON countries?
Answer: I would like above all to point to the domestic obstacles. Though
it is stated in general that Czechoslovakia is interested in deepening
the international division of labor, in practice it is different. Accord-
ing to a poll conducted by a research institute for national economic
planning, most plants asked about their evaluation of the chance to develop
cooperation with socialist countries replied: "The enterprise does not
see any benefit deriving from a cooperation." Sixty percent of the
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enterprises which sent in replies are unable to cover the demands of the
domestic market for their products. Naturally such plants have no inter-
est in promoting cooperation. The cooperation contacts established so
far, both with socialist and with capitalist states, are only of inci-
dental importance. This also is one of the results. of the former adminis-
trative management system where concepts such as price, credit, interest,
and so forth did not play their proper role.
Question: What is the situation concerning the coordination of plans
among the COMECON countries?
Answer: Coordination of plans has played a certain positive role in
insuring foodstuffs and raw materials and in selling our products. In
the future coordination of plans must also assure our supplies of oil,
gas, iron ore pellets, potash., copper, sulfur, lead, grain, and cotton.
For these articles which are so important for us we cannot possibly make
any suitable arrangement but with COMECON member countries,. In the future
it will no longer be sufficient for the central authorities to decide on
exoorts or imports. For example, the enterprise which buys the pellets
will be authorized to reject them because of poor quality. Hence it is
only fair for representatives of the enterprises concerned to participate
in the dealings.
Question: In your opinion what is the effectiveness of the work of
COMECON and what justifies its existence?
Answer: Mutilateral coordination of plans is beneficial because of its
informational effect. We thus obtain data on the development of industry,
national incomes, agriculture, and on basic trends of investment and
foreign trade.
"As far as the economic role which COMECON should play, however, the
result of its activity is altogether insufficient. COMECON as an insti-
tution has undoubtedly become outdated in its methods of activity. Its
pattern was essentially built according to the model of a national economy
managed by directives. In the years 1962-63 this model even led up to
Khrushchev's idea of an international planning organ. It is obvious
today that the views of that -time are unrealistic and impracticable. If
on the national scale we are unable at one center to decide problems re-
lated to the effective development of an enterprise, it is illusory to
assume that some international organs would be able to do so. However,
since no new concept for the work of COMECON was found, a certain stag-
nation took place.
"I believe, however, that COMECON is a useful and purposeful organization.
But we must not conceive of it as an organization of a directive nature.
I do not uphold such a view nor did I ever advocate it, not even when
COMECON was criticized in our country from the standpoint of 'why does
COMECON not settle'this?' The whole COMECON system requires a consider-
able modernization in the foreseeable future. COMECON must not decide
who is going to manufacture what, but must prepare studies on the possible
trends of an effective development of the member countries and above all
it must help work out the economic prerequisites such as basic principles
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concerning determination of prices, rates of exchange, credits, and so
When we assume that the trend of development tends toward integrated eco-
nomic systems we need an economic organization which will be a basis for
negotiation of the economic prerequisites of economic collaboration. "The
understanding of the need for a modernization of the system of collabora-
tion among the COMECON member countries and COMECON as an institution is
gaining strength. For example, expressions of this understanding are
some of the decisions adopted at the session in Budapest last December,
including the decision on the need to perfect the system of foreign cur-
rency collaboration. It is understandable that so far each COMECON member
state has a different idea of this modernization. They have different
economic standards, different interests, and their management systems
also are considerably different.
Question: What would you like to add in conclusion?
Answer: COMECON is not an institution without countries. Hence it is
only through the collaboration of these countries that a system can be
found for the modernization of both bilateral and multilateral collab-
oration, a system which will make it possible more efficiently to solve
problems of economic advancement in conformity with the specific interests
of individual countries and hence also with the interests of the Czecho-
slovak Socialist Republic.
3
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statement of Dr. V. Vinklarek, Czech representative to COMECON. He was
quoted in Prague's Trade Union daily Prace on 18 May 1968 as follows:
"Regarding the economic role which COMECON should play, the
result of its activity is altogether insufficient. COMECON as
an institution has undoubtedly become outdated in its methods
of activity. Its pattern was essentially developed according
to the model of a national economy managed by directives. In
the years 1962-63, this model even led to Khrushchev's idea of
an international planning organ. It is obvious today that the
views of that time are unrealistic and impracticable. If on
the national scale we are unable at one center to decide prob-
lems related to the effective development of an enterprise, it
is illusory to assume that some international organ would be
able to do so. However, since no new concept for the work of
COMECON has been found, a certain stagnation has taken place.
"I believe, however, that COMECON is a useful and purpose-
ful organization. But we must not conceive of it as an orga-
nization of a directive nature.... The whole COMECON system
requires a considerable modernization in the foreseeable future.
COMECON must not decide who is going to manufacture what, but
must prepare studies on the possible trends of an effective
development of the member countries and above all it must help
work out the economic prerequisites, such as basic principles
concerning determination of prices, rates of exchange, credits,
and so forth.
"When we assume that the trend of development is toward
integrated economic systems, we need an economic organization
which will be a basis for negotiation of the economic prerequi-
sites of economic collaboration. The understanding of the
need for a modernization of the system of collaboration among
the COMECON member countries and COMECON as an institution is
gaining strength.... It is understandable that so far each
COMECON member state has a different idea of this moderniza-
tion. They have different economic standards, different inter-
ests, and their management systems also are considerably dif-
ferent." (The full translation of this article is attached.)
There is no indication whether the Soviets will be able to forestall
changes in COMECON's structure and functions, or whether the East Europea
countries will be able to bring about such changes. However, if past
events are a guide to the future, it must be considered most likely that
the Kremlin will discourage any radical innovations in COMECON which migh
weaken its control over Eastern Europe.
5
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