NATURE AND IMPLICATIONS OF THE RECENT SOVIET ECONOMIC PROPOSALS CONCERNING THE AUSTRIAN STATE TREATY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01012A005300010025-7
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 6
• Document Creation Date: December 23, 2016
• Document Release Date: May 22, 2013
• Sequence Number: 25
• Publication Date: April 26, 1955
• Content Type: MEMO

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CSM No. 273
SECRET
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53
Copy No.
26 April 1955
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CURRENT SUPPORT MEMORANDUM
NATURE AND IMPLICATIONS .OF THE
RECENT SOVIET ECONOMIC PROPOSALS
CONCERNING THE AUSTRIAN STATE TREATY
OFFICE OF RESEARCH AND REPORTS
CENTRAL INTELLIGENCE AGENCY
This report represents the immediate views of the
originating intelligence components of the Office
of Research and Reports. Comments are solicited.
?
DOCUMENT NO.
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X.-DECLAS3fFIE7.)
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NEXT REVIEW DATE:
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DATE:
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This document contains information affecting the national defense of
the United States, within the meaning of the espionage laws, Title 18
USC, Sections 793 and 794, the transmission or revelation of which
in any manner to an unauthorized person is prohibited by law.
Declassified
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NOFORN
NATURE... ANDIMPLICATIONS OF THE
RECENT_SOVIET_ECONOMIC PROPOSALS
CONCERNING THE AUSTRIAN STATE TREATY
At the recent meetings in Moscow on the Austrian State Treaty,
the Soviet representatives offered the Austrian delegation a
slightly more favorable economic settlement than the Long Draft
arrangement agreed upon in 1949 by the Big Four. The new proposal
gives the USSR 1 million tons of oil each year for 10 years in-
stead of ownership of the most important oil fields for 30 years,
as under the old Long Draft; provides for the return of the re-
maining shipping properties held by the USSR for $2 million; and
permits Austria to _purchase all other Soviet-held industrial and
commercial enterprises for $150 million in goods instead of iin
US dollars. These holdings have been profitable for the USSR
and are worth retaining, .Their return to Austria for compensa-
tion, however, would not mean a substantial loss to the USSR and
would be outweighed in the Soviet calculation by its political
advantages.
1. Present Soviet Economic Holdings in Austria*
Valuable properties in eastern .Austria have been under the
control of the USSR ever since the end of World War II on the
ground that they were German foreign assets to which the USSR
was entitled under a unilateral interpretation of the Potsdam
Agreement. The USSR organized these properties into 3 groups
under the operational control of 3 newly-established Soviet
state agencies.
a. The Administration of Soviet Property in Austria (USIA),
consists of an estimated 240 industrial and commercial
enterprises including important manufacturers of in-
dustrial products such as electrical equipment, auto-
motive equipment, precision instruments, chemicals, and
metallurgical products. About 6 per cent of Austria's
total industrial workers, or about some 50,000 Austrians,
are employed in USIA establishments,
b. Austria's oil fields, refineries, and related facilities
are operated by the Soviet Mineral Oil Administration
(SMV). These oil fields, the most productive in western
Europe, are located entirely within the Soviet Zone,
The current output of crude oil is about 3 million metric
tons annually. Since 1947 these Soviet holdings have
produced about 16 million tons of crude oil.**
c. Properties of the Danube Shipping Company (DDSG) in
eastern Austria make up the third group. Since most
vessels have been removed to the USSR or to the Satel-
lites, only a few DDSG properties remain in the Soviet
Zone. The most valuable of these are the Korneuburg
shipyard and some port facilities in Vienna
In addition, the USSR controls a chain of nearly 250 retail
stores in Vienna and the Soviet Zone. These are not German assets
but extra legal enterprises which have been established by the USSR
since 1948.
Unless otherwise indicated, information in this section is
from source 1/,
** Data for 1947-53 from source 2/. Data for 1954 from source 3/.
26 April 1955
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2. Economic Provisions of Section 35 of the Long Draft Treaty
The significant economic clauses found in Article 35 of the
so-called Long Draft Treaty for Austria were agreed to by the
4 Occupation Powers in late 1949. Although the USSR has obstructed
a Treaty settlement since then by raising various objections,
Article 35 has not been a factor in the dispute, Most observers.
have thus assumed that, should the USSR decide to conclude the
Treaty, Article 35 would stand without change,
The most pertinent provisions of Article 35, are as follows:4/
a. The USSR shall receive a 30-year concession to Austrian
oil fields equivalent to 60 per Cent of the output of
crude oil in 1947; asSociated-production and distribution
properties.; and an 8-year concession to 60 per cent of
Austria's oil exploration areas, with the tight to ex-
tract oil for a.period of 25 years from the date of
discovery of new oil deposits.
b. The USSR.2.1222..Lx24gAzg,oil refineries having an annual
production capacity of 420,000 tons of crude oil.
c. The USSR shall receive the remaining assets of the Danube
Shipping Company in eastern Austria.
d. The USSR shall transfer to Austria all other properties
held or claimed by the USSR. In return for which, Austria
shall _pay the USSR $150 million in freely convertible
US currency within a period of 6 years.
Article 35 does not give an accurate impression of the extent
of the properties earmarked for transfer to the USSR because of
the large increase in Austria's oil output since 1947 and the
concentration of this increase in properties which the USSR would
retain. The practical effect would have been to give the USSR
30 years ownership rights in oil fields currently accounting for
more than 90 per cent of total oil production. Similarly, the
specific oil refineries which the USSR is granted by Article 35
now have a capacity of considerably more than 420,000 tons of
crude oil annually. 5/
3. New Soviet Economic Proposals
At the recent Moscow meetings the USSR reportedly offered
the Austrians the following economic settlement for an Austrian
Treaty: 6/
a. The USSR shall receive 1 million tons of crude oil per
year for 10 years as payment for the return of all oil
properties.
b. Austria shall pay the USSR $150 million in goods for the
return of the USIA enterprises.
c. Austria shall pay the USSR $2 million for the return of
the Danube Shipping Company assets in the Soviet Zone.
26April 1955
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4. Analysis of the Changes
Perhaps the most important general aspect of the new Soviet
economic proposals is that they provide for the complete liquida-
tion of the USSR's holdings in Austria. In contrast to Article
35, which would 14.2.111&...1M.M.Z.M.11221_2222E01,1P.t.4,AXE..14
certain oi efineries and ship:pinijiWeies in Austria and
ong-term owneKship,rAghts_in-Austrian_01Ji.elds,and,oif exPlora-
tion areas?the_new terms do-not proVIdi:fef-Soxiet retention of
*
any propeztis
Although it is probably somewhat more favorable from the
Austrian point of view than Article 35 of the Long Draft, the
proposed new economic settlement is not as generous as it first
appears. Austria would take over the oil industry completely,
obligating itself to deliver free of charge 1 million tons of
crude oil annually during the next 10 years as payment. This is
by no means an unattractive arrangement for the USSR.
The relevant comparison here is not between the size of
these deliveries and the total current and prospective output of
the properties, but rather between these deliveries and an esti-
mate of Soviet net takings from the oil industry. The SMV enter-
prises incur most of the labor, material, and overhead costs of
businesses operating in a sovereign foreign country, and the
USSR's net takings, in terms of oil, therefore correspond to the
profits earned by the industry, less the moderate amounts of
investment made in the properties. In recent years, when total
oil production has averaged about 3 million tons annually, it
seems most unlikely that Soviet net takings have exceeded 33
per cent of total production. 7/ Based on an analysis of a single
year, it appears that Austrian-deliveries under the new proposal
would be as beneficial to the USSR as its present arrangement
and would be somewhat more beneficial than Article 35.
The second change shortens the period during which the USSR
would continue to benefit from Austrian oil resources after the
conclusion of the Treaty. Article 35 granted oil benefits for a
period of 30 years, whereas the new proposal covers a period of
only 10 years. This apparent Soviet concession is also less
significant than appears on the surface.
The key factor here is the size of Austrian crude oil
reserves. The remaining potential oil resources in Austria
amount to an estimated 36 million tons, which is only 12 times
the current annual output. 8/ Although oil reserves are notori-
ously difficult to estimate-and the possibility of major new
discoveries in eastern Austria cannot be ruled out, the present
outlook is that production will begin to decline within a few
years and the presently known reserves are expected to be largely
depleted not long after the completion of deliveries to the
Soviet Union. 9/ If this appraisal of reserves is roughly accu-
rate, the advantage to the USSR of the 30-year concession of
Article 35 over the new arrangement is not particularly great.
The oil exploration concession included in Article 35 has
some value, but it certainly does not promise the benefits which
accrued to the USSR when it took over fields. Even if oil ex-
ploration in Austria seemed promising, the USSR would not place
too high a value on an oil exploration concession if exploration
in other potential oil-producing areas within the Soviet Bloc
appeared to be more promising.
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The Soviet offer to take goods in place of US dollars in pay-
ment for the USIA enterprises is an advantage to Austria and a
moderate concession from the standpoint of the USSR. It is not,
however, an entirely new proposal, inasmuch as there was some
suggestion last year at the Berlin Foreign Ministers' Conference
that the USSR would accept goods in place of US dollars. The
chief effect of payment in goods rather than dollars would be to
give the USSR less flexibility in purchasing materials and equip-
ment in the West.
Since the $150 million requested is a payment for the USIA
enterprises, a comparison of this sum with the USSR's estimated
net takings from the operation of these properties is of interest.
The gross value of USIA production in 1953 is estimated at roughly
$140 million. _About 15 per cent of this amount, or $21 million,
is regarded as a reasonable estimate of Soviet net takings in 1953.
The estimated net takings for the entire period 1946-53 is $150
million -- the same as the _proposed payment from Austria. Esti-
mated net takings reached a peak of $30 million in 1951, declining
in both 1952 and 1953. 10/ No estimate for 1954 is available
at.this time, but it is-rikely that net takings were about the
same as in 1953 '011r slightly lower. A further decline in net
takings is probable because of the need for expenditures on
modernization and repairs.
The offer to return the Danube -Shipping Company assets at
a price of $2 million is not of great importance. Few DDSG
properties still remain in the Soviet Zone, and there is little
shipping activity by this enterprise. The Korneuburg shipyard
and the port facilities in Vienna are the most valuable remaining
assets. Since the DDSG assets were valued at about $4 million
in 1953, 11/ the payment of $2 million requested by the USSR for
their return does not seem unreasonable.
In summary, the following propositions may be advanced with
-respect to the Soviet economic position in Austria:
a. Soviet delay in concluding an Austrian Treaty is ?the
result primarily of strategic and political considera-
tions rather than of a desire to retain the economic
properties now under its control.
b. The Soviet holdings An Austria have been profitable to
the USSR, and, taking only economic factors into account,
are well worth retaining for a number of years at least
On the other hand, the products which have been taken
out of Austria by this Means are hardly vital to the
USSR, and measured against the total Soviet economic
effort, the size of the benefits is very small.
c. Although the status quo is the most favorable arrange-
ment for the USSR, conclusion of a Treaty including
either Article 35 Or the new proposals for the compen-
sated return of all holdings would not involve substan-
tial economic losses for the USSR. A prospect of gain-
ing some political objectives in Europe, even a modest
one, would appear to be an ample justification for such
concessions in the economic sphere..
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d. The difference between the settlement provided in Article
35 and that represented by the new proposal is not great.
Concessions from the settlement defined by Article 35
would to a large extent be gratuitous, since Austria and
the Western Powers have stood ready for some years to
conclude the Treaty on the basis of the Long Draft. Al-
though the USSR has been solely responsible for the pro-
tracted stalemate over the Treaty, it would seem that
its political, military, and propaganda aims could be
achieved almost as effectively by a belated acceptance
of the Long Draft as by the negotiation of a variant of
the old document.
e. The terms of the new economic proposal do not in them-
selves indicate whether or not the USSR is at last pre-
pared to join the 3 Western Powers in concluding the
Treaty.
Analyst: V. E. Mackliet
1. CIA. RR, PR-97, Recent Austro-Soviet Economic Relations,
11 Feb 1955, S/ NOFORN
2. Ibid., p. 25
3. Department of Commerce, Weekly Economic Developments Abroad,
8 Apr 1955, p. 4, U
4. Cary T. Grayson, Jr., Austria's International Position, 1938-
1953, Geneva, 1953, pp. 254-300, U
5. urx: RR, PR-97, op_ cit., p.- 39
6. CIA. FBIS, Daily-RepiTiH Western Europe and Near East, 18
Apr 1955, p. P5, CiFF USE
7. CIA, RR, PR-970 013. p. 27
8. HICOA, Weekly Sumiiry,-Vol. III, No. 6, 8 Feb 1955, p. S
9. CIA. RR, PR-97, op. cit., pp. 29, 39
10. Ibid., p. 22
11. Ibid., p. 31
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