HUNGARY TURNING FROM CEMA TO THE WEST TO AID CHEMICAL DEVELOPMENT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01003A002200160001-9
• Release Decision: RIPPUB
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• Document Page Count: 13
• Document Creation Date: December 9, 2016
• Document Release Date: March 20, 2001
• Sequence Number: 1
• Publication Date: March 1, 1965
• Content Type: BRIEF

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INTELLIGENCE BRIEF
CIA/RR CB 65-16
March 1965
Copy No.
*HUNGARY TURNING FROM CEMA TO THE WEST
TO AID CHEMICAL DEVELOPMENT
ECTORATE OF INTELLIGENCE
Office of Research and Reports
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This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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HUNGARY TURNING FROM CEMA TO THE WEST
TO AID CHEMICAL DEVELOPMENT
Dissatisfied by the failure of CEMA* plans for an international divi-
sion of labor, Hungary now is charting a course for the development of
its industrial capacity -- and particularly its chemical industry -- which
will involve greater dependence on the industrial West. Realizing that
other participating countries probably will fail to implement CEMA pro-
posals, Hungarian planners are projecting a larger and more diverse
domestic chemical industry than was visualized within the framework
of CEMA.
To carry out the new program, Hungary is seeking assistance through
more favorable trade conditions with the Free World. In a predictable
move, Hungary recently accelerated negotiations with Western firms for
the purchase of chemical plants and technology, some of which were to
have been obtained originally within the Soviet Bloc. Less predictable
have been Hungarian proposals to UK and Austrian firms for extensive
collaboration in producing various chemical products. Such collabora-
tion apparently would consist of the Western firm providing key equip-
ment, technical assistance, and at least part of the raw and intermediate
materials required as inputs in the production process in return for a
share in the final product. These proposals may stimulate sufficient
domestic political opposition to preclude their implementation. Never-
theless, the mere fact that they are being promoted testifies to the
growing economic independence of Eastern Europe.
1. Dissatisfaction with the Cooperation of CEMA Partners
Hungary recently has subjected its CEMA partners to considerable
criticism for their lack of cooperation. According to a recent state-
ment of Rezso Nyers, Secretary of the Party Central Committee,
Hungary lags 10 years behind advanced countries in production of
major chemical products. This official cautioned against reliance on
production within the framework of CEMA to overcome this lag and
proposed that the chemical industry be developed at twice the rate of
industry in general up to 1980. 1/** In November 1964, Hungary
accused its CEMA partners of unwillingness to give up production of
* CounLil for Mutual Economic Assistance.
** The output of industry in general increased 8. 9 percent in 1964
compared with 1963, whereas that of the chemical industry increased
12.7 percent.
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any remotely promising item and of the desire to manufacture virtually
identical products in the field of machine building. 2/
Similar accusations were made in December 1964 in regard to pro-
duction of pharmaceuticals, the leading sector of the Hungarian chemical
industry. Hungary charged that one or another socialist country often
seeks "to produce the world's total requirements" of a pharmaceutical
even though another socialist country (that is, Hungary) already produces
the same one in surplus quantity. The drug papaverine, a non-habit-
forming narcotic used an an antispasmodic, was given as a specific
example. 3/
Earlier plans for extensive cooperation with Rumania, which has
several chemical raw materials in abundance, have proved to be dis-
appointing. In the 1950's, Hungary, which, because of a lack of salt,
does not produce soda ash, provided equipment to expand a soda ash
plant in Rumania and was to obtain soda products in payment. 4/ Al-
though production and export of soda ash by Rumania have increased
greatly, Rumanian exports of soda ash to Hungary have declined, and
Hungary has been forced to increase its imports of soda ash from other
sources. 5/ In the 1950's, Hungary also helped build a petrochemical
pilot plant in Rumania but later withdrew from the project. Further
collaboration between Hungary and Rumania has not occurred, partly
because of Rumania's preference for developing its chemical industry
independently of CEMA and for using its raw materials domestically. 6/
2. Hungarian Actions for a More Independent Course
In recent months, equipment and technology originally expected
from the USSR have been obtained or sought by Hungary from countries
of the Free World. Up to 1963, however, such purchases were below
those of almost all other CEMA countries because of lingering Hun-
garian hopes for CEMA cooperation and because of unfavorable trade
conditions with the West. In 1963-64, extensive Hungarian purchases
of petrochemical equipment and technology from the Free World were
facilitated in part by long-term credits from Belgium and the UK.
Early in 1964, Hungary ordered a caprolactam plant from the UK 7/ --
using West German instead of Soviet technology 8/ -- and is now
negotiating with the UK for a polyethylene plastics plant valued at
$10.2 millionto $14 million. 9/ Late in 1964 a Hungarian delegation
sought 15 chemical processes in the US, the most notable being for
a polyacrylonitrile (orlon) plant. 10/ As yet, Hungary has not had
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any success in acquiring this plant or the ammonia, fertilizer, dacron,
and various petrochemical plants requested. 11/ Before this time,
Hungary had made no direct effort to obtain major chemical plants
from the US.
The most radical departure in 1964 from earlier Hungarian plans
for cooperation with CEMA involves proposals for collaboration with
the Free World in developing chemical facilities. Austria was approached
in 1964 regarding cooperation in the fields of pharmaceuticals, nitrogen
fertilizers, and polyacrylonitrile fiber. In the latter case, Austria was
to produce the necessary chemical intermediate and Hungary the fiber.
Hungary, in turn, would share the output of fiber with Austria. 12/
Early in 1965, Hungary also suggested joint action and technical coopera-
tion with the UK chemical industry, especially for production of poly-
acrylonitrile fiber, 13/ The motive for approaching the UK in the
matter of facilities for producing polyacrylonitrile fiber is not clear,
but this move may have been an effort to seek a more favorable financial
arrangement. During his visit to Budapest in January 1965 the Austrian
Vice Chancellor, Bruno Pittermann, spoke of increased industrial
cooperation between the two countries, 14/ but probably nothing will
occur until the visit of the Hungarian Minister of Foreign Trade, Jozsef
Biro, to Vienna later in 1965.
3. Probable Trend of Development
Because a satisfactory division of labor in the chemical industry of
the Soviet Bloc has failed to materialize and because of broader possi-
bilities for trade with the Free World, Hungary now probably will
hasten the development of a more broadly based chemical industry. A
shortage of raw materials and capital in Hungary has resulted in the
development of the narrowest range of chemical production in all the
CEMA countries. Thus Soviet Bloc arrangements for specialization
in production of chemicals originally were quite attractive. Faced
with the inability of CEMA to achieve such a division of labor and
stirred by the current possibility of acquiring chemical plants from
the Free World, Hungary now proposes to develop previously neglected
sectors of the chemical industry. For example, Hungary originally
intended to produce polypropylene fiber and to import polyacrylonitrile
fiber but now plans fo produce both. Attempts to acquire assistance
from the Free World to begin production of such other items as syn-
thetic rubber and polystyrene plastic are entirely possible. However,
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imports of important chemical raw materials from the Soviet Bloc --
such as petroleum from the USSR -- will provide the basis for much
of this development.
The proposals for collaboration with foreign companies in produc-
tion of chemicals may well arouse domestic opposition. In January
1965 an Austrian official reported that the reason for the failure to
implement the plan for producing polyacrylonitrile is the reluctance
of Hungary to depend on a non-Communist source of supply for the key
basic material. An official of the Hungarian chemical industry reporteil
the possible postponement of production of polyacrylonitrile fiber with
Austria until 1970. Nevertheless, the pressure in Hungary for seeking
direct forms of cooperation with enterprises of the Free World re-
portedly is formidable; so the fiber scheme could be one subject for
discussion by a Hungarian trade delegation scheduled to visit Austria
in April 1965.
Should external opposition develop, it probably could be overcome,
for Rumania's more serious challenge to CEMA arrangements has been
tolerated. Moreover, recent proposals by Krupp to set up plants in
Poland using West German capital and Polish labor have not yet been
rejected. 151* Hungary probably will continue to seek new arrange-
ments with the Free World to replace unimplemented proposals for a
CEMA division of labor in the chemical industry. In any case, pro-
posals for collaboration with the Free World illuminate the weakness
of CEMA and the lessening of Soviet economic control over Eastern
Europe.
Hungarian planners presumably are giving serious consideration
now to means of increasing exports in order to repay the Free World
for purchases of chemical plants and technology. Through 1963, food-
stuffs, textiles, and metal products have been the main Hungarian ex-
ports to the Free World. In connection with the purchase of a fertilizer
plant from Belgium in 1963, Hungary reportedly pressured Belgium
into accepting increased textile imports. Hungarian exports to the
West of chemicals, of which pharmaceuticals have been the most
important subcategory, have been barely significant but could grow
in importance once newly acquired plants go into full production. The
proposed collaboration with Western countries in chemical production,
therefore, is attractive to the Hungarians.
* Recently a Krupp representative discussed cooperative arrangements
with Hungary, but details are not available.
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Sources:
1. State, Budapest. Airgram A-343, 16 Mar 64, p. 5. OFF USE.
2. Ibid. , A-157, 13 Dec 64, p. 2. OFF USE.
3. Ibid. , A-204, 22 Dec 64, p. 3. OFF USE.
4. CIA. FDD Summary no 1876, Weekly Economic Report on
Eastern Europe (209), 20 Aug 58, p. 37. OFF USE.
5. Hungary. Statisztikaievkonyv, 1962, p. 289. U.
25X1A 6.
7. CIA. aM.11111.11W111.1-1ropealyi-ess Report, 17 Feb 64, p. 20.
OFF USE.
8. CIA. FDD Summary no 2603, Weekly Economic Report on
Eastern Europe (302), 14 Jun 60, p. 11. OFF USE.
9. State, Budapest. Airgram A-254, 24 Jan 65, p. 1. OFF USE.
25X1A
11.
12. State, Budapest. Airgram A-52, 23 Aug 64, p. 2. OFF USE.
13. Ibid. , A-254, 24 Jan 65, p. 2. OFF USE.
14. FBIS. Daily Report (USSR and East Europe), no 21, 2 Feb 65,
p. hh 1-2. OFF USE.
15. New York Times, 19 Feb 65, p. 34C. U.
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