WEST EUROPEAN EFFORTS TO REDUCE TRADE DEFICITS WITH THE USSR

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T01058R000202660001-0
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 9
• Document Creation Date: December 22, 2016
• Document Release Date: January 28, 2010
• Sequence Number: 1
• Publication Date: April 10, 1985
• Content Type: MEMO

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10 April 1985
MEMORANDUM FOR THE RECORD
SUBJECT: Wes i t European Efforts to reduce trade deficits with the USSR
In response to a request from SOVA/EPD/FTI I, I forwarded 25X1
the attached country papers -- covering West Germany, France, the United
Kingdom, and Italy -- on 10 April 1985. DAS Vargo at Commerce asked SOVA to
pull together a typescript that will look at prospects for Soviet imports from
the developed countries and LDCs. Commerce apparently is trying to determine
how much the United States can expect to increase exports to the Soviet Union
in the face of competition from other countries. Our contribution to the
typescript addresses what the major West European countries are doing to
reduce their bilateral trade deficits with the USSR; it probably will be used
as an appendix to the SOVA paper.
State Dept. review completed
DC/EURA/WE
Attachments:
(As stated)
Original - SOVA/EPD/FT
Copy - DDI
ADD I
OD/EURA
DDO/EURA
EURA Pro u tc ion Staff (2)
IMC/CB (4)
C/EURA/WE
C/EURA/EI
EI/SI
EURA/WE/Deput~
9Apr85
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West Germany
Bonn is not overly concerned about its trade deficit with
the USSR and is not applying pressure on Moscow to end the
imbalance. The bilateral trade balance shifted from a $240
million (fob/fob) surplus in 1983 to a $750 million deficit last
year. Bonn continues to run a comfortable global trade
surplus.
West Germany has not initiated any projects or set up any
special credit facilities to boost exports to the USSR.
Officially-backed export credits are available to the USSR and to
other countries with good credit ratings. During a January 1985
meeting of the Soviet-German Joint Economic Commission in Bonn,
West German participation in development projects to be included
under the next Soviet five year plan (1985-1990) was discussed.
The West Germans expect, as in past Soviet plans, to capture a
large portion of the Soviet contracts.
Bonn may focus more on its trade imbalance with the USSR if
the deficit becomes structural. Gas deliveries over the next
decade will rise about 25% in volume, while West German exports
associated with pipeline development are winding down. If its
global trade surplus is reduced by a future decline in the US
dollar, Bonn might begin to actively pressure Moscow to buy more
West German products.
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France
Of the major West European countries, France has complai
the most to the Soviets over its continuing trade deficit.
Although France recorded trade surpluses with the USSR betwee
1973 and 1979, after the second oil shock the trade balance h
been consistently in the red. The deficit peaked at $1.5 bil
in 1981 and exceeded $600 million last year. Energy imports,
which account for over 85% of French imports from the Soviet
Union, increased by 10 percent in 1984 as deliveries from the
Siberian pipeline project began to flow in, and gas imports a
scheduled to increase again this year. On the export side,
almost one-half of all French sales to the USSR are agricultu
goods, while semi-manufactured goods and finished manufacture
goods each account for about another 25 percent.
France and the USSR signed an a reement in earl 1984 th
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committed the Soviets to move toward balancing trade by
increasing their purchases from the French. Nonetheless, exp
to the USSR in 1984 fell in volume terms. From the French
perspective, the most disturbing trend in Franco Soviet trade
the Soviet failure to place orders for capital equipment. Si
the Socialists came to power, orders have fallen from over $1
billion (FF8 billion) in 1981 to less than $120 million (FF1
billion) last year -- the lowest level since the late 1960s.
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Until recently, the French had done little more than
verbally protest over the deficit problem. In the last several
weeks, however, they have adopted a more active approach.
Renault has cancelled a deal to build an automobile plant,
stating publicly that the Soviets had placed most of their
equipment orders with West German firms, rather than with Renault
or other French companies. In addition, press stories before the
early April meeting of the Franco-Soviet Large Comission meeting
suggested that France would reduce purchases of natural gas if
Moscow did not increase imports of French capital equipment.
Finally, on the eve of the Commission meeting Le Monde published
the names of 47 Soviet "diplomats" ousted from France in 1983 for
industrial espionage. It also published a Soviet document that
outlines how Moscow uses trade and technical exchanges for
industrial espionage. Le Monde implicitly admitted that the
French internal security service had leaked the information.
Nevertheless, the French will continue to actively court the
Soviets as customers. Paris is currently trying to get the
Soviets to accept credits in European Currency Units in order to
offer lower interest rates and compete more effectively with the
FRG. After the early April meeting, Foreign Trade Minister
Cresson said she wanted to wipe out the bilateral deficit this
year and expected contracts for French gas equipment worth over
$400 million to be signed soon.
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United Kingdom
Britain does not view its trade deficit with the Soviet
Union as a serious problem. Although the deficit with the
Soviets grew from $32 million in 1970 to a peak of $875 million
in 1979, since then it has come down appreciably and by 1984 was
only $160 million.
Despite London's relative lack of concern, the British are
attempting to increase exports to the Soviet Union. London and
Moscow recently have resumed trade talks curtailed following the
Soviet invasion of Afghanistan. British companies hope to land
major contracts to sell petrochemical, chemical, and
biotechnology processes to the Soviets this year. In his
December visit to London, General Secretary Gorbachev said he saw
"good opportunities" for British companies in the areas of
machinery, agriculture, food processing, and chemicals in the
Soviet Union.
In the past, the UK has been willing to offer attractive
credit terms to promote exports to the Soviet Union and we
believe London will continue using exports credits to increase
trade in the future.
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Italy
The trade imbalance with the Soviet Union has been
increasing steadily since 1974. The deficit climbed over the
billion-dollar plateau in 1980, and last year's deficit reached a
record $2.5 billion. Italy has recorded a trade surplus with the
USSR in only 3 of the past 20 years. The Italians are eager to
correct their trade deficit with the USSR but have yet to take
strong measures to deal with the problem.
Italian officials are frustrated by the lack of progress in
reducing the trade imbalance and have considered cutting back on
fuel purchases, according to the US Embassy in Rome. More
recently, however, they appear to have shelved this option
because Italy faces a possible protracted renegotiation of its
gas contract with Algeria that may make Soviet supplies more
necessary. Italian-Soviet commerce is based primarily on the
exchange of Soviet energy for Italian industrial products. The
lion's share of Italian imports, about 90 percent, are oil and
gas, while about 80 percent of Italian exports consist of steel
and machinery. Soviet oil, purchased mainly on the spot market,
accounts for about 14 percent of petroleum imports and has been
attractively priced. This year, however, Soviet prices are out
of line, and Italian oil companies will reduce their imports of
Soviet petroleum, according to US Embassy sources.
Rome has two natural gas contracts with the Soviets which
provided Italy with about 24. percent of its total gas supplies
last year. The first, signed in 1969 and amended in 1974,
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requires Italy to buy 6.7 BCM of gas annually under take-or-pay
provisions and expires in the year 2000. The second, a contract
for Siberian gas signed in May 1984, runs until 2008. SNAM, the
Italian state gas company, is currently negotiating with Soviet
officials in hopes of bringing the pricing provisions of the 1969
agreeement down to the level of the second accord, about $3.60
per million BTUs.
The Siberian gas accord, pushed strongly by the Italian
business community, was accompanied by a commercial agreement
committing the Soviets to cut the $1.7 billion 1983 deficit in
half by 1986 and to spend the income from the new gas contract on
Italian goods and services. The Soviet commitment was made,
however, with the stipulation that Italian goods be competitive
both in price and financing. A multitude of cooperation and
collaboration agreements followed in almost every industrial
field but despite initial business euphoria over the prospects of
stepped up sales, actual contract signings have not lived up to
expectations.
Italian officials constantly remind the Soviets about their
concern over the deficit and the lukewarm nature of Moscow's
trade commitment. Italian goods, however, are priced in lire and
dollars, placing their financing at a disadvantage compared to
their major West European competitors because lira-and dollar-
demoninated loans carry high interest rates. Under pressure from
the Italians the Soviets grudgingly agreed last month to accept
European Currency Units (ECUs) for contracts with Italian
firms. Because the ECU reference interest rate is still well
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above what Italy's competitors offer and the Soviets will accept,
Italian companies may also have to cover some of the financing
cost by increasing prices or reducing profit margins.
Despite numerous setbacks, Italian officials are optimistic
that they are on the verge of expanding exports to the Soviet
Union and cutting back the trade deficit. Numerous small
contracts were signed in 1984, and two fairly large contracts
have been concluded this year. One contract, a joint venture
between an Austrian and an Italian firm, is for producing steel
cord for, radial tires. The contract is valued at $220 million
for the Italian firm Danieli, which absorbed one point to lower
the financing cost to 7.5 percent over five years. The Italian
company Cogolo will construct three shoe factories for a total of
$60 million.
Italian officials also report that negotiations are underway
for about $5 billion in additional contracts. Several contracts
are reportedly ready to be signed, including the construction of
a one million metric ton-a-year turn-key steel plant at Volgograd
valued at about $1 billion, a $200-million oil-drilling-pipe
plant, a $70-million coal slurry pipeline project in Novisibirsk,
and about $750 million in contracts with Fiat.
Italian companies also hope to concude contracts for turn-
key textile, chemical, and agroindustrial projects. IRI, the
Italian state holding company, expects to participate in Soviet
plans to modernize its steel industry, and the Soviets have
expressed interest in Italian technology for flexible
manufacturing equipment, automated assembly lines and gas
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injection equipment to increase output from ageing oil fields.
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