INSTITUTIONS AND ARRANGEMENTS IN INTERNATIONAL TRADE AND FINANCE WITHIN THE SOVIET BLOC

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79S01100A000100030008-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 132
• Document Creation Date: November 9, 2016
• Document Release Date: January 6, 1999
• Sequence Number: 8
• Publication Date: June 30, 1955
• Content Type: IR

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LE TO
ECONOMIC INTELLIGENCE REPORT
95
INSTITUTIONS AND ARRANGEMENTS
IN INTERNATIONAL TRADE AND FINANCE
WITHIN THE SOVIET BLOC
EIC-SR-3
30 June 1955
s..2
Prepared Jointly by IAC and Other US Government Agencies
ECONOMIC INTELLIGENCE COMMITTEE
SUBCOMMITTEE ON INTERNATIONAL TRADE AND FINANCE
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SABLE TO
FOREIGN
a~~'~E^ A ~T
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NOT RELEASABLE TO
FOREIGN NATIONALS
ECONOMIC INTELLIGENCE REPORT
INSTITUTIONS AND ARRANGEMENTS
IN INTERNATIONAL TRADE AND FINANCE
WITHIN THE SOVIET BLOC
Prepared Jointly by IAC and Other US Government Agencies
ECONOMIC INTELLIGENCE COMMITTEE
Subcommittee on International Trade and Finance
NOT RELEASABLE TO
FOREIGN NATIONALS
CONFIDENTIAL1
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FOREWORD
Economic activities, like political activities, within the countries
of the Soviet Bloc are subject to over-all controls. These controls are
based largely upon Soviet national policies, but not much is known of
the mechanisms by which these controls are exercised.
This report endeavors to explain the institutions and arrangements
through which international trading and financial and related processes
are planned and carried out by the European Satellites. Particular
attention is paid to the mechanisms of Soviet control. The imperfectly
understood functions of the Council for Economic Mutual Assistance
(CEMA) and of the other instrumentalities of Soviet economic domination
over the Satellites are related, insofar as can be, to the internal
administrative structures of the Satellites and to the actual processes
through which levels of output and international trade are determined.
The subject matter of this report has been treated in three
principal sections. In Section I a background description of the
historical and institutional setting for intra-Bloc economic rela-
tions is given. Of particular interest is the section dealing with
CEMA, which seems to be an important instrument of Soviet policy,
although little specific information concerning it has been available.
In Section II the operations of intra-Bloc trade and finance are sub-
jected to further analysis. Soviet-Satellite economic relations are
contrasted with economic relations among the Satellites. The "commodity'
approach" characteristic of intra-Bloc economic relations is described,
as are the processes of capital movements and foreign exchange transfers.
Section II shows how the Soviet rulers can, and presumably do, exercise
control over the Satellite economies without recourse to Party and
security organs. The indirect methods of control are stressed, for
they are likely to become increasingly important as the Soviet inter-
national system becomes better ordered,, just as increasing reliance
has been placed on "control by the ruble" within the USSR In
Section III., economic integration within the Soviet Bloc is examined.
This `Tintegratiori7 is peculiar in that autarkic institutions modeled
on those in the USSR were first introduced in the Satellites, and sub-
sequently the attempt has been made to assimilate these autarkic
institutions into an "international" system. An examination of these
institutions is presented, in conjunction with a discussion of the
meaning of integration and of the results which may be anticipated
under Bloc conditions.
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~ONF~D~:NTIA-L
This report was prepared on the basis of contributions from the
Federal Reserve Board, the Department of State, and the Central
Intelligence Agency. The report has been concurred in by the EIC
Subcommittee on International Trade and Finance,, including represent-
atives of the Departments of State, the Army, the Navy, and the Air
Force, and of the Central Intelligence Agency; of the Departments
of the Treasury, Defense, and Commerce; and of the Federal Reserve
Board. The Economic Intelligence Committee has approved the-issuance
of this report.
This report was completed in December 1954 and contains infor-
mation to that date. The material available indicates that a steady
development of institutions and practices has been taking place
within the Soviet Bloc, but the report should continue to be of use
as a background study forsome time to come. The report deals with
the countries of the Soviet Bloc only and does not consider Communist
China.
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CONTENTS
Page
Summary . . . . . . . . . . . . . . . . . . . . . . . . .
I. Institutions Involved in International Economic Activi-
ties in the European Satellites . . . . . . . . . . . . . 3
A. Establishment of Soviet Dominance in Eastern
Europe . . . . . . . . . . . . . . . . . . . . . . 4
B. Methods of Soviet Economic Intervention . . . . . . . 5
C. Economic Agencies in Satellite Countries . . . . . . . 7
1. Ministries of Foreign Trade . . . . . . . .
2. Central Banks . . . . . . . . . . . . . . . . . . .
3. State Planning Commissions . . . . . .. . . . . .
4+. Wholesale Trading Agencies . .
D. Supervisory Agencies . . . . . . . . . . . . . . .
7
8
9
11
12
1. International Agencies . . . . . . . . . . . . . . 12
a. Council for Economic Mutual Assistance . . . 12
b. Cooperative Councils and Inter-Satellite
Enterprises . . . . . . . . . . . . . . . . 22
2. L',viet Agencies in the Satellites . . . . . . . . 2
a. Soviet Embassies . . . . . . . . . . . . . . . 23
b. Soviet Advisory Groups . . . . . . . . . . . . 25
c. Soviet Properties . . . . . . . . . . . . . . . 26
II. Controls over Balance of Payments Transactions within the
Soviet Bloc . . . . . . . . . . - . . . . . . . . . . . . . 30
A. Trade and Payments . . . . . 31
1. Bilateralism of Trade . . . . . . . . . . . . . . .
2. Nontransferability of Earnings . . . . . . . .
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3 . Pricing . . . . . . . . . . . . . . . . . . . 37
4. Commodity Trade . . . . . . . . . . . . . . . . . . 40
a. Trade Relations of the USSR with the
Satellites . . . . . . . . . . . . . . . . . 40
b. Trade Relations among the Satellites . . . . . 44
c. Soviet and Soviet-Approved Middleman
Transactions . . . . . . . . . . . . . . . . . 47
5. Bilateral Trade Agreements as an Instrument of
Control . . ... . . . . . . . . . . . . . . . . . 48
B. Service Transactions . . . . . . . . . . . . . . . . . 51
C. Capital Movements and Transfers . . . . . . . . . . . . 54
1. -Reparations . . . . . . . . . . . . . . . . . . . . 54
2. Soviet Properties in the Satellites . . . . . . . . 56
3. Credit Transactions . . . . . . . . . . . . ... . . 57
B. Gold and Foreign Exchange Transactions . . . . . . 59
1. Settlement of Current Trade Balances . . . . . . . 59
2. Transfer of Free World Currencies . . . . . . . . . 62
3. Gold and Foreign Exchange Pool . . . . . . . . . . 63
III. Economic Integration of the Soviet Bloc . . . . . . . . . . 64
A. Integration Process, 1948-54 . . . . . . . . . . . 64
1. Concept of Integration . . . . . . . . . . . . . . 64
2. Council for Economic Mutual Assistance . . . .67
3. Antecedents of the Council . . . . . . . . . . . . 68
4. Early Formulations of Council Functions . . . . . . 69
5. Mikoyan Restatement of November 1949 . . . . . 71
6. Satellite Allocations, Planning, and Foreign
Trade after 1949 . . . . . . . . . . . . . . 72
a. Poland . . . . . . . 76
b. Czechoslovakia . . . 77
. . . . . . . . . . . 80
c. East Germany . . . . . ..
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4 F . R F .
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7. Relationship between Allocations and Intra-Bloc
Trade . . . . . . . . . . 82
8. Impact of Allocations Plans on Bloc Trading
Methods . . . . . . . . . . . . . . . . . . . . 84
9. Limitations on Effectiveness of Allocations
System . . . . . . . . . . . . . . . . . . . . . 86
B. Future of Bloc-Economic Integration . . . . . . . . . 88
1. Ultimate Incorporation of Satellites as Soviet
Republics . . . . . . . . . . . . . . . . . . . 88
2. Perpetuation of Bilateral System . . . . . . . . 90
3. Future of Over-All Bloc Planning . . . . . . 93
Appendixes
Appendix A. Protocol Concerning the Creation of a Council for
Economic Mutual Assistance between the Govern-
ments of the USSR, the Republic of Poland, the
Republic of Czechoslovakia, the Rumanian
People's Republic, the Republic of Hungary, and
the Republic of Bulgaria Signed at Moscow 18
January 1949 . . . . . . . . . . . . . . . . .
95
Appendix B.
Joint Corporations in Rumania . . . . . . . . .
99
Appendix C.
Some Aspects of Rumania's External Accounts with
the USSR, 1945-51 . . . . . . . . . . . . . . .
109
Appendix D.
Source References . . . . . . . . . . . . . .
121
Tables
1. Developments in Sovietization of Wholesale Trading
Systems in Czechoslovakia, East Germany, and Poland . .
73
2. Summary of Rumanian Current Balance of Payments with the
USSR, 1945-51 . . . . . . . . . . . . . . . . . . . . .
111
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3. Trade and Payment Accounts of Rumania with the USSR, 116
1945-51 . . . ... . . . . . . . . . . . . . . . . . . . .
Illustrations
Following Page
Soviet Bloc (Map) . . . . . . . . . . . . . . . . . . . . . . 4
Figure 1. Organization of the Council for Economic
Mutual Assistance (Chart) . . . . . . . . . . . . 14
Figure 2. Typical Trading Relations between Two European 84
Soviet Satellites (Chart) . . . . . . . . . . . .
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EIC-SR-3
INSTITUTIONS AND ARRANGEMENTS
IN INTERNATIONAL TRADE AND FINANCE
WITHIN THE SOVIET BLOC
Summary
Economic relations among the countries of the Soviet Bloc are charac-
terized by (1) bilateralism, (2) control by the USSR through CEMA. and
other means, and (3) a limited but increasing degree of economic integra-
tion. These economic relations operate through the institutions of
international trade and finance.
1. Bilateral trade agreements are negotiated through Ministries
of Foreign Trade, which specify the quantities and/or value of goods
to be traded between each pair of countries. Negotiations between
the USSR and individual Satellites are dominated by the Soviet repre-
sentatives, who in effect dictate the terms of the annual trade
agreements. Bilateral negotiations between the various Satellites
have been prolonged and often acrimonious. Final agreements have
sometimes been reached only after elaborate bargaining or, occasion-
ally, arbitration by Moscow.
Currently, these agreements are characterized by a bilateral
balancing. of current payments. Transfers of foreign exchange to
.settle payment imbalances are apparently undertaken only in excep-
tional cases. Total trade between any pair of trading partners need
not, however, balance, because planned shipments of goods outside of
commercial agreements are charged against various capital or invisible
accounts (including loans, reparations payments, transfers of profits
accruing to the USSR from joint corporations operating in the
Satellites, etc.). The functioning of this bilateralism appears to
be cumbersome and inefficient in practice, and there are some indica-
tions that the Soviet Bloc is becoming increasingly aware of the ad-
vantages of the transferability of current balances in order to add
flexibility to the trading system.
2. Soviet controls over the Satellite economies are exercised
in two basic ways:
a. Over-all economic coordination is apparently undertaken
primarily through CEMA, ostensibly an international organization
but clearly dominated by the USSR, which maintains an administrative
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staff with headquarters in Moscow. Its activities have been conducted
with great secrecy, so that conclusions as to its functions must be
tentative. Judging from its original charter (19+9) and from fragmen-
tary reports, CEMA seeks to coordinate the trade plans of the Soviet Bloc
countries, and it has also gradually acquired long-term planning and
allocation functions. It now appears to coordinate the planning organs
of the individual Bloc countries, thereby securing a unified approach
to internal economic policies (including the acceleration of industri-
alization). CEMA is presumed to have played a leading role in the
progress toward a coordinated or single plan which most of the Bloc
countries will begin in 1956. CEMA also occasionally sponsors inter-
Satellite development projects.
b. Direct Soviet control methods, which are more completely
understoodand documented, include the following: (1) Soviet .
government missions in the Satellite capitalscollect information on
economic developments in the Satellites, and thereby provide the basis
-for subsequent exercise of influence by the USSR through CEMA. These
missions do not appear to have direct supervisory powers over Satel-
lite affairs, except in matters specifically relating to Soviet-
Satellite trade and to Soviet property. (2) Industrial operations
-are influenced by the appointment of Soviet economic and technical
advisers to Satellite economic ministries (a practice which has been
extended to East Germany since the dissolution of the Soviet High
Commission). (3) As the controlling member of the recently dissolved
joint corporations which accounted for a large part of the industrial
output in Rumania, Hungary, and Bulgaria, and through. control of the
SAG plants in East Germany, the USSR could direct considerable sectors
of the industry of these countries. (4) As a lender of-funds for con-
struction purposes, the USSR can select projects which are useful to it.
(5) As an important purchaser and supplier of raw materials and indus-
trial equipment, it can influence to a significant degree the direction
and volume of over-all Satellite trade through its control over the
volume and prices of trade.which individual Satellites carry on with
the USSR. Thus Soviet planners, without issuing direct orders to the
Satellite governments, can significantly influence the volume of
resources which those governments have available for their own programs.
3. Economic integration within the Soviet Bloc hasincreased
steadily in recent years. The firststep was the "negotiation" between-
the USSR and the Satellites of long-term trade agreements, the ful-
fillment of which imposed limiting conditions on the size and direction
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of Satellite industrial development, followed by the creation of CEMA
as a potential over-all planning agency. The next step was the
establishment of planning and control mechanisms within the Satellites,
capable of promoting the objectives of the economic plans. The
development of these internal systems for controlling the production,
allocation, and utilization of particular materials has been closely
related to specific international trading problems in the individual
Satellites. Further unifying measures in the last few years have
included simplification of international payments procedures, standard-
ization of railroad freight rates, and announcement of the principle
of uniformity in the export prices of given Bloc countries to all Bloc
importers (though different export prices are charged by the several
Bloc countries).
The final stage in the integration process, which would in-
volve the supplementing of political controls exercised by Party and
security organs by controls exercised through economic incentives
and pressures, and which would require the establishment of financial
and monetary mechanisms to adjust the internal economies of the
Satellites to over-all Bloc programs, has not been reached. The
Satellites still exhibit persistent inflationary tendencies which
have impeded the operation of these mechanisms and the effective
integration of the Satellites into an over-all functioning Bloc
system, despite the formal establishment of institutions such as CEMA
and of planning procedures such as the allocation schemes. It is to
be concluded, therefore, that the integration of the Satellite
economies into a coordinated economic unit is still incomplete and
is not comparable to integration within the USSR.
I. Institutions Involved in International Economic Activities in
the European Satellites.*
This section begins with a brief historical account of the es-
tablishment of Soviet dominance in Eastern Europe and of the political
and military institutions through which dominance has been maintained.
There follows a general statement on the methods by which Soviet
economic intervention in the Satellites was achieved, and then a
A map (UNCLASSIFIED) showing the Soviet Bloc follows p. 4+.
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description of the principal institutions involved. These institutions
will be discussed in the following order: first, national agencies
within the Satellites; and, second, supervisory agencies divided into
international agencies within the Satellites and Soviet agencies in
the Satellites.
A. Establishment of Soviet Dominance in Eastern Europe.
Prior to World War II the countries of Eastern Europe had
gradually come under the economic and later the political and military
domination of Nazi Germany. Although wartime industrial and agricul-
tural prosperity prevailed in some areas, many of these countries
suffered physical destruction from active warfare. By the end of the
war, production and communications were disrupted and currencies were
inflated. Further damage was caused by postwar droughts. The Red
Army thus moved in as liberators or as victors to an area disorganized
by the war and demoralized by previous German hegemony. After a period
of political and economic penetration, which. varied from country to
country, the transformation into Soviet Satellites was effected.
In Poland a Communist-dominated Committee of Liberation was
organized and was established in Lublin during July 1944; on 31
December 1944 a provisional government was formed by this committee,
ousting the government-in-exile in London. In the south, Communist-
domi.nated regimes took power immediately after liberation: the dates
were September 1944 for Bulgaria, October 1944 for Yugoslavia, and
November 1944 for Albania. In three other countries, interim periods
occurred during which coalition governments held office under varying
degrees of Communist influence. Cleax -cut Communist domination was
established by March 1945 in Rumania, may 1947 in Hungary, and
February 1948 in Czechoslovakia. In June 1948, however, Tito's re-
lations with the USSR were effectually broken, sp that after that
dateYugoslavia cannot beconsidered a Soviet Satellite. East
Germany was occupied by Soviet troops, so that Communist domination
was immediate. Formal steps in its transformation from an occupied
territory into a Satellite status similar to that of the other
countries began in October 1949 with the establishment of the German
Democratic Republic.
Soviet domination was achieved largely by indirect means --
that is, through native Communist parties rather than overt conquest.
Communist-organized local committees assumed informal powers during
the period just before and after German withdrawal. In obtaining
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I)ITERRA N~'4N
-International boundary T\
----De facto international boundary
The Gwe.nme of the Ue; .d St.ees hez not .erop~xed the !e.
cor n of E Deis, Leevla ..d Llehoenle inro she 5/0~ t Ue;on;
nor do s~t we ni:e es fn.! the de lecxo western lime f Pduh Ad-
i Ge.menyftM1e Ode,-Nelese Linel: terny/ th...flectlv.
bounden oteena.arib mnespoed roe4e 6-df.s.ec pnixed
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and consolidating their power, once a governmental structure was
established, Communist Party groups placed particular emphasis on
control of the police and the courts and on the mobilization of all
means of communication (press, radio, etc.) in support of their ob-
jectives. Another aspect of Party control was the infiltration of
influential social organizations like churches and labor unions or,
failing that, limitation of their functions to harmless activities.
"Departments of Cadres" or "Personnel Bureaus," staffed by Party
members who were trustworthy in Soviet eyes, were to be found not
only in the party itself but in every state ministry. These had
as duties the supervision of political reliability and labor ef-
ficiency in the entire population by means of observers stationed
in offices, factory shops, and villages. The hiring, firing, and
transfer of personnel were also subject to their approval. Polit-
ical offenders were dealt with by the police with little regard for
individual rights or usual legal procedure.
Soviet control was significantly bolstered by the presence
of Red Army troops, even though direct military action was avoided.
Uniformed Soviet troops were concentrated in varying degrees, most
strongly in East Germany and Hungary. Red Army units were also
settled as civilians in certain strategic areas in Rumania, Bulgaria,
and farther. up the Danube.* In addition, Soviet personnel were as-
signed to the Satellite armies, either as advisers or as line
commanders in key posts.
B. Methods of Soviet Economic Intervention.
As Communist Parties grew stronger within the Satellite
countries and relations with the USSR became more important and well
defined, the following pattern of Soviet intervention in the eco-
nomic sphere emerged:
1. Coordination took place at the top only. Soviet personnel
did not establish continuing contact with Satellite nationals at all
levels of the state or establish industrial hierarchies in order to
see that the aims of Soviet economic policy were achieved; instead,
they maintained close relationships with relatively few top Satellite
C.E. Black, "Soviet Policy in Eastern Europe," Annals of the
American Academy of Political and Social Science, May 1949, p. 157.
Dinko Tomasic, "The Structure of Soviet Power and Expansion,"
ibid., September 1950, PP. 34-35-
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officials, thus keeping their presence in the background and their
power indirect. For some purposes, Satellite officials went to Moscow
to obtain approval of their actions; in other cases, contact with
the local Soviet embassy or trade mission was sufficient. This system
was extended to East Germany, after the dissolution of the Soviet High
Commission, by the appointment of Soviet advisers to such ministries
as Finance and Construction, among others, and to the State Planning
Commission. There are, of course, instances in all Satellites of
Soviet advisers being found at levels lower than the ministry level.
2. Because Soviet influence was exercised through high
Satellite officials, the position of the latter became of central
importance. Effective internal organization in the Satellites that
guaranteed the reliable execution of policies as determined at high
administrative levels was necessary. This implied an absence of
legislative or judicial restraints on the executive branch and a
strongly centralized decision-making process within, the latter. This
result has been achieved in practice. Although legislatures and
courts continue in existence, their subservience is assured.
3. Satellite institutions have been modeled on those of the
USSR, in part because these supplied the administrative centralization
needed for Soviet intervention. Foreign trade, industry, and banking
were nationalized at an early stage; domestic trade and handicraft
production were nationalized more slowly, and small proportions of
these activities are still in private hands; in agriculture significant
collectivization began only in 1949 or 1950, and only in Bulgaria has
it affected as much as 50 percent of arable land. In East Germany,
similar changes have occurred with a 2-or 3-year lag behind other
Satellites.
4. As in the USSR, extensive direct planning of all economic
activities, including trade and finance, has been relied upon. State
Planning Commissions formulated comprehensive plans for the quantities
and composition of goods to be produced or handled by individual
enterprises, and a system of auxiliary controls was developed to
bring about conformity to these plans. Rewards and punishments,
pecuniary and otherwise, were given out on the basis of plan fulfill-
ment. Since the introduction of the "new course," incentives have
also played a role in exhorting workers to plan fulfillment. Further
controls took the form of supervisory agencies dealing with credit,
materials allocation, manpower, and productivity norms and were -
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intended to reenforce conformity to plans. Not all Satellites have
all these controls, and efficiency in planning and in performance
varies widely, but the trend has been in the direction of elaborating
and strengthening controls similar to those in the USSR.
5. This emphasis on detailed economic plans in internal
matters has involved reliance on well-defined intra-Bloc agreements,
enabling planners to predict imports and exports. Consequently,
trade and financial relationships with the Soviet Bloc have been
characterized by formal agreements and, generally, by an exaggerated
concern with protocol. Even loans and investments, which in the
West would be purely financial transactions, are accompanied by lists
of goods the export and import of which correspond to the flow of
credits, interest, or repayments. Thus international economic
relations in the Bloc are conducted on the basis of a "commodity
approach" which permits their coordination with internal planning
procedures. Satellite export obligations to the USSR are especially
well defined, and penalties for failure to deliver are enforced.
C. Economic Agencies in Satellite Countries.
The Satellite agencies which are most important in an analysis
of international economic relations are the Ministries of Foreign
Trade, the Central Banks, the State Planning Commissions, and the
wholesale trading agencies. Some of these agencies might, at first
glance, seem to have nothing to do with international economic relations.
It will be shown, however, that since foreign trade programs have
repercussions upon the internal economies of the individual countries,
even agencies ostensibly concerned with purely domestic economic affairs
may be affected by the foreign transactions of the country.
1. Ministries of Foreign Trade.
Ministries of Foreign Trade in the European Satellites
have the function of supervising foreign trade and carrying out
foreign trade transactions. The ministries are responsible for con-
ducting negotiations with foreign countries resulting in trade and
payments agreements and in lesser deals and agreements, and their
personnel participate in joint international commissions which
supervise the terms of these agreements and settle minor disputes.
Separate but similar units administer trade within and outside the
Soviet Bloc. Statistical and research functions, the administration
of customs duties and other taxes, and inspection duties are also
performed by foreign trade ministries.
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Specifically socialist functions result from the fact that
all foreign trade is conducted by the state. These functions include:
(a) the administration of state trading companies, which conduct trade
transactions in particular commodities for each Satellite country, and
(b) the maintenance of liaison with production ministries in a rela-
tionship which would notbe found in countries where private enterprise
prevails. In addition, agents of Satellite foreign trade ministries
engage in illegal procurement in Western Europe.
Like all economic activities in Communist countries,
foreign trade is conducted within the :framework of a "plan." Trade
plans, formed on the basis of import requirements and export avail-
abilities of specific commodities in the general production plan, are
coordinated at the national level in the State Planning Commissions.
The international coordination necessary to the efficient functioning
of such a system takes place in Moscow under the auspices of the Council
for Economic Mutual Assistance (CEMA).
The position of the Ministries of Foreign Trade in this
planning structure is similar to that of production ministries, except
that their trade plans are not so restrictive as output plans. The
negotiation of East-We-st trade -agreements is -a complex task in which
foreign trade ministries are allowed a certain latitude not granted
to production ministries. In the early postwar years, when deliveries
from one Satellite to another were relatively unpredictable and the
exercise of bargaining power was necessary to protect national interests,
the foreign trade ministries had a similar function in intra-Bloc
trade as well. But as the effective regulation of intra-Bloc trade
increases, foreign trade ministries come more to resemble internal
wholesale trading agencies which administer predetermined policies.
2. Central Banks.
Banking institutions in the Satellite countries are sub
ordinate to the Ministriesof Finance. There are now only a few
largebanks in each country, each performing a specialized function.
The largest bank, called a State or National Bank, usually monopo-
lizes the granting of "commercial credit" to productive and state
trading enterprises, including foreign trade monopolies; other banks
provide credits for long-term investment, for agriculture, or-for
private trade; still other banks serve as repositories for indi-
vidual savings and may, within limits, make loans to private indi-
viduals.
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Economic enterprises are governed by plans which specify
the commodities or services involved. The output plan for any single
enterprise is coordinated with a financial plan which designates the
amount, nature, and timing of inventories and bank credits needed to
fulfill the output plan. This system gives to the banks the role of
indirect control over the activities of their customers, since the
banks' extension of credits is expected to conform to the financial
plan.
The banking system is relevant to a study of intra-Bloc
relations because (a) the accounting system used in international
transactions is centralized in the banks, (b) gold and foreign ex-
change are held by the banks, and (c) the credit policies of the
banks (as is shown below) affect the. ability of the foreign trade
authorities to carry out their plans.
Very little is known about the methods of allocating
foreign exchange received as a result of trade. Like trade itself,
the quantities (and timing.) involved are not readily predictable.
One report indicates that in Czechoslovakia such allocations are made
at monthly meetings attended by representatives of the foreign trade
monopolies and of the international department of the National
Bank. J The governing principles for action and the role played
by bank representatives in making the decisions were not revealed.
3. State Planning Commissions.
The State Planning Commissions or Offices serve as a
focal point in the complex economic planning procedures of Satellite
countries. These procedures have varied considerably through time
and differ from one country to another, but the basic elements of the
process are similar.
In general, the Economic Council (or Council of Ministers)
determines the over-all policy objectives, and the Planning Commission
of each country translates these into precise quantities at 'the same
time that it reconciles the plans supplied from the ministries. The
Planning Commission also administers the new planning techniques
(insofar as they are employed) and serves as a central statistical
office. The Planning Commission sends out directives to the Min-
istries in advance of the latter's plan submissions indicating desired
For serially numbered source references, see Appendix D.
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rates of increase (and norms),-such directives often being expressed
in some detail. Conflict is inevitable between the ambitions of
higher authorities and the desires of lower level management to set
goals which can be readily achieved. In Czechoslovakia, under a
system inaugurated with the 1953 Plan, the State Planning Office
makes up an independent plan, separate from those-submitted from
the ministries but based on the same general directives, and-recon-
ciliation of the two sets of plans occurs at the next higher level.
Thisrepresents an extreme, however, and in other countries the
Planning Commission usually constitutes the effective central au-
thority in settling particular conflicts over plans. The position
of the Planning Commission depends to some extent on the person-
alities involved in the various interacting groups and on their
relative strength in commanding support by the Communist Party.
Generally, there is a movement of plans from the bottom
to the top of the hierarchies concerned. That is, there are plans
made up by factories and national enterprises and submitted to main
administrations and thence to production and trade ministries for
approval or modification and coordination in line with nationally
determined policies. Each of these units has a planning department
which engages in this work. Plans as formulated by ministries are
then given to the State Planning Commission for nationwide coordi-
nation, and finalapproval is given by a higher body of roughly
cabinet rank which deals with over-all economic-policies. This
body has had different titles (for example, Council of Ministers,
Economic Council, or Presidium), and its membership has varied, but
the function is always present. The last step in this process is
formal ratification by the top national legislative body.
The most important respect in which planning procedures
differ is the extent to which initial directives from the top are
supplied to those who are formulating plans at lower levels. When
planning was first undertaken, the inexperience of the planners at
all levels made it necessary for higher authorities to give a great
deal of general supervision and direction to subordinates; since then,
as local management personnel have learned what is expected of them,
a certain kind of decentralization has come about. At the same time,
the introduction of more refined planning techniques along Soviet
lines has increased the volume of top-level activity and provided
more precise (and narrower) limits to the scope allowedfor local
decisions. Such techniques include the formulation of general norms
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for productivity in the use of labor and raw materials (either for the
level or the percentage change in productivity), the formulation of
more precise over-all materials allocations, and the development of
more effective general standards for judging proposed increases of
output.
There are several types of plans which differ in function.
The Five (Six in the case of Poland) Year Plans provide a design for over-
all industrial development. Annual plans supply targets which serve
as effective criteria for the performance of industries and their
subdivisions. Quarterly and monthly plans represent a necessary series
of adjustments to actual supply and requirements situations as these
develop. The Five Year Plans appropriately are defined in less detail
that those for shorter periods and may be revised in the light of
experience.
Five Year Plans are in some but not all cases.timed to
coincide with the Soviet 1951-55 Plan. Poland, Rumania, East Germany,
and Albania have long-term plans terminating in 1955. Czechoslovakia
and Bulgaria have had plans terminating in 1953, but there has been
public discussion of new plans coordinate with Soviet timing in
Czechoslovakia. For this reason, Czechoslovakia had only annual plans
for the years 1953 and 1954. Hungary will complete a Five Year Plan
in 1954 and also will have only an annual plan for 1955. In Bulgaria
a Five Year Plan ending in 1957 was initiated, following alleged com-
pletion of an earlier plan in 1952. With the exception of Bulgaria,
therefore, all the European Satellites and the USSR will embark upon
new Five Year Plans in 1956.* There have been many public expressions
of the coordinated nature of these plans. As CEMA becomes more
active in dealing with this coordinated or single Bloc plan, the
functions of Satellite planning commissions may be expected to show
greater emphasis on detail and less on policy determination.
4. Wholesale Trading Agencies.
The nationalization of wholesale trade in Satellite coun-
tries was begun-in 1947-48 and is believed to have been completed by
late 1949 or mid-1950. An exception is East Germany, where internal
The fact that Bulgaria's Five Year Plan does not coincide with the
rest of the Soviet Bloc should not be interpreted as an indication of
Bulgaria's independence, since in fact Bulgaria's plan will undoubtedly
be coordinated with the 1956 plans of the rest of the Soviet Bloc.
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trade has not been nationalized under any general decree and where
25 percent of the wholesale trade is still in private hands.
The agencies handling socialized wholesale trade are of
two main types -- trading enterprises supervised by Ministries of
Internal Trade (in East Germany and Albania internal and foreign
trade are handled by the same ministry) and purchasing or selling
branches of the production ministries. Sometimes the precise
affiliation of wholesale trading enterprises is obscure. In all
countries there is a mixture of the two types. The latter types
deal mainly with producer goods, and the former with consumer goods.
D. Supervisory Agencies.
The term supervisory agencies is used to designate those
economic institutions through which Soviet control is effected in
the Satellites. These institutions are of two main types. First,
there are international agencies which are in effect Soviet-dominated.
Second, there are Soviet agencies within the Satellite countries. By
far the most important international agency is the Council for Economic
Mutual Assistance (CEMA), through which, it is thought, central planning
and the coordination of trade and finance are effected. Inter-Satellite
Councils for Cooperation also sponsor international economic activities,
though it is likely that Soviet backing is needed for these to become
effective. Direct Soviet-Satellite relationships are handled by the
trade and the munitions production missions permanently attached to
Soviet embassies in Satellite capitals and by temporary Soviet advisory
groups in the Satellites.
1. International Agencies.
a. Council for Economic Mutual Assistance.
(1) Introduction.
The Council for Economic Mutual Assistance (CEMA)*
was established in January 1949. It appears to have been established
in part as a reaction to the establishment of the Organization for
European Economic Cooperation in Western Europe at the inception of
the European Recovery Program. Given Soviet propaganda motivation-for
its establishment, and the secrecy which has since enveloped it, some
* Also referred to (particularly in Europe) as COMECON.
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observers have concluded that CEMA is purely "window dressing." The
following discussion, however, will argue that it appears to be the
major international organization in the Soviet Bloc concerned with
economic problems. It originally consisted of the USSR, Poland,
Czechoslovakia, Rumania, Hungary, and Bulgaria. Albania was admitted
to membership in February 19+9 and East Germany in late 1950. The
broad purpose of this organization seems to be the coordination of the
economies of the member countries within a general economic plan, and
a harmonious specialization of the Satellite economies within limits
set by Soviet economic policies.
Other international organizations within the
Soviet Bloc appear to have no functions related specifically to
economic planning. The Cominform is an organization of the Soviet
Bloc, the French, and the Italian Communist Parties. While it is
probable that the Cominform deals with some matters of economic pol-
icy, including intra-Bloc relations, it is likely that these discussions
are on a very general level and that they have little to do with the
actual coordination and integration of the Satellite economies. The
position of the Cominform in this respect is in marked contrast with
that of the domestic Communist Parties within the Bloc. The Cominform
seems to maintain a separate identity from that of the governmental
administrative structure and to avoid becoming entangled in daily
matters of economic administration. Satellite Communist Parties, on
the other hand, are involved in control and supervision of every
detail of governmental and economic administration in their respective
countries.
Similarly, some sources J speak of a Council
of Foreign Ministers of the Soviet Bloc, which in some respects may
issue policy directives to CEMA. The Foreign Ministers of the Bloc
are ordinarily little concerned with either foreign trade or economic
planning, which are under the jurisdiction of separate organs of
cabinet status within the countries themselves. Since the principal
objects of CEMA interest are, as nearly as can be determined, economic
planning and foreign trade, it may be doubted that such a council would
have any great control over the operations of CEMA.
Although it is possible to distinguish CEMA's
functions from those of the Council of Foreign Ministers and of the
Cominform, it is difficult to draw a clear-cut distinction between
the Satellite-Soviet intergovernmental relations and Satellite-CEMA
relations. If such a distinction could be made, it would point to the
existence of CEMA as a separate organization with an operational
existence of its own.
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The available information has not made it possible
to clarify these relations precisely. Investigation of the activities
of the State Planning Commission and the Ministry of Foreign Trade of
the USSRreveals that they play a real and positive role in shaping
economic policies for the Soviet Bloc as a whole. There has not been
enough information, however, to state positively that they have direct
contact with their Satellite counterparts. In the case of Gosplan,
much of the evidence indicates that it uses CEMA as its go-between.
In the case of the Ministry of Foreign Trade, there is ample evidence
that some of its personnel are also active in the CEMA organization.
In any case it is highly improbable that any action taken by the CEMA
would not be coordinated with either of these Soviet agencies or with
other-Soviet policy-making bodies. It is quite probable that CEMA is
the chosen medium for both-of these agencies in imposing their policies
upon the Satellites.
From the economic point of view, CEMA exists only
to achieve Soviet policies for Bloc trade and Bloc planning. Therefore,
the question of whether CEMA exists as a separate organization with an
operational existence of-its own is fairly academic. As an active
forcein effecting concerted action by the Satellite economies, it
makes little difference whether CEMA is an actively operating inter-
national organization or whether it is an integral part of the Soviet
government.
(2) Organizational Structure.*
The purported text of the CEMA agreement** indi-
cates that the organizational structure of CEMA is similar to that of
most Soviet institutions. There is a Council, consisting of repre-
sentatives of the member countries, which "will be convened whenever
it may be necessary" but at least quarterly. The daily operations are
conducted by a permanent Secretariat in Moscow, which "has the authority
to make any decisions, subject to their ratification by the Council
at its first meeting." According to one report, there is a Subordinate
Council and-a Technical Council, J in addition to the Secretariat
and the Council, which is referred to as the Supreme Council.
* See Figure 1, following p. 14.
** See Appendix A for CEMA Protocol. (The New York Times of 4 June
1949 gives substantially the same version of the agreement establish-
ing CEMA.)
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Figure 1
ORGANIZATION OF THE COUNCIL
FOR ECONOMIC MUTUAL ASSISTANCE
Communist
Party
Ministry of Foreign
Trade
Subordinate
Council
EXECUTIVE COMMITTEE
OF CEMA
(Secretariat)
Twenty-eight Satellite Councils for
Economic and Technical Cooperation
r
/ `
STATE PLANNING COMMISSIONS OF.
State Planning
Committee
USSR
Ministry of Finance
(Gosbank)
Supreme Council
CEMA
Technical
Council
SECRET
Direct Control
- - - - Coordination and Liaison
13414 10.54 SECRET
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Each member country is represented in the meetings
of the Council (or Supreme Council, if the above report is correct) by
at least 1 delegate and sometimes by 3 or 4 delegates. The delegations
appear to be headed by the Chairman of the State Economic Planning
Commission, who is aided by one or two of his deputy chairmen. In
almost every case the Ministry of Foreign Trade is represented in the
delegation by either the Minister or a Deputy Minister. This position
seems, however, to be subservient to the Chairman of the State Economic
Planning Commission. In some delegations there is a representative
of the Economic Section of the Central Committee of the Communist Party.
.Molotov, Kosygin, Mikoyan, and Saburov have variously been reported as
heading the Soviet delegation to CEMA. J
The CEMA Secretariat (sometimes called the Execu-
tive Committee), located in Moscow, is reported to be staffed by 2,000
"specialists" (presumably professional-class employees), of whom about
70 percent are Russians. J To this Secretariat, each member country
sends one permanent delegate who is accompanied by a staff probably
composed of clerks and technical advisers. This delegate, according
to available information, is either ostensibly assigned to his govern-
ment's embassy in Moscow or is actually identified as the permanent
delegate to CEMA.
The identity and organizational affiliation of the
Satellite permanent representation on the CEMA Secretariat is but little
known. Identified representatives have generally been associated as
high officials in the planning and financial organizations of their
states. Thus the Czechoslovak representative in 1950 was Goldman,
identified as a former Chief of "Group V" in the State Planning Office,
which dealt. with long-run economic planning and relations with the
Soviet Bloc. J The Polish representative, Rozanski, has been reported
as directly responsible to the Chairman of the Polish State Planning
Commission. ?J The organizational connections of the East German
representatives -- Georg Henke until early 1952 and Wilhelm Banaschek
after that -- have not been identified, although Banaschek held the
title of Commercial Adviser in the East German diplomatic representa-
tion in Moscow, and held a similar position in Warsaw in 1951. The
composition of the present representations to CEMA is not definitely
ascertainable. There is, however, some evidence in favor of the
assertion that Satellite permanent representatives in Moscow are
liaison between CEMA and the Satellite planning commissions, but
this evidence is not conclusive. J
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The Subordinate Council of CEMA, which is mentioned
in only one report, apparently is composed of either the same Satellite
delegates as those attending the Supreme Council meetings or their
deputies. 10 No information has been reported concerning delegates to
the Technical Council of CEMA.
In East Germany it is reported ll that both the
State Planning Commission and the Ministry of Foreign and Domestic
Trade maintain officials of undisclosed status who are "in charge of
CEMA affairs." Apparently these officials work in Berlin rather than
in Moscow. Similar officials are presumed to exist in the other
Satellites.
Several reports :indicate that CEMA has represent--
atives in the capitals of the Satellite countries. One report says
that prior to 1 March 1952 seven-man committees dealt with current
CEMA, matters in each Satellite capital. These committees were composed
of one delegate from each of the member countries of CEMA. After 1
March 1952, however, the committees in Warsaw, Bucharest, and Budapest
were dissolved, and only the Russian representatives of CEMA remained
in these capitals. 12 Another form of CEMA representation in the
Satellites is indicated by a report which states that the Czechoslovak
State Planning Bureau maintains a "few" employees attached to the
Czechoslovak embassies in various Satellites. This same report indi-
cates that it is unknown whether these offices are "integrated elements"
of CEMA, but it is assumed that they carry out the decisions of the
Council. L3/
(3) CEMA Meetings.
The CEMA Protocol states that meetings. "will be
convened whenever it may be necessary" but at least quarterly. It
further specifies that the meeting place will be rotated among the
capitals of the Soviet Bloc. In February 1952, however, Moscow
reportedly decided to end the system of rotation and to hold future
CEMA "discussions" in Moscow. l~+
According to available information, the following
CEMA meetings, presumably meetings of the CEMA Council,' have taken
place:
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April 1949 L5/
August 1949 16
Late 1949 (2 meetings) 17
September 1950 18
May 1951 19
September 1951 20
April 1952 21
September 1953 22
March 1954 23
September 195 24
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Moscow All delegates
Sofia All delegates
Moscow All delegates
Moscow Czechoslovak delegates
Moscow All delegates
Warsaw All delegates
Moscow All delegates
Warsaw All delegates
Moscow All delegates
Moscow All delegates
Unfortunately there is not enough information
concerning CEMA meetings taking place after February 1952 to corrob-
orate the Moscow order terminating the system of rotation. There is,
however, sufficient information to indicate that there have been
meetings of the CEMA Council and that these meetings were attended by del-
egates of all the CEMA countries.
(4) Functions.
The functions of CEMA as stated in its Protocol
are (a) to coordinate the economies of the signatory countries into a
single plan prepared by the Council, (b) to encourage complementary
development of the natural resources of members, (c) to improve the
materials supply of the member countries, (d) to "exchange experience,"
(e) to standardize production and quality, (f) to provide stable mar-
kets, and (g) to arrange international loans. These functions are so
generally worded in the text of the agreement that they can cover any-
thing from pious exchange of good will to the establishment of an
over-all economic system, with the authority exercised by planning and
administrative organs within the USSR. In fact, the history of Soviet
Bloc economic relations (discussed in Section III of this report) indi-
cates that these functions have only in part been fulfilled and that
numerous practical difficulties (mainly in the planning process of the
individual Satellites) have so far prevented the completion of the
integration which was so clearly one of the stated aims of CEMA.
When CEMA was created in 1949, the Protocol es-
tablishing the organization was secret. Thus no disclosure was made
concerning CEMA's creation. Soviet emphasis apparently was given to
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the coordination of trade within the Bloc. It was not until after late
1949, when Soviet Minister of Foreign Trade, Mikoyan, announced economic
planning to be a function of Soviet foreign trade policy, that emphasis
in public statements was shifted to over-all planning.
The Protocol states that within CEMA itself the
Council, which is composed of delegates from the member countries, has
the functions of discussing and analyzing the economic situation of
each of the countries, advising on economic plans for the Satellites,
approving or disapproving requests for admission to the Council on the
proposal of the Secretariat General, and ratifying decisions made by
the Secretariat General. The Counci:L has the power to oblige the
member countries to make available to the Council all information
necessary to "permit and facilitate the task of the observers which
the Council may find it necessary to send into any of the signatory
countries upon the proposal of the Secretariat General."
CEMA also created a gold fund valued at 100
million rubles (which at the then official rate of exchange of 5.3
rubles,= US $1. was equivalent to about $19 million). There has been
,some question as to the purpose of this fund. One report says that
the fund is used by the USSR ostensibly for the purchase of stra-
tegic materials from the West for the Soviet Bloc; actually the USSR
has used it to buy goods only for itself. 25 Because of the smallness
of the fund, its use in buying strategic materials is doubtful. It
was probably used simply to finance the operations of CEMA.
As the agreement is worded, it would appear that
the Council has the right of final ratification of CEMA decisions,
all of which are made by the Secretariat General. This pattern of
a strong executive whose actions are periodically approved by a "leg-
islative body" is characteristic of Soviet organizations, and it is
very doubtful that the Council can effectively exercise this right
of final approval. Also, all the functions and "powers" of the
Council are conducted pursuant to proposals initiated by the Secre-
tariat General. The duty of the signatory countries to make informa-
tion available to the Council and to accept and follow the advice
of the Council's recommendations is an obligation to the Secretariat
General and not to the Council. The Satellites have the additional
duty of sending to the Secretariat General monthly reports concerning
their production and other economic and financial information. It
seems clear that the guiding force in CEMA is the Secretariat General.
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From information received in some reports, the
major function of CEMA-appears to be one of controlling and integrat-
ing Satellite economic planning and trade. The reports vary, however,
as to the method by which this control is exercised and the degree
of CEMA control. One report states that in 1950-51 most plans in
Poland were drawn up by the Polish state planning organs and that no
Soviet personnel were attached to the Ministry of Foreign Trade or
the State Planning Commission. L6/ A private Swiss business publi-
cation stated that as of March 1952 the "Satellites may no longer
change their plans without its (CEMA's) permission." This seems to
imply that plans are drawn up by the Satellites, who receive CEMA
approval for them, and that once the plans are accepted, they cannot
be changed independently of CEMA. The article goes on to say "after
1955 there will be only one single economic plan for the entire
East Bloc" (probably under CEMA guidance). 27
Other reports indicate a greater control by CEMA
over the economic planning of the Satellites. They emphasize, however,
that CEMA is concerned primarily with long-run planning and not with
the daily economic problems of the Satellites. Georg Dertinger,
Foreign Affairs Minister in the East German government, said in 1950
that the main function of CEMA was the coordination of the respective
5-year, plans of its member states. Another source states that
"economic cooperation among the Satellites takes place actually only
on the highest level, i.e., in the respective countries' Communist
parties and in the Cominform Council for Economic Mutual Assistance
(CEMA)." This source also says that the most important role of CEMA
is in the field of "coordination and mutual planning for future
industrial development." 29
In trade matters there are also varying reports
as to the functions of CEMA. The foreign trade program of Rumania for
1950 is said to have been submitted to and approved by CEMA, implying
that the program was originally prepared by the Rumanian government. 30
Another source, however, claims that Czechoslovak-Satellite trade is
planned according to general directives received from CEMA. 31 This
source states that "all foreign trade plans are worked out in CEMA in
Moscow and then handed to the Czech State Planning Commission, which
in turn breaks them down and passes them on to the various ministries
whose job it is to distribute them to the various factories for foreign
trade monopolies. A counter plan, based on submissions of individual
plants and foreign trade monopolies is made. This counter plan is
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coordinated with the CEMA plan at the level of the ministries and the
State Planning Office." 32
While the above reports vary regarding CEMA'_s_role
ineconomic planning, they agree that CEMA's main concern is with over-
all planning and that it does not become involved in the daily economic
problems of the Satellites.*
In part, differences in these statements may be
accounted for by changes in CEMA_functions over time. CEMA was founded
in 1949, and it is to be expected that some time would be necessary
before complex planning activities could be undertaken at all and
before satisfactory procedures could be established. Probably 1950
and 1951 marked a period of transition and the initiation of a process
of gradual centralization. In the CEMA Protocol the signatory countries
bound themselves to accept the "recommendations" and "advice" of the
Secretariat. The content of these initial recommendations is probably
becoming more and more detailed, and readjustments following completion
of plans at lower levels may be getting more frequent.
,(5) Status of CEMA - Conclusions.
Information concerning CEMA is extremely sparse.
Recent increases in Satellite press references to CEMA activities indi-
cate that it is functioning actively and is assuming an increasingly
important role in the economic life of the Satellites, particularly
as they approachthe period for a coordinated 5-year plan. Despite
the general secrecy about its activities, the following minimum con-
clusions can be drawn from the available data:
(a) CEMA was created in January 1949, its forma-
tion was announced, and a number of published statements since that
time refer to its existence.
(b) Several meetings of delegations from all the
countries of the-Soviet Bloc have been reported specifically as CEMA
meetings.
* Certain specific production and trade problems involving antra-Bloc
coordination have reportedly been handled by CEMA. In view of other
information, however, the validity of these reports is doubtful. It
is possible that the Soviet government itself settled these problems
by issuing orders in the name of CEMA.
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(c) Several orders and recommendations have been
directly ascribed to CEMA.
(d) Only a few top officials in any Satellite
country have any direct contact with CEMA discussions and decisions.
(e) CEMA operations are dominated by a permanent
secretariat in Moscow.
(f) The Satellites maintain permanent represent-
atives on this secretariat.
In addition to these minimum conclusions, cer-
tain other very probable conclusions may be drawn, as follows:
(a) Satellite delegations to meetings of the CEMA
Council usually include both the Chairman of the State Planning Com-
mission and the Minister of Foreign Trade. When this is the case,
the former is probably the head of the delegation because he outranks
the latter in Soviet-type governments.
(b) In the only two cases where definite iden-
tification is possible, permanent Satellite representatives of the
CEMA.Secretariat appear to be connected with Satellite planning
commissions.
(c) CEMA functions, therefore, are primarily in the
field of economic planning. The coordination of trade agreements
could easily take place without active participation of the planning
commissions; however, the coordination of economic plans requires the
participation of foreign trade specialists.
The chief deficiency in available information
pertains to the relation between CEMA and the Soviet government. The
Soviet personalities in CEMA activities are almost completely unknown,
and it is not possible to determine whether CEMA maintains its liaison
with. the Soviet government through the Soviet Ministry of Foreign
Trade or the State Planning Commission. It is not even possible to
determine whether the CEMA Secretariat is an organic part of some
Soviet administrative agency "loaned" for this purpose or whether it
maintains an organizational identity.
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b. Cooperative Councils and Inter-Satellite Enterprises.
Since the formation of CEMA in 1949, a number of inter-
Satellite councils for economic cooperation have been formed. The
first of these councils (that between Czechoslovakia and Poland which
was founded in 19+7) actually antedates-CEMA and is said to have been
the model for subsequent councils established under CEMA auspices. 33/
It has a rather elaborate-formal structure consisting of committees
which are supposed to sponsor joint development projects, consulta-
tions to exchange information, and efforts to bring about coordinated
trade relations with the West by the avoidance of competition and by
coordination in the handling of specific commodities. 34+
Joint development projects have in-fact been -initiated
in which Czechoslovak capital goods and technicians were used to de-
velop Polish resources, in some cases on the basis of an exchange of
goods outside the trade agreement and in others by credits. In at
least one case the Czechoslovaks received payment in the form of
shares in a joint corporation, the Dvory hydroelectric plant, which
the Poles are gradually buying back by supplying power to Czechoslo-
vakia. 35
Inter-Satellite agreements to undertake joint pro-
jects have been frequent. These include technical assistance,
capital goods shipments,, and joint planning. Czechoslovakia, the
most industrialized country in Eastern Europe, is usually the supplier
of capital and technology. In fact, the complaint has been made that
the USSR has forced Czechoslovakia to help build consumer goods
industries (shoesand automobiles) elsewhere in the Soviet Blocat
the same time that identical Czechoslovak plants were being shut
down. 36
In two cases, joint development projects appear to
have taken the form of jointly owned corporations similar to those
formed by the USSR in former enemy Satellites. In 1952 a Hungarian-
Rumanian corporation called:Romagchim was formed to exploit chemical
and natural gas resources, and in the same year a similar corpora-
tion involving East Germany and Rumania was founded. In other cases,
joint ownership on a smaller scale and a more temporary basis (as
with the Dvory plant just mentioned) have appeared. These-activi-
ties are relatively new, and further expansion may be anticipated.
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These joint development projects are not so much a
form of spontaneous cooperation as an activity planned in Moscow and
implemented through CEMA; specific obligations for both parties are
defined in agreements. Other cooperative activities of the inter-Sat-
ellite councils in which greater spontaneity is required have not been
so successful. Mutual recriminations (by Czechoslovaks and Poles),
suspicions, and a lack of effective action toward official goals are,
reported concerning the Czechoslovak-Polish Subcommissions for Foreign
Trade with Capitalistic Countries, for Finance, for Planning, and for
Mutual Exchange of Information. 37 Nationalistic competition and
lack of coordinated endeavor in the field of foreign trade, particularly
trade with capitalistic countries, is one problem area in which CEMA
has been relatively unsuccessful in its attempts to coordinate Satel-
lite activities.
2. Soviet Agencies in the Satellites.
Soviet economic agencies and personnel found within
Satellite countries fall into three categories: (a) permanent
missions attached to Soviet embassies, (b) ad hoc missions advising
on particular problems, and (c) enterprises in the Satellite coun-
tries in which the USSR has a partial interest.
a. Soviet Embassies.
The Soviet embassies in Satellite capitals maintain
sizable staffs including, in addition to conventional diplomatic
functionaries, permanent military missions and economic and commercial
missions which serve as the focus for local Soviet-Satellite economic
relationships. Satellite representation in Moscow is, by comparison,
nominal.
The War Industries and Armaments Sections of the
Soviet Military Missions deal with military equipment manufactured for
the USSR. Soviet inspectors are present in Satellite factories to
assure conformity to Soviet specifications for quality, quantity, and
delivery schedules. In Czechoslovakia., where such manufacturing is
extensive, Soviet advisers have organized "special sections" producing
exclusively for the USSR within Czechoslovak factories. This sometimes
leads to extensive Soviet participation in the factory administration,
though Czechoslovak officials are left in the top administrative
jobs. 3/
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Soviet Economic and Commercial Missions are concerned
primarily with the implementation of Satellite obligations under trade
agreements with the USSR. Consequently, they maintain close relation-
ships with the Ministries of Foreign Trade and with appropriate pro-
duction ministries. Soviet advisers are attached to these ministries
at the ministerial and perhaps at the main administrative levels in
the capital cities. Soviet personnel have also been reported 39 at
the national enterprise or plant levels, where central offices are
dispersed. These individuals, however, are probably not advisers
attached to permanent missions but, instead, temporary technical aid
groups appearing at the "request" of Satellite authorities, who report
to the Soviet; Economic and Commercial Missions whatever information
they acquire in the course of their work.
It is also possible that economic directives are
issued from the Soviet embassy to local Satellite authorities via
Communist Party channels.
Permanent Soviet participation in Satellite economic
activities other than those in which the USSR has direct financial
interests is thus largely indirect. Nevertheless, the contacts are
such as to make available to the Soviet missions extensive statistical
information of a systematic nature; Soviet missions are sometimes
better informed about a plant than the Satellite production ministry
to which it is subordinate. 40 This situation gives rise to a
number of statements to the effect that the Soviet trade mission
"centrally controls the fulfillment of production plans." This use
of the word control may be misleading; in Central Europe the word
is used to mean a central audit (as when the Comptroller General
"comptrols" expenditures of a US Government agency), though it may
also mean to "dominate" or "determine the policy of." While ultimate
Soviet domination of Satellite economies is indisputable, there is a
question as to whether such domination is effected directly by the
Soviet Trade Missions or whether the information assembled by the Mis-
sions is used for intervention at a higher level (for example, CEMA
intervention through the Satellite Planning Commissions). In any case
it is clear that Soviet Trade Missions do include economic reporting
functions, and to the extent that Soviet personnel are paid by Satel-
lite ministries, the latter are helping to subsidize intelligence
activities of the USSR.
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b. Soviet Advisory Groups.
Soviet intervention in Satellite affairs in the form
of advisory groups has been frequent. These may take the form of
technical aid teams (described above) which are placed on the payroll
of the Satellite enterprises that they "serve" and whose advice must
be followed, at least ostensibly, if local managers wish to avoid
accusations of hostility to the USSR. Other groups come to advise
on problems of collectivization in agriculture or investigate particu-
lar crises in production -- for example, the production lag in Hungary
in early 1952. Groups of Stakhanovite workers from the USSR have
toured the Satellites and described their successes in raising out-
put; it may be supposed that these tours coincide with visits from
Soviet industrial engineers describing time-and-motion studies, in-
centive wage systems, etc. Soviet engineers supervise the installa-
tion and instruct in the use of capital equipment purchased from the
USSR. Sometimes these contacts take the form of conferences dealing
with particular problems, such as railroad transportation.
The adviser program experienced a fairly sharp reversal
during the last half of 1954. Noteworthy withdrawals of advisers have
occurred in Hungary, in Poland at the Gdansk and Stettin shipyards,
and in Czechoslovak agriculture. Most of these withdrawals have
occurred in the lower levels of Satellite industry and have been
motivated largely, by the desire to remove the more obvious signs of
Soviet control from the view of the Satellite peoples and to give
more credence to the fiction of Satellite independence. It also is
possible that Satellite industry may now be approaching a technical
efficiency that allows it to operate without strict Soviet control.
Despite these reductions in lower level advisory groups, control is
still assured by the appointment of high-level advisers directly to
industrial ministries in the Satellites.
Economic missions of the advisory type are similar to
those dealing with cultural, educational, and military matters and
usually are given wide publicity as examples of "brotherly cooperation."
It is not clear how much, if anything, the USSR pays for the ex-
penses of these groups. The extent of their influence cannot be easily
assessed; certainly they serve to bring about some increases in the
"sovietization" of Satellite economic institutions, but the day-to-day
regulatory and management functions performed by Satellite personnel
determine the effectiveness of the Soviet influence.
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c. Soviet Properties.*
Soviet property holdings in the Satellite countries
were extensive until 1952-53, when most of them were liquidated. They
served for several years as an important instrument of Soviet control.
Most of these properties were obtained as a result of the war and of
the Soviet acquisition of German assets. Acquisition and disposal
policies have varied from one Satellite to another.
During the months immediately after occupation by
the Red Army, physical seizure and removal to the USSR of industrial
and other property was widespread in all Eastern Europe, particularly
in East Germany,-Poland, and Hungary. Later the USSR, discovering
limitations to the value of such seizures and developing more concern
with legal sanctions, ceased the practice and worked out methods of
utilizing German properties in situ. A small amount of seized prop-
erty was later returned to the Satellite countries, but it was much
less than had been taken away.
Peace treaties were signed in February 19+7 between
the USSR and. those Satellites which had declared war on the USSR:
namely, Hungary, Rumania, and Bulgaria (in the case of Bulgaria this.
had been a purely formal declaration lasting a few days). These
treaties provided, in addition to substantial reparations payments,
that the Satellite government concerned would waive all claims to
German or Italian assets within its borders, except those arising
from property rights acquired before 1 September 1939; according to
an agreement in the Allied Council on 'Reparations, enemy property
in these areas passed to the USSR. As a result of German economic
penetration, largely through banking institutions, the German assets
inherited by the USSR included partial or complete control of many
of the important companies in most of the key industries in Hungary
and Rumania, and to a lesser extent in Bulgaria. German assets were
interpreted to include any sort of claim; even minor sums borrowed
by a company from a bank in which some German capital had been in-
vested gave the USSR a financial interest in that company, one which
could be expanded to a controlling interest.
A large proportion of these assets was contributed
by the USSR to joint corporations into which equal values of -similar
assets were contributed by the Satellite governments. The valuation
* See Appendix B for discussion of Soviet corporations in Rumania.
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of assets contributed by the two parties was strongly biased in favor
of the USSR. Ownership was split 50-50 between the USSR and the Satel-
lites, but the former maintained effective control. These corporations
were granted a privileged status exempt from virtually all taxes,
including the heavy turnover tax, and from nationalization laws which
confiscated the property of all other countries.* Soviet profits from
these enterprises were guaranteed at a defined level, regardless of
actual profit. In many industries these joint companies expanded their
operations aggressively to acquire a monopoly position where this was
lacking. Soviet contributions to such expansion took the form of a
"reinvestment" of profits which would otherwise have been paid out.
Soviet assets in Hungary, and to a lesser extent in
Rumania and Bulgaria, included partial or complete ownership of
scattered enterprises not suitable for incorporation in the type
of joint company described above. These remained as Soviet property
with privileges similar to those of the joint companies. During 1952,
liquidations of Soviet property in Hungary were announced. Sixty-nine
enterprises (most of them small) were turned over to the Hungarian
government. Only one was part of a joint company. On 6 November 1954
an agreement was signed between Hungary and the USSR in which the USSR
sold its shares in the four joint companies to Hungary. These companies
controlled Hungary's petroleum, bauxite, aluminum, civil aviation, and
river transport industries. 41
In East Germany the USSR, having engaged in extensive
physical removals, obtained ownership of 213 important plants, ship-
yards, etc. in 1946 in partial payment of reparations. Almost all
properties in the area were, of course, former enemy assets.** In
February 1947, 74 plants were returned to East German authorities,
23 plants were returned in 1950, and 66 plants were returned in
April 1952. Until August 1953 there were no joint Soviet-East German
companies, however. The Red Army also maintains properties in East
Germany to ensure local, sources of supply.
* For example, the Rumanian nationalization law exempted the assets
of any state which was a UN member and which had acquired property
through the execution of the peace treaty, a category which included
only the USSR.
Non-German assets are, in theory, preserved. In two cases, joint
Soviet-US ownership of East German plants has resulted.
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Soviet properties in 1946 accounted for about one-
third of total East German industrial employment and output. This
proportion was maintained, with the expansion of retained properties
exceeding the value of returned properties, until April 1952, when
the proportion dropped to 20 percent. Then in August 1953, following
the rioting in East Germany, the USSR announced a series of economic
concessions. These included cancellation of East German reparations
payments at the end of 1953 and the return of all but one of the
Soviet enterprises to East German ownership. The single exception,
the Wismut A.G. uranium mining enterprise, was to be turned into a
joint Soviet-East German corporation. These transfers were carried
out on 1 January 1954. 42
The USSR has apparently received compensation pay-
ments from East Germany for what may be estimated as two-thirds of
the value of Soviet enterprises turned over to East Germany before
August 1953. The remaining payments for these enterprises were
officially cancelled at that time, and no compensation was required
for the latest transfers.
Former German territory now under Polish adminis-
tration supplied property which was removed to the USSR, but no fur-
ther Soviet claims were made after the area had been turned over to
the Polish government. There are no joint companies in Poland; a few
large estates with-previous German owners are retained by the Red
Army to feed its troops.
In Czechoslovakia there were several important plants
built by the Germans. The USSR reached an-agreement with the
Czechoslovak governmentin July 194-5 concerning these properties,
using a formula which distinguished, the Sudetenland (incorporated
into the Third Reich) from the Bohemian and Moravian Protectorate
and placed all factories in the former area and those built since
1938 in the latter area in -Soviet hands. The Soviet claim apparently
was renounced in toto-on 30 July 1946, quite probably in exchangefor
the strategic uranium mines, now owned and operated by the USSR, in
which no German capital had been invested. These mines are the only
Soviet property in Czechoslovakia now, since no joint companies have
been formed.
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In Yugoslavia, two small joint companies were started
in the transportation field. They were nationalized after Tito's
break with the USSR in 1948. The Yugoslavs have stated that the USSR
contributed nothing but the management personnel and received over
half of the profits.
The USSR has not formed joint companies in Albania.
On the other hand, joint Yugoslav-Albanian concerns were formed;
these concerns reverted to Albania after Yugoslavia's break with
the USSR in 1948.
When the USSR transfers enterprises to Satellite
ownership, it may be assumed that production and expansion plans
for these enterprises will continue, as before, in conformity with
Soviet wishes, since the USSR is most unlikely to relinquish volun-
tarily a significant instrument of control. The USSR loses a share
in the profits from sales of the products of the enterprises but at
the same time avoids the necessity of paying for costs of production.
Satellite governments acquire a source of profit and a source of tax
revenue, and these should be sufficient to finance compensation pay-
ments on easy terms. In the case of Hungary these sources probably
are not very large, and Hungarian reparations payments ceased in
January 1953. (It has been suggested that Soviet assets may have
been exchanged for the Hungarian share of the joint company producing
aluminum, making it a 100-percent Soviet enterprise, but this spec-
ulation has not been confirmed.) In East Germany, however, total
Soviet takings from all sources had been so burdensome as to hinder
development in accordance with Soviet aims, at least as of 1954.
Future policies cannot be predicted.
Liquidation may have been a means of maintaining
Soviet import balances from former enemy Satellites as reparations
payments came to an end. Rumanian reparations were due to stop
in September 1952, but there was no public announcement of this
termination as there was in Hungary, and they may have been extended.
Liquidation in Hungary may also have been caused by Soviet disin-
clination to continue the administration of small scattered inter-
ests.
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II. Controls over Balance of Payments Transactions within the
Soviet Bloc.
Trade within the Soviet Bloc is carried on under bilateral agree-
ments, which provide for the exchange of specified commodities at
fixed ruble prices bearing no necessary relation to internal prices
in the trading countries. Trade and certain other current payments
included in these agreements must balance during each calendar year.
In addition to this balancing trade, certain other transactions,
notably reparations payments, the transfer of profits of -Satellite
corporations partly owned by the USSR, and intergovernmental credits
may provide an inequality in the value of goods and services moving
in both directions.
By controlling the composition of reparations payments and by
directing joint corporations, the USSR has been able to direct the
pattern of output in some Satellites. By controlling the composition
of trade under bilateral agreements and by dominating the sources of
many materials and types of equipment needed by the Satellites, the
USSR can exercise an equally important, if less direct, control over
others.
Very little is known outside the Bloc concerning the trade and
payments relationships among the Bloc countries. This section sum-
marizes the principal conclusions which can be drawn from various
Bloc publications as to the manner in which these countries conduct
their trade and payments transactions. Although the basic information
is much less satisfactory than could be wished, it -serves to give
some clues as to the practices and :procedures of the "second world
market system," as Stalin called it.*
The principal conclusion to be drawn-from this analysis is that
the basic equilibrating functions of an international market mech-
anism do not exist in economic relations within the Soviet Bloc. Such
a conclusion is in a sense negative, for it states the procedures by
which economic relations are conducted without indicating why the
volume and direction of trade is what it is and without indicating
what relation there is between the :international trade and the in-
ternal economic activity of a Bloc country. In Section III, an
* Joseph Stalin, Economic Problems of Socialism in the USSR,
Mo-scow, October 1952.
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attempt is made to explain how the planning mechanisms in the Satel-
lites have been adapted to cope with problems of international trade
and, therefore, to give'more satisfactory answers to the questions
raised here.
A. Trade and Payments.
Trade within the Soviet Bloc is typically carried out
on the basis of bilateral agreements between Ministries of Foreign
Trade. A typical Soviet summary of the provisions of such agree-
ments is the following: CPYRGHT
Trade agreements between the USSR and the
people's democracies are based upon the prin-
ciple of equality in the value of commodity
shipments in each direction, an equality
observable in 6-month intervals over the life
of the (long-term) agreements. Within each
half-year period the value of shipments of
goods by one party may exceed the value of
shipments of goods by the other, but at the
end of each half-year period of operations
under the trade agreement the trade agreement
shipments in each direction must be equal. If
at the end of the year either party has not
made up its deficit in shipments, it receives
a 3-month period in which to do so.*
This statement clearly implies a bilateral balancing of trade between
the USSR and each Satellite. Soviet-Satellite trade occurs within
the framework of 5-year agreements, so that annual delivery programs
can be fixed by means of protocols to a basic agreement. Among the
Satellites conclusion of long-term agreements is becoming more
characteristic than annual agreements.
* A. Korolenko, "Printsipy ravenstva i vzaimnoy vygody v torgovle
SSSR'evropeyskimi stranami narodnoy demokratii," Voprosy ekonomiki,
No: 3, 1952.
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There are only three known cases in which the Bloc coun-
tries have entered into multilateral agreements. Poland, Czechoslo-
vakia, and Communist China are members of a series of trilateral
agreements with the USSR and Finland and make deliveries to Finland
to offset Soviet current deficits with Finland. In no case does
there appear to be a trilateral agreement to which all three parties
are Bloc members.
Soviet writers sometimes try to give the impression that
trade is multilateralized within the Soviet Bloc. The following
quotations are characteristic. They can be interpreted either as
saying that the Bloc members having transferable sterling accounts
settle with one another in sterling or that they settle with
countries outside the Bloc in sterling. The latter interpretation
seems the more solidly supported by the available evidence.
The Soviet Union and people s demo-
cracies are making attempts to. expand
multilateral clearings. The USSR, Poland,
and Czechoslovakia, in addition to partici-
pating in several trilateral clearing agree-
ments concluded with Finland, participate in
a system of transferableaccounts in-England,
which considerably expand the use of pound
sterling in international settlements.*
Along with the bilateral clearing accounts
between the USSR and the people's demo-
cracies, a tendency has appeared in recent
years to handle accounts on a multilateral
basis, which offers substantial advantages
to participating countries. These advan-
tages are so evident that even Finland,
which is a capitalist country has deemed
it advantageous to join in trilateral
clearing arrangements; USSR-Poland-Finland
and USSR-Czechoslovakia-Finland. The multi-
lateral -- and in particular the trilateral --
agreements make it possible to expand trade
turnover between the participating countries.
* E. Evreyskov, "Puti ukrepleniya mezhdunarodnykh finansovykh
otnosheniy," Voprosy ekonomiki, No. 3, 1952.
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The flourishing of the socialist economy of the
USSR and the people's democracies, the ever-
strengthening economic ties between them, and
the existence of a most stable currency -- the
Soviet ruble -- create all the prerequisites
for a further expansion of international
settlements on a multilateral basis.'
All these statements actually say is (a) that there exist two tri-
lateral agreements, (b) that the Bloc settles some deficits with non-
Bloc countries in sterling, and (c) that multilateralism would permit
increases in the volume of trade.
Some Soviet writers .make a virtue out of the necessity
of bilateralism by arguing that only bilaterally balanced trade is
equitable, since otherwise one partner receives more imports than
the other.** For example:
In trade with all countries, the USSR does
not attempt to sell more than is necessary to
pay for its purchases and to cover its other
foreign expenditures. This 5olicJ avoids
unfavorable consequences connected with dis-
turbances in trade and payments balances, which
lead to foreign exchange difficulties and a
worsening of the economic position of countries..
Thus the readiness of the USSR to purchase in
exchange for Soviet goods the same amount of
,foreign goods which are the usual object of
export of the foreign country in question
sets up a favorable basis for mutually advan-
tageous trade. *
* M. Polyakov and V. Trubenkov, "Gosbank i mezhdunarodnyye denezhnyye
raschety SSSR," Finansy i kredit SSSR, No. 2, 1952. This article was
written prior to the signing of the Finnish-Soviet-Chinese agreement.
** See M. Paromov, "Formy i metody ekonomicheskogo sotrudnichestva
SSSR i stran narodnoy demokratii," Voprosy ekonomiki, No. 12, 1950;
Korolenko, Voprosy ekonomiki, No. 3, 1952, op. cit.; Yu. Shkarenkov,
`tEkonomicheskoye sotrudnichestvo SSSR i stran narodnoy demokratii,"
Planovoye khozyaystvo, No. 3, 1952.
*** Vneshnyaya torgovlya, editorial, No. II, 1952.
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This statement that trade always balances bilaterally, of course, is
not true of East-West trade, where the Bloc normally shows a surplus
in its trade with the UK and deficits with other sterling countries.
It is only technically true even of trade within the Bloc, since
there are various capital movements and transfers which are outside
of the regular trade agreements and therefore technically are not
covered by the statement given above, so that the total movement of
goods in each direction between each pair of Bloc countries need not
be equal.
2. Nontransferability of Earnings.
Statements concerning this subject indicate that it is
in general not possible for one Bloc country to apply earnings in
its current payments with a second Bloc country to deficits in its
payments with a"'third. In other words, there seems to be no
mechanism for transferability of earnings in intra-Bloc trade.*
The following statement by an East German economist emphasizes the
relation between bilateralism in trade and nontransferability of
currencies:
Large uncovered claims in the accounts
arise chiefly on the basis of an excess of
exports over imports and take the form of
an active balance (in the clearing account)
or in the form of exchange which, however,
cannot be transferred to a third country.
These uncovered claims are at thesame time
a credit which is extended to a partner
country which has not met its contractual
required deliveries. The formation of
such claims creates no danger to the re-
lations betweencountries with a socialist
* There may be, however, some transfers of Free World currency
among Soviet Bloc members. One source states: "The transfer in
rubles of foreign exchange to another contracting party is made
-at an agreed rate." (Korolenko, off'. cit.) The use of "agreed
rate" rather than "established rate" probably is not accidental
and suggests that such transfers are not necessarily made on
the basis of the official cross-rates.
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economy. This was precluded from the start by
the fact that deliveries of goods between
countries of this type are the result of their
economic planning, and short-term temporary
(trade imbalances) are quickly compensated by
contractual deliveries.*
Within the bilateral framework, payments appear to pre-
sent no particular problem. Trade agreements provide for the
establishment of central bank accounts in the name of the respective
Ministries of Foreign Trade, to which all transactions are charged.
Since the Soviet currency appreciation of March 1950 these have
been kept in rubles. An enterprise producing for export'under
some trade agreement uses the same procedure for receiving payment
that it would if it were producing for a domestic purchaser. As
in transactions within the USSR, payment is completed within 10
days of the receipt of the payments documents and on the basis of
the invoices, whether or not the goods have actually been received.
Disagreements arising from discrepancies between the actual goods
and the invoices are settled by arbitration tribunals. A Soviet
source describes the payments procedure as follows:
In commercial relations of the Soviet Union
with the countries in the camp of socialism and
democracy, the possibility of deception is
excluded, for the participants of both sides of
the foreign trade transaction are state organi-
zations. Hence the major form of settlements
* Alfred Siebeneichen, "Die zwischenstaatliche Verrechnung im
Sozialismus," Deutsche Finanzwirtschaft, Berlin, No. 3, 1953.
An apparently contradictory statement by a Bulgarian source
states,
countri
connect
tractin
pecxai accounts opene
to carry out payments f
with goods turnover are
iarties make transfers i
n the banks of contracting
r goods turnover and for expense
held in rubles ... The con-
("A.S.," "Ikonomichesko
s'trudnichestvo na stranite v lagera na sotsializma," Finansy i
kredit, Sofiya, No. 9, 1951.) The contradiction is more apparent
than real if "contracting parties" is interpreted to mean "trading
partners," with the "transfers"" referring to entries in two
accounts created under a particular bilateral agreement rather
than in all accounts created under bilateral agreements.
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between them is not the letter of credit but
the simpler and less complicated inkasso form
of payment, which is more in accordance with
the character of their relations. Under this
form of settlements, the goods delivered
under a commercial transaction are consigned
directly to the foreign purchaser and upon
arrival are immediately transferred to him.
The bills, transport and other commercial
documents are submitted by the supplier for
inkasso to the bank of his country, which
sends them off to the bank of the purchaser's
country for receipt of payment. The payment
must be made by the bank within 10 days of
receipt of the documents sent inkasso.*
The operation of clearing agreements is conditioned by
the interest of the participants in maintaining -a deficit position
and by their interest in obtaining as high prices (in clearing
rubles) as possible for their exports or as low prices (in clearing
rubles)-as possible for their imports.
In clearing agreements it is possible for
one of the countries to receive credit. To
the extent that this is possible the debtor
country is in -a-favorable position, since
it can make payments in goods little needed
by the creditor country. In clearing agree-
ments, exchange rates are fixed for the
currencies in which members are compensated.
When one of the countries (for instance,
Facist Germany) succeeds in raising the rate
on its currency, it thereby has the economic
* M. Polyakov and V. Trubenkov, "Gosbank i mezhdunarodnyye denezhnyye
raschety SSSR," Finansy i kredit SSSR, No. 2, 1952. A Bulgarian
source states that this form of payment is the usual one in trans-
actions among the Bloc members. P.1. Petkov, "Mezhdunarodnite
plashchaniyay" Finansy i kredit, Sofiya, No. 3-4, 1951, p. 60. This
publication appears with great delay, and this issue did not appear
until September 1951. It is not known how long this system has
been in effect.
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power to purchase additional goods o ere y
other countries. Its. aim in so doing will be
to raise imports in relation to exports, there-
by bringing in goods purchased from the con-
tracting country at low prices.*
Such price and trade manipulations as are implied by
this quotation are possible in the Soviet Bloc (a) because of the
absence of a uniform Bloc-wide market price for any commodity and
(b) because neither prices nor the quantities of goods moving in
trade will be affected by the creditor or debtor status of any
country.
3. Pricing.
With regard to the prices at which goods are valued in
the bilateral clearing accounts, there have been numerous statements
of the following sort published since 1950:
Mutual deliveries of goods a ween the
and the people's democracies are carried out on
the basis of just prices, which are fixed by
mutual agreement; in determining these prices,
a single principle is applied to the pricing
of goods of both contracting parties, and any
inequality of treatment in barter trade is
thereby avoided.**
It is not so easy to find out what the "single principle" may be.
A Soviet writer'stated in 1953 (a) that all prices are fixed in the
agreement and may be altered only after a year or more has elapsed
and (b) that each exporting country must charge the same prices to all
* Petkov, off. cit. The reference to "Fascist Germany" probably is
"insurance" by the author so that he will not be accused of imputing
evil designs to the USSR, which appreciated East German currency in
March 1950. In the Bloc context, "raising the rate on currency"
means raising the clearing ruble prices of exports.
a* A.Korolenko, Voprosy ekonomiki, No. 3, 1952, oR. cit.; M. Paromov,
Voprosy ekonomiki No. 12, 1950, P. cit.; Shkarenkov, Planovoye
khozyaystvo, No. 3, 1952, off. cit.; "A.S.," Ikonomichesko s'trud
nichestvo na stranite v lagera na sotsializma," Finansy i kredit,
Sofiya, No. 9, 1951 (this issue is dated October 1952).
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Bloc countries with which it trades.* The second part of this
statement had not appeared in any previous Bloc publication and may
represent a new development in Bloc policy. In other respects there
definitely had been unification of trading terms before 1953. In
1951 a standard set of rates for transit rail freight and a standard
form for contracts were set up on a:Bloc-wide basis.** As regards
the price of goods, however, there is no indication of how the
"uniform price" charged by each exporter is calculated. Furthermore,
there is no indication that all exporters of a particular commodity
charge the -same price.
To the extent that different countries receive different
prices (in clearing rubles) for the same commodity, as was certainly
true as recently as 1951, transferability of clearing ruble balances
becomes undesirable from the Soviet ;point of view. Transferability
might mean that a country would transfer purchases to those countries
where prices (in clearing rubles) were lowest. -High-price countries
would be unable to sell enough to pay for their imports. Since the
USSR, in particular, now takes advantage of its bargaining position
tocharge high prices for its exports, it might then have to reduce
its imports from the Satellites or: to sell its exports on terms
morefavorable to the Satellites, if it is to avoid certain Nazi
practices (such as building up credit balances) which it has pub-
licly condemned.
The absence of a corrective market mechanism which
would prevent countries from running up indefinitely large surplus
or deficit clearing_positions is stressed by one of the writers
already cited:
Whereas under capitalism there is a clear de-
pendence between the exchange rate and internal
prices, under socialism this has been overcome;
exchange rates have no influence on internal
prices, and internal prices have no effect upon
the exchange rate (or parity). The consequence
of subordinating the prices of imported goods
as well as the prices of exported goods to
* I. Dudinskiy, "Ukrepleniye i razvitiye mirovogo demokraticheskogo
rynka," Voprosy ekonomiki, No. 6, 1953-
** V. Klochek and K. Viryasov, "Ekonomicheskoye sotrudnichestvo stran
lagerya sotsializma," Vneshnyaya torgovlya, No. 2, 1952; N. Cheklin and
K. Viryasov, "Torgovo-ekonomicheskiye dogovory i soglasheniya SSSR s
narodno-demokraticheskigi stranami," Vneshnyaya torgovlya, No. 11, 1951.
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CPYRGHT
economic plans is that the influence of the
exchange rate and foreign prices upon inter-
nal prices disappears. ... Since socialist
money is not a means of international pay-
ments and since the exchange rate has no
effect on commodity imports and exports
or on the level of international prices, the
relation between the exchange rate and inter-
nal prices is completely broken, and there
is therefore no connection between the balance
of payments and the value of socialist money.
Even if a socialist country were permitted
in its plan for foreign trade turnover to
accumulate a passive balance of payments
which would be settled in gold and foreign
exchange reserves, this would have no effect
on the value of its own money.*
These peculiarities of international trade in the absence
of any market price mechanism make it necessary to introduce the
strict system of swing ceilings and annual quotas described above.
Both the absence of transferability and the need for control over
balances (to prevent excessive creditor or debtor status) make it
easier to operate a rigidly bilateral system than one in which only
the over-all trade balance would be controlled. Soviet writers, it
is true, claim that since all Bloc trade is calculated in clearing
rubles and since the ruble is technically on a gold standard, trans-
ferability should be possible.
The question of the relation of Soviet
currency to gold has now not only great
theoretical interest, but also a practical
interest. At present the foreign trade
turnover of the Soviet Union, according to
data of the customs organs, exceeds 18
billion rubles a year /equivalent to US
$4.5 billion at the official rate of ex-
change of 4 rubles = US $17 -- that is, in
comparable prices it is more than about sic
three times the prewar level. The over-
whelming bulk of this annually growing trade
Alfred Siebeneichen, "Die zwischenstaatliche Verrechnung im Sozial-
ismus," Deutsche Finanzwirtschaft, Berlin, No. 3, 1953-
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urnover is in trade with countries of the
democratic camp. Having a fixed gold content --
he Soviet ruble is an exceedingly reliable
means of settling payments among individual
states which are members of the camp of
socialism.*
This statement, of course, assumes that the problem of trans-
ferability is related solely to the definition of currency units in
terms of gold. The problem, however, is not that the unit of account is
ambiguously defined in terms of gold but rather that it has represented
different amounts of goods, depending on the particular pair of trading
countries considered, and that the amount and direction of trade are not
in any way connected either to prices or to balances of trade.
Trade within the Soviet Bloc is thus carried on without a
market mechanism which can affect the movement of goods in such a way
as to bring about balancing of payments. To compensate for the lack
of such a mechanism, the Bloc has tended to develop international
allocations systems which serve somewhat the same purpose.
Regulation of prices is one of the controls which the USSR
can exert over the Satellites, and thus it is able to manipulate the
terms of trade in the bilateral agreements. By raising the ruble
prices of its exports, it can reduce the amount of goods which it
delivers-to any Satellite relative to the amount it receives from them.
The Satellites are hardly in a position to retaliate. In fact, two of
the victims in Satellite "purge trials" (Kostov in Bulgaria-and Loebl
in Czechoslovakia) were convicted in part because they had attempted
to bargain with the USSR on prices in the bilateral agreements.
4. Commodity Trade.
a. Trade Relations of the USSR with the Satellites.
Reports containing information through mid-1951 sup-
plement the published data and emphasize the disparity between the
* Review of Z.V. Atlas, "Ukrepleniye denezhnykh sistem SSSR i stran
narodnoy demokratii," by Gusakov, in Finansy i kredit SSSR, No. 1,
1952. A later article by Atlas ("0 nekotorykh voprosakh teorii
sovetskikh deneg," in Voprosy ekonomiki, No. 7, 1953) argues along
similar lines.
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bargaining position of the USSR and the Satellites. Exports to the
USSR from Satellite countries are specified in advance as to quantity,
price, quality, and delivery date, as are the Soviet exports for
which they are exchanged. These specifications are included in trade
agreements after thorough discussion by the Satellite foreign trade
monopolies and the Soviet production ministries concerned, so that
the Satellite Ministry of Foreign Trade in effect "ratifies a series
of agreements already reached" 43 with its subordinates.
The USSR maintains large trade delegations in the
Satellite capitals, while the Satellites have only nominal repre-.
sentation in Moscow. As early as 1946, Czechoslovakia created a
"plenipotentiary for trade with the Soviet Union," a position with
broad powers, the incumbent having as principal function the expe-
diting of deliveries to the USSR. 44 Reports indicate the impor-
tance of giving priority to trade matters in which the USSR is
involved if officials wish to survive in a Satellite.Ministry of
Foreign Trade / and of special treatment given to Soviet trade
as a matter of routine. 46
"No haggling occurs" in determining Soviet-Satel-
lite trade agreements. 47 "The Soviet Government decides Rumania's
imports and exports" to and from the USSR. 48 The terms of Soviet-
Satellite agreements are spelled out in detail, and the seriousness
with which these details must be regarded is shown by the willingness
of the USSR to exact heavy fines for late or faulty deliveries. 49
Apparently the Soviet authorities also arrange for prompt delivery
of raw materials from one Satellite to another when these are necessary
for the production of goods destined for the USSR. 50
As to what the Satellites can.get in return, one
report 51 indicates that Rumanian trade agreements with the USSR,
unlike those with other Bloc nations, are carried out promptly and
satisfactorily from Rumania's point of view but that articles which
the USSR does not wish to include in the lists simply cannot be
obtained. Complaints of the quality of Soviet deliveries to Czecho-
slovakia are to be found, 52 but not much is said about failures to
deliver.* It appears that Soviet commitments are carried out in a
A report of Soviet failure to deliver cotton under its 1948
agreement with Hungary is mentioned in the New York Times of 2
February 1949.
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fairly reliable manner once their contents have been determined but
that in making that determination the Satellites act in a subordinate
relationship.
The direction of trade balances of the Satellites
with the USSR cannot be measured in the -absence of reliable data on
the exchange of goods. Intra-Bloc trade agreements usually provide
for balanced trade, but such unilaterally determined items as the
transfers of profits from Soviet assets in the Satellites to the
USSR and provisions for the support of Soviet troops stationed in
Satellite areas must all be supplied in goods outside of the
"commercial" trade covered by trade agreements. Soviet penalties for
-faulty deliveries can be imposed with small pretext under the terms
of the trade agreements. By these devices, over-all import balances
can be obtained by the USSR to the extent that is desirable in
Moscow's views
Short-run expropriation, or "milking," however, is
not necessarily the most useful method of dealing with Eastern
European areas from the Soviet point of view. It could be harmful
if these are regarded as permanent assets of the Soviet Bloc or as
future Soviet republics. The development of Satellite industry does
appear to be a prominent Soviet objective, one which requires ex-
ports of capital goods from the USSR,. While some of these exports
take place within trade agreement lists, others are financed by
medium-term credits extended to the underdeveloped countries. Soviet
"contributions" to joint companies took the form of "reinvestment
of profits,," another kind of investment. Such "contributions," plus
occasional short-term loans extended by the USSRto meet emergency
conditions, might suffice to create export balances for the USSR
where reparations payments are minor or nonexistent.
Data on Soviet-Satellite trade balances since 1948
are one of the most closely guarded secrets in Czechoslovakia.* It
is reported that an employee of the Czechoslovak Ministry who at-
tempted to get; information on Czechoslovak-Soviet trade was sentenced-
to life imprisonment. 54 Total trade data and trade plans for all
areas are, kept secret most trade officials are allowed to know only
* The section of the Czechoslovak Ministry of Foreign Trade which
deals with Soviet trade is located in a villa at some distance from
the rest of the Ministry and next door to the Soviet trade delegation,
with whom they are connected by a special untappable telephone wire. 53
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small segments of the data with which they must deal, 55 and the
general picture apparently is known to no more than three people in
the Ministry). 56 Specific data on Soviet trade are subject to
particularly elaborate security protection. It is reasonable to
suppose that this also occurs in Satellites other than Czechoslovakia.
Such secrecy is perhaps the best reason for believing the Satellite
export balances with the USSR may be large.
Examination of available Soviet-Satellite trade data
from 1945-48 shows that Poland maintained a small but persistent import
balance (large in 1946), that Hungary had export balances in 1946-48
(with a small reversal in 1947), that Bulgaria had a consistent and
.often large import surplus as did Yugoslavia, and that Czechoslovak
balances oscillated with small net effect. In most years, imbalances
were small in comparison with total trade. The above, however, refers
only to commercial exchange. Total commodity exchange for Hungary,
Bulgaria, Rumania, and East Germany was dominated by reparations pay-
ments to the USSR, which far exceeded commercial trade in the immediate
postwar years. These payments have now been reduced or stopped,
investment credits extended to the Satellites by the USSR probably
have expanded, and no inference from the 1945-48 data is justifiable
for later years. In any case, the values of potentially large Soviet
profits from joint enterprises have not been published.
Another factor to be considered is the terms of trade,
which may be determined arbitrarily by the USSR, since nothing ap-
proaching true bargaining takes place, and production costs can be
disregarded. The USSR may wish to obtain "real" import balances
(that is, an exchange that would produce an import balance if world
market prices prevailed) by manipulation of prices and exchange
rates, while retaining the appearance of balanced trade. Reports
indicate that the Soviet prices are "always automatically the lowest"
when buying and highest when selling. 57 Scattered data for early
postwar years indicate that the terms of trade had turned strongly
against Bulgaria if prices in its 1945 agreement with the USSR are
compared with world prices of 1939, 58 that prices for Hungarian
exports under the reparations agreement with the USSR were one-third
to one-half of those available to Hungary in other markets, 59and
that unit values for selected Czechoslovak exports to the USSR were
consistently below those for exports to other areas.* The USSR has
imported Polish coal in large quantities at prices well below those
paid in Western Europe.
Nicholas Spulber, Economic Relations between the USSR and Eastern
Europe (Ph.D.'thesis, New School for Social Research, 1951), p. 84.
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Considering reparations, joint companies, and prices,
the USSR undoubtedly extracted "real." import balances on a large
scale from the Satellites (excluding Czechoslovakia) in the 19+5-48
period.
These assertions are, of course, inconsistent with
published claims of "just" prices in intra-Bloc trade. More important,
they contradict the assertion that each country charges the same price
to all Bloc purchasers of its exports. It should be noted, however,
that the reports date, in general, from the period before 1952, while
the assertionas to price uniformity was published in 1953. It is
possible, therefore, that standardization of prices followed-the
standardization of freight rates and contract terms and that the two
sets of statements are valid in the time period to which they apply.
b. Trade Relations-among the Satellites.
In inter-Satellite trade (and in East-West trade) the
Satellite foreign trade ministries negotiate in their nationalinter-
est with more freedom from outside control than when dealing with
the USSR. It appears that CEMA exercises at least a veto power in
the process of coordinating trade agreements within the Bloc and
that all agreements made by the Satellites must be approved by -
their national-planning commissions toinsure -conformity with over-all
(Moscow-supervised) long-term plans. 60 But since agreements which
do not involve the USSR are merely promises to issue export and import
licenses 61 for agreed total quantities or value of goods, a consid-
erable leeway remains for negotiating prices and delivery dates and
for dealing with inadequate deliveries as these occur.
Centralized planning of intra-Bloc trade has thus
been rather general in nature, or, if' detailed plans existed, their
enforcement was weak outside of trade in which the USSR was involved.
This may be changing as central controls become tighter and more
explicit.
Precise balancing of payments is not provided by
the content of inter-Satellite trade agreements, as is the case in
Soviet=Satellite agreements, because-the former do not specify
prices. Prices, transportation costs, and other charges are nego-
tiated by representatives of foreign trade ministries including
agents of the foreign trade monopolies. These negotiations ap-
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parently are not supervised by Moscow, and informants describe
them as bitterly contested, lengthy affairs. 62 Sellers try to
"charge what the traffic will bear," 63 and unreasonable claims are
made and argued seriously -- for example, that 1938 prices be used
or that Czech Skoda automobiles have the value of an American
Buick. !L4/ When agreement cannot be reached, differences are taken
to CEMA, and decisions are handed down "in accordance with Soviet
wishes." 65 Moscow appears to play a relatively passive role in
inter-Satellite affairs when its own direct interests are not
involved. 66
. Antagonistic relations among the Satellites are also
indicated by complaints of one Satellite about the shortcomings of
neighboring Satellites in delivering goods under trade agreements.
Theoretically all the intra-Bloc agreements are binding commitments,
but it seems that obligations to the USSR are the only ones which are
reliably implemented. One report estimated that Czechoslovakia was
receiving no more than 60 percent of the goods which it was entitled
to.under inter-Satellite agreements. Rumania and Bulgaria were said
to be the worst offenders, but Poland and Hungary were seriously
delinquent as well.** Similar complaints are heard from other Satel-
lite countries.
Extensive failures to deliver goods included in
trade plans could create serious disruptions of production in indus-
tries dependent on raw. material or capital goods imports. It is not
entirely clear how this kind of problem has been handled.
Administrative decisions on trade are made within the
ministries of foreign trade rather than in the production ministries.
In Czechoslovakia, decisions on imports are made by section chiefs,
An example of dilatory action by CEMA may be cited. After the
revaluation of the zloty (in late 1950). Poland refused to alter its
shipping and customs charges on Czechoslovak goods exported through
Polish ports. The Czechoslovaks took their case to CEMA and got no
action for some time until after they stopped using Polish ports
altogether in protest. Following this, "direct pressure was brought
to bear on Poland by Moscow."
This percentage figure implies more knowledge of trade data than
was likely to have been available to the source of this report; also,
the poor harvests of 1950 were affecting Satellite exports at the
time. 68
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while export decisions must be approved at the deputy minister level
or above. 69 (Geographical section chiefs are one echelon below
deputy ministers.) It is possible that production ministries may make
appeals to higher' authorities. The higher administrative level of
export decisions, as opposed to import decisions, is indirect con-
firmation of the existence of shortages, mutual suspicions, and
failures to deliver.
Further evidence of a lack of cooperation among the
Satellites is provided by instances of competitive behavior in trade
within and outside the Soviet Bloc. In the past there has been "a
good deal of unfair trade practice in the form of underselling by
Czechoslovakia and Poland in the Soviet orbit." 1J The Czecho-
slovaks were unsuccessful in stopping Poland from buying hides in
Argentina and,from underselling Czechoslovak glass in the US after
Czechoslovakia had made the first offer, 71/ and Czechoslovakia,
Hungary, and Polandwere _competing with one another to sell cement
in Argentina. 72/ These matters have been discussed in the
Czechoslovak-Polish cooperative council with no result. L3/ Such
cases should not be cited without mentioning that some observers
have thought that they detected examples of collaboration among
Satellites in trade relations with the West. The latter, however,
relate largely to tactics in the negotiation of trade agreements and
the procurement of strategic goods. In these activities, one would
expect the direction from Moscow to be stronger than in other matters.
Too little is known of the terms of trade in inter-
Satellite exchange to permit adequate discussion. Unit values for
pre-1948 exports from Czechoslovakia to the Satellites were higher
(and more arbitrary) than the same values for Czechoslovak exports
to either the USSR or the West. Austrian exporters have consistently
obtained higher prices for their industrial goods in Eastern Europe
than in the West. These facts point to shortages within the Satel-
lites but do not indicate the results of bargains made between
socialist governments in conditions of scarcity. The decline of
East-West trade and the increased dependence of one Satellite upon
another for supplies should enhance the monopoly position of the
larger Satellites. It is possible that increasing output in the
Soviet Bloc has reduced scarcities, thus weakening monopolistic
powers, and that planned programs of industrialization have led to
increased national diversity. They may also have led, however, to
increasing interdependence. No estimate is possible other than that
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of arbitrary price relationships with a wide range of possibilities,
as might be expected among bilateral monopoly exchanges, with a
marked bias in favor of countries having a strong bargaining posi-
tion within the group. Even this estimate must be advanced with
the proviso that as CEMA becomes more active in a regulatory capacity,
a tendency toward price uniformity may result.
c. Soviet and Soviet-Approved Middleman Transactions.
There have been numerous reports that the USSR acts
as a middleman, at least in reselling exports from the smaller Satel-
lites to the West. In many cases these were re-exports of reparations
goods. Less is known about Soviet re-exports within the Soviet Bloc.
One individual has stated 74 that "some transactions between two
Satellites are handled by Soviet firms" and cited a 1949 shipment of
Albanian salvaged iron purchased by Rumania from the USSR. Prom-
syr'yeimport is said to have engaged in such transactions.
The Yugoslav press has claimed that the USSR in 1949
purchased Rumanian oil at world prices (which were below Rumanian
costs of production) and resold it to Czechoslovakia and Hungary at
Soviet domestic prices (which were above world prices). It also cited
the case of Soviet resales of Bulgarian zinc concentrate to Czecho-
slovakia at prices below Bulgarian export prices. The Yugoslavs have
emphasized the importance of Soviet middleman transactions, both as
a source of Soviet profits through price manipulations (as in the
first case) and as a means of channeling the movement of goods
through Soviet sources (as in the second).*
Satellite re-export transactions are found in im-
ports from outside the Soviet Bloc. The East German trade monopoly,
D.I.A.J. is reported to have acted as purchasing agent for heavy
presses imported by China in 1950 and to be a possible middleman in
procuring machinery for all Bloc countries in the future. 75/
Another report suggests that CEMA may have given Czechoslovakia
the assignment of procuring machine tools in the West. L6/ It is
probable that middleman transactions within the Bloc are subject
to Moscow's approval, if not entirely monopolized by the USSR.
See the New York Times and the New York Herald Tribune of 24 April
1950, quoting a series of articles then appearing in the Belgrade
paper Politika.
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The significance of these indirect transactions
cannot be assessed in the absence of data indicating their magni-
tude relative to total trade. Conceivably the USSR could handle a
triangular exchange among three Satellites (or more complicated ex-
change) while maintaining over-all bilateral balances with each
Satellite separately. This would provide some of the substantive
advantages of multilateral trade and would facilitate bilateral
balancing among the Satellites concerned. In this way a strict
supervision of trade by Moscow could be maintained, which would be
more difficult if the usual multilateral relationships prevailed,
and the USSR could also make middleman profits at almost no cost
to itself.
5. Bilateral Trade Agreements as an Instrument of Control.
Soviet-Satellite agreements represent a powerful control
instrument in that the Satellites must produce what the USSR desires
to import. The contents of such trade agreements are determined al-
most unilaterally by the USSR. Export obligations to the USSR receive
high-priority treatment in the Satellites, and the importance of this
trade has steadily increased. Industries have been created in the
Satellites to meet Soviet needs, and some pre-existing industries are
virtually dominated by current production for the USSR. Soviet-pur-
chases also furnish a pretext for the presence of large economic
missions in the Soviet embassies and for the presence of Soviet ad-
visers and inspectors in Satellite industry with functions which in-
clude the collection of economic data and the exertion of varying
degrees of influence on production processes.
In addition to these obvious control aspects, more
subtle controls are involved in the trading system which has evolved.
The basic principles of trade between the Satellites and the USSR
are indicated in the following quotations which-stress (a).bi-
lateral balancing, (b) Satellite dependence upon Soviet raw materials
exports, (c) integration of trading agreements with long-run plans,
and (d) rigid scheduling of deliveries under the clearing agreements:
/Trade between the USSR and the Satellites
is based upon an equality of shipments in each
direction. The Soviet Union ships to people's
democracies mainly industrial equipment and raw
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materials necessary to fulfill economic plans
and to carry out the industrialization of these
countries.*
The volume of foreign trade turnover and the
ever-increasing output of material goods in the
countries of democracy and socialism are closely
connected. Developing at a rapid tempo, the
economy of these countries shows increasing
demands for raw materials and equipment produced
either inside the given country or abroad; at the
same time the possibility for the export of goods
produced within the country increases.**
Agreements on mutual deliveries of commodities
determine the amounts of the basic articles which
are to be shipped in the course of 4 to 5 years,
and long-term agreements as a rule determine the
shipment of industrial equipment, including the
deliveries of entire factories. **
The fulfillment of conditions on the assort-
ment of goods, their volume and delivery dates,
as well as all other points in the trade agree-
ments, are firmly guaranteed by the agreements
concluded among the governments. An important
means of strengthening the planned character of
trade turnover among the countries of the
socialist camp is the condition of equality of
payments in each direction, which assures the
observance of delivery dates by each party, and
other forms of economic mutual aid. Firm obli-
gations in foreign trade agreements and their
undeviating fulfillment within precisely deter-
mined periods can be undertaken and carried out
only by governments with planned economies.
N. Ivanov, "Razvitiye ekonomiki i vneshney torgovli stran narodnoy
demokratii," Vneshnyaya torgovlya, No. 10, 1949.
** V. Klochek and K. Viryasov, "Ekonomicheskoye sotrudnichestvo stran
lagerya sotsializma," Vne,shnyaya torgovlya, No. 2, 1952.
Ibid.
MINK Paromov, op. cit.
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Several Soviet statements exist to the effect that the
USSR ships mainly raw materials and capital goods to the Satellites.,
receiving in exchange mainly finished goods other than capital goods.
The following interpretation could therefore be made of these state-
ments: (a) the Satellites are dependent upon the USSR for a number
of -raw materials (includingsuch things as cotton, wool, iron ore,
manganese, chrome, and fertilizers), and the greater their own output,
the greater their imports must be, and (b) if the USSR falls behind
in its deliveries for some reason, output in the Satellites must
drop below plan or may even decline. A drop in output will affect
Satellite shipments to the USSR and may act automatically in such a
way as to prevent the Satellites from building up credit balances in
the USSR. The USSR, therefore, by cutting down its deliveries to the
Satellites, can restrict their output in particular lines without
building up -a substantial payments-deficit and without causing Soviet
output to~suffer.
Should a Satellite fall behind in its deliveries, the USSR
can use the threat of suspending shipments of raw materials as a
practical means of forcing compliance. Since the Satellites have small
reserves of Free World exchange and since their own raw materials
supplies are in many ways limited, a_failure of the USSR to make
deliveries of materials might mean a nonfulfillment of domestic output
plans. Since such a failure is an important political matter, foreign
trade as well as domestic planning authorities will endeavor to meet
their delivery quotas in order to make possible the continuation of
-output at home.
This schematization unquestionably oversimplifies the
control which the USSR can exercise over the Satellites by varying the
over-all volume of barter tradeand delivery rates. Yugoslav exper-
ience since 1950, however, may be suggestive. Yugoslavia imports
many of the same materials that the Satellites import, and the size
of the foreign aid pipeline and current deliveries have been the
source of considerable concern to the Yugoslavs. Even relatively small
changes in the rate of aid shipments can have an effect upon-Yugoslav
industrial output. Since several Satellites are in a stage of devel-
opment -similar to that-of Yugoslavia, they may be affected in a like
manner by changes in the rate of their imports.
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B. Service Transactions.
Trade transactions probably make up a larger portion of the
total balance of payments within the Soviet Bloc than they do in
the case of other trading countries. There are, however, various
service payments and capital transactions which enter into the bal-
ance of payments of Soviet Bloc countries.* The remainder of this
section will summarize the information available concerning non-
trade transactions.
During 19+8 the entire Soviet Bloc negotiated a series of
bilateral agreements on what the Bloc press calls "technical aid"
and "technical collaboration," which include most of the service
items in the intra-Bloc balance of payments. These include the estab-
lishment of joint chambers of commerce, the organization of trade
fairs, the exchange of technical experience, and technical aid.**
Joint chambers of commerce exist in a number of instances.
Since there has been a steady merging of foreign trade and economic
planning functions in the Satellites, the chambers of commerce prob-
ably have only a minor role in promoting intra-Bloc trade. Their
functions presumably are propagandistic. Trade fairs are held
periodically in the various Bloc countries. It is difficult to
assess their importance. Since the available evidence indicates that
Bloc security regulations make foreign travel as difficult for Bloc
citizens as for Free World officials, trade fairs may actually serve
a useful function in acquainting the technical personnel with types
of industrial equipment produced elsewhere in the Bloc and may com-
pensate, to some degree, for the limited amount of contact among
technical personnel in the various countries.
"Exchange of scientific and technical experience" is achieved,
in principle, on a bilateral basis. The treaties signed in 19+8 be-
tween each pair of Satellite countries called for the establishment
of joint commissions, consisting of five members on each side. These
* See Appendix C, Some Aspects of Rumania's External Accounts
with the USSR, 1945-51-
** See, for example, A. Korolenko, "Ekonomicheskoye sotrudnichestvo
SSSR i stran narodnoy demokratii," Vneshyaya torgovlya, No. 9, 191+9,
and "Ukrepleniye ekonomicheskikh otnosheniy mezhdu SSSR i stranami
narodnoy demokratii," Vneshnyaya torgovlya, No. 5, 1950.
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commissions were to meet twice yearly in the respective capitals, in
alternation, to make recommendations to the respective governments
on the exchange of information. The treaties were in general for a
period of 5 years and were renewable without further negotiations.*
The terms of reference of the commissions make it clear that
at best these are advisory bodies, which can perhaps outline the
subject matter on which exchange could take place but which probably
do not actually distribute material themselves or ,,have any active
function of providing a channel for working-level contracts. It
appears that only a few of the commissions have actually been acti-
vated, probably because other channels have been more effective.
"Mutual scientific and technical aid," in contrast to the
foregoing programs,-appears to be the main vehicle for handling ser-
vices among Bloc members. The principal features of this program
relate to (1) loans of skilled personnel; (2) training programs, in-
cluding sending of students abroad; and (3) licensing of patents.
These features of Bloc economic relations appear to have been devel-
oped largely since mid-1950. Soviet literature before that date did
not spell out this type of aid in any detail, whereas in 1952 consider-
ably more detail was given.**
Loans of skilled personnel appear toamount in practice mainly
tothe sending of Soviet technical missions to the Satellites. Pub-
lished examples include missions for exploration and exploitation of
natural resources, the "exchange of productive experience and ad-
vanced labor methods," and the design of plants and the installation
it-
A. Korolenko, "Printsipy ravenstva i vzaimnoy vygody v torgovle
SSSR evropeyskimi stranami narodnoy demokratii," Voprosy ekonimiki,
No. 3,, 1952.
** Compare the types of "economic collaboration" listed by Korolenko
in his 1949 and 1950 articles cited above with those listed by
Shkarenkov, "Ekonomicheskoye sotrudnichestvo SSSR i stran narodnoy
demokratii," -Planovoye khozyaystvo, No. 3, 1952.
From the context of these reports, it could be concluded that
these missions took place mainly in connection with the Soviet- -
Chinese treaty of 1950, which called for the establishment of joint
corporations for developing Chinese petroleum and ferrous metals
resources. The uranium deposits in East Germany, Czechoslovakia,
and Bulgaria, however, may well fall into this category of project.
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or operation'of new equipment.* In addition, Soviet experts in military,
security, and administrative problems are attached to the Satellites.
A Soviet source' states that thousands of Satellite students
are enrolled in Soviet educational institutions. Inter-Satellite
student exchange appears to be of much less importance. One reason
for this situation appears to be the existence of rigid security
controls in the individual Bloc countries.
It is not clear how the financial aspects of-these various
"service" transactions operate. A Bulgarian source indicates that dip-
lomatic, trade, and military missions as well as students studying
abroad are supported by the country of origin and that funds are trans-
ferred by means of payment orders in a procedure differing from that in
commodity transactions.*-** These missions seem to be the permanent
representation of the various countries rather than the special missions
in the "mutual aid" programs. A Soviet source speaks of contracts
dealing with "mutual aid" in the same context as trade contracts.*
One of the contributing factors in the Soviet-Yugoslav disputes prior
to 19+8 was the Yugoslav assertion that Yugoslavia could not afford to
maintain at its own expense a Soviet technical military mission,
especially since the salaries of Soviet officers far exceeded those of
their Yugoslav counterparts. The Yugoslavs have published numerous
claims to the effect that Soviet personnel abroad were paid by the
Satellites at rates equivalent to those prevailing in the USSR and far
in excess of those in the Satellites. Although Soviet published
sources say that the USSR "sends" technical missions at the request
of" the Satellites, X they have not claimed that the USSR pays for
the expenses of the missions. In contrast, Soviet publications speak
of the transfer "without compensation" of licenses, blueprints, and
* Albania, Rumania, and Bulgaria, in particular, as the least
developed of the Satellites, appear to have the most extensive
staffs of Soviet engineering personnel in their plants.
Shkarenkov, op. cit.
P.I. Petkov,7Mezhdunarodnite plashchaniya," Finansy i
kredit, Sofiya, No. 3-4, 1951.
X' N. Cheklin and A. Korolenko, "Torgovo-ekonomicheskiye dogovory
i soglasheniya SSSR s narodno-demokraticheskimi stranami," VneshnXaya
torgovlya, No. 11, 1951.
Xxxxx See, for example, M. Paromov, "Formy i metody ekonomicheskogo
sotrudnichestva SSSR i stran,narodnoy demokratii," Voprosy ekonomiki,
No. 12, 1950.
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technical documentations to the Satellites.* Since the Soviet govern-
ment would have to pay the salaries of specialists but would not have
to pay royaltiesor license-fees within the USSR, it presumably would.
seek to have the Satellites_pay the expenses of missions but would not
have any direct reason of the same kind to obtain royalties or license
fees for processes used abroad. To the extent that the more developed
Satellites, such as Czechoslovakia, have retained patent protection of
inventors, this procedure might work to their disadvantage.
The benefits which the Satellites gain from the hiring of such
Soviet "services" probably varies from country to country and also
according to the type of service in question.
At one extreme, Soviet industry is undoubtedly more advanced
than that of Albania, and Soviet engineers can therefore make a con-
tribution to Albanian economic development. At the other extreme, it
is doubtful whether Czechoslovak or East German industry greatly
benefits from, the application of Soviet engineering methods. Likewise,
considering administrative-rather thanengineering services, Albania
or Bulgaria might benefit from the use of relatively developed Soviet
accounting and statistical services, while the advice which the USSR
might give to a Satellite government wishing to increase the efficiency
of its police force might be considered less of a social blessing.
C. Capital Movements and Transfers.
Capital movements and transfers within the Soviet Bloc arise in
connection with reparations, with the operations of Soviet economic
interests in the Satellites.,-and with international loans.
1. Reparations.
Reparations have been paid the USSR by East Germany, Ru-
mania, and Hungary under the terms of the armistice and peace
treaties. Hungarian reparations were-completed in January 1953, and
East German reparations ended in 1953. No announcement has been made
concerning the end of Rumanian reparations (which were to have
been completed, under the terms of the peace treaty of 1947, at the
end of 1952), but it is likely that they probably will be completed
Korolenko, 1952 article cited above. See also V. Goryunov,
"Mazhdunarodnyye ekonomicheskiye svyazi Kitayskoy Narodnoy Respubliki,"
Vneshnyaya torgovlya, No. 3, 1952.
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in the next year or so. Under somewhat similar conditions, Poland
and Bulgaria have been paying the USSR from current output to compen-
sate the USSR for its claims on former German assets located within
the territories of these countries.
Reparations payments are made in kind and are credited
to special accounts. They amount to a planned export surplus by the
paying country. During the postwar period the USSR at various
times either has reduced total outstanding reparations obligations
or has permitted changes in scheduled payments. Of these instances,
the most notable was the termination of East German reparations
announced in August 1953. Such changes presumably would affect the
size of the export surplus of the particular Satellite with the USSR
and therefore would affect the internal balance of the Satellite
economy.
The terms of the reparations clauses in the peace
treaties are similar to those in ordinary Bloc trade, in that the
reparations are valued at a set of prices differing from the internal
prices in existence either in the USSR or in the Satellite. The
peace treaties provided for payments equal to stipulated values of
goods in 1938 US dollar prices, subject to various corrective factors
which are presumably the object of Soviet manipulation. The "1938
dollar" of the peace treaties may be considered as an equivalent to
the clearing ruble in bilateral trade agreements, and it is prob-
able that after rubles came to be used as the clearing unit of
account, the reparations accounts were similarly revalued.
The reparations accounts provide the USSR with an impor-
tant means of controlling Satellite economies, since the USSR can
control their commodity composition as well as the clearing unit
prices at which they are valued. In this way it can influence the
channels of development of the individual countries. Finland, al-
though not a Bloc country, is an example of the consequences of
Soviet control in this respect, since the Finns have developed a
large machinery industry in the postwar period solely for the pur-
pose of meeting Soviet reparations obligations. Since this industry
is not competitive in world markets, it can exist only on the basis
of Soviet orders. The rapid postwar development of the Czechoslovak
and East German machinery industries probably are analogous to the
Finnish case.
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2. Soviet Properties in the Satellites.
Soviet properties in the Satellites have consisted of
corporations, some owned solely by the USSR and some jointly by the
USSR and Satellite governments. They consisted originally of German
assets in Hungary, Rumania, and Bulgaria which the USSR claimed under
the armistice and peace terms. These corporations have in fact been
dominated by the USSR, for although their boards consist of equal
numbers of Soviet and Satellite citizens, the general manager, who
makes all operational decisions, in a Soviet citizen.* In East Germany
the 132 so-called "SAG" -corporations, set up by the USSR in 1947,
differed from the joint corporations in that they were entirely Soviet
property, but their functions were basically similar to the joint
corporations.
During 1954.,-most of the joint-stock companies were
liquidated. In Rumania it was announced that the joint-stock companies
had been liquidated and the Soviet shares sold to Rumania. !!/ Conspic-
uously absent from the announcement, however, was the disposition of
the two most important Sovroms -- Sovrompetrol and Sovromquartzite --
controlling the strategically important petroleum and uranium-mining
industries.
On 12 October 1954, Moscow announced the transfer to
Bulgaria of Soviet shares in the joint-stock companies in that
country. 78 In Bulgaria, three important companies were liquidated,
but, as in the case of Rumania, there was no mention of oneimportant
company, the Soviet-Bulgarian Uranium Mining Company.
The dissolution of the,Hungarian joint-stock companies 79
is apparently complete. The four companies that controlled the major
industries in Hungary were reported as having been liquidated.
The liquidation of the joint corporations appears to be
designed to eliminate the overt forms bf control in the Satellite
economies and to lessen the tensions 'between the general population
and the Communist regimes.
Soviet property has been serving as an important instru-
ment of control. First, joint corporations made their own output
-7-See for example, Howard J. Hilton, Jr., "Hungary: A ,Case Study
of Soviet Economic Imperialism," State Department Bulletin, 27
August 1951.
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plans in large part independently of the Satellite planning authorities.
This means that the USSR could determine directly the output of a consid-
erable part of the industry of the Satellites in which the corporations
functioned. In Rumania the joint corporations dominated the oil and
uranium-mining industries. Before liquidation of the majority of the
joint-stock companies the USSR controlled most of Rumanian heavy industry.
In Hungary the oil, aluminum, coal, metallurgy, and machinery industries
were dominated in varying degrees by joint corporations.
Control over the output of joint corporations could have
affected the balance of trade of the Satellite. To the extent that the
corporations planned the allocation of their output independently of the
Satellite planning commissions (the extent to which they were subordinate
to them is not clear), they forced the commissions to adjust the rest of
the Satellite economy to the activities of the corporations. Thus if
Sovrompetrol had increased its petroleum export plan, it could have
forced the Rumanian planners to lower domestic petroleum consumption,
and it also could have reduced other exports or raised imports (depend-
ing on how the Sovrompetrol increased petroleum export plan was
coordinated with other commitments in the bilateral trade agreements).
Second, the disposition of the profits of the joint cor-
porations provided a two-way control over investment programs. If the
corporations retained their profits and invested them in new plant
capacity, half of this total was a Satellite contribution. The USSR
thus could have'committed Satellite funds for investment purposes,
just as it could have controled directly the current operations of the
corporations. By making a decision as to the degree of retention of the
profits of joint corporations, the USSR could have influenced the level
of construction within the Satellites and the balance of trade of the
Satellites.
The activities of the joint corporations thus affected both
the internal and international aspects of the Satellite economies. They
affected the internal economies by determining the level of production
and investment in particular important Satellite industries (and the
level of resources available to other industries). They affected the
balance of payments of the Satellites both by the exports they themselves
made available and by the size of profits which were transferred to the
USSR.
3. Credit Transactions.
Short-term commercial credit within the Soviet Bloc consists
only in the permission to accumulate clearing deficits within limits:
that is, the swing margins specified in trade agreements.
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A form of credit intermediate between short-term commercial
credit and investment. is the emergency loan. Such loans have been
granted occasionally to Satellite countries by the USSR to.tide them
over temporary balance of payments' difficulties. The USSR's $25 million
loan to Czechoslovakia in 1950* is an. example, in this case designed to
keep Czechoslovak industries operating by financing raw material imports
from Western countries to which the Czechoslovaks were currently unable
to make payments. Another example was the Soviet export of 500,000 tons
of grain on credit to Poland in late 1.947 and early 1948, repayment in
specified commodities being required in 1949. 81 The flow of goods
associated with these loans and their repayment takes place outside of
the regular trade agreements and is handled in separate accounts. It
is not known whether Satellites extend. similar emergency loans to one
another.
More numerous and of greater importance are the Soviet loans
for investment purposes. These loans are of varioussizes and maturi-
ties; capital goods exports from the USSR and imports for repayment are
specified in agreements and handled in separate accounts. Repayment is
frequently made from the output of industrial installations which were
equipped with machinery provided through such loans. One of the largest
of these was a credit of US $450 million to Poland for capital equipment
to be delivered from 1948 to 1956., with repayment at _3 percent interest
scheduled in installments lasting until 1961. This equipment included
a US $200 million steel mill. (which nearly doubled Poland's steel
capacity); oil-drilling equipment; and. auto and truck assembly plant;
and chemical plants for making soda and acids, carbides, and nitrate
fertilizer. 82
Another form of "investment" by the USSR in Satellite
countries, one which has a quite different effect upon the balance-of
payments, is the jointly owned corporation. Initial Soviet contri-
butions of _former_German assets to these corporations did not enter
into the international flow of payments, but the flow of profits to
the USSR has and, like all such flows within the Soviet orbit, it has
its counterpart in products exported to the USSR under separate ac-
counts. Soviet contributions to expansion of these joint enterprises,
once established, have been achieved by a "reinvestment of profits" --
that is, by a decrease in Soviet imports or an increase in Soviet
exports compared with levels which would otherwise have prevailed.
Liquidation of Soviet shares in these corporations has also taken
place, presumably for some sort of compensation and by the export of
* It was reported that the USSR was _a. "nervous lender" and required
detailed weekly reports on the use of the loan funds. 80
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products from the Satellite to the USSR or by a decrease in the
Satellite'.s imports. Thus the effect of the joint corporations has
been to create a series of debits in the international accounts of
the Satellites concerned corresponding to profits accruing to the
USSR; the debits are temporarily reduced when the, USSR expands its
investment and are increased when Soviet disinvestment occurs.
Investment flows from one Satellite to another are a
more recent phenomenon, one which has been guided by the bilateral
councils for cooperation described above. Capital goods exports
from the more industrialized Satellites may be part of the regular
trade agreements, may be accomplished by special credit agreements,
or may take the form of contributions to jointly owned corporations.
While the power of an investing Satellite to control the activities
of the recipient of its capital is far less than that of the USSR
when it is an investor, the institutional forms and the effects on
international payments are the same in both cases.
All of the capital transactions discussed so far are
arranged by formal agreements in which a flow of goods corresponding
to an extension of credit is specified. A similar type of agreement
is that in which credit arrangements corresponding to a flow of
services are established. One such agreement has been reported which
arranges for a transfer of clearing credits from the Albanian National
Bank to the East German National Bank and thence to the Polish
National Bank in payment for Polish shipping services in transporting
East German goods to Albania. 83 Other agreements of this type must
exist where such payment arrangements are called for.
D. Gold and Foreign Exchange Transactions.
1. Settlement of Current Trade Balances.
Most intra-Bloc trade is conducted through bilateral
clearing accounts established reciprocally in the Central Bank to
handle payments to and from the enterprises engaging in the trade.
Trade agreements are drawn up with what are intended as equal values
of goods to be exchanged, and clearing deficits must be settled by
commodity exports within short time periods, usually 3 months. In the
early postwar years, some agreements permitted settlement of clearing
deficits in US dollars, Swiss francs, or gold. Actual payments are
believed to have been of minor importance, and these provisions were
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omitted from later agreements. The Soviet-Rumanian agreement of 1949
provided that the balance, at the end of each year, was to be settled in
gold or foreign exchange.* It is not clear whether in fact such settle-
ments have regularly taken place,** but it is clear that since none of the
Satellites is known to have extensive gold reserves, it might well be diffi-
cult or impossible for them to make any extensive shipments of this kind.
The discussion of commodity trade has indicated that trade
between each pair of Bloc members is supposed to balance at 6-month
intervals. A typical statement on this subject is as follows:
During each half year the value of shipments of
goods by one party may exceed the value of shipments
of goods by the other, but at the end of each half-
year period of operations ... the shipments in either
direction must balance. If at the end of the year
either party has not made up its deficit in these
shipments, it receives a 3-month period in which to
do so.XXX
As mentioned above, the USSR has, on a number of oc-
casions, extended relatively short-term loans, of which the loans to
Poland issued in connection with the crop failure of 1947 may be
typical. Such a loan would amount, in effect, to an extension of
time over which the deficit country could make up its balance in the
bilateral clearing account. The question remains as to how unbal-
anced accounts are settled when such an arrangement is not made.
A possible method of settling bilateral clearing bal-
ances is the simple cancellation of offsetting balances. If, for
example, Country A is running a surplus with Country B, and a deficit
with Country C, it could, in principle, transfer the surplus in one
account to offset the deficit in the other. Such a transaction is
* See Appendix C, Some Aspects of Rumania's External Accounts
with the USSR, 1945-51.
A Bulgarian source (Petkov, op. cit.) says that settlements
are "ordinarily" in gold. No other mention of such gold settlements
has been found.
XXX See Korolenko's 1952 article cited above. See also "A.S.,"
"Ikonomichesko s'trudnichestvo na stranite v lagera na sotsializma,"
Finansy i kredit, Sofiya, No. 9, 1951 (dated October 1952), and the
text of Articles 6 and 10 of the Soviet-Rumanian trade and payments
agreement of 1949, published in Vneshnyaya torgovlya, No. 3, 1949.
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carried out automatically, for example, in clearings arrangements
such as the European Payments Union, and it is conceivable that it
could be arranged in the Soviet Bloc. It is not known whether in
fact any such arrangement exists, but certain indications are avail-
able from published sources.
A prerequisite of any such system of multilateral clear-
ings would be either that all clearings accounts were kept in a
single unit of account and all prices computed on a fairly uniform
basis or that, if several units of account were used, they involved
fairly similar methods of pricing. If this were not so, it would be
necessary to treat each bilateral account as if it were in a cur-
rency different from all others and to compute implicit exchange rates
on units of account in trade between each pair of accounts.* In fact,
prior to 1 March 1950, accounts seem to have been kept in rubles, in
"US dollars at 1938 world prices" (a fictitious bookkeeping unit),
in Czechoslovak crowns, and possibly other units of account. When
the ruble was appreciated from a rate of 5.30 to 4.00 to the dollar,
it was announced that all accounts in Bloc trade were being shifted
to a ruble basis. Since that time there have been repeated published
indications of a movement toward uniformity in prices of goods traded
by the USSR (which account for most trade within the Bloc). To the
extent that uniformity of prices does exist, there exists also a pre-
requisite for a transfer of clearing-account rubles from one account
to another. There. is direct indication of Soviet interest in the
theoretical possibility of making such transfers.** There is only
.one published indication that the Bloc countries do transfer such
clearings balances -- a Bulgarian statement, as follows:
Special accounts opened in the banks of contracting
countries to carry out payments for goods turnover and
for expenses connected with goods turnover are held in
rubles ... . The contracting parties make transfers in
rubles from one currency to another at the established
rate.
* This assertion does not mean that prices in the Bloc trade bear
any particular relations to market values or that prices are not
rigged in favor of the USSR against the Satellites. It simply implies
that there is some uniformity in the prices (or price structures) at
which transactions take place, within a system designed to benefit
particular countries of the Soviet Bloc.
** See quotation, p. 39-40, above.
Article by "A.S.," cited above, p. 60.'
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In addition, an agreement signed in December 1951, which
executes a trilateral clearing of accumulated bilateral deficits has
been reported ?/; clearing credits of 16 million rubles were trans-
ferred from East Germany to Czechoslovakia, from Czechoslovakia-to
Hungary, and from Hungary to East Germany. This agreement was entered
into to correct an abnormal situation and was not planned in advance
with trilateral trade in mind. There is no way of knowing with cer-
tainty how frequently such arrangements may be used, but the ab-
sence of reports on any others than the above is probably a good
reason for believing that they are unusual.
One document has been obtained which purports to des-
cribe transfers of clearing credits among Bloc countries arranged
by CEMA 85 in 19+9 and early 1950. The impression created by it
is that such transfers, while not large, are accomplished fairly
freely, and sinceCEMA was-relatively new at the period described,
these capital movements may have increased by now. This impression
is at variance with the usual rigid picture of international relation-
ships conveyed by most of the material available, its implications are
complex, and the document is difficult to evaluate.
It is possible that transfers of clearing credits between
Satellites may occur which are accomplished by central bank represent-
atives dealing with each other on an. ad hoc basis without formal agree-
ments. There has been no report of this, and it is unlikely that the
central banks would be given the authority to engage in such trans-
actions. Satellite national banks are -subordinate to the ministries
of finance, which in turn are on the same echelon with ministries of
foreign trade (cabinet rank). The ministries of foreign trade. have
the authority to make administrative decisions in the area of foreign
trade, and available evidence indicates that in practice their relation
to the central banks is one in which the latter play a largely passive
role .
2. Transfer of Free World Currencies.
Bloc member-s could also settle obligations arising under
bilateral agreements by transfer of Free World exchange held by the
debtor country. This is done in the case of the trilateral arrange-
ments involving Finland, and since the principal trading members of
the Soviet Bloc have transferable sterling accounts, they could use
this means of transferring funds. The only general statement of
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practices in this connection is given in the ambiguous statement that
"the transfer in rubles or foreign exchange to another contracting
party is made at an agreed rate."* It is interesting, and probably not
accidental, that the expression "an agreed rate" (soglasovannyy kurs)
was used, rather than the expression "established rate used in the
Bulgarian citation just given, and in most Soviet statements on
exchange rates (in Russian, ustanovlennyy kurs). It may therefore be
tentatively concluded that there are sometimes transfers of Free
World exchange from one Bloc member to another and that these trans-
fers do not necessarily take place at official exchange rates.
3. Gold and Foreign Exchange Pool.
According to the purported text of the January 19+9
agreement setting up CEMA, a fund of 100 million rubles (about
US $19 million at the 19+9 official exchange rate of 5.3 rubles = US
$1) was set up, to be at the disposition of the CEMA Secretariat.
This fund was to be in gold, rubles, or convertible exchange; the USSR
was to contribute half of the total, and the other signatories were
to contribute 10 million rubles (about US $1.9 million) worth each.
It is not stated in the protocol for what purposes this
fund was to be used. It would appear likely, however,?that it could
be used either for purchases from the Free World or for the operating
expenses of CEMA. It does not appear likely that the fund was de-
signed for any major purchasing program, since its size (about US $19
million at the 19+9 exchange rate, assuming all contributions to have
been in gold or convertible exchange) is very small in terms of trade
operations. There have also been no indications of further contri-
butions to this fund, and it is doubtful that it can have had any
very great importance in trading operations. It may, therefore, have
been designed to cover the administrative costs of the agency.
One report 86 indicates that a gold pool was set up
within CEMA to finance purchases of strategic materials but that
the USSR had used the gold to finance its own purchases and that the
Satellites had found it difficult to obtain their share of the re-
sources of the fund. Another report 87 doubts that CEMA controls
Satellite gold and foreign exchange. In general, the subject of
possible gold and exchange pools is treated very unsatisfactorily in
* Korolenko 1952 article cited above, p. 52.
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available sources. A-gold pool under Bloc conditions would be relatively
useless, however, unless the Bloc were regularly exportinggold on a
large scale. Gold exports on a scale large enough to affect world gold
markets did not take place during the period under study. Given restric-
tions on Free World exports to the Bloc over this period, the Bloc was
probably not about to import enough to require large goldexports in
payment.
As regards convertible exchange, it appears to be true
(a) that the individual Bloc countries hold foreign exchange in their
own names, (b) that they transfer this exchange among themselves, and
(c) that some form of coordination of such holdings exists, although
it is probably exercised through control over the planning of trade
within the Bloc rather than direct control of the exchange itself.
Thus the USSR controls Rumanian foreign exchange holdings, for example,
by controlling allocations of Rumanian grain and oil into East-West
trade rather than by direct acquisition of foreign exchange earned by
Rumania. It can control Rumanian grain and oil shipments through its
control over Rumanian planning and allocations and especially by its
control over Soviet-Rumanian bilateral trading arrangements.
The Soviet Bloc has over-all controls over intra-Bloc trade
which in effect make possible Soviet control over the trade which the
Satellites carry on with the Free World. Such control in effect deter-
mines the foreign exchange earnings of the Satellites and the uses to
which these earnings may be put. Under such conditions a formal pool
of gold and foreign exchange would appear to serve no purposes which
could. not be achieved by the -other controls exercised within the Bloc.
III. Economic Integration of, the Soviet Bloc.
A. Integration Process, 19+8-51+.
1. Concept of Integration.
Since the establishment of the Council for Economic Mutual
Assistance (CEMA) in January 1949, the countries of the Soviet Bloc
have developed methods of controlling the movement of goods in inter-
national and domestic transactions. Central planning, coordinating
the various national plans, may be assumed to occur either in CEMA
itself or in an appropriate Soviet institution which uses CEMA as a
channel for transmission of directives to other national planning
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agencies. These institutions, judging from reports published within
the Soviet Bloc, function with considerable inefficiency. They appear,
nevertheless, to constitute an international system operating on the
basis of economic principles which may be contrasted with those govern-
ing the international economy of the non-Communist world.
In analyzing the operations of institutions such as CEMA,
it is tempting to use the word integration as descriptive of the
process of consolidation of Soviet control over Satellite economic
activity. The use of this word, denoting the development of a
single unit from formerly diverse parts, is at once useful and
dangerous. It is useful in that the Bloc countries clearly have
much closer economic ties with each other and with the USSR than they
did in 1938 or even in 1948. It is dangerous in that it has many
different meanings, not all of which may be characteristic of any
particular situation.
For example, the existence of institutions carrying on
certain formal coordinating and planning functions (such as CEMA)
might be taken to prove the existence of an integrated economic
system including the entire Soviet Bloc. If the institutions are
inefficient, however, or if they cannot cope with the tasks assigned
them, the integration will be in part a formality which does not
affect what actually happens in the individual countries of the
Bloc.
In economic terms the existence or nonexistence of an
integrated international economic system does not depend upon the
existence or nonexistence of an international planning agency. Pre-
1914 Europe was an international system with interdependent parts,
even though very limited national or supranational regulatory and
planning powers were exercised. Conversely, the USSR, at the present
time, could exercise complete political domination over the Satel-
lites, including the determination of national economic plans, but
if these plans called for complete national autarky, so that no
foreign trade took place at all, the Soviet Bloc would not be an
integrated international economic system.
There are three principal aspects of economic integra-
tion under Bloc conditions. The first relates to the development
of specialization and economic interdependence among members of the
Soviet Bloc, which might be measured by the importance of intra-Bloc
trade in comparison with total output.
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The second aspect is the degree to which Satellite econ-
omies respond to the wishes of Soviet planners. If these wishes are
embodied in the Satellites' Soviet-approved plans for development,
output, and trade, Satellite responses could be measured by an index
of plan fulfillment. One objection to this would be that some
planned increases in output or productivity have been more ambitious
and unrealistic than others. If so, the percentage increases in
output and efficiency (rather than plan fulfillment) would be a
suitable measure of integration. Also, some types of output or pro-
ductivity and some types of plan fulfillment may be more important
than others.' If so, some weighting system would have tobe devised
corresponding to the relative importance of different types of
products in the Soviet view.
The third aspect of integration is the extent to which
plan fulfillment involves internal maladjustment. The production of
goods for export results in both a demand upon available resources
and a source of purchasing power, and the supply of imports is both
a source of resources and an outlet for purchasing power. This is
so, even though the movement of each particular commodity may be
independent of both domestic and international prices. The aggre-
gate effect of a trade program is therefore not independent of
prices, since changes in price affect the incomes and expenditures
of enterprises, individuals, and the Ministry of Finance, and it may
be reinforced or offset by fiscal and monetary measures undertaken
in the financing of foreign trade imbalances. Thus internal con-
ditions will be influenced by changesin -trade volume, in domestic
prices, or in international (clearing ruble) prices. Unless a-Bloc
country is able to adjust its internal affairs to its trade program,
it cannot be considered as being integrated into an international
economic system.
These three aspects of integration are measured in dif-
ferent ways and may lead to diverse conclusions, but they are
functionally related. A highly integrated Bloc economy would be one
in which individual countries were highly specialized and fulfilled
plans, increased output, and maintained internal stability. If plan
fulfillment in 1 year is accompanied by financial disturbances, future
output may be jeopardized. Maximum increases in output will be
obtained only when specialization and trade are fully developed.
Erratic increases in output which differ from plans can result in a
lowering of future output and c-an cause internal disequilibrium.
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It would not be difficult to set up and knock down straw
men to prove that "integration" does or does not exist in the
Soviet Bloc. The discussion which follows will outline a process
which seems to fall within the limits of reasonable definitions of
economic integration." The process of integration itself involves
the establishment of institutions controlling the allocation of
materials, both internally and internationally, by the various Satel-
lites. From this discussion it might well be inferred that some
central agency must exist to coordinate these activities in the
individual Satellites and that a formal as well as a substantive
integration of economic activity exists. An obvious suggestion
would be that CEMA is this agency. Conclusive proof of the last
two propositions is lacking, but available, evidence continually
increases the likelihood of their being correct.
2. Council for Economic Mutual Assistance.
The discussion of the Council for Economic Mutual Assistance
(CEMA) in Section I of this report suggested that it is an agency
which coordinates the national planning systems of the individual Satel-
lites. The discussion below indicates that since about 1950 the Satel-
lites have established systems for the internal allocation of materials
and that these systems provide the means for simultaneously controlling
the imports and exports of individual commodities. There is no direct
evidence that CEMA is actually the agency controlling these allocations
systems, though such a function would be consistent with CEMA activities.
The CEMA Protocol, as indicated above, provided that,
beginning in 1950, annual economic plans of the individual Bloc
countries were to be cleared through CEMA, and some press reports
speak of a meeting in May 1949, in which it was decided to co-
ordinate import requirements and economic plans generally.* The actual
implementation of the planning functions implicit in the CEMA structure
has been slow. But the individual Satellites, with the possible
exception of Bulgaria, now appear ready to embark upon a coordinated
Five Year Plan in 1956. A statement of Josef Pucik, for example, indi-
cated that Czechoslovakia would postpone its Second Five Year Plan until
1956-60 because by that time branches of the economies of most of the
,people's democracies and the USSR will be coordinated.. 88/ A speech
by Walter Ulbricht to the East German Communist Party in March 195+
referred to CEMA cooperation as a factor in the changes in economic
development brought about by the "'new course." 89 Finally, in
* Neue Zuericher Zeitung, 20 June 1949.
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June 1954, Premier Siroky of Czechoslovakia stated that Czechoslovakia's
Second Five Year Plan will be fully synchronized with the economic plans
of the USSR and the other people's democracies. 90/
It is apparent, therefore, that in 1956 the Satellites will
be ready to embark upon a coordinated five year plan in wnicn CEMA has had
considerable voice and may exercise a significant degree of control.
The following discussion will attempt to summarize the events in-Bloc
unification leading to this development in order to indicate the kinds
of economic problems with which theBloc has had to cope.
3. Antecedents of the Council.
Economic integration of the Satellites may be said to have
begun with the conclusion of the long-term trading agreements between
the USSR and the individual Satellites. The first of these agreements
was concluded in December 1947 with Czechoslovakia. A similar agree-
ment with Poland followed in January 1948. These agreements provided
for the negotiationof annual protocols for the delivery of goods in
each direction, but the annual protocolswere to function within
long-term objectives concerning the level of trade to be attained at
the end of the 5-year period covered in the agreement. A Soviet com-
mentator, in discussing the announcements that such a treaty would
be concluded, state-
Having been made possible, thanks to the advantages
of the planned economy, this agreement will in turn
assist the successful fulfillment of the 5-year eco-
nomic plan of the USSR and the corresponding plans of
the Czechoslovak Republic.*
The key to this sentence, which is characteristic of Soviet commen-
tary on Soviet-Satellite trade during this period, is the expression
"assist in the fulfillment" of economic plans. The expression im-
plies that the agreements do not form a constituent part of economic
plans but are superimposed upon them.
Pravda, Duly 1947. Margaret Dewar, Soviet Trade with Eastern
Europe,, 1945-1949, London, 1951, p. 25. Virtually the same phrasing
appears in Szabad Nep, 27 January 1949, in comments on the relations
of CEMA to the Hungarian economic plan.
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This situation would appear to have existed because long-
run plans were not introduced in the Satellites until 1949- and
because the plans which did exist were not, in the Soviet sense, plans
but rather forecasts. The Satellite administrative apparatus was at
this time inadequate to provide the compulsion necessary to insure
plan fulfillments, and the Satellite governments, like capitalist
governments, could license trade but could not guarantee the execu-
tion of trade agreements. For instance, a Czechoslovak publication**
urged plants to give priority to deliveries under trade agreements,
which would not have been necessary if effective planning and alloca-
tion schemes of the Soviet type existed. Not until effective control
over the distribution system had been attained could the incorporation
of the trade agreements into the general planning and control apparatus
be completed.
4. Early Formulations of Council Functions.
The announcement of the formation of CEMA (published
through the Bloc on 25 January 1949) speaks of "mutual assistance in
regard to raw materials., foodstuffs, machinery, and equipment."MMM
This emphasis, which appeared in the explanations of CEMA functions
early in 1949, seems to relate to trade among member countries,
rather than to proposals for a planned increase in output, or inte-
gration of individual output plans. Thus one Soviet writer used
this formulation:
The economic conferences of representatives of
Bulgaria, Hungary, Poland, Rumania, the USSR, and
Czechoslovakia which took place in January of this
year noted the considerable success in developing
Short-term economic plans of various kinds existed from the estab-
lishment of postwar regimes. Thus Poland had a 3-year plan covering
the period 1946-48, and Czechoslovakia had a 2-year plan for 1947-48.
These plans were primarily designed to coordinate the recovery of
various economies and took place in an atmosphere of transition from
Nazi and postliberation institutions to Communist institutions. The
Yugoslav 5-year plan took effect in 1947, but the Soviet-Yugoslav con-
flict in 1948 intervened, and the Yugoslav exception is thus, for
present purposes, irrelevant.
** Prumyslovy vestnik, 14 April 1949.
xxx All of these types of goods are loosely termed "materials" in
Soviet Bloc economic literature. The main qualification of a "material"
appears to be a homogeneity sufficient for statistical purposes.
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economic relations among these countries, as -expressed
primarily in the large growth of trade turnover.*
The Soviet formulations of 1949-50 concerning the forms of economic
collaboration between the USSR and the Satellites listed technical
aid, exchange of technical experience, formation of joint corpora-
tions, and the organization of trade exhibits,** but no Soviet
statement of a relation between trade and economic-planning has been
found prior to the end of 1949.
In the Satellites, reactions tothe formation of CEMA
varied somewhat. The Hungarian discussions was concerned with the
need for integration of -trade programs, and the other activities
listed above, but was silent on the subject of any planning functions.
Polish comment, too, is noted by an absence of discussion of the
relation between trade and planning. A Polish "government spokes-
man"n said that "by adopting the principle of multilateral trade
the time-consuming negotiations ofbilateral pacts will be avoided
and a broader basis for trade established." This theme has found
little response either in theory or practice.
In contrast to these reactions, Czechoslovak literature
contains several fairly specific statements relating trade to plan-
ning. In early 1949, for example, it wasstated that "the people's
democracies must base their economy on the Soviet Union and on mutual
economic collaboration." Long-term trade agreements were a prerequisite
for Satellite development, and output plans were to be "set upon the
basis of economic complementarity, so that the compensatory agreements
can be included in the long-run economic plans.")()()()( Another writer
stated early in 1949:
# A. Korolenko, "Ekonomicheskoye sotrudnichestvo SSSR i stran narod-
noy demokratii," Vneshnyaya torgovlya, No. 4, 1949. Underlining -added.
See the article by Korolenko, cited above, p. 54) and also
"Ukrepleniye ekonomicheskikh otnosheniy mezhdu SSSR i stranami
narodnoy demokratii," Vneshnyaya torgovlya, No. 5, 1950, by the
same author.
*** Szabad Nep, 27 January 1949.
( Cited in the New York Times, 27 January 1949.
E Zdenek Pitra, Generalni linie lidove demokratiskych zemi,"
Planovane hospodarstvi (Statni Planovani Urad), Prague, No. 1, 1949.
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Czechoslovakia is the first state with a planned
economy for which foreign trade, both on the import
and export sides, has key importance in economic devel-
opment. There has therefore risen the problem of how
to plan foreign trade, which in its nature is different
from a plan for output, investment, or consumption, as an
equal component of the over-all long-term economic plan.*
5. Mikoyan Restatement of November 1949.
Whether because of Czechoslovak persuasion or because of the
nature of the problem of controlling the economic activities of the Sat-
ellites, the Soviet government at the end of 1949 appears to have recog-
nized the usefulness of the existing system of trade relations as a means
of economic control. A change in Soviet trade policy was recognized by
Mikoyan, Soviet Politbureau member in charge of foreign trade, who stated
in a speech late in 1949 that as a result of increased Soviet trade,
CPYRGHT
... there has been a change in the function o
foreign trade monopoly in its dealings with the people's
democracies. It does not have the function of defending
the Soviet economy, but is a means for a planned binding
together of the Soviet economy with the economies of
the people's democracies.**
A Czechoslovak article, published at the same time as
Mikoyan's speech, also moves the subject of over-all Bloc planning
from the "should be" to the "will be" stage:
Economic cooperation of the kCEMA) members is
not limited to the exchange of goods ... . These
countries will offer far-reaching technical aid in
all branches of the economy, will coordinate their
economic plans, establish a joint investment program,
begin joint output programs, coordinate industrial
output, all from the point of view of setting up
* J. Stefan, "Zahranicni obchod v ceskoslovenskom hospodarstvi,"
Planovane hospodarstvi, No. 2, 1949.
** A.I. Mikoyan, "Velikiy zodchiy kommunizma," Vneshnyaya torgovlya, No.
12, 1949. "Binding together" (coordination) is a translation of the
Russian "uvyazka." The same information as given here has recurred con-
tinuously in Soviet literature since that time; for example, see N.
Ivanov, "Vneshnyaya.torgovlya evropeyskikh stran narodnoy demokratii,"
Vneshnyaya torgovlya, No. 10, 1952, p. 18.
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a division of-productive forces according to the
requirements of the country and its natural histor-
ical conditions.*
6. Satellite Allocations, Planning,-and Foreign Trade
after 1949.
The trend toward coordination of foreign trade and econom-
ic planning within the Soviet Bloc has been closely connected with
the reorganization of the wholesale di-stribution system of the indi-
vidual Bloc countries. Table l** summarizes the data most readily
available on the development of the wholesaling systems of the three
most important Satellites: Czechoslovakia, East Germany, and Poland.
The other-Satellites seem to have followed a similar course of devel-
opment, although documentation is more difficult.
The general trend in this field has been as follows:
(a) wholesale trade was nationalized by the end of 1949; (b) at first,
there was a variety of types of wholesaling organizations, with a
tendency for individual wholesaling enterprises to be engaged in-the
distribution of large numbers of commodities; (c) beginning in about
1950, allocations- plans (in Bloc terminology "materials balances")
began to be prepared; (d) eventually wholesaling functions were
taken away from the earlier wholesale organizations and given to
special administrations of the production ministries, giving each
control over its own -supply and distribution system; and (e) special
planning units for the control over the distributionsystems of the
ministries were established in 1951-52.
In this way the Satellite wholesale distribution system
came to duplicate that of the USSR. This system involves the use of
a flow chart-for each commodity planned, -which indicates each source
and each user of the commodity, so that it is possible to determine
from which sources each user will obtain his supply. From 1948 until
March 1953 these balances were approved in the USSR at the cabinet
level, by the State Committee on Material and Technical Supply
(Gossnab), which was established from the individual units formerly
included in the State Planning Commission. After Stalin's death,
* Zdenek Pitra, "Hospodarska spol.uprace," Planovane hospodarstvi,
No. 6, 1949.
** Table 1 follows on p. 73.
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Developments in Sovietization of Wholesale Trading Systems
in Czechoslovakia, East Germany, and Poland /*
Date of nationalization of
wholesale trade or estab-
lishment of first nation-
alized wholesalers
August 1948
1946 J
1947 J
Percent of trade conducted
by private wholesalers
Late 1948
Late 19+9
N.A.
0
Negligible J
Negligible J
30
2
Types of nationalized whole-
(1) Supply and sales outlet's
(1) Corporations with 51 Percent
(1) Administrations of the
'
salers in early phase of
of nationalized enter-
of stock owned by the
Ministry of
Trade J
nationalization
prises
Laender (before 1949)
(2) Wholesaling subsidiaries
of General Directorates
(3) Wholesaling administra-
(2) Administrations of the zonal
Ministry of Trade and Sup-
ply
tions of industrial
industries g/
(3) Administrations of the Land
Ministries of Trade (after
1949) h
First reported use of
raterials balance plans
Plan for 1950 Supplemental Plan for 3d Plan for 1950
Quarter of 1950 J
* Footnotes for Table 1 follow on p. 74.
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Table 1
Developments in Sovietization of Wholesale Trading Systems
in Czechoslovakia, East Germany, and Poland J
(Continued)
Czechoslovakia East Germany
Date of transfer of all late in 1951, in connection December 1951 J
wholesale functions to in- with the abolition of
dustrial ministries General Directorates J
Establishment of materials
plan ing units
Late 1952 J Early 1951 J
22 April 1949 J
June 1952 J
a. This table refers only to wholesale trade in capital goods and materials, and to the disposition of output of con-
sumer goods factories. In all these countries the Ministry of Internal Trade has wholesale functions which consist
of the purchase of consumer goods and the resale of these goods to retail stores.
b. Note also that Hungarian wholesale trade was nationalized in March 1948 (.Decree XXV - 1948), and that Prime Minister
Rakosi declared on 17 August 1949 that only 6 percent of wholesale trade was still in private hands.
c. Decree No. 118 - 1949, Sbirka Zakonu.
d. Mehnert and Schulte, editors, Deutschland -- Jahrbuch 1949, Essen, 1949, p. 203; Nieschlag, "Die Organisation des
Handels in der sowjetischen Besatzungszone; Wirtschaftsprobleme der Besatzungszone, Deutsches Institut fuer
Wirtschaftsforsch Berlin 1 48 68-
u, , 9, PP. 3377. In each Laender, two wholesalers were established in 1946, one dealing
in raw materials and the other in finished goods; 51 percent of the stock belonged to the Laenaer, and 49 percent
to private wholesalers (as compensation). These were completely nationalized in 1949.
e. Nowe drogi, No. 9, 1948.
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Developments in Sovietization of Wholesale Trading Systems
in Czechoslovakia, East Germany, and Poland a/
(Continued)
f. Speeches by Hilary Minc, Chairman of Planning Commission, 30 December 1949, and Dietrich, Minister of Domestic
Trade, 24 January 1950.
g. Based on these articles in Planovane hospodarstvi: Z. Maloch, "Hmotne zasobovani," No. 7, 1949; J. Dolansky,
"Prohlubenim planovaci metodiky k zajisteni zvysenych ukolu 5LP," No. 2, 1951; J. Balaban, "0 nove metodice
sestavovani planu materialne technickeho zasobovani na rok 1953," and the decree reorganizing economic planning
in No. 4, 1952.
h. Chronik der wirtschaftlichen and sozialen Gesetzgebung in der,sowjetischen Besatzungszone Deutsches Institut
fuer Wirtschaftsforschung (hereafter referred to as Ostchronik), No. 10, supplement; No. 5, H - 22. This publi-
cation is a West German digest of East German decrees and regulations.
i. Rzeczpospolita, 23 April 1949; and an article by W. Bugajski on the development of the supply system in Zycie
gospodarcze, No.
17,
1949.
j. Maloch, op.
cit.
k. Ostchronik,
No.
4, D - 4.
1. This conclusion is indicated by the description of the functions of the reorganized wholesale system given by
Bugajski, op. cit.
m. Dolansky, op. cit., indicates that this function was to be performed within the State Planning Commission.
n. In 1950, this planning was evidently carried out in the Ministry of Trade and Supply (Ostchronik op. cit., No. 4,
D - 4), but in early 1951 it was transferred to a Special Cabinet Secretariat for Materials Supply OstchronNo. 5,
H - 2, D - 15).
o. Speech by President Bierut at the 14-15 July 1952 meeting of the Central Committee of the Polish Workers' Party.
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Gossnab was once more returned to the State Planning Commission. The
preparation of such a flow chart involves a means for determining the
amount of materials which a given plant "should" obtain and a means
of enforcing the decision reached. Under Soviet practice there is
a widespread use of coefficients relating output of particular plants
to inputs of particular materials, and the system is, in this sense,
an "input-output approach" to -allocations.*
The enforcement of the balances preparedin this fashion is
achieved through a system of wholesale trading organizations, one of
which makes purchases and another of which sells on behalf of the plants
of a particular ministry. These wholesalers sometimes act as brokers,
instructing plants where to make deliveries, but sometimes they simply
review the plants' order to make sure that the allocations plan is
being observed.**
In Poland a decree of the Council of Ministers on 22
April l949***_placed the state wholesaling organization (Centrale
Handlowe) under the jurisdictions of the industrial ministries. A
commentary published later during the year**** indicated that under
earlier arrangements the wholesalers had not had the function of
The Soviet input analysis differs from that used in the US (for
example, W.W. Leontief, Structure of the American Economy, Cambridge,
Mass., 1941) in two respects. First, it is based upon engineering data
-designed for optimum conditions in a given plant rather than upon
average performance data on an industrywide basis. -Second, it does not
necessarily-suppose that thereis a price equilibrium for the economy
as a whole, whereas the Leontief system was designed to indicate a
unique relationship between prices and the quantities produced in a
market economy.
This system should not be confused with the wholesale operations
conducted by the Ministry-of Trade, which purchases consumer goods
directly from plants producing them or from the wholesale organizations
of the respective ministries and resells them to the retail network.
XXX Rzeczpospolita, Warsaw, 23 April 1949.
XXXX Waclaw Bugajski, "Development of Supply Centers," translated from
Zycie os odarcze, No. 17, September 1949. (Library of Congress, un-
catalogued.)
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checking the order of individual plants against the requirements of the
production plan or of supervision of procurement, production, and in-
ventory in the individual plants. The new arrangements were designed
to give the wholesale trading agencies economic functions as middle-
men, since transactions which they might undertake were to be more in
the nature of brokerage functions than of actual purchase or sale of
goods. The new system probably did not affect 1949 operations but
was designed for introduction in the 1950 plan.
In June 1952, President Bierut of Poland announced the
formation of a central office for "the proper utilization and distri-
bution of material resources" which "if properly staffed and run ...
should become the directing center in the supplying of our whole
economy.* It is not clear whether this office is a part of the State
Planning Commission, as in most of the Satellites, or whether it is
a separate organization with equal status to the Commission, as in the
USSR before Stalin's death. This reorganization would seem to affect
the structure of controls over the wholesaling activities rather than
to involve any basic change in the operations of the distributive system
itself.
b. Czechoslovakia.
In Czechoslovakia, planning institutions underwent a
more complicated transition process than in Poland, owing to the fact
that there was greater administrative continuity than in Poland** and
owing to the. greater recognition of the peculiarly foreign trade aspects
of planning which resulted from Czechoslovakia's traditional position
as a processing center in'Central Europe. Czechoslovak planning, there-
fore, underwent a series of reorganizations: at the beginning of the
Communist regime and the institution of the Five Year Plan in 1948,
in connection with the introduction of materials balances in late 1949
and in connection with the final adoption, in late 1951, of institutions
similar to those in the USSR and to those adopted in Poland in 1949.
Speech to the Central Committee of the Polish Communist Party,
at the 14-15 June 1952 meeting, as broadcast on 20 June 1952.
X' The German occupation and the pre-Communist regime existing
before February 1948 had maintained greater administrative continuity
in Czechoslovakia than existed in Poland, where the German occupation
largely obliterated prewar institutions and where the postwar Communist
regime in turn obliterated occupation institutions.
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Thus when a considerable part of the Czechoslovak
heavy industry was nationalized in 1945, the change in property status
did not affect the organizational structure of the units involved. A
large, complex organization (such as Skoda), on being nationalized,
retained under state ownership very much the same structure of sub-
sidiaries that it had had under private ownership. The second
nationalization law of 1948 operated in practice in a somewhat -Sim-
ilar fashion. In 1949-50, therefore, some plants were directly under
industrial ministries; others formed part of a General Directorate,
which had a certain degree of jurisdictional autonomy and which, in
functional terms, might overlap into a number of sectors of the economy.
There were therefore some wholesale trading organizations which were
remnants of the former supply or sales organizations of private
enterprises and were now part of General Directorates; while other
nationalized wholesalers formed part of industrial ministries. Not
until late 1951 were the General Directorates abolished. At this
time, all producing enterprises were placed directly under industrial
ministries; simultaneously, wholesaling functions were concentrated
in special buying and selling organizations within the ministries.
In the Czechoslovak-system before the end of 1951,
planning was carried on by the so-called "counter-planning method."
Under this system, both the State Planning Office and the individual
ministries prepared plans which then had to be coordinated. The
ministries often operated without an adequate knowledge of govern-
ment policy, while the Commission operated without adequate know-
ledge of conditions in the industry. The final plan was usually
dominated by submissions from local enterprises which often tried to
set low targets to make possible overfulfillment. It could not be
very precise in its directives to individual plants, because it dealt
with only a relatively small number of goods rather than the entire
output of plants.
Nevertheless, Czechoslovak plans, beginning in 1950,
took into account "materials balances."* A total of 2,000 commodities
and commodity-groups, divided into two groups of about equal size,
were planned,. one in which commodity plans were in physical units
and one in value units. Both the original Five-Year Plan, which went
A detailed account of the operations of the system at the plant
level is given in Z. Maloch, "Hmotne zasobovani," Planovane hospo-
darstvi, No. 7, 1949.
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into effect at the beginning of 1949, and the annual plans took into
account imports and exports. In some cases the individual plant apply-
ing for an allocation of imported goods would specify that it needed
imports from a particular foreign country; in other cases, the imports
would be allocated simultaneously with supplies of domestic origin, and
the user had no option as to source. An attempt was simultaneously
made to determine "requirements" by means of "coefficients."*
This system in practice proved to be unsatisfactory.
In criticizing it, Dolansky, the Chairman of the State Planning
Office, stated in 1951:
CPYRGHT
Originally output was planned in output depart-
ments of the State Planning Office, and investment
in the investment department, labor in the labor depart-
ment and materials stocks in the balance department.
This was not in accordance with the task of complex
planning, for the plan of the balance department
was prepared in isolation from data on execution.*
Late in 1951, Soviet experts were called into Czecho-
slovakia to make recommendations concerning the improvement of Czecho-
slovak planning and administrative techniques.
To facilitate the administration of allocations, all
plants were placed under the direct jurisdiction of industrial min-
istries, and the former General Directorates were abolished. Sim-
ilarly, sales and supply wholesaling organizations were created within
the ministries, bringing about a standardization of wholesaling func-
tions in the Soviet manner. The purpose of this change was explained
by Dolansky:
Materials requirements ... must become part
of the combined output plan. Thus we must remove
"tradesmen" who question materials balancing, and
who put balance work into commissions where often
auctioneering rather than planning is talked of.*
* Z. Maloch, "Emotne zasobovani," Planovane hospodarstvi, No. 7,
1949.
** Dolansky, "Prohlubenim planovaci metodiky k zajisteni zvysenych
ukolu 5LP," Planovane hospodarstvi, No. 2, 1951.
Dolansky, op. cit.
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Implicitly, this statement means that former whole-
saling procedures had been conditioned by profit motives on the part
of the distributing agencies and that allocation of resources into
sectors which the state wished to develop took place only under
favorable price conditions. By putting the wholesale organizations
into an economic category different from that of the plants, in
which the primary function of the system was allocations and where
earnings depended upon plan fulfillment rather than satisfaction of
the market, the Czechoslovak authorities hoped to obtain satisfactory
results.*
The preparation of projected increases in output and
indexes of efficiency ("coefficients") was assigned to the -State
Planning Office rather than to the ministries, beginning with the 1953
-plan. The determination of ways and means of achieving these targets
was to be made at lower levels, mainly by the ministries. A separate
plan, prepared by the State Planning Office, is not shown to the
ministries, but is used only at the :Presidium level to compare plans
submitted by the ministries with over-all goals. This procedure re-
places the "Counterplan" system.
c, East Germany.
In East Germany the development of wholesale trade and
allocations was as follows: as early as 1946, wholesale trade in each
Land was concentrated into two organizations dealing with raw materials
and finished goods respectively. The stock of these corporations was
divided between the Land and the former private wholesalers in the
Soviet -zone of occupation. When the German Economic Commission was
set up in 1947 as the nucleus of the future zonal economic adminis-
tration, it included a trade administration which, in 1949, became the
Ministry of Trade and Supply. This Ministry absorbed the land trade
corporations and completed the nationalization of wholesale trade in
1949. The third step took place in December 1951, when the specialized
commodity wholesaling units, which had developed within the Ministry
-of Tradeand Supply, were broken up and assigned to the production
ministries.
* A discussion of the problem is found in J. Balaban, "0 nove metodice
sestavovani planu materialne.technickeho zasobovani na rok 1953,"
Planovane hospodarstvi, No. 4, 1952, and in "Vladni usneseni-o
zavedeni metody sestavovani statniho planu rozvoje narodniho hospo-
darstvi v CSR," in the same publication, in addition to the Dolansky
article already cited.
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East German experience differs from that of other
Satellites in that relatively effective anti-inflationary controls
preceded and did not follow the establishment of allocations. As
early as 1949, a Richtsatzplan, or current assets plan, provided the
basis for inventory controls by the Deutsche Notenbank. Not until
the supplemental plan for the third quarter of 1950 was provision made
in the general economic plan for the establishment of materials bal-
ances. The supervision of this allocations system was originally given
to the Ministry of Trade and Supply, but ultimately a specialized
State Secretariat was created to supervise this program. The date
when this Secretariat was created is not known, but it apparently was
in 1951.
This administrative system proceeded to set up com-
missions at the factory level in February 1951. These commissions
were to report by May to their respective ministries concerning the
norms or input-output coefficients applicable to their plants.* In
order to enforce the allocations system implied by these norms, a
system of "general contracts" was set up in December 1951, which were
the contractual expression of the materials balances as a plan.
Contracts between individual enterprises were to be considered as
"subcontracts" of the general contract, which was to be administered
by the Handelszentrale, or wholesale agencies.**
There has clearly been an important discrepancy be-
tween the theory and practice of these plans, as may be seen in the
statements of Rau, the head of the planning apparatus. In October
1951, he spoke of the need for establishing "honest" materials re-
quirements norms.*** Three months later* he complained that norms
existed only in power, metallurgy, and transport. In May 1953, how-
ever, he spoke of "at last taking serious steps in training materials
consumption norms"* and of enforcing the contract system.
In these and other speeches, Rau mentions difficulties
in meeting export plans as well as tendencies to overimport. Such
mention is ordinarily in the same context as the criticism of con-
Ostchronik, D/5/4.
Ostchronik, H/5/20.
Speech of 31 October 1951 to People's Chamber.
*XXX Speech of 2 February 1952 to People's Chamber.
XXXXX Speech of 16 May 1953 to the Central Committee of the Socialist
Unity Party.
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sumption norms and the contract system. A study of the Rau speeches,
therefore, tends to reinforce theconclusion that the allocations
system, as described above, is ultimately connected with foreign trade
problems.
7. Relationship between Allocations and Intra-Bloc Trade.
The relationship between allocations and trade within the
Soviet Bloc results basically from the planning methods in use in the
USSR and now being applied to the Satellites. In brief, the planning
authorities wish to divert resources into desired channels without
having to create price differentials in order to encourage enter-
prises to behave in the manner desired. The establishment of controls,
therefore, must take place on a commodity-by-commodity basis, with
strict definition in the plan of the sources and users of commodities.
In cases where the commodities enter into international trade, the
government of a particular Bloc country must consider an export as an
obligation to be met under international commitments and must -include
allocations for export purposes in its distribution plan. Similarly,
when imports are an important source of supply, imports, too, must be
included in the plan. In principle, all.materials are individually
allocated. Substitution is difficult, even when deliveries of a
commodity are not made in planned amounts, since the substitutes
themselves are allocated. In both Poland and Czechoslovakia the
close relationship between allocations and foreign trade has been
stressed. Thus Polish President Bierut stated in the speech cited
above:
At the present stage of the development of our
industry and of the entire economy, the problems
of supplies for industry become one of the most
important problems, requiring a new formulation
and solution. This is quite comprehensible in our
present situation in which, as is known, we do not
produce a number of raw materials or produce them
in insufficient amounts ... The development of
industry requires a great quantity of machinery and
installations, the production and-imports of which
are not always sufficient ... .
Similarly, Dolansky, Chairman of the Czechoslovak State
Planning Commission, declared in the article already cited:
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Progress has been achieved in combining the invest-
ment plan with the output plan. In the materials stocks,
however, the stage of administering the consumption of
the so-called contingents has not been reached. Mate-
rials requirements, however, must become part of the
combined output plan.
The "contingents" to which he refers are quotas for imports and exports
under the bilateral trade agreements. Hence a lack of control over the
consumption of contingents implies a lack of coordination between for-
eign trade and domestic plans, which is reflected in the "materials
stocks," or allocations problem.
Although the Satellite literature on allocations is fre-
quently critical (Bierut called the Polish process "hole-patching" on
a case-to-case basis), it appears that basic institutions to control
allocations now exist and that the allocations programs, however
inefficient in execution, are closely related to foreign trade. As
Otto Kocour, Czechoslovak Deputy Minister of Foreign Trade, declared:
We know that our economic development plan is
worked out on the basis of the export and import
plans of the individual people's democracies ... .
In practice this means that, say, Czechoslovak
machines or mechanical equipment budgeted in the
Soviet import plan are counted on in the building of
fsovie7 projects ... in the same way in which we
reckon with Soviet deliveries of raw materials when
we draw up our plans for new enterprises ... .
Thus despite obvious inefficiencies and delays in the oper-
ations of the materials allocations system, it would appear that since
the beginning of 1950 there has been an attempt to coordinate the allo-
cations aspect of economic planning in the individual Bloc countries.
By the end of 1950 and in 1951, Soviet commentators began to comment
upon this coordination in a tone which they had never used before:
The Satellites are successfully using the eve
oping socialist division of labor among the countries
of the socialist camp ... . The socialist character
of the division of labor permits each country ... to
build industry ... throughout the entire country in
the interests of its economic development.**
Prague Radio, 28 February 1953?
Paramov, off. c it .
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In selecting the branches to which priority in devel-
opment is given, each country, in addition to its own
raw materials base and other favorable internal condi-
tions, takes into account the importance of the various
branches of its economy for its own economic develop-
ment, and in addition is governed by the requirements
of the other fraternal countries.*
Figure 2*f shows the typicalpattern of trading relations
between two Soviet Satellites, emphasizing the role played by allocating
and trade agencies.
8. Impact of Allocations Plans on Bloc Trading Methods.
During the early period after the consolidation of Com-
munist power in the Satellites, these countries imitated the USSR in
vesting monopoly powers over foreign transactions in a Ministry of
Foreign Trade and in creating specialized corporations, the stock of
which was entirely owned by the Ministry, for the purpose of trading
in particular commodities or with particular areas.
This system of trade was useful in trading outside the
Soviet Bloc, since these corporations could operate abroad as legal
entities and could appear in foreign legal proceedings without
violating the laws relating to suits against governments. The use of
such corporations in trade between Soviet Bloc countries, however,
seems to be unduly cumbrous, particularly when a system of inter-
national allocations has been set up. If corporations conduct intra-
Bloc trade, then goods in this trade must pass through the hands of
(a) the producer in the exporting country, (b) the wholesaler in
the exporting country, (c) the foreign trade corporation of the ex-
porting country, (d) the foreign trade corporation of the importing
country (e) the wholesaler of the importing country, and (f) the
final- purchaser in the-importing country. Given an effective system
of trade and payments, the third and fourth steps in this chain
would not appear to be necessary.
Several steps have been taken in the past year or two
which would facilitate the abolition of foreign trade corporations
in intra-Bloc trade, and a number of Soviet statements are suf-
* Dudinskiy, "Novyy tip mezhdunarodnykh ekonomicheskikh otnosheniy,"
Bol'-shevik, No. 22 1951.
X Following p. 84.
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 Figure 2
TYPICAL TRADING RELATIONS
BETWEEN TWO EUROPEAN SOVIET SATELLITES
Council for
Economic Mutual Assistance
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SATELLITE COUNTRY I
Country 1 Representatives
on CEMA Secretariat
Materials
Supply Organization
Foreign Trade
Ministry
Foreign Trade
Corporation
SATELLITE COUNTRY 2
Materials
Supply Organization
SECRET
Foreign Trade
Ministry
Foreign Trade
Corporation
Country 2 Representatives
on CEMA Secretariat
SECRET
==*
7
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ficiently ambiguous as to suggest that trade may actually be to some
extent. conducted directly among wholesalers. One step has been the
establishment of payments procedures for goods moving in international
trade which does not differ in any important respect from that used
in domestic payments. This means that the "exporter" (who could
equally well be a foreign trade corporation, a wholesaler, or a pro-
ducing enterprise) draws a draft on the "importer" (who could also be
a foreign trade corporation, wholesaler, or producing enterprise) and
deposits it in his bank, receiving an advance against it just as if
he were dealing with a domestic enterprise.*
In addition, agreements have been reached on standard
shipping rates on all trade within the Soviet Bloc**.and-on standard
items for contracts in international trade.*** Finally, there is
evidence of standardization of prices used in the bilateral agree-
ments, so that a single price would be used by exporters, regardless
of the importing country.**** This last provision would make it
possible for exporters to make out drafts directly, in clearing
rubles, without the foreign trade corporation having to participate.
There is a certain amount of oblique evidence as to the
possibility that the role of foreign trade corporations is declining.
The list of Polish foreign trade corporations, for example, suggests
that, in many of the commodities called "materials" in Bloc usage,
the trading corporation is actually the same as the domestic whole-
saler. Finally, a Soviet book reviewer***** has pointed out that
* M. Polyakov and V. Trubenkov, "Gosbank i mezhdunarodnyye
denezhnyye raschety SSSR," Finansy i kredit SSSR, No. 2, 1952;
P.I. Petkov, "Mezhdunarodnite plashchaniya," Finansy i kredit, Sofiya,
No. 3-4) 1951-
** V. Klochek and K. Viryasov, "Ekonomicheskoye sotrudnichestvo
stran lagerya sotsializma," Vneshnyaya torgovlya, No. 2, 1952. The
agreement was concluded in November 1951. Petkov (a. cit.) states
that rates are quoted in rubles, suggesting that payments for freight
are automatically included in the bilateral clearing accounts.
X-** N. Cheklin and A. Korolenko, "Torgovo-ekonomicheskiye dogovory
i soglasheniya SSSR s narodno-demokraticheskimi stranami," Vneshnyaya
torgovlya, No. 11, 1951.
**** I. Dtdinskiy, "Ukrepleniye i razvitiye mirovogo demokraticheskogo
rynka," Voprosy ekonomiki, No. 6, 1953.
***** Review of Kalyuzhnaya, "Pravovyye formy monopolii vneshney tor-
govli SSSR v ikh istoricheskom razvitii," Vneshnyaya torgovlya, No.
3, 1952.
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a monopoly over foreign trade (which is an article of faith in
Marxist dogma) does not necessarily require that all transactions
be carried out through the Ministry of Foreign Trade. It is suf-
ficient that foreign trade be subordinated to the central planning
apparatus.
9. Limitations on Effectiveness of Allocations System.
It has been indicated that the Satellite governments have
not been satisfied with the practical workings of the allocations
system. In late 1952 and early 1953 a number of Satellites experienced
delays in making planned export deliveries.* These difficulties do
not appear to be the result of actual production declines or a lack
of a formal allocations mechanism but are to be explained by the op-
erations of the financial system.
The allocations system can. take care of the receipt of
materials by a plant or of the distribution of the output of a plant.
It cannot, however, take care of the flow of materials within the plant.
In particular, the allocations authorities do not have the opportunity
to control materials once they have reached the plant and have been
partly processed or before they have been completely processed so as
to become "finished goods." Allocations, therefore, cannot control the
important-part of a plant's inventory consisting of "goods in process."
A plant which.wishes to circumvent the allocations program can manipu-
late the composition of its inventories in order to keep both finished
goods and materials inventories small relative to unfinished goods
inventories. Since an increase in inventories resulting from increases
in goods in process is considered as a part of the gross output of the
plant, such a policy does not interfere with the completion of the out-
put plan, although it will, of course, tend to hold deliveries below
planned levels.
"While the USSR discharges her obligations with accuracy, many /Czech-
oslovak) supplies of machines, equipment, and other products for the
USSR lag behind schedule." (Kocour, speech of 28 February 1953, cited
above). Hungarian delays in exports were criticized in Magyar memzet,
27 December 1952. Rumanian authorities criticized "breakdowns in the
supply of materials and raw materials," a phenomenon of the -same sort,
with domestic users rather than foreign users bearing the brunt of the
difficulties. (Speeches by Constantinescu, Scanteia, 6 November 1952,
and by Stoica, Scanteia, 25 November 1952.) East German exporters
are criticized by Rau in. a number of the speeches cited above.
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The plant may, have an incentive to carry out such a manipu-
lation for various reasons. If the plant anticipates a shortage of a
particular material, it can hoard it as "unfinished output," while main-
taining purchases at as high a rate as the allocations authorities will
permit, so as to provide a maximum of slack in the event of unforeseen
shortages in deliveries. Similarly, the plant may maintain large inven-
tories of almost finished goods so that if pressure is placed upon it
to increase output, it can do so within a short period by finishing
these goods rather than by actual new production. The "unfinished goods"
inventory is thus, from the point of, view of factory administrations,
a form of insurance against unexpected shortages and demands by the
authorities.
The instrument for preventing such practices is not the
allocations system but the central bank. If the bank considers that
a plant has excessive inventories, it can refuse to extend credit, and
the plant, in order to meet current payment demands, will be forced
to reduce its inventories. In the USSR, such credit restriction has
been greatly expanded and enforced since mid=1948 by means of a cam-
paign to reduce the ratio of inventories to current output.* Such
a program aids in the success of the allocations program by making
it difficult for enterprises to finance inventories of unfinished
goods.
The banking system of a Soviet-type economy, besides pre-
senting technical problems to administrators of allocations schemes,
has a general impact which may affect international economic relations
within the Bloc. This is true because banking operations affect
inventories and the money supply of individual countries, and these
in turn may affect their ability to carry out trade programs.
Increases in bank credit make it possible for enter-
prises to hold more inventories than they otherwise could; it also
gives them greater liquidity, and hence greater purchasing power than
they would otherwise have. As output and income of enterprises rise,
there will be an increase in the amount of inventories and cash
which they need to carry on current transactions. If, however, enter-
prises have too much cash, they will tend to-hoard inventories rather
* The standard term used in Communist literature is "to increase
the speed of turnover of working capital" -- that is, to increase the
ratio of output to inventories.
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than release them for sale. Shortages will then appear throughout the
economy, -since output cannot rise enough (being normally close to
capacity) to counteract the effects of additional inventory hoarding.
These shortages will affect foreign trade, as exporting agencies will
find it difficult to obtain the goods necessary for export programs
and as enterprises using imported goods will tend to over-order for
inventory purposes. In these circumstances an increase in bank
credit will tend to create a deficit in foreign trade transactions,
even though the trade-plans call for bilateral balancing of accounts.
In view of the more or less continuous inflation of
credit and money in most of the Satellites, it is not surprising that
many of these have had difficulties in completing their export pro-
grams. In fact, it would appear that the obstacles to the estab-
lishment of a working international economic system within the Soviet
Bloc are not so much a failure to complete output plans or to increase
output or even -a failure to establish a substitute for a market
mechanism, for both of these problems are apparently being dealt
with within the limits of Bloc administrative efficiency. Rather,
the chief obstacle is an absence of internal controls over the op-
erations of the monetary system. This defect has led to steady
inflation and the disruption of international allocations systems
which might otherwise have led to a workable substitute for a market
system.
B. Future of Bloc Economic Inte ration.
1. Ultimate Incorporation of Satellites as Soviet Republics.
The preceding discussion has shown that planning in the
Bloc countries is becoming more centralized in the Moscow CEMA
apparatus, that economic cooperation has advanced to the point of their
coordinating 5-year plans, and that multilateral trade and transfer-
ability of ruble clearing balances is a probability for the future.
It is quite possible that this process of unification, unless inter-
rupted from the outside, will be carried to its logical conclusion --
that is, incorporation of the Satellites as Soviet Republics.
One report gl indicates that the following three-step
plan for over-all policy has been spelled out at _Cominform meetings:
(a) create Satellite dependence on Soviet trade, (b) develop economic
union among the Satellites, and (c) incorporate the Satellites. in
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the USSR. Nothing that is known about intra-Bloc trade conflicts with
this description of Communist aims; indeed, it is supported by most
available data. Step (a) has been in process for some time and will
be accelerated as industrialization progresses. Step (b) is imple-
mented in the present coordination of the planning activities of
the Bloc. Step (c) is still at some distance.
What differences would there be between the economic in-
stitutions of a Satellite which had succeeded in modeling itself on
the USSR and a Soviet republic? The existence of a Satellite Ministry
of Foreign Trade is one of these differences. It may be anticipated
that as incorporation approaches, the functions of these ministries
will disappear as far as intra-Bloc trade is concerned. Foreign trade
corporations in particular could be dispensed with for intra-Bloc
trade. Functions of a foreign trade ministry other than the super-
vision of trade monopolies either would be unnecessary or could be
handled by a ministry acting for the Bloc as a whole.
Banking institutions as such could be quite easily ab-
sorbed into a unified system, with transferability of clearing ruble
balances among the Bloc countries. A more formidable obstacle to
incorporation is the fact that domestic prices are different in each
Bloc country and also differ from the clearing ruble prices used
in trade. The establishment of a single monetary unit would involve
the adjustment of relative price relationships, which seem to be far
from uniform at present. The repercussions of such a change on the
economy of any of the Satellites would be widespread and not easily
predictable. The rigidity of the entire price mechanism under Soviet
control methods may give some stability to present arrangements.
Incorporation of the Satellites into the USSR would
simplify existing institutional arrangements. Abandonment of the
councils of cooperation and their committees; amalgamation of CEMA
with the All-Union State Planning Commission of the USSR; incorpor-
ation of the foreign trade enterprises handling trade with the West
into appropriate Soviet trade monopolies; and amalgamation of the
production, distribution, and trade ministries would then be possible.
Present Satellite planning functions would be subordinated to the
general planning commission, just as the Republic functions in the
USSR are now subordinated to the All-Union State Planning Commission;
joint corporations would cease to be different from other state-owned
enterprises; and international loans would be written off as in-
debtedness of one Soviet agency to another.
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Disregarding here the social and political aspects of
incorporation, the principal economic obstacle to unification seems
to lie in the differing price structures in the Satellites rather
than in the existence of different institutional and control techniques.
2. Perpetuation of Bilateral System.
It is not easy to see why the present system of relation-
ships has been permitted to grow and crystallize during the postwar
years. First, industrial development; plans in the Satellites seem to
be directed toward a wasteful degree of individual self-sufficiency.
Each of the Satellites except Albania is to be given a "heavy in-
dustrial base" of its own. Some of this development probably would
not have taken place if the Satellites had been an integral part of
the USSR. The imminence of coordinated planning in 1956, a new stress
on specialization and political statements discussed below indicate
that some of the excesses of this "industrialization" will now be
corrected.
Second, bilaterally channeled trade leads to an inef-
ficient use of resources because it inhibits specialization in
production. Almost all products are necessarily scarce during
periods of inflationary expansion, so that one country's failure to
export causes damage to another country's output, retaliation by
the second country damages the first, and both are weakened in their
ability to supply third countries. The over-all superior bargaining
position of the larger countries producing scarce industrial goods
and having a more diversified output is accentuated when total trade
and production are administered by national monopolies. With each
country pushing ambitious plans for industrial expansion, trade
takes place in an atmosphere of antagonism and distrust.
It is certain that the withholding of scarce products by
Satellite trade ministries has been widely used as a bargaining weapon..
It is probable, also, that the intermonopoly bargains of Bloc trade
have resulted in extremely arbitrary external prices bearing little
systematic relation to production costs. Considerable distortions
from optimal resources allocation were therefore inevitable.
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? These developments, which are irrational in terms of ul-
timate Soviet objectives, suggest that economic unification was not
an immediate aim of Soviet policymakers until several years after the
end of World War II, when Communist power had been consolidated in
Eastern Europe and when prospects for expansion to the West had
receded.
By 1948, Satellite economic policy was becoming more
clearly defined. In the absence of detailed directives from Moscow,
Satellite domestic economic planners were copying closely the Soviet
experience, in which one country with a wide variety of undeveloped
resources had been expanding heavy industry in relative isolation.
This helps in part to explain the Satellite stress on industrialization.
The fact that the Satellites industrialized at such a fast tempo also
necessitated a highly centralized and powerful planning mechanism,
for which they could invoke Soviet precedent again.
It is interesting to note that, while the control mechanisms
have been retained, there has been recently a departure from the
emulation of Soviet industrialization. The best example of this
change is seen in the speech by Mihaly Farkas, Hungarian Party Secre-
tary. 92/ In this speech, Farkas condemned the mechanical copying
of Soviet economic development and pointed out that the policy of
rapid industrialization in Hungary had been in error. Similar
changes in the direction of industrial development have been noted
in other Satellite countries. While these changes arise, in part,
from the political implications of the "new course," they also
indicate a reshaping of Satellite economic development programs
resulting from the increased coordination and economic unification
of the Soviet Bloc.
Another Soviet precedent was the early establishment of
central control of foreign trade and the formation of state trading
monopolies. Even in the early period after the war the USSR tried
to expand its trade with the Satellites far beyond the prewar level
or any level which normal economic pressures would dictate. This
meant that the Satellites had to use some form of compulsion to direct
the course of trade into politically acceptable channels. Since de-
liveries were highly uncertain and convertible exchange holdings were
small, bilateral balancing and nontransferability of currencies were
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the basis of the trading system which developed. A relatively de-
centralized and inefficient set of international economic relation-
ships could thus have grown up merely because Moscow did not actively
interfere in its development.
Furthermore, the Kremlin may not have welcomed too close
collaboration among the Satellites until such time as this could be
organized under strong Soviet control. The initial postwar regimes
in several of the Satellites were coalition governments in which the
Communists exercized increasingly effective but not overt domination.
Non-Russian Communists of long standing (for example, Tito) might
prove untrustworthy, and even these were few in comparison with groups
whose loyalty to the USSR was certainly questionable by Soviet standards.
A precautionary effort to "divide and rule" would thus prevent pre-
mature collaboration among Satellites potentially hostile to Soviet
power. These political considerations may have kept the USSR from
checking the economic trends toward isolation of the individual
Satellites from each other.
The USSR may even have encouraged inter-Satellite antag-
onisms or failed to take measures for their elimination. For
example, a statement by Dimitrov of Bulgaria on 16 January 1948* dis-
cussing the possibility of a future political and economic federation
in Eastern Europe (from which the USSR. was omitted) was specifically
repudiated by Pravda** and later by Satellite spokesmen.***
The Soviet government may consciously have pursued a
policy of economic decentralization in order to minimize losses to
the Bloc economy in case any one Satellite -should -be detached from
Soviet control through war or revolution.
When, therefore, Soviet planners apparently decided to
proceed with a :program of integrating the Satellites into a single
economic unit, some time during 19481-they were forced to deal with
a series of countries, each of which was attempting to build an
independent system of controls as rigid as those prevailing in the
USSR itself. In order to strengthen its control over the Satellites,
the USSR had to permit the growth of-effective planning functions in
each Satellite and to encourage the establishment of institutions
New York Times, 18 January 1948.
Pravda, 28 January 1948.
New York Times, 30 January 1948.
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which isolate the operations of each Satellite from the rest of the
Bloc and hinder the growth of a unified system of economic relations.
The desired control having been attained, the stress now is on increased'
coordination and a division of labor among the Satellite states.
3. Future of Over-All Bloc Planning.
The future of over-all Bloc planning depends, in part,
on Soviet ability to get the Satellite countries to behave in a
uniform way, even though the institutions in each were originally
designed to counteract external pressures and facilitate autarky.
This is, presumably, the reason why the rather cumbersome mechanism
for central coordination of trade agreements and allocations programs
has been necessary.
CEMA is potentially an international planning commission
which could design and implement a unified program for economic de-
velopment. Its initial activities in this complex field have naturally
been centered on allocating scarce materials and on long-term output
targets.
The mere existence of CEMA is no proof of the existence of
a highly unified system of national economies operating within the
Soviet Bloc. Many of the decentralizing economic influences and
competitive. practices cited above still exist, and will continue,
though presumably diminishing in force.
Perhaps the greatest political obstacles to a rapid
unification are the nationalist sentiments within Eastern Europe.
It may have been a Soviet acknowledgement of their importance that has
covered CEMA activities with secrecy. The recent publicity given to
CEMA activities and the differentiation in the direction of economic
development in some Satellites may indicate that this problem is no
longer\such an important one. Or it may indicate that Soviet control
is now so strong and the coordinated programs now so advanced that
the traditional nationalist sentiments are not now as important. In
this connection it is significant that recent publicity given to CEMA
has stressed it as a genuinely cooperative enterprise of all Satellite
states acting in friendly concert. It has attempted also to coordinate
foreign trade policies and to eliminate disputes and frictions in this
field, but it has not been very successful. There has been a noticeable
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lack of cooperation among CEMA members in the exploitation of export
markets, which has resulted in damaging competition characterized,
for example, by dumping. 93 This lack of coordination of foreign
trade policies and practices reflects one area in which CEMA is
definitely failing to fulfill its responsibilities.
The future of economic unification within the Soviet
Bloc seems to depend basically upon (a) movements toward the uni-
fication of price structures, so.that transferability of cur-
rencies becomes-possible; (b) the development of specialization in
the Satellites to a point where not all countries have the same
types of heavy industry; (c) the ability of the individual Satellites
toachieve internal monetary stability; and (d) coordination of
long-range economic planning, such as 5-year plans. It is not
possible at this time to determine whether the administrative
structure and formal responsibilities of control agencies such as
CEMA are of such a character as to make possible the achievement of
unification of the Bloc. But even under perfect -administrative
arrangements there would still be economic obstacles to the ef-
ficient functioning of over-all controls such as are implied by
CEMA. While it may be supposed that the Bloc could overcome all
or most of the various obstacles now existing, it cannot be con-
cluded that the Bloc has yet done so. In this sense the sovieti-
zation of the individual Satellite economies has proved the major
obstacle to the economic incorporation of the Satellites into the
USSR.
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PROTOCOL CONCERNING THE CREATION OF A COUNCIL FOR ECONOMIC MUTUAL ASSISTANCE
BETWEEN THE GOVERNMENTS OF THE USSR, THE REPUBLIC OF POLAND,
THE REPUBLIC OF CZECHOSLOVAKIA, THE RUMANIAN PEOPLE'S REPUBLIC,
THE REPUBLIC OF HUNGARY AND THE REPUBLIC OF BULGARIA
SIGNED AT MOSCOW, 18 JANUARY 19 9
The representatives of the governments of the USSR, the Republic
of Poland, the Republic of Czechoslovakia, the Rumanian People's Re-
public, the Republic of Hungary, and the Republic of Bulgaria assembled
today, 18 January 19+9, in Moscow have resolved as follows:
Article 1. A multilateral economic organization, named the Council
for Economic Mutual Assistance, composed of all the countries represented
and named above,, is created for a period of 20 years from the signing
of the present protocol.
Article 2. The purposes of this organization are:
(a) To coordinate the economies of the signatory countries
within a general economic plan developed by the Council.
(b) To supervise the consolidation and development in each
country of the industries and resources of each of the respective
countries in such a manner that the industries of all the signatory
countries will no longer be competitive but will compose a homogeneous
whole, complementing. one another.
(c) To aid in the economic reconstruction of each country in-
dividually, bearing in mind for this purpose the possibilities of
providing each country with raw materials.
(d) To increase the capacity of each country for the produc-
tion of raw, processed or semiprocessed materials by establishing
mixed companies or associations for exploration and exploitation of
surface and subsoil resources.
N To arrange for exchanges of experience.
To standardize and increase the quantity as well as the
quality of industrial products of the signatory countries.
(g) To assure the sale of the products of member countries.
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(h) To accord assistance by loans or arranging investments
for the purpose of strengthening the economy of each signatory country.
Article 3. A permanent Secretariat General will be created with
its seat in Moscow which will have at its disposal a fund of 100 mil-
lion rubles (US $19 million at 1949 exchange rate) obtained as
follows: 50 million rubles (US $9.4 million at 1949 exchange rate)
from the USSR and 10million rubles (US $1.9 million at 1949exchange
rate) each from the other signatory countries -- sums which must be
deposited either in free currency, rubles or gold by 1 April 1949.
Article 4. The Councilwill be convened whenever it may be nec-
essary, each time in a different country under the presidency of the
delegate of the host country but not less frequently than once every
3 months.
At these meetings the economic situation of each country indi-
vidually willbe discussed and analyzed.
Article 5. Beginning with the year 1950 the economic plans of all
member countries will be drawn up in conformity with the advice of
-the Council, but for the present year. each signatory country will
endeavor to adapt its own economic plan to the provisions of the pres-
ent protocol and the advice of the Secretariat General insofar as any
investment of funds in the execution of predetermined parts of the
economic plans of each member country has not taken place up to the
signing of the present protocol.
Article 6. The present protocol neither excludes, annuls, nor
alters in any way commercial agreements already signed by any of the
parties to this agreement and which are communicated to the Secretariat
General within a period of 30 days.
Article The Council may approve or disapprove every request
for admission to the Council on the proposal of the Secretariat General.
Article 8. Each signatory country is obligated to make available
to the Council.-all information and documentary material necessary to
permit and facilitate the task of the observers which the Council may
find necessary to send into any of the signatory countries upon the
proposal of the Secretariat General, which has authority to make any
decisions, subject to their ratification by the Council at its first
meeting.
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Each signatory country is also obligated to accept and follow the
advice of any counselors and technicians which the Council may find
necessary to send, directly or upon request, to any of the signatory
countries.
Article 9. The governments of the signatory countries obligate
themselves to send to the Secretariat General within the first 5
days of each month a detailed statistical situation report concerning
production and any other documentary material pertinent to the economic
and financial situation of the country concerned for the past month.
The present accord becomes effective as of the date of its signing
and is valid for 20 years. It can be prolonged for another period
of 10 years in the event it is not abrogated.
Its abrogation is possible by any of the signatories by means of
a written notice 2 years in advance of expiration or withdrawal from
the Council.
Drawn up at Moscow this day, January 18, 1949, in six copies each
in the Russian, Polish, Czech, Rumanian, Hungarian, and Bulgarian
languages, all copies being equally valid.
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APPENDIX B
JOINT CORPORATIONS IN RUMANIA
I. Introduction.
The term Sovrom refers to companies owned jointly on a 50-50 basis
by the USSR and Rumania.* The stated purpose of the joint companies
was to strengthen the economic structure of the participating countries**
by sharing natural resources, raw materials, capital goods, and tech-
nical experience. The profits of the companies, according to the
Sovrom agreements, were divided equally between the two shareholding
countries.
Agreements signed 31 March and 18 September 195+ were stated to
have provided for the transfer to Rumania of the Soviet share in 12
of these joint companies 95/. Despite the fact that this action
completed dissolution of most of the Sovroms, during most of the post-
war period they constituted an important segment of Rumania's economy.
In 19+5 an agreement between the USSR and Rumania contained a
provision for the establishment of the first Sovroms. These Sovroms
were Sovrompetrol, for production and processing of petroleum;
Sovromlemn, for cutting and manufacturing lumber; Sovromtransport,
a marine transportation enterprise; TARS, an air transport enterprise;
and the Sovrombanc, for financial transactions between the two
countries. From information available, it appears that these
companies did not assume management of their respective operations
until 1947, when on 20 February of that year an agreement was signed
providing for assumption of control.
* Sovroms were the first joint companies formed by the USSR with
a member of the Soviet Bloc. Since their creation the USSR formed
similar companies with Hungary, Bulgaria, Communist China, North Korea,
and East Germany. Little is known about these companies. There are
also two inter-Satellite joint companies -- one between Rumania and
East Germany and the other between Rumania and Hungary.
Foreign Commerce Weekly, 30 October 1948.
Margaret Dewar, Soviet Trade with Eastern Europe, 19+5-19+9,
Royal Institute of International Affairs, London and New York, 1951,
pp. 78-80.
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In addition to the foregoing-Sovroms, 12 other joint companies
have been formed in Rumania since 19)+8. These companies and their
proposed functions are as follows:
1. Sovrommetal, production and standardization of machines and
metals.
2. Sovromgaz, utilization of natural gas.
3. Sovromchim, production of chemicals.
Ii. Sovromtrac'tor, production of tractors.
5. Sovromcarbune, coal mining.
6. Sovromsigurari, insurance.
7. Sovromfilm, motion picture distribution.
8. Sovromconstruction, constructionof roads and bridges.
9. Sovrom Oil Equipment Company,_production of oil drilling
equipment .
3.0. Sovrom. Naval Company, construction of ships and manufacture
of naval equipment.
11. Sovrom-Arte-Poligrafice, printing and publishing.
1.2. Sovromquartzite, uranium mining.
II. Sovrom Capital. }
The Soviet contribution to the capital of the Sovroms established
in 19+5 consisted of German interests in Rumanian firms, which, under
the terms of the Potsdam Conference decisions, became Soviet property.*
Until the nationalization of Rumanian property in 1948, Rumanian pri-
vate shareholders in some cases owned the Rumanian portion of the
Sovroms, but thereafter the Rumanian government became the sole Rumanian
shareholder. It is not clear how the USSR has financed its contribution
to Sovroms established since 1945. The Rumanian press stresses Soviet
technical aid and the delivery of Soviet equipment but does not explain
the corresponding entry in the capital accounts.of the Sovroms. It is
possible that the Soviet contribution consisted-either of reparations
* In many cases it is clear that the USSR took over the entire assets
of German-owned firms, repudiating any liabilities of the former
owners. The Soviet contributions were thus less than the USSR claimed,
since the Rumanian creditors were deprived of their claim to a portion
of the German assets.
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payments or of profits of existing Sovroms. These would be retained
in Rumania and treated as capital of new Sovroms instead of being
transferred to the Soviet bilateral clearing account and charged
against Rumanian exports.*
Rumania's contribution to the capital of the Sovroms appears
to have consisted of natural resource-bearing areas for extractive
industries, and either all or a portion of the fixed assets for
manufacturing, transportation, and banking concerns. No information
is available regarding the contribution of working capital.
III. Organization and Control.
Each Sovrom had a managerial board composed of representatives
of the stockholding governments. This board chose a president,
who was usually a Rumanian national. There was also a director-
general and a commercial director, who were reportedly Soviet
citizens. The Rumanian government, however, may well have been
stripped of power in the organization, since the members of the
managerial board were selected by the personnel service of the
Communist Party. It would seem,. therefore, that these members
must have been either loyal Communists or people whom the Communists
could control. 97 The president of the board was a figurehead,
since the real dower as exercized by the director-general and
the commercial director, who made all decisions for the company. 98
According to the agreements establishing the Sovroms, the director-
general maintained a liaison with the appropriate Rumanian ministry
and was in a position subservient to the minister. It appears,
however, that the director-general acted independently of the
minister, either upon his own discretion or in consultation with
the Soviet commercial representative in Rumania or on orders from
One report claims that in fact the Soviet contribution to Sovrom
capital consisted of reparations as well as of former enemy prop-
erty. 96
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Moscow delivered directly to him, depending upon the importance of
the _problem.*
Although it appears that the USSR managed the Sovroms, there
remains the question of how the directives were channeled from
Moscow to the Soviet Sovrom -officials. There was also a problem
as to how the Soviet government determined the extent to which
these orders were carried out by the individual Sovroms. In
determining the chain of command from Moscow to Rumania, it is
significant to note that when the Sovroms were organized, the chief
Soviet negotiator was reportedly one Zheleznikov, who was a delegate
from the Soviet Planning Commission. It does not seem out of line
to assume, therefore, that the Soviet Planning Commission created
the Sovroms to its own liking and that it retained control over
them. There is the possibility, however, that the planning of
Sovrom production and investment was subsequently takenover by
CEMA, since these functions were assigned to CEMA in the protocol
establishing the organization.
The next level in the chain of command may well have been the
Soviet commercial representative in Rumania. There are three
indications that this was the case. First, when the Sovroms were
organized, Zheleznikov was aided in negotiations by A.N. Finogenov,
chief Soviet commercial representative in Rumania. Second, as of
1950 the Sovroms had no central office in Rumania. Their interests
were handled by the Soviet commercial representative. Third, whenever
the director-general encountered a problem of importance, his first
* The organizational structure of the Sovroms parallelled that of
the Soviet-Hungarian joint companies 100 and probably also that of
the Soviet-Bulgarian companies. The structure of the Sino-Soviet
joint companies, according to the agreement under which they were
established, differred from Bloc countries in that provision was
made for a rotation between Chinese and Soviet personnel in the chief
administrative and executive positions at 3-year intervals. ("Soviet
Economic Agression in Sinkiang," Ministry of Foreign Affairs rational-
ist Chin, no date, UNCLASSIFIED.) The -superior positions were
occupied by Soviet personnel whose terms of office were due to expire
in March 1953. Available information indicates, however, that the
USSR had not abided by the contractual agreements -- that is, they
had taken complete charge of technical levels and had received more
than 50 percent of the companies' profits. 101
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appeal was to the same commercial representative. In view of this
evidence, it seems likely that the Soviet commercial representative
acted as a director for the Rumanian Sovroms and received his orders
from the Soviet Planning Commission.
Although there is no information available stating.the means by
which the Soviet Planning Commission (assuming that this was the con-
trolling body) surveyed the conduct of the individual Sovroms insofar
as they carried out Soviet directives, it is possible that this sur-
veillance function was handled by the Soviet commercial representa-
tives through the Sovrombanc. This institution was entrusted with the
accounts of all the Sovroms, recording all deposits and withdrawals.
For each Sovrom there were four separate accounts, divided into (a)
current accounts, in which were recorded payments and receipts and
subsidies received from the Ministry of Finance; (b) industrial accounts,
to which were credited the value of goods ready for sale; (c) operational
accounts, in which the industrial installations were pledged as security
for credit; and (d) investment and amortization accounts, which are
self-explanatory. 102 Since all financial transactions of the Sovroms
were required to appear on these accounts, it was possible to check
upon their activities.
IV. Sovrom as a Tool of Soviet Integration of the Rumanian Economy.
Soviet policy in Rumania during the period from 1945 to about 1950
was characterized by attempts to rehabilitate the economy and to es-
tablish control over factors of production and trade. The German en-
terprises transferred to the USSR offered the USSR an opportunity to
secure a foothold in Rumanian industry through which they could aid
in rehabilitation and eventually establish a grip upon the economy.
By creating joint companies under the guise of joint control, the
USSR was able to maintain this foothold and gain a favorable propa-
ganda device without immediately instilling fear of domination. The
Soviet writers played upon this theme in the following fashion:
From the beginning of their operation, the joint
companies were an important factor in the rehabili-
tation and further development of the economy, and
strengthening df the Socialist elements in the econ-
omy of the people's democracies ... . The equal
participation in the joint corporations guarantees
the just distribution of their profits, the equality
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CPYRGHT
of outpays on rehabilitation, repairs and expansion
of their fixed capital, and the quality of all other
rights of the participants of these corporations.*
The Sovroms appeared to have exercised monopoly positions in their
respective fields of -operation. The first of these joint companies
were established in three key phases of the economy. For the explor-
ation and exploitation of Rumania's most important natural resources,
Sovrompetrol and Sovromlemn (lumber) were organized. In transpor-
tation the USSR created an air transport enterprise, TARS, and a
marine transportation enterprise, Sovromtransport.. To handle the
financial affairs of these companies, the Sovrombanc was created
through a merger of several former German banks.
Since 1948 the scope of the joint companies has been extended
to include three more extractive industries, -coal, uranium, and
natural gas; industries manufacturing machines, chemicals, tractors,
soil-production equipment, ships and naval equipment; and an enter-
prise for road and bridge construction. In the financial field an
insurance enterprise called Sovromsigurari has been established. Thus,
in summary,, the USSR through the joint companies appears to have gained
control of the extractive enterprises, the important manufacturing
industries, and the means of air, river, and sea transportation. The
financial transactions of the joint companies are also under Soviet
control through the Sovrombanc.
As another step in the Soviet plan of integration, the Sovroms
have been used as a tool for sovietization of the Rumanian economy
The Sovroms served as "laboratories" in which Soviet technical and
administrative methods wereapplied to Rumanian industry. When new
methods were developed by the joint companies, they were transmitted
to state-owned industries, thus increasing uniformity along Soviet
lines.**
The USSR also utilized the Sovroms as a means of controlling Ru-
manian distribution and allocation. Officially, the Rumanian minis-
tries determined allocations by estimating production and balancing
this against the demands of consumers, both local and foreign. This
system is explained by one Soviet writer as follows:
* M. Paromov, "Formy i metody_ekonomicheskogo sotrudnichestve,
mezhdu SSSR i stranami narodnoy demokratii," Voprosy ekonomiki,
December 1950.
** Rumanian News, No. 208, 9 November 1952.
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CPYRGHT
A
The fi-oin7 corporations subordinate their activities
to the national interests of the countries in which they
are located ... . Their activity, like that of the entire
economy, is directed by the economic plans of the people's
democracies. These plans determine the nomenclature and
volume of production, the prices of the goods produced,
and the sales procedure. The entire output of the joint
corporations is put at the disposal of local business
and trade organizations, which sell it in accordance
with the economic plan on the internal market of the
country, or transfer it in part to foreign trade organ-
izations for sale abroad, in order to make possible the
imports of goods necessary for the economic development
of the country.*
Available evidence indicates, however, that the Sovroms do not
recognize this subservience of the company to the local ministry.
Because of the influence of the Sovroms over the Rumanian economy,
they were in a position to dictate to the ministries the plans which
they have received from Moscow. A former employee of Sovrompetrol
has described an allocations meeting between certain Sovroms and the
Rumanian Ministry of Mines and Petroleum:
The local allocations were adjusted from month to
month in accordance with export needs by a special
commission which met in the Ministry of Mines and
Petroleum. Its members consisted of a member of the
Ministry, a representative (Russian) of Sovrompetrol,
a representative (Russian) of TARS, a representative
of Competrol (the Rumanian State Company for local
oil supplies), and a representative of the Army. The
casting vote on the Commission belongs to Sovrompetrol
as far as oil products are concerned, and to TARS as
regards aviation gasoline. These two representatives
successfully opposed the Minister himself, even in
connection with total production, including that of
the purely Rumanian company, Muntenia. Even Army
requirements were cut if the Commission required this,
and it received no aviation gasoline without the
approval of TARS. 103
* Paromov, off. c it .
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If this case is typical of the relations between the-Sovroms and
Rumanian industrial ministries, it canbe concluded that the operations
of the Sovroms formed the core of Rumanian industrial activity, about
which the Rumanian-administered enterprises were required to adjust
themselves. While the allocations referred to in the preceding
citation relate to petroleum products, it is likely that they would
have to be supplementedby allocations of such things as labor,
materials, and full. Priority in the field of output planning would
have to be supplemented by priorities in industrial supplies, if the
Rumanian output authorities were to be prevented from achieving
through indirect controls what they could-not achieve by direct controls
overSovrom plans. It is likely., therefore, that some sort of effective
priority was given the Sovroms in the matter of obtaining supplies,
including imported supplies. Whether this was overt or merely a
tacit arrangement within the Rumanian administrative system is, however,
not known.
V. Transfer of Sovroms to Rumanian Ownership.
Since 1952 -there have been rumors that some Sovroms had been or
were to be liquidated. These rumors became even more persistent
during 1953, and by early 1954 therewere indications that some Sovroms
had already been disbanded. 104
On September 1954 the Soviet press announced that the transfer of
12 Soviet-Rumanian joint companies to Rumanian ownership had been pro-
vided for in agreements signed by the 2 governments on 31 March 1954
and 18 September 1954.- Although definite information is still incom-
plete on a few of the Sovroms, it is clear that the only companies
not returned to Rumanian ownership were those of major importance to
the Russian economy: namely, the Sovroms for uranium and petroleum. 105
The press announcements merely state that the agreements provide
for payment by Rumania "on favorable terms with installments over a
series of years." There is one indication, however, that the sale
price contracted in March was $800 million to be paid for in goods
over a 10-year period. 106
Despite the fact that Rumania was to exercise direct management
of the day-to-day operations of these :L2 companies immediately upon
transfer-, the USSR has retained the joint uranium and petroleum stock
companies and maintains general control of the Rumanian economy
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through Party and government channels and through Soviet advisory person-
nel. One of the media through which these Soviet officials would oper-
ate ispresumably the Rumanian Chamber of Commerce, where reportedly
a number of key Soviet personnel have been transferred to effect
continued control over Rumanian industry and trade. 10 This suggests
that the USSR is merely changing the mechanism for control over the
Rumanian economy to reduce anti-Soviet sentiment.
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SOME ASPECTS OF RUMANIA'S EXTERNAL ACCOUNTS
WITH THE USSR, 1945-51
I. Introduction.
The purpose of this appendix is to examine Rumania's external
accounts with the USSR for the years 1945-51-
II. Trade Components.
A. Commodities.
From 1947-51 the duration of the Rumanian-Soviet trade agree-
ments was 1 year. The 1945 agreement, however, included trade for
1946, and the 1952 agreement, the first Rumanian long-term agreement
with the USSR, covered a 4-year period. 108 Attached to each
agreement were two lists of goods, one setting forth Rumanian deliv-
eries for the period covered; the other, Soviet deliveries. Pro-
vision was made in the agreements for modification and amplification
of the attached lists by agreement of both parties.* 109 Besides
those goods included in the attached lists, allowance was made for
deliveries under contracts negotiated between Soviet foreign trade
authorities and Rumanian juridical and physical persons.** 110
The two lists stating the goods to be exchanged by each
country are equal in value. Examination of the trade accounts is
made quarterly or half-yearly, and if imbalances appear, these
imbalances are supposed to be corrected as soon as possible.**
If the payments are not in balance at the end of the year covered
* Only in 1949 is there any record that modification of the lists
took place. Modifications may have been made in other years.
** These contracts may provide either for barter transactions or
for transactions in which payment is made in currency fixed by the
contract.
*** Quarterly examinations of the.accounts were. made from 1945-47-
In the 1948 agreement, provision was made for half-yearly exami-
nation.
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by the agreement, the country with the adverse balance must liquidate
its debt within a period determined by the trade agreement, usually
the first quarter of the following year, by supplementary deliveries
of goods, by transfers of freely convertible currency, or by trans-
fers of gold.* When both countries have not fillfilled their quotas
as set forth in the agreement, the remaining goods must be delivered
within an agreed period.**
The accounts in which Soviet-Rumanian trade have been kept
have varied somewhat. As of 1947, three types of prices were quoted
in the various tradeand payments agreements: "basic lei," "current
lei," and "1938 dollars." 113 By 1949, however, price lists in the
trade agreements were quoted in rubles, 114 and this practice has
continued until the present. For convenience in analysis, all values
may be converted into US dollars at the official rates of exchange.
This practice has the advantage of -creating`a single unit of account,
but it should not be assumed that the prices in question bear any
necessary relation to US, Soviet, Rumanian, or, in fact, any real
prices. As has been shown in the report, the prices used in inter-
national trade are fixed by a bargaining process, which, in the case
-of Soviet-Rumanian trade, amounts toarbitrary price-fixing by the
USSR.
Table 2*** gives a summary of Soviet Rumanian current pay-
ments for the period 1945-51. It is a condensation of the more
detailed Table 3,**** which shows the entries in individual trade,
reparations, and noncommercial accounts. Table 2 indicates that
although current payments were in balance over the period 1945-51,
Rumanian exports were not equal to Rumanian imports, because of
(1) reparations payments and restitution of property by Rumania;
(2) an unplanned Rumanian current trade deficit in 1945-46, which
involved extension of the trade agreements (with an implicit credit
* The balances of the 1945 and 1947 trade accounts were carried
over to the middle of 1948. The 1948 and 1949 trade agreements
specified that balances had to be liquidated 3 months after the
termination of the trade agreements; the dates of termination were
set at 31 December of the year covered by the agreement. 111
** The unfulfilled quota of the 1945 trade agreement was cleared
by deliveries during 1947, and the balance of the 1947 trade agree-
ment was delivered by the middle of 1948. 112
*** Table 2 follows on p. in.
XXXX P. 117, below.
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by the USSR) into 1947; (3) a loan by Rumania to the USSR in 1947;
and (4) the transfer of the Soviet portion of the profits of the
Sovrom corporations in 1945-51. If the information on which this
analysis is based is correct, current Soviet-Rumanian payments were
held in balance over this period without transfers of gold or
foreign exchange.
Summary of Rumanian Current Balance of Payments
with the USSR J
1945-51
Million
Net Reparations and
Other Capital
Movements
Year
Rumanian
Exports
Rumanian
Imports
Balance
Reparations
Other
1945-46
124.5
- 24.8
99.7
101.3
- 1.6
1947
55.3
- 22.4
32.9
38.1
- 5.2
1948
62.2
- 30.4
31.8
29.2
2.7
1949
124.2 to 139.2
- 94.o to 109.0
30.2
20.2
10.0
1950
148.7 to 166.7
-122.0 to 140.0
26.7
20.2
6.5
1951
166.7
-140.0
26.7
20.2
6.5
a. Items may not add to totals because of rounding.
The Protocol for Noncommercial Payments, 1948, states the
following regarding service charges:
Payment of the balances resulting from charges
made by the railway, post office, telegraph office,
telephone office, and air communications will be
made under agreement by the parties in free con-
vertible exchange or by transfer into the accounts
provided for by Article 5 of the above mentioned
Agreement. 115
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The agreement referred to is the Trade and Payments Agreement for
1948, and the accounts are those through which trade payments are
cleared.
C. Capital Transactions.
In 1947 an emergency loan of US $10 million in the form of
merchandise credits was established in the Soviet State Bank in favor
of Rumania. This loan appears to be the only short-term loan granted
by the USSR to Rumania. 116
Soviet contributions to the capital of joint companies has
been in two forms. A portion of the contributions was in the form of
former German assets which had been transferred to the USSR under the
Potsdam Agreement. Such contributions would not appear in Rumania's
external accounts. Other contributions have been in the form of
capital equipment and technical aid and advice. The means by which
such transfers took place are not definitely known. An examination
of the-Rumanian balance of trade does not -show a -surplus of Soviet
shipments other than the goods shipped under the 1947 loan. No record
is available after 1946 for total yearly shipments of goods as rep-
arations payments; therefore, it is possible that the USSR contributed
to joint company capital by transferring to the companies a portion
of the goods which were to bedelivered as reparations. There is
also the possibility that Soviet shipments of capital goods to the
companies were made under special contract, as provided for in the
Trade and Payments Agreement.of 1948. Such shipments are made over
and above the quota contained in the agreement, and, since only ship-
ments made under the agreement have been reported,-there is no record
of goods shipped under special contract. There is the final possi-
bility that the USSR reinvested in new Sovroms a portion of the
profits derived from previously established joint companies. This
possibility is strengthened by an examination of the Soviet share
(50 percent) of Sovrom profits which were reportedly transferred to
the USSR between 1945 and 1949. These transfers averaged the equiv-
alent of about US $4 million per year, indicating that total annual
Sovrom profits were of the order of magnitude of US $8 million. This
amount appears, however, to be a rather small profit for industries
which were rapidly assuining a monopoly position in the Rumanian
economy. It appears, therefore, that a portion of.Sovrom profits
was probably reinvested as Soviet capital contributions.
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Transfers by Rumania of dividends, profits, interest, and
rents are made in the form of Rumanian exports to the USSR. These
exports are over and above those included in the trade agreements.*
The amounts of transfers for embassy and consulate expendi-
ture are not known. These amounts, however, are probably not very
signif icant.
No information is available concerning the method of transfer
of fines for late shipments or faulty goods. Special accounts prob-
ably are maintained for these transfers.
The period of payment for reparation and resitution of property
obligations placed upon Rumania by Articles 11 and 12,*W respectively,
of the Armistice Agreement was originally 6 years. In 1946, however,
the term of payment of obligations under Article 11 was extended to
8 years. The reparations were set at US $300 million with transfer
in the form of goods at 1938 prices. On 1 July 1948 the balance due
on the reparation account was reduced by 50 percent. The value
of the property which Rumania was obliged to return in goods to the
USSR was reduced in 1947 from 300 billion lei (US $82,530,949) to
100 billion lei (US $27,510,316) at prices prevailing in Rumania up
to 1 April 1945. 118 Probably payments under Articles 11 and 12
were made through a special account. No information is available
after 1946 concerning total payments made by Rumania. Scattered
reports have been made, however, of specific commodity shipments.
*. In 1947 the funds were transferred by the export of goods ap-
pearing in a specially prepared list. The 1948 transfers (which
were not shipped until 1949) and the 1949 transfers consisted of
exports of the same goods listed in the trade agreement over and
above the quantities included in the lists. 11
Rumania at the Peace Conference, Paris, 19 6. Article 10 of
the Armistice Agreement provided for regular payments by Rumania for
the maintenance of Soviet Occupation Forces in Rumania and would
therefore not appear in Rumania's external accounts.
*** New York Times 15 July 1948. Margaret Dewar, Soviet Trade with
Eastern Europe, 1945-1949 , Royal Institute of International Affairs,
London and New York, 1951, p. 83.
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III. Balancing of Accounts.
Separate accounts are maintained for each trade or payment compo-
nent entering the balance of payments except in the case of the trade
account, which also includes payments of services. Each account must
be balanced independently of other accounts; however, by special
agreement it is possible to balance one account against another. The
1948 and 1949 Trade Agreements specified that each-account must be
balanced within-3 months of the termination date of the agreement.
The balances of the 1945 and 1947 trade accounts were, however, by
special agreement, not cleared until the middle of 1948.
IV. Trade and Payments Accounts of Rumania with the USSR, 1945-51.
The format of Table 3* differs from the usual balance of payments
table because of Soviet insistence on separate accounts which must be
balanced independently of other accounts (except by special agreement).
Also, yearly balancing of all accounts is not required, since in many
cases net credits or debits have been carried over into the-following
year. The table has, therefore, been constructed according to this
emphasis on individual accounts.
Table 3 is divided into two major columns. The first is entitled
"Rumania's Commercial Payments to and-from the USSR" and includes the
trade and payments accounts of Rumania with the USSR. The second is
headed "Rumania's Noncommercial Payments to the USSR." Under this
heading are listed the accounts for repayment of the 1947 loan, for
the transfer of Sovrom profits, and for reparations and restitution-of-
property obligations. There is no record of Soviet noncommercial
payments to Rumania.
The following accounts appear in the table:
Trade Account: This account covers payments for commodities and
services, although no information is available for service charges.
The trade account may continue by agreement beyond the year for which
it is provided until all payments have been received or until the
trade quotas are fulfilled.
1947 Loan Account: Although the official name of this account is
unknown, it is referred to here as the 1947 Loan Account. Through
this account, Rumania repaid the USSR for the 1947 US $10 million loan..
* Table 3 follows on p. 116.
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Noncommercial Payments Account: Each year a noncommercial payments
account is established through which joint company profits, interests,
rents, and dividends are transferred. These accounts may also be
carried over into subsequent years.
Compensation Account: This account covers payments by Rumania
to the USSR for joint company profits due the USSR and not trans-
ferred to the latter during 1945-46.
Reparations. Account and Restitution-of-Property Account: Through
these accounts, obligations imposed upon Rumania by Articles 11 and
12 of the Armistice Agreement are paid. The values stated in the
table are based on 1938 prices for reparations and 1945 prices for
restitution of property. Also included in the table are the current
value equivalents for each reparations or restitution payment.
In compiling this table, it has been impossible, because of lack
of information, to include all trade components. No data were avail-
able on services, investments, gold and foreign exchange transfers,
and other components. The major items, valuewise, of the Rumanian-
Soviet trade, however, have been entered in the table. Figures which
are estimates of assumed deliveries have been so footnoted. After
1947, only proposed trade figures are available, but it is assumed
that the deliveries to the USSR took place, since quotas set forth
in the trade agreements are expected to be fulfilled. It has further
been assumed that annual reparation and restitution-of-property ob-
ligations have been met. This assumption is based upon a 1946 re-
port 119 that the quantity of goods to be exported under the 1946
Trade Agreement could be determined only after obligations under the
Armistice Agreement were subtracted from total goods available for
export. If in 1946 the Armistice obligations held priority over all
other exports, it is probable, because of increased Soviet control
over Rumania, that fulfillment of these obligations continued in
subsequent years.
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Table 3
Trade and Payment Accounts of Rumania with the USSR
1945-51
Account
Outstanding
before Payment
Amount Paid
Amount
Outstanding
1945
Reparations Account (1945) J
300,000
56,500
243,500
and
1946
N.A.
Reparations Account (1946) 21
243,500
29,2115./
214,286
1945 Trade Account bJ !;LO/
(1945-46 Adjusted to current prices)
(168,069)
Deliveries
23,161
24,802
-1,641
Restitution of Property Account 122
82,531
15,583
66,948
1947
1945 Trade Account b/ 123
1947 Noncommercial Payments Account
127
2,342
639
1,703
Balance brought forward
1,641
Compensation Account J 128
1,000
1947 Deliveries
3,821
1,380 J
Compensation due the USSR
500 J
Paid under 1945 trade account
500
Paid in goods
500
Total
1,000
1,000
1947 Trade Account 125
Reparations Account
214,286
35,714 J
178,572
Deliveries
12,228
20,997
Credit from US $10 million
(Adjusted to current prices)
(83,281)
Loan granted by the USSR
8,074
1
Restitution of Property Account
11,927 J 129
2,385 W
Total
20,302
20,997
(Adjusted to current prices)
(2,608)
1948
1947 Trade Account J 130
1947 Loan Account J 132
10,000
2,500
7,500
Balance of 1947 trade account
1947 Noncommercial Payments Account 133
1,703
1,703
Balance of 1945 trade account
300
Balance of US $10 million
Reparations Account
loan
1,926
Supplementary delivery of
Jan-Jun 1948
178,572 1/
17,857 /
160,715 J
goods
3,870
5,401
Jul-Dec 1948
80,357 J
6,096
(Adjusted to current prices)
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Table 3
Trade and Payment Accounts of Rumania with the USSR
1945-51
(Continued)
Year Account
Receipts
is
Payments Balance
( orts) + or -
Account
Outstanding
before Payment
Amount Paid
Amount
Outstanding
1948 Trade Account 131
Proposed trade and assumed
deliveries
25,000
25,000
Restitution of Property Account
9,542 /
2,385 J
7,157 J
(Adjusted to current prices)
(2,881)
1949 1949 Trade Account
1947 loan Account 137
7,500
2,500
5
000
Proposed traft and assumed
75,000 134
75,000
1949 Noncommercial Payments Account 138
4,500
,
deliveries
to
87,E 135
to
87,000
1948 Sovrom profits due the USSR
4,500
Amplification of agree-
19,000
19,000
1949 Sovrom profits due the USSR
3,000
to
22,000
to
22,000
Total
94,000
94,000
Reparations Account
17,857 J
53,571
to
109,000
to
109,000
(Adjusted to current prices)
(43,668)
Restitution of Property Account
7,157 J
2,385 /
4,772 J
(Adjusted to current prices)
(2,728)
1950
1950 Trade Account J 139
1947 Loan Account
5,000
2,500
2,500 J
Proposed trade and assumed 122,000
122,000
1950 Noncommercial Payments Account
deliveries to
140,000
to
140,000
1950 Sovrom profits due the USSR
4,000 J
4,000 J
Reparations Account
53,571 /
17,857 1
35,714 J
(Adjusted to current prices)
(42,926)
Restitution of Property Account
4,772 /
2,385 /
2,387 J
(Adjusted to current prices)
(2,682)
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Trade and Payment Accounts of Rumania with the USSR
1945-51
(Continued)
Receipts Payments Balance Outstanding Amount
Year Account (Exports) (Imports) + or - Account before Payment Amount Paid Outstanding
1951 1951 Trade Account 140 1947 Loan Account 2,500 / 2,500 /
Proposed trade and assumed 1951 Noncommercial Payments Account 4,000 J 4,ooo 1
deliveries 140,000 140,000
Reparations Account 35,714 17,857 / 17,857 J
(Adjusted to current prices) (48,371)
Restitution of Property Account 2,387 J 2,387
(Adjusted to current prices) (3,025)
a. Economic Treaties and Agreements of the Soviet Bloc in Eastern Europe 1945-1951, National Committee for a Free Europe. This account was created for the funds
due the USSR on 2 February 1941 Trade Account. The USSR balance due on the 15 February 1936 Trade Account was added to the new account.
b. The delivery figure for Rumania is the average of a minimum-maximum estimate of US $22,922,000-$23,400,000. The value of the goods to be delivered was
US $26,982,000. The balance of the goods not shipped in 1945 and 1946 was carried over into 1947 under the same account.
c. Rumania at the Peace Conference, Paris, 1946, p. 185.
d. Ibid., p. 106.
e. Total amount due as reparations was US $300 million, payable over a 6-year period. This period was subsequently extended to 8-years. The remainder due over
the 7-year period, 1946 to 1952, was therefore US $250 million, or US $35,714,286 per year. The 1946 payment due of US $29,214,286 was derived by the following
method. Reparations due for 1946 were reported 121 to be US $47.3 million at 1946 prices. If the amount paid (US $6.5 million) in excess of 1945 obligations is
subtracted from the amount due in 1946 and the remainder of US $29,214,286 (1938 prices) is divided into the reported payment of US $47.3 million (1946 prices),
the quotient obtained is 162, which is not out of line with a world price index using 1938 as a base year.
f. The balance of USSR shipments not delivered in 1945 and 1946 under the 1945 Trade Agreement was valued at US $2,180,000. In the 1947 Protocol on Collaboration
it was agreed to reduce this amount by US $5006,000, thus leaving Rumania with a proposed excess over Soviet shipments of US $500,000. This amount was considered
to be partial payment by Rumania of a US $1 million compensation due the USSR resulting from joint company profits not transferred to the latter in 1945 and 1946.
The amount was, therefore, entered as a debit in the Rumanian account. Of the remaining Soviet shipments due in 1947 under the 1945 Trade Agreement, namely US
$1,680,000, the USSR delivered only US $1,380,000-
g. The balance due was carried over to 1948 and transferred to the 1947 Trade Account which was also carried over into 1948.
h. In 1947 the USSR granted Rumania a US $10 million loan in the form of "merchandise credits." Of this loan, US $8,073,000 was utilized in 1947 and the
remainder in 1948.
1. The Rumanian debt was carried into 1948 under the same account which was extended to 1 July 1948.
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Table 3
Trade and Payment Accounts of Rumania with the USSR
1945-51
(Continued)
J. These deliveries represented transfers to the USSR for interest, dividends, profits, rents, and so on. The total amount due in 1947 was US $2,341,800, but
only US $639,983 was transferred. The remainder was transferred in 1948.
k. For the payment of a US $1 million compensation due the USSR for joint company profits not transferred in 1945 and 1946, it is assumed that an account, here
referred to as the Compensation Account, was established. From this account, US $500,000 was transferred to the 1945 Trade Account. (See note f, above.) The
remaining US $500,000 was paid to the USSR by supplementary shipments.
1. Assumed.
m. Total restitution-of-property payments due were reduced from US $13,775,158 per year for 5 years to US $2,385,392 per year for the same period.
n. This is one of the few cases involving inter-account clearing.
o. The total credits granted Rumania under the 20 February 1947 loan were US $10 million. Since the 1948 and 1949 yearly payments on this loan were $2.5 million
plus interest, the assumption is made that the payments were extended over a 4-year period at US $2.5 million plus interest per year. No information is available
concerning the rate of interest.
p. New York Times, 15 July 1948-
q. On 1 July 194b, the Soviet government reportedly reduced the amount of outstanding reparations from Rumania by 50 percent. It is assumed here that half of the
original payment for 1948 was made by the end of June. Thus the balance due on 30 June of US'$160,714,285 was reduced by 50 percent, making US $80,357,143 out-
standing on 1 July 1948. This estimate places the amount due after reduction at a higher figure than other estimates. One writer, without giving his source,
claimed that deliveries made by the end of June were "officially" put at US $153 million and that the amount due after reduction was US $73.2 million. Another
source estimated the amount due after reduction to be US $55 million. (New York Times, 15 July 1948).
The estimate made in this report is based on the hypothesis that, before the reduction, the Rumanian government was not in a position to pay more per
annum than necessary to meet the US $300 million obligation extended over an 8-year period.
r. An annex to the 1949 Trade Agreement was signed in July 1949. This annex provided for an amplification of the Trade Agreement by an additional exchange
of goods equal in value to 25 percent of the original quota.
s. The 1950 Trade Agreement provided for a 30-percent increase over the quota of the 1949 Trade Agreement.
t. This figure is based on 1948 and 1949 joint company profits. With the number of joint companies increasing in 1949 and 1950, it is possible that joint
ccapany profits due the USSR surpassed this figure.
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101.
102.
103.
104. State. Bucharest
2 Maur 52, S .
105.
FOIAb3bl
S-E-C-R-E-T
Joint Weeka no 1.8,
25X1A2g
25X1A2g
State, Moscow. Dsp 449, 26 Sep 54, S.
106. State, Bucharest. Dsp 181, 11 May 54, S.
107. Ibid., Dsp no 6, 7Jul 54, C.
108. National Committee for .a Free Europe. Economic Treaties and Agree-
ments of the Soviet Bloc in Eastern Europe, 1945-51., 19~5-46 Trade
Agreement, signed 8 May 5. U.
USMR. Allied Control Commission (ACC) for Rumania, 11 Mar 47,
1947 Trade Agreement, signed 20 Feb 47, S.
State, Bucharest. Dsp 158, 18 Mar 48, 1948 Trade and Payments
Agreement, signed 18 Feb 48, S.
Ibid., Dsp 110, 9 Mar 49, 1949 Trade Agreement, signed 24 Jan 49, S.
Ibid., Dsp 450, 15 Nov 49, 1950 Trade Agreement, signed Jan 50, S.
State, Moscow. T 1687, 20 Mar 51, 1951 Trade and Payments Agreement,
25X1X7
109. State, Bucharest. Dsp 158, 18 mar 48,, s.
110., Ib:Ld.
111. Ibid.
National Committee for a Free Europe, Economic Treaties and Agree-
ments of the Soviet Bloc in Eastern Europe, 1945-1951., U-
112. State, Bucharest. Dsp 15 6,, 1 Mar 1-E8, S.
113. Ibid., Dsp 1485, 5 Apr 47, S-
114. Ib:Ld., Dsp 489, 10 Dec 49, S.
115. Ibid., Dsp 158, 18 Mar 48, S.
116. Ibid., Dsp 110, 9 Mar 49, S.
117. Ibid.
Ibid., Dsp 110, 12 Apr 48, S.
118. 25X1A2g
119. USMR. A0C? for Rumania, 11 Mar 47, S.
120. State, Bucharest. Dsp 1485, 5 Apr 47, S-
121. USMR. ACC for Rumania, 11 Mar 47, 5.
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25X1A2g
122.
123.
Ibid.
State,
Bucharest. Dsp 212, 12 Apr 48, S.
Ibid.,
Dsp 11+85, 5 Apr 47, S.
121E.
'Ibid.,
Dsp 212, 12 Apr 48, S.
125.
Ibid.
126.
Ibid.
25X1A2g
127.
Ibid.
128.
129.
Ibid.
130.
State,
Bucharest. Dsp 212, 12 Apr 48, S.
131.
JANA,
Rumania. R-155-48, 20 Mar 48, S.
132.
State,
Bucharest. Dsp 212, 12 Apr 48, S.
133.
Ibid.
134.
Ibid.,
Dsp 110, 9 Mar 49, S.
135.
Ibid.,
Dsp 202, 24 May 49, S.
136.
Ibid.,
Dsp 452, 12 Nov 49, S.
137.
Ibid.,
Dsp 11o, 9 Mar 49, S.
138.
Ibid.
139.
Ibid.,
Dsp 339, 26 May 50, S.
140.
Ibid.,
Dsp 337, 7 Apr 52, S.
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