NATIONAL INTELLIGENCE BULLETIN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00975A030200010004-1
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 13
• Document Creation Date: December 20, 2016
• Document Release Date: July 26, 2006
• Sequence Number: 4
• Publication Date: June 2, 1977
• Content Type: REPORT

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Thursday June 2, 1977 CG NIDG 77-127C
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National Intelligence Daily Cable for Thursday.
The a e is for the purpose of informing
senior US officials.
MEXICO: Oil Development Financing
ETHIOPIA: Railroad Incident
USSR: Dissident Reportedly Charged
USSR: Sluggish Steel Production
UK: Wage Policy Prospects
CHINA-CANADA: Wheat Purchase
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MEXICO: Oil Development Financing
//Mexico's state oil company is looking for ways
to finance its ambitious investment program. For the first
time, Pemex appears willing to commit future oil and gas ex-
ports to foreign companies in exchange for development financ-
ing./1
Pemex is looking to foreign companies to raise funds
because of the constraint put on Mexico's borrowing abroad by
the International Monetary Fund stabilization agreement. High
on the list of projects for development financing is a 48--inch
pipeline to carry up to 2 billion cubic feet per day of gas
from the southern oil fields to the US.
I IPemex's preliminary six-year development program
projects capital outlays of $2.5 billion annually, about double
the annual average of the last: two years. Current plans would
boost production and exports of oil to 2.24 million and 1.1
million barrels per day, respectively, in 1982. //If Mexico de-
cided to push oil development even faster and if it could obtain
sufficient foreign assistance, production could be pushed as
high as 3.5 million barrels per day and exports to about 2.2
million barrels per day in 1982.//
//The destruction of the bridges, located about
midway a ween Addis Ababa and Djibouti in the French Territory
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of Afars and Issas, has reportedly halted all rail traffic. The
railroad, Ethiopia's principal outlet to the sea, carried a
large portion of the country's foreign trade.//
USSR: Dissident Reportedly Charged
Prominent Jewish human rights activist AnatoZy
Shcharansky, who has been under detention since March 15, has
been formally charged with treason, according to information
conveyed to Western newsmen yesterday by his friends in Moscow.
The charge carries a penalty of 10 to 15 years in a labor camp
or, in "extreme circumstances," death.
I I Speculation that Shcharansky would be charged with
treason has been rife among Soviet dissidents in recent weeks.
Accusations of espionage against him and several US diplomats
and newsmen were published in izvestia two weeks before his
detention and were repeated in detail in early May.
Shcharansky's mother reportedly was notified of the
charge in a letter from the Soviet prosecutor's office. Under
Soviet law, treason includes espionage and "rendering aid to a
foreign state in carrying on hostile activity." No official,
public announcement of the treason charge against Shcharansky
has yet been made, and in any event, the charge could be re-
duced before any trial opens.
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I Until his arrest, Shcharansky was one of the most
ac ive members of the dissident group monitoring Soviet compli-
ance with the human rights aspects of the Helsinki accords. The
founder of the group, Yury Orlov, and his colleague Aleksandr
Ginzburg are also being detained, but no charges have been
levied against them. Soviet anti-dissident moves in recent
months have seemed to focus on Orlov's monitoring group, which
has regional branches; four members in the Ukraine and two in
the Georgian republic reportedly have also been detained.
I I We still have no hard evidence that the Soviets have
resolved the political benefits and drawbacks of putting
Shcharansky on trial on the eve of or during the initial CSCE
review conference in Belgrade that opens June 15. They may, as
some dissidents speculate, calculate that they can hold the
arrested activists hostage to developments at Belgrade. Moscow's
recent propaganda campaign warning the West not to "overempha-
size" human rights or seek to put the USSR and its allies in the
dock at Belgrade continues to betray deepseated concern over the
course and outcome of the conference.
I Soviet orchestration of the Shcharansky case so far--
publicly implicating the Jewish and non-Jewish dissident commu-
nity with US diplomats and newsmen in espionage activity at the
behest of CIA--could thus be another way Moscow hopes to inhibit
the West, and especially the US, from levying charges of human
rights violations against the USSR at Belgrade.
I IThe Soviets may see several advantages in putting.
S c arans y on trial. They would hope that the espionage charges
against him will discredit the dissidents, bolster Soviet alle-
gations of US interference in Soviet internal affairs, further
curb contacts between foreigners and Soviet citizens, and dra-
matically demonstrate that Soviet domestic policies are resist-
ant to external pressures.
USSR: Sluggish Steel Production
I The stagnation in Soviet steel production over the
as year and a half and the Soviet failure markedly to improve
capacity and assortment has rapidly increased Soviet dependence
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on imports from the West. The steel industry is unlikely to
expand fast enough to reduce this dependence and large hard-
currency outlays for steel probably will continue through the
remainder of the 1970s and into the 1980s.
The steady growth in Soviet steel production after
World War II enabled the USSR to supplant the US as the world's
largest steel producer in the early 1970s. The annual rate of
steel production has slowed considerably over the last several
years. Last year, it increased 3.4 million tons, the smallest
annual boost since 1957. Output in the first quarter of 1977
dipped below the level attained in the same period in 1976.
The assortment and quality of Soviet finished products,
particularly flat-rolled steel, are inadequate to meet domestic
demand. Output has lagged in cold-rolled sheet for automobiles
and consumer durables, tinplate for the canning and packaging
industries, and sheet products for structural applications.
Large-diameter pipe for transmission of oil and gas, as well as
other tubular goods for the chemical and petroleum industries
are also in short supply.
Metallurgical flaws and defects in Soviet-made drill
an line pipe cause serious problems, especially for operations
in the extreme cold of Siberia and the Soviet Far North. These
conditions magnify the flaws and the pipe becomes brittle and
is apt to shatter. High-quality electrical sheet steel for use
in transformers and electric motors also is in short supply.
The USSR produces large quantities of electrical sheet steel--
more than twice as much as the US--but the quality is very poor.
I I The USSR has been a net importer of steel since 1974.
The imports must be paid for in hard currency, while exports
are sold, for the most part, under ruble-clearing agreements
with Eastern Europe. In 1976, payments for steel imports totaled
about $2.5 billion or about one sixth of total imports paid for
in hard currency.
I IThe imports from Western suppliers consisted largely
of high-cost types of steel but Soviet exports to communist
countries and to developing countries consist largely of lower
cost grades and types of steel.
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The Soviets have increased investment outlays for
steel steadily in the past 15 years, but the amount has been
inadequate for developing a new capacity embodying modern
technology, improving the quality and assortment of finished
products, and improving the increasingly lean Soviet iron ore.
Construction of new steel-making capacity has lagged
badly, slowing the expansion of the low-cost basic oxygen
steelmaking facilities that are dominant in the rest of the
world. The traditional open hearth furnace still accounts for
the largest share of Soviet steel output.
In an effort to compensate for the lack of new capac-
ity, the Soviets have delayed the retirement of old facilities;
facilities have been refurbished, and operations intensified.
Most of this potential has already been tapped, and squeezing
additional output from existing plants is becoming increasingly
difficult.
A steady decline in the quality of Soviet iron ore--
a decrease in iron content from 45 percent in 1960 to about 35
percent in 1975--has forced the steel industry to allocate a
growing share of its investment funds to construction of facili-
ties for raw ore mining, raising the iron content of the ore,
and improving the quality of the iron charge for the blast fur-
nace. The USSR, which is the major supplier of iron ore to East-
ern Europe, is urging these countries to assist financially in
iron ore development projects.
I All of these factors, together with outlays for pollu-
tion control equipment, have caused a steady rise in capital
costs not matched by production increases. From 1966 to 1970,
net additions to the stock of plant and equipment proceeded at
an average annual rate of 8 percent, but production of finished
steel increased at only a 6-percent rate. Comparable rates dur-
ing 1971-1975 were 7.5 percent for plant and equipment and 4.5
percent for finished steel output.
Despite an expected slowdown in the overall rate of
growth in Soviet gross national product over the next five to
ten years, import demand is expected to remain at recent high
levels, if not increase somewhat. Large-diameter pipe, oil
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field tubular goods, high-quality tubing for chemical and spe-
cial applications, and varied types of structural steel account
for about 75 percent of the growth in imports of steel since
1970. Domestic needs for these types of steel should remain
high.
Prospects are not favorable for expansion of Soviet
production of these types of finished steel. Overall growth in
output of finished steel will slow to an average annual rate
of 3.6 percent in 1976-1980. Moreover, given the poor start in
1976 and early 1977, as well as the Soviet record of failure
to carry out investment plans, the structual changes in output
required to substitute domestic production for imports will not
be attained.
UK: Wage Policy Prospects
//Mounting trade union demands for a return to
free collective bargaining in the UK have dimmed hopes for an
effective "phase three" wage agreement. The government's best
hope for controlling wage increases would now seem to be an
"understanding" with the unions that they would not engage in
a free-for-all when the current agreement runs out on July 31.
Such an understanding would have an ominous similarity to the
period in 1974 and 1975 when union negotiators made a shambles
out of the Labor government's pay guidelines by extracting in-
creases that helped fuel a 25-percent annual rate of inflation.//
//Many union leaders seem willing to help Prime
Minister Callaghan save face by agreeing to the continuation of
some sort of wage guidelines. Without a highly visible sign of
government-union cooperation on an anti-inflation program, one
of the main underpinnings of the Labor government, Callaghan
would find it difficult to avoid an election this year.//
//One key union official recently told US diplo-
mats that he believes the government and the unions will reach
an understanding that would gear wage increases to the cost of
living; the annual rate of inflation is currently running at
17.7 percent. The official said the understanding would probably
include a union pledge not to break the vital 12-month rule,
which requires a union to wait one year before negotiating a
new wage contract.//
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//With the trade union conference season more than
half over, unions representing almost 3 million workers have
voted in favor of a return to normal collective bargaining af-
ter two years of rigid wage controls. Last year, unions repre-
senting less than a half million of Britain's 11 million organ-
ized workers voted against the "phase two" guidelines.//
//The government, however, still has qualified
union support for the principle of a third round of wage con-
trols. Steel workers and the General and Municipal Workers Un-
ion, the country's third largest union, voted yesterday to sup-
port a continued pay policy. Other large, moderate unions, in-
cluding Jack Jones' transport workers, have yet to vote; the
government could pick up more support from them.//
//The Labor government recognizes that grass roots
sentiment against a tight pay policy is running strong, but for
political reasons it will be working hard to secure a new accord
with the Trades Union Congress.//
//In recent remarks to a gathering of foreign dip-
lomats, Employment Secretary Albert Booth declared that a flex-
ible policy was "better than nothing at all." Booth also said
if future union pay demands threatened to set off a new infla-
tionary spiral, the government would-'use its power over public
sector wage bargaining to limit pay increases as well as adopt
other restrictive fiscal and budgetary measures to keep the
economy on an even keel.//
//In the post "phase two" period, whether there
are exi e pay guidelines or none at all, skilled workers will
probably seek large wage increases to re-establish their posi-
tion at the top of the working class. Because many skills are
in short supply, these workers will be in a strong bargaining
position with employers. Unskilled workers--particularly those
in the public sector--face more difficult and probably less re-
warding negotiating sessions than their more talented comrades.
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//The Canadian Wheat Board announced Tuesday the
sale to China of 3 million tons of wheat for delivery between
August 1977 and July 1978. This is China's Largest single grain
purchase of the year and will bring the total purchased in 1977
to more than 8 million tons. The Large increase in wheat imports
may indicate Larger than anticipated winter wheat losses.//
//The record for Chinese grain imports is 7.6 mil-
lion tons in 1973 following a very poor 1972 harvest. Wheat im-
ports in 1976 were a modest 1.9 million tons. Food grain pro-
duction last year, however, did not increase over 1975 and was
considered a poor harvest.//
//The dramatic increase in wheat purchases this
year thus follows the pattern of 1972 and 1973, and the size
of the latest contract suggests that the winter wheat losses
were greater than we had estimated. The recent purchase may
also be a hedge against the possibility of a poor earl rice
harvest, which begins in July.
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