WEEKLY SUMMARY SPECIAL REPORT SOVIET TRADE WITH THE FREE WORLD

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A007300010002-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 9
• Document Creation Date: December 20, 2016
• Document Release Date: April 28, 2006
• Sequence Number: 2
• Publication Date: August 22, 1969
• Content Type: SUMMARY

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DIRECTORATE OF
INTELLIGENCE
WEEKLY SUMMARY
Special Report
Soviet Trade with the Fred World
Secret
N4' 38
22 August 1969
No. 0384/69A
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SOVIET TRADE WITH THE FRIEE WORLD
In the course of the past two decades, Soviet external economic relations have
exhibited a shift in emphasis paralleling changes in broader Soviet objectives during
the same period. In the 1950s and early 1960s, when Moscow was competing with
the West for influence in the newly independent countries, the USSR channeled its
economic efforts toward the less developed countries. More recently, however,
because of the large technological gap between the Soviet Union and the more
sophisticated Western countries, Moscow has emphasized wider economic relations
with these nations.
The Soviet Union conducts about one third of its foreign trade with the free
world. The industrial Western nations account for two thirds of this and the less
developed countries the remainder. Soviet trade with the industrial West, in part
because of emergency wheat imports and a willingness to draw down gold reserves to
gain modern technology, has grown rapidly in the 1960s. By 1966 orders for plant
and equipment that had been cut back during the grain crisis increased to an all-time
high, and the USSR began taking greater advantage of long-term credits offered by
the West. Soviet trade with the industrial West was the most active sector of Soviet
foreign trade in 1968, growing by more than double the rate registered the previous
year. Trade with the less developed countries of the free world, on the other hand,
has remained relatively static since 1965.
SOVIET HARD CURRENCY POSITION
In trading with the West the present Soviet
leadership has pursued the same objectives as the
previous regime, but it has been more conserva-
tive in the use of hard currency resources. Under
Khrushchev, imports of equipment and technol-
ogy from the West were to be stepped up for
"quicker fulfillment of the development pro-
gram-without wasting time on the creation of
plans and mastering the production of 'new types
of equipment." The significant increase in im-
ports from the West after 1958 reflects the imple-
mentation of this policy. Soviet gold sales during
the period 1959-62 averaged $250 million annu-
ally, well in excess of Soviet gold production. The
Soviet payments position was further aggravated
during the period 1963-66, when poor harvests
forced the USSR to spend $1.7 billion for im-
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ported wheat. These purchases were financed
largely by increased gold sales, and by the end of
1965 gold reserves had fallen to about $1 billion,
or one third their level a decade earlier.
Available evidence suggests that on assuming
power in 1964 the present leadership believed
Soviet gold reserves had reached a critical point;
by the end of 1964 Moscow had begun to restrict
imports of Western industrial goods and to pro-
mote exports, particularly of oil, cotton, logs, and
food. The USSR's failure to take fuller advantage
of long-term credit facilities offered by the West
probably was due to the unwillingness of the
Soviet leadership to mortgage future earnings at a
time of considerable uncertainty about crop pros-
pects and the ability to expand exports. Short-
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term credit facilities were used extensively, and
Soviet gold sales dropped sharply by 1966.
The shift that year had come about because
of good crop prospects and an improvement in
the Soviet hard currency balance. The leadership
accordingly increased its orders for Western plant
and equipment to an all-time high of $900 mil-
lion, the Fiat contract accounting for about half
the total. The USSR again began taking advantage
of the long-term credits offered by the West and
has since maintained a high level of orders with
the West.
SOVIET HARD CURRENCY BALANCE.
IMPORTS OF WHEAT, AND SALES OF GOLD
Million US Dollars
600
25X1
EXPORTS
-600
1959 60 61 62 63
sales remained at about the same level as in
1967-$ 10 million-so that gold reserves increased
to about $1.4 billion at the end of 1968.
TRADE PATTERNS WITH
THE INDUSTRIAL WEST
Soviet trade with the industrial West in the
period 1958-68 grew at a more rapid rate-about
1 I percent-than with any other area. The West
European countries have accounted for the major
share of this trade except during the period
1'964-66, when the USSR imported large quanti-
ties of wheat from Canada, the United States, and
Australia. The USSR's major trading partners in
the free world are the United Kingdom, Finland,
Japan, and the three largest Common Market
countries-France, West Germany, and Italy.
Last year Soviet trade with the industrial
West rose over 14 percent to about $4.2 billion,
making it the most active sector in Soviet foreign
trade. Soviet exports to hard currency trading
partners in this area totaled $1.74 billion and
imports climbed to $1.78 billion, resulting in a
small hard currency deficit. Soviet trade with the
industrial West will continue to grow in absolute
terms, but the rate of expansion is expected to
slow.
SOVIET TRADE WITH SELECTED WESTERN COUNTRIES
US D.1-
The improvement continued in 1967, when
the USSR had a hard currency surplus for the
first time in a decade. Last year, however, rapidly
rising imports of machinery and other manufac-
tured goods outpaced Soviet exports and resulted
in a hard currency deficit of $95 million. Gold
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Soviet trade with the United States has more
than tripled over the past decade, rising to the
present level of about $100 million. It still ac-
counts for less than three percent of:Soviet trade
with the industrial West, however, and constitutes
less than one fourth of one percent of total US
foreign trade. Only in 1964, when it sold almost
two million tons of wheat to the USSR, did the
United States have a larger share of this trade.
This low level relative to that of other Western
countries results in part from more stringent US
restrictions on trade than maintained by Western
Europe or Japan.
Soviet trade with the industrial West features
the exchange of Soviet fuels, raw materials, and
semimanufactures for Western machinery and
other products. The USSR's most notable suc-
cesses in expanding exports in recent years con-
tinue to be in the old standbys-oil, processed
timber, vegetable oils, cotton, diamonds, and
other raw materials and semiprocessed goods.
This pattern persists despite Soviet efforts to di-
versify the range of products and increase the sale
of manufactured goods.
The failure last year for the first time since
1955 to expand petroleum exports :may cause an
increasing range of difficulties in the' future. Pe-
troleum sales have been the largest single earner
of foreign exchange during the past several years.
Because of the rising domestic consumption of
oil, increased commitments to East European
Communist countries, and a slower growth in the
production of oil, prospects for a reversal of this
development are dim.
Machinery and equipment, including com-
plete plants, typically account for roughly one
third to one half of total Soviet imports from the
West in an average year. The major categories are
automotive production equipment, chemical and
petrochemical equipment, ships, and wood proc-
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essing equipment. The last three years, however,
have also seen a rise in imports of plant and
equipment for consumer industries.
The largest single category of orders for
Western machinery and equipment in 1966-68 has
been for passenger car production facilities, total-
ing $583 million. The volume of contracts for
chemical and petrochemical equipment for the
manufacture of plastics and synthetics, fertilizer,
and agricultural chemicals has been consistently
high since the beginning of the Soviet purchasing
program in 1959.
ISE LECTED SOVIET COMMODITIES TRADED WITH THE INDUSTRIAL WEST
1958 1967
Value
Million US $
Percent
Value
Million US $
Percent
Petroleum and petroleum products
98
14.4
445
23.6
Coal and coke
53
7.8
104
5.5
Wood and wood products
125
18.3
322
17.1
Cotton fiber
22
3.2
108
5.7
Base metals and manufactures
96
14.1
204
10.8
Food
85
12.5
144
7.6
Furs and pelt
34
5.0
55
2.9
Other and unspecified
169
24.8
503
26.7
Machinery and equipment
194
30.6
670
37.6
Base metals and manufactures
162
25.6
130
7.3
Chemicals
22
3.5
166
9.3
SVheat and wheat flour
17
2.7
147
8.2
Manufactured consumer goods
53
8.4
222
125
Other and unspecified
185
29.2
447
25.1
Well over half the value of contracts for
ships during 1966-68 covered 18 refrigerator ships
and their special equipment, most of which are
destined. for the Soviet fishing fleet. Among con-
tracts in, the timber and wood processing category
during 1966-68, the most outstanding is a recent
one with Japan for equipment valued at $133
million to exploit Siberian timber resources.
Plants and equipment for consumer indus-
tries are gradually accounting for a larger share of
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Soviet orders. Contracts for food processing and
textile-manufacturing plants and equipment alone
were valued at about S300 million over the period
1966-68, and there has been a series of contracts
for plants to produce such items as footwear,
home refrigerators, ballpoint pens, and color tele-
vision picture tubes.
WESTERN EUROPL IN FOREFRONT
Italy is in the forefront of countries favored
with Soviet contracts during the past three years.
This is largely because of the Fiat contract, which
accounts for more than two thirds of Soviet-Ital-
ian contracts valued at more than $650 million,
France has been a major supplier of capital goods
in recent years, furnishing automotive production
facilities. textile and chemical plants, and refriger-
ator ships. Contracts signed with the United King-
dom have been more varied, including a large
volume of machine tools as well as metallurgical
equipment and textile plants. Orders with the
United Kingdom fell off sharply in 1968, how-
ever, dropping from nearly $170 million in 1967
to about $60 million last year.
sources, Japan had received relatively few equip-
ment orders.. Sweden has been a steady, though
relatively small, supplier for a number of years. In
1968 it secured more than $37 million worth of
contracts for ships as well as large contracts for
automatic telephone equipment and other items.
The total of these orders nearly doubled that of
1967. West Germany, Eastern Europe's chief
European supplier, has a declining share of Soviet
contracts. Contracts in 1966-68 constituted a
mixed bag of plants and equipment, but a signifi-
cant agreement concluded this year provides for
assistance in the fabrication of large-diameter
steel pipe to transport Soviet natural gas from
deposits in Arctic Siberia to processing centers in
the European USSR.
The future level of Soviet imports from the
industrial West will continue to depend on the
Soviet payments position. Even within this limita-
tion, however, the recent high level of orders for
plant and equipment may fall as the USSR shifts
to increased imports of technical data. The cur-
rent leadership has encouraged scientific and tech-
nical agreements with Western countries and
firms, the most important of these being with
France and the United Kingdom. In the Kremlin's
eyes, the acquisition of Western technology will
save foreign exchange and at the same time
reduce research and development costs in the
USSR. The USSR may also increase cooperative
business ventures with firms in the industrial West
in its drive to acquire Western technology as eco-
nomically as possible.
TRADE WITH THE LESS
DEVELOPED COUNTRIES
Since the beginning of the so-called Soviet
economic offensive in the less developed coun-
tries in 1954, the USSR has extended almost $6.5
billion in economic credits and grants, and Soviet
trade with these areas has increased sevenfold.
This trade was stimulated both by the flow of
USSR: VALUE OF ORDERS FOR PLANT AND EQUIPMENT
FROM THE INDUSTRIAL WEST BY COUNTRY'. 1966-613
Million US Dollars
Other major free world suppliers have been
Japan, Sweden, and West Germany. Prior to the
1968 contract to develop Siberia's timber re-
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Soviet aid and by Soviet purchases of the major
exports of many of these countries, who hope to
expand their markets abroad.
Since 1965, however, the general level of
Soviet trade and aid activity with the less devel-
oped countries has changed little. Annual draw-
ings of economic aid have declined, in large part
because of slow progress on a number of major
investment projects. To ensure moreieffective use
of this aid, Soviet authorities have been exercising
a greater selectivity in the types of projects and a
more sophisticated concern with the capacity and
repayment ability of the less developed countries.
Thus the USSR now extends relatively few com-
prehensive lines of credit covering multiple un-
designated development projects, preferring in-
stead to allocate aid for specific purposes. As a
result, Soviet credits on the average now tend to
be smaller.
SOVIET ECONOMIC AID TO LESS DEVELOPED COUNTRIES
Million US Dollars
M Extensions ? Drawings
Year
1960
554
107
1961 1 184
The USSR has taken a number of steps to
raise the level of its commercial trade with the
less developed countries. Consonant with its prop-
aganda line that trade must be the basis for per-
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manent, growing economic ties, the USSR in
1967-68 concluded several short-term commodity
agreements covering purchases of tropical prod-
ucts. The USSR also has made several agreements
to buy some of the products of industrial enter-
prises built with Soviet aid, such as steel rails
from India. The shift toward greater emphasis on
trade rather than aid relations with the less devel-
oped countries is further reflected in the growing
number of Soviet credits that have been extended
since :1965 on quasi-commercial terms, including
higher interest rates and shorter repayment pe-
riods.
TRADE GROWTH SLOWS
Soviet trade with the less developed coun-
tries over the 1959-68 decade increased at an
annual average rate of about eight percent,
slightly lower than the growth of total Soviet
foreign trade. In 1968, growth in trade with this
area reached only 3.5 percent. After ten years and
$2.6 billion in economic aid deliveries, the less
developed countries in 1968 accounted for nine
percent of total Soviet foreign trade, reaching an
all-time high of $1.8 billion.
The major recipients of Soviet economic
aid-Egypt and India-are also the USSR's leading
trade partners in the less developed areas. To-
gether they account for almost half the Soviet
trade with this area. Malaysia is also among the
more important trading partners of the USSR,
usually receiving annually from it more than $100
million in hard currency for natural rubber.
The lack of substantial growth in Soviet
trade with the less developed countries since 1965
is attributable to Soviet unwillingness to absorb
larger quantities of primary commodities from
those countries and a lack of interest by the less
developed countries in Soviet machines and
equipment. An actual decline in imports of rub-
ber from Malaysia occurred in 1967.
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Furthermore, economic aid deliveries have re-
mained at only about $300 million annually since
1965.
The commodity composition of Soviet trade
with the less developed countries has not changed
appreciably during the last few years. Exports of
machinery and equipment account for roughly
one half of all Soviet exports to these areas; more
than half this category consists of complete
plants. Soviet petroleum exports to the less devel-
oped countries have become less important as
deliveries to India, Brazil, and Ceylon have de-
clined.
Textile fibers, natural rubber, and food
make up the bulk of Soviet imports from the less
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developed countries. Imports of cotton, however,
particularly from Egypt, have been declining since
1965. The drop in food imports since 1967 re-
Ilects the completion of Argentine wheat deliv-
eries in 1966.
Economic considerations are causing Soviet
officials to seek more balanced trade with less
developed countries. To prevent any expansion of
Soviet cash outlays for goods from these coun-
tries, however, the USSR is promoting com-
modity exchange agreements with individual trad-
ers-in essence, barter type arrangements. It is
also encouraging increased purchases of Soviet
goods under governmental clearing agreements to
prevent the build-up of large unexpended bal-
ances.
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