COMPARISON OF RELATIVE COSTS OF PRODUCTION IN THE BLOC AND THE WEST FOR SELECTED COMMODITY CATEGORIES ON THE INTERNATIONAL EXPORT CONTROL LISTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP64-00014A000100240006-0
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• Document Page Count: 12
• Document Creation Date: November 9, 2016
• Document Release Date: July 13, 1998
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• Content Type: REPORT

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arison of Relative Costs of Production in the Bloc and the West for Selected
Commodity Categories on the International Export Control Lists
The conclusions described below should be considered preliminary and subject to much
more exhaustive research than has been possible within the time of the requesto
Since available intelligence for some areas of the Bloc economy is more complete
than for others, the degree of confidence to be placed in the conclusions pies.
The following discussion is consequently divided into two parts: those commodity
preliminary, aPi from those commodity groups for which conclusions about
relative cost are based on less than adequate evidence. For those commodity
groups not mentioned not even a priori deductions about relative costs are possible.
It should be remembered that even within those commodity groups showing average
or low relative costs of production, any particular commodity item which may be
a prototype, embodying advanced technology not employed in the USSR, should be
viewed as *ne of relatively high costs. Many items on the control list may be
of this natures
Reasonably Certain Conclusions.
1. Commodities of high production costs in the Bloc as compared to the US:
Coaxial Cable (1525)
Magnetic Materials (1631)
Aluminum (1636)
Cobalt (1648)
Colunbium (1649)
Copper (165+1)
mercury (1655)
Molybdenum (1658)
Nickel (1661)
groups about which relative cost information is reasonably certain, although
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For the above materials Bloc prices are high as compared with Western
prices, and Bloc costs (on the Western definition) are believed to be at least
equal to prices. High',Bloc costs are to be explained in terms of low quality
ones, inconvenient geographic locations, a low rate of capital equipment in
relation to 3a bor, and a relatively inefficient use of machinery.
2. Commodities of average costs In the Bloc as compared with the US:
Petroleum products,*
Low-carbon ferrochrome (3640
Heavy (basic ) chemicals (phenol 3753)
The petroleum and chemical industries in the Bloc are modern and
well-equipped, the products on which they concentrate are produced as efficiently
as in the US. Both the range of petroleum products produced in bulk and
techniques of production in the Bloc are the equivalent of that in the US, with
perhaps some lag in Bloc technology in refining aviation gasolines.* On the
other hand, until recently Bloc efforts have been concentrated on the production
of the basic chemicals; the specialty chemicals, of more complex processes,
have only recently come into production and in this sphere Bloc technology appears
to lag behind the US3Bloc costs to be high as compared with US costs.*
B. Very Preliminary Conclusions (based on less than adequate evidence)
The following conclusions are based primarily on price information, with
little knowledge of Bloc costs against which to test price ratios.
1. Commodities of probably high production costs in the Bloc as compared
with the US:
Chemicals other than basic chemicals: (1732 hydrogen
peroxide; 276s toluol; 3715 borax**)
Alloys carrying specified percentages of molybdenum,
cobalt, columbium, tantalum and nickel. (1635)
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* See Appendix I
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Aviation gasoline (1773)
Precision bearings (1601)
Seamless steel drill pipe (ll54)
wee2 aba q
See B-3 below,
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20 Ooanodities of probably average production costs in the Bloc as
compared with the US:
Communication and locating equipment*
Electronic Components*
Measuring and testing equipment*
Electrical and Power generating equipment*
Trucks (1450)
Steel Bloo4ing Mill**
Barium Nitrate (1713)
Boric Acid (3715)4
Welded or seamless Steel line pipe (2154 and 3154)
3. ;ommodities of Probably low production costs in the Bloc as compared
with the US:
Horizontal Boring Mills,, 75 & 65 (2003)****
Antifriction bearings***** (1601)
ny'tems not on the control list are included in these groups; specific
commodities on the control list in these groups may be of higf: relative costa
See Appendix IV
See Appendix I
See Appendix III; for other machine tools on the control list available
evidence is insufficient even for a guess.
***** See B.1 above0
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Methodology
Io order to estimate the economic benefits which the Bloc does, or would,
derive from East-West trade in various commodity groups, it would be most desireable
to compare production costs in that Bloc country which is the lowest cost producer
in the group with costs of the low-cost producer in the West. Intelligence re-
lating to Bloc costs of'production, however, is very scarce, spotty in coverage and
in most cases qualitative rather than quantitative in natured Existing information
of various kinds has been drawn upon in this survey. Where information on relative
prices exists, it has been used in the absence of cost data, if there were any
supplementary knowledge indicating that, on the whole, the price of this commodity
in the Bloc is closely related to cost. If, for example, a ruble-dollar price ratio
indicated that commodity X is of high relative price in the Bloc, and if it is
believed that cost is at least equal to price, then it follows that relative. costs
must be high also, Or again,, if the price ratio is low, (or average,) if this
industry is an established industry using mass production techniques to turnout
commodities of good quality, if there is no evidence of subsidies, then it can
be deduced that this is.a commodity of low (or average) relative costs. If the
commodity in question is one which embodies advanced technology in the West,iand if
it is not produced in the USSR, by definition it would be of high relative cost
because of the research and development expenses which the Bloc would have to incur
to produce it,
Existing price information relates almost entirely to the year 19), bO h for
ruble prices and dollar prices, In assigning commodities to cost categories; price
movements since 1950 have been considered; since only little is known about current
prices in the Bloc, however, the resulting margin of error may be sizeable, ;,Only
three broad categories of cost, therefore, are justified;,a more precise ranking is
not poss1bleo
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Coat information on machinery items in particular is no only difficult to
obtain, but even when once obtained, whether cost data for the US and USSR are
comparable depends on the components of cost in each case as well as on the com-
parability of the items whose cost is being compared,, A machine typically construct-
ed on contract to do a specific job in a specific location is likely to be different
in some regard from every other similar machine custom-produced, Moreover, such
equipment is most often produced in plants which turn out a variety of products; in
these cases the apportionment of overhead is always somewhat arbitrary and such
practice may vary among producers in the US as well as between US and USSR producers.
Such ambiguities in the meaning of cost, as well as in the relation of prices to
costs, which are still unresolved, imply that conclusions about the relative costs
of production of most machinery items are only informed guesses, highly tentative,,
and subject. to considerable change with further research.
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APPENDIX Is Borax
(Withdrawn)
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Production of copper in the USSR, which appears to be the lowest cost producer
in the Bloc, is of high relative cost compared with the US for three reasons:
(1) the nature of copper mining operations in USSR compared to the US (2) the lesser
quantity and quality of machinery used (3) the lower efficiency with which machinery
is used. In addition, copper costs in the USSR would be high relative to costs in
the lowestq-cost producers in the West (Chile and Rhodesia) because of the lower
quality of the 'JSSR copper deposits. On the average in the US 100 tons of ore
must be processed to obtain one ton of metal; in the USSR only about 90 tons are
required per ton of metal. US ores, however are of family low quality. In
Rhodesia only about 10 tons of ore would be required for one ton of metal, while in
Chile about 80 tons of ore,would yield one ton of metal.
(1) The process of mining copper in the USSR imposes higher costs on Soviet
copper production than is the case in the US, because copper mining requires primarily
difficult underground operations in the USSR as compared with primarily open-pit
operations in the US. The Soviet Union has only one sizeable open pit mine; well
over one half of Soviet copper output is based on the more costly underground
operations.
(2) While the Soviet Union does not lag behind the Westin technological
knowledge relating to themI,nh g and processing of copper ores, it does lag behind
the West in the application of this technology. Both open-pit and underground opera-
tions are less mechanized in the Soviet Union and many of the machine types currently
used in the USSR are obsolete by US standards. In general, more labor and less
capital is used per unit of output in the.USSR than in the West.
(3) Not only is somewhat outmoded equipment used in the USSR, but in addition
the efficiency with .hich this machinery is operated and maintained is lower than
in the West. Metal recover from ore is lower by 5 or 10 percent.
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' h?is, the com r ieon of primarily underground operatio s in USSR against
open-pit operations in the US, the fact of inferior quantity and quality) of the
machine.:,-y used and the lower efficiency with which it is used, support the conclusL on
that copper is an undustry of high relative cost in the USSR.
Re,au a of high material costs, costs of producing copper wire in the Soviet
Union are likely to be high in relation to coats In the West. Also a higher rate
of rejects, (poorer quality control) contributes to higher relative USSR costs.
The USSR is currently experiencing a shortage of wire-rAll equipment which pro-
bably will be alleviated, at least in parts by imports from 7ast Germany. Apart
from the cost of copper, however, and poorer quality control, there is no other
apparent reason for production costs of copper wi to be relatively high.
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Very scant information suggests that horizontal boring mills are produced in
the USSR as efficiently as the average of Soviet machine tool output. For the
machinery items in which they have concentrated, costs and prices both have fallen
by about 50 percent over the past 5 years. Even in 19b9, however, when Soviet
prices were considerably higher than they are currently, ruble?dol.lar price tatios
for machine tool items were among the lowest for all commodity production.
Currently 85 and 110 mm. models of horizontal boring mills are estimated to
bear price ratios in the range of 3 to 5 rubles to one dollar. Thus, even if price
in the Soviet Union is only one-half of cost, which presumption seems mos; un.?
likely, horizontal boring mills are produced at no more than average relative
costs, and it is more probable that they are of low relative cost.
For the most advanced types of machine tools, including the. larger models of
horizontal boring mills, we have no price or cost information. Moreover, available
intelligence lacks a complete description of many Soviet models of machine tools,
thus making comparison with US models, at least in part, somewhat arbitrary. Ever
where complete specifications of Soviet models are available, Soviet machines are
often different in important details from Tt8 or other Western counter-parts,
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Appendix IV: Rolling Mills
Not only is information on both prices and costs for Soviet rolling mill
equipment virtually non-existent, but the problem of comparing these custom-
manufactured items is complex, For the following major categories of ferrous
and non-ferrous rolling mills no data are available: hot and cold continous
sheet and strip, bar, rod, pipe, wheel, wire, rail-structural, plate and temper
mills.
In the remaining category of bloom, billet, and slab mills a crude compari-
son of 1950 ruble and dollar prices indicates a price ratio in the range of
average relative prices. The mill for which a ruble price is available is a 40
inch9 two high, reversing blooming mill weighing 4456 metric tons. This price
ratio is about the same as that for general industrial equipment (USSR product-
mix), as would be expected in view of the successful results in blooming mill
construction achieved by the Soviet machine builders. Since there is no
evidence of subsidies, it can be tentatively concluded that blooming mills,
are of average cost in the Bloc as compared with the yst.
On the other hand., it can be deduced. that other types of. rolling mills
would be at least of somewhat higher relative costs in the Bloc, The West
has hadfar greater experience in constructing both hot and cold continous
strip mills, which entail very complex production techniques. These and some
other types of rolling.mills have only recently come into production in the
Bloc; not all those which have been produced embody the degree of advanced
technology found.in Western equipment. This latter would be especially true of
cold rolled mills for which sensitive controls are necessary. The tentative
conclusion can, therefore, be drawn that, among the various types of rolling
mills, continuous hot.and cold mills are of high relative costs in the toe.
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Appendix V: Shipbuilding
Widely scattered information relating to the cost of production of a few
ocean-going and harbor craft in the USSR, toget1er with qualitative information
about the nature of shipbuilding operations in the Soviet Union, suggest that
shipbuilding is an industry of average relativef costs in the Bloc as compared with
The fact that the USSR has been importing vessels from the West despite
being able to produce ships efficiently is a matter that is unexplained.
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