ECONOMIC RELATIONSHIP WITH THE UNITED STATES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84B00049R000300570041-7
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 5
• Document Creation Date: December 19, 2016
• Document Release Date: April 11, 2006
• Sequence Number: 41
• Content Type: REPORT

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ITALY
Economic Relationship With the United States
The slowdown in growth of Italian-American trade and
investment in recent years has loosened economic ties between the
two countries. Nonetheless, the United States remains one of
Italy's key economic partners, probably less important than
France and West Germany but more significant than the USSR. (C)
Italy's trade deficit with the United States narrowed from
$2.8 billion in 1980 to $1.1 billion last year. Nonetheless, the
cyclical weakness of American demand pushed the United States
into fourth place among Italian export markets; for most of the
1970s, this country had held third place. United States
purchases, totaling $5.1 billion, accounted for 6 percent of
total exports last year; in certain categories -- wine, leather
shoes, gold and silver jewelry -- the US share of Italian exports
exceeded 15 percent. While fashion goods loom large in Italian
sales to the United States, raw materials and foodstuffs dominate
Italian purchases from us. In 1981 US firms earned $6.1 billion
by filling 6.7 percent of Italian import needs. Besides selling
lots of coal, corn, and oil-seeds, US companies captured military
sales worth $190 million in 1980 -- 10 times as large as US
purchases from Italy.
0
From the. Italian viewpoint, direct investment by US firms
has been disappointing of late; there are signs, however, the
situation may be improving. By the end of 1976, US funds
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accounted for 22 percent of all foreign investment in Italy. But
the upsurge in terrorism and problems in the petrochemical
industry dampened US firms' interest in investing in Italy during
IVIC~ (a w tit S
the late 1970s. In 1979, the net Cnflatiori of CUnited States
direct investment fell by $6.5 million. Last year, the US Consul
General in Milan noted a resurgence of US firms' interest. A new
strategy to rationalize the state participations sector -- by
encouraging firms to enter joint ventures with more efficient
foreign firms--- has already [Peake7 the interest of one large US
company, Occidental Petroleum. In January, a $1 billion joint
venture between Occidental and Italy's state-energy agency, ENI,
was finalized. Italtel, the state-owned telecommunciations
equipment manufacturer, is negotiating a joint venture with GTE.
One traditional bright spot in the Italo-US economic
relationship is licensing. Italian firms usually devote few
resources to R&D, preferring to license technological know-how
from other firms, primarily American ones. Many Italian-built
aircraft, for example, incorporate parts made under US license.
Italian firms have been on the giving, as well as receiving, end
of licensing arrangements. General Electric has a license to
produce DEA (Turin-based firm) industrial robots. In April,
Montedison sold Union Carbide a license for a Catalyst? process to
make polyethylene.
1 -1
Ties With the Soviet Bloc
The Italian-Soviet economic relationship revolves almost
exclusively around trade. Many Italian officials are unhappy
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with the evolution of this trading relationship. The Italian
trade deficit with the USSR has grown consistently during the
last five years, reaching 2 trillion lire ($1.8 billion) in
1981. The rising value of Italian energy imports from the Soviet
Union -- up from $200 million in 1973 to $2.4 billion in 1981 --
largely explains the widening deficit. Export sales to the USSR
have stagnated, dropping from 2.9 percent of total Italian
exports in 1975 to 1.6 percent in 1980. This decline has
affected all export industries, although the Soviet market
remains very important for several Italian energy, transport
equipment, and steel companies. Many in Rome are unsure whether
Italy should redouble efforts to expand export sales to the USSR
or should move on to greener pastures.
0
For Italy, trade with East European countries -- totaling
$2.8 billion in 1981 -- is almost as valuable as trade with the
USSR. Manufactured goods -- especially chemicals and machinery
-- dominate Italian exports to Eastern Eurpe, while petroleum
products and coal account for about one-third of Italian imports
from this area. As with the USSR, bilateral trade with Eastern
Europe declined in recent years, dropping from 3.0 percent of
total Italian trade in 1974 to 1.7 percent in 1981. The
financial problems of Poland and Romania -- traditionally Italy's
largest East European customers -- largely explain this downward
trend. During the late 1970s, Poland accounted for one-quarter
of Italian-Easst European trade. When the Polish economy took a
nosedive in 1981, exports to Italy fell 41 percent and imports
from Italy dropped almost as much. Romanian debt rescheduling
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has sidetracked a $320 million contract for nuclear power plant
construction by Ansald, an Italian company, and General
Electric. Hungary became Italy's number-one export market in
East Europe in 1981, buying goods totaling $266 million.
0
In the non-trade arena, Fiat has granted licenses to several
Bloc countries -- including Poland and the USSR -- to manufacture
autos. One of the rare examples of direct investment involves
Tecnicon, a joint venture between Italimpianti and the Soviet
entity Licensintorg. Tecnicon builds industrial plants and has
won contracts in Brazil and Libya.
Reaction to US Trade Measures
The steel and pipeline decisions hit Rome at a time when
government officials were preoccupied with domestic economic
controversies, most notably revision of the wage indexation
scheme. Italy thus opted to wait and let the United Kingdom and
West Germany lead the way. On 29 June Italian officials informed
f6f
the United States, like their European neighbors, they rejected
A
the attempt to impose extraterritorial controls on pre-existing
contracts. Rome no longer considers as binding the 11 January
commitment of NATO members to refrain from undermining each
other's sanctions. Unless a new, stronger governing coalition
emerges in the near future, Italy will probably adopt retaliatory
measures outside the pipeline and steel spheres if other European
Community members do. A convenient target, if the Italians
wished to lash out at the United States, would be man-made
fibers. In January 1982, Montefibre's managing director
complained to Milan consular officials that several US firms had
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sold large quantities of man-made fibers to Italian importers at
prices 20 to 30 percent below prevailing market rates.
Nuovo Pignone -- a subsidiary of the state energy agency,
ENI -- has the largest pipeline turbine order (57 units), the
most GE rotors in inventory (probably 15), and thus potentially
the most to lose from the US 18 June decision. Officials at ENI
have told the Embassy in Rome that they are coordinating their
reactions with the other affected European firms. Nuovo Pignone
appears open to the idea of helping the USSR manufacture Soviet-
designed turbines. Nevertheless the firm continues to stress
that it values a good relationship with General Electric.
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