STATUS OF ECONOMIC DENIAL MEASURES AGAINST THE USSR

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP08S01350R000100240002-9
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 11
• Document Creation Date: December 21, 2016
• Document Release Date: September 18, 2008
• Sequence Number: 2
• Publication Date: June 1, 1980
• Content Type: REPORT

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National
Foreign
Assessment
Center
Confidential
Status of Economic
Denial Measures
Against the USSR
Confidential
ER 80-10378
June 1980
Copy 111
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National Confidential
Foreign
Assessment
Center
Status of Economic
Denial Measures
Against the USSR
Research for this report was completed
on 12 June 1980.
Soviet Trade Branch, USSR-EE Division, Office of
Economic Research. Comments and queries are
welcome and should be directed to the Chief,
Soviet Trade Branch, USSR-EE Division, OER, on
The author of this paper is
This paper has been coordinated with the Office of
Confidential
ER 80-10378
June 1980
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Confidential
Status of Economic
Denial Measures
Against the USSRF
Summary Economic denial measures against the USSR have not drawn much support
from our Allies. At best they have been reluctant partners with responses
seemingly aimed more at placating Washington than punishing Moscow.
All the West European countries and Japan have kept the door to the Soviet
market ajar, and each has been mindful not to take a markedly tougher
stand on sanctions than its neighbor. In large part because of this lack of
cooperation, sanctions have had little impact so far. The single exception is
the grain embargo,-which has strained domestic feed su lies in the USSR
and forced cutbacks in the important livestock sector 25X1
The USSR has been threatening to strike back against Western denial
measures with sanctions of its own. We doubt the threats will turn into
action, however, because of the increasingly severe problems a long-term
embargo of technology transfer would impose on the Soviet economy.
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Summary iii
Technology 1
Phosphate Fertilizers 4
Implications for the Future 5
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Status of Economic
Denial Measures
Against the USSRF
Status of Sanctions
Agriculture. The Soviets have been able to replace
6 million tons of the 17 million tons of denied US grain
in the current US-USSR Long Term Grain Agree-
ment (LTA) year ending 30 September. Most of this
replacement grain has come from Argentina, although
Canada also sold grain after the embargo was an-
nounced. We doubt that the Soviets can obtain more
than another 2 million tons of grain for delivery this
LTA year, leaving them 8-9 million tons short of
preembargo expectations.
The Soviets are successfully coping with the embar-
goes on other agricultural products. The 1.2 million
tons of soybeans and meal denied by the United States
have been fully replaced-800,000 tons of beans from
Argentina and 400,000 tons of meal from Western
Europe. Moscow has also partially mitigated the
effects of the US denial of 63,000 tons of meat and
poultry. The Soviets bought at least 185,000 tons of
meat from January to April, compared with an
estimated purchase of 265,000 tons from Western
suppliers in all of 1979. Soviet orders of super-
phosphate fertilizer and phosphoric acid apparently
will replace about one-fourth of the 1 million tons of
embargoed US material.
Technology. Moves to limit nonagricultural exports to
the Soviet Union consist of withholding government-
guaranteed export credits by the major Allies, tighter
COCOM controls, and assurances not to fulfill con-
tracts vacated by US firms because of sanctions.
? Although the US appeal that its Allies suspend
government-guaranteed export credits to the USSR
has been rejected or left unanswered, most countries
thus far have limited new credits to the USSR in
1980. Except for France, which has negotiated a new
multiyear credit agreement to take effect this month,
the Allies have viewed more favorably the proposal to
shorten credit maturities, provided that the French
agree.
? Some support exists in principle for US requests for
tighter COCOM controls. Member countries appear
willing to go along with a "no exceptions" policy, but
the "process control technology" proposal for mili-
tary-related items has received a chilly response.
? The request not to replace US firms for Soviet
contracts has been narrowly interpreted. Only in the
case of the Novolipetsk steel contract abandoned by
Armco steel has a government instructed its firms
not to enter a bid.25X1
In spite of Allied reservations about the use of
sanctions, Soviet orders for Western machinery and
equipment have fallen sharply this year. New contracts
during the first quarter amounted to only $300
million-less than half the $725-million quarterly
average of the past two years. Some major contracts
that appeared ready for signature, such as the US-
West German deal for the Sayansk aluminum smelter,
have been shelved or delayed. But denial measures
have not put a crimp in Western sales of large-
diameter steel pipe; the completion of a pending sale by
Japan will push Soviet purchases to record levels.
Olympic Boycott. Fifty-three of the approximately 145
countries invited to the Moscow Games voted not to
participate, in support of the US call for a boycott.
Although athletes from France, the UK, and Italy will
participate, the teams will be diluted by individual and
federation decisions not to attend. The UK team, for
instance, is expected to be only about three-fifths the
size of the team that went to Montreal in 1976.
Summit Country Positions
All the key West European governments and Japan
issued immediate and, in most cases, strong condemna-
tions of the Soviet invasion of Afghanistan. All
supported the grain embargo and agreed to close ranks
by not proceeding with new credit extensions or taking
over US contracts. Since then most government
positions have softened. The new multiyear credit
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agreement between France and the USSR allows
French firms to trade with the USSR on essentially the
same terms as before the Afghan invasion. France and
West Germany have not formally endorsed the key
COCOM proposals.
Allied reluctance to sustain the sanction effort mainly
reflects a deep-seated aversion to developing an
adversary relationship with the USSR. Also of concern
are fear of the loss of Soviet markets and West
European vulnerability to a cutoff in Soviet energy
supplies. Most US allies are suspicious of the con-
stancy of their Summit partners in adhering to the
sanctions and are uncertain about how long the US
Government will keep sanctions in place.
Concerns of Major
Governments
For West Germany, Ostpolitik is a critical element in
its foreign policy. Aside from its conviction that
detente is vital to reducing the risk of war, Bonn sees
good relations with Moscow as necessary to improved
relations with East Germany. Economic relations with
the USSR are also important to West Germany.
Although accounting for only 2 percent of West
German exports and imports, the Soviet Union is an
important supplier of energy and a major market for
steel and capital goods.
are skeptical about the effectiveness of economic
sanctions and an Olympic boycott. Initially, Bonn said
it would adhere strictly to COCOM regulations on
sales of high technology and refrain from replacing any
canceled US sales. The West Germans assert that they
will not curtail credit guarantees for the USSR but
have thus far stalled on approving such financing as
well as on signing major new contracts.
Motivated by their supposed special relationship with
the USSR, the French have maintained consistently
that the West should not isolate the Soviets because of
Afghanistan. The French Government's posture un-
derlines French independence in a pre-election period.
It is also calculated to preserve economic ties with
Moscow that the French are convinced will outlast
current US policies. Paris's willingness to join sanc-
tions against Moscow runs counter to France's desire
for Soviet energy; imports of Soviet gas are scheduled
to grow substantially in the 1980s. Although they have
taken a harder line in talks with the 25X1
Soviets, the French have done little to apply economic
sanctions beyond promising not to replace US firms in
contracts from which they have withdrawn and not to
take advantage of the grain embargo. They have also
stated they will tighten up on high-
technology exports to the USSR, although they have
opposed a more restrictive formal policy within the
COCOM framework.
Japan has been the staunchest supporter of Allied
sanctions. From the start Tokyo has agreed that the
Soviet Union should be penalized for its invasion of
Afghanistan and has consistently supported US calls
for economic countermeasures. Japan has abstained
from participating in major new Siberian development
projects, denied official Export-Import Bank credits
for major nonenergy-related export deals, and sup-
ported strict application of COCOM control
The Italian Government has pledged solidarity with
the United States in the Afghanistan crisis, but
mounting domestic pressures combined with political
instability could weaken the government's resolve. The
Cossiga coalition government already faces a tough
uphill battle with the Communist party and can ill
afford to alienate the business community, which
continues to press for a resumption of commercial ties.
Moreover, Rome believes it is suffering unfairly for
supporting US objectives and that it is doing more than
most other European allies.
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Italian officials are afraid that US proposals for
restraints on Soviet trade will cut deeply into Italian
exports. Italy's trade deficit with the Soviet Union
jumped more than 50 percent last year (to $850
million) as Italians paid more for energy and raw
materials imports from the USSR. Rome is eager to
narrow the deficit through expanded sales of machin-
ery and equipment. Although the government is not
anxious to grant the Soviets preferential credit terms,
it fears that failure to meet terms offered by other
industrial nations will seriously undercut its com-
petiveness. Rome thus opposes limits on credit
maturities, believing that shorter maturities would not
supply the type of financial backing needed to carry
focused essentially on the US grain embargo and to a
lesser extent on Western participation in the Moscow
Olympics. F___1 25X1
To counteract the sanctions, Moscow turned quickly to
obtain non-US Western grain supplies. Moscow also
asked the East European countries for help. Most of
the activity with the Bloc that we can confirm consists
of requests for stepped-up deliveries from domestic
grain production rather than transshipment or diver-
sion of US grain. Hungary, for example, has agreed to
an unprecedented Soviet demand to provide 800,000
tons of grain this year from its own crop, and we believe
requests may have been made to other Bloc countries.
out Italian-sponsored projects.
London and Moscow relative to the other European
countries has made it easier for London to do so. The
The United Kingdom has generally supported trade
five-year official credit line which expired this January
was never fully tapped
Canada's stake in maintaining good relations with the
USSR centers almost exclusively on grain exports.
The Soviet View
While the Soviets were surprised by the extent of
Western trade sanctions, they undoubtedly expected
them to fade after a few months as the immediate
impact of the Afghanistan action wore off. Soviet
officials probably also believed that Western Europe
and Japan would continue business as usual with them,
including picking up contracts denied American firms
by US actions. The only serious concern at the outset
The East Europeans fear that the present atmosphere
will harm their efforts to expand ties with the West. In
any case, they can do relatively little for the USSR.
Because of their own economic problems, the East
European countries are reluctant to divert goods from
domestic use or from exports to the West. Transship-
ping Western commodities could invite a retaliatory
cutoff of Western exports. Poland in particular would
not want to risk losing US grain.
Moscow, expressing impatience with the industrial
countries that have been stalling on new credits and
discouraging their businessmen from dealing with the
Soviets, is now threatening to retaliate against West-
ern denials. Soviet officials have become more and
more explicit in discussing the USSR's capacity for
economic reprisals, especially by manipulating energy
supplies to Western Europe. Last month, for instance,
a Soviet press item warned that Bonn "might have to
relinquish important energy and other raw materials
imports" and stated that a tough German stance on
sanctions "would risk further normalization of rela-
tions with Eastern Europe as well."F~ 25X1
25X1
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While frustrated by Western sanctions, Moscow is
unlikely to abandon the tactics it has pursued since the
sanctions were imposed. We doubt, for instance, that
the Kremlin is ready to write the West out of the
upcoming Five-Year Plan, as it may be doing to the
United States. For the time being, the Soviets will
continue to search for the weak link in Western
solidarity, playing competitors off against each other.
In all likelihood, the Kremlin still questions whether
Western Europe and Japan believe Afghanistan to be
an important enough issue to jeopardize long-term
trade and economic cooperation with the Soviet
25X1 Bloc.
Impact on the Soviet Economy
The impact of economic denial measures on the USSR
has always depended critically on whether the US acts
alone or is joined by other major suppliers and how
long the measures remain in place.
Grain. The US embargo on shipments of grain and
feedstuffs has further stretched domestic feed sup-
plies-already short because of last year's poor harvest
of grain and forage crops. Moreover, the late spring
this year reduced access to spring pasture and delayed
development of forage crops, increasing pressure on
available feeds. As a result, the leadership's long-
standing program to upgrade the diet through ex-
panded meat production has once again been set
back.
With less feed, slaughter weights as well as milk yields
have been declining since the first of the year. Despite
some increase in slaughtering, meat production on
state and collective farms grew only slowly. More
importantly, cumulative additions to cattle herds on
state and collective farms during the first four months
of the year were the lowest of any comparable period
since 1976, and monthly changes in hog numbers
indicate a small drop, unprecedented in the eight years
for which we have statistics. The consequences of
trying to stretch feed supplies as far as possible while
maintaining herd levels are being increasingly felt by
consumers. Endemic shortages of meat and butter are
now becoming even more severe.
Moscow could overcome many of its grain problems
with a good harvest this year. As of early June, the
prospects for an above-average grain crop-about 210-
220 million tons-appeared to be good. This would be
a substantial recovery from last year's 179-million-ton
crop but still well below the 1978 record of 237 million
tons.
Although prospects for an above-average grain crop of
210-220 million tons are good, the USSR would like to
import up to 35 million tons of grain during .the year
ending in September 1981 in order to expand the
livestock sector. In part because of the grain embargo,
however, effective port capacity has been reduced
below the level needed to handle such imports. Port
constraints have been tightened because the embargo
has forced the use of smaller vessels and disrupted
shipping schedules. Beginning in March, Soviet grain
imports probably have been about one-half million tons
less per month than would have been possible with
normal shipping patterns.
Port capacity will continue to be the critical constraint
on Soviet grain imports for at least several more
months. Over the entire October 1980-September
1981 period, grain supplies available to the USSR will
probably be at least 30 million tons if non-US suppliers
do not restrict sales and US sales are limited to 8
million tons; but Moscow may be physically unable to
import more than 30 million tons of grain and other
feedstuffs unless problems of scheduling and poor
management can be sorted out. Whether the Soviets
can make the necessary adjustments remains to be
seen.
Phosphate Fertilizers. The US embargo has impeded
standing Soviet efforts to relieve chronic shortages of
phosphate fertilizers. We estimate that the USSR
could increase its grain harvest by 4-6 million tons with
the fertilizer produced from the 1 million tons of US-
origin superphosphoric acid originally scheduled for
1980 delivery. Soviet orders of superphosphate fertil-
izer and phosphoric acid from non-US suppliers
apparently have already offset the loss of about one-
fourth of the US material. Prospects for additional
Soviet acquisitions of phosphate materials are consid-
ered good, particularly if premium prices are
offered.
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Industry. Technology sanctions will have little short-
run impact on the USSR. Even with Allied cooperation
the USSR probably could recover rather quickly from
embargoes on key items. Moscow, for instance, could
accelerate its purchases of petroleum equipment once
the embargo is lifted. The Soviets have already bought
or are in final negotiations for all the steel pipe needed
this year. The biggest problem is finding spare parts,
particularly for computers. Although, for example, the
denial of US computer parts at the KAMAZ truck
plant has not yet resulted in any known shutdowns, the
main IBM foundry computer probably will shut down
before the end of the year and inactivation of other US
computers at the complex-used for material handling
tasks and engine testing-could introduce painful
disruptions.
Implications for the Future
Assuming Western unity, a long-term embargo on
technology transfer would impose increasingly severe
problems for the Soviet economy. For while Moscow
may have written off the US as a future source, Soviet
planners are assuming continued access to technology
from Western Europe and Japan. The need for
Western technology and capital will grow as the
USSR's economic performance slows in the 1980s.
For the time being, Moscow can afford to buy-even at
premium prices-the goods the West is willing to sell.
Thanks to the recent runup in energy and gold prices
the USSR enjoys a comfortable foreign exchange
position. We believe this cushion will last only a couple
of years. As the oil outlook darkens and the USSR
moves closer to being a net oil importer, finances will
become a constraint on imports, and with it access to
Western technology. In these circumstances, credit
availability will become a far more crucial factor than
it is today. A general tightening of credit offerings
effectively lowers Soviet import capacity, reducing the
pool of Western resources available to the USSR to
alleviate its economic problems.
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