BOOK IV -- WEEKLY SUMMARY COMPLETE - 9 JAN 1948 (#80) THRU 14 MAY 1948 (#98)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78-01617A001900010001-9
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 292
• Document Creation Date: December 23, 2016
• Document Release Date: July 16, 2013
• Sequence Number: 1
• Publication Date: May 7, 1948
• Content Type: REPORT

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IflA. MAVIQAC
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98
CONTENTS
Pages
TREWS IN BRIEF 2- vii
ARTICLES . 1 - 3
US-Soviet Exchange of Views
Disintegration in the Chinese Nationalist Army . . . 2
Do cument No. 0 1gir
NO CHANClq in Cias.. 0
it DECLASS' YEED
el a 24 . CHANGED TO: TS ! S
DDA ro, 4 Apr 77
Auth DDA RYG.t_Za1763
Date : Y7P1479 By: t /
NOTE
The publication of the CIA TOP SECRET Weekly
Summary will be discontinued with this issue.
In its place, CIA will begin publication on 21 May
of a new Weekly Summary under the classification
of SECRET.
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assiiiesior
TRENDS IN BRIEF
GENERAL
The Soviet inclietkojoAtcsslagjmakM21912!
exchange as an invitation for direct conversations may spring
from both tactical and propaganda considerations (see page I).
FoRowing the relinttuishment of the UK mandate in
Palestine, the Arabs and Jews will be free to act 'without ex-
ternal interference. No effective UN administration will exist
In Palestine, and an Arab-Jewish truce will not be in effect.
The British troops still in Palestine (numbering some 20,000)
will be concentrated in Haifa awaiting evacuation. The British
naval blockade will be at an end. In the ensuing period, it may
be anticipated that: (I) a Jewish state will be proclaimed; (2)
regular army units of the krab states will enter Palestine and
occupy the predominantly Arab areas; (3) Arab-Jewish hostili-
ties will increase in central Palestine and in the Galilee area
of northern Palestine; and (4) Jewish immigrants of military
age will be brought in from Cyprus and European ports. The
Jewish state will probably be granted belligerent rights (and,
subsequently, recognition) by the USSR, the Soviet Satellites,
and certain of the South American, countries, and pressure
will certainly be brought to bear on the US to recognize and
support the new state.
Formation of a Jewish state in Palestine will enable
the USSR to Intensify its efforts to expand Soviet influence in
the Near East and to perpetuate a chaotic condition there.
Although the USSR and its Satellites will probably delay full
recognition of the new state, they may grant it belligerent
rights in the near future. In any event, the flow of men and
munitions to Palestine from the Soviet bloc can be expected
to increase substantially. The USSR will undoubtedly take
advantage of the ;removal of immigration restrictions to in-
crease the influX of trained Soviet agents from eastern and
central Europe into Palestine where they have already had
considerable success penetrating the Stern Gang, trgun, and,
to a lesser extent,Baganah.
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Rklieftwagmb
WESTERN EUROPE
UK Government spokesmen made it clear, during the
recent parliamentary debate on foreign policy, that the UK
Intends to stay in Berlin despite Soviet pressure and to secure
British interests in the Middle East despite the UK withdrawal
from Palestine. Although more than one-quarter of the House
of Commons pressed for immediate steps to create a European
federation, the Government indicated its satisfaction with the
present gradual progress toward such a federation, which it
accepts as "ultimately" inevitable. It is significant that both
major parties agree on full consultation with the Dominions
regarding British affiliation in a European organization.
The proposed formation of a Scandinavian military
alliance will be possiide only if a solution is found or the
problems created by: ()Swedish insistence that such an
alliance be consistent with the Swedish concept of Scandinavian
neutrality; (2) Swedish reluctance to conclude a pact with Nor-
way and Denmark whose military strength is comparatively
weak; and (3) the feeling in Norway and Denmark that a Nordic
military alliance based on the concept of joint Scandinavian
neutrality would not be preferable to close western relations
and ultimate ticlusion in a western European security system.
Informal military cooperation, or even a regional Scandi-
navian pact without western commitments, might result from
the pressure of international developments, or from effective
and rapid Danish-Norwegian rearmament. Norway, however,
will undoubtedly refuse to meet Swedish demands on the neu-
trality issue.
_German food strikes labor demonstrations, and gen-
eral labor unrest may spec o con ne US-UK
Zones until the food situation and general economic conditions
are improved substantially. The present wave of strikes may
be regarded, in large part, as spontaneous protests resulting
from: (1) the unsatisfactory food situation; (2) the slowness
'ReragreMmilw
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of economic recovery; (3) the preferential treatment of workers
In favored industries; and (4) dissatisfaction with the efficiency
of the German local administrations. Meanwhile, union mem-
bers still at work have been instructed by trade union officials
to slow down production until ration demands are granted.
The recent rightist trend in Germany, which may deve-
lop into a strong current of resurgent nationalism, may find
active expression in two separate National Democratic Parties
(NDP) which are being organized in both the US Zone and the
Soviet Zone. The NDP in the US Zone has attracted increas-
ing numbers of Conservatives and re-enfranchised ex-Nazis;
the present leadership is conservative but a younger ultra-
rightist element will probably overthrow the present party
leadership. The NDP of the Soviet Zone, still in the process
of formation, has been expressly designed by the USSR to gain
the support of Conservatives and Rightists and to exploit fully
German nationalistic sentiment. The USSR will undoubtedly
attempt to exploit the NDP of the US Zone. The most obvious
Soviet move would be an attempt to merge the two National
Democratic Parties after they have acquired political stature
and then to urge the combined party to adhere to the Bismarck-
Ian concept of Russo-German cooperation.
Premier Schuman's current success in dealing with
French economic recovery may cause a siiift in the tactics of
both Gaullists and Communists. Realizing that violent Com-
munist opposition might force the Gaullists and the present
moderate coalition government into a solid anti-Communist
front, the Communists may even support the Government in
a crisis. The Gaullists may be expected to abandon their
recent conciliatory gestures in favor of attacks on the Govern-
ment for having compromised French security by making a
weak stand on the future status of Germany and for having
Impaired French "military autonomy" in negotiations with
other western European union powers. The position of the
Schuman Government, which will be further improved by the
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anticipated announcement of increased bread rations to begin
in Dine or July, will prdatably enable Schuman to overcome the
disadvantages of any Communist collaboration as well as re-
newed Gaullist apposition.
The French attitude concerning naval reparations
from Italy wM prohably becomefirmer ench
Government apparently is disposed to permit Italy to retain
some of the naval craft scheduled for transfer to the French
Navy, the French fleet requires for its operations certain.
other vessels and France will probably insist that Italy ceace
its procrastination on this issue and make definite arrange-
m.ents to transfer certain specified warships. In an effort to
ezert further pressure on Italy for the transfer of these vessels,
the French have indicated that they will not accept Italy as a
member of a western European defense system until the question
of naval reparations has been satisfactorily adjusted.
Recent die eements over Premier De Gas, res candi-
date for rest en of -? Ian ? e .c may eopar e the
formation of an effective coalition government. The moderate
Left has sought important economic posts in the new Cabinet
and has conflicted with Da Gasperi who may, out of deference
to rightist and Vatican interests, continue to block the econo-
mic and social reform efforts of the moderate Leftists.
D3 Gasperi's continuance of this policy may cause this leftist
minority to refuse to participate in the government with the
result that a new coalition cabinet would then be formed with-
out working-class representaticab
EA.STERDI EUROPE
Recent evidence indicates that the USSR has embarked
on an intensive jamming operati9 of `Voice of America"
(VCIIIS1) broadcasts, which, if vigorously pursued, may render
the transmissions completely inaudible in the Soviet Union. In
addition to the interference encountered on all Russian-language
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programs to the Far East, Soviet jamming has recently
occurred on the Munich frequencies which beam broadcasts
to European Russia. The jamming on the Munich frequencies
has not yet affected the Intelligibility of the programs appreci-
ably. The Soviet Foreign Office has evasively answered two
recent US protests concerning the jamming of the Far Eastern
programs. Contemplated US countermeasures, such as In.
creased transmitting power, longer schedules, and unannounced
shifts of program time and frequency, would require the USSR
further to divert scarce equipment and technical personnel to
jamming opetations.
Reduction of tension and strife in Trieste may result
from the Communist declaration of ifs intent to cooperate with
AMG in the development of Trbaste's industry under the Euro-
pean recovery program. This Communist reversal was proba-
bly caused by the realization that: (1) many of the workers of
Trieste have been alienated by the recent Communist-inspired
political strikes-and demonstrations; and (2) AMG could favor
the anti-Communist labor union at the expense of the Communist
-
dominated labor union during the industrial development of
Trieste. Continued Communist cooperation would remove one
major obstacle to economic recovery in Trieste.
1ncreasIn?oncern by Marshall Tito over his regime's
weak political and economic position is suggested recen
changes in the hierarchy of the Yugoslav Communist Party.
Yugoslav economic recovery has been retarded by the need to
maintain a large army, failure of the USSR to deliver machinery
and capital goods in return for Yugoslav exports of raw materials,
a lack of qualified managerial personnel and skilled labor, and
a serious dollar shortage. These economic difficulties have also
intensified the already strong popular opposition to Tito's Com-
munist dictatorship. Probably in an attempt to carry out the
Kremlin's instructions to remedy this situation, Tito has sub'.
ordinated the "moderate" Communists, who previously were his
chief advisers, to the fanatical, extremist wing of the Party. Tito
has also attempted to increase public support for his regime by
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? emphasizing Yugoslav nationalism instead of world commu-
nism. Although these measures will not provide an immedi-
ate solution to the regime's basic economic and political
weaknesses, they will enable Tito to control any future dis-
sensions within the Yugoslav Communist Party.
FAR EAST
The Citinese Nationalist Arm il existence as a unified
organization is being threatened not only by the recently re-
newed attacks of the Communists but also by the advocacy of
regional decentralization by Li Tsung-jen, the new vice-
president (see page 2).
The USSR probably...:_frolretard the execution of
previous plans for the establishment of a "Koreaii-P&-7?ples
Republics' in North Korea. The Soviet controlled North
Korean People's Council made last-minute revisions designed
to delay the establishment of a separate Democratic People's
Republic. This delay will perniit the USSR to use the UN-
observed South Korean elections (which were sponsored by
the US) to place the onus of Korean separatism on the US.
French officials in Paris and Indochina are attempt-
ing to negotiate a temporary settlement of the French Vietnam
dispute. High Commissioner Bollaert has been authorized to
form a provisional Vietnam government headed by General
Xuan, president of the Provisional Government of South Vietnam
(Cochinchina). The formation of such a government may result
In a transfer to France of the meetings with Bao Dai and might
postpone indefinitely his return as head of a new regime. If
a government, with nominal independence and geographic unity,
should emerge under the reportedly ineffectual Xuan, the pros-
pects for internal stability would still be slim because of the
postponement of the settlement of problems concerning finance,
customs, and diplomacy. Ho Chi Minh, who is supported by
80% of the population and who is allegedly loyal to Soviet foreign
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Policy, probably would then assume control; much of his support
would come from elements who insist upon a propaganda cam-
paign. against French use of the European recovery program
to further French colonial policy. Because of the delicate balance
of control exercised by the Schuman Government, the French
will probably not risk a major policy decision involving liberal
concessions on the controversial colonial issue in Indochina.
A temporary Xuan government, therefore, will have little chance
of success. -
WESTERN HEMISPHERE
to continue President Moainigo
In office past 15 August expiration date of his legal term) appears
more likely as the result of a recent ultimatum by high army
officials. These officials have declared that the army will suppoit
the conthtuation of President Morinigo in office unless the Colorado
Party is re-united in support of President-elect Gonzales. Early
? exploratory talks regarding the unification of the Colorado Party
into an effective administrative or political control organization
Indicate there is virtually no hope for such unification. Morinigo's
chances of remaining in office are, therefore, good if he can obtain
support from both the democratic faction of the Colorado Party -
and the army.
Despite the contimi isonal art of Bolivian .
President Hertzog an the apparent s ty . army officers, .
the Government may be unable to cope with any serious disorders
which may result from growing opposition on the part of the ,
extreme Right and the extreme Left. Of the three most important
parties, one is lit opposition to the Government, a second no
longer supports it, and now the sole governing party, the Republic
Socialist Union Party, itself weakened by internal dissension,
probably will be unable to command a majority in Congress. The
rightist groups who governed the country during the Villarroel
regime from Deceniber 1943 to July 1946 have increased their
revolutionary plotting. Communist influence is strong among the
leftists generally and in some of the more important unions,
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ARTEC LES
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US-SOVIET EXCHANGE OF VIEWS
The Kremlin's apparent inclination to construe the US
aide-meraoire of 4 May as an invitation for direct conversations
between the 'US and the USSR, and to "accept" this "proposal,"
may spring from tactical as well as propaganda considerations.
The Soviet response was obviously designed to obtain maximum
propaganda advantage both at home and abroad by (1) creating
within the US and the USSR a feeling of optimism which in turn
would encourage a relaxation in defense measures; (2) allaying
the war fears of the Soviet and Satellite populations; (3) giving
support to the efforts of the western Communists to regain their
popular following; and (4) driving a wedge between the US and the
western powers.
The Soviet response may also reflect an actual desire
to pnrticipate in such conferences as a means of advancing the
following immediate Soviet objectives: (I) to gain a share in the
administration and production of the Ruhr and to facilitate the
spread of Communist influence in the western zones by obtaining
US agreement to the reopening of four-power discussions on
Germany; (2) to wreck the European recovery program or obtain
benefits from that program by participation in the program (pref-
erably under UN auspices); and (3) to persuade the western powers
to modify their present embargoes on trade with the USSR and its
Satellites.
? In short, the USSR has much to gain, and little to lose,
by entering into direct US-Soviet negotiations and may even offer
conciliatory gestures to this end. Nowhere in the Soviet reply,
however, is there any indication of change in the long-range ob-
jectives of the USSR.
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DISINTEGRATION IN THE CHINESE NATIONALIST ARMY
The (=timed eidstence of the Chinese Nationalist Army
as a coherent functioning whole is being threatened by the Chinese
Communists who, after a period of relative quiescence, have re-
sumed the attack, particularly in Manchuria, in the region along
the Bonan-Hupeh border, and in south Shensi. The National
Government fears that the Manchurian Communists will prove
sufficiently strong to make a drive into North China, and that
Communist forces in Central China may be preparing to cross
the Yangtze River. Moreover, the unity of the Nationalist mili-
tary organization recently has been weakened by the election to
the vice-presidency of Li Tom*. len, an advocate of political and
military regionalism and an outspoken champion of the provincial
military leaders.
The Chinese Nationalist Army, as it exists today, repre-
sents what remains of a merger, effected at the beginning of the
Japanese war, of old-line troops loyal to Chiang Kai-shek. and of
provincial troops loyal primarily to the generals of their home
provinces. During the course of the Japanese war, Chiang
managed to split up many of the provincial forces by interchanging
their component parts or by absorbing them piecemeal into units
loyal to him, thereby effectively robbing them of their provincial
homogeneity. However, Chiang is no longer able to lace such
transfers upon leaders in nauiy areas far removed from Nanking.
Furthermore, some of these leaders, who owe no particular
loyalty to Chiang, are opposing the Communists In key areas
with relative success.
As a consequence, the Nationalist high command is
constantly faced with a dilemma. It must either provide the
forces of these regional commanders with all possible military
and economic support, with the risk that such support may
eventually be burned against Nanking, or deny thie, support;
with the real danger that certaid vital areas will in all likelihood
be overrun by the Communists. Chiang Kai-shek, backed by
- 2 -
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powerful factions in the army and the Kuomintang, has generally
withheld this support. Now, however, General Li, together
with Defense Minister Pal Chung-hsi, advocates the allocation
of arms to generals who have successfully opposed the Com-
munists (regardless of the relations of these generals vrith the
Nanking Government), the arming of local militia, and the re-
moval of favored but incompetetet generals. This program,
while theoretically commendable, could be implemented only
with difficulty. Such a program would require not only a con-
siderable length of time to put into effect, but it would be
strongly opposed* the old guard and, in,addithm, would
have to be undertaken concurrently with Military operations
In an increasingly critical War situation.
The decision ill these matters remains at present with
Chiang Kai-shek who has unwaveringly opposed such decentrali-
zation. If the current _deterioration in the Nationalist military
position continues, however, Chiang will be unable to withstand
the mounting pressures leading toward regional decentralization
within the army.
- 3 -
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Tlipp=ottawg. -W7
CONTENTS
TRENDS IN BRIEF
Pages
ARTICLES
1
-.10
Western European Defense System .
1
Achievements of the Benelux Customs Union
. . 2
Italian Efforts to Revise the Peace Treaty
4
The Situation in Palestine
The Kashmir Situation
9
Document No. o ir
,
NO Oi-WGE in Ciaz:::. 0
1? D10;21,SITI:D
Clas, C'Iril:D V): 10 m,
s c
4 Apr ,77
Auth: '-'DN '' 771 ..g.i.L..?
By:
Date:
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TRENDS IN BRIEF
GENERAL
The slow growth of the western European defense
system is probably caused by the present military weakness
of the five signatory nations and their uncertainty regarding
the speed and nature of US aid in event of aggression (see
Page 1).
Communist May Day demonstrators displayed a re-
luctance to precipitate disorders, and expressed in their
speeches and slogans a surprisingly moderate amount of anti-
US sentiment. This probably indicates a need for more time
to formulate a revised party line, based on a reconsideration
of the effectiveness of past anti-western propaganda themes
In view of Communist losses in the Italian elections. Separate
celebrations, indicative of a growing dissatisfaction with Com-
munist exploitation of legitimate liberal movements, were
staged throughout western Europe by numerous non-Communist
labor socialist groups.
Increased nationalism in the Arab world will probably
result in a request by one of the Arab states at the September
meeting of the UN General Assembly for an investigation of
the French and Spanish administrations in Morocco. A similar
request, initiated last year, was postponed because of the urgent
Palestine and Indonesian problems. The Arab League has re-
cently indicated renewed interest in Morocco by allocating'
almost $1 million for the Moroccan independence movement.
If the requested investigation is undertaken by the UN, it may
eventually lead to an Arab petition for the independence of all
French North Africa.
De ite the Soviet desire to sabota Euro an recove_n?
the USSR has taken a re tive y ml me a I e current session
of the Economic Commission for Europe (ECE) and is urging
the creation of a new industrial development subcommittee in
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an apparent effort to: (1) publicize the needs of countries
not participating in the European recovery program; and
(2) to obtain outside financial aid from the US or the Inter-
national Bank. The USSR may be greatly concerned at the
prospects of success of the European recovery program and
may therefore be attempting to utilize the ECE in order to
secure essential goods and credits for the Satellites who
were unable to participate in the recovery program.
The intense reaction of the USSR to the desertion
of Lieutenant Colonel tasseov (now reported to be a political
refugee in the UK) Indicates strong Soviet fear that if deserters
from the Eastern Zone are openly given refuge by the western
powers, such defections will be greatly accelerated, with Con-
sequent damage to Soviet secu;ity. Soviet demands that a
special commission of the Soviet Military Administration
(SMA) be permitted to investigate Tasseov's "kidnapping" in ,
Bremen are based apparently on an informal agreement be-
tween the US Military Government and the SMA to return mili-
tary deserters from either Zone to their proper Command at
once. The Military Government has refused the request for
a special commission, but has offered to extend the present
Soviet military liaison mission facilities for investigating the
officer's disappearance.
Efiljor Soviet concessions atthe Rome meeting of the
World Federation of Trade Unions (W' ETU) have averted an
east-west schism in the WFTU at least temporarily and have
precluded the use of the federation to oppose the European
recovery program. Attacks by British and American trade
union organizations on the pro-Soviet bias of the WFTU Gen-
eral Secretary (Saillant) have resulted in the curtailment of
Saillant's authority and his freedom to participate in outside
political activities. Although the USSR has forestalled a move
to replace him, Saillant's usefulness as an instrument of
Soviet propaganda and policy will be greatly reduced. By its
concessions, the USSR. has again indicated its desire to main-
tain an undivided WFTU and to preserve its contacts with the
non-Communist labor groups of the West.
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irj1222E91.1 ab runte rzln b otiationun s
for an interim US-Hungarian air agreement probably reflects
Soviet belief that the deadlocks in Berlin and Vienna over trans-
portation matters preclude the satisfactory operation of an
Hungarian airline through the western zones. The negotiations
had been reopened in January 1948 at the suggestion of Hungary
and appeared to be on the verge of successful conclusion after
the US had met Hungarian objections to Clauses of the US draft.
Hungary has suddenly advised the US negotiators, however, that
the final draft is "unacceptable" in view of the recent US ex-
pulsion from Germany of the Hungarian restitution and repara-
tions missions. The Kremlin may believe that the US would
hamper Hungarian air operations in reprisal for further Soviet
interference with US air traffic in the occ pation zones, and
that the air agreement may therefore bring no immediate ad-
vantage to Hungary. By instigating the arbitrary Hungarian
step, the USSR forestalls US commercial air access to Budapest,
which would have been distasteful to the USSR, and allows Hun-
gary ti save face in regard to the ejection of its missions.
WESTERN EUR?PE
The lanai= customs union has thus far chiefly benefited
Belgium, the Netherlands, and Luxembourg by greatly increas-
ing their influence in western European political affairs (see
page 2).
The r_j_e_mit,a_ will probably begin a vigorous
campaign for a revision of the Italian peace treaty, following its
assumption of office on 8 May (see page 4).
The French militaroution thc westerl_LEInmal
union defense system should be materially increased by the new
organization !r national defense which will shortly be put into
effect by governmental decree, pending its presentation to the
National Assembly. The new structure is designed to Improve
coordination of the national defense programIto centralize con-
trol of the army, the navy, and the air force, and to provide for
their modernization and more efficient operation.
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The resi tion on 5 May oi the Belgian Socialist-
Catholic Cabinet under ocialist remier pa Is not ex-
pected to result in any major change in Government policy.
The crisis, which was brought about by Socialist-Catholic
conflict over a Government bill to provide increased sub-
sidies for Catholic technical schools, was strongly opposed
by left-wing Socialists. Although Spank probably could form
a new Government, it is possible that another Socialist will
be chosen. Even if Spaak is replaced as Premier, he will
Probably remain the Foreign Minister.
A Rightist trend in Germany indicated by the recent
municipal and country electionilffliesse and Bavaria and
Probably caused by the nationalistic and anti-Communist
tendencies of newly enfranchised ex-Nazis and expellees)
may be expected to continue. This trend is largely caused
by the failure of the moderate parties to institute social re-
forms or to achieve adequate economic reconstruction, the
lack of effective leadership among Social Democrats, and
the anti-Communist policy of the US.
EASTERN EUROPE
The Kremlin's determination to accelerate the Sovietiz-
ation of Hungary is reflected in the Hungarian Government's
extension, until 31 December 1948, of the extraordinary power
of the Cabinet Council to govern by decree. (This extended
power of the Cabinet Council will allow it to proceed with the
nationalization of all industrial enterprises composed. of more
than ten persons and With the formation of agricultural co-
operatives before the next harvest.). The Communists have
also launched a campaign for the formation of a National Front
to insure an overwhelming victory in this year's national elec-
tions, and they have renewed their atta.cks upon the Catholic
Church--the last remaining stronghold of organized opposition
in Hungary.
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NEAR EAST-ATRIC
EnLtruLthgAtgkAttg_:Lmies are expected to enter
Palestine after 15 May, when the withdrawal of the British
will open the way for unrestricted war. The campaign valll
be a long-range affair, in which the Arabs will attempt to wear
down the Jewish communities by guerrilla attacks and by eco-
nomic sanctions (see page 6).
The Security Council resolution on the Kashmir dispute
Is acceptable to neither India nor Paistan. If India should
attempt to end the dispute by force of arms, initial suncesses
will be followed by retaliatory action by the tribesmen and
further rebellion in the State (see page 9).
rakistan's decision to exchange ambassadors with the
UR can be attributed to dissatisfaction with the US and UK
rather than to a reversal of its firm anti-Soviet stand. Here-
tofore, Pakistan has clearly indicated its intention of remain-
ing aloof from the USSR. Now, however, it is convinced that
the UK has unduly favored India (as a more valuable ally),
and it also holds the US and UP: largely responsible for the
concessions made to India by the Security Council in the
Ya.shmir dispute. Pakistan also resents the US decision that
it may not purchase military supplies in the US so long as the
Kashmir dispute remains unsettled. Pakistan's establishment
of diplomatic relations with the USSR does not represent the
adoption of a pro-Soviet attitude, but is apparently intended as
a clear indication that the western powers cannot ignore raid-
stan's wishes and needs if they wish to be assured of its close
collaboration.
Turkey's detision to call up a new class of cogscriPti
reflects the gravity with which the Government views the inter-
national situation. The Turks had hoped to avoid imposing this
additional strain on a budget already heavily burdened with ap-
propriations for national defense. Mobilization of the approxi-
mately 150,000 new conscripts, which is expected to commence
In a few days, will increase the total of Turkey's armed forces
to about 500,000.
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The enthusiastic reception ven Qavam upon his recent
return to Iran may presage a renewal of the struggle for power
between himself and the Shah. Qavam not only retains a group
of loyal supporters in the Majlis but also appears to be gaining
the support of such varied elements as the anti-Soviet Seyyid
Zia (former prime minister) and members of the pro-Soviet
Tudeh Party. The Shah, who is Increasingly insistent on obtain-
ing greater prerogatives for himself, has declared that "dicta-
torial measures" might shortly become necessary, especially if
Qavam engages in political intrigue. If Qavam becomes poli-
tically active, the ensuing conflict between him and the Shah will
seriously redisze Iran's ability to resist Soviet demands.
T AR EAST
The existence of a centralized Far East Communist
group coordinating the activities of Far East Communist
Parties is further suggested by recent evidence. STAT
Soviet representatives STAT
held an eight-day session in Harbin in mid-April with Commu-
nist leaders from China, the Mongolian Peoples RepublicAnd
North Korea. a similar meet- STAT
big held April 19-22 included Communist representatives from
Japan and the Southeast Asia countries. This may reflect a
general tightening of the coordination of Communist activities
throughout the world, especially in the Far East, although addi-
tional evidence is needed to establish conclusively the existence
of a Far East Cominform along the lines of that organization
set up in Eastern Europe. In addition, the development of a
new international "All sla" line in the Far East Communist
propaganda has been indicated recently by: (1) attacks upon US
"reactionary and imperialist" policies in Korea; (2) Chinese
Communist charges that the US and South Korea "reactionaries"
are sending 50,000 Korean youths to help Chiang Kai-shek; and
(3) a reported Smith Korean Labor party statement that "war
In China is more important than the situation in Korea."
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A drastic shaW-up of the present Burmese Government
or the elimination of prewar civil servants from government
positions is currently under consideration by a high-level Burmese
policy committee. The committee is probably motivated by the
intense nationalistic feeling now prevalent in Burma which de-
mands the removal of all vestiges of previous British and foreign
influences. kir/ such elimination of civil servants or curtailment
of their influence through extensive changes in the composition
of the government would leave the Burmese administration
largely in the hands of uneducated and irresponsible young men
and would create political and administrative confusion favorable
to Communist purposes. Decisions by Burmese Communists on
,important policy matters apparently are being held in abeyance
pending the opening of the Soviet Embassy from which local Com-
munists hope to obtain the support and Impetus needed to intensify
their present insurrectionary activities.
Increasing Chinese Communist interest in urban areas,
reflected in recent Communist Party policy statements an
directives aimed at gaining the support of labor and capital, is
consistent with the developing Communist tendency toward mili-
tary occupation of large cities. Some such pronouncements have
stressed the need of protecting industry and commerce at this
stage in the social revolution. One prominent Communist leader
has even stated recently that the urban proletariat is the "leading
class in the Chinese revolution." This increased emphasis on
Industrial development indicates the Party's recognition that,
as Conununtst control is extended over the large Chinese cities,
its agrarbn program must be supplemented by industrial expan-
sion, which in turn would increasingly require the cooperation
of nan-Communist administrative and managerial personnel.
In addition, this trend may reflect reported international Com-
munist criticism that the Chinese Party has given too little
attention to urban areas.
Ditchinsigt ee&mMamcg._.2ThAbJ lies acce tanee
of principles set forth In a draft paper on internal security
recently presented by the Dutch may precipitate a crisis and
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lead to an ultimate breakdown of the current Republican-
Dutch negotiations In Indonesia. The Dutch consider that the
existence of a private Republican Army within a sovereign
United States of Indonesia (USI) would be an infringement upon
the Dutch concept of sovereignty; they are therefore proposing
that this Army be dissolved In the interim period prior to the
establishment of the USL The present Republican Govern-
ment, on the other hand, recognizes that it would probably
collapse for lack of popular support if it agreed to stich a
dissolution of its Army. In preparing their formal proposal
to the Republic, the Dutch are thus confronted with the alter-
natives of: (I) insistkig on the abolition of the Republican
Army and risking the consequences al almost certain rejection;
or (2) accepting its continued existence and risking serious
loss of prestige for yielding to Republican obduracy.
WESTERN HEMISPHERE
A censiderable increase of a.sinAlmaglks, into Mexico
was further indicated recently by the discovery and confisca-
tion of over 100,000 rounds of contraband ammunition by the
Mexican customs officers at Nuevo Laredo. The US Consul
at this port of entry has stated that these munitions were un-
doubtedly intended for shipment to southern Mexico. US Em-
bassy Mexico has been unable to ascertain whether similar
recent shipments of ammunition were destined for revolution-
ary activity against the Government or for possible eventual
shipment to Palestine or some other area outside Mexico.
These numerals interceptions by US and Mexican officials,
as well as an abnormal increase in the legal traffic in arms
and ammunition to Mexico in recent months, are significant
In view of the increasing dissatisfaction in Mexico with the
Ale man administration and may indicate preparations for its
overthrow.
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WESTERN EUROPEAN DEFENSE SYSTEM
The slow growth of the western European defense system
and the tendency of the Sign tories toward a piecemeal approach to
the broad strategic problems of defending western Europe against
ression probably result , from: (1) the present military weakness
of the five signatory nations; (2) their inclination to move cautiously
until they know precisely how much political and material support
the union may count upon from the US; and (3) their uncertainty
whether the nature of the US military force will permit early and
effective US support. These three considerations, plus an evident
hesitancy to commit themselves to a guarantee of the borders of
other nations more exposed than themselves to Soviet aggression,
account for the reluctance of the union 'to admit new members who
do not bring with them a military strength commensurate to the
additional risk assumed by the union.
The UK visualizes the eventual expansion of the union,
but feels that an effective ullitary structure should be established
before admitting any new members. The Benelux countries, parti-
cularly the Dutch, appear reluctant to commit themselves to defend
Italy. France, while endorsing the inclusion of Italy, into the western
European defense system, semis to favor the establishment of three
military defense groups on the basis of geographic location (western
Europe, eastern Mediterranean, and Scandinavian). These attitudes
seem to be inspired to some extent by a 'alimited concept
whereby each state would concentrate upon its own defense and
that of its immediate neighbors. Such a piecemeal plan for the
defense of western Europe would Mt provide an effective deterrent
to the Soviet Union. Moreover, maximum effectiveness of US mili-
tary aid to western Europe can only be achieved through a single
defense system which will encompass all the remaining free nations.
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itCHIFITEMENTS OF THE BENELUX CUSTOMS UNION
During the first four months of its operation the Benelux
customs union, which was established to insure the close co-
operation and eventual integration of the economies of Belgium,
the Netherlands, and Luxembourg, has been chiefly effective in
enabling its constituents to present a united and influential front
In western European affairs. Through their action in sending
a common delegation to the meetings of the Committee on Euro-
pean Economic Cooperation, the Benelux countries exercised
an influence which was surpassed only by France and the UK.
By making a concerted demand, BelgiumIthe Netherlands, and
Luxembourg have been able to secure participation in the dis-
cussions on western Germany. The experience of Benelux in
the problems of international economic cooperation has given
the customs union a leading role in the formulation of such con-
structive measures as an international agreement for the clear-
ing of foreign exchange balances and the possible establishment
of an all-European customs union. Moreover, by formulating
positive and acceptable compromises, Benelux may act as concili-
ator between the WC and France in settling their differences on
European cooperation.
Benelux has been less successful in carrying out meas-
ures to make effective the customs union. The first phase of
the implementation program--the unification of tariff rates on
trade with third countries and the reduction of inter-Benelux
restrictions ?was initiated on 1 January 1948. Because this
step involved comparatively few concessions on the part of each
of the Benelux countries; their serious intent to carry out the
agreement will not be demonstrated.until the program reaches
the second and third phases. The second step?requiring elimi-
nation of the basic differences in economic, financial, and social
policies ?is scheduled for 1 January 1949. Because the economic
policies of Belgium and Luxembourg have since 1945 diverged
from those of the Netherlands, this phase may be difficult to
implement. The Dutch follow a policy of controlled economy
while Belgium and Luxembourg practice the greatest possible ?
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measure of free trade. The third phase of complete economic
union--allowing the unrestricted movement of goods, capital,
and persons within the Benelug area--is not expected to be
effected for several years at least.
Despite the difficulties to be met in carrying out this
program, the advantages accruing to the three nations from
economic unification are tremendous. The political and eco-
nomic bargaining power gained both from their situation as
the third largest trading area in the world and from the
strategic advantages of their geographic location is enormous.
By uniting their combined population of 18 million people,
Belgium, the Netherlands, and Luxembourg have achieved a
combined importance much greater than they have had indi-
vidually in the past.
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ITALIA.N ErronTs TO REVISE TI TE PEACE TRE A.TY
The new Italian Government, which will come into
office shortly after 8 Alay, will probably wage a vigorous
campaign to effect revisions in the Italian peace treaty in
order to recover lost territory and to remove or liberalize
the limitations on its military establishment. The Govern-
ment will contend that without revision, Italy cannot assume
the responsibilities expected of it in the affairs of western
Europe.
Concerning the return of the former colonies, the
Italian position is that they were acquired before the advent
of fascism and that a considerable investment of men and
money has been put into their development. The Italians
also contend that the return of the colonies will partly solve
the serious problem of over-population and may ease trade
and food problems. The Free Territory of Trieste is re-
garded by the Italian people as an integral part of Italy, and
the Government will probably base its argument for Trieste's
return on the pre-election proposal of the US, UK, and France
that the area be given back to the Italians. Finally, the view
is held by many Italians that the loss of the colonies was a
serious blow to Italy's prestige, which will prevent Italy from
assuming the responsibilities of a major power until the
colonies are returned.
The Italian case for revision of the military terms of
the treaty can be more effectively argued. Besides its claims
as co-belligerent of the allied powers, the Italian Government
can point out that its armed forces are too weak to offer more
than a limited defense against an invader and could be quickly
overrun by Yugoslavia. Such military impotency would make
Italy more of a liability than an asset as a member of the
western European union, and although Italy would like to parti-
cipate as a sovereign state in international organizations, it
cannot do so until it is strong enough at least to defend its own
independence and territory against aggression.
-4-
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The Italian Government will probably also stress the
fact that unless the treaty revisions are made, the Communists
and the neo-fascists will profit politteally. The Communists
will contend that western power promises are unreliable and
that Italy might better have joined the bloc of Communist coun-
tries which not only favor the return of the colonies but would
assure Italy of the protection of the Soviet army, The neo-
fascists will stress Italian nationalism and will play upon the
traditional appeal Of the Italian empire in the Mediterranean.
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MILITARY SITUATION -3 MAY, 1948 CONFIDENTIAL
PALESTINE
Border of strongly-held Jewish area
Border of tenuously-held Jewish area
Arab troop concentration
V* Probable Arab attack or advance
r::=> Probable Jewish attack or advance
Partition Boundary Ms accepted by the United
Nations General Assembly. Nov. 19471
International Boundary
--- ------ District Boundary
Standard Gauge Railroad Mlit-1
Narrow Gauge Railroad 135a"1
First Gass Road
Second Class Road
Oil Pipe Line
- Intermittent Stream
Jewish Communal Area
10 Kilometers
35. 3s'30
En Naoura
en,, Nolouni
?Binva
GAL I L
Rama
HAIFA
TIMMS
isr el MaJami
11fulalE W
JAr Sl (Ann,
Natanya
Itolf?
\
Tel Aviv ???
AN
NW* (.4
USALE
Gaya
Pon Said Ag4
Q?ntans
\ '44
k !
E G YP
T mor n
?1. %gobs
Jittlik Post\ Ss'
I
ii
"
Jer? Alianby Bridge
ITY JERLAvren
JERUSA
Sethi
/
G A Z,
k..,_ Beersh
? .
SOUrew
1:500,000. Geo. PunIp .rd Son, 1942
My. 1:500,000. 1939
PaaN2i50,000. MAR. 1509/12375, 1946
34?30.
JEWISH
3S.
35?30,
32?
32?
10968 Map Branch. CIA.4 -413
CONFIDENTIAL
U.S. GPO-S
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THE SITUATION IN PALESTINE
The prospects for a Palestine truce appear as remote as
ever in spite of the various efforts now being made in Palestine,
New York, and the Arab capitals. The dispatch of British reinforce-
ments has had the effect of deterring Jewish attacks on Jaffa and in
the Jerusalem area and possibly of delaying the invasion of the
country by the armies of the Arab states. Both Jews and Arabs
appear unwilling to provoke the British, who are increasingly deter-
mined to maintain order during the last ten days of the mandate.
After the end of the mandate on 15 May, contingents of
the Arab states* armies will be free to move in, and full-scale opera-
tions can be resumed without interference from the British. The
Immediate prospect will be for a series of limited-scale battles,
in which neither side will obtain a decisive victory. The Jews will
probably hold substantially what they do at present but their commu-
nications will continue to be harassed.
Neither side can muster decisive striking forces, although
both Arabs and Jews have large numbers armed and trained for part-
time defense of their own communities. Hagana, the Jewish army,
has approximately 35,000 full-time members, with perhaps 20,000
more troops available for field service out of some 50,000 civilians
now on part-time home guard duty. Hagana is well trained and has
armored cars and light support weapons. However, the Hagana field
forces are scattered, and the Jews have not committed more than
moo men in any single attack to date.
The largest Arab contingent will probably be drawn from
the regular armies of the Arab states, operating under Arab League
control. Although the armed forces of the Arab states total well
over 100,000 men, most of them will be needed at home for internal
security duty. Initially, the Arab states are expected to contribute
no more than 18,000 (out of some 35,000 available for Palestine
duty), including the 8,000-man Transjordan Arab Legion and con-
tingents from Iraq, Syria, and perhaps Egypt. These forces possess
armored cars and light artillery, and the Arab Legion is reasonably
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efficient. Also available are the 15,000 troops of the only partially
trained Arab Liberation Army, which is still suffering from recent
defeats. Approximately 30,000 Palestinian Arabs are members of
para-military organizations and another 70,000 are available for
home guard duty.
The Arabs can count on some assistance from Bedouin
tribesmen in the nearby countries, while the Jews have some re-
inforcements available among immigrants waiting at Mediterranean
and Black Sea ports for the British naval blockade to be lifted.
The beginning of the unrestricted campaign will find
the Jews in substantial possession of the areas allotted to them
under the partition scheme, except in southern Palestine, where
no more than 3,000 Jews are scattered in isolated settlements.
The Jews are well-established in the coastal area from newly-
captured Haifa to south of Tel Aviv, including a small area in the
Arab port of Jaffa. They have consolidated their positions in the
Lake Tiberias area in northeast Palestine and appear to be in a
position to seize all of Jerusalem. They do not, however, hold firm
lines of communications from the coast to either Tiberias or Jeru-
salem.
The primary aim-of the Jews,
therefore, will be to hold
their present areas, making partition afact. They will probably
attempt to complete the capture of Jaffa and to extend their coastal
holdings north of Haifa to the Lebanon border. They will probably
undertake limited attacks to strengthen their communications with
the Lake Tiberias region (particularly around Arab-held Nazareth,
which controls the main Haifa-Tiberias road). They may attempt
to seize Jerusalem (although it is possible that Jews and Arabs will
agree to consider Jerusalem a neutral area). The Jews may also
make some attacks on Arab troop concentrations. In case of mili-
tary reverses, the Jews are probably prepared to abandon their
Lake Hula salient in the extreme north and later to withdraw from
the Tiberias area, holding at all costs the coastal areas (which
contain well over half the Jewish Palestinian population). If their
initial operations result in staking successes, they might launch
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a major attack on the Arab Liberation Army in the Nablus area
and might eventually attempt to extend their rule over all of
Palestine.
Although the ultimate Arab objective is to destroy all
vestiges of a Jewish state, their immediate aims appear less am-
bitious than those of the Jews. Initially, the Arab regulars can be
expected to occupy the Arab sectors of Palestine and probably
also the Jewish areas of southern Palestine. Thereafter, they will
probably make. limited-scale attacks on key points along Jewish
communications, on utilities (such as the Jerusalem water supply
at las-el-Ain and Solomon's Pools). and on isolated Jewish settle-
ments. They would resist Jewish seizure of Tarusalem. Despite
pressure from the Arab peoples for a dramatic victory and possible
limitations on the ability of the Arab states to maintain their armies
in the field for an extended period, strong direct attacks by the
Arabs are unlikely.
After the opening moves, the campaign is expected to
settle down into a long-range affair, in which the Arabs will wear
down the Jewish communities by guerrilla attacks on communica-
tions and exposed farms and by economic sanctions?including
continued shutdown of the oil pipeline to Haifa and of the Naharira
hydroelectric station, which supplies Haifa and Tel Aviv.
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?
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THE KASHMIR SITUATION
Efforts by the Security Council to achieve a settle-
ment of the Kashmir dispute have resulted in its adoption of
a resolution acceptable neither to India and the pro-India
legal Government of ICashmir headed by Sheik Abdulla nor
to Pakistan and the revolutionary pro-Pakistan Azad (Free)
Kashmir Government.
Under the terms of the resolution (I) Sheik Abdulla's
Government, pending the outcome of a plebiscite, would be
broadened to include equal representation of pro-Pakistan
elements; (2) Indian troops would be progressively withdrawn
to the extent permitted by internal security requirements;
and (3) Pakistan forces would be allowed by agreement be-
tween the two dominions to occupy certain areas of the State
to assist in the maintenance of law and order.
The Government of India and Sheik Abdulla's Govern-
ment of Kashmir claim that these provisions, if implemented,
would nullify their legal rights and would constitute a breach
of faith with the people of Kashmir. Pakistan and the Azad
raslunir Government, on the other hand, maintain that a fair
plebiscite cannot be held so long as Sheik Abdulla heads the
Kashmir Government and so long as Indian troops remain in
occupation of the State. The Government of Pakistan main-
tains further that it could not persuade the tribesmen of the
North West Frontier Province to return home, and that the
use of force against them would permanently alienate this
important segment of Pakistan's population. Pakistan, sup-
ported by the Azad Government, demands therefore the com-
plete withdrawal of all troops and the replacement of Abdulla
by an interim neutral administration to be appointed by the
Security Council.
Despite the bitterness of the dispute and Pakistan's
conviction that a fair plebiscite would result in a pro-Pakistan
vote, it is unlikely that the Government of Pakistan will sponsor
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an attempt to end India's occupation of the State by force.
The Government fears that its Army is too short of arms
and ammunition to gain a victory. Indian Army leaders, on
the other hand, notwithstanding India's superior military
strength, recognize the possibility of over-extending their
forces in Kashmir and have indicated a desire to negotiate
a settlement with Pakistan.
Current statements by Indian political leaders are
contradictory. They suggest that in view of the failure of
the Security Council to provide a satisfactory solution, a
resolution of the dispute will be sought both by "other peace-
ful means" (implying direct arbitration with the Government
of Pakistan) and by intensified action of the Indian Army. If
arbitration is adopted, a satisfactory and lasting solution
could probably be obtained by conceding to Pakistan those
areas of west and north Kashmir (including Poonch and Gilgit)
which have clearly indicated an overwhelming sentiment in
favor of Pakistan. Jammu and the important vale of Kashmir
would be retained by India. If, on the other hand, India attempts
by force to establish Sheik kbdulla's rule over all of Kashmir,
It will probably succeed initially but in the near future will be
confronted by retaliatory action on the part of the tribesmen, ,
with the connivance and possible involvement of the Pakistan
Government, and further rebellion in the State.
10 -
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749134E,GRET 96 ,
CONTENTS
. Pages
TRENDS IN BRIEF I -lx
ARTICLES 1 - 5
Post Election Problems in Italy 1
Weakened Position of Chiang Kai-shek 2
The New Phibul Government In Siam . . . 4
Document No. all
, NO Ci3ANGZ in Cia. 0
.0 AF:CLASSIFIA
Clar,s. CIA:.D Tc): TS S G
ADA gemo, 4 Anr 77
Auth: AAA .7.G. 77/17C'23
Date: By
TiglenFeEzr
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TRENDS IN BRIEF
GENERAL
Recent ewJLar successes in Palestine, by in-
creasing Zionist confidence and the probability, of early inter-
vention by the armies of the Arab League states, have further
undermined UN efforts to bring about an Arab-Jewish truce
for all of, Palestine. The present possibility of effective UN
action regarding Palestine is therefore all but destroyed.
Because the formulation and implementation of an interna-
tional policy for Palestine appear impossible, purely national
interests will now come to the fore. The Arabs and Jews will
continue their struggle unchecked. The UK, which will no
longer be responsible for Palestine after 15 May, will be
more anxious than ever to protect its strategic interests in
the Arab world. The USSR will use covert means (and
possibly open support for the rows) to keep the Palestine war
going as long as possible, thereby insuring instability in the
Near East and ideal conditions for Communist infiltration.
The S Uni el_f_t:LL)ektssi.Ldet,_.7.Ls19,11.g.,p_s_sam its
? hitherto vacant seat rn the UN Trasteeship-Cog.mcil is attri-
butable to a desire to improve the Soviet tactical position in
opposing the US trusteeship proposals for Palestine. Through
its participation in the Trusteeship Connell (where decisions
are made by simple majority), the USSR has taken the best
move left open to it following the success of the US in taking
the Palestine question away from the Security Council where
the Soviet Union can use its veto. In the Trusteeship Council,
the USSR will not only obtain a greater voice in the disposition
of the Palestine issue, but it will also be able to exploit the
colonial issue matt effectively. .
A reawaketAm2f.SILmsai initiative in inkirnational
trade has recently been indicated by an informal proposal of
the two largest German shipping companies that 75 US Liberty
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ships be tamed over for operation by German crews. The
German companies hope to forestall the opposition of US
shipping interests by suggesting limitations In the use of.
these vessels which would reduce competition with US ships.
US approval of this proposal, however, would necessitate a
reversal of the recent extension of the Ships Sales Act which
prohibits the chartering of US war-built vessels to foreign
operators.
The UK willreb_s_Aly_littlate efforts in the near
future to settle kntarctic questions, probably by means of
conversations with Argentina and Chile. in view of the
earlier British position that the problem should be settled
by the International Court, the apparent readiness of the
UK to negotiate a political settlement is in itself a concession.
However, because the Government will be unable to offer any
substantial geographical concessions to the South American
countries, in view of Conservative opposition to any Laborite
"liquidation". of the Empire, the, outlook for an easy settle-
ment of the issue is not bright.
? The Ion e ected breaku 3 of the World Federation
of Trade Unions (WFTU will probably not occur at the 30
April meeting in Rome of the WFTU executive committees.
Although dissatisfaction of the CIO and the British Trades
Union Congress (T(JC) with the WFTU continues, the USSR's
acknowledgment of the right of each national affiliate to
determine its attitude toward the European recovery pro-
gram has reduced the tension. Both the CIO and the TUC
wish to avoid the charge of having broken the solidarity of
world labor and therefore will seek to base their withdrawal
from the WFTU upon a non-political trade union issue. At
the Rome meeting, they will probably attack the pro-Soviet
bias of the WFTU secretariat and demand that the powers
of the Communist Secretary General (Saliba) be curtailed.
The USSR desires to maintain an undivided WFTU through
which to spread its propaganda and will seek to postpone
major decisions until the Brussels meeting of the full WFTU
Congress in September.
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WESTERN EUROPE
jappiktiuej2?usjitLiciam2f italiaa Christian
Democratic Party in the recent elections, the stability of the
new Italian government will depend upon De Gasperi's ability:
(1) to for ?? a strong coalition cabinet which will include the
Socialists, and (2) to implement necessary economic and
social reforms (see page 1).
The?,_miltical..141.1..ifia of 4-he G'?1 ports of Hamburg,
Bremen, and Emden may be-erWw
s-iiiia-is a result
of the US decision to divert their traffic to the ports of Rotterdam
and Antwerp in order to distribute traffic more evenly over the
German transportation system by making greater use of the inland
waterways. Lack of traffic for these German ports has already
hampered economic recovery to the extent that some German
businessmen are considering strengthening economic and political
relations with businesses now located in the Soviet Zone. Any
further lowering of the economic level in these major port areas,
where Communism has always flourished, would offer the USSR
valuable opportunities for penetrating the business community
of the western zones.
cimagmajatztus dwiI&at strikes in Essendiargammt.
and Frankfurt may occur during the next few months and will
probably follow the general pattern of the successful wildcat
test strike of dock workers in Hamburg last January. The
Central Committee of the Communist Socialist Unity Party
in Berlin is reported to have organized strike committees in
these German cities and to have sent leaders to organize and
control strikes in the areas. The local Communist headquarters
in each city has been instructed to show sympathy for the strikers
but not to participate openly in strike action. Discontent and Ldle-
ness among workers in Essen and Hamburg make those cities
especially vulnerable to this type of penetration. Frankfurt, as
the seat of the Bizonal Economic Council, also makes an excellent
target for such Communist activity..
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The deadlock over trans rt problems continues in
Berlin despite a lull in sensational pub city. The USSR has
not made a single real concession but has actually established
complete but somewhat inefficient control over surface traffic
moving in and out of Berlin, except incoming freight. Present
hope for solution by negotiation is small. The USSR is now
apparently preparing to tighten its grip on the city by attempt-
ing to enforce new restrictions on air traffic which would make
all allied transport subject to Soviet regulation. So far, Soviet
action on air transport has been limited to probing for western
power weakness under the guise of a desire for increased air
safety." If the US-UK reaction to this probing shows indecision,
the USSR may be expected to take strong action to compel western
air traffic to submit to Soviet controls. Such action would prob-
ably include use of Soviet fighter planes to threaten and intimi-
date allied pilots.
EASTERN EUROPE
Czechoslovak armaments, including tanks and heavy
artillery, are reportedly being shipped from the SZcoda works
to the USSR at the rate of six trainloads per month. These re-
ports have not been confirmed, however, and the possibility
cannot be excluded that the shipments may actually include
heavy industrial machinery and equipment as well as armaments.
Although Czechoslovak armaments production has reportedly
been expanded since the coup, it is believed that priority is still
being given to the export of Czechoslovak machinery, steel piping,
rails, and other equip:nent to the USSR. Any substantial increase
in Czechoslovak heavy armaments production would be at the
expense of these essential industrial products and would repre-
sent only a small proportion of total Soviet armaments production.
h Yt_m_laylos aria n_p_a_kaluan I
do not contemplate the severance of diplomatic relations with
the US at this time, their recent efforts to restrict the activity
- -
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of US diplometic and military representatives indicate a firm
intention to limit or reduce the capacity of these missions to
function efficiently. The Yugoslav Government has threatened
to curtail the staff of the US Military Attache unless that
mission is reduced voluntarily, and the US Consulate in Zagreb
Is virtually unable to fuction because of recent governmental
restrictions. The Rumanian Government is also seeking to re-
duce the size of the US Military Attache's office there by de-
laying the issuance of entry visas. Continued harassment of
the US missions in all of the above countries is maintained by
the intimidation and arrest of native employees, limitation on
travel, and attempts to implicate TS employees in espionage
plots.
Despits an inte.nsification of Communist prmagmda_ in
Finland and numerous reports of a Communist coup before the
July elections, it is unlikely that the Kremlin will order an
insurrection until the Communists have obtained control of
the police, army, and trade unions. Because the Communists
cannot obtain this control before the elections, they are un-
likely to take any drastic action which would impair their
recently improved electoral prospects resulting from the
"benevolent" character of the Soviet pact. The Kremlin will
probably refrain from further interference in internal Finnish'
politics prior to the elections unless,: (1) East-West relations
deteriorate markedly; (2) Finland fails to move cautiously in
Its relations with the west; or. (3) Communist prospects in the
elections suffer a severe setback. Soviet reluctance to further
the western orientation of Scandinavian nations acts as an
additional deterrent to the use of strong-arm Conwtriunistlactics
in Finland.
NEAR EAST-AFRICA
laidLeaLLietaatingabat the latsianclan n ALtb..L...egt93 in
the Palestine fighting appears probable in response to wide-
spread Arab dissatisfaction over recent Jewish victories and
In view of Abdullah's desire to strengthen his position in the
Arab world. Severance by the UK of its connection with the
-v.
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Legion would probably not be sufficient to prevent the Legion
from marching. The Arab League has announced that it will
assume the British 2 million pounds annual subsidy if neces-
sary, and the withdrawal of the approximately 40 British
officers now serving with the Legion would probably have
only a limited immediate effect on its fighting ability. Heavy
British pressure on Abdullah mitht deter him from using the
Arab Legion in Palestine, but only at the expense of jeopardiz-
ing the close relations the UK has laboriously built up with
the Arab states. Continuing UN inaction on Palestine may even
strengthen the reluctance of the UK to obstruct Arab military
efforts,i particularly after the British responsibility for Pales-
tine ems 15 May.
Continued shutdown of the Haifa oil refiner (which
normally processes 90,000 barrels a day) will have serious
economic consequences in Palestine and the nearby Arab states
and adverse effects in other parts of the world. Haifa normally
supplies all the petroleum needs of Palestine and 'rransjordan,
half the requirements of Syria and Lebsnon, and a fourth of
Egypt's current consumption. Unless oil can be obtained from
other sources, economic activity in these countries can be ex-
pected to be sharply curtailed in the near future, and Arab-.
Jewish military operations may in time be affected. The Haifa
shutdown has already interrupted Greek-Turkish aid program
oil shipments and has also resulted in a US decision to reduce
US export quotas for Argentina and other Western Hemisphere
nations. Reopening of the Haifa refinery is unlikely while the
Palestine struggle continues: the Jews hold the refinery and
the Arabs control the pipelines which supply it.
The revival of Iranian claims to the Bahrein Islands in
the Persian1-611Gulf response to a growing nationalism aathe
desire among leftist circles to embarrass the US and UK) is
not expected to be successful but will nevertheless have un-
favorable repercussions. The UK, which has controlled the
Islands through exclusive treaty rights since the latter part
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al the nineteenth conirry, iw tratti3 clear that it will not
conntenane the Irrizipnclainis. Me 133, which is interested
in the maintznaneo 2 stability in the area and is also cm-t-
eemed became of American oil interests in the islands, Ens
folormally indicatedis disapproval to Fran. F1y,3altrein'3
prodoraitiently Arab pep-dation, as voll as the Arabs d neighlrar-
izi states, opposes tin claims. The Iranian Governr.ent vitt
lcne prestige at home by its failure to reestablish soverctiVV
o-v?er the island. Rikreover, po7zlar aztipathy against the US
cell UK will 74.3 stirred up in Iran, and the USSR will In pro-
viCed with further copertunitics to promote international dis-
cord in this troubled area.
FM EAST
DECiffictiOn o General Li Tsungjeto the vice Oast-
(may of the ChirfeliVit-161Ftare vIla-ii?irt?n?riun represents a poli-
tical setback to Chiang Kai-she, who opposed Li's bandidature
(see page 2).
Phibul'sEmit_islas head of new vvernment in
Stam is not yet fully establi? 1:71----listilespite the nom control
Ie enercises over parliament and the support he enjoys from
the army. Be may therefore be enpecitad to counter any
threats to his position with dictatorial measures (see page 4).
The instabili of the National Government in China is
further emonstra & by the
mills and ether factories from Shanghai to song Kon. Despite
T. IT. Scenes efforts to encourage northern industrialists to
transfer their operations to South China, factory owners are
awarently reluctant to remain In the country because of
onisting eco=omic controls, labor unrest, and military threats.
Any sizeable reduction of Chines inad_equate productive capa-
city will greatly increase inflationary pressures in the =entry,
endanger its foreign enchansl. position and add substantially
to unemployment and consequent social unrest,
vit
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Indochinese Vietnam a has recently shifted.
to include some direct attacks against the US, probably m
response to an increased possibility that the French may
soon seek foreign mediation in order to resolve the political
deadlock in Indochina. French prestige in Indochina has
been seriously weakened by the failure of the French forces
to achieve military success and by the continued impasse in
negotiations with the Vietnamese. Meanwhile, guerrilla
activity against the French has increased in all sectors, and
Vietnam morale has been greatly strengthened.
The recent change in the Burmese Cabinet., aimed at
increasing the military effectiveness of the Government's
forces, has given the Defense Minister control of the mili-
tary police as well as of the army. The Defense Minister
(Bo Let Ya), who is known to be ruthless and strongly anti-
Communist, may emerge as Burma's strong man at a time
when the Burmese Communists are increasing their attacks
on villages and outlying police stations. It is doubtful, how-
ever whether the army and the military police will be able
to bring the Communists under control before the monsoons
In mid-May when a general stalemate will occur. if the
Communists disrupt the vital north-south transportation and
communication systems, they will be in a position to disturb
the trade between upper and lower Burma and to produce
further political complications favorable to their objectives.
The critical situation in Korea taken int_enakt
by the establishment of a-nDemocratic People's Republic"
through the adoption of the "Draft Provisional Constitution"
by the North Korean People's Council on 29 April. The
"Republic's" claim to national sovereignty will be "legalized"
through an "all Korea" election after the withdrawal of all
occupation forces and the annexation of South Korea by
force, if necessary. In the US Zone, the violent Communist
campaign against the forthcoming UN-observed elections will
probably be greatly intensified on 1 May and could develop into
?generalized terrorism and sabotage from 8 to 10 May. Despite
the increasing use of firearms and explosives by the Communists,
native security forces will probably prove capable of controlling
the situation with a minimum of assistance from US occupation
forces.
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WESTERN HEMISPHERE
Further dete ioration n Ar entina's foxsiraexck.stal_w_
position has improved US bargaining power for Econoznic Co-
operation Administration purchases. President Peron has
urgently requested the US to suggest a program under which
Argentina could obtain dollars for /grain and,certain other pro-
ducts. ThesUS is thus provided with a favorable Opportunity
to achieve its major economic objectives in the country, in-
cluding better treatment of US capital and an increase in
petroleum production.
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ARTEC LES
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POST ELECTION PROBLEMS IN ITALY
The decisive victory of the Christian Democratic
Party in the Italian elections does not guarantee a stable
democratic government. The stability of the new Italian
government will depend upon the composition of the cabinet
to be formed in May and upon the successful implementation
of necessary economic and social reforms.
The Italian Communists and their allies still consti-
tute a strong minority in the new Parliament and control
approximately six million organised workers through the
Italian General Confederation of Labor (COIL). In addition
to this considerable political and economic strength, the
Communists are in a position to discredit the government
by exploiting the seri? sly adverse conditions which beset
the people. As a consequence of the severely reduced Italian
economy, there still is considerable unemployment and the
standard of living, particularly in south Italy and Sicily, is
extremely low. Moreover, the present lax system is highly
unfavorable to the working classes and helps to perpetuate
the maldistribution of wealth. Working conditions, particu-
larly for industrial and agricultural labor, are bad and fur-
nish the Communists with effective propaganda. The Com-
munists can also exploit the discontent of a large number of
landless peasants who are virtually serfs to a few important
landowners. If any of the groups which gave De Gasperi
active support influence him against making needed economic
or social reforms, or if his government is unable to imple-
ment efficiently such reforms, the Communists would be able
quickly to regain the influence and prestige lost at the elections.
The establishment of a stable Italian government would
require the inclusion in the new cabinet of the moderate Social-
ists, whose program has the support of the non-Communist
workers, and the adoption of an integrated Socialist and Chris-
tian Democratic program. The strongest weapon possessed
by the Communists is their control of organized labor. This
control can be broken only through effective collaboration by
the Christian Democrats with moderate Socialist labor leaders.
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WEAKENED POSITION OF CHIANG KAI-SHEK
The election of General Li Tsung-jen to the vice presi-
dency in China is not only a victory for that considerable group
within the Kuomintang and the National Government which strongly
desires a more progressive leadership, but also represents a
political setback to Chiang Kai-shek, who was opposed to Li's
candidature. Confronted by this defeat, Chiang may possibly
refuse to accept his recent election to the presidency. There
would undoubtedly be strong opposition at the present time to
his withdrawal, however, because it is still generally recognized
throughout the National Government that no other leader can so
effectively rally the support of various Kuomintang factions and
cliques.
It is doubtful that two such vigorous personalities as
Li and Chiang, with such apparently antagonistic views on funda-
mental questions, can work in harmony for more than a short
period. Besides the opposition of their views on reform and its
implementation, Chiang is the proponent of strong centralized
government, while Li apparently favors the development of China
as a federation with a considerable degree of provincial autonomy.
Li's support comes largely from those who favor decentralization
and the delegation of increased authority to provincial govern-
ments in matters of civil administration and defense.
kithough the withdrawal of Chiang from the political
scene in China may not be imminent, the forces leading in
this direction are steadily gathering strength and will continue
to do so as long as the National Government under Chiang shows
? no greater capability in coping with its military and economic
problems. The departure of Chiang, for whatever cause, would
probably be followed by accelerated disintegration in the Kuomin-
tang and National Government, a course which might continue
unchecked and be exploited to the advantage of the Chinese Com-
munists. It is possible, however, that the removal of Chiang's
dominating personality would allow, the formation of a broadly
representative ?government under a new and Progressive
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? non-Communist leadership. Such a leadership, commanding
the support of the more progressive elements in Nationalbst
China both withht and outside the Kuomintang, may now be
developing in the "reform" movement associated with the
new vice president. The capabilities of such a movement
are untested, however, and even the identity of its more
prominent leaders remains somewhat obscure.
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THE NEW PHIBUL GOVERNMENT IN SIAM
Phibul's position as head of the new Siamese Govern-
ment is not yet fully established despite his popularity among
nationalist groups, his nominal control of Parliament, and
his present firm support from the Army. He faces the threat
of resistance or non-cooperation from a significant parlia-
mentary opposition. (In the recent vote of confidence there
were almost as many abstentions as affirmative votes.) He
may therefore encounter difficulties in obtaining parliamentaim
approval of vital budgetary measuree. Phibul may also be
confronted by defections among his followers in the Army.
Moreover, like the predecessor regimes, his economic posi-
tion is complicated by the extent of local Chinese control over
vital aspects of the nation's economy.
Phibul may be expected to counter any threat against
himself or his government by vigorous and dictatorial action.
His regime is likely to be both rightist and nationalistic in
character, and inclined toward opportunism. If Parliament
proves unmanageable, he may dissolve it and call for a general
election or simply attempt to govern through an intimidated
Supreme Council of State. He is threatening to improve Siam's
economic position by taking steps to reduce Chinese Control.
The local Chinese could effectively counter such a move by
shutting down their vitally important rice mills; however, they
may be persuaded by the Chinese Government to refrain from
such action because of China's urgent need for rice. Phibul,
also, may attempt to obtain more favorable trade contracts
from the US and UK by capitalizing on the presence of the
Soviet diplomatic mission in Bangkok. Phibul will probably
honor Slam's existing international commitments. On the other
hand, he will probably impose restrictions on some of the
important foreign profit-taking enterprises as he gradually
consolidates his position. Moreover, he will probably play up
the Communist internal threat in an effort to extract arms
and financial support from the US.
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Phibui,? military dictato Slam during 193846,
came back into pmer in early ias a direct conseceence
o2 the November 11-17 coup which he engineered. This coup
agebaci the ThELMEIM Cabinet and resulted in the installation
e a "democratic front" Cabinet under Abhatwong as a met=
winnin foreign approval of the change in min= and as
a BMW al avoidlea the appearance of military control.
Abaaiwong, however, dal not prove to be a willing stone and
%Qui consmtently forced Abitaiwong's resignatiou and had
hisrself appointed premier by the Supreme Council of State.
Authoritarian action by Phibul iIli undoubtedly Increase the
size anis opposition and encourage plots to remove him
from power. The opposition presently has meager capabili-
ties for a successful coup. Its armed strength is limited to
an impotent navy and the remnants of the wartime Free Thai
n2ovement. This opposition group, however, may in time be
swelled by disaffection within the Army.
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23 APR .1948
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U
TzfilliawSECIIET
CONTENTS
Pages
TRENDS IN BRIEF ....... .... . .. . . ? ? ?
ARTICLES
???????????0?0?0? ........ ?4?1'"' 7
New Soviet Attitude Toward Austrian
Treaty . 1
The Effects of the Election on Italian Labnr. ? . 2
Prospective Communist Strategy Following
the Italian Elections 3
Political Dbintegration in China 6
Document No.
NO CURT: in Clas-. []
DECLASSIF:-D
Class. CIAID 1): T3 S
DDA Mo, 4 A.T.: 77
Auth: DIA
Date:
TSlilatCrET
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'TRENDS I N BRIEF
VD:STERN EURO9E
Jrn S apparent desize of the USSR for early compleUc3
of an Austrian treaty has bel to a change in tactics at the
London treaty discussions and in Soviet administgation of
Aurin (see page 1).
Communist dombrifIcra of talbn laboz has been
seriously impaired by the results of the recent general
elections (see page 2).
Recent preparedness steps by the UK reflect increasing
official pessimism regarding the international situation. The
British Government has sharply advanced production plans
for two types of jet bombers, and the army is drawing up
measures to improve its operational readiness (including a
plan for general mobilizattan after 1 April 1949). The Govern-
ment is also actively considering the problems of the organisa-
tion of civilian defense.
Sporadic strikes and demands for additional wage in-
creases can be expected in France unless food prices are
substantially reduced before June. The average Frenchman
spends 80% of his income on food and, although long-range
agricultural and industrial?prospects for 1948 are good,
recent reductions in the prices of household commodities
are not as yet reflected in the standard of living of the workers.
The fears sLisstainch mUlta and political
leaders concerning the likelihood of a Soviet attack on
western Europe probably indicate uneasiness over France's
ability to resist as well as a desire for positive US military
commitments. France will 'xidertake Joint military defense
plans with the signatories of the Brussels pact, although the
success of this collective effort will be dependent upon clear-
cut evidence of US military support.
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Cor77: t-irt
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rr%7222 untezz in Ont city by rill
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tafxaments, =cogf.a.t-zry forces by 'which centro taf
tho city could be attained and through which the presence of
the western powers could be rendered increasingly difficult.
EASTERN EUROPE
F .jthe Communist electoral defeat in tiG
USSR may temporarily moderate Communist activities in
Italy and Frances but is exTect...t3d to continue Communist
pressure In Germany and aggressive tactics in the Near East
(see pare, 3).
Increased mill a. the USSR in eastern
Germanys particularly in Bezlin, urine; the past SO days can
probably be regarded primarily as measures to consolidate
tito Soviet postwar position in western Eurepe and to continue
the wa.r-of -nerves against the western, powers. Such milt-
inry activity is estimated to Inve the following objectives:
(1) a further sealing 6 the western border of the Soviet
sPere; (2) normal replacements for Soviet armed forces
in Germany; (3) participation in tile program of maneuvers
now being cotductad in all territories occupied by the USSR; and
(4) a contribution to the war-6-nerves designed to c.cease
or eliminate western representation in Berlin and the Allied
Centro/ Council. Although increased military activity ma'
be emacted to continue for some times It is probably not a
preparation for movement against western Europe.
itser)
Sovtot-colfzolleC
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Several. measures recently adoptcdy the USSR are '
designed apparently to increase the Soviet Union s military
;slind economic capabilities and to facilitate a transition from
a civilian to a military economy. By a recently-published
decree, military tanks are established for all administra-
tive, engineering, and technical personnel now in industries
under jurisdiction of the Ministry of Non-Ferrous Metallurgy
and the Ministry of Internal Affairs. This decree, which is
almost identical with the one issued in 1947 to govern the
coal ministries, may indicate the formation of quasi-military
organizations. in addition, civilian defense groups are report-
edly being established for each city block in Moscow, and air
raid systems are being reorganized,
ligtektAinp,kg.Bustm ts betweaslovakia
and Poland are designed to integrate more closely the Satel-
lite economies. By the terms of these agreements, large
quantities of Czechoslovak traffic will be handled through
Stettin instead of Hamburg, Czechoslovakia will transfer
some 30,000 tons of river barges from the Elbe to the Oder,
and Czechoslovakia will receive a free port in the Stettin
area. Oder traffic however, cannot reach western Czecho-
slovakia without transshipment, and the Baltic port of
Stettin is not as convenient to the North Sea as Hamburg.
Despite the obvious disadvantages to Czechoslovakia, the
USSR is apparently determined to implement the agreements
as soon as possible in order to: (1) avoid future costs at
Hamburg involving hard currency; (2) develop ports which
can compete with facilities in the western zones, and (3)
make the Satellite economies more independent of trade
areas which the USSR does not control.
NEAR EAST-A.FRICA
Severe criticism of the US Palestine trusteeshin
proposals in the General Assembly makes i increasingly
unlikely that any effective UN action on Palestine will be
taken before the termination of the UK mandate on 16 May.
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An a result of the steadily increasing hostilities between
Arabs and Joao and the disinclination of the UN to send a
Military force to impose a settlement, certain UN delegations
are attempting to shift the engthasis from plans for a truce
end trusteeship to the problem cd safeguarding the religions
chrtnes in the Jerusalem area. Sy maintaining security in
a Jerusalem area (possibly including rail and road comnani-
Ceti= to the sea), the UN would control a center of authority
vhich might oventvally be etnanded to Include the rest al
the country. While Such a course 02 action would initially
lona most o2 Palestine in a stab of civil war, it is the
only UN actton which appears to have any chance cd sucoei3s
at this time.
EAST
Po
Uca ainina has become
relatively advanced and may be greatly increased by the out-
come of the current vice presidential elections (see page 0).
The r tztzation of almost 92% ef the South Korean
electorate for orthcoming -obse elec on - ects
a considerable degree of pressure by rightist police and
terroriSt youth groups and, only in part, a spontaneous ex-
pression of public interest in a national election. -Police and
youth groups who are members of thelthee Syngman machine
have been offering "instruction" in democratic procedures
to the rural population, and Soviet propaganda has already
begun to attack the validity of the election on the grounds of
coercion and intimidation.
Jose P. Laurel resident of the Phil Ines under the
Japanese occupation, is f, every exp
certain political situation (produced by the death of President
Rom) to further his presidential aspirations for 1949. Ignoring
the period of national mourning, Laurel has continued his public
criticism of the Government for its alleged subservience to US
military and economic interests, and he has engaged in a series
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of maneuvers designed to harass the new Quirino administra-
tion. Unfavorable popular reaction to his attacks upon Quirino
has led Laurel to nylte a conciliatory proposal for, the estab-
lishment of a coalition government under Quirino and to
Indicate that he is willing to join such a coalition. However,
Laurel recognizes that he is now a key political figure,an.d
he wishes to extract maximum concessions from Quirino for
the support which the new president needs.
WESTERN HEMISPHERE
Reports continue to be received of Soviet submarine
activities in the Caribbean. By early April a Soviet submarine
had allegedly arrived at a secret base on an island off the
Mexican coast and was scheduled to land arms and Soviet
officers in Costa Rica. The possibility has also been reported
that a Soviet submarine recently sent men ashore in the Nautla
area (near the Poza Rica oil fields and pipelines north of Vera-
cruz). On 21 April, a US submarine reported sighting a foreign
submarine in the Gulf of Panama, and a US plane reported
"almost positive evidence" that a Soviet barkentine in the
same area was refueling a submerged submarine. Although
positive confirmation of any of these reports is not yet avail-
able, the possibility of such activity is not discounted.
The formation of a Costa Rican milt ' *ix is
expected as a resu t e recen agreemen - the civil
war. The desire to destroy the military power of the Com-
munist Vangnardia Popular and the need for a firm attitude
toward the meddling of General Somoza of Nicaragua will
compel the victorious rebel forces to pursue, temporarily
at least, a dictatorial policy.
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AR TIC LES
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NEW SOVIET ATTITUDE TOWARD AUSTRIAN TREATY
The apparent desire of the USSR for an early conclusion
of an Austrian treaty has recently led to a definite change in
Soviet tactics both at the London treaty discussions and in the
administration of Soviet areas in Austria. Until recently, the
USSR enjoyed an excellent tactical position in the London nego-
tiations because of the reluctance of the western powers to
commit themselves on the economic phases of the treaty with-
out knowing the Soviet position on questions of Austrian security.
The USSR has sacrificed this advantage by agreeing to defer
the discussion of economic items in order to consider the se-
curity issues.
Although recent moves by the USSR in Vienna and in
the Soviet-occupied zone of eastern Austria appear to be con-
fused and defensive, they essentially reveal a Soviet desire to
impress the Austrian Government and the western allies with
the desirability of an Austrian treaty. Soviet steps to impede
transportation between the western zones and Vienna, which
have proved annoying even though never fully enforced, are
probably intended to serve as a reminder of the capabilities
of the USSR in Austria., Austrian leaders are particularly dis-
turbed by the prospects of possible Soviet violence and forced
partition of the country following a breakdown in treaty nego-
tiations.
There can be little doubt that the USSR regards the
present quadripartite occupation of Austria as unfavorable to
Its designs and considers that forced partition is not a desirable
solution to the problem. The Kremlin would welcome a treaty
which would both provide for quadripartite troop withdrawal and
leave Austria unable to resist eventual absorption into the east-
ern bloc. Although the USSR, through an underestimation of
Austria's political vitality and economic potential, might accept
a settlement which would make it difficult for either the USSR
or its Satellites to absorb Austria except by armed aggression,
it is unlikely that the Kremlin will agree to any terms which
would be likely to prejudice seriously its chances of eventual
domination in Austria,.
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THE EFFECTSOF THE ELECTION ON ITALIAN LABOR
The position of the Communist Party as the chief
representative of the working classes in Italy has been
seriously impaired by the overwhelming victory of the moder-
ate parties in the recent elections and by the Communist stand
against the European recovery program in Italy.
The outcome of the election increases the likelihood
that a large number of the Nenni left-wing Socialists will re-
join the moderate Socialist group. Already such confirmed.
leftists as Giuseppe Romita, ex-Minister of Interior, have
called upon other left-wingers to take part in regaining the
"Independence of the Socialist Party," presumably through
an alliance with the moderate socialists. It is even possible
that Newai himself may now withdraw his support from the
Popular Front, but because of the Government's fear of pro-.
Communist infiltration the likelihood is still remote that either
he or Romita would be allowed to take part in the new coalition
government.
Such a realignment of Socialists would seriously chal-
lenge Communist domination of the Italian General Confedera-
tion of Labor (COIL). In reaction to this possibility, the Com-
munist chief of the CGIL recently announced that he intends
to ask the Executive Council of the World Federation of Trades
Unions (WFTU) to permit the labor organization of each country
to determine its attitude toward the European recovery program.
(W'FTU executives, meeting in Rome on 30 April, will probably
reiterate earlier statements that each national labor,organiza-
tion has always been free to determine its own attitude.) Com-
munist apprehension over the growing, strength of anti -Commu
nist labor has been increased by the recent switch of several
labor unions from the left-wing to the right-wing Socialist Party
and by the comparative failure of the one-hour general strike
of 12 April. The COIL moderates now appear to be strong
enough not only to accomplish their long-awaited break with the
CGIL but possibly even to achieve domination within the Confeder-
ation itself.
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- PROSPECTIVE COMMUNIST STRATEGY I OLLOWING
THE ITALIAN ELECTIONS
The defeat suffered by the Communists in the Italian
election has further reduced Communist capabilities for assum-
ing power and has vastly improved the morale and, confidence
o2 the anti-Communists in both Italy and France. An increasing
number of left-wing European Socialists and fellow-travellers
may now abandon their Communist association. The Conunu-
nista in western Europe thus are confronted with a considerable
loss in political influence in addition to their already reduced
capabilities for revolutionary action.
?Italy and may consequently enjoy a brief
respite while the Communists regroup their forces and revise
their strategy. The USSR, however, can be expected to main-
tain its pressure in Germany. Moreoverlit-will probably conk
time its aggressive tactics in the Near East. In Iran, contin-
uing Soviet pressure may eventually lead to actual intervention,
professedly based on the 1921 Soviet-Iranian Treaty. The de-
Wriorating situation in Palestine may soon present the Kremlin
with an irresistible opportunity for greatly expanded covert
intervention. Although the Satellites continue to exercise
? caution in their support of the guerrilla forces in Greece,
they are capable of vastly increasing the scale of their covert
aid. In Latin America, the USSR can be expected to seize upon
any favorable opportunities for exploiting local unrest or
violence.
For the immediate future, Communist activities in
western Europe are likely to be directed toward rebuilding
the popular front rather than an early or determined bid for
power. A Communist drtm to recover the allegiance of the
non-Communist Left is indicated by these recent developments:
(1) French Communist Leader Thorez on 18 April called upon
Communists, Socialists, and Catholics to unite in defense of
French "liberty and independence"; (2) the Cominform Journal,
reversing its original position, is now professing to represent
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all workers' parties, not merely the Communists; (3)the
German Communists recently voiced approval of a "Mickile-
Class Auxiliary' of the Socialist Unity Party (BED), which
might conceivably develop into the long-expected "nationalist
movement based on the Bismarckian concept of Russo-German
cooperation; and (4) the Kremlin reportedly has issued a direc-
tive to the French Central Communist Committee calling for
a program of aon-Violence in western Europe and intensified
activity in Germany and the Near East,
Concurrently, Communist propagandists may Intensify
their efforts to contrast "peaceful" Soviet intentions with US
"warmongering" and "imperialist designs." Such a drive
would be designed to win the support of those western Europeans
who are prepared to seek "peace at any price?1 and to encourage
a relaxation of western, and particularly US, military prepared-
ness. Such an intensified campaign would presumably be
launched in the speeches and prenouncements which tradi-
tionally are made by leading Communists on May Day.
In any event, the COMMUlliStS are not expected to relax
their efforts to prevent recovery in Europe. Defeat of the
recovery program remains a prirae objective of Communist
strategy. Sinsikes and industrial sabotage, conducted ostensibly
on the basis of local economic issues rather than political con-
siderations, therefore can be expected. Although Communist
propaganda will continue to impugn US motives in promoting
recovery, the Kremlin may henceforth moderate its attacks
upon present western European governraentS.
In Greece, the Kremlin is also faced with a possible
reduction of Cominunist capabilities. Differences beWeen
Greek Communists and Soviet-Satellite Communists have ap-
parently arisen, over problems concerning Soviet aims in
Greece and the conduct of the civil war. Greek Communist
leaders are reportedly disturbed by the fa.ilurie of the Satel-
lites to provide the guerrillas with enough aid to halt the
continuing successes of the Greek Army, and the Minister of
Interior in the Markos government is said Co be distrustful
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of the "selfish" policy of the USSR and fearful that Yugoslavia
may be planning to seize Greek IVia.cedonla. Moreover, certain
Greek Communist leaders believe that the primary Soviet in-
tention in the civil war is to wage a long campaign of economic
attrition against the US and not to effect the rapid military
defeat of Greece. In view of the successful operations of the
Greek Army, it is apparent that the Kremlin must decide soon
whether to authorize a drastic increase in aid to he guerrillas
or allow their gradual defeat by the Greek Army
Although Communist May Day demonstrations in Latin
America may result in local disturbances, present indications
are that the Latin American governments will be ditially capable
of controlling any outbreaks. la Mexico:, the electrical workers
have threatened to call a May Day strike. If they are joined by
the petroleum worker; miners:, and railway workers (all
closely allied with the electrical workers by inter-union agree-
ments), the resulting strike could cause a general paralysis of
the country and threaten the stability of the Mexican Government.
Sporadic violence may break out in Cuba, and possibly in a few
other countries, though there are no indications at present of
coordinated plans for strikes or public disturbances.
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POLITICAL DISD1TEGRATION IN CHINA
Political disintegration in Nationalist China, both In
the provinces and the central regime at Nanking, appears to
have reached a relatively advanced stage. In addition to well-
established separatist tendencies In South China, a feeling of
regional independence is apparently growing among National-
ist civil and military officials in North China, largely as a
result of the inability or the unwillbigness of the National
Government to extend realistic military support Some direct
over from local military commanders for VS military
aid, a tendency among provincial governments to raise and
support their own levies (in at least one case in contravention
to National Goverrunent ordinances), and evidence of increas-
ing liaison among North China leaders--all indicate that while
North China officials still hope for assistance from Nanldng,
they have ceased to expect it
Despite Chiang Kai-shek's recent reelection to the
presidency, dissatisfaction with his leadership has not been
dispelled in the National Government at Nanking, and there is
considerable doubt whether Chiang can so reorganize the Govern-
ment as to make it capable of effective political, military, and
economic action. If Li Tsung-Jen is defeated in the vice-presi-
dential election now in progress, the result may be a split in
the Government, inasmuch as Li has become the candidate upon
whom liberal elements within the Government have placed their
hones for constructive "reform." 14 and hie group have had
the apparent aim of seeking the vice-presidency as an initial
step toward taking over the Government by evolutionary means.
If victorious in the current election, Li may be expected not
only to push the adoption of reforms but also to attempt to
reduce the power of Chiang and perhaps force his retirement.
In the event of his defeat, novels a remote possibility that Li
may stage a military coup to displace Chiang. It is more
likely, however, that he will not at this time take such preci-
pitate action for fear of the disastrous consequences to his
cause If an overt move against Chiang should prove unsuccess-
ful.. He may instead seek to develop a non-Communist revolu-
tionary movement capable of overthrowing Chiang eventually,
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Such a movement could net only coordinate the activities
reciic diaaident element ut also it prdirbly voi/6 attract
? the caport d many elements vithin the National Government
who aro becoming convhtced that it is futile to hope for a favor-
abLe military az:intim of the civil war,' Fcns such gragrz there
Is come prmpect that a government =der tira leaderahin
Li mad reach an accosnm einticn vrith thf.4 Chinese Communists
pho continue to refit= adamantly to negotiate pith Cwzrg.
Zi-k.. 'rats prospect halo been improved by some indica-
Mao Cat the Communists nry also desire a political settle-
ment and may be willing to negotiate pith a government led by*
someone other than Chiang Kat-shek,?
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TRENDS IN BRIEF
GENERAL
Pro_pst.EL.s for a Palestine settlement continue to be
poor. In view of the advanced state of *Jewish preparations
for establishment of the Zionist state announced for 16 May,
Arab determination to gain complete control of Jerusalem,
and ever-increasing Arab-Jewish hostilities, the truce which
many UN members consider a prerequisite to UN trusteeship
over Palestine has little chance of acceptance by the belliger-
ents. Moreover, even should the Security Council's political
and military "standstill" formula be accepted by Jews and
Arabs, it will be extremely difficult to muster the necessary
two-thirds support in the UN General Assembly for a tempo-
rary trusteeship for Palestine. Until the US position with
respect to the use of force under the proposed trusteeship is
clarified, even those states which now favor a trusteeship in
principle will remain non-committal. Thus far, eight nations
have indicated tentative support for trusteeship, and eight or
more other nations are likely to follow their lead. The ten
Moslem states and India will continue to be hesitant so long
as they suspect that trusteeship may be a detour to partition
or may be indefinite in duration. The six nations of the Soviet
bloc will probably continue to fight any retreat from partition.
TALgAncerhe US?B. over the weakness of its posi-
tion. in the Far East may be indicated by a recent Soviet protest
against "34 violations of the freedom of commercial naviga-
tion" by US aircraft in the Sea of Japan and the Yellow Sea. This
protest, the third in the past two months, demonstrates that the
USSR is convinced that the US is engaged in systematic observa-
tion of Soviet shipping. The Soviet Union is particularly desirous
of concealing from the US certain outstanding weaknesses of its
position, such as shortages of oil and similar weaknesses which
seriously restrict the operations of its navy and merchant fleet.
The USSR undoubtedly feels that US patrol activities could, if
unchallenged, be extended northward to the supply lines from
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Sovyetslm,ya,Gavan to the Dalstroi project and other areas
where military and commercial development on a large scale
is in progress. Furtherm.ore, by protesting US air "violations"
in the Far East, the 'USSR probably hopes to weaken US opposi,
ton to Soviet interference with US air operations in the German
and Ausfrian occupation zones.
VIESTERN.EUROpE
..12,,e_LksysLresAILhristimj_Der.,_,Lpeoffets .and the other
moderates will probably win a mejority in the Italian elections
on 18 April, and Italy will continue under .a government shdlar ?
to the present coalition. ? Although bad weather on election day
or Comnualst iritimidation at the polls weuld improve the Com-
munist position, available evidence indicates- that the Communist-
dominated Popular Front will fail to gain- a plurality. II there ?
is a turnout :of approxiMately ?90% of the 29 minion eligible voters, L. - S
the election is expected to give the ChrisUan Democrats399 Etz _ -k?
the total vote, the Popular Front 33%, the Moderate Socialists ? IfiCS.
8%,_ the Republicans 4%, the right ,National Bice 7970,And the
num'erous- minor parties the remain' ,(
50.(5
?
. The suecess_ of the- French Government's economic Stabili-
zation program has greatly increeserthe sfrength of the Ilchuman
coalition Cabinet and bas simultaneously weakened both De Gaulle's
Rally of, the French People (RPF) and the French COMM:iIII1St
Party. In reaction to this situation, Communist leaders have ap-
parently issued orders to provoke Gaullist groups to public distur-
bances. Moreover, after. the reconvening of parliament on 20 April,.
the Communists are expected to demand the dissolution of the RPF
para-military organization. Although the Communist campaign .
to promote disorders is. likely to Continue: the present GovernMen:t
is capable of maiteimining order. If the 'disorders.becoMe nation-
wide,, however, or if a major international disturbance occurs,
another Gaullist appeal to the French people. might prove timely.
Leigetjga_Iegtion of .Soviet efforts to brea.the 13erIin
._ --
four-power administration is the appearance on -dilleffri.-2-177)er f
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German police from the Soviet Zone, without giving notifica-
tion to city police or allied officials connected with municipal
administration. The entrance of the Soviet Zone police into
Berlin is a flagrant violation of Berlin quadripartite rule and
creates a law enforcement agency over which the western
powers have no control.
Recent elections of the AkeiLan.Anuabl ingaktp,
that French sovereignty is now more securely established in
Algeria than at any time since the liberation. The elections,
the first under the Algerian Statute of 1947, resulted in: (1)
a decisive victory for pro-French rightist candidates, (2) a
rejectio of the Co munist platform advocating Algerian
autonor y within the French Union, (3) a setback tt the pro-
ponents of Moslem nationalist separatism, and (4) an over-
whelmingly successful support of De Gaulle's Rally of the
French People (PF)0
EASTERN EUROPE
The Communist Government in Czechoslovakia has
scheduled ge eral elections for 30 May, apparently in the hope
of cloaking the recent coup with a semblance of legality. Never
theles; Communist concern over the possibility that the results
of the elections cannot be controlled is indicated by the adoption
of a succession of steps desi ed to prevent an opposition vote.
The Government originally proclaimed its intention to permit
all parties in the National Front Government to offer their own
list of candidates, b t this announcement has been rescinded
and only one list of candidates will be offered. The opportunity
to vote for opposition parties outside the single Governme4t list
will be severely restricted? Moreover, the Government has not
yet decided whether it dare permit the voters to express their
disapproval by casting a blank ballot. Although the results of
the election are a foregone conclusion, the strong tradition of
democracy in Czechoslovakia, as compared to that in the other
Satellites State; will make it difficult for the Communists to
achieve these results if they pay even lip service to democratic
procedures.
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NEAR EAST-AFRICA
? Thgrjatgagr cmilariet campaign of intim:1141W against
Iran is designed to force the Iranian Government to abandon its
pro-Western orientation and to submit to Soviet domination. In-
creased subversive activities are apparently planned to stimulate
local disorders, and these in turn will be exploited by action cornmittees of the pro-Soviet Tudeh Party. If these tactics are not
quickly successful, the USSR may resort to direct military action
on the pretexts that: (I) disturbed conditions in Iran threaten the
security, of neighboring Soviet territory; (2) Iran is being used
as a base by hostile powers; and (3) the USSR is morally obligated
to assist Iranian "democratic" elements in the liberation of the
oppressed Iranian people. Although the Iranian Government
appears determined to suppress subversive groups and to take
vigorous action against disorders, there is danger that the
present inclination of certain Iranians to mollify the USSR may
lead to general appeasement of the USSR unless Iran retains
-confidence in western support.
FAR EAST
Thg contiflued inability of the Chinese Nationalist military
command to solve its logistical problems is severely damaging
the morale and the effectiveness of the Nationalist units in the
field (see page 1).
1292pite C e c,Aman_jksiwith the present state of
Sino-Soviet relations, the National Government is not expected to
do anything to aggravate this relationship in the immediate future.
China probably will not adopt a firmer attitude until improvement
of conditions in Europe enables the US to devote more attention
to the Far East and to offer China more as?urance of effective
support vis-a-vis the USSR. The restraint shown by China in the
recent exchange of notes with the USSR (concerning the Soviet
attack on a Chinese commercial plane in the Port Arthur vicinity)
is indicative of the current Chinese attitude?
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The sudden death of Philiipine President Roxas has
removed a strong restraining i--uence on growing nationalistic
trends which may seriously affect US interests. The assumption
to the presidency of Vice President Elpidio Quirino, a less forceful
person than Roxas, is likely--following a period of mourning--to
precipitate political uncertainty which could be openly exploited
by dissident and left-wing groups which have been the main target
of Roams' administration. Roma' death also increases consider-
ably the possibility that Jose P. Laurel (Japanese occupation
president), recently cleared of collaboration charges by Roams,
will be elected president in 1e49. Laurel's nationalism and
anti-foreignism were emphasized recently in a campaign speech
when he stated that although the Philippines has won political
freedom, "victory has yet to be won in the fields of economics
and international relations."
The emphasis in current Dutch-Indonesian Repgaljs_an
negotiations has shifted from problems concerning the conditions
of Republican participation in an interim federal government to
the nature of the projected United States of Indonesia (UN) and
the Netherlands-Indonesian Union. This shift appears to result
from the Republic's realization that, once it has entered an
Interim organization, it will be merely one of the future member-
states of the USI and will thus lose much of its power to influence
the formation and structure of the USI. The Republicans are
presently seeking agreement on long-range considerations, thus
indicating their distrust of Dutch motives and their belief that
the Republic's political future is identical with dominance in
the US!. Dutch counterproposals, aimed at restricting future
Republican influence in the UST and reinforcing the Netherlands-
Indonesian Union in order to offset a Republican-dominated USI,
may lead to a protracted deadlock in the current discussions.
cuaLmEas.ribiksziftumpar=1
areas. in Burma between Commimist guerrillas, aided by lawless
bands, and the Burmese army and military police. If prolonged,
this guerrilla warfare will undoubtedly lead to progressive econ-
omic deterioration and increased political unrest. The ability
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of the Government to restore law and order quickly depenzls
directly upon the loyalty of the military forces. In recent en-.
gagements, troops drawn from the Karen and other minority
ethnic groups have been used in preference to personnel from
certain groups whose loyalty is considered less reliable--tbe
Burmese Army, the provincial police, and tir Peoples Volunteer
Organization (PVO). If the PVO or the KarenEt (who comprise -
30% of the Burmese Army) attempt at this time to pursue their
own objectives, the ability of the Burmese military forces to ?
deal successfully with the Communists could be seriously im-
paired by the divided loyalties of the Karen and PVO contingents.
The postponement of pe North Kore.sanyLkIMmesp's
(scheduled for 14 April) at the request of South Korean emissaries
Indicates that the USSR has decided to make concessions to South.
Korean representatives in the hope of assuring a successful con.
ference. Kim Koo, leading South Korean anti-Rhee Rightist,
remains enthusiastic about the conference; but Kimm Kiusic,
South Korean Moderate leader, now seems unwilling to attend.
Kimm Kiusic seems to be convinced that the proposed Pyong-
yang conference can neither achieve Korean unification nor
postpone the election (and Rhee's inevitable victory). To avoid
participating in the conference, Kimm may decide to stipulate
certain conditions totally unacceptable to the North Koreans:
This may enable Kimm to "save, face" and reduce somewhat
the propaganda value of the conference to the Kremlin. His
maneuver will have little effect upon Soviet policy or tactics.
WESTERN HEMISPHERE
olombian Government continues to
be uncertain because of (1) the continuance of the general strike,
and (2) the real possibility of renewed violence at-the time of
Caftan's burial. The army continues to be loyal and probably
could cope with any new disturbances.
Peron maybe forced to place more reliance on the _
Argentine Army and to seek additional support from stntl-US
nationalist elements, if the Argentine Government loses control
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?
?
of labor groups through a new technique of negotiation being
used by striking bank employees. The strikers have set up an
Illegal "Inter-Bank Committee" through which the Government
has been forced to negotiate, thus giving the committee de facto
recognition. If other Argentine labor groups use this extra-legal
device, tbe Government may resort to more repressive measures
with a consequent loss of labor's support.
If the current _presidential campaign, in Panama results
In leadership of the government by ArmIf? Arias, lessened
cooperation with the US on measures vital to safeguarding the
security of the canal may be expected. Arias is the most
popular candidate and he could come to power (I) by popular
election, or (2) by taking advantage of a revolutionary situation
resulting from his disqualification on technical grounds. Re-
gardless of the high economic price any Panama administration
must pay for non-cooperation with the US, Arias would probably
be most reluctant to recognize the realities of US strategic
necessities in Panama.
Gr ith the_mdme of President
Aleman of Mexico is indicated by the strengthening of the
secret police and the presidential guard, by the large number
of Mexican federal troops being reassigned to strategic areas,
by the unusually numerous changes in the army high command
recently, and by an abnormal increase--amounting in some
cases to ten times normal trade-level requirements--of demands
for ammunition in certain areas. Present dissatisfaction is
attributed largely to: (I) Aleman's firm attitude toward labor
and his swing from the leftist policies of his predecessors;
(2) Aleman's inability to control corruption among his per-
sonal advisers; (3) Mexico's unfavorable economic position,
coupled with a continuing rise in living costs; and (4) hostility
against the unpopular foot and mouth disease campaign. Al-
though discontent among the population has not reached alarming
proportions, it could develop into a serious threat to the Present
administration and to the continuing stability of the Mexican
Government.
-vii
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AR TIC LE
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THE MILITARY SITUATION IN CHINA
Despite the recent prediction by Chiang Kai-shek that
the new Nationalist military strategy?which gives top priority
to the Central China theater?would result in the pacification of
that area within six months, the Communists are still carrying
the civil war into Nationalist areas in Central and North China
and may already have undertaken initial ,moves in a Manchurian
spring offensive. The real difficulties facing the Nationalist
armies in the field have not yet been met. Chiang's prediction,
which was made in an address to the National Assembly, was
probably designed to rally popular support to the Nationalist
cause and revive public confidence. Serious shortcomings in
the Nationalist military structure must be overcome before his
efforts c n be successful, since the Government's announced
program for land redistribution and the broader utilization of
local militia will in all llkelih?. prove only palliatives.
The Nationalist armies continue to be handicapped by
poor leadership, passive tactics, and low morale. Meanwhile,
the logistic difficulties facing them continue to mount. The failure
of the Nationalist command to recognize the weight of these diffi-
culties has led to over-extension of tactical units which, together
with extremely effective Communist economic warfare, has re-
duced original Nationalist advantages in numbers and material
resources to the point of parity. In certain areas, these advan-
tages have already passed to the Communists.
The Nationalist main areas of production (centered in
cities of Chungking, Hankow, Canton, Nanking-Shanghai, and
Peiping-Tientsin) were connected initially with the major combat
areas by a long but fairly adequate net of rail, highway, air, and
waterborne transport. Continued Communist assaults against
overland communications have compelled, however, at least two
of the eight major Nationalist combat forces to rely primarily
upon air supply and have made three dependent upon water trans-
port. Because of the inability of the Nationalist air force to
sustain an air tonnage adequate for the needs of the ground forces
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CONFIDENTIAL CHINA: COMMUNIST CONTROLLED AREAS 1 APRIL 1948
104? 1080 112? 116? 1200 1240 1280 1320
1093
136?
52?
The International boundaries shown on this ;
map do not necessarily correspond In all
cases to the boundaries recognized by the
U. S. Government. '
The Province boundaries and capitals ere
slot May 1947.
Manchouli
HAIL AR
MILES
100 200 300
KILOMETERS
TSITSIHAR
? (S`
HARBIN
???- T'ao?lai? ha
"S.
SSU G
CHIA?MU?SSU
KI ANG
Lin?k'ou
OZERO
KNANKA
Kirin
eri
L al'
ie ? ? ANG?CH'UN ch'ing
"an
KIRIN
KAI
..'ing?tao
ho 'ou
Mei f?Fh
40?
Ying?k'o
36?
Hsin-hsien
YANG?CH'0
w,A ? (Taiyuan)"
Yenan
-1.17 (*)
se/
P,,,,11 Dairen
"',?`"u.r PORT ARTHUR
' NAVAL BASE AREA
lEacluding Calton/
UKDEN :
cani.
A *Chien.
?cr ll
ch'ang
uan?
a?lhih lien
ch'iao
(AN-TUNG
U.S.S.R. ZONE
OF OCCUPATION
Te?hsien
4/.49
_-Wei?hsien
Ch'ing?tao
U. S. ZONE
OF OCCUPATION
Cheng ? sien
K Al
FENG
128? 132?
Canton
32?
JHONG KONG
(Br.)
_p
Ch'ung?ch'ing 1
(Chungking) 's
HUNAN
s/?"?'KwElciow <
108?
(../-
112? 116?
SOUTH
CHINA
? Kashin
HWAINING
(An?king) ,??-/ HANG-
.1 CHOU
**,-\
CHEK
0 Fou. s Chin?hua
hang \
CONFIDENTIAL
Yin?hsien?
ANG
HAINAN
Scale same as on mom map.
San pa
120? 112.
10936 Map Branch, CIA, 4-48
U. S.
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involved, the continued resistance of those forces is directly
related to the capability of the area to feed and equip them.
Movement of war materiel to all fighting:areas suffers ciArnmonly
from poor administration and fro jealous bickering among
agencies of the National:Government, cliques Within the Nation- ?
dist Army, and irarious area transport commands. These
difficulties are further aggravated by the .endency of local
commanding generals and subordinate commanders to divert
military supplies .passing through their zones to theAr own uses .
or needs.
As a consequence of the inability of the Nationalist command
to solve these problems of supply, Nationalist units at the fighting
fronts have either been short of, or totally without, the-necessary
equipment with wh to fight.. The effect upon their morale is
indicated by wholesale defections to the Communists. Unless the
National Government is able to solve these problems, the lack of
continuous logistical support will be equivalent to default to the
Communists in certain viial areas.
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0 U
.1W/if
CONTENTS
Pages
TRENDS 114 BRIET10?43000?000?000.0O3*0011?0i...Vi
ARTICLES 1
5
Diminished Communist Capabilities in Italy.. .
1
The Chinese Presidential Election ..... . , .
4
Document No.
NO CHANGE in
.61_1
LII
ECLASSIFID
Class. CHAIIC:D TO: TS S C
DDA lje6o, 4 Apr 77
Auth: DDA R1!]G. 771176.75
Date: JJThBY: AIA0-----
7?01141ReiZET?
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TRENDS IN BRIEF
GENERAL
Continued Sayiet advocacy- of Rartition for Palestine ?
will hinder UN adoption of an effective trusteeship plan and
also may contribute to full-scale .civil war in Palestine by
enccuraging the Jewish Agency to proceed with the establish
-
merit of a Zionist state. -Nevertheless, the privately expressed
fearso seme prominent Arab leaders that establishment of
a Jewish state will be followed by prompt. Soviet recognition
and military aid do not seem to be justified. It is unlikely that
the USSR considers Palestine worth the risks involved in open
military intervention., Furthermore, the USSR would probably
be unv,rilling to taka such drastic unilateral action while the ?
Palestine, issue is before the UN.
inCTOR,VM number?eof incigepLes iraysivincreUS aircratt
and US personnel in .the clandestine transport of munitions into
:..Tach areas as northern Italy and Palestine threatens US str.atee
gic ,interests in those areas. The most recent of such incidents
took place on 31 Ma.rciyin Prague when. a US-ewned C-54,
rimmed by US nationals; loaded a cargo of "surgical instru-
ments and hand tools" under-direct81'..oevil.sion of the 'Czechoe-
slovak secret police and flaw the cargo to a small village in
Palestine. Suci:',h international traffic in arras; taking, advantage
of existing loopholes in US regulations; can increase the poten-
tial of. the Italian. Communists and emi3arrass the US' by giving
covert aid to coxnbatants in-the curre-nt Palestine hostilities.
MAeke-fa.vored-riation treatment for Germany lathe Com-
mittee of European Economic Cooperairora rCEE?EMiarter ap-
pears unlikely because of continued Britigh and 'french opposition.).
as ,well as that of most other CEEC nations. The UK and France
feel -that full CEEC membershi-ii or Gerinany will, result in maxi-
_ mune German trade expansion with other CEEC members and .
.? thereby make most-favored-nation, treatment unnecessary. The US
has souht such a provision in the charter in order to protect
Germany from possible trade di.scrimination by other CEEC nations.
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?The Chinese Government will grolagilay_eizayeibelIS
request that Hankow and other river ports be opened to US
vessels. Although Chinese shippin.g officials are sympathetic,
the Government believes the UK would charge discrimination
if the legal ban against foreign vessels operating in coastal
and inland watens were relaxed solely in favor of the US. If,
on the other hand, British participation in coastal and river
shipping is permitted, the Chinese fear that virtual domination
of this trade by the British will result in view of the firmly
entrenched position of British shipping interests at lifong Kong.
WESTERN EUROPE
Italian Communistm2cts oLainince a lurali
in the 1 iWeiThre-iirons and Communist capabilities or success-
ful large-scale insurrection have been considerably reduced in
recent weeks (see page 1).
Non-Comnannist members of be Italian General Con-
federaticn of Labor (CGIL) may withdraw from the organization
as' a result of an order for a one-hour general strike an 12 April
? recently issued by the Communist. secretary of the CGIL. Such
? ?a withdrawal of the non-Communists-will be more advantageous.
to the De C-asperi Government if it comes after the 18 April
elections. The non-Communists have been effective previous ?
to the elections in restraining CGIL opposition to the G-overnmerzt,
and they will be in a better position following the election of a non-
- Communist government to fOrriVa. separate and effective labor.
organization.
British oblections may make imnossible a *lesterrus
joint announcement favoring the return of Italian colonies, as
desired by the De Gasperi Government for its effect in the current
election campaign. The UK's objections are based upon a desire
for military bases in Cyrenaica and British promises that
Cyrenaica will not be returned to Italian rule. Also, the UK
is not sure that the local populations of -Amami Somaliland, Eritrea,
and Tripolitania would accept peacefully a restoration Of Italian
rule. The Lallans, supported by the FrenCh, may be expected to
continue their requests for a favorable colonial announcement
from the western powers. "
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potteAe recent Seylltialkout irom the kliegSseittal
Council ('ICC) and recent Soviet interrereece with transporta?
tion into Berlin seem to indicate that the USSR: (1) ;12.5 aban-
doned hope of using the ACC to hinder the present western
European recoastnuction program, and (2) intends to accelerate
preparations for the establiehment of an eastern "German state"
1'7henever the Kremlin decides that the western powers can be
successslully blamed for partitioningGermany. In this pre-
paratory phese, the USSR may place the Soviet Zone under a
"democratic" and "loyal" German administration, created -
from the Communist-dominated Peoples' Congress and strengthened
by trained Cerrnans from the former Moscow Free Germany Com-
mittee, Both the presence of the western powers in Berlin anci
the functioning of the ACC hamper the realization cf the Soviet
.objectivee and, unless allied determination remains obviously
strong, further Soviet attempts to eliminate these hindrances
may be expected. (A CIA Special Estimate titled "Possible Pro-
gram of Future Soviet Moves in Western Germany" is now being
prepared.)
Soviet nrenarationle clandestine activity
against US-UK occupation authorities in the Ruhr are apparently
indicated by current replacement of known Communist leaders
-with new party men from the Soviet Zone and with thoroughly
indoctrinated former prisoners of war. Probable reasons for
the replacements are: (1) comparative failure of the present
leadership of the Communist Party (KPD) in the Ruhr; (2) Soviet
dieeatisfaction with the opposition of many old KPD leaders to
pro-Soviet policy dictates from Mosccym; (3) preparations to go
12ncierground in the event of US-UK action against the party; and
(4) the danger of using well-known and easily-identified party
leaders in clandestine and illegal operations. ,
Kranco's relianCe .1122.113:szentIna for his main support
in maintaining Sprain's precarious economic position, while re-
jecting the US and UN recomrnendatiors to liberalize his regime
as a pserequisite to participation in the European recovery program,
is inciicated by his announcement on 5 April of the extension to Spain
of a new Argentine peso credit amounting to $427 million. The new
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credit can be used only for Argentine products, largely foodstuffs,
and it will pro:Ably satisfy Spain's critical food needs for the next
two years. The urgent problem of rehabilitating the sericusly
deteriorated transport, industrial, and power production systems
is not, however, solved by this credit. In return for the credit, ?
Argentina will receive the privileges of a free port at Cadiz
and participation in joint Argentine-Spanish corporations. Ex-
trenre. nationalists among Francois advisers have convinced him
that Argentine aid will enable Spain to forego the European reco?ery
program and membership in the UN. Franco will be supported in
this policy by nationalist-clerical elements who favor establishment
of a "Latin bloc:' as ouposed to both Communism and to US canital-
istic "expansionism." Argentine economists are studying variour
Inetho:L; o act...iring repayment ot the loan, inclraing toe conetruc-
tion of wvrehouses and processing plants in Spain and the estzb-
:ishment there of a European base for the distribution of Argentine
procitt6s.
EASTEAN EUROPE
? ritjuid in,14.11AelentiaLasyssmiejks from the
'SSR during negotiations on the rece:itly signad treaty of mutual
assistance, the treaty will provide the USSR with an excuse for
further moves against Finland whenever the Kremlin considers
it necessary. .Future Soviet action toward Finland will depend on
the course of events within Finland and on international develop-
ments. An intensification of the "cold war" would prompt the
Kremlin to hasten the campaign for Communist domination of
Finland. Similarly, a pronounced rightist swing within FLiland
or increased Finnish cooperation with the west might also per-
suade the USSR to move more quickly. Finnish non-Communists,
therefore, are expected to vote for ratification of the treaty, to
maintain superficially friendly relations with the Communists and
the USSR, and to move cautiously in their relations with the west.
NEAR EAST-AFRICA
Recent Greek Ay successes have probably been suffi-
ciently dislocating to the guerrilla forces_ to necessitate postpone-
ment of the large-scale offensive reportedly planned by Markos
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for the latter part of April. It is possible that .the army, ?y
retaining the initiative, can prevent the "successful launching
of any concerted guerrilla offensive in the near futtre. Never-
theless, the army victories are limited in extent; and a decisitte
defeat of the guerrillas is not yet in prospect.
The short-lived strilte of the E tian lice, although
brought ot?Thou----rely ecioiilc may m irectly lead
to a settlement of Egypt's long-standing differences with the UK
over the Sudan and British military rights in Egypt. The Egyptian
Government's inability to cope with the strike (which was accom-
panied by violent public disorders and widespread property damage
in Alexandria and Cairo) has seriously impaired Prime Minister
Nolwasht's prestige and may bring about his downfall'. Ms mail
likely successor is Senate PreStclent Heykal, who has consistently
maintained that successful termination of the Anglo-Egyptian
deadlock is essential to Egypt's future.
FAR EAST
will?undoubted be elected resident of
the Chinese National Government in the 12 April elections. Chiang's
expressed unwillingness to be a candidate has, effectively rallied
the full support of the Kuomintang and has considerably enhanced
his authority (see page 4).
Control of the' Siarnees.pingnt by a group of military
extremists now appears assured. Once foreign recognition of the
Abhaiwong Government had been obtained, the extremist military
group demanded the resignation of the Government because of its
inability to bring about the return of normal economic conditions.
The military group then declared to the Regency Council that only
Marshal Phibul would be acceptable as the new premier. In view
of the determination of the members of the Abhaiwong Government
to boycott a Phibul Government, it is expected that Phibul will ex-
perience difficulty in forming a new cabinet of any significant
strength and that its tenure of office will be solely dependent on
army support. Every effort will be made during the assumption
of office by the new government to observe all legal forms in order
to avoid jeopardizing recently-obtained recognition by foreign praYers,
but the essential' character of government control as based on mili-
tary force will remain unchanged.
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__pguth, Korean leaders Kimm Kiusic and
Kim Moo cooperate with the North Koreans at their conference in
Pywayang on 14 April, their action will probably have little acct
either on future Soviet tactics in Korea or South Korean elections.
Because these Moderates and Rightists can provide little more
than a minority dissent at the conference, they will provide the
USSR with justification for eetablishisq a People's Republic in
the name of all Korea and for accusing any future South Korean
government of being unrepresentative.
A developing split among South Korean Rightists. over
the choice of candidates for the forthcoming UN-observed elec-
tion and over the form a provisional government should take when ?
the assembly convenes has made Rhee Syngman's chances of
emerging as chief of the South Korean Government almost certain.
RIne's autocratic policies as head of this government would proba-
bly assist the USSR in its efforts to win away South Korean leaders.
Future Soviet moves will probably include demands for the with-
drawal of occupation troops both from North and South Korea and
pressure for recognition by the UN of a Soviet-sponsored People's
Republic.
WESTERN HEMISPHERE
An wily rebel victaT in Costa Rica may be indicated
by the growing disorganization among Government forces, the
high morale of rebel forces, and the impending withdrawal from
the Government by the Communist Vanguard% Popular. 11 the
rebel forces gain control of the Government, they will probably
continue Costa Rica's traditional policy of friendship with the
US.
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AR TIC LES
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DIMINISHED COMMUNIST CAPABILITIES IN ITALY
The prospects have sharply diminished that the Italian
Communist Party will obtain a sufficiently large plurality in the
18 April eleclions to ensure Communist or left-wing socialist
representation in the next Italian Government. Concurrently,
the Party's capabilities for successful large-scale insurrection,
without active military assistance from Yugoslavia, have been
considerably reduced. Unless the Communists receive substan-
tial outside aid, the Government now appears sufficiently strong
to prevent its overthrow by force and to put.down large-scale
rebellion. Whether the Kremlin, even under these circumstances,
will direct an insurrection either before or after the elections
cannot be predicted. If, as seems probable, the Communists fail
to secure representation in the new government, they will then
launch a new program of strikes and sabotage to wreck the re-
covery program and discredit the government.
The reduction in Communist capabilities for success-
ful large-scale insurrection springs largely from four factors.
In the past few months, the Italian armed services and security
forces have been greatly strengthened, not only by new equip-
ment but also by a considerably improved morale. Concurrently,
the Communist para-military forces have been weakened and to
some extent disrupted by government seizure of clandestine
munitions dumps and caches and the interception of arms shipped
In from abroad. No evidence available indicates that Yugoslav
forces--the most logical source of outside assistance?are being
prepared for action in Italy. Finally, and Probably most impor-
tant, the Italian masses appear less inclined than ever to support
a Communist uprising and have become increasingly anti-Com-
munist in their attitude.
Communist capabilities for effective revolt, in the
absence of outside aid, now appear limited to localized successes,
particularly in north Italy. These capabilities are based upon
military potential and the party's following in labor. The Com-
munist semi-military organization, the Apparato, consists of
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approximately 100,000 ex-Par-tisans, armed and trained, and
'about 100,000 reserves in training. The Apparato has general
headquarters at Milan and operational headquarters in cities
on the main highway between Milan and the other Communist,
stronghold of Bologna. Communist munitions dumps are be-
lieved to contain extensive supplies of arms, including armored
cars, light field guns, anti-tank guns, mortars, machine guns,
and a few tanks. To increase their armaments, the Commu-
nists would attempt to seize Government arsenals and ammuni-
tion dumps, and, if unsuccessful in capturing them, would make
every effort to blow them up.
In addition to their military potential, the Communists
possess a powerful revolutionary weapon in their control of the
Italian General Confederation of Labor (CGIL), which has five
million workers in industry and various public services. Domi-
nation of the agricultural Workers' Confederation, which has
approximately two million members, gives the Communists
almost complete control of the agriculture of the important Po
Valley region; virtual Communist control of the industrial unions
would facilitate seizure by the workers of most industrial estab-
lishments. ,The Communists, furthermore, dominate the news-
paper printers' union and have infiltrated communications.
Public utilities, particularly gas and electric services, are Com-
munist-dominated and could be disrupted in case of revolution.
The De Gasperi Government, however, with control of
armed forces totaling approximately 336,000 men, would probably
be ble to prevent Italian Communists from taking over the central
government. Army strength is concentrated in northern Italy,
and army divisions are disposed at Udine, Treviso, Milan, Torino,
and Lucca. Supplementary to the army are the security forces of
the Ministry of the Interior: 75,000 carabinieri, a mobile reserve
corps of 16,000 civil police, 80,000 regular members of the civil
police, 36,357 finance guards, and 5,000 railway police. The
carabinieri maintain their heaviest concentrations in the north.
Critical areas, suck as Bologna, have been reinforced by special
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reserves of the Lz: ef.zrity forces. In the. event a insurrection,
the Italian Ixy could ompby its units to protect Italian. ports
and could innd many cf its aoro2d.mat.,,ly 35,000 inert to assist
the gromd forces. The bulk of the- Libilar. fleet is base.d at
Taranto and La Spezia. The Italizrz Air lizrce, with. personnel
numbering ::5,000, has, clout 500 pbnes, Most ly obsolescent,
of which abort 60 are fIghters in tactical .mits.
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THE CHINESE PlIESMENTILL ELECTION
Despite Chiang Kai-shek's announced unwillingness to
be a candidate for the presidency of the Chinese National Gov-
ernment, he will undoubtedly be elected to this position by an
overwhelming majority of the National Assembly on 12 April.
Party leaders have brushed aside Chiang's recent recommenda-
tion to the Kuomintang Central Executive Committee that it
select a non-party man as presidenttal candidate and permit
Chiang to serve his country in some other ca.pacity. These
leaders are unanimons in stating that Chiang is China's indis-
pensable man for the presidency. Thus,the effects of Chiang's
action have been to assure him of the presidency, to rally the
full support of the Kuomintang to his leadership, and to enhance
his authority.
In view of the basic and growing weaknesses of the Kuo-
mintang and the National Government, however, this strengthen-
ing of Chiang's political position may prove to be temporary.
Chiang's maneuver was undoubtedly prompted as a measure to
offset these weaknesses. The Kuomintang had become disrupted,
by _increasing faCtionalism and by mounting discontent. with
Chiang's leadership to such an extent that there was danger that
the National .A.ssernbly.winild be the scene of public attacks on
his policy by party members, thus leading to an open split.
Throughout the party, however, It had been generally accepted
that Chiang would be elected to the presidency with little opposi-
tion. This nianeuver of -Chiang, consequently, surprised and dis-
mayed party leaders, and their response has once again demon-
strated convincingly that there is no leader other than Chiang
who can command the allegiance Of all Kuomintang factions anti
cliques.
Chiang's proposal that he take a less significant pest in
the new government appears to have been designed to answer the
criticism of Chinese Communists and ethers that the National
Government is under his "personal rule." His. recommendation
that a non-party leader, with civilian rather than military back-
ground, be favored for the presidency was probably intended to
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be a rebuttal to critics at home and abroad who both question the
purity of China's incipient democracy and urge that the base of
the National Government be broadened by the inclusion of non-
Kuomintang elements.
For the moment, Chiang has secured from Kuomintang
leaders a clear mandate to continue his rule, and consequently
he will be under less pressure to alter his policies or reorganize
the Government. Unless the Government.1.3monstrates under his
leadership more success than hitherto in coping with its enor-
mous military and economic problems, dissatisfaction and criti-
cism of his leadership will inevitably mount again and wi1l be
more difficult to silence.
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U
TOFIECIZE14.-+
CONTENTS
Pages
T"RENDS IN BRIEF i
ARTICLES 9
British Intentions tn 'Palestine
Italian Pre-Election Trends 2
Instability in Iraq 3
Serious Labor Unrest in Japan 4
Diminished Conununist Threat in Burma 6
Balance of Power Among Caribbean Countries . 8
Document
NO CBANGS in Clazs. 0 1
DZOLASSIrID
It
q.a55. CHA;1C:D T3: TS S C
DDA lAeme, 4 Apr 77
Auth: DDA2IZ417,.
Date:
92
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TRENDS IN BRIEF
GENERAL
Th_221122g1probably_Eignt a more captructive and
helpful attitude in UN or other -international deliberations- over
Palestine isSues after terminating its mandate on 15aMay,
although the British policy of withdrawal will almost certainly
not be modified (see page 1).
WESTERN EUROPE
Favorable Italian reaction to recent encoutagem.ent
from the western ?ewers appears to have reversed the previous
trend toward a Communist plurality in the April elections (see
page 2)0
geemieetteunist influence in Scandinavia has been reduced
by the efforts of Government officials and the leaders of the
Socialist Party and the trade unions to awaken labor groups
to the menace of cooperating with the Comminists, Recent
elections in Norway and Sweden have resulted in Socialist
victories within trade unions formerly dominated by the Com
-
mists, and similar results can be e Aected in Denmark, In
Iceland, the Government is transferring Communist civil serv-
ants (former appoin es under the previous coalition ministry)
from sensitive security posts.
Taurolected develo ment of French North Africa
into an important strategic defense area is pr-73 ITIFFradu-
ally. This strengthening of the North African defense establish-
ment anticipates the likely contingency that metropolitan France
will be rapidly overrun in any future conflict and that France -
would have to make its real stand in North Africa. Consequently,
the naval base at Mers-el-Kebir (near Oran) is being developed
to replace Toulon as the French Navy's chief ill.e ranan
base; the establishment of a combined operations training school
with an estimated capacity of 209000 at nearby Arzeu is well
00
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under way; emergency inland operational air bases are 'being
developed at Ouija, Morocco, and at Colomb Bechar (200 miles
farther, south), the terminus of the presently completed section
of the projected standard-gauge, north-s uth, trans-Saharan -
railway; air stations in the region are to be increased in anti-
cipation of the transfer to this region of primary pilot training;
the British and Fre ch g vernments are preparing an agree-
ment covering the use of 'French and French North African
airfields by UK aircraft; and the French are accelerating their
prograra to provide the necessary industrial facilities in North
Africa to allow the strategic bases in Algeria, Morocco, and
Tunisia to operate independently of metropolitan Fr nee if the -
latter were occupied?,
EASTERN EUROPE
No ctE_Aslia r Soviet diplomatic measures to influence
the forthcoming Italian e ections are eitia-tectil7this late date.
The USSR, Yugoslavia, and the Italian Popular Front will
probably content ftemselves with a reiteration of the theme
that only a' Popular Front victory the general election can
result in a peace treaty revision favorable to Italy. There is
a possibility, however, that the Soviet Union will attempt to
seize te diplomatic initiative by making one or more of the
following offers: (I) a reduction of reparations; (2) the re-
nunciation of claims to part or all of e E lian fleet assigned
to the USSR; and (3) the shipment of wheat.
The current Sovietmaiti.miet_la aitacl_utspottnty and
Sweden appears to have the following purposes: Zi) to capital-
ise upon the prevailing fear of further Soviet aggression in
Europe and thus delay the rebuilding of a strong Euro an
economy; (2) to prevent the Scandinavian counties from sign-
ing military alliances with the western powers; and (3) to
coerce the Finnish negotiators now in Moscow into signing the
comprehensive military agreement desired by the USS
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NEAR, EAST-AFRICA
The instability of the nresent irao Government can be
attributerraTRi7 to, deteriorating economic coadthons,
is doubtlidt however, that the Cabinet feels strew enough to
take adequate remedial measures (see page 5),
The_zecent 3oviet note to the Iranian Government,
which is basically another phase of the Scr:,IlletlYonis
worl-
wide propaganda offensive against the Uf&', indicates the
means by which the USSR may attempt to subjug,ate By
insinuating that the presence of US military missions in Iran
makes the current situation analogous to.that of 194/ when
Germany had many age its in the countxy, the USSR ts con-
tinuing to build a case for possible direct intervention on the
basis of the 1921 Sovie,t-lranian freaty, The t!ea.tyt which
provides for entry of Soviet troops in case a third power seeks
to usel-ran as a base of operations against the USSR, was in
In U as justification for Soviet occupation of northern
Iran.) The possibility of indirect aggression is suggested by
the U's declaration of its right to protect Iranian political
refugees, ht are 'known to be plotting revolutionary activity
against the present Iranian Government,
Arab 'Ft tg.. _ess to accept a UN trusiteshin for Pales-
tine and to negotiate a truce with the Sews may be indicated
by the fact that Jamal al Husseini Vice Chairman of the
Palestinian Arab Higher Committee (which is headed by the
Mufti) is coming to New 'lark to participate in the current
UN deliberations on Palestine. This is the first time since
the General Assembly recommended partition on 29 November.
1947 that a renresentative of the Palestinian Arabs has had
official dealings with the UR, Husseini is certain to demand
relection of partition as a dendition for Arab acceptance of
either a truce or trusteeshipe
eamtset ef,feyets to profit from Middle east unrest re-
sulting from the Palestine situation are indicafeTby recent
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reports that the USSR is accelerating its activities among the
Kurds and Armenians. By encouraging separatist tendencies
while exploiting the increasing economic and political instabi-
lity of the area, the USSR can most easily threaten the US-UK
alignment of the Middle East regimes. Current Soviet promises
that the USSR will aid separatist movements among Middle East
minorities after "settlement" of the Palestine problem are
thoroughly consistent with Soviet support of parttion. The
formation of an independent Zionist state wouIC provide a logical
basis for separatist demands by the Kurds, the Azerbaijani,
and the Armenians of eastern Turkey'0
India-Pakistan relations have gerally Improved, with
responsible leaders in both dominions appearing increasingly
willing to adopt conciliatory attitudes? The Kashmir dispute,
which constitutes the only threat to peace at present, is not
likely to cause open warfare,between the two dominions in the
immediate future. India has, at least temporarily, a military
advantage in Kashmir itself, and Pakistan seems to be increas-
ingly aware of Indies over-all military superiority.
FAR EAST
Although a Communist-ins ila.LeAlbor crisis illazaji
has been a erted through prompt action by SCAP, labor unrest
can be expected to continue until some means can be found to
relieve the acute economic distress of Japanese workers (see
page 4).
? The complex Burmese cal crisis has been tem-
porarily eased by the Government s decision to suppress all
Communist activities (see page 6).
Ar.e.t et effort t.
rsement
for "the formation of a democratic nified state in Korea has
taken the form of an invitation to South Korean "democratic"
leaders to attend a joint conference on 14 April in Pyongyang.
-iv
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Ten Leftists from South Korea will give the decisions of the
conference a "representative" character. Leaders of moderate
and rightist delegations, who have no illusions concerning Soviet
Intentions, will attend the conference? largely in the hope of in-
creasing their chances of success in the forthcoming UN-ebserved
elections in South Korea. By presenting themselves as patriots
who exerted every effort to achieve national unity, they will seek
to contrast themselves favorably with Rhee Syngman who, as a
means of satisfying personal political ambitions, has consistently
advocated the creation of a "separate" South Korean state. The
Molerates desire to postpone the forthcoming elections in order
to prepare an effective candidate to oppose Rhee. Although the
UN recently rejected General Hodges request to postpone the
elections from 9 to 24 May, circumstances may force a reversal
of the UN decision.
rae Philippine Department of National Defense has in-
dicated concern over the international situation by redoubling
Its efforts to obtain clarification of US military plans for the
?Philippines. The Philippine Secretary of National Defense, in
? stating recently that more than 300,C00 Filipinos can be mobilized
to support the US in the event of an emergency, assumes that the
Philippines continue to figure prominently in US strategic plan-
ning and that the weaknesses of the Philippine armed forces can
be overcome. Current attempts to obtain additional military
appropriation from the Philippine Ccagress may meet with some
success and such action may therefore be the basis for vigorous
efforts to obtain a commitment for additional US military a.ssistance.
WESTERN HEMEPHERE
TJA.T.IS_plan for concerted here defense may be
endangered by the present civil war in Costa Rica because oppos-
ing interests are dividing the Caribbean countries into two groups
in a balance ?of-power situation (see page 8).
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ARTRCLES
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BREVISII INTENTIONS IN PALESTINE
Although the intention of the UK to withdraw from iPal-
estine by 15 May will almost certainly not be modified, official
British denials have not dispelled a persistent rumor that the
UK would retain some responsibility for Palestine under certain
conditions. Because the UK would want to avoid any solution
which would enable Soviet troops to enter Palestine (either through
a UN decision or a default by the western powers), two possible
courses of British action have mainly been rumored: (1) UK
troops might remain in Palestine until US troops were deployed,
if, the US declared its readiness to provide troops for the purpose
of maintaining order during the proposed temporary trusteeship;
or (2) the UK might agree to a joint temporary trusteeship, if the
US agreed to supply a large part of the troops and to pay most of
the costs involved.
Despite the strength of British public opinion against
further entanglement in Palestine and despite the reiterated
British intention not to participate in a Palestine solution which
would offend the Arabs or be unacceptable to either Arabs or Jews,
the UK may take a more active part in negotiations over Palestine
after 15 May. Responsible and influential British publications are
urging the Government to adopt a more positive and helpful atti-
tude in the UN deliberations, and a similar movement is apparent
among permanent Foreign Office officials. Because Palestine
involves issues which so actively concern other members of the
UN and the strategic interests of Britain, it is not likely that the
UK can continue indefinitely its policy of exaggerated disinterest.
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ITALIAN PRE-ELECTION MENDS
Anti-Communist forces in Italy have been considerably
strengthened as a consequence of the favorable Italian reaction
to recent encouragement from the western powers. Such dec-
larations as President Trumazes announcement of stiffe ed US
policy toward Soviet a.ggression, the joint statement on Trieste,
and the statement that a C ramunist government in Italy would
not be eligible for economic aid from the US have made a high-
ly favorable impression upon the Italian people. The prestige
of the present Italian Government has been increased by such
Indications of international reco ition as the signing of the
Prench-Italian economic pact. The Vatican's anti-Communist
campaign, particularly the increased activity of the Catholic
Action groups in Italy, has also been effective in bolstering
the non-Communist position.
The Italian reaction appears to have reversed the pre-
vious trend toward a Communist plurality in the April elec-
tions, and it now seems probable that the Christian Democrats,
together with other m .erate groups, will secure emu votes
to enable them to form another coalition government excluding
the Communists. This new tre d, which will probably continue
if the anti-Communist forces maintain their present tempo of
activity and there y keep the Communists on the defensive, has
been particularly furthered by the recently improved electoral
chances of one of these moderate groups, the right-wing Social-
Diminishing Communist chances of receivhig a pi rality
in the elections appear, however, to have put the Communist-let:A
Populir Front on the defensive, The Communist Party 111017 seems
to be reverting to its earlier tactics of violence and threats of
violence in order to intimidate the voters., Preselection clashes
between Communists and anti-Communists have been reported
and may be expected to increase,, There are also increasing
threats of industrial strikes and large --scale violence? It seems
likely that these Communist strong-arm tactics, which may cause
further popular resentment against the Communists, will be re-.
slated by the .newly-encouraged Italian masses? ,
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INSTABILITY IN IRAQ
The serious instability of Iraq's present government
can be attributed largely to economic conditions. Continuing
inflation, lack of consumer goods, and food shorlages caused
by the failure of the 1947 wheat crop have resulted in bread
riots, demonstrations, and strikes. Basic popular unrest,
heightened by tension over Palestine, flared into se.rious riots
in January in protest against the signing of the'Anglo-lraqi
treaty. The riots weakened the prestige of the police and led
to the fall of the Jabr Cabinet The shaky Sadr regime which
succeeded the jailor Government has lowered police morale
even further by putting on trial policemen wh fired on the
demonstrators in an evident attempt to appease the mob which
brought it to power. The Communists, never strong hereto-.
fore, have alrea taken advantage of the current difficulties
by attempting to turn anti-Government demonstrations into
Communist rallies. Although on this occasion the Commu-
nists were rebuffed by the demonstrators and their leaders
jailed by the/police, the Communists will nonetheless continue
to be active and potentially dangerous.
Government inaction in the face of Iraq's economic
difficulties, has contributed significa tly to the present crisis,
and it is apparent that forthright measures will have to be
taken if further economic and political disintegration is to
be averted. Fur Lerniore, the police must be assured of Gov-
ernment support if demonstrations are to be curbed and sub-
versive groups held in check. It is doubtful, however, that
the Sadr Cabinet considers itself strong enough to take adequate
remedial action in the present silmati n. Its reluctance to
arouse opposition may therefore result in its downfall.
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SERIOUS LABOR UNREST IN JAPAN
An acute labor crisis in Japan, which threatened to de-
velop from a coordinated nation-wide strike, has been fore-
stalled through prompt action by SCAP Although this action
has effectively halted an attempt by the Japanese Communist
Party to exploit labor unrest and the weakness of the Govern-
ment, SCAPIs intervention may also cause labor dissatisfac-
tion to be directed toward. itself instead of the Japanese Gov-
ernment, The Japanese Communist Party, through its domina-
tion of the militantly leftist Communications Workers Union,
played a leading role in promoting the labor offensive. In
exploiting the acute economic distress of government workers,
the Communists are seeking to undermine the labor Policy of
the Ashida, Cabinet which they feel is designed to restrict labor
and to combat growing anti-Communism in labor by uniting
the unions over the issues of wages and the rights of trade
unions.
The developing crisis has shaken the present coalition
Government of Premier Ashida. The Government is under con-
siderable pressure from its rightist components and from the
conservative opposition to take energetic measures to cope with
labor. At the same time, however, 'the Ashida Government de-
pends upon, the cooperation of labor and upon the support of the
left-wing Socialists represented in the Cabinet by the Minister
of Labor. Under this pressure from beth the right and the left,
the Ashida Government will probably be forced within a matter
of months to call for new general elections.
By re-invoking the January 1947 ban on general strikes,
SCAP has rebuffed Communist attempts to capitalize on labor
unrest and the government's weaknesses and has for the moment
taken the labor crisis out of the hands of the Japanese Govern-
ment. This rebuff, moreover, comes at a time when anti-Cora-'
munism is growing in Japan and the prospect of US aid to pro-
mote economic recovery is strengthening Japanese hopes for
iinprovement of the status of labor,. SCAP"s intervention, how-
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ever, has directed toward itself bitterness and disappointment
which might otherwise be directed toward the Japanese Gov-
ernment. Dissatisfaction and unrest will continue if measures
to augment real wages remain ineffective and if democratic
trade union development within the framework of SCAP-
InstitutA reforms is jeopardized by the efforts of the Govern-
ment to counter Communist activity.
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DIMINISHED COMMUNNT THREAT IN BURMA
Tension T the complex Burmese political crisis has
been somewhat eased by the GovernmentDs action in suppress-
ing Communist activities and the decision of the People's
Volir teer Organization (PV O) not to support Communist efforts
to oust the Socialists from the Government? (The Burmese Gov-
ernment is dominated by the A ti-Fascist League coalition of
which the Socialists and the PVO are ie principal components.)
? In an effort to increase political unity and avert civil
war, Prime Minister Thakin Nu on 28 March made a final
appeal to the Burmese Communist Party to tete the Govern-
ment The Communist leader Instead denounced Tha,kin Nu
and demanded his resignation? On 29 March, Government
police arrested several Communists, closed the Party's Ran-
goon headquarters, seized a considerable quantity of arms,
and successfully broke Communist-instigated strikes,, Than
Tun and other important Communist leaders esc ped to their
stronghold in central Burma where they are ifelieves to be re-
organiz' g their forces in preparation for guerrilla activities.
The Government coaliti n, which had been threatened
by the PVC's apparently w vering loyalty as well as by the
possibility of overt Communist action, has consequently been
strengthe red0 Although anticipated Communist guerrilla opera-
tions will crease the already substantial task of suppressing
lawlessness, the Govern uent should be Ole eventually to bring
the Communists under control if e PVC continues loyal and
the Karen minority does n t attempt to exploit internal dissen-
sion,
Effective control of the C mmunists, however, will not
be easy to achieve? Coe numist doctrine has a strong ap al '
to many turmese. The severe measures which the Govern-
ment is taking against the Pans t will be exploited by Commu-
nist propagans.. as a means of discrediting th Government
The continued existence of the Government will depend in large
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measure upon its ability to take firm actio without seeming
authoritarian to a people which has traditionally distrusted
central government Because the Government probably cannot
avoid taking some steps which will appear dictatorial and be-
cause the Comm nists seem capable of conducting disruptive
activities for some time to come, continued unrest and the re-
currence of crises similar to that which is presently abating
appear in prospect
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BALANCE OF POWER AMONG CARIBBEAN COUNTRIES
The present civil war in Costa Rica not only emphasizeS
the internal political instability of the republics of the Caribbean
and stresses the Ultra-regional rivalries of the area, but it also
tends to endanger the US concept of-concerted action for hemi-
sphere defense by dividing the Caribbean countries into two
opposing groups, The resultant balance-of-power alignment,
which places Cuba, Haiti, Venezuela, and Guatemala in opposid,
tion to Nicaragua, the Dominican Republic, El Salvador, Hon-
duras, and Costa Rica, now overshadows gest raphic, economic,
and social considerations in providing a basis for inter-govern-
mental relationships?. Even more important, this alignment
vitiates the advantages of a common ideological antipathy to
the USSR on the part of the US and the Caribbean republics.
The Presidents of El Salvador, Honduras, Nicaragua,
and Costa Rica were reported to have signed in May of 1947 a
secret pact which was purportedly ?"anti-Communist" but was
actually aimed at the isolation of Guatemala. This pact was
cited recently by General Somoza of Nicaragua in justifying
his intervention on behalf of the Costa Rican Government, Since
that Government is Communist-supported, however, it is clear
that Somoza's action was actually directed against the Guate-
malan Government which has reporter y assisted anti-Govern-
meat, forces in Costa Rica, Likewise, the Guatemalan Govern-
ment, which contains many communistic adherents, was attempt-
ing--by assisting conservative oppositionists in Costa Rica?to
terminate the isolation of Guatemala in Central America and to
redress the balance of power in its favor?
? Similarly, fear of the Dominican Republic has driven
Haiti into closer relationships with Cuba and Venezuela and
has caused the Haitians informally to offer a naval base to the
US in exchange for a US guarantee of the status quo of the
Haitian-Dominican border. In addition, the desire for balance
of power has led the Dominican Republic and Costa Rica to
make a hasty recognition of the de facto regime in Nicaragua
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and has persuaded the Domi ica4 Republic to furnish aid and
assistance to Venezuelan revolutionaries in the hope of re-
placing the present hostile Venezuelan Government with a
friendly administration.
esides the forces already active in creating a balance
of .power situation, the presence of substantial numbers of
political exiles in all of the Central American republics, to-
gether with the universal practice of condoning and even assist-
ing their conspiratorial activities, not only ccen i.e
e
? Internal instability of these republics but also contrib tes sub-
s ntially to the unsatisfactory inter -governmental relationships
of the area.
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5U
Topt"SECKIT 91
?
TRENDS Di BRIEF
CONTENTS'
Pages
0 0 0 0 0 0 4 0 0 0 00CQO :0 )1 Kt?
ARTICLE:S. ?,...000??ee ce et 6 666??0 0 66eo?1"" 6
Prospects for the Committee, of
European Cooperation. . . ? ? . It
Issues in Forthcomimg Political
? Negotiations- in Indonesia.? . 0 0
ImMinent Financial Crisis in, Nationalist
China. . 0 . . 0 . . . . . . . . C5
?
Document No.
NO CHANGE in Cia-L. 0 .
1 -DECLASSIFiED
C ass. CHAMED TO: TS S C
DDA Memo, 4 .(:,1- 77
Auth: DDA 7:27G. 77qT7_
Date:
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TRENDS IN BRIEF
GENERAL
Dainly_niltratioL_I of qummat___Itrecovesy_eltarks appears
unlikely until the UK alters its present opposition to a strong
Committee of European Economic Cooperation (see page 1).
An a ree.ment between the -UKantheFrechon
gga,
of Germany, signed on 18 March, will solve a longstanding
impasse over freight cars. Large numbers of French and
German freight cars have been unavailable for traffic between
the US-UK Zones and France, because France has been hold-
ing some 80,000 German cars which the German Army left
behind; the Frenchb_aye insisted that their title to this equip-
ment be recognized before the cars circulate into Germany.
Bizonal authorities, in turn, have been unwilling to return
French cars frot Germany because this would ve caused
a steady depletion of the bizonal freight car pool. The us
UK Zones will now return to France all freight cars of
French origin while France will release an equal number of
freight cars of German origin. The agreement will immedi-
ately alleviate the acute car shortage by facilitating the free
flow of railway traffic and by initiating the return of un- -
serviceable cars to their home areas for repairs. Moreover,
the agreement will remove a source of friction between the
US-UK Zones and the French Zone administration.
The British Cabinet appears to be on the verge, of
abandoninWiryliii?itish" pelicy and will probably authorize
the purchase of 25 US Constellations or a like number of
Canadian DC-4M's. Although the UK estimates that DC -4Mss
could be paid for out of earnings in five years and that it would
take seve years to pay for the more expensive C glestellations,
from the operating point of view, it prefers Constellations. The
UK has now clearly indicated, however, that it could not un-
equivocally guarantee the ultimate dollar payments for Constel-
lations if the aircraft fail to produce the necess ry dollar
revenues. (The Canadian offer would nit obligate the ritish
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treasury to a net dollar ou o.) In an emergency the US
would benefit considerably from British operation of a large
fleet of US commercial aircraft to all parts of the world,
which would insure the global distribution of maintenance
depots, with standa,rdized spares and parts, ower, it
appears that unless the US considers this advanbge sufft-
ciently important to warrant still more favorable payment
terms, the UK is likely to decide on the purchase of Canadian
aircraft
The rift between, the free Social DVmocratic parties
of western urope an e
? parties in the Satellite states widened at a recent London
meeting of the Committee ?of International Socialist Confer
Gimes (COMTSCO) .and resulted .in the avulsion of Czech,
Hungarian,. Rumanian, .and Bulgarian Soeial Democrats' and
in the withdrawal of Polish and Italian (Ni) Socialists.
COMISCO, 'largely dominated by the British Labor Party, .
abandoned its former policy of conciliating eastern Euro-
pean Socialists, formally recognized the split in European
socialism, and condemned Communist aggiession against'
socialist and d.emocra4ic governments.. The London meet-
ings of the Socialist parties of the fourteen countries parti-
cipating in the European recovery program and of e trade
unions supporting the European recovery programAnd the
COM1SC t meeting all demonstrated the indispensable roles?
which Socialism- and organized labor can be expected to play
in any effective containment of Communism.
The us-7K-rren.calt to retarn the Free Terri-
tory of Trieste to Italy has been .received with marked en-
thusiasra by non-Communist Italians and has produced a con-
siderable degree of optimism in all except leftist political
circles. The Vatican believes that for the present the defeat-
ist trend, which gathered momentum after the Czechoslovak
coup, has been reversed?. Sfat, CoMmunist attempts to
minimize the effect of the proposal habeen limited to vague
? -ii-
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declarations and to an apparent effort to prevent publication
and circulation ci newspapers for several days following
the tripartite announcement. The printer's strike? the tempo-
rary refusal of Milan and Turin printers to work even after
the strike ended, and the burning of 10,000 Vatican newspapers
(the only press news source during the strike) indicate recog-
nition by the Communists that the Trieste proposal can seriously
damage their election prospects.
Sovieteymojav reaction to the US-UK-French mosal
for the return of Trieste to Italy is not yet fully apparent,. The
initial response Wag more prompt and bitter in Belgrade than
in Moscow; neither country has yet flatly rejected the tripartite
proposal, Moreover, such a rejection is unlikely so long as
the Italian Communists hold to their plan to participate in the
elections,. Theteasi, the Kremlin will attempt to soften the loss
to Comis waist prestige in Italy by criticizing US motives in
making the proposal ad possibly by offering other amendments
to e Ttalian peace treaty in an attempt to embarrass the US,,
Such a policy would make a firm soviet decision unnecessary,
until after the Italian elections., The ipartite proposal is not
expected to precipitate any overt Yugoslav action against the
US-UK gone of Trieste. The Communists may erganfue demon-
strations, and possibly strikes, in an attempt to dernonsbmte
popular onposition to Italian control. Pro-Italian elements in
Trieste are jubilant over the proposal,
WESTERN EUROPE
The Soviet walkout from the Berlin Allied Contr_ol
Councilt7liov, fun acTh7m."1"a"). of the US, UK,7 and France to
explain the London decisions on western Germany, appears
to be a f keef-al Soviet condemnation of the western power
positi n, as well as a ma euver to create fear, confusion? and
delay in the West, pending formulation of a Moscow policy
decision. Fxowever? the continued funeioning of the four
-
power Berlin Kommandatura and the Soviet attempts to sched-
ule fon power subcommi ee meetings on subjects of interest
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to them indicate that the walkout is a tactical move and not
a permanent break. The Soviet step, at least initially, has
made some oro-western Germans reluctant to commit them-
selves ferether in support of the western powers,pending west-
ern reaction to the Soviet move. The US decision to keep
Germany under military control has encoaraged the pro.
western Germans, who apparently now realize that General
=ay has several powerful weapons such as cessation of
reparations, bilateral currency reform, and interzonal trade
restrictions --and that the western powers are thus in a
position to prevent a complete stalemate in Berlin.
Ct nist t announce a "German UM D.9
referendum and subsequently an Eastern all
state, ,appear to have been postponed, German Communists
had hoped that the "German Unity" petitions, which they had
circulated for some months,, would permit the People''s Con-
gress (which convened in Berlin on 17 March) to demand an
inmediate unity referendum. The Cot.gress, however, re-
solved merely to cireulate more petitions. This postpone-
ment may have been caused by the popular disinterest in the
petitions or by Soviet reluctance to support the referendum
until the western powers can be charged with initiating or
attempting to Initiate a partition of Gerena.ny. Until now, the
Soviet Military Administratio , probably motivated by a de-
sire for a voice in the administration of the Ruhr, has dis-
couraged attempts of the more extreme German C mmunists
to set up an eastern German satellite state.
0(x:tees of bssic feeelematte. e i.
coal prockction upon which bizonal economic plans and the
success of the European recovery program are largely
dependent. Within recent weeks, miners' ? rations ,e ve con-
?sistently fallen below the guaranteed level, and the highly
publicised incentive program of issuing bonus food packages
to the miners appears to be only temporarily effective be
se coal pr ction tends to drop as soon as tls food is ?
COTIStElliea, If these basic food deficiencies re not remedied,
the search for food will increase abse teeism among ?riners.
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mzoting: to ad ourn until 20 pil the French Asemblv
has given the Schunmn-:C7a,binet a mon s 1.:esp6 from pnrlia-
mentary crises? This period of comparative political calm will
permit the Go-krernment to concenfrate On its basic task of stabi-
lizing the economy and creating public confidence and will also
allow the Gam'lists to contintile their be efforts
to reach some a,greement with the r.aoderate center and left.
Both the Government and the GaTill.ksts hone to improve their
respective political strength; because o2 the increasingly-
hostile popular reaction to Commontist tactics,. The Bxussels
Treaty and President l'rumanes speech have consi-derably
bolstered public morale during the last wee* and the Comaists are incrc.,,asingly hard-put to Sjustify their agitation against
every constructive move,
The Covernmenes recent, belated decision to initiate
a mild purge ?of COrfammists and fellow-travelers from "sensi-
tive" civil service posts was not based on any new informati n
or new assessment of the security oi ngers inherent in potentially
subversive civil saftlyants? This action was primarily delayed
in or to prepare public opinion to accept such a deparbire
from long-esbblished UK tradition? Over the past year the Gov-
ernment? with the help of the Labor Party and the Trades Union
Congress, has successFully conducted an. educational program on
COICZAIIMEiSra, culminating in the official interpretation of the
Ozechosloyak coup. Because of British reluctance to infringe
upon traditional democratic practices the purge will be very
moderate and will affect few government instrumentalities out-
side: (1) the Service Ministries; and (2) the Ministry of Supply
which is largely responsible for military research and procure-
ment, including atomic research.
EASTERN EUROPE
TeraTooryamains to .th.e. Soviet worker from derationinr,
currency reform, and reduced c minedity prices ,in the USSR
will be eliminated by increased working norms (cquahs) in.
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industry and agriculture .and by the conco itant reduction
in actual 9;--va..ges Changes in work quotas will probably be
fratroduced gradually, without publicity, and therefore are
not expecied to impair the morale of the Soviet worker or
to .inake him readily aware of the ]lack of improvement in his
standard of living,
Althohdandwillmtt21-,3rolsr.x current
Soviet-Finnish negetiations., in Moscow, a conventional-treaty
of mutual assistance and friendship will probably be concluded:,
The USW, is expected to exert sufficient pressure on Finnish
non-Communists to overcome their reluctance to a military
agreement with the Soviet Unica, The final pact may be loosely
worded and thus may permit the USER, to demand that its imple-
mentation requires a purge of all and-Communists from both
the Finnish Foreign. Office and the army. Such a purge would
increase the capalbility of: the Comraunists to control the elec-
tions in July and would pave the way for their subse.quent
seizure ol the Finnish Government.,
Rtcent intensification of gnilitamaitivity in southern
ugoslavia and Albania suggests an increase in Soviet-Satellite
assistance to the Greek guerrillas and indicains that, for the
present, Yugoslav preparations to support a possible Communist
uprising in Htaly are of secondary imporktance. Military prepara.-
tions in Albania ?have increased substantially in recent week,s:
Yugoslav troops, tanks, artillery, and planes have been moved
s uth in increasing numbers, and three of Tito's five active
colonel-geneLrals are stationed in southern Yug,oslavia, Mean-
while, no unusual military activi has been t.served in northern
Yugosiavia. Although this concentration along the Greek border
m y be an attempt to conceal YugosLtv intentions in Xtaly, it is
more likely that plans are being made for providing full Satellite
support (short of overt participation by Yugoslav troops) for a
spring tffensive by the Greek-guerrilkz. Although it reduces,
Yugoslavia"s capacity to assist the ltalian Comalunists eurract
emphasis on Greece will not prevent Yugoslavia from supporting
a possible Communist revolt in If.mly by 'transferring arms,
supplies, and agents across the border,
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Largtr-scajszuerrilla action in Greece can. be ey 4a1,_,Luted
raid-A.pril, concentrated may i no:icithern Greece, in the
west Itiacedonia-Epirus and east Iga,eedonia-`11.1hrace areas,
Preparations for a general offensive, timed to disrupt the sched-
uled-Creek Army ffensive wad to secure a wide area of terri-
tory, are increasing. Supplies ad reserves are rep rted to
have been concentrated irra the Satellite court/fries along the north-
, en-4 Greek border? Guerrilla and Oatelitte propaganth estr es-
kg; the aggressive acts and designs of the Greek Army? probably
as lustification for a "counterattack by large guerrilla forces
supported by Satellite -trained and Satellite -armed reserves.
Publicity given to the guerrilla "child 73,relfare" program has
already succeeded in creating further chaos and gear in northern ?
Greece. Heavy guerrilla recruit-11m, diversionary attacks in
the Peloponnesue and near Athens and Salonika, and action
directed specifically against army a7ad National Defense Corps
units are designed to build up guerrilla strength while prevent-
ing the concentration of Araly forces km the Greek offensive.
NEAR EAST-AFRICA?
While the Arabs will probab agree to a trusteeshio
for Palestine if it does not commit the UN to ultimate.. partition,
the Jews are violently opposed to the idea as representing a
withdrawal from the UN General Assembly partition resolution.
if the 'Zionists attempt to carry out their Nam to establish a
Provisional Jewish Government" on le May (as announced by
the Jewish Agency), Arab violence will increase, and hos *Mies
can therefore bee..xpectecl to become more intense. Ilowever,
if the UN authorizes the establishment of an effective trastee-
shiip supported with force furraished by the trustee power or
POwersv the Jews will ultimately have to accept trusteeship, and
final settlement of the Palestine issue will be indefinitely post-
poned. Should the terms II the trusteeship envisage eventual
partition and therfore prove unacceptable to the Arabs, violence
would ensue to an even greater degree. Without trusteeship,
the iakstine issue will be resolved by full-scale civil war, with
grave international implications.
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_an leaders haven become jmorflasinal dirE7:111esioned
with the USSE0. particularly because cif: (1) Smiet refusal to
concede 'fad:1h a seat in the UN Security Council; (2) sfrog
Soviet pressure Mrs? Pandit, the Laittn Ambassador in
Moscow; and. (3) the impolitic behavior of the newiy-accredited
Soviet Anbassador to Mrs? Pandit (who is Prime Minis:-
ter Nebmes sister) was unquestionably predisposed toward the
USSR before her arrival in Mose Fille now reccvgniEesp7ith
deep conct,;ern, that the USSR is atmnpting to compel EnfiLa's
alirnet with the MR, using attacks h the press well,
as direct pressure? Go met circles in New Delhi are
reported to be deeply resendmI becauSe the new Soviet ikatba
sado r has larg?Pc_ly ignoredir,,ssilonsible Government officials
and has assumed clandestine dtrection of the Indian Comm-
nitstsL, Although recent confidential efforts of Government
spoken to convince the US of their Erie, dship may be attri-
buted in at to IndiaPs desire for US support in the Kashmir
dispute, it is evident that Nehru and the responsible Indian
leaders are rapidly losing faith in the concept of the USSR
as a sound friend, and a potential champion of Indies pllcie
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FAR EAST
Forthcozch-Re )ublican ne otiations in Indonesia
are expected to be delicate and protracted but presumably will
result in eventual agreement on Republican admission to an
interim federal organization established by the Dutch (see page 3).
China's critic and liticApiol.alsmp are
being vastly complicated by rapidly accelerating increases in
commodity prices and an alarming deterioration in the foreign
exchange value of the national currency (see page 5).
A reor anizatiore of the Chinese National Government is
an immediate prospect, Chiang Kai-shek will probably make a
statement of major importance on this subject at the convocation
of the National Assembly, now scheduled for 29 March. Under
the new constitution which nominally became effecti e in 25
December 1947, the Assembly has as its primary function the
election of a President and a Vice President of the Republic. It
is generally conceded that Chiang will be elected President with
little, if any, opposition, but the vice-presidential race is hotly
contested by several aspirants and is of considerable significance
because the winner must be regarded as Chiangs pate tial suc-
cessor. In this co test, the support of Chiang will probably be
the decisive factor. In making his choice, Chiang will be obliged
to decide whether to continue his reliance on old and trusted con-
servative elements in the Kuomintang, or to give greater heed to
younger and more progressive elements within the party.
LEA Aurea the USSR has a.ppare tly selected mid-April
as the time for executing a series of dramatic moves calculated
to anticipate and minimize the effect of the IIN-observed South
Korean elections in May. Evidence of this intention is contained
in: (1) the recent threat of the North Korean Peoples'' Committee
to cut off power now supplied to South Korea if the US has not
paid for this power on Soviet terms by 15 April; and (2) the
invitation extended by the North Korean Peoples* Front to South
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Korean "parties and social orgataiktatione' to attend, a jtt
conference on 14 April at Pyongyang. The conference has been
called to permit South Korean Moderates and anti-Mee Rightists
to join North Korean leaders in forming a "C'ealaiOn governme t "
By this move the USSR evidently hopes to coeise the UN Com-
mission by making the forthcoming eilectims apiear "unrepresen-
tativesd Because the gremlin is not likely authorize any overt
action aeainst South Korea, at least intil. aPnvy government is
established there during th summer, the contemplated moves
seem designed to embarrass the US and precipitate an ostensible
"crisis" in Korea.
The redistrthutiin of' f rneszasIteee-owned lute in
South Korea under the terms of the new land reform- ordinance
will: (1) increase US prestige and attract mass South Korean
support to US policy, becaus the popular and long-needed reform
was the result of US initiative; (2) establish a. sound pattern for
the redistribution.of large Korean-owned estates 'by the fuiture
Korean government; (3) vitiate the most effective propaganda
weapon employed by the USSR against S uth Korea; and (4) permit
the US to take the psychological offensive in propaganda beamed
to North Korea by pointedly comparing,the .provisions of the new
ordinance with e illusory North Korean "refOrMS."
The prese of the G vernment of 11turIn has declined
appreci '.ly as the result of Karen and Communist -problems and
the growing dissension within the government party, the Anti
-
Fascist League. The Govern.= t appears bewildered by the
deteriorating litical situation an lacking a strong policy, is
tending to appease all political factions. Unless the Governme t
ad pts and implements a-firm policy to deal with the crisis,
popular support for the Anti-fascist Lea e will disintegrate
and, in the absence if a widely cceptable leader, numerous
small feuding politic 1 gr ups will develop. a such political
chaos, the possibility of political vendettas and coups will in-
- crease and the maintenance of haw and order Will becometeirtual-
ly impossible. The continuation of this state of affairs might
easily result in the establishment of a dictatorship by the strongest
party, in such a contest for power, the Burmese Communists
c uld emerge the victors.
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WESTERN HEMISPHERE
Arventin_rtici _ate in the IntAr-
national Trade Organization and. the International NATheat Agreement indicates that Peons declared policy of cooperation with
the US does not extend to participati n in US-sponsored inter-
national organizations at the possible sacrifice of curet
Argentine pr fits. Repeated US invi*rtions to Argentina to
coo rate in the worldwide distr :Lution of foodstuffs through
menabershin in the Interna 'mai Emerge cy Food Committea
also rem in una.ccepted. Present indications are that any
Argentine participation in international cooperative e orts
must be extracted as a xid pro quo for gains anticitated frrn
dollar proceeds from US purchases in Argentina for the Euro-
pean recovery program, and from US allocation. of industrial
equipment and US capital investment.
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A a Try. rt,
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PROSPECTS FOR THE COMMITTEE OF EUROPEAN
COOPERATEON
Although the current meeting of the C-ommittee of
European. Economic Cooperation (CEEC) reflects a growing
recognition by all 16 participating countries of the urgent
need of WeStOrn" European econ.omic integration, the majority
still appear reluctant to set up the strong continuing CEEC
organization desired by the US, The clmsest approach to the US
concept is the French proposal, supported by Italy, for an
organization with specific detailed powers and a strong secre-
tariat capable of independent action. Several nations, however,
are still reluctant to commit themselveS: (1) to support an
organization which has sufficient power to unify European
recovery efforts; or (2) to join fully in the cooperative meas-
ures necessary for European recovery. Despite its assertions
to the contrary, the UK in particular still does .not wish a
strong CEEC, apparently preferring a weak organization An
which final authority on economic c moperation remains in the
hands of the individual governments?, Many of the smaller ,
nations, like Switzerland and Sweden, tend to favor the Brit-
ish approach, as infringing least upon their, own sovereignty.
The UK attitude, apparent in its cautious approach to
such projects as customs unions and multilateral clearing
arrangements, is based largely upon e fact that Britain,
more than any other participating, CEEC country, has extensive
non-European economic and political ties. Consequently,
Britain considers its recovery to be much more dependent
upon direct US aid than on closer economic integration with
,ivestern Europe, and it fears that such integration might in
weakening its Contmonweal bonds.. The UK, therefore,
would prefer to preserve its freedom of action rather than
commit itself to a strong CEEC.
Unless the continuing CEEC organization is made
stronger than appears 'likely at present, it may be unable t
achieve the economic integration of western Europe essential
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to recovery? Many of the participants at the Paris Conference
have recognized that the CEEC must develop MR con .mc
cooperatio and not confine itself to the. mere programmfag
and reviewing of 11Y5 ateL Without a strong CEEC capable of
taking an overall approach to the European recovery proble
and resolving or overriding conflicting nationeg views, such
cooperation will be difficult to achieve. The development of'
such an organization will depend in large me2tsure on whether
the UN falters its present basic attitude toward the CEEC.,
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ISSUES DT FORTHCOMING POLITICAL NEGOTIATIONS
IN INDONESIA
The principal issue in the imminent Dutch-Republican
political negotiations will be the conditions under which the
Republic will be admitted to the preliminary federal structure
established by the Dutch in preparation for a sovereign United
States of Indonesia (USI), Eventual agreement appears probable,
though negotiations will be delicate and protracted, Once in
the organization, the Republic will work to reduce Dutch in-
fluence?
The Dutch claim that the '`Itrovisional ederal Govern-
ment" which they created on 9 March is not the Interim government
in which the Republic, under the terms of the 17 January Ren-
ville Agreement, is to be represent e.d but is merely its prede-
cessor. ?The Republic, however, considers that this organiza-
tion is the interim government and that its exclusion is a
violation of the Renville Agreement This difference of opinion
and its concomitant tension are obstacles to any progress on
the question of Republican participation in a preliminary federal
structure.,
The Dutch take the position that the Republic Can be
admitted to an interim organization as soon as it has accepted
its status as a state within the projected USI, as provided in
the Renville Agreement, The Dutch will seek primarily ring
the forthcoming negotiations to obtain such an acknowledgement
from the Republic and to settle the procedures for the dissolu-
tion of such Republican attributes of sovereignty as an independ-
ent army, foreign representation, and the conduct of its Own
international trade,
The Republic is bound by its signature of the Renville
Agreement to accept the status of a state in the USL However,
the Republic believes that its authority as a state in the USI
should extend over all of Sumatra, Java, and Madura, including
those present states which have arisen in Dutch-occupied areas
on the three islands, The Republic insists that these states are
I. 3
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undemocratic in origin, andthat they developed under Dutch
milgary occupation in complete disregard of the real desires
of the populations of those areas? The Republic will therefore
make every effort to prove, during the negotiations and by the
forthcoming plebiscites, that the peonle of the new states de-
sire to rejoin the Republic,, The recent election of a Republican
official to head the new West Java state will be cited by the
Republic as proof of its contention.
The negotiations will be delicate and. complez because
the future of. the Dutch-encouraged system of states in Sumatra,
Java, and Madura and the future of Republican influence in
Indonesia are at stake. The Republic cannot risk the economic
strangulation and political isolation which w4uld result from
its refusal to join an interim federal organization; it may be
expected 'to enter this organiriation, but only after exhausting
every possibility of obtaining from the Dutch favorable condi-
tions for its admission., The Republic will then devote its
efforts to reducing Dutch influence in this organizatiork? to
expei'iting the formation of the UM, and to laying the founda-
tion for future Republican influence as the champion of Indo-
nesian unity and independence?
4
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CII Dollars
per
US 1 Dollar,
580,000
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24% ,
Average Weekly Increase ,
9%
Average Weekly Increase
36%
Average Weekly Increase
540,000 CN $
CHINESE NATIONAL CURRENCY DETERIORATING
AT ACCELERATING RATE:
Since mid February Black Market Exchange Rate has Trebled.
Feb. 10th
CHINESE
NEW YEAR
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 20th
CIA Weekly Summary 26 Mar. 1548 .
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IMMINENT FINANCIAL CRISIS DT NATIONALIST CHINA
The threat of an unprecedented financial crisis has
greatly complicated the critical military and political prob-
lems now facing the Chinese National Government. Deteri-
oration in the Government's economic position, as measured ?
by soaring commodity prices and black market exchange
rates for foreign currencies, has accelerated at an ominous
rate since the Chinese New Year (February 10). In the en-
suing six weeks, general commodity prices have doubled, and
US dollars on the Shanghai black market have trebled in terms.
of Chinese currency. The Government's official holdings of
foreign exchange are believed to be nearing exhaustion. With
the possible exception of an Immediately implemented US aid
program, there are no economic or other factors now in evi-
dence which can halt this accelerated movement toward com-
plete financial collapse.
Basically, the deterioration in the Government's eco-
nomic position reflects the general lack of confidence--now
approaching panic?in the Government's ability to contain the
Communist military forces. Important interests in Chinese
financial circles appear to be extremely skeptical about the
possibility that US aid can be effective. A single major mili-
tary defeat sustained by Nationalist armies may be sufficient
to cause a general refusal to accept the Chinese national dollar
as a medium of exchange and a consequent reversion to barter.
The chart on the opposite page shows the complete deteriora-
tion in the foreign exchange value of the Chinese national dollar,
which in turn indicates the extent to which confidence in the
national currency has recently fallen.
A financial collapse will have immediate and serious
implications with respect to the National Government's mili-
tary effort. The Government's ability to maintain its armies
In the field will be jeopardized and the possibility of a com-
plete military and political debacle will be imminent if the
economic situation continues to deteriorate at its present rate.
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There is no evidence of either official Chinese deter-
mination or a Government plan to cope with the mounting kit-
flations_177 pressures. The apathy with which the 'National
Government is vieluing the approaching collapse a itr3 finan-
cial structure demonstrates how much more sei,rous and
pressing are the military and political problems which Car-
7rently monopolize the Governmenes attention.
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50 ??? dtr'
CONTENTS
Pages
.Trztros 1J BRIE
' ?0?00 0 ? 0 0 0 004, ?0?0600000i VIii
."
ARTICLES? ? ?O4,? 0 0 ? ? ? CI 0 ? 0 0 0 0 1 ". 4
Soviet Efforts to Buy US Lend-Lease Ships 1
Prospects for Strengthening the Inter-
Anlerican System at the Bogota Conference ? 3
Document No.,
NO CHAPC.11 in C1L1:-?. 0
1141 DECLASSIZ1:-,
tiass. Crri.:S-7.3 T3: T1 S C
DOA Memo, 4 Apr 77 ----------
Auth: DDA.. I-7,G. 77/17G-,
Date: By: 421?
,
? 41/04filiefeST
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TRENDS IN BRIEF
GENERAL
Recent Sovist efforts to obtain title to OS lend4ease
Liberty ships may iindica.te, that the USSR does not expect
hostilities in the near future but expects relations with the
US to become marl, strained (see page 1)..
itzaten.laratO te cejilnyeteimeotmenmercial
air operations may result from the proposed comeolienlion of
western European airlines now under consideration by France
and the UK. Under this plan, existing airlines would presum-
ably retain their national corporate identity, but policy would
be decided by a controlling board on which all participating
states would be represented Such a western European air
Pool presumably would not attempt to exclude US airlines ?
from ideal European traffic. However, US air interests
might be adversely affected by complete internationaliza-
tion of civil aviation., a possibility which the UK its currently
considering and which France may raise at the forthcoming
Geneva Assembly of the International Civil Aviation Organiza-
tion (ICAO), Unless the provisions of such a plan ire brought
into line with US interests before its submission to ICAO, the
US may find it necessary?in or to avoidinterference with
the operation of US world-wide air routes and landing rights
at strategically important points?to oppose a plan which
has strong support from numerous UN members. World
,-
wide acceptance oi air transport internationalization is un-
likely to develop, however, except under conditions of world
peace and stability, with an effective UN which is able to
enforce its decisions.
Ir. the Canaditiuttthdr.ams fEsmitax:N
Temporary Commission on Korea as a result of continued
opposition by the delegation to US policy on South Korea, US
prestige may be seriously affected net only in Korea, b t fin
the Far East generally, and in the 'UN. The Canadian Govern-
ment (Which has .cansistently opposed the desire of ',le US to
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hold separate Soun Korean elections) apparently feels that
if Canada sup? orts the US position in this !miller, the UN
may be placed in the position c:f WIlderwrithig an unstable and
undemocratic government for Korea. If Canada refuses to
recognize the Sot l Korean elections, such action--in addi-
tion to its effect ac ; a strong rebuke to US leadership in the
UN--would constitute an ostensible endorsement of COMMII-
rAst activity in interfering, Vnida UN elections.
71VESTERN EUROPE
The Lo on Conference decision to permit particioa-
tion by hewestern zones of Germany in the European re-
covery Ltrogram is expected to increase materially western
Germanys contributions to the p,rogram. Important German
political leaders have warmly welcomed this projected
participation, which includes active German representation
on the program5s administrative units and eventual repre3enta-
tion on corrtrol boards for the internationalization of the Ruhr.
The in'tensity of this response reflects the strong desire of
the Germans that their counfry be restored to independent
national status and the hope that Germanys eligibility for
such status may be advanced by its contributions to the re-
covery program. Conseq entity, the program will receive
widespread support in western Germany, and German parti-
cipation will serve as a strong incentive to domestic industrial
production. German reaction to certain points in the London
discussions; however, has not been wholly favorable.,rt
Schumacher, chairma.n of the Social Democratic Party (SPD),
has exrPressed.strong opposition to the idea of a federal-gov-
ernment and to intemationalization of 'the Ruhr without similar
internationalization of other European heavy industry? Schu-
macher maintains that the German people should be permitted
to decide on their Iorm of government, and that they will not
allow themselves to be exploited in the R/2371 as slaves for
the rest of Europe, Because the SPD controls the western
trade unions and because Schumacher is the leading German
o,.porilent of Communism, the retention of Schumacra,ek)'s support
is desirable, and therefore his views cannot be disregarded.
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SiFtnificanUressure m.atypsetoRethe UK Government
to seek a far-reaching federation of Europe by a recent rApn-
partisan motion in tl-xe Nouse of Commons which calls for a
"Council of Western Europe" with a permanent staff composed
of representatives from the 16 countries which make up the
Committee for European :63 CGT10112ie. Cooperation. -The function
of this staff would be to coordinate immediately social and
defense policies, as well as economic policies. The long-range
objective of the Council would be the creation of an "organic
federation" of Europe which would provide for cominon citizen-
ship, foreign polity, defense, currency, and customs. British
public opinion apparently is ready for a greater degree of
European federation than is envisaged by the UN 'Government,
which seems hesitant, at this time, to project itself beyond
traditional intergovernmental ccoperation.
US-UIS_bizonal authorities are considierinF a reduction
of German coal exports in *order to provide German iirwstry
with a greater supply in conformity with the revised bizonal
level of industry:. France, which receives 2,5(,) of Ruhr coal -
exports and has based Its planning for 1948 accordingly, would
react unfavorably to any reduction. Countries receiving less
Coal under the export revision would be encouraged to purchase.
equivalent amounts from-the US and the UK, however, and
France's reaction jnight be less vigorous after overall alloca-
tions under the European recovery plan have been established.
The immediate intention of the Pe? Le's Congress in
Berlin to form a German Government of national character,
to take the place of the Allied Control Council," has been
declared by German Communist spokesmen in-Berlin. The
constitution for such a government was prepared months ago.
This is the initial Soviet reply to western plans for a provisional
west German state. The degree of authority to be accorded the
new government, the extent of its claims for sovereignty over ,
Berlin, and the. a MOUnt of overt Soviet bacldn3 it receives, will
be indications of Soviet intentions either to proceed aggressively
or to match the western powers step for step.
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The 48-hour `'warninrY strike" by French coal miners
is the first In a series which the Communists hope will prepare
the ground for an all-out attempt to wreck French economy during
April or May, or before the European recovery program becomes
effective. As a result of lessons learned during the unsuccessful
strikes of November 1947, the Communists will employ dis-
guised tactics, including scattered "non-political:9 strikes, and
exploitation of existing local grievances. Such strikes, even
if of short duration, could retard overall French economic re-
covery only enough to prevent foreign aid from alleviating real
hardship. This strategy will allow the Communists to test and
improve the organization of their General Confederation of Labor
which is at present recovering from the setback received at the
hands of the Force Ouvriere.
?XLIEMigriAiMairigligTagr_AraSSIZAI1JggraM320 to
seize power in Italy either by subversion of key Government ser-
vices or through armed revolt with outside aid. As various US
efforts to bolster the De Gosport Government in the 18 April
national elections become effective and correspondingly decrease
Communist prospects for success, C mmunist resort to violence
before the elections becomes more likely. If the Communists
believe they will win a plurality in the elections or will obtain
enough votes to waz rant a demand for their participation in the
government, they will probably not resort to force, at least
until after the elections. If they fail to win power or are pre-
vented from participating in the government, the Communists
can be expected to launch an insurrection with Yugoslav Commun-
ist assistance (short of overt military action) or at least to set
up a Peeples Government in North Italy. The Communists are
believed capable of creating such a puppet government, and the
Dalian Government would probably require foreign aid to regain
complete control of the area.
To p..._p_mvot_12pich im...n9.1 and serious curtailment
of economic activity, the Netherlands Government is exhausting
its last remaining dollar resources by forced liquidation of
Dutch-held US assets. Although the Netherlands may thus be
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able to forestall economic collapse until 1 July 1948, any
delay in dollar aid after that date will have serious economic
and psychological consequences,.
The firm Swiss attitude toward Soviet demands for
special concessions in the current Swiss-Soviet trade nego-
tiations (indicative of an increasing Swiss reluctance to form
close economic ties with the east) and the severe public criti-
cism in Switzerlard of the Czechoslovak coup make the ex-
tension of Swiss credit to the USSR very unlikely at this time.
Politically oriented to the west? Switzerland has recently
shown a considera.ble disposition to strengthen its western
,military and economic ties within the limits of Swiss neutrality.,
Mg jzsakivei .S.2,agragaveguko ean become an effective
force in European affairs only by the practical integration
and strengthening of the military establishments and econo-
mies of the European nations which recently signed the 50-year
"western union" pa.cto Tho present military and economic
weaknesses of the participating powers reduce the pact to
little more than a gesture for the time being., The agreement
obligates each signatory nation to render military and general
assistance to each other (in event of armed attack M Europe)
with the general objectives of: (1) preserving western Euro-
pean democratic institutions; (2) providing a common defense
against aggression; (3) furthering mutual economic recovery;
and (4) strengthening economic, social, and cultural ties be-
tween the member counialeS. Supplementing specific obliga-
tions to each other in event of attack in Europe, each member
Is empowered to convene the permanent consultative council
to decide upon joint defensive action in cases of aggression
or threats of aggression in non-European areas. This same
permanent council will deal 'with matters of economic co-
operation,. Other states may join the union by consent of all
the members?
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EASTERN EUROPE
The Soviet Union's strong stand in support of the UN
Palestine partition plan probably indicates that the USSR
intends to exploit aid propaganda possibilities in the Palestine
issue by assuming, the role of the faithful execut r of UN policy
and by posing as the true friend of the Jews la the hope of
concentrating unfavorable world attention upon the US for re-
treating on this issue, the USSR will probably continue this
line of action as far as possible without risking permanent
alienation of the Arab world. This support of the yews is in
line with a filled SovAet policy of exploiting minority grievances
in all parts of the world,.
Normal So iet troop movements prior to annual spring
maneuvers in Germany and easfernMarope, pus the recently-
announced "eth phase of dem6oilization of the Soviet array,
are cOilSide.red to be the basis for reports that the USSR is
building up its armed forces in these areas. There appears
to be no foundation for current speculation that the USSR is
adding to its am ed strength in easterrA and central Europe.
FAR EAST
Opposition. to Japanese Premier Ashid.a's coalition
government has be,en calc,.,:15Fatt,,neefErif776-cent
format' n of the Democratic-Liberal Party through the merger
of dissident Diet factions with the conservative Liberals. This
new group, claiming 152 of 06 seats in the lower house, be-
comes the plurality party and adds considerable strength to
en-Premier Yoshida's bid for power when the present mall
-
tion Cabinet falls.
, A pissible Fre ch request for US Or tocr mediation of
the French-Vietnamese deadlock has recently been considered
by both anti-Viet Minh nationalists and liberal 3,2'reneh officials
in Indochina.. The probataility Of SUE; la a step will increase if
the current negotiations between High Commissioner Bolla.ert
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and former- Ammmite Emperor Bao Dai fail to result in
agreement The im:oncluE-3iva French fall military offensive,
as.,vell as Bao Dal's insistence upon ',Ii.etaarnes-le diplomatic .
-representation and .control of the army,. finance, and customs,
h.a,s widened the gulf between the .Vietnamese a!id the French,
Although the ultimate decision regarding a irequest for US ?
mediation rests with the Trench Government, it is becoming ?
increasingly apparent that discouraged no officials in
Indochina would welcome intervention as a face-saving salution.?-.
Serious labor unrest in the Philippines is expeCted as
resinfi. of TetivitienWL,Fe"Tiirgely by the congress.
of Labor Organizations. (CLO), the most active and politically
conscious of Philippine labor organizations? During the past
month the .situation has been -aggravated by: (1) the Govern-
ment's refusal to negotiate with and its subsequent lock-out
of strikingemployeas of a government corporation; (2) the
Governments failure to apprehend. the murderers of a -
prominent CV) official; and (3) President Rome outlawing
of the dissident Tittbalahap and its pollUcal affiliate, the
National .Peasants Union, with both of Ivhich several CLO.
leaders are r.l.ssociated? The CLO has threatened to precipi?
tate strikes against all government-owned corporations,.
The Labor COVernmeats in New Zealand and Mistralia
appear to be seriouzly threatdned by opposition deniR,11d0 that
Commun.ist activities be outlawed,, Although the Australian
Labor Government LS maintaining that it has no intention of
baralliII-1; any political philosophy, it is expecte,r3, to review its
staid on this issue at a April meeting of the Labor Party
caucus? in New Zealand, ie Prime Minister has rejected
a suggestion of the opposition leader that Parliament be called
to discuss New Zealand's Communist menace, but he has re-
called the ministers of Works and Finance from overseas for
party discussions al difficulties with militant lab r elements.
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WESTERN HEMLSPHERE
A !nova at the Bogpta erence of the "organic
iqact :' for strengthening: the inter-American system will
probably require that some concessions be made to the
'.arger Latin Americm countries (see page 3).
The continuation of civil disorder and violence in
Costa Rica reduces the possibility of resolving the country's
political impasse. Ideological ties are not the basis for the
rapidly developing interference of the neighboring republics. ,
On the contrary, General Somoza has admitted sending
former members of the Nicaraguan National Guard to support
the Costa Rican Government's forces which include members
of the Communistic Vangua,rdia Popular; and there is evidence
that the Guatenaalan Government, which includes both leftists
and Communists, is lending assistance to the conservative
oppositionists. Both contending factions in Costa Rica are
seeking support in Panama and Honduras. The peaceful re-
lations of the Central American republics will be further
jeopardized in the absence either of a compromise solution
or of successful outside mediation.
Plans for inter-American coo eration to increase
.petroieurn producti.on sufferv9. P. c,etTmelz,.: r31,!xrin-..q. the past week
with the addition Of Sasxches Cuen, well-known opponent of US
oil operators, to the Mexican delegation to the .Zoogota con-
ference. Oxen has probably been selected to defend oil expro- ?
priations byMexico-and to justify Mexico's failure to produce
more oil by alleging essential materials and equipment could
not be obtained in the US. Cuen may launch a general attack
upon the US by repeating charges that- US administration
officials, in delivering oil production equipment, have dis-
criminated aga;inst Mexico in favor of SaudL.Arabia. If pressed,
these charges by Cuen could also seriously impede negotiation
in process between US oil operators and the Mexican oil
authority pointed toward eventual re-admission-.of US oil
companies into Mexico.
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ARTICLES
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SOVIET EFFORTS TO BUY LEND-LEASE SHIPS
The recent offer by the USSR to pay for 38 lend-
lease, dry cargo vessels immediately provides some indica-
tion of Soviet expectations regarding future US-USSR rela-
tions and sng,gests that, although the USSR does not anticipate
open hostilities in the near future, it expects relations with
the UC`i to become increasingly strained, resulting in extreme
economic measures.
The Soviet offer to buy these ships was made shortly
before the extension of the Ship Sales Act at the end of Feb-
ruary, Apparently prompted by fear that this legislation
would preclude Soviet purchase of the vessels, the USSR
attempted to make down payment for the Liberty ships in
its possession on terms previously stipulated by the US.
Following the refusal of the US to accept payment for the
vessels except as a part of an overall lend-lease settlement,
negotiations were resumed covering all phases of the lend-
/ease problem and the USSR was given renewed assurance
of US intentions to permit Soviet acquisition of the vessels.
Tho USSR has a continuing use for Liberty ships in
its long-hanl bulk services, such as transportirom the lack
Sea to Soviet Pacific ports, and movements between the Black
and Baltic Seas. The Liberty ships are the largest and most
modern cargo vessels in the Soviet merchant marine and can
be used as replacements for smaller and older ships. Even
if the US vessels were not needed now for dom6stic Soviet?
uses, they could be chartered in regular commercial service
to create dollar exchange if the USSR obtained clear title, At
present, the US can object to such a use under the provisions
of lend-lease.
? There is little chance that the USSR could replace the
lend-lease tonnage from either domestic or foreign sources.
Soviet shipyards are largely engaged in building naval vessels
and in any case are probably incapable of rapidly constructing
vessels of the size and type of Liberty ships. Moreover, with
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the general tightness of European shipping resulting from
the implementation of the European recovery program unless
US war-beilt vessels are made available, the USSR probably
cannot put-chase or charter equivalent tonnage elsewhere.
Unless the Soviet dier to pLy for the vessels was a
deliberate attempt to obscure intentions, it would seem to
inchicate that the USSR does not anticiPate open hostilities
in the near future but definitely foresees further deteriora-
tion. in US-Soviet relations, if the USSR expects actual con-
flict, there W ould be no incentive to obtain clear title to the
ships because in time of war the US would take direct mili-
tary action against the vessels regardless of their legal
status. Short of war, however, it is important for the USSR
to have unquestioned claim to the ships if the Kremlin fore-
sees increasingly strained US relations because the vessels
are the only items of lend-lease equipment which operate
outside the Soviet orbit and therefore could be seized or
Interned by the US. Rather than risk such action, the USSR
apparently hoped to obtain clear title through an offer to pay
for the vessels. Furthermore, if the USSR could have bought
the 38 ships, the Kremlin would then have felt little or no
compulsion to negotiate an overall lend-lease settlement,
even if teehnically normal relations with the US were to
continue.
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PROSPECTS FOR STRENGTILENING THE INTER-AMERICAN
SYSTEM AT THE BOGOTA CONFERENCE
The most important question facing the Ninth Inter-
national Conference of American States, scheduled to open
in Bogota, Colombia, on 30 March, appears to be that of
presenting the projected strengthening of the inter-American
system in such terms as to win the support of the larger
Latin countries. The proposed "organic nact " includes
provisions (foreshadowed by resolutions of the Mexico City
conference in 1945 and in large part included in the Rio
Treaty signed in September 1947) that greatly strengthen
the Governing Board of the Pa.n American Union by granting
the board, among other powers, authority: (1) to act as the
'provisional organ of consultation in determining measures
to be taken for pacific settlement of disputes; and (2) to
supervise other inter-American organizations.
Attitudes toward the proposed "organic pact" will
be influenced by the relative power position of the several
countries and the consequent degree to which the projected
Inter-American organization could restrict the freedom of
action of the individttal states. The military weakmess of
the smaller Latin American states permits them little
freedom of action in any event; these small republics there-
fore are little concerned by a possible further restriction
through the establishment of an inter-American agency.
Moreover, as the Latin Americans themselves recognize,
the US (which is considerably more powerful than all the
other republics together) cannot be compelled to yield to
the power of the groupland it can and will, under conditions
of extreme necessity, disregard the Pan-American organiza-
tion completely.
But with the larger and stronger Latin countries--
Brazil, Argentina, Mexico, and possibly Chile and Peru--
the case is quite different Their freedom of action with
respect to their neighbors is considerable, if there is no
inter-American organization to enforce their compliance;
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on the other hand, the organination as a whole would have
sufficient power readily to coerce any one of them. Thus,
the smaller Latin countries and the US have much to gain
and little to lose from a strong inter-American organiza-
tion which is authorized to use compuRsion. The larger
Latin states, however, find themselves in the position of
having to weigh carefully the value of the system to them
against the loss of liberty of action inevitable in the
strengthening of the system.
Consequently, Argentina apparently plans to fight
strongly against those articles in the organic pact that in-
crease the power of the Governing Board. Argentina's
opposition may be attributed fn part to pique at the defeat
of its representative for the chairmanship of the Governing
Board last fall, but it probably stems also from more basic
considerations bearing on loss of freedom of action.
Mexico has served formal notice that its &lepton at
Bogota will object to the exterrasive "political' powers given
the Governing Board of the Union. Similar objections may'
be brought forward by one 0-1" more of the other larger and.
more important Latin countries.
If the nations approving a pact at Bogota are to in-
clude those countries most capable of supporting the US
(unanimity is not required by the conference regulations,
but it is of course desirable for its impact n both domestic
and world opinion), all the American nations must be as-
sured that the benefits to them will outweigh the costs. The
US and the smaller countries are already so convinced; it
is likely that some concessions may have to be made to the
larger Latin countries before they conclude their interests
are served equally as well.
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50 89
-vGga.srieKssw-
CONTENTS
Pages
TRIT,NDS DT BR.U.T.0 ?e0000000?00s0c0Ce()0000.4401`.ft
Arirc LES .3?0?00.0-3.?000-00.0?0 ..0 ? e ?- 4
Soviet Enplottation 02 C.2.echos1ovalc
e 0000.10a 0.0 0 400000a &0
Current Pflilitarq Situation in China 004
Document No.
?
VO Clif:T-2 inco-
WDECLA.;:::
Class. CLGD TO: TS S C
DDA 1+:_cmo , 4 Apr 77
Auth: DDA. T.;EG. 77/17C3
Date: By: ?2 I
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TRENDS IN BRIEF
GENERAL
?R2.12gum toward the formation of a five-nation ?
(the UM, France, Belgium, Netherlands, and Luxembourg)
western7riuropeaai union has been .considerably accelerated
by the Communist coup in Czechoslovakia and by the Soviet
request for a military agreement with Finland. The resolu-
tion of the remaining difficultieS confronting the Brussels
conference will probably be accomplished ,without extended
delay. The proposed five-nation pact, which will constitute
a regional arrangement under the LT charter, reflects a
growing tendency among UN members to conclude virtual
regional alliances in an effort to obta'an a partial substitute
for the international security which they had hoped to find
in the UN. 19cause the five powers recognize that the.
effectiveness of the proposed pact as a deterrent to Soviet
aggression rests on the degree of .US backing obtained,
their action in undertaking to establish a western European
union actually represents a bid for US support.
A atmasal that Moscow serve as a central clearing
house for eastern European trade, now being discussed by
Soviet and Satellite officials, provides further evidence that
strictly bilateral trade is not a satisfactory solution for
economic problems within. the Soviet orbit. Such a central
clearing house arrangement at. Moscow would be an eco-
nomically sound move toward facilitating .trade.among the
countries con.cernede While designed ostensibly for handling
settlement of debit and credit balances resulting from trade
and financial transactions, such a clearing house would also
provide the _USSR with: (I) more complete control of trade
between Satellite countries and between them and the USSR;
(2) more effective utilization of resources within the. Soviet
area; (3) less dependence upon -non-Soviet countries.
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Informal discussion of the E3OSSibiRit17 that Etoia.
application Aor UN membership may be brought before the
Security Council by one of the western powers prior to the
elections in April, may eventually confront the USSR with
Sn embarrassing decision. A third ;3oviet, veto of the
Italian application would undoubtedly bring some political
benefit to the anti-Communists in Italy. Moreover, even if.
the USSR endorsed the application, thereby enabling the
Security Council to act favorably upon it, the major credit
in the OPinican 43.? the Italian people Weldd probably go to
the nation Ivhich again brought the question before the
Security Council.
The, ME rnadase the ,ome meetim of the Worlci
Federation of Trade Unions Executive Committee as an
occasion to sponsor its OM recovery program in opPosi-
Um. to the European recovery program. Such a move would
In designed both to counter the attempts of the WFTU west-
ern bloc to set up a separate orgu.nization of trade unions
which would endorse the Marshall proposals and to hold in
line the non-Communist minority in the Italian labor move?
-
ment. '
WESTERN EUROPE
The lack of German transportation is seriously re-
tarding recovery in Western Germany (despite record hard
coal production in the Ruhr) and threatens to limit greatly
Germany's vital participation in the European recovery
program, This transportation bottleneck is caused by:
(1) inadequate railroad equipment; (2) iailure to utilize fully
the Dutch and Belgian ports and inland waterways which
normally carry heavy traffic; (5) insufficient construction of
new railroad equipment; and (4) the long delay in establishing
an effective freight-car exchange system.
D9..tthn ctiFre_Lo.:IT:m is seriously hampering
recovery of western Germany by preventing considerable
stocks of goods and raw materials from reaching agricultural
,
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and industrial markets beca.,uhe the present mark is considered
almost worthless. Soviet offieials? who use this currency for
black market operations, possess large stocks of marks and
can print more. They are using them to drain goods from the
Western Zones and to finance the Communist Party there at
little expense to the USSR. The Ut3SR. desires to continue
this situation and has, therefore, consistently blocked efforts
at quadripartite currency reform in the control council. such
reform in the USAM Zone would cause a violent Soviet pro-
test and charges that termination of quadripartite currency
removes one of the few remaining reasons for a four-power
government in erlin. Without some reform, recovery,of -
western Germany is impossible.
The French anti-Commtmist Force Ouvriere is losing
coal miner adherents to the Communist General Confedera-
tion of Labor .because of lack of funds, equipment, and
exnerienced,organizers. Although a general coal strike would
probably be successful if called. now, the Communists have
refrained- from such action because they apparently believe
that a coal strike should come as part of a nation-wide labor
movement, for which neither external nor internal conditions
are yet propitious.
The final 56-vote martin obtained b Premier Schuman
in the French Assembly a 7.1Viarch vote on the Government s
tax pOlicy represents an unexpected last-minute strengthening
of the Schuman majority andealthough technically not a vote
of confidence, appears to have assured the ccintinuance of
the GovernMent for at le .stt the next few weeks. 3oth the
Galt/lists and the Communists now appear t deferring
any direct attempt to unseat the Government in the belief
that further economic deterioration will, cause the Governe
!limes program to fail and destroy the remaining popular
confidence in Schumares Cabinet. ?
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'31:lanish Communist leaders who remain in southern
France 't5:ill probably remove their headquarters to Yugo-
slavia -foi? the French Government carries out its plan to curb
their activities. En that event-, these leaders can be expected
to set up? with the guerrillas of the SPanish*Levant who have'.
been operating for some years in mountainous areas inland
from the port of Valencia, a ileW line of COMIXIMICatial via -
northern ;Italy and the Balearic Islands. Spanish Communists-
in-exile have been seeking increasedi aicrl for these guerrillas.
the Spanish Communist directorate moves to Yugoslavia?
gu.errilla activities in Spain-may grow in strategic signifi-
cance?
V,
SEN ET31;?.07)7,
Control of the Czechoslovak CSA, provides
the USSR with an instrument for penetrating the western
hemisphere and the Near East (see page 1).
soviet methods of increastagSommunist control of
Finland are not expected to be as drastic as those employed
for the siabugation of the eastern European Satellites because
the Kremlin probably does not desire to consolidate opposi-
tion among the Scandinavian countries at this time. The
forthcoming MOSCOW negotiations for a Finnish-Soviet mutual
assistance pact will therefore be accompanied by compromises
on both sides". The USSR may insist, however, on: (1) Soviet
responsibility for the defense of northern Fin' _nd in time
of war; Soviet bases on the Gulf of Bothnia similar to
the Porkkala enclave on the Gulf of Finland; and (3) joint
militarilation of the Azland Islands Although Finland may
be able to retain a semblance of free democratic government
arid control of its internal affairs, the Finns will be unable
to avoid'making military commitments which will satisfy
Soviet demands for increased security against an attack
from the west.
Soviet ia,mmine* of the "Voice of America5)A Russfane
language programs being beamed to listeners in the Far
East apparently indicates Soviet willingness to risk unfavorable
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reactions in the international community, or possible retaliatory
e....ction by the -03, in order to maintain the isolation of Russian-
spealdng peoples in the Far East area. Although such jamming
? contravener; international radio agreements signed and ratified
by the US and the USER in 1932 and rea-ised in 1938, possible -
daplomatic protests were prcbahly discounted in advance by
the Erenalin in authorising such action. US retaliatory measures
-would represent a considerable financial outlay for jamming ? ,
equipment, with little oositive gain, and would at the same
tine deny to-the US the use of the Soviet transmissions as
agarcen of intelligence.
E
....'?? TTLI, 1E: A
EZfectiveEl:acuity Ccuncii action on Palestine prior
to 16 h'Zay, when the British mandate will terminate, appears
tacreasingly unlikely in view o2 the slurp disagreement
between the US and the USSR. The USSR insists that the
consultations now in progress between the US, the USSR,
Prance, airid China be restricted to possible methods of im-
plementing partition. On the other hand, the US, still hoping
to effect /Arab-Jewish conciliation (which would require a
broader basis of discussion), is attempting to persuade Arab
Palestinian representatives to participate in the discussions.
Ti the Security Council fails to take effective action before
15 May, Arab-Jewish strife can be expected to develop into
Lull-scale civil war.
Current Communist plans for Greece appear to call
for a gradual increase in Satellite aid to Markos to a point
just short of formal recognition. Semi-official support of
Markos is being given in the Satellite countries through
measures such as enforced worker contributions which
are then converted into goods for shipment to the guerrillas.
Markos has cleared the way for participation of Satellite
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personnel in the Greek fighting by announcing that he will
accept 6volutes" Meanwhile, the Belgrade official
radio has anticipated Greek protests against guerrilla use
of foreign personnel by accusing the Greek Army of ra.iding
Albania to seize Albanians.
Althour tET____pointment of a new Soviet ambassador
to Turkey (whose predecessor has been absent from his
post since BM) has caused speculation that the USE may
be trying to allay Turkish suspicions by a display of frien,d-
!Amass, it appears more likely that the USSR is merely
regularng its diplomatic relations with Turkey with a
view toward making whatever representations the developing
international situation may demand. The Turks, however,
are well aware of the true nature of Soviet policy vis-a-vis
Turkey and will continue to resist whatever Soviet demands
they regard as unjust.
PAR EMT
Milelany_maations in the Chinese civil war have
reached ft general lull following the recent conclusion of.
the Communist winter offensive in Manchuria. Caly local
operations are expected in that area during the several
weeks necessary for the Coin et forces to regroup and
resupply (see page 3).
Marked deterioration in the financial snuation of ,
Nationalist China has eccurrel in the past few weeks, despite
the lull in Communist military activity and a favorable Te.-
actkon to US discussion of aid to China. A growing lack of
? confidenee in the National Government is indicated by a 11063%
advance in prices and a 5070 depreciation in the foreign ex-
change value of the Chinese national dollar since mid-
February. The financial situation has become so precarious
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that a serious military setback, such as the fall of Mukden,
might result 'ER a general refusal to use the Chinese national
dollar as a medium of ,enchange, and this, in turn, would ?
seriously impair the Governments ability to keep an army
in the field.
The Government_ of Burma is faced with two increas-
ingly serious separatist movements. The Naren National
Union, rep3resenting a section of the Karen population, the
largest indigenous minority in Burma, is demanding the
formation of an independent soverelp Karen state and has
threatened to establish a parallel government if its claims
are Ignored. The Burma Communist party has begun aggres-
sively to exploit the Governments difficulties with the Karens.
The Communists have issued a directive ordering the estab-
lishment.of parallel administrations in few districts of
central Burma and the institution there of a Communist pro-
gram of natiaraalimtion of private cencerns, forcible occupa-
tion of lands, and Ma-payment of rents and taxes. Although
both the KCarena and the Communists are relatively well armed,
revolt by either group could lead to a general insurrection
which might prove beyond the capability of Burmes armed
forces to control.. If the government is successful in meeting,
even temporarily, "Karen demands and reducing internal friction ?
within the Government, the Communist situation may be brought
under control.
The lamnese coalition- Cabinet formed on 0 March by
Premier-elect. Ashida, is composed of the same parties that
formed the previous cabinet, and therefore inherits the basic
weakiesses of its predecessor. The Socialist representation,
however, includes for the first time left-wing meMbers (who
hold two of the portfolios), and this new representation will.
provide an additional .source of friction. The new cabinet,
moreover, faces an enlarpd and strengthened opposition.
When the Socialist Party s left wing (whode complete support
has not been won despite cabinet representation)firncs it advan-
tageous to cooperate with the opposition, the new cabinet will
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-fall. b any event, the inability of the Government to solve
Japans present economic problems.will probably cause the
Cabinet to fall withi.q the next three or four months.
"l{:te grea.tly? strenothened pKzElti)&n.e of thtIngonesien
Republic, augmented by its recent success in procuring, the
selection of a Republican leader as head of the new state of
Pasundan in West Java, increases the possibility that the
populations of /)utcheoccupied East and West Java may vote
to join the Republic in future plebiscites. Such a vote would
enlarge the area of the Republic to include the entire isiand
of Java and might also give the Republic greatly increased
influence in the affairs of the projected United States of
Indonesia
Consolidated opposition in the)2L_Lther ip_n_tf_911E-Les2E
may result from President RoITOTMarch declaration out
lawing the dissident likikbalahap and the National Peasants
Union. Roxas declaration, which was neither an executive
or an administrative order but an egtension of previous
stateinents of policy, has precipitated heated controversy in
the Philippines. Favorable and unfavorable reacti ns to the
Rooms declaration have been so intense that its iMplemonta-
tion will probably be delayed until its legal status can be
clearly determined either by legislative action or judicial
interpretation.
WESTERN HEM/SPHERE
Although the MT: has remained adaxnant with regard
to Argentine and Chilean claims in that part of Antarctica
which it considers British, Foreign Secretary Sevin may be
preparing to seek a compromise. Sevin would be motivated
in this action by the desire of the UK to disentangle itself
from inter-American affairs and to avoid damaging U.-UK
relations. Indications are that the UK. may be wining to
recognise certain Argentine and Chilean claims, if these
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countries first recognize Etritish "
rights
" in those parts of
the Faltdand islands Dependencies to which the UK is con-
vinced it has an unchallengeable legal title. The UK also
seems willing to consider the possibility of some form of
international control or condominium, as suggested by the
US, once ;British prestige, commercial, and strategic
interests have been protected. The question of the strategic
Falkland islands, which the UK intends to retain, would be
kept separate from negotiations on the general Antarctic
issue. Conciliatory moves by the UN will be cautious, how-
ever, because the Conservative opposition in narliamenz is
alert to make an issue of any "liquidation of Empire" or of
any demonstrations of weakness chargeable to the Attlee
Government.
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C
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SOIM4,7, EXPLOITATION OF CZECHOSLOVAK AIRLINE
The Communist coup in Czechoslovakia has presented
the USSR with the opportunity to exploit the Czechoslovak air-
line (CSA) as a means of penetrating the western hemisphere
and the Near East. Such exploitation can be accomplished
only with difficulty, however, principally because the present
CSA personnel is predomiifmtly anti-Communist and because
some non-Communist countries will undoubtedly be reluctant
to grant landing rights to a Soviet-dominated airline.
In its handling of Rumanian, Hungarian, and Yugoslav
airlines, the USSR has maintained effective control but las
consistently failed to furnish material assistance. These ,
airlines are under-equipped and have only obsolescent, poorly-
maintained aircraft. The USSR has evidently not desired, for
strategic reasons, to permit the use of its aviation resources
outside the Soviet Union. Moreover, the USSR has probably
felt that these Satellite airlines were not suitable for active
expansion because they lack the experience necessary to
conduct efficient international air operations.
Czechoslovakia, on the other hand, has had considerable
experie ce in International air operations. Czechoslovakia is
a member of the International Civil Aviation Organisation and
has fully reciprocal air agreements with the US, the UK, Eire,
Sweden, De mark, Turkey, and Transjordan. Also, the Czecho-
slovak Government has interim air agreements with Switzerland,
Egypt, and Iraq, and intra-Satellite arrangement S with Poland,
Hungary, Yugoslavia, and Rumania. Czechoslovak experience
In international air transport, as well as the scope of the
Czechoslovak air agreements, makes CSA an especially attrac-
tive instrument for Soviet penetration.
The USSR will, however, encounter such immediate
difficulties in exploiting CSA as: (I) the political unreliability,
from the Soviet point of view, of present CSA personnel; and
(2) the inability of CSA to acquire efficient four-engine, long-
range aircraft from the US or other countries. Even though
the USSR already has in production a four-engine transport
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closely resembling the B-29 arid capable of long-range opera-
tions with large payloads, it does not appear likely that the
Soviet Union will make these airplanes available to CSA in
the near futara. Finally, many Countries will certainly resist
the implementation of expansionist plans by a Satellite airline.
The Interests of the US would be affected both favorably
and adversely by the expansion of Czechoslovak air transport.
Improved air communications in Europe may encourage slightly
the trade relations between eastern and western Europe and
possibly aid thereby the economies of the countries whose
well-being is the objective of the European recovery program.
nil the whole, however, the strategic interests of the US would
be adversely affected by a Soviet-controlled Czechoslovak
airline with landing rights at air bases throughout the world
and with consequent opportunities for covert activities of
Military significance.
?
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CONFIDENTIAL CHINA: COMMUNIST CONTROLLED AREAS 1 MARCH 1948 E10931
52
104?
108?
112? 116? 120? 124? 128?
132? 136?
The international boundaries shown on this
map do not necessarily correspond In all .
cases to the boundaries recognized by the '
U. S. Government.
The province boundaries and capitals ere I
as of May 1947.
52?
Manchouli
HSINGAN
HAIL AR
MILES
100 200 300
KILOMETERS
TSITSIHAR
.e&-????
S
MONGOLIA
CHIA.MUSSU
KIANG
Lin?k'ou
02(00
(HANKA
IN
Papt'ou
JEHOL
Ch'ih.feng
Pei.p'iao
KUELS
ENG.
E?pai?shou
4- -CH'DA 1.., C 'ENG
4., (KALGAN) )
ft
?
f").-.... 1:1
l'ungs? -4. '.
r-?
t'ang
. NG.Y.;
OPEN
Ying.k'ou
r'AN-TUNG
?
Port Dairen
Arthur
PORT ARTHUR
NAVAL BASE AREA
(Excluding Darren)
U.S.S.R. ZONE
OF OCCUPATION
Terhsien
36?
32?
KANSU
Ch'ing.tao
U. S. ZONE
OF OCCUPATION
128? 132?
T unglhih (Sue
Canton
Ch'ung.ch'ing
(Chungking)
i.e....) HUNAN
KWEIC
43W
.1 7 Chcear:
N. _I Gs
...:!&2. .1INAN K
' Yil.ch'i
H 4'1
nit ' W h Shang.
W es h ?
C A C
J HONG KONG
(BO
I c; Kashin
HWAINING ,.
(An.king'i rf HANG.
?; CHOU
tiff:C) \
(..z.s. ,4--\ a fs''-?
? ' - olF0:
K I
liang
108? 112?
GOUT 14
C04 I NA
SEA
Yiphsien?
AN G
116 120?
HAINAN
CONFIDENTIAL
Scale same as on main map.
40?
36?
20?
10931 Map Branch, CIA, 3-48
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CURRENT mruerAnY SITUATION IN CHINA
With the conclusion of the Communist winter offensive
in Manchuria, a general hill has collie in the Chinese civil war?
The last offensive, which la.sted :7ron niicl-Decerther to early
March, was the longest the COTillinalliStS have yet sustained and
resulted in substantial Communist successes. In its courses
Communist forces increased the economic isolation of Mukcien
by occupying the important rail centers of lisinliturt and
Liaoyang, the iron and steel center of Anshan, and the port
of Yingkou. The Communists are also believed to have annihi-
lated seven to ten Nationalist divisions?
During the coming several weeks, the Communists will
be engaged primarily in regrouping and resupplying. Until this
process is completed, they probably will not undertake offensive
()aerations in Manchuria, except on a local scale? During this
period, the Nationalists may be able to reoccupy all points along
the Peiping-loquktien railway and to? recapture some of the cities
recently taken by the Communists on the periphery of the ,
Multden defense ring? However, because of Communist destruc-
tion, the Nationalists will not be able to operate the railway in
the near future because it has been so severely damaged by the
Communists? Moreover, the Nationalist position may not be
improved by the reoccupation of these cities, because the
necessary garriso s probably would have to be drawn largely
'iron' troops nom defending Mike:Jen? (The Nationalists lack a
reservoir of trained manpower from which theycare draw rein-
forcements for Manchuria?) These garrisons would be vulnerable
to encirclement and piecemeal destruction in a major Comm
nist offensive several weeks hence,.
Despite the ever-weakening position of the Nationalists,
in Manchuria, Nationalist air strength and fire power have thus
far deterred the Communists from undertaking all-out assaults
on strongly-defended points such as Mukden. Future Commu,
nist offensives in Manchuria will probably continue to follow
the pattern of encirclement and piecemeal annihilation of isolated
3
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Nationalist units, and the destruction of railways. The Commu-
nists rill probably not make a full dress attempt to capture
Mukden unless they become convinced that the military potential
of the National Government will be increased by US aid.
Although the Communists are generally inactive at
present elsewhere in China, they are threatening their old
capital, Yenan, which was captured by the Nationalists almost
a year ago. Advance Communist units in central China under
the command of Liu Po-Cheng have dispersed into small groups
throughout the countryside and are now being resupplied from
Communist base areas farther north. Following this resupply-
ing operation, Liu will be able to re-form his columns and em-
bark on further campaigns. One very likely objective will be
a crossing of the Yangtze River in force to drive into the rich
provinces to the south, a drive which the Nationalists are not
presently prepared to oppme successfully.
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W40
5U
Tast=ficgoftrr 88
? ???
.7.: 0 kT .A' N '77
'cages
/Pi ;IT :3.1E11
ir7ra3sportatfor. Arzpzets cf the Euror.lean
Recovery Plan
The Palestine Crisis
4. V
Docuwent Ro. o 9
NO CHANCE In
jy DECLASSIIII-fD
Class. CHA1.7CED TO: TS
DDA Me!ao, 4 Apr 77
Auth: DDA REG. 77/1.7.63
Date:
By: 42,
CR ET
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TRENDS IN 73RIEF.
GENERAL
The whole trans,Dortation problem connected with the
Euzopean recovery program is one of the basic questions
which the Committee for European Economic, Cooperation
may have to face at the 15 March meeting in Paris (see
page 1).
The urPent desire of. the USSR to prevent the with-
drawal of the CYO and the British Trades Union Congress
(TUC) from the World federation al Trade 'Unions (WFTU)
and to block the formation of a new trade union international,
became evident at a recent meeting b. Moscow between leaders
of the CIO and the Soviet All Union Central Council of Trlde
Unions. Soviet labor leaders assured the CIO representatives
of their willingness to permit prompt discussion of the Euro-
pean recovery program in the WFTU executive committee
and to suppo2-t the right of national labor organizations within
WFTU to adopt their atm policies with regard to participation
in the program. Such Soviet assurances emnhasize the 11122/01.1-
vers of both Communist and non-Communist labor factions to
shift responsibility for any future sIDllt in the WFTU.
The UK' Franc22 and the Benelux countris have
apparently accepted the VS view itarieiar-power- agreement?
on the fuivre of Germany is unlikely and that the economy of
western Germany must be Integrated into any effective Euro-
pean recovery program. Decisions made at the London Con-
ference on Germany indicate that a trizonal constitutional
convention may be convened later for the purpose of forming
a provisional western German government capable of providing
effective c wer tion.
WESTERN EUROPE
Ali-l_agy_gh the British Communists hope to contribute to
the defeat of the European recovery Program by inciting indus-
trial unrest over the UK Government's wage stabilization policy,
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no grave areceet ef labor troviele GApOctsi in the nett few
months. Leriee noir k' ecent eerree2. cozZerceace in London,
the Comr:emietz:? (1) flatly oppotee tit Z;overnment's wage
freeze, coadition.e.11y aperovedb to tee" trade union echelon
as a nocessery meacere; en71.(2) urged labor
not to "aee.aet 73aps:lvely he adverve c'eCi3i0D.S of wage arbi-
tratc?e!e7reeds, pi full ConTereeest ettpport for unions
which ete;:eeoiTeehalf cS their fela1:1-..s. 3-41c.eh tactics the
Coeemee!.z&s: reay be capable ogleoreeeczine the high produc
tin Feels. ret Ice certain industeies because the cage freeze,
inc-eiterely raporular among the ranks of Labor, anjears to '6e
ten szeleite7ee .Lee:o., ? Eovrever, Oven though Communist In-
i letreee3 novcral imprztozt unions, it has been ?
elirYineeLtee gee eee'fly ve'17ein C".? gala e d labor during the past
.yeae s re3Telt %evict -,intraelsigence and a Labor Party -
TUC
enti-Colenezeist caragrA. The rank and file of British
labor is geeerelly loyal to the UK Government.
The recentlef announced 24% cut in the UK armed
forces, sched03alaTi7:2 fiscal year beginning April 1948,
reflects Britain's pressing need to reduce expenditures ad
to return manpower to industry even at a time when the UK
regards the katernatiomi situation as grave. The military
budget is also being reduced some $828 million below 1047's
$3,596. million; By 1 April 1949, the array will have been
reduced :ey :4% (from 527,000 to 345,0)0) and the air force
by approximately 14% (from 263,000 to 2.?,0,000). The navy,
which made a drastic reduction during the present year, will
be reduced (214 from 147,000 to 145,000; The military re-
search and development program is being shielded from
serious retrenchment: however, and it is probable that the
recently-announced reductions are the last that the Govern-
ment will authorize until the international situation shows
improvement.
Unless the Schuman Government's price reduction pro-
gram ette-cis-T:itifiitiiiiig. EficiitTie in food prices in the near
future, the French Government will face a severe crisis before
?
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the end of March, roraComtaunist labor unions have promised
Schuman their full support, on the condition that the program
succeeds. The Communist-dominated General Confederation
of Labor (COT) is encouraging peasant resistance to the Govern-
ment's tax and food collections and has already begun agitation
.for industrial wage increases. - "Warning"! strikes; which may
occur in mid-March, would further economic deterioration to
the point where a dieterrniined strike program in April or May
,!ioulci appear to have economic'justification. The non-Corn-
munist unions wenild then have to make demands at least as
great as the CGT makes itv lose membership. The Govern-
ment, which still lacks the full confidence of the rural and...
middle classes, 'mould not be able to withstand the added opposi-
tion of labor,. Further wage concessions, however, would com-
promise Schuman's stabilization program, on the success of . ?
,J..vhich he depends to remain in power.
The decline of Communist influence in /13..*at since
the Communists/ wahdraral from the Government a year
ago was emphasized recently by the Government's success
in ending the February strikes, This decline indicates an in-
creasing anti-Communist trend which will probably render
unsuccessful any future Communist effort to disrupt the
Belgian economy by political strikes and labor unrest. The
Government's effective enforcement of its civil mobilization
decree demonstrated that it has the ability and the determina-
tion to prevent by force Communist disruption of the country's
economy.
Franco's continued desire to avoid political change
In Spain is apparent in his recent appointment of proved totali-
tarian and high-ranking Falangists to the new Council 'of the
Realm: Despite strong foreign opinion favoring liberalization
of Spain's political structure, Franco apparently contemplates
no such liberalization even though he is thereby inviting con-
tinued exclusion from the European recovery program. Franco
is currently attempting to secure private US financial support
in order to bolster the Sparkish economy without obligating him-
self to relinquish ay degree of totalitarian control.
-iii-
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The Swedish Government's desire to maintain its
position of strict neutrality and its uniellYingness to extend
Nordic collaboration into the military field are evident in the
recent inconClusive discussions bre? ii And
Norwegian general staffs. The fact that the discussions Were
apparently begun without the Swedish. Government's knwIedge
and were immediately halted when the Government learned
of them indicates also that a cleamge of opinion exists be-
treen military and political leaders on this phase of Swedish
foreign policy,,
v)ublic condemnation of the_Nor=1ian Communist
Party by NorwayT47:irne Minister has added governmental
support to Norway's increasingly anti-Communist attitude.
Heretofore, Norwegian officials have avoided a definite anti-
Communist position, but this denouncement, which called
attention to recent events in CzechosloTakia, indicates a new
willingness on the part of Norway to cpenly align itself with '
the western powers.
In streporLAthe Itellian Communist pre-election
charge that De Gasperi has deliberately tamed away from
the traditional Italian trade with eastern Europe which could
assure Italy a healthy economy and full employment, the
USSR and the Satellites are making and will continue to make
favorable-gestures toward Italy which serve materially to
bolster the leftist cause. The USSR has already issued a
declaration favoring Italian trusteeship for Italy's former
colonies, Yugoslavia has suggested that Italy pay reparations
out of current production and promises a solution of the
Adriatic fisheries problem as well as hinting that it would
consider sale of its share of the Brussels gold protocol allo-
cation. The Yugoslays have pointed out, too, that in response
to Italian Communist representations, Italian. nationals have -
been safely repatriated from Albania. Indications exist that
Tito may be persuaded to agree to restoration of Trieste
and the northern zone of the Free Territory of Trieste to
Italy?
?
_
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?
EASTERN EUROTT
Confidential 'rotocols contained in the Soviet-Rumanian
mutual assistance pact disclose the extent to which Satellite
economy and military strength are being integrated into those
of the USSR. Begimting I March 1948, 2500 Soviet army, navy,
and air force instructors are to be assigned to corresponding
units of the Rumanian armed forces, and 600 Soviet technicians
will serve as advisers to Rumanian enterprises capable of
producing war materiel on short notice. The advice of these
Soviet supervisors is designated as binding upon the Rumanian
unit commanders and industrial matt- gers. Approximately
300 Rumanian officers and 500 technicians will be sent to the
USSR for c?instruction. 2
NEAR EAST-AFRICA
jUir. irjatojalia.,27? agatiat appears to be the only
course of action which might be acceptable to both Arabs and
Jews (see page 3).
The Greek National Assembl Is decision to recess for
three months has temporarily ended the violent and irresponsible
partisan wrangling in the Assembly which was seriously affect-
ing public morale and even threatening the continued existence
of the Government. With the Assembly in recess, the Govern-
ment should now be able to act with more dispatch in meeting
new military or economic problems. Although the behind-the-
scenes maneuvering- of party leaders will, continue and a shuffle
of the Cabinet may result, such Cabinet changes will be made
quietly, without disrupting the op.:-,--ations of the Government,
The Afghan decision to er.c:?.anve ambassadors with 1
akistan may facilitate settlement of the bitter Afghanistari
Pakist.an dispute over the Pathan tribesmen and result in
strengthening nakistan's position vis-a-vis India. Land-locked
Afghanistan, which desires better economic cooperation with
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its coastal neighbor, has, until recently, refused to enter into
diplomatic relations with Pakistan until the latter granted
formal autonomy to the 12athans,
FAR EAST
'yhe considerable diflicultLal formingluese
Cabinet which has been experienced by Nitoshi Ashida, con-
servative Democratic Party leader who was elected premier
on 21 February; clearly indicates that Ashida lacks sufficient
political backing to form a government that possesses any
lasting stability. Ashida hopes to form his Cabinet from a
coalition of the parties who supported his election--the Demo-
crats, Socialists, and People's Cooperative Parties. The
strong left-wing element of the Socialists, however, has pub-
licly indicated that it 1Tould not become a part of Ashida's
coalition, In an effort to win the support of these left-wing
Socialists, who control as many as 70 of the 46'3 Diet seats
and who-se backing is abbolutely essential if the coalition is
to have even moderate success, Ashida may be forced to
compromise enough to lose the support of the People's Co-
operatives and some of his own Democrats. Because his
election apparently had the tacit endorsement of SCA?,
Ashida will probably succeed in forming a coalition CAbinet.
? This coalition will tuldoubtedly prove unstable, however, and
villremaim i office only long enough to pass some of the
pending SCA7-oponsored legislafion. Di all probability, the
political atmosphere in Japan will have to be clarified by a
general election within three or four months.
ociamatlon for all
Xorea is expected to follow closely upon the adoption of the
"Draft Provisional Constitution of Korea" about 15 March.
The North Korean People's Council will seek to justify this
action by renewing its charges that the US is planning both to
divide F:orea permanently and to establish an American colony
and military base in South E:orea. Meanwhile, the USSR and
vi -
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its North Korean agencies are expected to intensify their
attacks on US policy and to encourage widespread disorders
In an effort to force the US to agree to the Soviet proposal
of a simultaneous withdrawal of the occupation forces of the
US and the USSR.
The new Siamese Cabinet under Premier Khuang
Abhairong will encounter increasingly strong opposition from
a group of Army and civilian dissidents,led by former-dictator
PhibuLafter world recognition has been granted the Govern-
ment. If this opposition is successful, the political pliability
of the Siamese public vrculd then make it possible for Phibul,
apparently possessing a "clear mandate from the people,"
to assume "reluctantly" the premiership of a legally recog-
nized government. This pattern, or variations on it, will be
pursued until the desired objective, the fall of the Abhaiwong
Cabinet, is achieved) possibly within the next two to three
months.
The growing political influence of Phili ineerrLlla
veterans who supported the US during World War 11 may deve-
lop into significant opposition to the Mums government. Most
recent evidence of guerrilla political influence is the proposed
legislation before the Philippine Congress which would recog-
nize guerrilla service in trle military promotion system. If
President Roxas shank fail to secure Congressional passage
of this legislation, which was drafted at his direction, and
should he fail to satisfy guerrilla demands for the extension
of amtesty, this opposition will be considerably increased.
WESTERN HEMISPHERE
cpyt_aiLl.pmthio of thLos2L....4LBs_it Ao-Ar mils tine tr de
agreement appear so favorable to the UK as to suggest that the
Argentine negotiators were aware that Argentina's bargaining
position in 1048 may well be weakened by the promising world
grain outlook. The most noteworthy concessions to the British are:
- vii -
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(1) the relaxation of Argentina's ban on non-essential imports
to permit acceptance of 20 million pounds' worth of such
merchandise as British rayon, automobiles, and whiskey; and
(2) a preferential position w-lth regard to Argentine purchases
of industrial equipment. The second concession, which was
made despite repeated indications of the preference of Argen-
tines for US machinery, is particularly significant in view of
the large amount of industrial equipment Argentina needs for
its five-year plan.
A retali tory move b Guatemala ainst British
garrisons at Belize British Honduras seems unli;:ely in
view of a widening political rift within Guatemala, President
Arevalo and the radicals (PAR) have apparently lost control
of the Congress to the moderates (FPL). The Chief of the
Armed Forces, who is a moderate, will probably be reluctant
to move troops out of Guatemala City toward the Hondaran
frontier and thus leave the capital in tie hands of the PAR
extremists, who would be in a position to regain control of
the Government and oust him from office.
.Thgsibilitvoseriou civil conflict in Costa Rica
appears to have decreased. The Government and the opposi-
tion have repof:tedly reached a last-minute compromise which
may resolve the impasse created by the Costa Rican Congress
when it declared void the recent presidential elections, in
which the opposition candidate won by a large majority over
the Communist-supported government candidate. The opposi-
tion agreed to call off a threatened civil disobedience campaign,
while the Government consented to convene Congress on 4 March
in order: (1) to enact legislation authorizing payment by the
Treasury of the election expenses of both parties; and (2) to
decide upon a "mutually satisfactery President"--who, pre-
sumably, will be neither of the recent candidates.
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, TRANS-f"ORTATION ASDECTS ON' THE EUROPEAN
RECOVERY nROGRAM
. One of the basic questions whieh may be faced at the
forthcoming 'nazis meeting of. the 16 member nations of the
Committee for European Econotaic Cooperation will be the
whole transportation problem connected with moving large -
quantities of goods to Europe under the European recovery
program Because of the- inadequacy of European shipping
and the impossibility of acquiring surplus -US vessels, the ?
participating nations must either further expedite their ship-
building programs -or ?because of the high dollar cost of US
?
shipping acceptin effect a reductitn in the amount of re-
covery program goods. ?
Assuming no assistance is received from other .fleets,
the available cargo tonnage of member nations will fall short
of estimated requirements by several million tons in 1948
and probably will,not meet recovery program needs until
1.95/0 Acquisikion of US surplus vessels to fill the gap is -
legally excluded under the recent extension of the US Ships
Sales Act? Moreover, the general world shipping Situation.
precludes the finding of any substantial quantity of shipping
elsewhere.
The Paris discussions will probably revolve around
efforts to coordinate or pool existing fleets and efforts to
intensify present shipbuilding and repair programs. Possible
measures to forestall exeessive freight-rate increases, which
might result from the pressure of recovery program ship-
ments, will probably also be studied.
Irrespective of the self-help measures which the parti-
cipating nations may adopt, the shipping problem will limit
the effectiveness of the European recovery program, parti-
cularly at the outset when it is planned to move the largest
volume of goods? Moreover, the measures themselves will
have a retarding effect on the overall recovery program
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because the immediate impact of the shipbuilding and repair
program will be to divert substantial quantities of steel from
other segments of the European economy. To the extent that
this will interfere with the rehabilitation of inland transport
and the building up of basic productive facilities, it will de-
lay the overall objective of European economic recovery.
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TEE 'PALESTINE CRISIS
Developments in Palestine and at Lake Success
indicate that a crisis is rapidly approaching in the Palestine
, situation. It appears probable that the Security Council will
be either unwilling or unable to organize an international
force to send to Palestine. If, therefore, civil war is to be
averted after the 1./E gives up the mandate on 15 May, a
compromise or postponement of the issue must be arranged
between the Arabs and the Jews.
A lasting compromise does not appear possible at
the present time because of the fundamental differences
between Arabs and Jews on the question of an indeoendent
Iewish state in oalestine. The Arabs will fight the estab-
lishment of such a state so long as Arab nationalism, now
fully aroused, remains tmdimiratshed. The Jews, having.
already won a partial victory in the General Assembly s
partition recommendation, will not now consent to any
solution that does not give them an independent state.
Secondary concessions, even though important, can have
no bearing on the situation so long as this fundamental issue
of a Jewish independent state remains unresolved. I
? .. if, however, resolution of the fundamental issue can
be postponed, time wiiLl be provided for passions to cool and
possibly for a compromise to be reached. Such a postpone-
ment appears most likely to be obtained through a teMporary
UN. trusteeship which wou/d'make no stipulation regarding, ,
the ultimate political organization of the country and which
would be Ilaintained J.:,:entling a. decision by the International
Court of yustice on the partition scheme or reconsideration
by the General Assembly. Such a trusteeship could pre-
sumalgy be continued indefinitely if, no solution acceptable
to all parties concerned coul.4'. be obtained. Moreover, under'
UN pressure for a tr steeship, responsible Arab and Jewish
leaders might be willing to accept the principle of postpone-
ment. . The Arabs have indicated their -willingness to. consider
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a/most any preprIstl rtbt involving an independent Jewiol2 state.
3iroilar Jet7ist. willingness may be indicated by the opposition
;17.. many Jews to the principle of partition and by the realiza-
ticn_of the je?ttio:4 /)..vency that a Jewish state cannot be set up
and defentled tef.thout strong international support.
suc:2 .17INT trelsteeship were established, other issues
tvould be tropeot.ont, but secondary, in the terms of the trustee-
ship agreen.elt. On the er...estion of Jewish immigration, the
Arabs could 7te motected to be less intransigent than in the
inst. They usulti probaT)ly be willing to permit the illegal
iramigrants cr Cy-en:1s to enter Palestine and to accept, in
addition, an annual c_vIcta of Jewish DP's. Although internal
security w3loldti1i te threatened by both Arab and Jewish ,
irreconcilable grows, ruti.scale civil war would be averted. "
'Present disturbances in 11'a/esti-le stem entirely from Arab
opposition to prztition, from Jewish retaliation to this opposi-
tion,and from Jewish terrorist attacks on the British. Once
partition had been tacitly abandoned and the British troops
withdrawn, Jewish and Arab terrorists would probably con-
tinue to attack one another, but they would not have the sup-
port of their respective communities, and their violence
could be kept within bounds.
If the Security Council is unable to effect a postpone-
ment, the elternatives appear. to 73e either the endorsement of
partitime or an attempt to establish some other kind of regime,
excluding an independent Jewish state. If the Security Council
endorses pa7titiora but is :linable" as seems likely, to implement
It by force, civil war in Palestine is inevitable. Moreover,
both Arabs and Jews would solicit military assistance and
alliances from outside 1,30WerS. The USSR would be presented
With an opportunity to excloWthe situation, and the threat to
International peace would be greatly intensifiet
If Security Council action results in a regime which ?
does not provide for an independent Jewish state in Palestine,
civil war may still :3e. expected. However, the violence would
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be neither so intense nor so widespread. Jewish support
within 7'alestine for partition is not whole-hearted nor so
unanimous as Arab opposition to partition. Although nearly
all Arabs would fight against partition, only a minority of
the Jewish community could be expected to fight for partition
if it were no longer recommended by the liDic Finally, the
danger of unilateral intervention by outside powers would
not be so great. The Arabs would not need outside help;
the Jews could not get overt unilateral aid from other mem-
bers of the UN for use in opposing a UN decision.
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CONTENTS
kages
TRENDS IN BRIE T: v
ARTK:LES 1 4
Communist Coup in Czechoslovakia 1
Communist Military and kolitical Outlook
in Manchuria 3
Document iJo. 6 1
NO CliCL in (Ylaics _
DECLAnl:I_D
Clacs. C1iIQLD TO: TS s a
DDA "(coo, 4 Apr 77
Auth: DDA 77/1753
Date: 7 By:
T-0111?SEMET
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TRENDS IN BRIEF
GENERAL
Str2E13ritish obtclioasjo the latest coppromise pro-
posals at the Havana Conference indicate the desire- of the UK
for a strong International Trade Organisation charter. The UK
objections state that: (1) the new US draft concerning quantitative
trade restrictions is ambiguous and may require the UK to aceept
an obligation impossible to fulfill; (2) a provision _which is designed
to protect the industrial growth of undeveloped countries through -
the use of quantitative trade restrictions wouid be detrimental to
British trade; and (3) the prevision concerning preferential tariffs
Is designed to apply to a "single economic region" and therefore
discriminates against the British Commonwealth. The UK de-
clares that these further concessions to the undeveloped coun-
tries undermine the charter protection it requires, while the
non-discriminatory provisions do not meet the urgent need of
the UK for import restrictions during the p stwar recovery
period.
The e_s____IaltmeiltsicLgool of. Europgair facil-
ities? services, and revenues has been proposed by European
air officials and is under consideration by the UK Foreign
Office, The British Ministry of Civil Avi? tion is favorably
disposed toward the internaticnalimation of commercial air
operations through such a pool, but is apparently prepa'red to
veto the plan if US reaction is unfavorable. Although the pro-
posed pool is consistent with the aims of the European recovery
program, its implementation would require the adoption of
arbitrary restrictions in international aviation ;which the US
has heretofore opposed.
WESTERN EUROPE
oliag.L.Lvqrs.e.?..ncaity,12ELLm_g_on e Scandinavian
states concerning the degree to which they should openly align
themselves with the western powers has become evident at a
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re-cent Nordic foreign ministers' meeting at Oslo. The
foreign ministers therefore limited their public statement
of results at the Oslo confereace to a pledge of support of
the European recovery program and the announcement of a
committee to explore further economic collaboration. Nor-
way, supported by Iceland, argued for positive pro-western
whiie Sweden, auer to a lesser degree Denmark,
advocated a continued neutral position between the East
and the West.
Italian Communists are claiming that US aid to Italy
and Italian Participation-in the Eus---roj?r?enn eco-WiiiilWaTi
will not De jeopardimed by a victory in the April elections ?
for the Communist People's Bloc. The Communists cite
as proof the statements of US officials that no "political
strings" are attached to the recovery program and point
out that the USSR and the Satellites were invited to partici-
pate in the Paris Conference.. Because the De Gasperl
coalition Government has derived considerable strength
from the assumption that only Be Gasperi can assure con.;
timed US aid to Italy, the outcome of the 18 April elections
will depend. in part upon the success the Communists have
in. gaining acceptance for their 'current ?propaganda line,
particularly among the approximately 15 million voters
who are not members of any Italian political party.
Further yat....,1ce.....elfor.t49.z.cemat_LhitiAvIncial.
in the April Italian elections are apparent In the issuance
of a pastoral latter by Cardinal Schuster of Milan which
instructs the clergy of north Italy 'to refuse absolution to
Communists or. to others involved in activities contrary to
the tenets "of the Church. ' Because the only action more
drastic than refusal 'of absolution is excommunication (a ?
weapon which the Vatican has considered and may yet use),
this letter represents an even stronger step than that taken.
in the recent .,pastoral letter. issued by the hierarchy in ? ?
southern Italy which eniioined Catholics to defend the princi-
ples of the Church by' material force" if they were
threatened by violent means.
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more propecti France for stavin off
further inflationary wage increases and for achieving success
in the stabilization program are indicated by recent figures
which reveal that prices have risen an a.veraip of only 4%
during January 1948, as contrasted with average rise of
18% during the period of December 1947 to 8 February 1948.
In view of the 38% wage increase effective on 1 January, the
price rise is much less than expected.
EAMERN EUROPE
The Commmi_tqs_ Czechoslovakia choslovakil will disrupt
the Czechoslovak economy, at least temporarily, but will
not appreciably affect its foreign policy which is already
pro-Soviet (see page 1).
NEAR EAST-AFRICA
,rgrAiisc_Liu,19aloy Moroccan relighLt leaders of the
religious aspects of the proposed partition of Palestine has
serious implications for the peace of North Africa. As long
as partition remained a political matter, little immediate
danger existed of unified Arab action against either the Jews
or the French. licrwever, the religious considerations in the
problem might cause the North African Arabs, who so far
have been unable to unite on nationalist or political issues,
to unite in a religious revolt against the French. -
FAR EAST
Thejailitmgti.2LAIELIsl:Lai2shula which grows
steadily more unfavorable to the NatioiiiI-Government, indi-
cates that a Nationalist collapse in Manchuria is poss,'41e
within the next six months. Following the assumption of
control in Manchuria, the establishment of a Communist
political structare similar to Communist governmental
units elsewhere seelis likely (see page 3);
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Burmese political stabil' is 'thtzatgae,d by renewed
agitation among the !c thelargest indigenous minority
in Burma.) for the establishment of a sovereign independent
state.- Although the povernment of Burr= has been consist-
ently conciliatory towards the A:areas, it has offered them
only a semi-autonomous state. No violence has yet occurred,
but the Nareas are !mown to have a considerable quantity of
arms. The 'Burmese Army, 30% of which is Karat/Pt is led
by a Karen who has unequivocally state that he will not lea.d
the Army against his own people in case of ,..evolt. The chaos
resultiragfrom an outbreak of violence would a.iford the Com-
munists:an excellent opportunity to increase their influence?
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ART1C.LES
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factories, newspapers, radio stations, and virtually every
Important public or private institution in the country. The
acceptance by President Benes of the new 'Communist
cabinet, therefore, represented little more than a formal
acknowledgment of a fait accompli?
The Communist Party can now stifle any remaining
opposition in the country. The five representatives of the
Moderate parties included in the new cabinet have been
assigned minor positions and will act as willing Communist
supporters. The Communists will liquidate all effective
opposition through a series of "treason" trials and will
rapidly complete the communization of_the nation's economy.
Assumption of power by the Communists will have
a dtsrupting effect, at least temporarily, on the nation's eco-
nomy. For political reasons the Communists will be forced
to liquidate imftly :Intl-Communists from key managerial
and technical positions in industry, and substantial industrial
and economic sabotage will undoubtedly develop. Because
the nation's highly industrialized economy is dependent
upon the import from the West of raw materials and Machin-
ery not obtainable in eastern Europe or. the USSR, Czecho-
slovakia will continue to trade with western Europe, although
possibly on a decreased scale because of the decrease in
tot pl procire.tion._
The Communist coup will have little effect upon
Czechoslovak foreign policy which has consistently followed
the lead of the USSR. The coup may, however, have political
repercussions in western Europe. In France, Italy, and Ger-
many, the existing political divisions probably will be intensi-
fied because the non-Communists will be more determined to
prevent Communist participation in the governments of these
countries. Meanwhile, Communist morale in western Europe
will be improved by the Kremlin- success in Czechoslovakia.
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COMMUNIST COUP IN CZECHOSLOVAKIA
The establishment of a Communist police state in
Czechoslovakia hasfurther diminished the possibility of a
compromise in Europe beiveen the ideologies of the Krem-
lin and the principles of western democracy and individual
freedom . Such a compromise had apparently been achieved
in Czechoslovakia where Communists and non-Communists
had nearly equal power in the coalition Government, where
the majority of the people approved of many Communist
economic policies, and all parties were willing to follow the
lead &the USSR in matters of foreign policy. The compro-
mise was shattered, however, by the refusal of the non-
Communists to permit continued Communist control of the
police and by the Communist realization that an electoral -
victory was impossible without this control. The coup, there-
fore, reflects the refusal of the COMMilikiStS to. settle for any-
thing less than complete control and their conviction that such
dominanice could never have been, achieved under a. freely
operating parliamentary form of government,
? The ease with which the Communists effected the
coup reveals the extent to which they had been paying only
lip service to the freely-elected coalition Government which
has been in power since -1945. Raving won the key cabinet
posts in the May 1945. elections (Premiership, Interior,
Information and Finance), the Communists have since steadily
extendedtheir control of the positions necessary for seizure
of the government. By gaining direction of the Ministry of ?
National Defense through the appointment of General-Svoboda,
a willing Communist tool, the CommUnists were able to neutral-
ize the army,. Communist command of labor was effectively imple-
mented through the National Trade Union Organization. Despite
these basic prerequisites for a coup, the seizure of power by.
the Communists would have been more difficult if they had not
already gained a -majority position in provincial, city, and
village local governing bodies and had. not organized ''action
committees" _composed of trusted Communist Party members.
Through these organizations,. the Communists were able to seize
physical control of all national and local government offices,
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COMMUNIST MILITARY AND POLITICAL
OUTLOOK IN -MANCHURIA
The Chinese National Government's military situation
in Manchuria continues to grow more precarious. , Present
indications are that, without adequate supplies or reinforce-
ments, the Nationalists cannot maintain their present garri-
sons in southern Manchuria which have been marooned for
some time. Consequently, despite the recent reorganization
of the Nationalist command in Manchuria, the Nationalist
foothold centering around Maden probably cannot survive
for a period of more than six months without the delivery
of substantial outside aid;
If Multden fails, National Government influence in
Manchuria will be destroyed and control will pass to the
Communists who will then be able to move more troops to
China proper. The imminent possibility of a Nationalist
collapse in Manchuria has given rise to a new series of
representations by National Government officials who hope
to elicit prorneA US aid.
. Despite considerable speculation suggesting that the
Communists intend to., establish an independent Manchurian
regime, with a separate government, such an autonomous
state seems unlikely.. Chinese Communist propaganda has
insisted that Manchuria is an integral Part of China, and
has represented the Communist program as a crusade- for
the "liberation" of China as a whole. The Communists will ..
probably persevere, In an aggressive strategy in China and
will therefore seek to enlarge the area under their control
rather than to make a -piecemeal consolidation of their gains.
The establishment of an autonomous Manchurian state
would make the Communists more Vidnerable to the accusa-
tion that they are puppets of the USSR; there are some
indications of current Soviet interest in, and preparatory
activity toward, the establishment .of such a regime in
Manchuria. Because of the intensely nationalistic spirit
of the Chinese people, however, the Communists are most
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vralms protect tizetaseives frcm the charge of Soviet
T713 Ccr:anTintsts b c:itts. are therefore more likely,
foliewing Llair ZESuraption of full control in Manchuria, to
estabr.sh-;cliticol. structwe which wAll be designed to
becoras r. ccmponent r.rt of a Communist government of
China but ..7f.11 have an almlst free hand In managing its own
cgion1 e.:fairs. Such a setup would harmonize with the
Chinese Communists: present "border region" system a
lo .;/-mni
ose goixtental structure which has always allowed a
conside.ra'Ae amcrozt of local independence and thus has
overcoms many regi nal antagonisms.
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TablieftENEVET
CONTENTS
Pages
TRENDSIN BRIEF . ? ?3? ? ????? 0 ?4) 0 0 G I 0 0 0 0.1"' vi
ARTIC LES.
? ? ? ? 4 ? ? 0 ? ? ? 01" 8
Dispute in the Antarctica 1
Significance of Soviet Treaty Proposals 3
The Return of Lend-Lease Tankers by
the USSR ?4 . . . . . . w . . . . . ? ? ? . . ? ?,, ? 5
Soviet Expansionism in Korea,. . . . . . , ? . 7
Document No.
ED CHANGE in Class,
DECLASSIFIED
Ciass. CHANGED TD: TS S
DDA Memo, 4- Apr 77
Auth: DDA REG. 77L1763 .
Date: By:
86
This publication contains cu.rrent intelligeuce exclusively and
therefore has not been coordinated with the intelligence organiza-
tions of the Departments of State, Army, Navy, and Air Force.
TORSECELT
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TRENDS 3N It F
GE WE, RA IT., -
The racentl ? reasserted Antarctic chimp of Argentina
'and Chile, are the latest phase of a long-standing disagreement
with the Uir-'; over the question of sovereignty in Antarctica
(see nage :f.).
Annual ooerathla losses of more than 40 million
incurred by British civil aviation (due primarily to the lack ,
of efficient aircraft of British manufacture) have confronted
the UK Government with tie need for drastic retrenchment
and changes in operating policies. In order to reduce these
losses, the UK might gradually depart from the liberal objec-
tives, of the joint US-,UK air policy and seek restrictive agree-
ments'with other countries which would provide a better diviSion
of the tra2.fie. The British Cabinet, however, will probably insist
upon the retention of the joint US-UK air policy and may decide
on: (1) greatly increased subsidies for UK airlines; and (2) the
purchase of modern air transports from the US.
The formation of a western Euroman union has been
held back by disagreements among the UK, France, and the
Benelux countries over preliminary steps in establishing such
a union. The UK intends to propose to the French the immediate
calling of a five-power conference. French Foreign Minister
Bidault objects to such a conference at this time because of
his view that preparatory diplomatic approaches to the separate
Benelux countries are first necessary. Bidault also fears the
possibility that Prime Minister Spaak of Belgium might dominate
such a conference and win approval for his concept of a strong
union based on regional pacts under the UN Charter. The Bel-
gians agree with the French that an immediate conference would
be unwise and fear that a premature meeting might break down
with extremely unfortunate public repercussions.
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WESTERN EUROPE
The Sovietposais In the Austrianma_s,Ltsmit nego-
tiations are indicative of an intention to make Austria economical-
ly dependent upon the USSR (see page 3).
?
Labor unrest in the UK resulting from the Government' s
recently announced general wage freeze is not expected to reach
serious proportions or to weaken labor's general support for
the Government. Most labor leaders have become reconciled
to the new measure by the Government's promise concurrently
to control or lower prices and profits and by their recognition
that the present critical state of the nation's economy required
such action. It appears probable that, by and large, the rank-
and-file of labor can be led to accept similar ViOWS?
The establishment of a new German economic commission
in the Soviet Zone of Germany is not a departure from the pre-
vious pattern of Soviet control, although the commission is
described as having more power than the previously existing
one. This Soviet action has been taken in retaliation against
the formation of the bizonal economic administration in western
Germany. It is also consistent with previous Soviet efforts to
transfer power and control from the Laender governments to
a few reliable Germans.
Cur no reform in Germany has been further delayed
by Soviet insistence at a central finance administration be
established to issue the new currency. Such an organization
would be a move toward the central political government in
Germany which the USSR has sought and which the West has
opposed on the grounds that settlement of the 'overall economic
unification problem should take precedence. Soviet interjection
of this controversial issue, concurrently with ostensible con- ?
ciliatory moves in the Allied Control Authority, indicates a
desire to delay currency reform, to forestall bilateral monetary
? measures in the US-UK area, and to fix the blame for the delays
on the western powers.
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The formation in Ital2 of the Union of Independent
Socialists improves the prospects that De Gasperi wili be
able to form a postelection government without recourse to
the extreme Right. The new union, formed by L M. Lombardo
and composed of moderates drawn from the left-wing Social-
ist Party, has made an electoral alliance with the rightawing
Socialists and is expected to cooperate closely with the Re-
publicans. Lombardos group prsents the cagy possibility
to date that the democratic Left can develop sufficient unity
and strength and attract en.ough votes fun the spring elections
to enable the Christian Democrats and themselves to form
a government.
The. Catholics in Italy are preparing for militant
action in the event of a civil war. A current pastoral letter
circulated In southern Italy, presumably with Vatican approval,
eirAjoins Catholics to defend the principles of the church by?
:s .
Urnaterial 'force ?if. those principles are endangered by
violent, means. The Vatican and the clergy recently have ?
been urging church members to be 'prepared to defend their
faith by action if n.ecessary. Catholic groups apparently are
secretly arming themselves.
EASTERN EUROPE
? The recent Soviet decision to return US lend-lease
tankers probably indicates a desire by the USSR to conclude
an overall lend-lease settlement (see page 5).
The recent tripartite meeting. of the Polish, Yugoslav,
and Czechoslovak foreign ministers in Prague, ostensibly
arranged by Poland, considered Satellite problems connected
with German reparations, demilitarisation., and denazification,
as well as the German policies of the western powers. The
'conference was probably ordered by the.Kremlin as; (1) a
countermove to the foathcoming tripartite conference of the
western Hies in London; (2) an attempt to 'strengthen the
Soviet orbit by drawing Czechoslovakia closer; and (3) a means
of delaying the recovery of Western Europe by obstructing
the European recovery program.
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A.yhouh the..Huggarian OMEMMStE will attempt to
preserve the sey.riblance of a coalition government by allowing
the Smallholders' Rnol.National,Peazant Parties to exist
ostensibly as before, Hungary is well on the way toward
.becoming a one-arty state. The eliminatiot of. right-wing
Social .Democrats from governmental and party posts on
18 February appears to presage., a merger of the Social
Dem cratic and Communist Parties. The aardouneement of
such a merger is expected following the ci?nventioira of the
Social Democratic Party early in March.
Concern crier the condition of the Soviet economi
is reflected in the re-cent appointment of a 7:2(31ktbureau mem-
ber, A. N.Kosyg-,in, to replace Minister of Finance Zverev.
in the past, such appointments have been made so that a
high Soviet official could take corrective measures with. the
complete backing of the mokitbureau. The announcement of
the'neW appointment was probably held until after the an
of the devaluation of the ruble and the 1948 bud-
get in order to prevent the attaching* of any stigma resulting
from these moves to a member of the Politbureau. Con-
versely, any favorable future announcements, such as an
increase in the availability of consumer goods, will reflect
credit upon the Politbureau member who made them.
NEAR EAST-AFRICA
Indiairi dissatisfaction with UN handling of the Kashmir
dispute may induce India to call upon Soviet support (or to
threaten to do so) to prevent Security Council action un-
favorable to India. The rildian delegation to the UN has been
called home for "consultation," evidently because of the fear
that an adverse decision might be forthcoming, and Indian
offici is have criticized the UK and the US for 6'big power"
politics in the SC. Such an attitude could foreshadow a cal-
culated acceptance of the USSIes reported offer to use the
veto on India s behalf. Indias recent designation of Czecho-
slovakia as its representative on the three-power Kash nir
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investigating board is a bather indication that India may
request Soviet support, either to secure favorable action
by the US and the UK' or to block any Kashmir decision
at all.
The UN aalestine COM-nip-310,A jc,--aceikrport
reauesting aid from the Security Council will compel the
SC to consider the problem of sendirag a police force to
71aIestine. Even if the SC decides that an international
force is necessary and overcomes the difficulties inherent
in the creation of such a force, the partition plan recom-
mended by the General Assembly apparently cannot be
completely implemented (see "13'ossible Developments
in Palestine," ORE 7-43, dated 20 February). An inter-
national force, ifsufficiently strong, can establish and
protect Jewish state and an inte7rnational zone, but no
force of itself is capable of setting up an Arab state against
the wishes of the Arabs or of bringing about economic co-
operation between Arab and Jew. Moreover, the f rce will
ha.z-e to remain in Palestine indefinitely because the Jewish
state will be subject to continuing Arab attack both from
within and without Palestine.
FAR EAST
Recent cl.cvel2pments in North_Korea give further
indication of a Soviet intention to extend political domination
over all Korea (see page 7).
Prospects for a Ne.theriands-Iirtdonesian political
settlement have not been improved despite the fact that the
17 January military truce has been observed with few serious
incidents. Both parties in the dispute have been further dis-
affected by recent developments: the Dutch by a misunder-
standing concerning a UN Good Offices Committee pr ss con-
ference which indicated, the Dutch felt, a pro-Republican bias;
the Indonesians by the announcement of a Dutch-sponsored
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conference to be held in West Java on 23 February, which would--
in the Republican view?violate the Renville agreement of ?
19 ianuary. These developments, in addition to the fundamental
disagreement between the two 'parties _concerning the organiza-
tion of the proposed United States of Indonesia, presage pro-
tracted negotiations and possibly even a delay in the initiation
of such negotiations.,
, A favorable Chinese market reaction to the US $570
million aid planItad already occurred by the time the plan .
was submitted to Congress, because its formal annowcement
on 28 February had been anticipated in a series of well-founded
press reports. Largely as a result of these reports, wholesale
prices in Shanghai (a fairly accurate index of inflationary .
trends) did not advance in early February any more rapidly
than in previous weeks, despite further military deterioration
.and the inflationary pressure's that normally accompany the
Chinese Hew Year debt settlement period. Whether the favor-
able effect on Nationalist China's economic and financial Situa-
tion will be more than temporary depends largely upon the rate
of progress made by the U$ aid 'plan through Congress and upon
the extent to which that plan affects the course of China's civil
conflict.
CQ nitin ue d_oggigic0 instabilit is probable despite
the strong plurality gained by Acting Premier Abhaiwones
Democratic Party in the recent national elections. Royalist
influence on Abhaiwong has induced the promoters of the 1932
coup to overthrow the absolute monarchy (Pridi, Thamrong,
Phibu/ and others), to submerge their subsequent differences ?
and again join in opposition to the Royalists. tm order to curtail
Royalist power, the 1932 coup leaders have put considerable
pressure on Abhaiwong to include certain of their followers
in the cabinet which he is expected to form in the near fut re.
Abhaiwong appears willing to base his cabinet on a broader
representation of political groups; he may riot, however, be
prepared to make sufficient concessions to satisfy the anti-
Royalists. In such event, a strong leader acceptable to the
1932 coup group--such as General Adui, the former Commander-
in-Chief of the Siamese Army--would probably be asked to
form a government.
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ARTICLES
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THE DISPUTE IN ANTARCTICA
The recently reasserted claims by Argentina and
Chile to territories in the Antarctic are the latest phase of
an old controversy between those countries and the UK.. ?
The British claim a large area of Antarctica through discov-
ery, occupation, and administration, and through the legal
authority of the Letters Patent of 1908 with which the terri-
tory was formally annexed. Argentina and Chile claim seg-
ments of the same area, including islands extending some
600 to 1,000 miles southeast of Cape Horn, which the British
call the Falkland Islands Dependencies. The two Latin Ameri-
can countries base their claim on inheritance of these areas
from Spain and on the contention that the areas are extensions
of the South American continent and hence are associated with
the principle of "continental security." ,
Prior to the sending of a cruiser to the Falkland
Islands, the UK had for some time contemplated taking firm
action in order to protect its send juridical position which
was being damaged by the unauthorized landings of Argentine
and Chilean official parties. When the two countries rejected
formal British protests, the UK indicated that it would accept
a decision on the issue of sovereignty from the International
Cotirt of yustice. Argentine and Chile then rejected this
solution, probably because of uncertainty over their legal
case. Because of its stand that the problem is not political
but legal and because it hopes to avoid Soviet participation
in the settlement, the UK is opposed bah to a general con-
ference as proposed by Argentina (and approved by Chile) and
to the submission of the problem to the UN. The British hope,
however, that the US and the UK can reach an agreement on a
procedure for the settlement of the dispute prior to the Bogota
Conference on 30 March. The UK desires that the US will
later call a conference of all interested countries, including
the Dominions which also claim and occupy certain stations in
Antarctica and the southern Indian Ocean.
The British interest in settling the Antarctic contro-
versy is conditioned by conflicting considerations. A passive
or irresolute stand with Argentina and Chile might encourage
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other Latin American claims to British territories in the
Western Hemisphere, notably the British Honduras and the
Falkland islands themselves. Moreover, the UK must
suplaort the interests of Australia and South Africa, which
have been encouraged by the UK to be active in the Antarctic
7egions, The sending of a British cruiser was intended as
a demonstration indicating the gravity with which the UK
regards the situation lievertbelessvthe economic 2.nd strate-
gic value of Antarctica fs still hypothetical, and the British
have no wish to strain commercial relations with Latin
America.. In their need to subordinate secondary considera-
tions to their critical economic probleras, the British are
therefore unlikely to engage in protracted bickering or to
permit the outbreak at hostilities., They will seek some
early general settlement of the whole Antarctic issue.
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? SIGNIFICANCE OF SOVIET TREATY PROPOSALS .
The recently submitted Soviet treaty proposals on the
crucial issue of German assets in eastern Austria are chiefly
significant as the first definite indication of the nature of the
Soviet demands on Austria. The proposals represent no funda-
mental change in Soviet aims, however, nor do they indicate
conclusively that the USSR is likely to conclude a treaty settle-
ment on any except its own terms.
The Soviet proposals definitely call for: (I) retention
by the USSR of two-thirds of Austria's titil and one-fourth of
its shipping properties; and (2) Austrian payment within two
years of $200 million in settlement of all other Soviet claims
on German assets. The ambiguous wording of the proposals
leaves it uncertain, however, whether the USSR, in return for
these demands, has renounced its claims to enterprises which
it has seized and which it now operates as alleged "German
assets."
Even if these claims are renounced, the Soviet proposals
in their present form would make Austria economically depen-
dent on the USSR. The Soviet Union has maintained its demands
for extraterritorial rights in Austrian oil and Danube shipping,
the granting of which would put the USSR in a very strong position
In controlling the Austrian economy. If these proposals are
incorporated into the Austrian treaty, the USSR will then be in
a position to weaken further the Austrian economy by placing
high creditor claims against industries now held by the USSR,
by retaining an indeterminate number of bonds. and stock cer-
tificates seized during the liberation of Vienna, and by claiming
Austrian property regarded as "war booty " and raw materials
and equipment now located in Soviet-seized plants. -
It is unlikely that the USSR will sacrifice its present hold
over the economy of eastern Austria in order to reach a treaty
settlement with the western powers._ From the Soviet standpoint,
the proposals regained the propaganda initiative for the USSR in the
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Austrian press and radio. If the negotiations are proionged,
the Austrian Governraenes ardent desire to obtain a settlement
and the withdrawal of fo,,,ar-power occupation will make it
m'easingly difficult to resist Soviet demands. 1:t is probable,
therefore, that the Kremlin will seek to prolong negotiations
until its dernakads are met agad the USSR is in a position to keep
Austria - economically dependent.
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TEE RETURN OF LEND-LEASE TANIMRS BY liFf13 USSR
The recent action of the USSR in submitting to US
insistence that seven lend-lease tankers be returned is virtually
without precedent in US Soviet postwar relations and undoubtedly
indicates a Soviet desire for an overall lend-lease settlement
The US has sought unsuccessfully for 2;1 years to negotiate an.
overall lend-lease settlement, or at least to obtain a commit-
ment with respect to lend-lease vessels., When the US insisted
upon the return of the tankers, the USSR offered to purchase
all lend-lease vessels in its possession. Following renewed
insistence that the tankers be returned rather than purchased,
the Soviet Union within 48 hours not only agreed to return them
but offered a prompt delivery schedule.
Soviet reluctance to return these vessels was based in,
part. on the use to which the USSR could put such ships? The
US embargi on the =part of bulk petroleum products to the
USSR had released the seven tankers from the service to which
they had long been assigned, but they could Still be useful in
meeting the petroleum regylrements of the eastern USSR or in
F..eplacing vessels in the old and inefficient Soviet tanker fleet
Moreover, the USSR could have gained either political advantage
by making the ships a.vailable to Soviet-domthated countries or
economic advantage by putting them into commercial charter
service for the purpose ,of creating dollar exchange.
. Despite the interest of the USSR in retaining the ?takersp
no attempt was made to find legalistic grounds for .rejlecting ?
the US request., The USSR could have demurred, for example, .
on the b...v7;is that the "emergency" as stipulated by the lend-
lease master agreement still exists under US law and that the
return of the vessels was therefore not yet obligatory. 'Further-
more, Sovilet propagandists have not' attempted to make political
capital out of this important incident by suggesting that the
Soviet concession was made in the interests of the strained US
economy.
The secrecy with which the negotiatioos were conducted
helped to make it possible for the USSR to submit without fear
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of losing prestige. Also contr.ibutive was the Soviet realization
that a flat refusal, corning iirhen US fuel oil. 'shortages were acute,
-would inflame public opinim and increase the chances of Con-
gressional action preiudicial .to US -Soviet trade. However, the
basic explanation. for Soviet willingyaess to comply with the US
Eequest lies in the fact that. the USSR has recently become
interested i ecurinF a mutually satisfactory lend-lease
settlement.
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SOVIET EXPANSIONISM IN KOREA
The intention of the USSR to establish an independent
? regime in North Korea and eventually to dominate all Korea
has been further revealed by the following recent events: (1)
the announcement by the North Korean radio of, e completion
Of the "draft provisional constitution of Korea''; (2) the staging
of a Communist-instigated strike in South Korea as a protest
against the UN Commission's "illegal interference" with Korean
independence; and (3) the review at Pyongyang in North Korea
of the "Korean People's Army" and the subsequent propaganda
announcements that this army would be the future liberator of
the "oppressed" South Koreans.
Although the USSR has scrupulously avoided direct
implication in these events, there is no doubt that the Kremlin.
has been engineering their development for any months. Since
the beginning of the Occupation, the USSR has been organizing
a North. Korean army; clandestinely trained by Soviet advisers
and -equipped with .Soviet weapons. The "draft provisional
constitution," which envisages a regime remarkably Similar .
to that of the USSR, anticipates eventual incorporation of all
Korea into the "People's Republic of Korea" and goes so far
as to specify Seoul, capital of the present US zone, as the future
capital. of a united Korea..
The "draft constitution" probably will be acclaimed by
atpeoples representatives" of both North and South Korea
at a mats demonstration at Pyongyang on'I March (a -
Wore= patriotic holiday) and will be adopted by a special
assembly of the North Korean People's Council in mid-March.
The questions of whether to hold a plebiscite in order to secure
"popular approVal" prior to the adoption of the constitution and
whether subSequently to .extend formal recognition to the regime
will probably be decided by the Kremlin in accord with political
expediency.
Despite the relative complexity of these day-to-day
tactical maneuvers, the underlying trend in korea remains
clear. Soviet intransigence and expansionism are driving
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Korea into a complete division along the 38th parallel. If the
UN is unable to effect a workable compromise and if no major
change occurs in Soviet policy, there will soon be two independ-
ent Korean governments with a common frontier along the 38th
parallel, each claiming sovereignty over all di Korea. Such
an unresolved situation will be basically unstable and will there-
fore provide the USSR with an excellent opportunity to extend
its domination over the entire peninsula.
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CONTENTS
Pages
TRENDSIN BRIE Faa.a...aaaaaaaaaaaaaaai- vi
ARTICLES . ? . ???????????????????o?oeal.. 6
, Arab Activities in Palestine . ? .
? t ? 0 ?
1
The Japanese Political Situation ? ?
. 4.1,a410
3
The Military Situation in Manchuria.. ? . . ?
5
Document No.
084
NO 'CHANGE in C
DECLASSIFILD
Class. CHANGED TO: TS S
DDA Memo, 4 Apr 77
Auth: DDA REG. 77/1763
Date: Lipy 7? By: 0.1
This publication C011taS current intelligence exclusively and
therefore has not been coordinated with the intelligence organiza-
tions of the Departments of State, Army, Navy, and Air Force.
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TRENDS IN BRIEF
GENERAL
?Increapell ros cts for Eurpeafl economic cooperation
are to belound in the agreement for concerted action which has
been reached recently through consultations among the major
countries in the Committee for European Economic Coopera-
tion (CEEC). According to this program, a working party,
which will probably include all sixteen members of the CEEC,
will be eistablished to: (I) prepare a charter for a continuing
CEEC organization; (2) draft a multilateral agreement re-
affirming undertakings of the CEEC at the Paris Conference;
and (3) prepare for the next CEEC meeting. Meanwhile, the
CEEC technical committees will meet to analyze the commodity
reports prepared by the US in connection with the European
recovery program.
atejangjamertazaalschism.m...hiri_thilViss (World
Federation of Trade Unions), CIO representatives will soon
meet with representatives of the Communist-dominated General
Confederation of Labor (CGT) of France in order to discuss
a possible compromise arrangement whereby interested labor
groups can lend their support to the European recovery program
despite Communist opposition. This CIO decision follows the
recently-announced refusal of the WFTU Secretariat to hold
its scheduled February meeting to discuss labor's participa-
tion in the recovery program. The CIO is making a second
)cattempt to send a representative to Moscow to consult with
' the Soviet All Union Central Council of Trade Unions in a
final effort to avoid a wrru split. If these attempts at com-
promise fail and the CIO and the British Trades Union Congress
(TUC) withdraw from the WFTU, the present secretary general
) of the WFTTJ (a French Communist) intends to keep the WFTU
functioning by retaining the support of continental unions and
leftist labor elements in the US and the UK. This intention
may indicate a Soviet plan to detach Communist ,elements from
the CIO and the TUC and to incorporate them in the rump WFTU.
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Incipeniken etraisni. any end !min in the apposed Inter-
national Trade, Organization (ITO) charter is being blocked by
the UK, France, Poland, Czechoslovakia, Australia, New Zea-
land, and China, The US effort to bring the occupied areas under
the free trade provisions and thus bind ITO members to grant
most-favored-nation treatment to German and Japanese trade is
opposed on the ground that the question of trade with these areas
Is also a political one ethich must be passed on firet by the
Berlin Allied Control Council and the Far Eastern Commission.
rrEST2TIN EUROPE'
EVietbseeeeeleriteegion of BeVin"s 22 arni_imearnan_nosal
for a Western European union reveals that Britain's Foreign
Fiecretary envisages a series of varied peels rather than a
eingle, rigid pian embracing all the particieatine countries.
This procedure will enable the UK to emphasize politico-
etrate.sic aspects in formulating treaties with the 3enelux
comitetee 7ine.1 France and to seek agreements with the Scan-
dinavian countries on an economic basis alone,. The first
cbjeetiee Is a five-power pact, or a series of similar bi-
lateral pae.:ts between the UK, France, and the Benelux
countries, The UK then expects to seek agreements with
7ortagal and Italy and, subsequently, with the Scandinavia
countries. The negotiations are expected to progress sixmly
and their course will be strongly influenced by the European
recovery program.
The ranerochement which General Franco seeks with
the Middle East may have been retarded by police action in
a recent Nationalist demonstration at Tetuan, Spanish Morocco.
The Spanish police inflicted casualties in breaking up the
demonstration, staged in protest against the Spanish High
Comm "toner's refusal to permit Nationalist leaders to
entee Spanish Morocco. During the past year, Franco has
establiehed diplomatic relations with Tra.nsjorden and Iraq,
and he has sought to avoid any an.tagonism among the Nation-
alists in Morocco which might hinder Spain's diplomatic
program in the Middle East. The Nationalist loss of life in
the Tetuan incident is not likely to increase Spanish popularity
among the Arabs.
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Italian communists are unlikely -to disarm even par-
tially in the near future, despite a recent decree of the Govern-
ment which provides prison peralties for membership in mill- ?
tary organizations of political groups. Moreover, the Govern-
ment probably could not compel the Communists to disarm in
the' liraited time remaining before the April eleCtions. Though
the decree is clearly aimed at the Communist-dominated partisan
organization, the impartial enforcement of the act would neces-
sarily.affect the rightist para.-military groups, a circumstance
widtth in itself may ?deter the Government from a.ny large-scale
action, The Government's decree will probably be mostly
effective psychologically at present and will provide a future
weapon to be used against possible strong-arra Communist
threats during the election period.
The -flortugnese government may be uncooperative in
implementing the US Portuguese Azores agreement as a
consequence of the sharp reaction in Portugal to the recently-
published statement of US policy on blocked European assets.
High Portuguese officials have interpreted as "an unfriendly
ace the published statement that Portuguese assets in the US
will remain blocked until a settlement has !4,-en reached on the
problem of gold looted by the Germans. The Portuguese
Foreign Ministe:7 declared that if the statement had been made
prior to the stating of the Azores agreement, Portugal would
not have signed.
NEAR EAST-AFRICA
igito..0je.aupn.,oft Arab xegiAanee_ ActAvities in
Pakstine appears imminent (see page 1).
1:im_Saud's.rene!ed request for US military aid,
and a US treaty reflects his growing fear that his ref sal to
cancel the US oil concession in Saudi Arabia has endangered
his position in the Arab world:. By consisteraW maintaining
in Arab League councils that the Arabs should draw a distinc-
tion be een their. economic and political policies toward the
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US and by refusing to take Punitive steps against the oil com-
panies, the King has attracted severe Arab criticism, des-
pite his attack on the US Palestine policy. He fears that
such criticism may eventually encourage his Ilashimite
rivals of Iraq and Transjordan to attack Saudi Arabia.
The existence of the Greek cpal1tipn2.overnment is
threatened by developing criticism of the conduct of the civil
war, The recent spectacular shelling of Salonika by the
guerrillas has brought a storm of political criticism
cryFtallized in centrist and extreme right-wing attacks on
t!K Government. Within 'c!.he Cabinet itself theL-e is bitter
friction over the retention in office of War Minister Stratos
who, despite attacks from both Liberals and Populists, re-
maim in the Government through the personal protection of
Foreign Minister Tsaidaris, the Populist Party leader.
(Both AMAG 2,11ii the US Army Group Greece have also
criticized Stratcs for his uncooperativeness and defeatism.)
Syria's decision to sever its financial ti.ps vitth FraRce
may strengthen Drftish economic influence in the Levant
Syria will almost certainly need either sterling or dollar '
reserves to maintain its currency, particularly for foreign
trade transactions. Although Saudi Arabia might be willing
to provide dollar support, its own financial troubles make
such a solution improbable, and Syria will probably have to
secure its financial reserves from Egypt and other sterling
bloc countries. This would inevitably steer Syria's foreign
trade toward the UK and the sterling area countries. Despite
Syria's desire to reduce its financial dependence o the
western world, it may be merely turning from the franc to
the pound, a.nd the UK may thereby fall heir to France's
former economic advantages In Syria.
FAR EAST
The 10 February resi nation of the Taoanese Cabinet
reflects a popular shift to the Right which was lard-65'1y the
result of dissatisfaction with tElle Social Democrat group, the
leading element in the coalition. The new Cabinet will un-
doubtedly be composed of Rightists, but its tenure will probably
be brief (see page 3).
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Current Chinese Communist militkri .5..e.)Itexsations have
completely sealed off Mulidentand the main Communist effort
in Manchuria has now shifted southwest of that city (see page 00
The recent South Korean disturbances,which were ob-
viously Communist-ilistigated, have been utilized in Soviet-
inspired propaganda as the occasion., for anneuncing the exist-
ence of the "Korean Peoples Army" in North Korea. The.
propagandists .have further used the disturbances as .examples-
of spontaneous South Korean mass protests against the
"illegal interference' of the UN Commission. The apparent
objects of these two moves were:. (1) to prepare the North
Koreans for a -future "war of national liberation"; and (2) to
frighten the UN into inactivity. Such revealing indications of
Soviet intentions in Ka may, however, help to persuade
the Interim Committee that immediate elections to establish
a South Korean government are necessary in order to achieve
some political stability.
Burmeseenglatisitesetaljgitileemain threatmeeli by the
possible withdrawal of the People s Volunteer Organisation .
(PITO) from the Anti-Fascist League (AFL)_coaliti
Government. The consequent disintegration of the AFL. would
lead to the formation of numerous small parties--a situation
which the well-organised unnese Communist Party could ?
effectively exploit to increase its OTifl strength and iitfluence.
\ A determined Philitnine? effort to obtain a reassesstne.nt
of US military plans for the Philippines is foreshadowed by
President ROXSZ:.? recent assertion that the US is neglecting
the strategic advantages of strong bases in the islands and by
the projected visit of the National Defense Secretary to the US.
While this Philippine effort reflects concern for Philippine ?
defense, it may also indicate a desire for increased US military
expenditures in the Philippines and the retention of US forces
which could render effective support in any serious threat to
internal Philippine stability. .
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WESTERN HEMIEPETRE
The forrnatiora of a new labor front in Mexico by
leaders who are anti-US may force the Mexican Government
to relinquish some of its control over labor and to revise
Its policy win regard to the US? On le) January, a paet
friendship and mutual aid was signed by the three largest
labor groups in Mexico?the miners's, petroleum workers?
and railroad workers whichmay launch a strong, leftist
movement vyithtu the new Partido Popular of Lombardo
Toledano.ne. will greatly -reduce the effectiveness of the
CTM (Coilederacion Trabajadores Mexicanos), formekly
a strong sunporter' of the Government,
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AR TIC LES
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AHAB ACTIVITIES IN PALESTINE
Although an Arab offensive in Palatine (widely rumored
to take place on 15 February) appears unlikely, an intensification
of esent Arab activities can be expected within the neat few
days. These new efforts would be desiguetri to wipe out isolated
Jewish settlements, cut off con:exam/cations between the
principal yewish areas, and establish the long-heralded unified
Arab military command in Palestine. The Arabs, however,
nyKil not launch their Ertaldrailal effort to resist partition until
the British witildrawal is fuzther advanced and in the meantime
will attempt to avoid direct clashes with British troops.
An early intensification of Arab activities appears
probable 'because: (1) public opinion throughout the Arab states
has been clamoring for increased Arab activities in Palestine;
(3) the numerous Arab League volunteers in Palestine cannot
long be held in check; (3) the Arab League is presumably an-
xious to take the initiative in Palestine as soon as possible to
prevent the Mufti from assuming the title and functions of the
leader of the Arab cause; and (4) the Arabs are anxious to con-
vince the UN Security Council that even an international police
force would face an overwhelming task and that therefore the
entire partition question should be reconsidered.
Arab resistance activities in Palestine have hitherto
keen conducted by loosely organized groups under the direction
of the MUM'S Arab Higher Committee and have received little
direction from the Arab League, which has concentrated on
the recruitment and training of volunteers and the collection of
materiel. Arab League military leaders Kawakji and Safat
are now expected to establish headquarters in the Nablus area
of central Palestine which served as Kawukji's headquarters in
the 1936-S9 Arab revolt. Armed and uniformed volunteers from
the Arab states, numbering at least 6,000 and possibly' many
more are now believed to be in the area. Nablus, which is set
in the! hill; is defensible and is cenfrally lccated in relation
to the three probable military areas of Arab-Jewish hostilities:
Jerusalem, Tel Aviv, and Haifa.. One of the early Arab objectives
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will be to isolate these three Jewish centers from one another.
Although the Arab forces will undoubtediy cause considerable
damage to outlying communities, they will probably :lot be
successful in isolating these centers until after the with-
drawal of British forces fin Palestine is substantially complete.
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THE JAPANESE POLITICAL SITUATION.
The recent resignation of the Japanese 'Cabinet,
formed last June through a coalition of the moderate
Social Democrats and the conservative Democrats and
People's Cooperative Parties, represents a popular .swing
to the Right produced by dissatisfaction with the Social
Democrats, the leading element in.the.coalition. The
Cabinet's fall cannot be interpreted as popular Japanese
opposition to SCAT?.
The immediate cause of the Cabinet's fall has been
the growing disunity within the Social Democrat Party.
While that party's right and center factions have together
monopolized the party's Cabinet positions, the left-wing ?
faction has been able to assume control over half the
Socialist seats in the lower house of the Diet? These
leftist elements, incensed by Socialist concessions to
the conservative parties of the coalition, have been giv-
ing increased emphasis to the belief that it is more im-
portant to preserve the Socialist Party program than to
maintain the coalition. Factional rivalry recently cul- ?
minated in the left-wing's refusal to support the Cabinet's
.supplementary budget bill, which called for a balanced
budget as insisted upon by SCAP.
Two combinations of rightist groups, both within
and without the Government, have each been appealing
separately to the small conservative elements in the
Diet to join together in a large conservative party to
take over the Cabinet. This political bargaining among_
the Rightists has further weakened the coalition and
destroyed Kataya.mes working majOrity in the Diet.
In all probability, the next Japanese Cabinet will
come from the Right; it will either be led by one of the.
two dominant conservative parties (the Liberals or the
' Democrats) or it will be a coalition headed by these two
parties. rospects of a coalition, however, are somewhat
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weakened by the existing Liberal-Democrat rivalry and
by the political ambitions of the two party leaders, Yoshida
and Ashida.
Whatever its composition, a rightist government
will tend to favor Japanese movernmental traditions insofar
th
as possible within the lines laid down by SCAP, and it will
be sympathetic to business. However, it will have to com-
bat increased labor unrest and, as in the case of past gov-
ernments, will be exposed to chronic populaz.' dissatisfaction.
Therefore, the life of a rightist government is expected to
be relatively brief. Kt is likely that within a year the poli-
tical pendulum will swing back toward the Social Democrats.
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CONFIDENTIAL CHINA: COMMUNIST CONTROLLE
The International boundaries shown on this
map do not necessarily correspond in all cases to
the boundaries recognited by the U. S. Govern.
ment.
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10910 Map Branch, CIA, 2-48 U.S. GR,)
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THE MILITARY SITUAT.7.0N IN MANCHURIA.
??Cliiriese Communist -forces. in 1?.7.7.churia (where deteri-
Oration in the Nati'onalist mtary position is' most marked)
have completely encircled MuMen, the lar-gest of a half..-dmen
beleaguered Nationalist garrisons. -The Comnaurzists-. have not
yet launched all-out assau:its against these ;positions where -
the; 'Nationalist air force and iiFe power can be effectively
'employed against them. Instead, the focus of their operations
has shifted to the area south and southwest Of Mukden..The
Communists have occupte.d all points on he Peiping4tAden ?
railroad between Iisininin and Chinchou and a large segment
of rich farm land t.o the- southeast, and. they .are p.ow prebsipg
a major assault on the communications hub of ?Chinchou.? These
operations may represent initial efforts to seize control of ?the
vital and vulnerable coastal corridor -leading from Pilanchuria ?
to the Tientsta-"Peiping area of intramural China. ? ,
In addition to the areas and -cities occupied,the Cornmu-.
nists have attained significant successes in pursuit of their
primary.objectives: the destruction. of Natioraalist units and
the disttaption of the Nationalist economy. Since I January the
Communistr.3. have annihilated six Nationalist divisions, and
they have dividedNationall?.st holdings into a series of istands,-
completely isolated from each other and from China proper
except by air. The capability of the National Government to
defend these areas is sharply reduced by the fact that supplies
-or.reinf.orcements cannot be sent in any substantial quantity., -
The ammunition shortage. as ?reported to' be particula.rly acute .
in US -e.quipped units?
At present the Nationalists still hold the industrial
heartland of Manchuria, but Colmnunist military operations
have cut off the flow of power and fuel into industrial installa-
tions, all but completely paralyzing them. The food shortage
has been made even more acute by the arrival of more refugees
from Co mny unist-held areas and by the fact that the food-
producing hinterland is now largely in Communist hands. Con-
tinued lack of food and fuel will probably eilcourage discontent
which, with Communist encouragement, can easily develop into
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civil uprising& Consequently, although bilakdon appears
nffltarily sure for the time being, thc;entire Nationalist
mJitary pccition in Ma.nchuria is threatened by the danger
ol economic colls.pse,
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5 2
-rop-seerrr?
8 4
CONTENTS
TRENDS IN
REEF? 0
?
?
? ?
ARTICLES ?
? 4 0 0 9 ?
?
?
4 ?
Pages
0 ? d 0 0 ? P ? ? ? ? IP 0 ? ? .? "?V.
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1 - 6
The Reopening of the French-Spanish
Border? . ? , ? . ? ..... ? ? . ? . .1
Chinese Nationalist Hopes for Compromise
Peace? ? ? . ?? ? ? ? ? ? ? ?
?
?-?
3
Reactions to Bevins "Western UniOn "
?
?
'5
Document No.
NO CHANGE in Caans.
-V,DECLASSIFIED
Class. CHANGED TO:
DDA Memo, 4
Auth: .DDA REG. 77
Date:
0
TS s c
Apr 77
1763
By:
This publication publication contains current intelligence exclusively and
therefore has not been coordinated with the intelligence organiza-
tions of the Departments of State, Army, Navy, and Air Force.
'&411
? ?...21
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TRENDS IN BRIEF
GENERAL
TIressure_a_l ILa_lyi9r bilateral air agreements by
several Satellite states may initiate a trend toward greater
freedom for air transport between Eastern and Western,
Europe. By the terms of the Italian peace treaty, Italy may
not deny to any UN member air rights which have been granted
to another. The fact that a US-Italian air agreement on recip-
rocal terms is ready for signature gives an opportunity to
Yugoslavia, lloland, and Rumania to demand similar traffic
rights for their Soviet-controlled airlines in Italy. Such a
development may make it possible for one of the two principal
Italian airlines which are partly awned by the US and the UK
to operate in Satellite areas.
WESTERN EUROTIE
The zseo of the French-Spanish border, scheduled
for 10 February, will have political repercussions in France
and Snain but will bring relatively little economic advantage
to either country (see page 1).
Realization of Bevi91..._pern Euro Proposals"
osals"
will be hindered by the present reluctance of the Italian
Government to join a political bloc and by current differences
between the UK and France (see page 5).
' De Gaulle's
apparent._ unwillingness to alter his concept
of the future role of labor in France will impair his ability to
win the support of non-Communist labor. Without such support,
he probably cannot come to power by legal means or govern
effectively thereafter. De Gaulle's St. Etienne proposals,
which are viewed with open misgivings by a majority of labor
leaders and with private regret by certain important members
of his own entourage, envisage a form of corporative labor-
capital-state organization and are ostensibly designed to appeal
to the working classes which he believes are tired of class
conflict, strikes, and fruitless wage increases. However,
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De Gaulle has so far failed to convince any important segment
of French labor that his proposals are not similar to the
systems used by the Vichy and the Italian Fascist regimes.
C jggneljoyisaltarri.mamg,r_taisz
have been revealed in recent quadripartite discussions of the
mining of German anproaches to France. The French still
insist that all engineering works and bridges along the Rhine
and in a considerable area east of the Rhine contain demolition
provisions. The French hold to this view despite the opposition
of the other three occupying powers and the US contention that
such provisions are unnecessary with modern military methods
and that actual circumstances would prevent the use of such
devices.
NEAR EAST-AFRICA
The 2 February report of the UN Palestine Commission
to the Security Council reflects a growing recognition of the
impotence of the UN not only to implement the partition plan
adonted by the General Assembly but to arrest the progressive
deterioration of the situation in Palestine. The inadequacy of
the measures taken thus far by the UN to fulfill this almost
Impossible task is steadily diminishing the prestige of the organi-
zation especially among the smaller powers. Such countries are
becoming cynical over the issuance of pronouncements which
they consider to be ineffective.
Grief over Gandhi's assassination and bitter ai_irea
against the extremist Hindu groups responsible for it have
temporarily lessened Hindu-Moslem antagonism in India and
have decreased the tension between India and Pakistan. Never-
theless, the Security Council discussion has failed thus far to
evolve any solution for the Kashmir dispute, and the basic
sources of friction between India and Pakistan remain. With
the removal of Gandhi's moderating influence, factional disputes
within the Congress 7'arty and the Government of India can be
expected to increase. These disputes will eventually result in a
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hardening of the Indian Government's attitude toward Moslems
remaining in India and in a serious deterioration in India--
Pakistan relations., Moreover, as grief over Gandhi's death
abates, the anger of the Hindu communitylwhich is now directed
toward itself, may be turned toward the Moslems whose insist-
ence unon the division of India will be alleged to be the under-
lying cause of Gandhi's death.
Trarkey_12resent come oN___,_he Euro arn
program arises from fears that Turkey may be asked to use
Its dwindling dollar resources for the purchase of equipment
and materials to be furnished it by the recovery program.
Turkish officials strongly feel that their country will need
additional foreign financial assistance in order to make a con-
tribution to the recovery program; they also feel that Turkey
deserves special consideration because it has continued to
resist Soviet pressure at heavy cost to the national economy.
If the financial problems arising from Turkey's military and
economic needs can be resolved and if Turkey obtains the
equipment and materials needed to increase agricultural and
mineral production, Turkey will eventually be able to make
an effective contribution to European recovery, particularly
in bread grains and coal.
Renewed atLacks by USSR on US mgll,tarLaetiyjjlgs
In Iran, although primarily designed to support the Soviet
offensive against US activities in other parts of the world, are
meant to exploit Iran's lack of canable leadership, to increase
the present tendency of the Iranian Government to adopt a
balance of power policy toward the great powers, and to further
the nationalist feeling which opposes US military aid. However,
future Soviet threats aimed more directly at Iranian interests
might arrest Iran's current nationalistic trend and strengthen
its desire for continued US assistance.
Recent chan es in t...iiitFation of the Greek Army
General Staff will delay decisive action against the guerrillas
and may endanger the success of the'whole army campaign.
The Chief of Staff has been replaced, the Commander of the
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army has been forced to resign, and the army operational
headquarters has been moved from Voles to Athens. These
changes were effected by the Athens politicians because they
feared the growing power and ambition of General Vendiris
and the possible loss of their control over the army. As a
result of these changes, there will be increased meddling in
the army by the-politicians. Lowered army morale and the
increase of barriers to cooperation between the army and
the US and UK military missions will be further consequences.
Moreover, the guerrillas will undoubtedly learn of such dis-
organization through their excellent intelligence system and
will probably take advantage of it by launching new major
attacks.
FAR EAST
? Increased hgpe among_l_Clikiese National Government
officials that a compromise peace can be made with the Com-
munists is more indicative of growing insecurity in the Gov-
erment than it is of increased possibilities for such a settle-
ment (see page 3).
'Llig_cspaltAtAtimp f ti_sg_m_ggloy_g_gja_p_i Singapore and the
Federation of Malaya, which became effective on I February,
assure the UK of continued complete control of Malaya through
the retention of "full sovereignty and jurisdiction." The
British High Commissioner of the Federation and the Governor
of Singapore are invested with executive powers no less far-
reaching than those of their prewar predecessors. Although
some protest demonstrations may occur, no serious difficulties
are anticipated in the implementation of the constitutions. The
principal opposition to the constitutions springs from the large
Chinese business community in Malaya and Singapore and from
nationalist and left-wing groups which have strong Chinese
memberships.
WESTERN HEMISPHERE
mclatAgaigatituantricanamuto will probably
refuse to sign the proposed International Trade Charter because
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it does not give them broad protection of their industrial develop-
ment by permitting wide use of quantitative restrictions and
preferential tariffs designed to protect their industrial develop-
ment, Only a half dozen Republics?including Brazil, Colombia,
Cuba, Costa Ricaoand El Salvador?apparently support the US
position that such limitation would impose major obstacles to
free trade, The other nations clearly desire a charter which
would restrict the industrialized nations and permit the un-
developed countries complete freedom of action, They are ex-
pected to take a similar position at the forthcoming Inter-
American Conference in Bogota, and, while seeking or virtually
demanding US economic assistance, most of them will strongly
resist any limitations on their activities.
The Venezuelan Government's fears of an air attack
appear exaggerated. Although anti-Government forces and
weapons may be concealed somewhere near Trinidad, ritish
West Indies, it is unlikely that these 'forces (plus the few known
now to be in Nicaragua) are capable of any serious assault on
Venezuela, unless they are assisted within Venezuela by a re-
volt headed by dissatisfied military leaders, The prospects of
such an internal development appear to be declining,
The overthrow of the Somoza-controlled Nicaraguan
Government has become increasingly unlikely, because o
Guatemala's refusal to support the conspirators in Guatemala
and the precautionary measures taken by Somoza in Nicarageza.
v
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ARTICLES
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THE REOTTNING OF ThT.,' FRENCH-SPANISH BORDER
The scheduled reopening of the French-Spanish border
on 10 February will have implications which are more important
politically than economically. General Franco will make every
effort to convince both Spanish and world opinion that the re-
opening of the border indicates that the Western Powers will
no longer discriminate against his regime and will now include
Spain in the European recovery program. If the French accede
to Franco's wishes by sending an ambassador to Madrid follow-
ing the opening of the border, Franco will be enabled to in-
crease pressure on Latin American countries to ignore the 1946
UN recommendation not to send ambassadors to Spain.
In Spain, Franco's political position will be strengthened
by the repercussions of this development. Non-Communist
Spanish Leftists, concluding that no aid can be expected from
France in the elimination of Franco, either will be drawn closer
to the Communist camp or will become more apathetic in their
opposition to the Government. Franco himself will be less in-
clined to surrender power voluntarily because of a renewed
conviction that his regime is now on the way to winning inter-
national favor and approval.
The immediate political repercussions in France will
be most pronounced in left-wing circles. The Communists will
undoubtedly attack the reopening of the frontier. The Socialist
?arty will formally object but will probably take no further
action. Other French political parties are not likely to oppose
the Government's action, although they may issue statements
declaring that this move does not indicate approval of Franco
and is not a step toward the return of Spain to the community
of Western European nations.
The French Government itself will endeavor to play down
the political overtones of the agreement and will emphasize that
the implications of the agreement are largely economic. The
economic results to France, however, will be minor and will be
little more to Spain. France will receive needed iron pyrites
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and increased fruit supplies. French local commerce in the
areas immediately adjacent to the Spanish border will benefit
slightly. Spain will get French phosphates and will have access
through France to the markets of countries like Switzerland.
However, the Spanish shortage in foreign exchange and the poor
condition of Spanish transport will prevent the extended use of
the new transit rights across France.
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CHINESE NATIONALIST HOPES FOR COMPROMISE PEACE
The growing hope among Chinese National Government
officials that a compromise peace can be effected with the Chinese
Communists is more indicative of increased insecurity in the Gov-
ernment than it IA of greater possibilities for such a compromise.
The Nationalist officials presently disposed to a compromise settle-
ment include some of the most progressive and sincere men in
the Government, However, without the joint support of the Nation-
alist conservatives now in power, these elements will, not be able
to initiate action toward such a settlement.
Among the Nationalist officials who now hope for peace,
the feeling seems to be prevalent that the Chinese Communists
would be responsive to a proposal to resume negotiations similar
in pattern to those conducted in 1946. This view ignores the fact
that the Communists now have the upper hand in the civil war
and are becoming stronger at a time when the Nationalist position
has been weakened to such an extent that even uch a stronghold
as Shanghai is threatened by mob violence and Communist infiltra-
tion. It is unlikely that the Communists would agree to a peace
which would not bring them considerable gains. Moreover, be
Communist propaganda has consistently attacked Chiang
Kai-shek, T. V. Soong, the CC Clique and others who constitute
the nucleus of the present National Government, it is even less
likely that the Communists would make an amicable settlement
with this group.
The Nationalist officials who hope for a compromise
peace also believe it may be possible to enlist the support of the
USSR as mediator. It is improbable, however, that the USSR is
willing to take an active part in a resolution of the civil war.
The Soviet Union is probably not anxious to alter the present
trends in China which are highly, favorable to the Communists.
A compromise peace, or even a truce, in the Chinese
civil war is most unlikely at the present time. Negotiations be
the two parties may be arranged, but the outcome will
probably not effect any real changes in the situation. The basic
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principl2s of the two sides, which have faced each other with
increasing bitterness for the past two decades, militate against
such a settlement Moreover, it is very doubtful that external
influence?unless exercised to a much greater extent than seems
probable at present?could make such compromise negotiations
effective.
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REACTIONS TO BEM'S "WESTERN UNION"
The successful realization of Bevins "Western
European Union" proposal will be facilitated by the gener-
ally favorable reaction of the Benelux countries but hindered
by the current positions of France, Italy, and the Scandina-
vian countries. The UK Government appears optimistic that
Bevin''s proposal can be carried out, initially through a
series of treaties similar to the UK-French pact signed at
Dunkirk in F bruary 1947. Moreover, the British apparently
believe that Western European political and military coopera-
tion, despite the immediate conflicts of interest, will develop
as a natural coronary of economic cooperation envisaged in
the European recovery program.
The Benelux countries have officially welcomed the
British lead and have thus clarified their postwar policy of
alignment with the non-Communist powers. Earlier proposals
for extension of the Benelux customs union to France- alo e
have been received without enthusiasm because of Benelux's
fear of French domination. Now, however, the Benel x coun-
tries have officially expressed their desire for concrete
economic, politicalsand military cooperation. These countries
desire more than a military defense treaty aimed at Germany
(such as the Dunkirk pact); they want the establishment of a
large-scale western bloc, including Italy, to check Soviet ex-
pansion.
The Italian Government, on the other hand, has re-
ceived BevinDs proposal with qualified enthusiasm. Sensitive
to leftist accusations of western "domination" of Italy and
wary of involvement in a group in which Italian military weak-
ness would reduce Italyrs influence, the Government clearly
wishes to continue its policy of maintaining good relations with
Eastern and Western Europe. It can be expected to defer
alignment with any olitical bloc at least until after the April
elections and in the meantime to concentrate on promoting
Western European recovery by economic means, including
trade with Eastern Europe.
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2
?
el V.1
French support for increased political and economic
cooperation with the UK, moreover, may be hindered by the
economic problems which may arise from the devaluation of
the franc, by traditioral mutual suspicion, and by differences
In policy regarding Germany.
Sweden--where most official, business, and trade
union circles are unmoved by the critical situation confront-
ing Western Europe--has officially discouraged indorsement
of Bevies proposal and has publicly declared that Sweden
has no intention of associating itself ith any bloc prior to
the actual outbreak of hostilities in a new war. Denmark con-
siders Bevies proposal vague and does not favor a military
alliance with other European countries. Norway is inclined
to approve the British suggestion, but open indorsement by
the Norwegians will probably be curbed by the attitude of the
other Nordic countries. At the Stockholm Conference on
9 February, the prime ministers will presumably make their
customary plea for greater Nordic collaboration and will
probably indorse the European recovery program:, but they
almost certainly will refrain from supporting a "Western
European tinkle' because of political and military impli-
cations.
?
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52 ?
Tp:ssotter 83
This nublication contains current intelligence exclusively and
therefore has not been coordinated with the intelligence organiza-
tions of the Departments of State, Army, Navy, and Air Force.
Document No. 00
NO CHANGE in Cas. 0
WDECLASSIFILD
Class. C'HIA:;i2D TO: TS S C
DDA Memo, 4 Apr 77
Auth: DDA 11:G. 77/17C.3
Date:\ $ By: AV_
X40..63.eiSTOET
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CONTENTS
Pages
TRENDS IN LRTEF .330000003,30300030001"Vii
ARTICLES 0 0 0 0 0 0, 6 2 0 0 O 00 0000 3 3, 3 0 3 0000 1 - 9
French Currency Stabilization . ? , . . .
. . .
.
1
Economic Outlook for the Italian Worker
. . .
.
2
Soviet Policy, in Eastern Europe . . 0 . . .
. . 0
0
4
Pakistan's Relations with Afghanistan . .
030
6
Anti-US Sentiment in the Chinese
Stuclent Movement . . . . , . . . . . ? . . .
. . .
.
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TRENDS IN BRIE F
GENERAL
The embargo on transit traffic through Germany, an-
nounced by bizonal authorities for 5 February, may result in
political repercussions disproportionate to the issue at stake.
The decision culminates several months of dispute over freight-
car exchanges between Bizonia and adjacent countries. The
principal source of disagreement has been the arbitrary French
demand that the Inter-Allied Reparations Agency declare as'ex-
ternal assets those German freight cars which were in France
at the time of the Nazi surrender, thus leaving them permanently
under French control. Pending a decision, the French refuse to
exchange German cars in France for French cars in Germany,
even on a car-for-car basis. In addition to the political conse-
quences of the embargo, its imposition at a time when maximum
utilization of all transport facilities Is vital to the European
economy will have serious economic effects.
The internal crisis in the World Federation of Trade
Unions (WFTU) (see Weekly Summary of 16 January, page 1)
has been brought to a head by the virtual ultimatum which the
British Trade Union Congress (TUC) has delivered to the
Executive Bureau of the WFTU in requesting that the Bureau
hold its scheduled meeting to consider endorsement of the
European recovery program not later than the middle of
February. The TUC threatens, if the '7FTU fails to comply,
to join trade unions in other countries in calling a labor con-
ference on the recovery .Program. The CIO has adopted a paral-
lel course of action, thus compelling the WFTU to choose between
some form of approval of the European recovery program .and
the withdrawal-of TUC and CIO. In the latter event, the Soviet
All Union Central Committee of Trade Unions will probably seek
to take over the remaining portion of the WFTU and convert it
Into a militant instrument of Soviet foreign policy.
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WESTERN EUROPE
The French dmatatiwsgmarn is not expected in the
long run to affect adversely France's political relations with
other Western European states (see page 1).
Inflation and tmemple2 niatrit continue to present serious
problems to the Italian Government (see page 2).
The Low Countries and Switzerland are showing in-
creasing interest in trade with the USSR as a means of obtain-
ing badly-needed gra.in. A Belgian-Soviet trade agreement,
concluded on 21 January and containing provisions for Soviet
grain shipments, awaits ratification by the contracting Govern-
ments. A Swiss delegation is now in Moscow, and the Dutch
plan to send a trade mission to the USSR in about six weeks.
Any diversion of capital goods from these countries to the
USSR resulting from trade agreements obviously will prevent
utilization of the diverted items in Western Europe, but the
need for grain apparently is considered overriding. Undoubt-
edly, Switzerland and the Low Countries will make serious
efforts to prevent their exports to the USSR from substantially
limiting their contributions to the European recovery program.
Recent riots in Mogadiscio and) have
aroused widespread indignation in Italy against the British
who now administer Italian Somaliland. Some 50 Italians
reportedly were killed in clashes between pro-and anti-
Italian Somalis who were demonstrating before a commission
sent by the "Big Four" powers to consider the future disposi-
tion of Italy's former colonies. The Italian Foreign Office,
alleging that the UN shows insufficient willingness to investigate
the rioting, may bring the matter before the UN. Meanwhile,
Italian Communists are taking pre-election advantage of the
incident to charge "Western imperialism" with brutality and
callous disregard of Italian dignity and are also claiming that
the incident demonstrates the subservience of De Gasperi's
Government to the Western Powers.
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Con_anunisti preparations unit of mass action,"
probably in earlyconsft
largely of the establishment of "defense" committees (es-
sentially "soviets") in all important trades and professions.
At present, the only influential committees are in the film
industry; but if the general political and economic situation
should seriously deteriorate; "defense" committees in the
aviation, automobile, and other industries, and among the
peasants, would grow in importance. Communist propaganda
In France is now directed primarily toward the peasants --
who are traditionally recalcitrant concerning tax measures;
the propaganda contends that the Government's tax program
Is a US maneuver to eliminate French agricultural competi-
tion.
EASTERN EUROPE
The USSR continues to strengthen its control. over the
Satellites but, for the present, will avoid any steps leading
to political or economic federation lest they jeopardize the
Kremlin's direct control over each individual state or run
counter to ultimate Soviet plans for absorbing the Satellites
Into the USSR (see page 4).
A new Soviet attenlisrupt the European recovery
program is apparent in Yugoslavia's proposal to convene a
conference in Brussels in order to seek a more equitable
distribution of reparations from the western zones of Germany.
Although such a conference, which would include only the
smaller nations which participate in the Inter-Allied Repara-
tions Agency (IARA), would have little effect upon the policies
of the TARA, the USSR may have instructed Yugoslavia to take
this step in the hope of creating dissension among the nations
participating in the recovery program and of directing dis-
satisfaction against the basic reparations policies of the US,
the UK, and France. Meanwhile, in disclaiming official
responsibility for the Yugoslav proposal, the USSR remains
free to exploit any repercussions from it without compromis-
ing the previous Soviet position on German reparations.
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Additional proof of Hungary s complete sy..Ntstion to
Soviet economic plans foi.;-ffie country is contained in a protocol,
signed at Moscow on 9 December 1947, by which the Hungarian
Government was forced to grant sweeping concessions and
preferential treatment to jointly-owned Hungarian-Soviet com-
panies and to 'Hungarian industrial enterprises in which Soviet
capital is. invested
A mutual assistance pact between the USSR and Finland
may be imminent. Reports that such a pact is under diseussion
have markedly increased since the appointment of Lieutenant
General Savonenkov as the new Soviet Minister to Finland, The
conclusion of such a pact would indicate the Kremlin's intention
to control Finland directly rather than to force Finnish participa-
tion in the network of alliances binding the other Satellites
NEAR EAST-AFRICA
Tlak s tan :s lack of accord wittAfalLanistan particularly
over tribal issues, constitutes an added threat to its securitY
during its current dispute with India (see page 3).
Gandhi's assassination (unofficially attributed to a
Hindu extremist) may under the circumstances have a settling
effect on the, Indian political scene. The immediate reaction
of all responsible Hindu leaders will probably be not only
intense grief but also deep shame and humiliation that the act
was committed by one of their own community. Thus, while
Gandhi's death removes the strongest force in India for modera-
tion and will eventually benefit those forces which advocate a
harsh attitude towards Pakistan ancl.the Moslems generally,
the immediate response among Hindus will probably be that
'greater caution must be taken to avoid further shame for India.
The fall of the Ii?a_ALalat, which temporarily pre-
vents ratification of the new Anglo-Iraqi treaty, will throw off
British plans for a series of Arab alliances, particularly with
Egypt, Nevertheless, Transjordan will probably accept a new
alliance with the UK, and the independent-minded King Ibn Saud,
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with whom negotiations are current, may still accept some
form of alliance for Saudi Arabia despite the resurgence of
Arab nationalism which has been brought about by the UN
Palestine decision and stimulated by Iraq's action. Despite
the present difficulties of the 'UK in establishing Anglo-Arab
_g_i
military alliancesistin 1.17. treaties with Egypt, Iraq,
Transjordan, andLSaudi Arabi, help to maintain UK influence
In the Near East, particularly in vie of the prestige lost by
the US and the USSR over the partition issue.
Iran's recent tendency toward a balance of nower
policy may make Iran a less effective bulwark against Soviet
encroachment, A trend toward strict impartiality in dealing
with foreign powers is reflected in: (I) a growing reluctance
to involve Iran with foreign loans and the attendant foreign
supervisicn; (2) efforts to reduce US authority over the gendar-
merie; (3) pressure. for revision of the British oil concession;
and (4) Irredentist agitation prejudicial both to British and
6 US interests in Bahrein. The Tranian Government, which is
confronted with agitation from leftists, the parliament, and
the press against its advocacy of the US aid program, has re-
_
verted to the traditional Iranien courses of compromise,
vacillation, and inaction.
FAR
Anti-US sentiment in nationalist China is reflected in
the cule-ent stuaa ag7ation in Chin agecities (see page 8).
Soviet preyarWons for establishing the North Korean
1.3eoplers Committee as?ch."4"TiWpe?.deiP government of all
Korea will probably be brought to completion during the fourth
session of the North Korean People's Council, scheduled to
convene 6 February.,. The Council is expected tos provide a
legal pretext for the. Committee's claim by adopting formally
the draft "Iciorean Constitution" and legal code. Although the
establishment of anew "government" may provide the USSR
with an opportunity to execute a unilateral withdrawal of
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occupation forces, it is more probable that the new regime
will "request" the Soviet forces to remain until US forces
are withdrawn from South Korea.
Renewal of Chinese Communist-National Government
peace negotiations is strongly favored by some high Nationalist
officials whose views appear to be increasingly influential in
Nanking. These officials believe that the Communists might
respond to proposals of this nature. They also are optimistic
that the USSR may assist in persuading the Chinese Commu-
nists to resume peace talks and perhaps provide its "good
offices" to facilitate such negotiations. So long as these
views are current in Nanking, the termination of the Chinese
civil war by a compromise settlement cannot be completely
ruled out.
A severe test of the_Les_a_pinci Issf of the UN Good
Offices Committee (GOC), which were accepted unconditionally
by the Netherlands Government and the RepUblic of Indonesia,
was provided by the recent holding of a plebiscite on the
island of Madura. In carrying out this plebiscite the Dutch
violated one of the six principles which provide that no plebis-
cites shall be held until six months after the signing of a
political settlement. Although Dutch representatives in
Batavia deny any knowledge of the plebiscite, Dutch forces
have been in complete control of Madura and such a vote
could not have occurred without Dutch consent and tacit support.
The absence of popular discussion of the issoes, the rapid execu-
tion of the plebiscite, and the large majority vae for autonomy
cast suspicion on the validity of the popular decision. The
plebiscite will increase the Republic's doubts as to the value -
of eventual agreement with the Dutch and may reflect upon the
usefulness of the GOC as a means of obtaining an equitable
settlement of the Indonesian dispute.
The T. 2 I i 1 1 A/ago g xess is expected to concur promptly
in 'resident Roxas' 28 January proclamation extending amnesty
to all Filipinosaccused of political and economic collaboration
with Japanese during the occupation, except those who are found
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guilty of espionage or criminal acts in support of the Japanese
or in opposition to the resistance movement, President Roxas'
action apparently closes an issue .which has been embarrassing
to -Philippine political parties since the liberation. The long-
expected amnesty proclamation reflects: (1) a recent Supreme
Court decision that merely holding Mice in the Laurel puppet
government did not constitute treason; (2) the Government's
Inability to overcome technical difficulties in prosecuting the
cases; and (3) general public and official indifference to the
collaboration issue.
WESTERN HEMISMIERE
Venezuela. between the Chief of the
General Staff, Perez Jimenez, and the Ministers of Defense and
of the Interior has created a potentially dangerous situation.
This enmity, the low morale of the Army, and the possibility
of aid from Venezuelan dissidents in the Dominican and other
Latin American Republics may diminish within the Army sup-
port for the Accion Democratica and its newly-elected Govern-
ment.
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ARTICLES
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FRENCH CURRENCY STABILIZATION
The objectives of. the French Government's devaluation
program are: (1) to make possible the stabilization of the
franc at an economically sound level; and (2) to make more
dollars available for buyjng essential goods from the 'United
States. By lowering the value of the franc the French hope to
attract dollar customers for their exports, eliminate diversion
of dollars into the black market, and revive the tourist trade.
By creating a free market in gold and dollars the Government
expects to repatriate French capital held abroad and to bring
hoarded gold and commodities into circulation? The French
believe that the operation of the free market in gold and dol-
lars will also enable the Government to determine within a
few months the proper level for stabilization of the franc.
If it obtains Assembly approval of the free sold market
proposal, the Governinent.stands a good chance of .success
achieving its aims,. Although the establishment of a free mar-
ket in gold and dollars in -France may increase the need for
further exchange controls in other countries, these repercuse
sions will in the ion run probably not affect a.d,rersely France's
political relatiOns with. other Western European states or offset
the benefits of the program to the French economy.
? Socialist opposition to the French Government's economic
program steins largely from the fact that the Government's policy
Is moving further away from the Socialist _principle of a directed
economy and in the direction of a free economy. Although a ?
compromise betWeen the Socialists and Schuman on the free
gold market measure now before the .Assembly seems likely,
Socialist opposition to Schumn's liberal economic recovery
program will probably persist and will weaken the present
Governments ability to operate as a unified,..effective coalition.
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ECONOMIC OUTLOOK FOR THE ITALIAN WORIMR
Despite efforts of the Italian -Government to combat in-
flation and unemployment, both problems continue serious and
are incapable of solutiornwithout foreign aid and its effective
use Because the basic Improvements which the Governments
program have effected have .not yet been reflected in the lives
of the worker's, establishment of public confidence in the
European recovery program is the only method by which the
Government can retain the confidence of the people between
now and the national elections scheduled for April._
One of the measures adopted by the Government was
the restriction on industrial credits. Budget Minister Einaudi
hoped that this means would force the release of hoarded dollars
and goods and thereby lower prices. These restrictions, in
conjunction with favorable attendant factors, have in fact led
to appreciable reductions in wholesale prices and to smaller
reductions in retail prices. Because the basic shortage of con-
sumers goods still exists, however, the cost of living cannot
be lowered markedly. Moreover, the heavy expenditures of
the government for aid to the needy and the unemployed are
exerting additional inflationary pressure.
Employment for Italian surplus workers, except the
relatively few who will emigrate, can be provided only by ex-
panded exports. The Government lowered the exchange value
of the lira to place Italian exports in a more favor ble position
In the world markets. The devaluation of the French franc,
however, will sharpen the competition met by some Italian
Products, and the problem of further lowering the cost of
Italian industrial production and exports is complicated by
two factors: the efforts of the Communist-dominated trade
unions to slow down production; and the legal difficulties in
dismissing surplus employees.
Pressure to force retention of supernumerary employees,
moreover, is exerted by the presence of a million and a half
totally unemployed and a third as many partially employed.
Potentially, these workers can make an important contribution
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?
to the success of the European recovery program. Toward
this end, the Italian Government has taken the initiative in the
manpower conference of Western European nations now meet-
ing in Rome. Ambitious plans for large-scale emigration of
Italian surplus laborers to Europe and South America are not
likely of immediate fulfillment.
US interim aid supplies if effectively used should per
the maintenance of Italian industry at its present level of
production and employment. A resurgence of the sporadic
strikes of the past months will not seriously affect industrial
output. On the other hand, for some months to come, the
employed workers can expect little improvement in their
living conditions and the unemployed, little possibility of find-
ing work. If bread grains are not available in sufficient
quantity?a matter beyond the control of the Italian Government--
all Italian workers will find their standard of living lowered
still more. Only the assurance of the European recovery pro-
gram, therefore, can give the Italian worker confidence in his
economic future under the present Government.
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SOVIET POLICY IN EASTERN EUROPE
The USSR has recently intensified its efforts to obtain
direct military, economic, and political control over the East-
ern European Satellites, This intensification is revealed in
the rapid conclusion of a series of mutual assistance pacts
now linking nearly all the Satellites, the signing of Iongerange
trade agreements by the USSR with noland and Czechoslovakia, ?
and the increasing emphasis on the Cominform as the principal
organ for the implementation of Communist policy in.the area.
The USSR will continue to strengthen its controls over the
Satellites but will take no action which. will either: (1) weaken
the direct ties binding each individual Satellite to the Kremlin;
or (2) run counter to the Kremlin's plan for ultimate absorption
of the Satellites in the USSR.
The immediate objective of the USSR is the organization of
a unified military force in Eastern Europe for defensive purposes
as well as for possible overt support of the Markos regime in .
Greece.. The Rea-nano-Hungarian mutual assistance pact nearly
completes such a system of intertwining alliances between the
Satellites. The recent pacts have differed from those concluded .
prior to 1.947 by the USSR with oland, Czechoslovakia, and ?
Yugoslaviatln that they are directed against any attacker rather
than aga.lest .Germany alone. ? Ilereover, the USSR is not' directly
involved. The Soviet Union, therefore, has forged a military
weapon which will insure united Satellite action in Greece should .
the occasion warrant but will simultaneously minimize the risk
of direct conflict between the US and the 'USSR.
Although these pactsprovide for sweeping economic co-
ordination between the participating nations, they do not presage
political or economic union in the near future,. Rather, they
represent a transitory stage in the development of the Satellites
as members of the USSR. In atidition to providing the machinery
for the integration a the Satellite armed forces with the Soviet
Army, these pacts can serve the USSR as basis for propaganda
designed gradually to minimize the traditional rivalries which
formerly divided. the Eastern European nations,
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The USSR is exereising, its actuial political and ecoriontic
control over the Satellites through Coinmunist Party channels.
Although the Kremlin may originally have planned for a eventual
Ball= federation, recent evidence indicates that this plan may
now "beabandoned or its implementation postpon.ed for some time. /
The PRAVD.A editorial of 28 January, which disavowed ulgarian
PremiOr Dimitrov's prediction of a Balkan-Danubian customs
union and eventual federation, may have been prompted by the
Kremlin's realizatlan that the many practical difficulties ob-
structing consummation of such a plan made DillflitrOV'S speech
premature. Moreover, the Kremlin may have feared that announce-
ment of a Balkan federation would hasten acceptance of Bevin's
proposal for western European union. More important, however,
the USSR probably does not consider conditions in the Satellite
states sufficiently secure to permit any loosening of the ties
binding the Kremlin directly with each country. As long as the
Kremlin exercises through the Cominform direct operational
control over each Communist Party, unified Satellite action can
be achieved more effectively than by delegating this authority
to a federation head.
,e
In obtaining economic control over the Satellites, the.
USSR can gain greater advantage by promoting direct Soviet-
Satellite trade than it can by encouraging inter-Satellite trade
through a formal federation. The recent long-term tra 'e agree-
ments signed by the USSR with Czechoslovakia and Poland
indicate that the USSR does intend to integrate each Satellite
economy directly with the USSR. Similarly, Soviet economic
exploitation of Hungary and Rumania is indicative of the desire
of the USSR to extract the maximum economic benefits from
each country and thereby retard the growth of trade between
the Satellites themselves. Such a policy, by insuring that each
country's economy is meshed directly with that of the USSR,
will facilitate eventual absorption of the Satellites into the
Soviet Union.
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PAKISTAN'S RELATIONS V.,TITH AFGHANISTAN
? During the current: dispute with India, Pakistan's security
is additionally threatened by a dispute with Afghanistan. De-
spite the ties of a common religion and the, dependence of
Afghanistan upon Pa,ktstan"s facilities for essential foreign trade,
the Afghan Government has championed the interests of the
Pathan tribes, in their dispute with the Pakistan Government and
has demanded that Pakisiian sign a treaty granting an autonomous
"country's to the Pathan tribesmen in Pakistan as a condition to
establishment of normal diplomatic relations between the two
nations. Afghanistan has further sponsored the tribes by claim-
ing the right to participate in any agreement concerning Kashmir
which involves the Pathans.
The 4f million Pathans, 3 million of whom live on the
Pakistan side of the Afghan border, directly affect the vital
interests of Afghanistan. Although the Pathans have traditionally
disdained the peoples to their east, Moslems and non-Moslems
alike, the Afghans fear that closer ties with a Moslem Pakistan
may eventually impair Pathan bonds with the Afghans and thus
diminish Afghanistan's military potential:: Moreover, the Pathans
are RICM7 exerting strong pressure for repayment of past favors, .
and have threatened violence against the Afghan Government,
which they are probably capable of overthrowing. Despite
official disclaimers of irredentist sentiment, the Afghan Govern-
ment's sponsorship of the Pathans is prebabiy also motivated
by the possibility that a Pathan state, if created, might ultimately
merge with Afghanistan.
For Pakistan, which has rejected Afghanistan's demand
regarding Pathan autonomy, the situation is extremely embarrass-
ing. If open warfare develops between Pakistan and India, the
support of the 3 million tribesmen will be vital to the Government
of Pakistan. If Pakistan is unable to maintain control over the
tribal areas, the Pakistan northwest frontier would be incapable
of defense, At present, it appears that religious sentiment will
override other considerations and prevent an open break between
Afghanistan and the tribes on the one hand and Pakistan on the other.
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If the Government of Pakistan should seriousi.y offend the tribes,
however, an anti-r,akistan alliance among '?fghanistan, the
l'athans, and. India is possible,
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ANTI-US SENTIMENT IN THE CHINESE STUDENT MOVEMENT
. The student movement in nationalist China is at present
strongly anti-US in sentiment? primarily because it has identified
the US with the present Chiang Kai-shek regime, Students in
China traditionally reflect the sentiment of a politically articulate
segment of the Chinese people, and their influence is widespread.
Not only was the attitude of the students a significant causal
factor hi the Chinese rejection of the Versailles Treaty, but
student antagonism toward the Japanese was influential during the
193G's in shaping Chinese resi.stance to Japan. At present, the
political position of the Chinese student movement has wide re-
percussions among Chinese intellectuals and members of the
upper classes in China,
The stdent movement has consistently been intensely
nationalistic in nature. In its recent stages, this anti-foreign
sentiment has become directed largely against the US, and rela-
tively little animosity has been expressed toward the USSR.
In the students opini,en, the Soviet Union is not piny, as is the
US, of rendering support to a government from which the, students
have withdrawn all loyalty.
. Student antipathy to the present regime springs largely
from the Governments actions In disbanding student demonstra-
tions by force, in suppressing politically active professors and
students, and in failing to grant students financial support while
continuing to expend money and men for a "criminal civil war."
Because the students have concluded that anything which extends
the life of the present regime is inimical to their interests and
to the interests of China as a whole, they blame the US for
enabling the National Government to extend its life span.
Even though most students are not Communists and
have no real understanding of the meaning of Communism, or
of its implications in the international conflict, they are sympa-
thetic to any force which opposes the National Government.
Consequently, they are ripe for Communist infiltration and
propaganda, already effective in some aspects of the student
movement.
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In recent months, a more marked undercurrent of
student unrest has led to constant agitation in Chines large
cities. The students eagerly accept any excuse for an anti-US
demonstration, incidents involving ,US troops have been greatly
magnified and have served as the occasion for parades and
threats of violence. The 1643 January rioting in Canton,
basically a demonstration against the British, rapidly took on
an anti-US complexion when it spread through other major
cities in China. Unless the National Government finds it within
its power to take steps to appease student complaints, under-
lying discontent will probably continue and will be punctuated
by periodic outbreaks. These outbreaks will continue to have
strong anti-US overtones and will probably constitute a re-
curring strain on US -Chinese relations.,
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5U 69 0)
Ter4tregEir
CONTENTS
Pages
TRENDS IN BRIEF , ........ e aC???04?.?;fi
ARTICLES . .
................... 5
The Kashmir Situation l
The New Korean National Council .. . . . . . 3
Outcome of the Chinese Elections . . . . . . . ,, 4
82
Document No.
-4/10
NO CHANGE in Class. 0
Nd DECLASSIFIED
Class. CHA.;C:D TO: TS S C
DDA Memo, 4 Apr 77
Auth: DDA ECG. 77 1.763
Date: 6 By: 10
TOSPREigit&T
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TRENDS IN BRIEF
GENERAL
Further disinteintion in the international trade union
movement is indicated by the recent decision of the Interna-
tional Metal Workers and the International Transport Workers
to call their own conferences for the purpose of deciding their
role in the European recovery program. These meetings,
which will be held in March, represent a decision by these
traditional craft organizations to proceed outside the frame-
work of the World Federation of Trade Unions (WFTU). This
decision follows closely the apparent breakdown of the two-
year-long negotiations between the international craft organiza-
tions and the WFTU for amalgamation of the two organizations.
This development, will confront the WFTU Executive Bureau
with one more critical situation in addition to the problems
connected with the endorsement of the European recovery
program and recognition of the new French organization,
Force Ouvriere (see Weekly Summary of 16 January, page I).
The position of the USSR on the Securit Council veto
continues to be adamant. Following the request of the General
Assembly, the five permanent members of the SC met recently
to consult on the question of the veto. All suggestions for
modifying the use of the veto were rejected by the Soviet dele-
gate, Gromyko.
WESTERN EUROPE
UK denials of reports of an imminent devaluation of
the pound are probably valid. Although it is true that any gov-
ernment would deny such a step prior to its implementation,
there are nevertheless sound reasons why the UK would not
devalue its currency at this time. While devaluation would
stimulate exports, present sales resistance abroad to high UK
prices has not yet become very serious. Moreover, since the
foreign-exchange earnings of each individual export would be
less if the pound were devalued, sales abroad would have to
be expanded to some extent merely to overcome the loss
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consequent to devaluation. In addition, devaluation would pro-
duce an internal economic disturbance because it would in-
crease prices of imported commodities in terms of the pound.
When high British prices in competitive world markets become
a serious obstacle to the achievement of export targets, the UK
Government may be compelled to reconsider its present position.
French Communists and Gaullists may seize upon the
food shortages anticipated in March to rouse popular sentiment
against the Schuman Government. The expected sharp reduction
in French csreal 3ollections will coincide with the low point in
French food supplies generally and may encourage De Gaulle
to make a new bid for power and stimulate the renewal of Com-
munist efforts to sabotage French recovery and the European
recovery program.
Although Italian labor is sail into Communists and
anti-Communists over strikes based on political issues, the
success of the Communist-led Italian Confederation of Labor
(CGIL) in forcing compliance with most of its demands in
the recent bank employees' strikes has demonstrated that
Italian labor elements are still capable of substantial solidar-
ity in support of strikes protesting adverse economic condi-
tions. Thus, if the CGIL confines its activities to economic
issues, it can remain a potent force, and its predominantly
Communist leadership can increase its prestige by success-
fully exploiting the inevitable future opportunities to conduct
economic strikes.
Italy's moderate Left (Republicans and right-wing
Socialists), heartened by its recent inclusion in De Gasperi's
broadened Government and by the successes of anti-Communist
French labor, may attempt to form a political bloc which may
Increase the strength of the Italian anti-Communists. This
new grouping,to be called the "Democratic League," could
develop into an integrated force to fight Communist domina-
tion of labor and to oppose the Communist-led bloc in the
April national elections.
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EASTERN EUROPE
Although Soviet Industrial production for 1947 has
surpassed the production levels of 1946, the recent report
of the Soviet State Planning Commission indicates that the
total output is still below the 1940 level and continues to
lag behind the average annual increases foreseen by the
Planning Commission. Mining and manufacturing industries
In general showed moderate progress during 1947, trans-
portation some-what less, while construction was poor.
Current Polish-Soviet trasitasotiations in Moscow
will probably result in a long-term trade agreement which
will increase considerably the volume oi Polish-Soviet trade
and will represent another major step in the integration of
the Soviet and Satellite economies. Any increase in Polish
exports to the USSR in 1948 will probably not reduce the
present volume of Polish exports to the West, but will come
from expected improvement in Polish production in 1948.
As a result of the new agreement, however, long-range
Soviet demands on the nolish economy can be expected to
grow. Such a development, by curtailing Poland's ability
to purchase industrial machinery and equipment from the
West, would retard the present rapid development of Polish
industry. Moreover, it would seriously reduce Poland's
future ability to send coal, food, and other exports to West-
ern Europe.
Friction within the Greek Government has seriously
jeopahlized its stability and will probably result in the fall
of the Cabinet. Although Prime Minister Sophoulist left-
centrist Liberals have attempted to cooperate in the US-
sponsored coalition, Cabinet solidarity is being increasingly
disrupted by the maneuvers of Vice Premier Tsaldarist
right-wing Populists (who hold a majority in Parliament).
A break-up of the coalition would have serious implications
for Greece and the US aid program. The Populist or
Populist-contrc411ed Cabinet under ?Tsaldaris, which would
prcibably succeed the coalition, is likely to be short-lived,
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but while in' power could be expected further to weaken
p pular morale by repressive measures against its political
opponents, as well as the Communists, and to impair the
? US aid program through inefficiency and stubborn resis-
tance to AMAG economic and administrative reforms.
NEAR EAST-AFRICA
Jaidia a.nd Pakistan are arLdemaked
over Kashmir, the threat of actual conflict appears to have
lessened (seepage 1).
The UN Palestine Commission convinced that it
cannot function or even move freely in Palestine without
an international police force, will undoubtedly ask for armed
support when it reports to the Security Council on 1 February
but will have difficulty in obtaining such assistance. The
establishment of a joint big-power police body is unlikely.
Morewer, it is doubtful that a sufficient number of small
countries could be found which are ready to contribute
troops to an fsite-enational police ferce and at the saline time
are sufficiently neutral to obtain US .and Soviet approval.
- The Iraqi Regents sudden denunciation of the newly..
signed Anglo4raqt Treaty is a severe, hut. not necessarily
overwhelming, blow to UK diplomacy in the Near. East. In
stating that the treaty could not be ratified because it did
- not "represent the national aims," the Regent reflected the
panic of Government officials over widespread rioting on
- the part of nationalist-inspired students. Although Premier
jabr appears confident that he still can obtain acceptance of
the treaty, the egentss statement will at least delay ratifi-
-
cation for several weeks and?may lead to the, fall of the jabr
Cabinet?and the indefinite postponement of British plans for
a ?comprehensive series of similar treaties withSaudi Arabia,
Egypt, and the other Arab states.
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FAR EAST
The formation of the Korean "National Council"
represents an attempt by the extreme Rightists to establish
a claim to the assumption of power in Korea following a
breakdown of UN negotiations (see page 3).
Ultra-conservative control of the Chinese Nat onal
Government has in no way been weakened by recent or
current elections (see page 4).
Austraja_pn reoccu ation with defense problems is
.indicatecfby the plans of the Government during 1948 to:
(1) undertake a large scale mineral research program;
(2) continue control of the strategic mica industry; (3) form-
ulate a fuel control policy and investigate synthetic fuel '
production in the US, the UK, and South Africa; and (4) ex-
amine the state of Australian defenses against atomic attack,
including the feasibility of dispersing key industries and
replanning strategic centers.
The Chinese National Government is expected to react
strongly and bitterly when it learns of the terms of a recently-
completed surplus ammunition contract between the US and
the Philippine Government. This contract, which covers
the purchase by the nhilippine Government of approximately
92,000 long tons of US surplus ground and aviation ammuni-
tion, stipulates that this ammunition cannot be delivered to
any other government unless demilitarized.
WESTERN HEMIS T.) HERE
Prime Minister Mackenzie King's retirement, sched-
uled for August, is not likely to affect the dominance of the
Liberal Party nor to produce any major changes in Canadian
foreign and Commonwealth policy. Mackenzie King's retire-
ment is believed conditional upon the world situation; in the
event of a serious crisis he could probably be prevailed, upon
to continue in office. Louis St. Laurent, the present Minister
of External Affairs and a leading French-Canadian, is most
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likely to succeed Mackenzie King both as Party and govern-
- ment leader.
The develo ment ofmtroleum resources in the
Western Hemisphere has been furthered by e recent actin
taken by the Argentine Government in encouraging long-term
agreements (rilling, refining, and marketing) with privately
-
owned foreign and Argentine oil companies. Peron's action,
In face of Nationalist attempts to force the Government to
expropriate the privately-owned oil properties, shows cogni-
zance of the need for foreip capital, equipment, and technical
aid in the development of Argentines state-controlled oil
industry. Dominant factors in Peron's decision are: (1) Ar-
gentina s increasing demand for oil under the five-year plan;
(2) the present policy of cooperation with the US; and (3) a
desire to incre2.se dollar reserves through participation in
the European recovery program.
The..._E!_dual assumption of po er in Peru by the mili-
tary group presently dominant fin the T-rei?edviaz?i-C-abinet is an
increasing possibility. The leader of this group has demanded
that ,President ustamente remove those mayors who are mem-
bers of Apra (the non-Communist leftist party whose support
brought about Bustamentes election to office in 1945). This
development Indicates an intensification of the political dispute
between Apra and the military-supported conservative Alianza
Nacional which made a quorum unobtainable during the six-
month session of the Peruvian Congress in 194'1. Apra, however,
is unlikely to resort to armed force, even 1 Bustamente should
agree to a curtailment of its influence.
Current activitit2E_Ni.s2LaRm....as?voh jltat_laries In
Guatemala indicate that anti-Somoza forces may have achieved
a working unity. The group has acquired a US bomber and re-
portedly has received munitions from Cuba. The effectiveness
of this new wave of anti-Somoza plotting, however, will probably
be circumscribed by Somozes continued control of the Nicaraguan
National Guard and by the reluctance of the chief of the Guatemalan
_armed forces to permit official Guatemalan participation in rev-
olutionary efforts to rid Nicaragua of General Somoza.
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ARTICLES
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THE KASHMIR SITUATION
Even though India and Pakistan are currently dead-
locked over the Kashmir question' it is possible that UN
jurisdiction in the Kashmir dispute will temporarily fore- ?
stall armed conflict and perhaps permanently prevent it.
The present impasse arises over India's insistence that a
UN-sponsored plebiscite in the disputed state must not only
come after the cessation of hostilities but also must follow
the election of a popular government under a constitution
to be drafted by a popularly-elected constituent assembly.
Under such conditions, the outcome of any plebiscite would
be heavily weighted in India's favor. Meanwhile Pakistan
continues to demand that the UN Commission make a com-
plete investigation of all the? issues between the dominions
and now asserts that it may be forceci to take military action
against India if this much scope is not given the Commission.
The establishment of UN jurisdiction of the Kashmir
dispute may provide both parties with a means of escape from
an overcostly venture Government of India leaders, who once
appeared ready to attack Pakistan if their appeal to the UN
did not bring favorable results promptly, now seem willing to
make certain sacrifices in order to avoid conflict. Gandhi's
unexpected fast, which might have proved fatal, thus making
Government of India leaders morally responsible for his
death, was. instrumental in creating this willingness to nego-
tiate. Dakistants leaders, despite the bitterness of their cur-
rent charges that India is guilty of genocide and of unjustified
occupation of the princely state of junagadh, undoubtedly
realize that war with India would be suicidal and that both "
dominions would benefit by arbitration.
The ability of Pakistan to restrain tribal raids in
Kashmir, pending a peaceful determination of Kashmirrs future
status, is crucial to any settlement.) U firm Promises that the
Kashmir Moslems will have an opportunity to affiliate with
Pakistan are backed by the recommendations of the UN Com-
mission, the raiders may be persuaded to withdraw, particularly
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since looting is becoming less remunerative and because
the tribesmen are needed at home for spring harvesting.
The establishment of a divided occupancy of Kashmir
under UN auspices, with "akistan troops In the north and
Indian troops in the south, might help provide mutually
acceptable conditions for a plebiscite.
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THE NEW KOREAN NATIONAL COUNCIL
The probable aim of the recently-formed "National
Council," a coalition of South Korean extreme Mghtists, is to
induce the UN Commission to hold immediate elections for
South Korea alone, following an anticipated Soviet refusal to
permit the Commission to operate in North Korea. The
Council has therefore offered its support to the UN Commis-
sion, but it is clear that if Soviet obstinacy causes a protracted
delay in obtaining a UN settlement, the National Council will
constitute itself the legal government of South Korea and
agitate for immediate recognition.
For this reason, and because the present political
situation in South Korea is rapidly deteriorating, it is neces-
sary that elections be held in the near future, with or without
UN observation. In the absence of outside intervention, any
election held in South Korea within the near future will bring
a victory for the extreme Rightists and will legalize the
National Council's claim to governmental authority. .
Such a rightist government would probably be headed
nominally by Rhee Syngmanophile Kim Koo would wield effec-
tive control. Both men have extreme expansionist tendencies,
and Kim is reportedly intriguing to obtain Chinese Nationalist
support for the eventual annexation of North Korea. Kim is
apparently offering Chiang Kai-shek immediate military aid
in Manchuria in return for future Chinese assistance in the
conquest of North Korea. Regardless of the practicality of
these reported aims, it is quite certain that the future Rhee-
Kim coalition will be characterized by corruption and dicta-
torial rule at home and military and expansionist adventures
abroad.
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OUTCOME OF THE CHrNtsE ELECTIONS
Although recent electi ns for China's National Assembly
and the current elections for the Legislative Yuan are ostensibly
designed to give China a democratic government, they will not
alter the basically unrepresentative character of the Chiang
Kai-shek regime, These efforts to implement the new Chinese
Constitution will -result in de jure changes in the formal functions
of the Government, but the same men who now exercise control,
either in an official capacity or from behind the scenes, will
continue to do so,
The recently-elected National Assembly (which is to
hold its first session on 29 March and *will have the power to elect
the president and vice president of the Republic and amend the
Constitution) will be dominated by the Kuomintang and will be
unrepresentative of public opinion in China,. The ew Legislative
Yuan will be similar in character. This situation may at least
in part be attributed to the conditions under which the'elect'ons
have been held, In large areas of China not under Nationalist
control, no electiOns can be conducted, In Nationalist areas, ?
widespread illiteracy, economic dislocation, and an overriding
concern for -local and family allegiances have affected the
validity of the elections, and the Nationalist Government has .
capitalized heavily on Chinese unfamiliarity with democratic
procedures, Despite the Government's claim that 150 million -
votes were cast in the November elections (a statement probably
made in order to establish a right to stay in power during the
six-year period for which the National Assernbly"s candidates "
were elected), there was considerable'apathy among the people,
and. probably .less than 50 million votes were actually .cast., The ,
voting returns on-two-thirds of the seats indicate that over 90%
of the Kuomintang's candidates were elected,
There is no indication that any substantial reform may be
expected in China. Elements inimical to US interests, such as the
CC Clique, have permeated most of the Government's economic
and financial agencies; they dominate the Kuomintang machinery
and control the secret police. The elections have in no 'way
weakened or even challenged this control, which continues to grow
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stronger and to stifle the progressive elements within and out-
side the Government. Any attempt to reform the Chinese
Government, whether internal or external in origin, will meet
with vigorous opposition from this dominant right-wing group.,
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TOZEIrerrar Si
CONTENTS
, Pages
TRTI?TDS IN BRIEF i - iv
ARTICLES
Internal Crisis in the WFTU .
Italian Pre-Election Preparations
3
Soviet Political Maneuvers in Germany
5
Present British Relations with Arab Countries
6
The Military Situation in China
7
Civil Disorder in the Philippines
9
Interim Federal Government in Indonesia
10
Doculaent
NO CHANGE in Cla 0
Ss.
&ass. CIIZD TO: TS S C
111 DECLASSIFILD
DDA Ificulo, 4 Apr 77
Auth: DDA 'REG. 77 1763
Date: 0 Id
Ted=1?eilt1ET
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TRENDS IN BRIEF
GENERAL
The Soviet-Communist bloc with WFTP may attempt
to delay the CIO-TUC effort to force a decision on the questions
of labors forthcoming role'in the European recovery program'
and the adrraission_of the French Force Ouvriere to WFTU mem-
bership. Such 'a delay may lead to the formation of a rival inter-
national trade union organization when the labor delegates from
the 16 CEEC nations meet in Brussels in April (see page 1),
WESTERN, EUROPE
Titaprii_Lag elections in Italy, barring a CommurAist
insurrection, are expected to be an inconclusive contest be
the 'leftist bloc and the centrist Christian Democrats (see
page 3).
Soviet poliiis11.22232ieuvtEDI in eastern German continues
to be directed primarily at suppressing the Christian Democratic
Union (see page 5).
The Soviet-controlled "German pr@sigg:? Comms for
Unity and aiiPeace7 originally organized by Soviet officials
for propaganda purposes during the Landon CFM, appears to be
taking on the appeance of a permanlat political group with a
nationalist Viatf.og-,..-o. The increasinguoe of the organization by
Soviet officials as a substitute i-or various "anti-fascist" blocs
indicates that the USSR may plan to merge all political parties
in its Zone into the People's Congress and thereby to eliminate
the few civil liberties which are still permitted in the Zone.
Zeasimiralatersakaasgs...e.atlylmainmeausi by the
activities of Arab nationalists in Cairo and Rabat. A '`Committee,
for the Liberation of Arab Maghreb" (Morocco, Algiers, and
Tunisia) has been formed in Morocco under Abd el Krim,. Con-
currently, the Sultan of Morocco has charged France with failure
to carry out its obligations under the Protectorate Treaty and
has officially raised with the .French Government the issue of
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independence. To prevent this tension from reaching dangerous
proportions, France will be obliged to adopt either a more con
dilatory or a more oppressive policy in Morocco and through-
out French North Africa, The Liberation Committee has de-
clared its loyalty to the Sultan who apparently has emerged as
the top Nationalist leader. The announcement of the Committee
that it hopes to avoid any direct action against France indicates
that the Sultan will eventually appeal the Moroccan dispute to
the UN Security Council.
Althonght3ire's agat .21._a,22Ettliiii_ne European re-
covery program and of increased economic cooperation with
the UK is not likely to undergo drastic changes, the continued
existence of the De Valera Government will be threatened in
the general election of 4 February. De Valera has announced
that he will not participate in any new government unless his
Fianna Fail 'arty is returned to power with a clear majority,
and Present indications are that the Party may achieve some
less than a majority, although it will probably remain
the strongest in Parliament. Thus, a coalition government of
minority parties -appears a possibility, but such a coalition
would probably not be stable, and in the consequent new election
De Valera would stand a good chance of returning to power.
NE AR EAST-AFRICA
The UK is takin advantacte of the Palestine situation
to strengthen its influence and prestige throughout the Arab -
world (see page 6), .
The Gandhi die during his current
fast threatens to bring serious repercussions. Although his
influence on the India masses has declined in the last few years,
the 78-year-old nationalist leader still commands such venera-
tion as to enable him to exercise a restraining influence in
Indian politics. Gandhi's death would benefit the rivals of Nehru
(whom Gandhi has supported), particularly Minister of Home
Affairs natel who has probably refrained from attempts to seize
power mainly for fear of incurring Gandhi's wrath. More ominous,
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however, is the probability that reactionary and militant Hindu
elements would proclaim Gandhi a martyr to the Hindu cause,
thus seizing on his death to bring about exactly what Gandhi
opposes--a new wave of communal massacres and the out-
break of the threatened war against Pakistan.
FAR EAST
In the Chinese civil war, the National Government at
present does not adequate- materiel or /flan-
power to cope with the increased scope of Communist operations
(see page 7).
The nhilionine Government is meeting with substantial
difficulties in its efforts to combat widespread lawlessness and
agrarian discontent (see page 9).
The Netherlands Indies Government has completed the
preliminary steps in the formation of a Dutch-sponsored United
States of Indonesia (see page 10).
WESTERN HEML9nHERE
UK-ArEntine trade agreement negotiations, under way
since last summer, have made practically no progress, because
of the inflexible bargaining position which Argentina has taken.
In negotiations thus far, Argentina, whose financial condition
has been rapidly deteriorating, has refused to accept the tradi-
tional British imports and has appeared to be temporizing in
the hope that it might force the UK to pay for Argentine agricul-
tural products at high prices in convertible sterling or that it
might sell these products for dollars under the European re-
covery program. Although UK dependence on Argentina and the
weakness of the British bargaining position require that the UK
be conciliatory, it is clear that the British cannot pay Argentina
in convertible sterling in the required amounts. The UK un-
doubtedly hopes that Argentina will eventually be dissuaded
from expecting gold or dollars for its products.
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A diElinct gain for anti-Communist labor_groups in
Latin American was made by the organization of the Inter
American Federation of Labor (CFAT) during the recent con-
ference at Lima. The new CIAT includes representatives of
nearly half the organized workers of Chile, Cuba, and Peru
who were formerly members of the Conamunist-dominated
CTAL. The immediate effect of the crAT will be: (1) t
reduce the relative importance of the CTAL in international
labor matters; (2) to give non-Communist labor in the West-
ern Hemisphere greater influence in future meetings of the
ILO; and (3) to impr e the trestlge and influence of local -
.unions fighting Communism by supplying them wilh a valuable
source of information and assistance The future influence
of the CIA.T, which was formed with-AFL support, will depend
upon its ability to prevent Communist infiltration and to avoid
AFL oolicies unpopular among Latin American workers.
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ARTICLES
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INTERNAL CRISIS IN THE WFTU
A crisis in the international labor movement may be
precipitated by two major questions which will come before
the Executive Bureau of the World Federation of Trade Unions
(WFTU) at its February meeting in Paris: whether to accept
the CIO proposal that the WFTU endorse the European recov-
ery program and whether to admit to membership Force
Ouvriere (F0), the anti-Communist offshoot of the French CGT.
These critical questions will require of WFTU the' most far-
reaching decisions it has been called upon to make since its
Inception in the fall of 1945. Untirrecently the Western
European and US trade unions organizations, which have pri-
marily emphasized trade union objectives, and the Soviet-
dominated labor organizations, which have stressed the aims
of the USSR in international politics, have preservedIthrough
uneasy.compromisesla facade ,of unity within the WFTU.
Although the British Trades Union Congress (TUC)
and the American CIO are committed to the endorsement of
the European recovery program at the WFTU meeting their
- lack of a fully-coordinated plan may facilitate a Communist
maneuver to sabotage the program within the WFTU. Present
strategy among Communist members of the WFTU Executive
Bureau is believed to consist of delaying a decision concern-
ing participation in the recovery program until the WFTU
Congress convenes in September.
Another complication connected with the endorsement
of the European recovery program arises in the AFL proposal.
to hold an April conference of trade union organizations of the
16 CEEC countries, for the purpose of considering labor's
share in the recovery program. If effective action is blocked
at the February WFTU meeting, this later conference will
provide Western non-Communist labor organizations with a
new opportunity to endorse support of the recovery program.
Moreover, this meeting (officially sponsored by Benelux) may
result in the formation of a new international trade union
organization. The possible emergence of a rival international
trade union organization is extremely disturbing to European
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Communist leaders who hope to preserve the WFTU as the only
comprehensive international workers organization.
Whether to admit the newly -formed Force Ouvriere to
membership presents the WFTU with a second major issue.
Communist resistance to FO will be led initially by the French
CGT which can be expected to resist bitterly any attempt to
admit the new organization and to contest jouhaux's right, as
the leader of FO, to a seat in the WFTU Executive Bureau.
Communist opposition will be tempered during the discussion,
however, by the realization that the withdrawal of French
Socialist Labor from the WFTU may encourage defections by
other non-Communist labor elements. On this issue, as on
the proposal to act on the European recovery program, the
Soviet-Communist bloc within the WFTU will probably attempt
to postpone final action until its biennial Congress meets in
September. However, in view of the increasing tension between
the USSR and the West, the possibility of working out a com-
promise between the WFTU Eastern and Western factions on
this problem, as well, as the endorsement of the European
recovery program, becomes increasingly remote.
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ITALIAN PRE -ELECTION PREPARATIONS
Italian Communists have recently been engaged in
organizational activities and maneuvers which may be prepa-
rations for a general strike, for an insurrectionary attempt,
or for a campaign to improve Communist prospects in the
coining national elections. Barring a Communist Attempt to
seize power by force, the spring elections (which will probably
be held in late April) are expected to be an inconclusive con-
test between the leftist bloc and the centrist Christian Demo-
crats. Because both groups are fairly evenly matched, it is
unlikely that either will gain a real majority in the Assembly, ,
and it is probable that each will obtain 30-40% of the Assembly
seats. The moderate Left (the Republicans and Saragat Social-
ists) will presumably make a poor showing. The rightist
parties, however, may receive as much as 20-25% of the vote
and thus hold the balance of power following the elections.
? Under these circumstances,the Right would probably
support a centrist government, but such an alliance would have
as its only basis the common struggle against Communism.,
The innate differences between the Center and Right would
lead to constant friction within the coalition. Progressive and
clerical elements in the Christian Democratic Party would be
under attabk from the conservative or anti-clerical elements
of the Right. Moreover, the alliance might alienate many
moderate leftists who are now cooperating with the Christian
Democrats and, might cause them to join, the Communist-led
opposition.
The Left (Communists, Nenni Socialists, Labor Demo-
crats, and the remnants of the Action Party) is making inten-
sive political preparations for the elections. It has assumed
the names of the People's Bloc and the "Popular Democratic
Front for Liberty, Peace,and Employment,' The coalition is
sponsoring efforts to obtain for the factory workers and peasants
a definite voice in management through the establishment of labor-
management councils in industry and a "constituent assembly of
the land," Leftist political power is being further consolidated
by a. new "league of all Communes" which have Communist or
Socialist mayors and councilmen.
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The Right, as a countermove has attempted to unify
Its scattered parties into a "National Bloc" led by former-
Premier Mitt. The rightist pre-election platform will be
based upon a policy of protection of the middle class from
leftist-sponsored radical measures. The Right has also de-
clared itself in opposition to the Christian Democrats because
of The latter's ties with the Vatican.
T:ie Christian Democratic Party, which is in effect
a coalition of conservative and progressive elements joined
together principally by a common respect for the Church, is
not attempting to form a bloc. It is campaigning against Corn-
=mist political strikes and is strongly supporting VS aid for
Italy's rehabilitation. The moderate Left may not formally
ally itsell with the Christian Democrats in the elections but
will certainly support these centrist objectives.
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SOVIET POLITICAL MANEUVERS IN GERMANY
Using terrorist and pressure tactics, the Soviet Mili-
tary Administration in Berlin is proceeding rapidly with the
suppression of the Christian Democratic Union (CDU) in
Germany's Eastern Zone. All CDU officials who refpse to
endorse the Soviet-controlled People's Congress and to re-
pudiate Jakob Kaiser (who, Soviet officials recently declared,
IS no longer chairman of the zonal CDU) are being summarily
replaced.
If the USSR can complete its purge of party leaders
before Kaiser, who is now in the US sector of Berlin, can
convene a CDU zonal convention, the delegates to the conven-
tion will vote him out of office. If this action is taken, the
CDU in the Western Zones would possibly repudiate the East-
ern 7one group and thus end the present national character
of the party. Such a repudiation would be a blow to the possi-
bility of German unity.
The Soviet action may boomerang. Kaiser, himself,
has dropped his previous attitude of diplomatic restraint and
has openly and bitterly denounced the Soviet Military Admini-
stration. He has, furthermore, been supported by many able
CDU leaders. Kaiser has been promised control of a news-
paper by General Clay who has agreed also to double the paper's
circulation. Because Kaiser is,widely regarded as the most ?
honest politician in the country, his exposes of Soviet dupli-
city could be most effective in counteracting Soviet propaganda.
Kaiser may emerge as another Schumacher to plague the USSR
and its representatives in Germany.
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?
PRESENT BRITISH RELATIONS WITH ARAB COUNTRIES
Although Arabs have long felt that the dominant position
of the UK in the Near East made the British the archenemy,
many Arabs are now beginning to feel that the refusal of the
UK either to support or to enforce partition in Palestine indi-
cates that the British may prove valuable friends in the fight
to prevent the establishment of a Jewish state., Meanwhile,
the UK is quietly improving its relations with the Arab nations
while outwardly maintaining a pretense of complete impartiality
in Palestine.
Several recent developments have indicated improved
understanding between the UK and Iraq, Egypt, and Saudi Arabia.
An Anglo-Iraqi sterling agreement,providing that Iraq remain
within the sterling bloc, was concluded in December. More
recently, the Anglo-Iraqi treaty of alliance was renewed and,
although no details have yet been published, UK peacetime mili-
tary air rights in Iraq have almost certainly been retained.
Egypt and the UK have recently concluded a mutually satisfactory
financial agreement and may soon re-open negotiations on the
Anglo-Egyptian treaty. British efforts to improve relations with
Saudi Arabia are to be seen in the recent invitation extended to,
Prince Feisal, the Foreign Minister, to visit London in February
and in Anthcny Eden's current visit to Ibn Saud in Riyadh.
The UK is giving military aid to the Arabs by fulfilling
its long-standing arms contracts with Iraq, Transjordan, and
Egypt. The British in nalestine appear to be covertly selling
arms and ammurition to the Syrian Government (possibly with-
out the sanction of the UK Colonial Office). Several hundred
British ex-army officers are reported to have volunteered for
military service with the Arabs, and the Foreign Office has indi-
cated that there is no effective means of preventing them from
enlisting.
Despite sincere attempts by the UK to keep the peace in
Palestine 'until the termination of the mandate, there is little
doubt that the British have already decided that partition is a hope-
less solution for the Palestine problem. They are, consequently,
attempting to safeguard their vital economic and strategic interests
by strengthening their influence with the governments and peoples
of the Arab world.
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CONFIDENTIAL CHINA: COMMUNIST CONTROLLED AREAS 1 JAN. 1948
52?
104? 108?
112? 116' 120? 124?
128' 132?
13
1360
The international boundaries shorm on this
map do not necessarily correspond In all cases to
tIe boundaries recognized by the U. S. Corm.
rr.ent.
52'
Manchouli
HAIL AR
0 100 200 300
MILES .
0 100 200 300
MINNIT
KILOMETERS
Sui.hua H 0
4.c
A' G
40
36
KUEI.SOI
/ C."\....
VI '..ao-an
c''?
P.
4. ._/. i ?,5 .11
r r'."-.)
,..
?Z? ( .1.?
c, .2 JEHOL I) SSI
j (..-
i
1 r -? ": 6
C./ Ch'ih.feng
i. 4
Hsin.li.r
.1c.SNAft CH'DANG
:
......
,..... Yeh.pai.shou
7's.s.
Pe piao
Hu lu.jaloj
t.1 OtAiGANI \ ?,,,,C.PFCNG,T
.1 ,nnc... (..../. '.. ..r/ Ying.k'ou
T ng. ,...,"
osien ChSangli
TieA.4';;4:1
' l'INcLiYntUSN'''
OPEH
Tang -Ku
CHIA.MU-SSU
KIANG
Link cu
UKDEN
? I" cp.
Chien- n
ch'ang
K'uan.
tien
ch iao
riAN.TUNG
?Port..or. wren %
Arthur PORT ARTHUR
' NAVAL BASE AREA
. (Excluding Deafen)
U.S.S.R. ZONE
OF OCCUPATION
Te.hsien
Wei.hsien
Ch Ing.tao
U. S. ZONE
OF OCCUPATION
Cheng.
HANG.AN.
(Sian) . ./e."-'...."'".\\:.
? H O''''N
C....'"-.1..1?1
32?
)
-7 7 cg:
....A
11:) "k
SZECHWAN ? - 11' C:2
H a g.pei &YVIU:titi?
kWU. ..
o .1.. 0 t's., Kas
C.FANG
A. G. ... ..-/HANG.
Ch'ung.ch'ing 1., . ir s9 ,
(Chungking) \ .......-r- ' -.-1 ........, f* ...
o?-. ..) CHOU
,...-.1 N G CJ 'O_
p. .. _.."... i ....) }IUNAN
L.
? \ ?-ss...
KWEICH.CPA' ..... <
liang \
Nen
A .
FENG
128' 132?
.JHONG KONG
(BO
40?
36?
CHIN.KIAN
) HUPE
Ps;
Han-kT
108? 112?
1160
SOUTH
CH I NA
Yin-hsien?
ANG
120?
HAINAN
CONFIDENTIAL
Scale same as on main map.
San -pa
1120
U.S. 41,400.1
10896 Map Branch, CIA, 1-48
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TIM MILITARY SITUATION IN CHINA
The current Chinese Communist offensive in Manchuria,
seventh in a series which began a little more than a year ago,
demonstrates strikingly the extent to which the Nationalist mili-
tary position has deteriorated durinc, the year. The focus of
Manchurian operations has shifted gradually soutirwarti, with
Communist forces driving deeper into Nationalist territory.
Initial Communist offensives in the winter of 1946-47 were on
a small scale and confined to the area north of the Manchurian
capital, Changchun, but subsequent operations covered broader
areas and extended over longer periods of time. The seventh
offensive, launched in mid-December of 1947, has brought the
civil war for the first time to the outskirts of Mukden, major
Nationalist bastion in Manchuria, and has resulted in the inter-
diction of all rail lines into and within Manchuria. The recent
declaration by the Communists of their intention to conquer all
Manchuria during 1948 appears to be a realistic estimate of
their capabilities.
Broad Communist strategy over the past year has been
to contain Nationalist forces within separate geographic areas,
to confine the Nationalist units in these areas to the large cities,
and then to deny them sufficient supplies of food and fuel. Re-
sultant military and economic attrition is reducing the amount
of men and materiel which the Communists need to take these
cities. Currently, this process of regional containment and
attrition has reached a very advanced stage in Manchuria; it
Is well advanced in North China and is beginning to develop in
Nationalist areas along the Lunghai railroad. If the Communist
units in Central China succeed in isolating the Nationalists to
the north, a Communist penetration into China south of the
Yangtze can be expected to follow a similar pattern.
Current Communist military activity in North China,
such as the recent attacks in the Peiping area, and on Kaifeng
and Chenghsien, may be considered diversionary efforts designed
to keep a maximum number of Nationalist troops occupied and on
the move while causing the greatest possible damage to rail and
water transport routes. Communist thrusts at the Yangtze River,
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both to the east and west of Hankow, threaten to cut river
shipping to the coast from agriculturally rich Szechwan
Province and the Hankow industrial area. This activity
along the Yangtze may also represent initial Communist
efforts to move organizational cadres across the river and
Into the areas to the south. The Nationalists at this time
do not appear to possess adequate materiel or manpower
to cope with the increased scope of Communist operations.
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-CIVIL DISORDER IN THE PILIPParES
The recent refusal by Luis Taruc, leader of the central
Luzon agvarian disindents known as the Hukbalahap, 0 surrender
his peasant "army" and Presideht Rozace declaration that he
will not deal with Tame or "any other bandit" have heightened
the problem of es.ablishing law and order in-the Philippines.
PreVious to this development, the Philippine Government
has not only ma,de an effort to combat widespread.kwlessness by
regular police measures but has also attempted to solve the
specific problem of -organized agrarian discontent through
political as well as police measures. This far, the Philippine
Government has achieved little success with. either method. The
current impasse, vshich has widened he rift between the Govern
ment.and E.grapigra'diseldents has apparently caused the
Government, to malze?its most determined effort to date to secure
at least a temporary settlement of one element of the problem
by liquidation of Vhe Hultbalahap. through 'police measT.Ares.
Such measures are unlikely either to solve the basic ?
problems of agrarian unrest.or to.bring about the surrender of -
enough allMai to reduce cp,zrrent iawlessness.substantially_. Never-
' theless, the Government% ?ellortS.to licauidate. the Hukbalaha9 may
determine whether the Philippine distil&ances are supported from
Manila by US, Soviet; rind Chinese Commult4LtZ fa;.? the fa..3.acces
of maintaining a. state- of terrorism, or whether a chronit siitlation. ?
and the presence of vulnerable US interestsare being az-plaited .. ?
by the Philippine Government in an attempt to gain additional US
assistance,. ?
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INTERIM FEDERAL GOVERNMENT IN INDONESIA.
Th.eIirninary steps in the formation of a United States
of Indonesia (USI) have been completed by the Netherlands
Indies Government. Following the announcement by the NEI
Government of the formation of an "Interim Federal Govern-
ment," the Dutch authorities on 13 January installed a Pro-
visional Federal Council composed of representatives from
seven of the ten non-Republican adminstrations which have
been established in Dutch-held territories. Four of these
represented areas which the Dutch, prior to the "police action"
on 20 July 1947, had recognized as under de facto Republican
authority.
The Good Offices Committee, aware that the formation
of separate states in former Republican territory would preju-
dice the Republic's position in its negotiations with the Dutch,
had declared that these states should be formed only after
both sides had withdrawn their forces and the civil administra-
tion which existed prior to 20 July 1947 had been restored.
The Dutch refused to accept these views, and the GOC then
recommended that plebiscites be held under GOC supervision
after the signing of a Dutch-Republican political agreement.'
These plebiscites would determine whether these areas wished
to join the Republic or to form another state in an eventual
United States of Indonesia. The Dutch have acceded to these
suggestions under strong US pressure which led the Dutch to
fear that future US financial aid for the reconstruction of the
Indies might be withheld. Concurrently, however, the Dutch
are proceeding with the establishment of the interim govern-
ment on the grounds that such a government has been requested
by. representatives of the non-Republican areas and that it would
advance reconstruction, the restoration of order, and the revival
of trade.
Because the Indonesians are inexperienced in electoral
processes and will therefore tend to vote for the regime cur-
rently in power, Dutch establishment of an interim federal gov-
ernment in non-Republican Indonesia will insure a plebiscite
decision favoring separation from the Republic and adherence
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to the UST. Such an outcome will establish by legal means
the limitation of the Republic's area of control which has been
brought about by the Dutch "police action." The Republic is
now faced with the alternatives of joining the USI as one of
eleven states er of remaining apart but drastically reduced
In size. The Republic will maintain that its recognized de
facto authority over areas of Sumatra, Java, and Madura has
been infringed and will resist the perpetuation of the new
regimes under their pro-Dutch leadership. This development
will tend to convert the basic Dutch-Republican dispute into
one between pro-Dutch Indonesians and those favoring the
Republic as the vehicle for Indonesian nationalism, Conse-
quently, the Dutch will be better able to argue to the UN that
the Indonesian question is purely internal in nature and that
Security Council intervention would be f.mproper. The ex-
clusion of the UN on these grounds would give the Dutch more
freedom to promote the formation of the USI under non-Republi-
can Indonesians and thereby to retain influence in the Indies,
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J U
T4a1WWEET
CONTENTS
Pages
TRENDS IN BRIEF I - iv
ARTICLES
- 11
UK Dependence upon the European recovery
progrin
1
British Policy toward the USSR .
2
Effects of Economic Deterioration in Spain . .
3
The Financial Crisis in Trieste
4
Establishment of the Rumanian Republic
5
The Arab Legiongs Role in Palestine
7
Danger of War Between India and Pakistan . .
9
Problems Facing Independent Burma
10
Critical Phase of NET Negotiations
11
DOCM8Ilt 1.10.
NO C11.0GB fv:). Class. 0
14 DECLASSIT!IVD
Class. CiirCITLD TO: TS S
DDA 'Memo, 4 Apr 77
Auth: DDAREG? flJ
7 1763
Date
Ta124MgeltEr
80
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T7t7NDS IN BRIEF
C:213.\TEli
liraTiCatiOr. :^c7 meri;nraraithe WFTU by Force
Ouvriere (FO), the :2'...wly-formed offshoot of the French CGT,
will acid another cerfroverstal issue to those already tending
to split the WFTU. A7.though final action may be taken only by
the wFri Congrece -711ich meets in Brussels in October, its
Executive Zureau eau admit new members provisionally, and
FO is expected to 7.7.1:1 admission vith the support of the mem-
bers representing fr.? CIO, the British, Dutch, Chinese, and
French labor movements in the WFTU. Leon jouhaux, sponsor
of FO, still casts 77,1:wets vote in the WFTU Executive Bureau.,
Although 3Fcrce.CLayri.,9W...ms 1.2220.0 recently
by the aelherence of L00,003 members of autonomous unions,
basic political differences have already begun to cause friction
between the more radical newcomers and the jouhaux-led group
of former CGT non-Communist leaders. The new adherents
advocate for FO a stronger leftist position, decreased control
of the economy by the state, and more direct trade union par-
ticipation in management.
WESTERN EUROPE
Present economic planning of the UK Government indicates
that the UK is relying on substantial benefits from the European
recovery program. The only alternative to such benefits will
be further retrenchments, which will have grave consequences
to UK domestic stability and foreign policy (see page I).
UK foejgn policywill probably undergo no substantial
change In the near future, but the UK will stiffen its attitude
toward the USSR and cooperate more fully and openly with the US
(see page 2).
Accelerated economic deterioration in Stain is confronting
Franco iih some difficult political decisions and may cause him
to reshuffle his Cabinet (see page 3).
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EASTERN EUROPE
US-UK ability to curb Yugoslav infiltration of Trieste
will be crippled unless the impending financial crisis in the
US-UK Zone of the Free Territory of Trieste is resolved by
. 15 January (see page 4).
The forced abdication of Ki Michael and the estab-
lislunentOTWRumanian "opular Republic culminate a two-
year drive for power by the Communist Party and foreshadow
further action by the Party to consolidate its position fully
(see page 5).
Soviet economic prissure on Austria has recently been
heavy and sustained, The USSR is presumably preparing the
ground for bilateral negotiations with the Austrian Government,
In the event that quadripartite agreement on the Austrian treaty
is not reached. It is possible that the Austrian Government, in
its anxiety to obtain a definitive settlement, may prove sus-
ceptible to such an approach
Evidence in the Moscow press of growing Soviet interest
in ChinaiciaTIO1Whir?a7?lore aarow ve Soviet role in Chinese
affairs. The USSR, however, is not likely at thisAto establish
a closer relationship with the Chinese Communists. It has
elven renewed indications that it is not ready to abandon its
rtcorrect" attitude toward the Nanking Government in favor of
open aid to the Communists in China's civil war. Increased
Soviet activity could, however, be directed toward obtaining
concessions from the Chinese, including Chinese cooperation
with the USSR on Japanese peace treaty issues, or the extension
of Soviet influence in China's border regions.
The Soviet press and radio have reacted violently to a
recent series of Voice of America broadcasts comparing the
real wages of US and Soviet laborers. This is the first occasion
on which Soviet propagandists have specifically refuted Voice
of America assertions, and the vigor of the reaction reveals that
US propaganda has found a sensitive target. The extent of Krem-
lin concern is indicated by the fact that Soviet leaders, in deciding
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upon such a coun.ter-offensive, have assamed the calculated risk
of widely publicizing Voice of America broadcasts.,
NEAR EAST-AFRICA
.
The ordan mArab Legion will be the strongest rnili7
1.120?0,faVeiSa ...OM VT% sZirs/aM?is
tary force available to the Arabs, in Palestine even if It. loses its
UK subsidy and its British -officers following the ending of the
British mandate. The possibility that King Abdullah of Trans-
Jordan may seize the 'Legion for his own use is causing some
concern among the nierdi3ers of the Arab League (see page 7).
The der of war between India and Pakista.n has arisen
once agajn over the 1