CURRENT INTELLIGENCE WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A000400070001-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 17
• Document Creation Date: December 15, 2016
• Document Release Date: May 18, 2004
• Sequence Number: 1
• Publication Date: November 26, 1954
• Content Type: REPORT

'CONF1DE,T1A Lr
Release 2004/06/24: CIA-RDP79-00927A0A6E@002 1 4
OCI NO. 2112
26 November 1954
CURRENT
1NTF=LL1GF=NCF=
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CENTRAL INTELLIGENCE AGENCY
OFFICE OF CURRENT INTELLIGENCE
OSD & DOS review(s) completed.
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CONFIDENTIAL
DOCUMENT NO.
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CLASS. CHANGED T(}j,.Tjg AS W
AUTHL H
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THIS MATERIAL CONTAINS INFORMATION AFFECT-
ING THE NATIONAL DEFENSE OF THE UNITED STATES
WITHIN THE MEANING OF THE ESPIONAGE LAWS,
TITLE 18, USC, SECTIONS 793 AND 794, THE TRANSMIS-
SION OR REVELATION OF WHICH IN ANY MANNER TO
AN UNAUTHORIZED PERSON IS PROHIBITED BY LAW.
The Current Intelligence Weekly has been prepared prima-
rily for the internal use of the Central Intelligence Agency.
It does not represent a complete coverage of all current
situations. Comments and conclusions represent the im-
mediate appraisal of the Office of Current Intelligence.
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THE SOVIET WORLD o o , . o , , o , , , , , o , , , , Page 4
Soviet efforts to block ratification of Paris
agreements--WPC conference--Orbit aid to Viet Minh--
Khrushchev's latest tours.
CURRENT SOVIET TACTICS ON "ATOMS FOR PEACE" AND
DISARMAMENT a . , . . . o 0 . . o . . . . 0 0 o a o Page 6
Recent procedural concessions by the USSR on dis-
armament and the "atoms-for-peace" plan have given a
"new look" to the Soviet position on disarmament.
However, the USSR apparently remains unwilling to
accept any effective disarmament plane
COMMUNIST HARASSMENT OF OFFSHORE ISLANDS LIKELY TO
CONTINUE a . . o , , , , . . o , , a , , , . o . , , Page 8
Chinese Communist harassment of Nationalist-held
offshore islands is expected to continue through the
winter. The Communists are currently concentrating
on the Tachens, in what may be an effort to induce a
Nationalist withdrawal from these island outposts.
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SCELBA CABINET'S INTERNAL DIFFICULTIES GROWING . a . Page 13
The Scelba coalition in Italy seems increasingly
beset by internal dissensions The uncertain intentions
of Amintore Fanfani, secretary general of the dominant
Christian Democratic Party, and the disruptive tactics
of that party's right wing are factors dimming the
present government's prospects for survival.
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CURRENT SITUATION IN IRAN . . . . . . . . . . . . . . Page 15
Now that the oil dispute with Britain has been
settled, the Iranians must face up to long-neglected
problems of economic and social reform and of devel-
oping a sound mili'tar y establishment.
PEIPING'S ASIAN TRADE DRIVE HAS POLITICAL GOALS . . . Page 17
Political objectives clearly have come first in
most of Communist China's trade negotiations with other
Asian countries during the past year. The principal
aim has been to help dissociate non-Communist Asian
states from the West; in some cases, defiance of Ameri-
can and UN trade restrictions has been encouraged with
success.
26 Nov 54 CURRENT INTELLIGENCE WEEKLY Page 3
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THE SOVIET WORLD
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Molotov's offer of 20 November to postpone the Soviet-
sponsored European security conference if the West will delay
ratification of the Paris agreements seems designed to put
the blame on the West for preventing an all-European conference,
thus justifying a rump Orbit conference in Moscow. Several
Communist spokesmen have said that a conference will be held
on schedule, with or without Western attendance. The immediate
purpose of such a. conference would probably be to draw up an
"all-European " pact in order to give concrete form to the
Soviet proposal which has been only vaguely outlined to
Western Europe.
Communist propaganda has emphasized that the Orbit must
take measures to defend itself if the West "sacrifices" European
security for West German remilitarization. Molotov implied in
his statement on 20 November, however, that such Orbit measures
may not be considered until after ratification and implementa-
tion of the Paris agreements.
So far Moscow has appeared unwilling to make any signifi-
cant concessions. On the Austrian issue, on which a real con-
cession would cost the USSR less than anywhere else in Europe,
Soviet officials of late have not gone beyond vague platitudes.
The Czech ambassador in Belgrade. expressed his opinion that
the USSR might accept an Austrian treaty, for example, and a
high Soviet official in Austria spoke optimistically about
some "interim" solution.
Speeches at the World Peace Conference which ended in
Stockholm on 23 November emphasized German rearmament and the
London agreements as the priority propaganda targets. These
speeches, rebroadcast by Moscow, also gave some attention to
those Asian issues on which American aggressiveness may be
alleged. The size and statureof the Chinese Communist dele-
gation reflect Peiping's increasingly important role in
interna"-ional C:orm3unist affairs.
On 17 November Peiping announced the arrival of a Viet
Minh delegaticn to discuss restoration of cotmunicationc and
transportation facilities and the promotion of economic
relations. Although military aid to the Viet Minh has been
continuous, this was the first official hint from Peiping
of any forthcoming economic aid program to the Viet Minh.
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There has been no announcement of a Soviet aid program
or of a concerted Orbit campaign for economic assistance since
the Geneva conference. This is in contrast to the immediate
Soviet and Chinese offers of large-scale reconstruction for
North Korea following the Korean armistice. The Communist
failure to announce a program of assistance to Ho Chi Minh
suggests a desire to avoid undermining Ho's appeal in South
Vietnam as the sole defender of "unity, independence and
democracy," or giving any pretext for large-scale Western aid
to South Vietnam.
Inside the USSR, party first secretary Khrushchev, who
returned to Moscow on 30 October after a month's tour in China
and the USSR, last week resumed junketing activities--this
time to Tadzhikistan, Uzbekistan, and Tashkent. Khrushchev's
last two trips have been fairly extensively publicized, and,
as a result, for the last two months he has been receiving more
personal publicity than have other Soviet leaders. While this
seems somewhat contrary to the principle of collective leader-
ship, the publicity is at present considered a fairly logical
concomitant of Khrushchev's extensive inspection activity.
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CURRENT SOVIET TACTICS ON "ATOMS FOR PEACE" AND DISARMAMENT
Recent procedural concessions by the USSR on disarmament
and the "atoms -for -peace"plan have given a "new look" to its
position on disarmament. Soviet proposals on a control mecha-
nism, a balanced reduction in armed forces, and the use of the
Security Council veto indicate, however, that the USSR remains
unwilling to accept any effective disarmament plan.
Recent Soviet tactics have been timed to influence West-
ern defense planning and to give apparent substance to Moscow's
world-wide policy on coexistence. The new Soviet disarmament
proposal was presented to the UN on 30 September as Western
ministers in London were attempting to find a substitute
formula for EDC. Similarly, as French and German leaders met
in Paris in October, Vyshinsky agreed to join the West in
sponsoring in the UN a procedural disarmament resolution re-
viving the five-power subcommittee for further negotiations.
The USSR has tried to connect the problems of general
disarmament, the "atoms-for-peace" plan,. and the German re-
armament. It has insisted that rearmament-of West Germany
is incompatible with general disarmament, and has complained
that the "atoms-for-peace" plan does not include a ban on
atomic weapons. Although Vyshinsky implied on 16 November
that the USSR no longer connected the "atoms-for-peace" plan
with general disarmament, there will be future opportunities
for the USSR to insist again that the two are inseparable.
Moscow's twin objectives seem to be to gain time and to
suggest that agreement on world disarmament is now possible.
The USSR may believe that it can delay implementation of the
Paris agreements at least until five-power UN subcommittee
talks are held.
The USSR voted in favor of the "atoms-for-peace" plan
on 23 November, probably because of the popularity of the
plan, the rapidity with which the West has moved on it,
and Moscow's reluctance to bear the onus for sabotaging it
now. The Soviet delegate said that his vote reflected the
USSR's support for "principles of co-operation in the field
of peaceful uses," but not for the provisions which "narrow
the scope" of the proposed agency. The USSR can therefore
be expected to revive its objections before the plan is
carried out,
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The USSR has expressed particular opposition to an
agency which would not be directly responsible to the
General Assembly and the Security Council. Vyshinsky told
Ambassador Lodge on 16 November that the USSR was concerned
over possible "leakages" or illegal diversions of fission-
able material. He said the USSR was not trying to prejudge
the relationship of the proposed agency to the UN, but
wanted to make sure it would operate within the charter pro-
visions relating to the role of the Security Council.
Another Soviet objection to the plan is that Communist
China, East Germany, and others would be barred from the
scientific conference which has been scheduled and from the
proposed agency. Vyshinsky made a special effort to open
the conference to "all states which desire to participate."
Moscow may attempt to seize the propaganda initiative
from the West by making limited quantities of radioactive
materials available to some underdeveloped countries before
the "atoms-for-peace" plan can be put into operation. The
Iranian delegate to a recent locust control conference in
Moscow was told that the USSR would make radioactive isotopes
and certain unspecified instruments available to Iran for
research.
On the question of general disarmament, Moscow has
given no hint that it will materially alter its positions
on control machinery, reduction of armed forces, or the use
of the veto in forthcoming negotiations. On the vital
question of a control organ, Vyshinsky opposed aerial surveys
and the creation of a supranational organ with powers to
impose sanctions. He agreed that the control organ could
make recommendations to a state, but that only the Security
Council could impose sanctions.
On the reduction of armed forces, the USSR apparently
plans to continue its insistence on a percentage cut--which
would perpetuate the USSR's advantage. Vyshinsky said on
27 October that the USSR would stand by its one-third-
reduction plan "until a better and more effective plan was
worked out."
The USSR has not shown that it is especially fearful of
nuclear war in the near future. Moscow probably believes
that in the long run disunity among the non-Communist nations
will allow the Communists to continue to arm while proclaim-
ing the advantages of "peaceful coexistence."
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COMMUNIST HARASSMENT OF OFFSHORE ISLANDS LIKELY TO CONTINUE
Chinese Communist harassment of Nationalist-held offshore
islands is expected to continue through the winter. The Commu-
nists are currently concentrating on the Tachens, in what may
be an effort to induce a Nationalist withdrawal from these island
outposts (see map, p. 10). At a minimum, the Communists
apparently hope by maintaining tension along the China coast
to accentuate differences between the United States and its
allies with respect to Nationalist China.
Communist amphibious assaults on all three of the major off-
shore island groups--the Tachens, the Matsus, and the Quemoys--
will remain possible throughout. the winter, as the weather
generally clears for several days at a time during which an
attack could be made.
Assaults on the Tachens and Quemoys would be costly, however,
even against Nationalist opposition alone. The Tachens are
defended by 11,000 American-trained and -equipped regulars plus
3,000 guerrilla troops. The Quemoys have about 50,000 regulars
and 1,350 guerrillas.
Of the major island groups, the Tachens now appear most
vulnerable to Communist harassment short of an invasion. These
islands are at the end of Taipei's longest supply line, more than
200 miles from ports in northern Formosa.
Communist air power can hamper the Tachen supply line by
attacks on vessels approaching the islands and by raids on the
one good harbor. The Nationalist air force could do little to
prevent such attacks, and the Tachens commander is reported to
have been told he can expect little if any air support.
The Communists could also hinder supply operations by
artillery fire from islands to the north and west. American
advisers believe that fire from these islands could make the
anchorage difficult to use on clear days.
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The Nationalists' three destroyers and five remaining
destroyer escorts, together with their smaller vessels, have
been considered sufficient to assure Nationalist naval superi-
ority over the Chinese Communists. The recent loss of one of
its major combat vessels, however, may discourage Taipei from
risking further such losses in the Tachens area. Should the
Nationalists halt patrols by their major vessels near the Tachens,
the islands and shipping to them would be more vulnerable to fire
from Communist ships.
The Tachen garrison now has food and general supplies
sufficient for 120 days, with enough ammunition for 15 days of
continuous fighting. If the supply lines to Formosa were cut,
these stocks would fall rapidly to critically low levels.
The Communists could also weaken the Tachen garrison by
repeated bombing and artillery attacks on targets on the islands
themselves. Such attacks could make it difficult for the
Nationalists to keep road nets open. Even more serious would
be the destruction of the reservoirs holding the islands' scanty
supplies of water.
Short of supplies, and under repeated attacks, the
Nationalist garrison on the Tachens would certainly deteriorate
in morale. This would be hastened by Communist capture of
smaller outlying islands to the north and south of the Tachens.
The Yushans and Ichiang to the north, both of which have been
bombed, and Pishan and Nanchishan to the south, are lightly held
and could be taken by the Communists at any time.
The current Nationalist intention is to stand and make a
fight for the Tachens if necessary. If faced with a weakening
Tachen garrison and the loss of smaller islands in the Tachens
command, however, Taipei might decide to withdraw its forces
from the area.
This pattern of Communist harassment could be extended to
the Matsus and Quemoys. The latter have been shelled inter-
mittently since early September.' The Communists were also
reported on 18 November to be preparing artillery positions
on the mainland northwest of the Matsus.
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SECRET
SCELBA CABINET'S INTERNAL DIFFICULTIES GROWING
The Scelba coalition in Italy seems increasingly beset
by dissension over domestic policies and personal conflicts
among its supporters. Efforts to step up essential socio-
economic reform and restrictive action against the Communists
are already being seriously handicapped. The uncertain
intentions of Amintore Fanfani, secretary general of the domi-
nant Christian Democratic Party, and the disruptive tactics
of that party's right wing are factors dimming the prospects
for the present government's survival.
The Scelba government is finding the difficulty of operat-
ing with a thin parliamentary majority increasingly aggra-
vated by disharmony among its supporters. In early November
Vice Premier Saragat actually threatened to pull out of the
cabinet unless certain steps were taken to convince his Demo-
cratic Socialist Party that the other coalition parties fully
supported the government's socio-economic reform program.
A crisis was staved off only when Saragat backed down
on these demands--largely because of pressure from within his own
party. Fanfani and the secretaries of the Democratic Socialist,
Republican, and Liberal parties did jointly reiterate support
for the government's original program, but this agreement failed
to meet Saragat's insistence that a new program be negotiated
and that the Republicans enter the coalition. In addition,
Fanfani rejected Saragat's demand that he and other members of
the Christian Democratic Party's left wing join the cabinet as
a pledge of full support of the government's policies. It is
thus still possible that the Democratic Socialists, whose 19
seats in the Chamber of Deputies are needed for a government
majority, may withdraw at a later date.
Scelba may seek to strengthen his cabinet by a reshuffle;
the American embassy in Rome believes this may be attempted
before the end of the year. Fanfani is perhaps the key person
in the present situation, and his actions may determine
whether the present government survives and the orientation of
any successor. Fanfani has recently been devoting much time to
reorganizing and revitalizing his party to cut down the Commu-
nists' popular appeal, particularly in south Italy.
Fanfani is generally considered an opportunist. There
are indications that despite his protestations of support for
the Scelba coalition, he is working for a change of govEr n -
ment, possibly to a purely Christian Democratic one based
on an alliance with the right.. or even to one based on an
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alliance with the fenni Socialists. If his intentiQnu are.
actually along these lines, he would clearly strengthen his
poeltion by remaining o.utside.of the cabinet'now and allowing
interparty frictions to discredit the present coalition.
`If the present four-party arrangement is dissolved and
the Nonni Socialists continue unwilling to break with the Com-
munists, the Christian Democrats will be compelled to seek
rightist support for a parliamentary majority. The right wing.;
of the Christian Democratic Party has long pressed for such a
move. Giuseppe Togni, a right-wing leader, is reported to be
seeking support for the formation of a united anti-Communist'
front spearheaded by the Christian Democrats, with himself as
"spiritual leader" and "front runner" for former premier Pella,
another right-wing leader. Togni is said to have the support
of the Vatican and of Catholic Action leader Gedda, who has
consistently favored a Christian Democratic alliance with the
right in'an anti-Communist crusade.
Developments over the past six months indicate that a
Christian Democratic government-based on rightist support would
rest on precarious foundations. The Monarchists.have split
into two parties as the result of personality conflicts, and
.there are at-least three factions in the neo-Fascist Italian
Social Movement with strongly divergent views. There is even
doubt that the rightist parties, despite their protestations,
would wholeheartedly back a program to crack down on the extreme
left.
Most important, a Christian Democratic alliance with the
right,.committed to drastic action against the Communist Party
and a soft-pedaling of land and tax reform, would probably
greatly increase the leftward trend among the electorates some
40 percent of which now supports the Communists and Nenni
Socialists. Alliances of the center and rightist parties for
various local elections this past year have in some cases-
resulted in a net increase--partially protest votes--for the
leftists. A center-right alliance on the national level now
would probably lead to further gains for the leftists in the
1956 local elections, and might even lead to a leftist victory
in the next national elections, scheduled for. 1958,
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FEERET
Now that the oil dispute with Britain has been settled,
the Iranians must face up to long-neglected problems of eco-
nomic and social reform, and of developing a sound military
establishment.
Effective political opposition to Prime Minister Za-
hedi's regime has not yet developed. Centers of antagonism
have evolved around individuals and Zahedi's relations with
the Shah, which have been uneven. Basic differences which
were suppressed in the interest of the oil settlement are
again coming to the surface. Special interest groups will
now increase their pressure for legislation favoring tribes,
landlords and merchants. Demands for sweeping reforms are
being voiced in the Majlis as its members begin to goad the
government for immediate results in tax reforms, education,
health and labor.
The Senate and the Majlis are already disagreeing over
the way to invalidate some of the legislation passed in the
Mossadeq era. Zahedi probably will never again be able to
drive through legislation by as large a majority as that
which he and the Shah managed to achieve for ratification of
the oil agreement.
The prime minister is con.ronted immediately with the
rising cost of living, foreign exchange shortages, and the
need to stabilize the currency. Additional funds are neces-
sary to meet budget requirements and probably for an increase
in government workers'pay. Although Zahedi has promised that
oil revenues will be devoted exclusively to long-range devel-
opment programs, as provided by law, he will almost certainly
feel compelled to divert some of the oil income to immediate
needs. Such action is in part dictated by traditional Irani-
an unwillingness to increase government revenues by such
means as tighter enforcement of income tax laws and closer
controls over foreign exchange, which would strike at the
prerogatives of the classes controlling the government.
Zahedi and his cabinet are trying to draw up a program
with the Economic Council for co-ordinating all economic and
financial activities of the government. The purpose of the
program would be to ensure the best use of American aid and
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oil revenues:,. Bills will be submitted to the Majlis for re-
forming the land laws and for reorganizing the Tobacco Monop-
oly,,the Customs Department, and the Income Tax Bureau in
such ways that these three major sources of revenue will be
able to provide funds sufficient to meet most of Iran.'s nor--
ma].'administrative expenses.
Iran will receive about $420,000,000 in oil revenues by
January 1958. The United States announced on 2 November that
it was making available $127,000,000 in gifts and loans to
tide the country over the three-year period prior to its re-
ceipt of maximum annual oil revenues. About $53,000,000 of
.this amount is to be used for short-term development projects,
and this may ease some of the popular disappointment which is
expected when oil operations fail to produce immediate pros-
perity.
The effect on the armed forces' morale of the recent
Tudeh roundup--which resulted in the conviction of'70,offi-
cers and the execution of 24 for treason--is not clear. Pre-
sumably the arrest of nearly 500 officers, many of whom ap-
parently had never been under suspicion before, will tend to
make the remaining officers. suspicious of each other. How-,
ever, the prompt trials and convictions may ultimately .
strengthen the armed forces by convincing. the majority that
the government is able and willing to deal with treason.
The armed forces are considered loyal to the Shah and
the government at present, and Zahedi should encounter few
difficulties with the army as long as the Shah supports him.
The Shah's ambitions for the army are unrealistic, however.
Though some military improvements are possible with American
aid, a completely modernized and mechanized army, such as the
Shah wants, is beyond Iran's ability to finance now or sup-
port in the future without heavy and continuing foreign as-
sistance. .
Iran's development and security depend on the regime's
ability to win widespread support in the next few months for
long-range, integrated economic and financial planning which
will continue even though government personalities change.
The Shah's support for a progressive program is essential.
Plans for modern revenue laws, a rigorous economic program,
and a sound military establishment will clash with traditional
Iranian laxity and privilege. Progress will be slow at best.
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Political objectives clearly have come first in most of
Communist China's trade negotiations with other Asian countries
during the past year. The principal aim has been to help
dissociate non-Communist Asian states from the West by concluding
formal trading arrangements and, in some cases, by encouraging
defiance of American and UN restrictions on trade with Communist
China. In promoting this program, Peiping has agreed to
purchase--at considerable expense--commodities not required by
its own economy.
All of the Asian countries with which Peiping is now trading
are primary producers and their economies are not complementary
to that of the China mainland. Thus Peiping's three general
trade agreements--those signed with Burma in April, Indonesia in
September, and India in October--involve commodities which China
has never bought in significant quantities.
Peiping is tapping scarce reserves of foreign exchange to
acquire rice--which it does not need--from Burma, in order to
ease Rangoon's surplus rice problem and thereby gain Burmese good
will. The current contract provides that Burma is to sell China
150,000 tons of rice, an item which Peiping exports at a rate of
about 500,000 tons a year.
Peiping's political purposes in Indonesia, too, have been
furthered through trade relations. Although Indonesian rubber
was not listed in the formal agreement as a commodity to be
traded, Peiping imported 6,000 tons in August, and may have con-
tracted for more. Having thus induced Djakarta to violate the
UN embargo on rubber, the Chinese Communists may be able to
break down Indonesian resistance in other respects as well.
The Sino-Indian trade agreement includes many manufactured
items which neither country is in a position to export in large
quantities, and the items that are available for export are not
in great demand in either country. At present there seems to
be little chance of a significant expansion of trade beyond the
1953 figure of $11,000,000, but Peiping's political aims will
probably be served by the trade agreement.
The 1952 Sino-Ceylonese rice-rubber agreement, which
contravened the American aid agreement as regards the Battle
Act, has encouraged other Asian nations to disregard trade con-
trols. As in Burma, the Chinese are accepting an economic loss
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on this trade, which has been very profitable to Ceylon. This
year, as in 1953, Peiping has paid Ceylon an estimated $15,000,000
premium for 50,000 tons of rubber--despite the fact that it is
able to purchase rubber at world prices through the USSR, which
has failed to buy its quota allowed by the West.
The Ceylonese political view of Communist China, however,
has apparently not been affected by this trade. The Ceylonese
premier has frequently stated that his government is interested
only in trade and not in expanded political relations with
Peiping.
A political motive is also apparent in Peiping's trade policy
toward Japan, the only Asian subscriber to the CHINCOM agreement
on trade controls. Exploiting the pressure in Japan for large-
scale trade with Communist China, Peiping has offered to barter
foodstuffs and industrial raw materials needed by Japan in return
for embargoed items.
The Communists are seeking primarily to induce Japan to
oppose more strongly than it has thus far done the present level
of CHINCOM controls, to which Tokyo adheres--unwillingly--as a
result of American pressure. Peiping's offers to Japan are not
believed to be motivated by an urgent need for industrial goods,
which China can now generally procure from the Orbit on satis-
factory terms. Peiping is also attempting to use the prospect
of expanded trade as an inducement for Japanese diplomatic
recognition of Communist China, on the calculation that recogni-
tion would facilitate Communist efforts to entice Japan into a
"neutralist" position.
Peiping has not yet attempted to conclude trade agreements
or to foster trade artificially with the Manila pact nations,
which have made clear their anti-Communist position, Communist
China's trade with them consists largely of heavy purchases of
Pakistani cotton and Australian wool, both essential to Peiping
as industrial raw materials.
Peiping's prospects for political gains from its trade
are likely to continue limited by two basic economic considera-
tions: Peiping prefers trade on barter terms, but is unable to
offer much in the way of acceptable goods for trade.
26 Nov 54 CURRENT INTELLIGENCE WEEKLY Page 18
Approved For Release 2004/06/