SUMMARIES OF TRENDS AND DEVELOPMENTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01090A000300020001-6
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 20
• Document Creation Date: November 9, 2016
• Document Release Date: January 29, 1999
• Sequence Number: 1
• Publication Date: August 1, 1950
• Content Type: SUMMARY

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I August 1950
SUM TIES OF TRENDS AND DEVELOPMENTS
1. The return of the USSR to the UN Security Council
l but
robnn.bgy oQ'lects a Soviet decision to attain an eventua 4
not necessari1,y; earyr, negotiated settlement of he Korean war.
See page
2. Thes s ieeohes and_ decisions of the recant SED (Socialist
Un~ ity I'axty Congress reveal no basic ehane in Soviet tactics in
German . They indicate., however., an intensification and accelera-
tion of the tactics the USSR has pursued in Germany since the
formation of the German Democratic Republic (GDR) - consolidation
of Coniunist-power in the GDR, integration of the GDR into the
Soviet orbit., and constant pressure on West Germany,
(See page 6 )
3. Recent Soviet tactics in.Iran combine official fri2d~-
11 ness with in.creau nZ j eouti.ona ~ac~ca7,s to subversive
grrgyps. The recent marked increase in Soviet official friendli-
ness may mean that the USSR is extending its "peace campaign" to
Iran.
(See Pago 8 )
4. The latest evidence indicatagtrade between Eastern
E'uro , e and Span is contained in a detailed report of a compensa-
tion account for the export of Spanish goods to transit Sweden.
The persistence of such reports indicates that Eastern European
tra&o with Spain may be expected to develop further., although
it probably will not reach substantial proportions.
(See page 9 )
C7 C'EC. r
CLASS. CHAI i-M
DP1iU:
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5. A supplements aSoviett-East German trade aXrgoment
o 1~5Oo nrovidi for Soviet doliveries of cotton and food*
stuffs on credit, seems rinjRaj& motivated by x~olitical..
considerations. Soviet commitments of additional fats and oils
which were previously refused, suggest that the USSR considers
it expedient to make further concessions to improve the standard
of living in East Germany. The propaganda value of the agree-
ment is indicated by an East German press statement that the
additional cotton will bring the GDR closer to the elimination
of textile rationing.
EASTERN EUROPE
BULGARIA
6. The USSR a is apY arontly, _ma1cin ef orts,., to o e
mi
litax~v end civilian morale 3.n Bulimia. If successful' this
factor would increase the Bulgarian war potential,
(See page lo)
FINIAND
7, kie recently revealed Soviet osition on Soylett
citzenship could,4fres ed ~by USSR~apose severe problems for
the Finnish Government in the repatriation of Soviet"wer.
criminals" under the Peace Treaty.
(See page 11)
HUNGARY
`.tho upward rev7slon of work norms in Hungary wi1
facilitate the acceleration of heats indtistriL .1 rroducton by
reducing wages as a factor in the cost of production, by setting
more exacting labor productivity requirements, and by limiting
purchasing power, permitting the curtailment of the production
and consumption rate of consumers goods.
(See page 12 )
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COETtL
91, gho st ma~'o~_st pvneeessa to _reoKganize the
t'o1'jah Government aloes lines ~a,rsllelto those existln ; i.n
the USSR was taken recently by introduction of a bill in the
Polish Sejm to reorganize the Polish Judiciary. Approval of
the measure is a certainty. Under its terms, the Judiciary
will become a watchdog for implementation of the six year plan
and other Government directives.
(See page 13 )
RUMANIA
109 The Rumanian Communist mime has attem~tcd.to
establish formal control over the Catholic Church by present-
ing the draft of a new Church-State agreement to the Catholic
vicars. Despite the vicarst opposition, the regime will probably
be able to establish some sort of strictly controlled religious
hierarchy.
(See page 14)
INTERNATIONAL CMMU'NISM
11. The Communist-Eonti.ln, IndiaWmay be considerably
au nen~tod -_a_ Z2L,Llt of .thetcnew 'funned front" tactic announced
on ~ Judy. ,~ .. . ,
(See page 15)
SPECIAL ARTICLES
121 Recent,ndications of a peossibe_eteriortion in
Yu- -oslavia?s economic situation point to the possibility that
not only will-the Yugoslav Government have difficulty in meeting
some of its export commitments but may., through a continuation of
its present economic policies, further reduce the already low
standard of living of the Yugoslav people. The significance of
C
MTIAL
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those developments to US interests is highlighted by the recog-
nized importance of maintaining an independent Yugoslavia and
developing the Titoist heresy among World Communists..
(See page 16 )
1.3e Czech'oreign trade has moderate su plus balance
for first halffof 1950 compared to deficit for same period in
1949. Prospects for trade with the West have temporarily
improved over the status in the. fall of 1949.
(See page lg )
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SECRET
EASTERN EUROPE
U S S R
Return of USSR to N Security Council. Probably reflcts
Soviet decision to attain eventual negotiated settlement
of the Korean war
The return of the USSR to the UN Security Council
probably reflects a Soviet decision to attain on the best pos-
sible terms an eventual, but not necessarily early, negotiated
settlement of the Korean war, The USSR may well estimate that
North Korea faces ultimate defeat by the US and the UN and that
a more advantageous compromise ,settlement can be obtained
during the period of North Korean military successes, The Kremlin
has, since the beginning of the Korean conflict, very carefully
avoided any formal involvement of either the USSR or its Satellites
which might stand in the way of a negotiated solution. In the
past the USSR has eventually withdrawn from positions (Iran,
Greece, Berlin) when faced with sufficient Western strength and
determination. Furthermore, the Kremlin may well be concerned
with the coalescing of the non-Soviet world behind the US through
the UN and the partial mobilization of American industry and man-
power,
By returning to the Security Council, the USSR can
and will, through use of the veto, deter this organ from
adopting any resolution signifying an intention to go beyond
the 38th parallel in order to unify Korea and/or to punish
North Korean aggression. It is unlikely, however, that the USSR,
even if it plans an aggressive move in another area in the near
future, is reentering the Security Council with any real hope
that its veto power alone would keep the US from taking such
action as it doomed necessary against now aggression. The US
and other members of the UN can, under Article 51 of the UN Charter
which relates to self defense, act against it,
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Minimum Soviet terms for a compromise solution of the
problem of Korea will probably not be forthcoming as long as
North Korean military successes continue. Initially, the USSR
may Hake any peaceful solution contingent on a proposal to with
draw UN military forces and to hold early all-Korean elections
undor'UN supervision. The Kromlin may believe that these elec-
tions, following North Korean military successes, even if a North
Korean withdrawal to the 38th parallel ensues, would result in
either ,immediate or early Communist control of Korea.. While the
USSR may attempt to make any Korean settlement contingent on the
entry of Communist China into the UN, defeat on this issue is
extremely unlikely to cause a resumption of the Soviet boycott
of the Security Council, If the'Soviet Union fails in its attempt
to have early elections in Korea, it will probably devote its
primary UN efforts to protection of the 38th parallel and the
North Korean regime, (SECRET)
?oviot 3ntc;ntions toward Gormaz r~Bn
a_ mirrored i recent SED Consross
The speeches and decisions of the recent SED (Socialist
Unity Party) Congress reveal no basic change in Soviet tactics in
Germany. They indicate, however, an intensification and accelera-
tion of the tactics the USSR has pursued in Germany since the
formation of the German Democratic Republic (GDR) - consolidation
of Communist-powor in the GDR, integration of the GDR into the
Soviet orbit, and constant pressure on West Germany.
The attitude of the Congress toward the German Federal
Republic (GFR) and the Western Occupation Powers was extremely
hostile and belligerent. Loading East German officials frankly
and openly announced that the Communists. would perform acts de-
signed to cause unrest in West Germany. They urged West Germans
to resist Allied Occupation preparations for Western defense, and
called on all Germans, including ex-Nazis, to join the "National
Front in erdor'to overthrow the Bonn Government and expel the
Western Powers," West Germans wore told that they were not
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legally obligated to obey the Western Occupation Powers because
the Western Powers had forfeited their right to remain in
Germany through violation of the Potsdam Agreement. In order to
give more skillful direction to the Communist effort to gain
influence in West Germany, the Congress transferred primary res-
ponsibility for the "struggla for peace" in the German Federal
Republic from the ineffectual KPD (West German Communist Party)
to the SED.
The Congress displayed no lack of confidence in the
ultimate establishment of a united Germany under Communist
control. President Piock claimed that discontent was growing
among the masses in West Germany as a result of Western Occupa-
tion policy, and that an eventual "eruption" was "certain."
Deputy Premier Ulbricht, in discussing the merch.nt fleet the
GDR will build as a part of its Five-Year Plan, stated that
East Germany would not establish a port on the Baltic coast as
the "time will come when Hamburg and Lubeck (West German ports)
will be at the disposal of the GDR." For the present, according
to Ulbricht, the GDR, by agreement with Poland, will use part
of Stettin.
The organizational changos in the Sod, which ware
announced at the Congress, are additional steps in the consoli-
dation of Communist power in East Germany. The now party
statute, eliminating a former provision that office holders be
selected on a one for one basis from Communist and Socialist
s=ks, abandons all pretense of equality between the two parties
composing the SED. In contrast to the former SED Executive
Committee, which consisted of an equal number of forror Con-
munists and Socialists, Communist officials hold a substantial
majority in the new SED Central Commiittee. The now party
statute, which closely patterns that of the USSR Communist
Party, stator clearly that the party aim is the trostablishment
of the political power of the workers." East Gorman Deputy
Premier Ulbricht, the now secretary-general of the SED, expressed
the desire of the-GDR to enter the Economic Council for Mutual
Assistance (CIIqi),, the so-called Soviet counterpart to the
Marshall Plan. Entry of East Germany into this organization will
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be another stop in its integration into the Soviet orbit, (SECRET)
Soviet tacticsin Iran combine official friendliness
andrevoluti on ae is Lo. subversive ,r coups
The Soviet Ambassador in Tehran has recently dis-
played marked friendliness to the Iranian Goverment and to
American officials. On 24 July the Soviet llribassador called on
the Iranian Prime Minister to state, on behalf of his government}
that the USSR. was most anxious to be of any assistance possible
to Iran and to resume normal trade relations. The Ambassador'had
not previously paid a courtesy call on the head of the new govern-
mont end, according to the Prime Minister, the Soviet Ambassador,
Tthad not called on any Prime Minister of Iran for as long as
anybody can remember." The now US Ambassador in Tehran and Mrs.
Grady have boon shown almost ostentatious cordiality by the
Soviet Ambassador and his wife.
At the some time, however, the clandestine 4zorbaijan
Democratic station, located in the USSR, has broadcastncreasing -
ly revolutionary appeals to the Azerbaijani and especially to the
Kurds, who are being told that "Kurdistan is one country and it
should be liberated." The clandestine radio has directly charged
Iran with violating the 1921 Soviet-Iranian Treaty (which permits
Soviet troops to enter Iran under certain conditions) and alleges
that the Kurds will rise up against the Govornrlont "if and when
the Soviet Army enters Iran.tt
Displaying friendliness on an official level, while
at the some time strengthening local subversive organizations,
is generally characteristic-of current Soviet tactics in the
Near and Middle East. Iran, however, has been subject to official
Soviet pressure since May 1950. This recent chow of friendliness
may mean that the USSF?, is extending its ttpoaco campaign" to Iran.
It may indicate Soviet satisfaction in the recent Iranian
assurance, in answer to a Soviet note, that no Americans would be
used in surveys near the Soviet border. (In this connection, it
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should be noted that Iran has recently declared that Western
correspondents have boon banned from Azerbaijan "to avoid pro-
voking tho'USSR,") The display of Soviet official friondliy-
ness could., howevory'be an' attempt to lull Iran while strength-
ening local subversive organizations and possibly preparing for
guerrilla activity on the Iranian border? (SECRET)
Swedish intcrrsod upo~
in ), nx~li--Soviet orbit trade
The latest evidence indicating trade between Eastern
Europe and Spain is contained in a detailed report of a compon.
cation account for the export of Spanish goods to transit Sweden.
Cor..uaodities valued at nearly 0l7.5 million each way are to be
exchanged through an especially established Swedish firm which
will servo as an intermediary. Spanish agricultural, chemical
and mineral exports will be balanced by the import of a million
tons of Polish coal,
The following.facts substantiate this transaction:
(1) The USSR desires Spanish wolfror,m and pyrites, while Spain
needs coal and wheat, (2) Four thousand tons of-Polish coal.,
said to be the first shipment under this account,, wore imported
last March by Spin via Portugal.. (3) Both the 35 million
figure and the existence of the Swedish firm have been previous-
ly reported, (4) Late in June the Swedish Charge dtAffairos in
Madrid denied that the Swedish Government was officially in-,
volved as an intermediary, but he acknowledged the existence of
a deal between "Spanish entities and some foreign national, not
Swedish, in Sweden."
The persistence of reports regarding Spanish-Orbit
trade negotiations indicates that Eastern Europonn trade with
Spain through devious channels may be expected to develop further.
Such trade is economically logical. Each area has products which
would require hard currencios if purchased elsewhere.
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Transportation and supply, in addition to political
difficulties, will probably prevent Orbit-Spanish trade from
reaching substantial proportions. Moreover, it is not believed
that Spain will be able to fulfill its obligations in a deal of
such proportions, but regards the arrangement as a "hunting
license" rather than a firm commitment. Franco, however, is
interested in any advantageous foreign trade and undoubtedly
considers the threat of a Spanish-Soviet rapprochement a use-
ful weapon in his campaign for US aid, (SECRET)
USSR, at-l:,er.1 . bui7. ?M
o B 1t1g,ar3 a l noorale
11 western military attache in Sofia has recently
reported that Bulgarian soldiers on the Yugoslav frontier have
"good morale for any conflict with the Yugoslavs." If true,
the USSR has made marked progress in its campaign to inspire
in Bulgarian troops the will to fight an aggressive action and
counteract somewhat widespread disaffection in Bulgaria. Such
results, although not confirmod, would increase military and
civilian potentialities of Bulgaria as a tool of Soviet-
inspired aggression.
I,arge shipments of Soviet equipment and supplies
into Bulgaria during the past few months probably have improved
morale of the army. The widespread purge of Bulgarian array
officers, which began in 1946 and continued with varying in-
tensity until the removal of the chief of staff and his
assist=ants in 1949, doubtless weakened both the noralo and
efficiency of the than poorly equipped army. Sovietization of
the armod forces was virtually completed with the appointment
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of the Russianizod Panehovsky as Minister of War and the in-
filtration of Soviet "advisers" down to the lowest echelons.
It is likely that the advisors have boon well chosen by the
Kronlin to tighten discipline and increase military efficiency.
Such improvement in performance of Bulgarian units might tend
to boost soldier morale and perhaps even offset resentment
created by Soviet domination.
The desire to become a large and powerful nation has
boon an historic Bulgarian objective. Successive defeats in
war since the end of the nineteenth century have progressively
whittled away the coveted territory in Macedonia which Bulgarian
troops have several times occupied. A concerted Soviet propa-
ganda conpaign designed to convince Bulgarians that they are in
inminont danger of attack from neighboring countries who how
hold this coveted territory has boon stopped up.
During the past few months there is some evidence
that the USSR has also tried to bolster Bulgarian civilian
morale? Since May two joint decrees of the Central Corimittoo
of the Bulgarian Communist Party and the Council of Ministers
havo hold forth the hope that the collectivization drive would
be ohised and distribution of consnor goods to the people would
be oxpoditod. There is no'possibility that such announced
intentions-are sincere? Even a short-torn surcoaso from Soviet
oppression, however., would probably have a popular reaction.
It would thus appear that the Kremlin is making
efforts to strengthen the military and civilian morale in
Bulgaxia, which., if successful, would increase the Bulgarian
war potential, (SECRET)
FINLftND
Finns encounter new source of possible
trouble with USSR
During Finnish Prime Minister Kekkononts visit to
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Moscow for the signing of the Soviet-Finnish trade agreement,
at Stalin's suggestion Kokkonon broached only two matters of
concern to Finland: the peace treaty disposition of surplus
war natorial -- upon which the USSR has not yet expressed an
attitude --- and the return of two or three thousand Finnish
POWs still. in the Soviet Union. Stalin made no reply on those
matters, but Groriyko, in a later conversation, reminded Kokkonon
of the desirability of the return by Finland of Soviet tier
criminals under Article 9 of the Peace Treaty. Gronyko, in
addition, cited a Soviet law of 1931 and 1932 requiring any
Soviet citizen abroad to obtain the oxpress permission of the
Soviet Goveriiont before renouncing Soviet citizenship. The
Finnish position has always boon not to repatriate former
Soviet citizens who have bocone Finnish citizens. Inasmuch.
as appro .mately ton thousand persons could be affected by this
interpretation of Soviet eitizonship,, a strcng Soviet stand in
the natter would confront the Finnish Government with a
difficult decision. (SECRET)
HUNGARY
Hun Tan z~orri.rcvisions indicate
accelerated. industrial Droduction
The upward revision of work norms and the reduction
of take home pay are the culmination of the recent coripaign.
to- impress upon the Hungarian workers the implications of their
tfexcessivelytI high standard of living. 'The April 1950 achieve-
ments selected as the basis for norm revision represent o acting
standards, since that was the period of the production campaigns
in honor of Hungarian.liberation and May Day. Those higher
productivity requirements,, and the reduction of wages as a
factor in the cost of production will facilitate the expansion
of hoavy industrial production.
In addition, the reduction of purchasing power to
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moot the current situation of continuing shortages of consumerst
goods, especially foods,. will restrict inflationary tendencies
and retard the standard of living which is reported to have
attained the level planned for 1952. Food scarcities have been
justified recently on the basis of roquiremonts for export.
Restricted consumption will enable exports to continuey per-
mitting the irzportation of matorials needed for heavy industry.
Moreover, loss rapid consumption of already available non-food
cons=m=s t goods will permit curtailnent of light industry
production and transfers of investment and labor to heavy
industry. (SECTET)
POLAND
olsl~ud.ciar to be reorganized
The final major stop nocossary to complete the
gradual reorganization of the structure of the Polish Govern-
rient along lines parallel to those existing in the USSR was
taken with the recent introduction of a bill in the Polish
Sojm (Legislature) to establish and define the functions of a
Prosecutor Gonoralts Office. Approval of the measure is a
certainty, The now office will closely follow its Soviet
counterpartp the Procurator GoneralTS Office, both as to
responsibilities and its relationship to the executive branch
of the Govornmont.
In the USSR,. the Procurator Gonoralts Office is
highly centralizody is an extra-departmental organ beyond the
control of the executive branch (specifically the ministry of
Justice), and operates on the same level as does the executive.
The office has broad supervisory power over the execution of
the laws by all ministries and institutions subordinate to
then, and has greater supervisory authority than does the Supreme
Court of the USSR.
Under the terms of tho proposed bill, the Polish
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Office will be appointed by and responsible only to Council of
State, the most powerful executive organ in Poland. Since the
Council of State is largely concerned with planning and is
staffed by Polandts most reliable corn:iunists, it seems likely
that this now Polish Office will be used primarily in a watch-
dog capacity over the implementation of directivos for the
current six year plan. (SECRET)
RUMANIt
R a ianian :ovorn ont drafts Church-State a comont ttBn
The Rumanian Communist regime has attempted to estab-?
lish formal control over the Rumanian Catholic Church by pro-
senting the draft of a now Church-Sty o . agrcomont to the Catholic
vicars, who have boon ii.chargo of Church administration since
the arrest of all their bishops early this year. More-recently,
they worn deprived of the guidance of the papal nuncio, because
of his c.pulsion on 4 July, The vicars, who not to discuss
the proposal, agreed unanimously that it was unacceptable, and,
professing lack of authority to sign it or even discuss it with
state roprosontativos, suggested that the Government submit it
directly to the Vatican. The substance of the agreement is un.-
known, but presumably it follows the line of the resolution of
the Catholic Action Corrrrittee last May, which called for ?nornal-
ization'r of relations between Catholics and the Government. The
oxporionco of Rtmaniats Uniato Church indicates that by "normal-
ization" the regine moans nationalization and severance of the
Churches tics with the Vatican. The Action Coruitteo resolution
also proposod that the Government pay priests? salaries and
pensions, and control-church property, 'If the draft agreement
runs along such lines, as soon probable, its adoption would
make the Church wholly dependent upon the state and therefore
complotoly subordinate to it,
The demonstrated opposition of the Rumanian church
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hierarchy to Cornaunist control has prompted the Government to
lay plans to replace obstinate vicars with more docile clergy-
men, The Government has also attempted to build support for
itself by circulating copies of the draft among the weaker
elements of the lower clergy and has continued to arrest recal-
citrant clorggmon , both secular and rogular. Although many
of the hierarchy and clergy will suffer persecution rather
than submit to Communist demands, the superior material forces
at the staters disposal suggest that the Communists will soon
succeed in setting up some sort of church hierarchy capable of
isolating at least some of the lower clergy and a substantial
number of Rumaniats Catholics, (SECRET)
ITLTFTtNATIONAL COMMUN, I`S''M
Cor.~riMm st tirty of India announces a chin p of Policy
The now policy, announced by the'Communist Party of
India at its Bombay headquarters on 19 July, provides fort (1)
abandonment of the fer.er tactic of violence and sabotage; (2)
united front with all popular groups willing to work for t'sn
independent India freed from Anglo-American imperialism and its
Indian collaborators, the bourgeois and feudal olomonts;" (3)
profiting from the exporienco of the Chinese Communists, whose
path is the only- correct path before the Indian people;" and.,
in line with this, (4) special stress upon the peasant masses
and upon the land question, which is recognized as the key
question throughout Southeast Asia. The first point above .-
abandonment of violence and sabotage - was undoubtedly included
primarily to confuso the oppononts'of communism and to deprive
the Government, as far as possible, of an excuse for repressive
action. The Party actually will abandon its violent tactics
only in urban districts where violence has recently worked to
the Partyts disadvantage, and in those rural areas where the
Party is weak. In rural areas where the Party is well entrenched
and whero violence has proved a successful riothod of consolidating
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the Partyfs strength, there is no reason to believe that this
successful tactic will be dropped.
It is noteworthy that the CPI's new tactic follows
almost exactly the instructions for colonial areas carried in
the Corrinforn Journal of 27 January 1950; and that the Resolution
embodying the now tactic includes an abject apology, addressed
directly to Mao Tse-tung, for "utterly wrong, irresponsible,
and slanderous criticism made against hies by the former Politburo"
of the CPI? On both those counts, the CPI's now tactic boars
witness to'the solidarity of international communism as a
world-wide, Moscow-dirocted movement.
If this now tactic is conscientiously adhered to and
if factional strife within the Party can be successfully sup-
pressed, it is believed that the CPI stands to make substantial
gains both in-rural areas and among Indiats government officials,
intellectuals, and white collar workers, many of whom are already
predisposed toward a Marxist viewpoint. (CONFIDENTIAL)
SPECIAL ARTICLES
I.vina standards of the urban po ulationin Yugoslavia
declined curin ho first half of 150
Recent indications of a possible deterioration in
Yugosl.aviaxs economic' situation point to the possibility that not
only will the Yugoslav Government-have difficulty in meeting some
of its export connitnonts'but may, through a continuation of its
present economic policies, further reduce the already low standard
of living of the Yugoslav people. The significance of those
developments to US interests is highlighted by the recognized
importance of maintaining an independent Yugoslavia and developing
the Titoist heresy among World Communists,
The report by the Chairman of-the Economic Council
of the Yugoslav Government, Boris Kidric, on the Economic Plan
fulfillment, for the first half of 1950, gave evidence that the
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living; standards had declined particularly sxaong the urban popuu
lation.
Kidric stated that foreign exchange difficulties
necessitated a revision of production goals in some light ire
dustries with the result that production of consumer goods
industries were not oxpanded according to plan and in some cases
fell below last year' while basic industries and capital construc-
tion received priority for raw materials and equipment. AtLothor
factor having an adverse effect upon the living standards was the
faulty distribution of moats and fats.
There was no indication that conditions during the
latter half of 1.950 would be improved. Kidric stressed the
fact that the country must direct efforts toward the basic
branches (heavy industry) of the Five Year Plan and absolutely
subordinate all other tasks to this one. This will moan that
investments in consunor goods industries will continue to be
sacrificed for-hoavy industry so long as foreign exchange
difficulties exist..
In'addition'to the alleged requirements of heavy--
industrial dovolopnent,, the Yugoslav Government lust face e
terna,l Cominfoxri pressures which are steadily assuming a 'more
ominous character. In order to perfect Yugoslav defensive
capabilities,, considorable oriphasis of necessity is placed on
the oquipnont of the Yugoslav armed forces, prilrarily through
Yugoslaviats own efforts,, Since Yugoslavia is not eligible for
arms aid fron the'Wost and indeed appears reluctant., for
political reason, to hake any open request for Western military
assistance., the Tito Go'vornnent apparontly hopes to supplement
its own inadequate military manufacturing facilities with pur?-`
chases from "neutral" countries such as Sweden and Switzerland.
SuCh purchases, whiz:h will probably have to be au aontod if the'
Yugoslav armed forces are to maintain and improve their defensive
capu'bilitiosy will place additional burdens-on Yugoslaviats
alreadyk,strainod foreign exchange resources,
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With invostrnont priorities going to heavy industry
and the military ostabli.shnonty the consequent reduction in
consurior goods production is likely to result in greater dif-
ficulties in collecting from the peasants the foodstuffs
required both for food-J~.rig the urban population and meeting
Yugo slaviai's export cerir~:i` r ori~s for l9SO-:951. It has already
been estimated thO.t 1950 oors. crop production has'boon ad-
verse ly affa ctod by droug "h-Qr, `I.` .i s L:~ y . thor oforo v indicate
a still further declino in the agosslav standard of livingo
A further deterioration in the standard of living
will probably increase local discontent and weaken morale at a
time when the Govornrient itself appears aware of the necessity
of-augmonting its popular support. Much of the Coninforra
propaganda boomed at Yugoslavia is currently stressing the
decline in the Yugoslav itandard of living, allegedly because
of Western exploitation of the CountryTs resources and Tito 'to
"militaristic policy," P nal~:.y.~ the Govorm ont's failure to
register tangiblo economlo iuprrovemont would further tend to
subotantiato Soviet claims that the country'is unablo to
"build socialisri" without the aid of the Soviet Union.
(SECRET)
Czech foreign trade during the first half-of 1950
compared favorably with the first six rionths of 1949. Combined
exports and imports of 35 billion crownsp though 12 percent less
than the first half of last year, produced an export surplus of
800 million crowns in contrast to a 200 million crown deficit
for 1949. Moreover, the decline in actual volmio was less than
the drop in value owing to currency revaluations and the wider
adoption of the Czech policy of selling below costa Prospects
for trade with the West picked up considerably over last fall
as a result of Czochoslovakiats more reasonable attitude toward
negotiations and growing worldwide competition.
The most significant: change in non-Orbit commerce
_18_
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has boon in Czech-US balances, Although'total intcrehangos for
the first four months of both 1949 and 1950 approximated $15
million, the breakdown has shifted radically from a $1 million
deficit in 1949 to a $5.7 million surplus this year. Wavy
July arrivals in Now York of such consumer goods as glassware,
hat bodies, and Christmas tree ornaments indicates a continua-
tion of the first quarter trend. However' difficulties have
arisen. Cutrato prices, which characterize many exports, have
already alarmed the US shoo and hat trade, and caused customs
investigations; and Czech merchandise has boon boycotted by
loading US department stores?
Commercial relations with other non-European areas
are also improving. Exports to Canada, particularly women's
shoes, have risen sharply, and the Czoch exhibit at the Juno
Canadian International Exhibit was exceeded only by those of
the UK and Canada. After being politically blocked in 1949,
a two-year pact was concluded with Brazil in May 1950. ezecho?.
Slovakia is to receive, principally, hidos, cotton, wool, and
vogotablo oils in exchange for machinery, industrial installa,>
tie. s, and consuaor goods. In addition, Czechoslovakia signed
a i, million agreement with Israeli after protracted negotiations;
the Czechs obtain citrus fruits and property settlements in
return for various industrial products. Furthermore, Czecho:
slovakia readily accepted loss favorable terms proposed by
India during renewal of the Czech-Indian commercial agreement.
Czech--European business dealings have definitely
taken a turn for the better. Trade prospects with the
Netherlands, because of'froight transit difficulties, a sub-
stantial florin deficit, and other circumstances had boon
blase, but they have recently shown considerable improvement.
The florin deficit has boon liquidated and negotiations for a
now pact on a considerably modified scale were slated for'July.
In May an 18 billion franc agreement was made with France,
replacing one which expired in August 1949 and incorporating a
l0-year nationalized properties settlement. The 1950 quotas
of the Czech-British pact were settled expeditiously, with
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.I~ENTIAL
Czochoslovaki~ making no effort to secure strategic items.
Intra-Orbit business is, of course, continually expanding.
In discussing terms for a 1950 pact with Norway, a
relatively minor trading partner, the chief Czech delegate
cynically admitted that his country had no intention of accept-
ing fish meal from Iceland under a recently negotiated pact,
This attitude is not conducive to. improving trade relationships...
In addition, the Czechs still remain adanant regarding the
settlement of nationalized Norwegian interests, patents and
processing rights,"tlaintaining they will pay no more than the
nominal book value.
The underlying reason for Czochoslovakiats concilia-
tory attitude toward, and vigorous promotion of, non-Orbit
business is probably the Czech attitude that without Western
imports, Orbit comritnents would not be fulfilled. In addition
the Czechs have probably realized that nationalized property
settlements are an inevitable prerequisite to the development
of any long-term trade and furnish the Czechs through their pro-
visions for paynonts from export surpluses, a useful lover for
future negotiations. Nevertheless, strictly self-intorest will
continue to dominate Czochoslovakian trade. (SECRET)
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