SOVIET BLOC ECONOMIC WARFARE CAPABILITIES AND COURSES OF ACTION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01012A003300010001-5
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 21
• Document Creation Date: December 22, 2016
• Document Release Date: September 14, 2012
• Sequence Number: 1
• Publication Date: March 9, 1954
• Content Type: NIE

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. J 1 IN V . L a V'
NATIONAL
U
INTELLIGENCE ESTIMATE
SOVIET BLOC ECONOMIC WARFARE
CAPABILITIES AND COURSES OF ACTION
1
NIE 10-54 _NO CHANGE IN CLASS. t
Approved 24 February 1954 CLASS. CHANGED TO: TS S C.
NEXT REVIEW DATE:
Published 9 March 1954 AuTfi: HR 70-2
P - " %
The Intelligence Advisory Committee concurred in this
estimate on 24 February 1954. The FBI abstained, the.
. subject being outside of its jurisdiction.
The following member organizations of the Intelligence
Advisory Committee participated with the Central Intel-
ligence Agency in the preparation of this estimate: The
intelligence organizations of the Departments of State,
the Army, the Navy, the Air Force, and The Joint Staff.
CENTRAL INTELLIGENCE AGENCY
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WARNING
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SOVIET BLOC' ECONOMIC WARFARE CAPABILITIES
AND COURSES OF ACTION
THE PROBLEM
To estimate Soviet Bloc capabilities in the field of economic warfare, the vulner-
ability of the Free World to Bloc economic warfare measures; and probable Bloc
courses of action.
DEFINITION
Economic warfare is defined in this estimate as the use of economic measures to
alter the relative power positions and alignments of opposing nations or groups of
nations. This can be done by affecting either the relative economic strength of the
nations in the two groups or reducing the size and effectiveness of the opposing group
by causing political defections or, what is more likely, dissensions. This estimate
will consider only those Bloc economic measures designed to :
a. Improve the Bloc's political position in the non-Communist world;
b. Increase the dependence of non-Communist countries on Bloc trade;
c. Weaken non-Communist support for controls on exports of strategic goods to
the Bloc; and
d. Weaken the economic strength of the non-Communist world.
CONCLUSIONS
1. The economic warfare capabilities of
the Soviet Bloc lie primarily" in its ability
to weaken the political cohesion within
the, non-Communist world by: (a) offers
to increase trade; (b) actual increases in
trade;. and (c) threats to cut off trade
where it has been built up.
2. The Soviet Bloc has very limited capa-
bilities for undermining the economic or
military strength of the non-Communist
world by denying goods and services be-
cause the non-Communist world obtains
from the Soviet Bloc only a very small
range and quantity of imports. Denial
of these goods would have a negligible
' The USSR, Communist China, North Korea, and
the Eastern European Satellites.
effect on the non-Communist world's
over-all economic capabilities and none
on its military capabilities.
3. Increased trade could be exploited by
the Bloc to create the impression that its
intentions are peaceful and that it desires
to . cooperate with. the non-Communist
world. If vigorously pushed and sup-
ported by Communist propaganda, a Bloc
program to expand trade with the non-
Communist world could result in a gen-'
eral weakening of prevailing hostile atti-
tudes toward the Bloc. At the same time
Bloc offers of increased trade, even if not
resulting in any considerable increase of
trade, could be used to aggravate the dis-
satisfaction of some non-Communist
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countries with the existing export control
system and even to weaken the system
itself.
4. The Bloc could almost certainly ex-
pand its external trade to, say, two or
three times the 1952 level without mark-
edly retarding its progress toward self-
sufficiency. Such an increase in the vol-
ume of trade could easily be made
acceptable to the non-Communist world
and trade with the Bloc would still be
only a small percentage of the total trade
of non-Communist countries.
5. Even with such increases, Bloc eco-
nomic warfare could not by itself be the
decisive factor in determining the atti-
tudes of non-Communist states on major
issues in the struggle between the Free
World and the Bloc. In certain countries
whose trade with the Bloc is, or could be,
of considerable importance to their eco-
nomic stability, Bloc economic warfare
could add to local Communist strength,
intensify existing neutralist tendencies,
cause disagreement with some Western
policies, and make US leadership more
difficult to exert. Examples of countries
where the Bloc might expect to achieve
such objectives are Finland, Austria,
Italy, Egypt, Japan, India, Iran, Indo-
nesia, and Chile. However, even in these
countries trade relations with the Bloc
will be of only secondary importance for
their over-all foreign policy.
6. The Bloc's economic policies will be tied
directly to its over-all policies both domes-
tic and foreign, and will reflect a high
degree of opportunism and flexibility.
For the present, this method of formulat-
ing economic policy is resulting in well-
publicized offers to increase trade, cou-
pled in selected areas with moderate
actual increases. During the next few
years the Bloc will probably attempt to
exploit economic warfare opportunities
associated with increased trade offers.
Such a policy would hold out political
gains that could be obtained at no net
economic cost to the Bloc. We do not
believe, however, that the Bloc will under-
take economic warfare measures involv-
ing a large scale increase in total external
trade since a large expansion of external
trade would increasingly involve changes
in the economy of the Bloc which Bloc
leaders would be progressively less willing
to accept.
7. The Bloc will probably continue to use
gold to pay for an excess of imports, and
this may be done in connection with eco-
nomic warfare efforts utilizing trade. We
do not believe that the Bloc will make
`extensive use of currency or gold price
manipulation, or commodity dumping, as
economic warfare techniques.
8. There are many opportunities for Bloc
economic warfare utilizing economic aid
and technical assistance, and the Bloc
will probably make further gestures of
assistance to underdeveloped areas where
it would expect to obtain the maximum
propaganda benefits from such assist-
ance. It is unlikely, however, that the
Bloc will carry out substantial programs
of this type except on a selective basis.
9. Soviet Bloc economic warfare measures
could be effectively countered without
significant strain upon the over-all eco-
nomic resources of the non-Communist
world, if prompt agreement on counter-
measures could be obtained. However,
disagreements as to the seriousness of the
threat of Bloc economic warfare, and as
to countermeasures, could produce sig-
nificant political strains within the non-
Communist world.
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DISCUSSION
Traditional Bloc Trade Policies and
Organization
10. Soviet policy makers have in the past
given highest priority to the development of
industrial and economic strength and to the
achievement of economic self-sufficiency. Ex-
ternal trade since the mid-thirties has been
low, relative to output and resources. Such
external trade as the Soviet Union has en-
gaged in has been strictly controlled so as to
make a maximum contribution to the develop-
ment of Soviet strength and to the reduction
of economic dependence upon outside sources
of supply. This trade has generally consisted
of exports of industrial raw materials and
foodstuffs, often at great hardship to the So-
viet population, in exchange for imports of
strategic raw materials and machinery and
other industrial products useful for the devel-
opment of industrial self-sufficiency.
11. Bloc economic warfare efforts in the past
have not been extensive. They have, for the
most part, been confined to measures taken
against certain selected countries - notably
Yugoslavia, Iceland, and Finland - and to
continuing attempts to weaken and to circum-.
vent non-Communist export controls.
12. Since 1918 Soviet external trade has been
administered by a state monopoly. State
trading corporations, directly controlled by
Moscow, have generally been organized to
handle Soviet imports or exports of particular
commodities, but in some cases to handle all
trade with a particular area.
13. Satellite foreign trade has been similarly
administered by state monopolies. The estab-
lishment of the Council of Economic Mutual
Assistance in January 1949, representing the
USSR and its East European Satellites, was an
important step in consolidating the Commu-
nist countries into an economic bloc. There
has been increasingly detailed planning and
direction of Satellite trade from Moscow.
.14. Soviet trade policy, with its rigorous con-
trols over the Satellites, has resulted in the
concentration of a very high proportion of the
trade of Bloc countries within the Bloc. The
increase in both the relative and absolute im-
portance of this trade has been particularly
marked since World War II. The volume of
trade among countries now composing the
Bloc increased by six to eight times between
1937 and 1952. In 1937 it composed 9 percent
of their total external trade and in 1952 .76
percent. Only 20 percent of the Soviet
Union's total external trade and 27 percent of
external trade of the Satellites (including that
of Communist China) was with the non-Com-
munist world in 1952.
15. Communist China's trade with the rest of
the Bloc would have increased in any case,
due to the Communist policy of seeking to
reduce dependence on trade with non-Com-
munist countries. However, the Korean war
greatly stimulated this tendency, both because
of export controls applied by non-Communist
countries and China's need for economic and
military assistance from Russia.
Trends in Trade between the Bloc and
Non-Communist Countries
16. The peak of Soviet foreign trade (calcu-
lated either in physical volume or in rubles
at current prices) came during the years of
the first Five-Year Plan (1928-1932) when
the USSR was importing large amounts of
industrial equipment from the West. These
imports gradually decreased as domestic pro-
duction grew.
17. As postwar reconstruction progressed,
trade between the Soviet Bloc and the non-
Communist world (measured in constant
prices) partially recovered, and by 1948 it had.
reached about half the 1938 level of trade
between the same areas. After 1948, with the
economic consolidation of the Bloc and the
imposition of non-Communist trade controls,
it began to decline and by 1952 had fallen to
about one-third of the.1938 level. This trade
was almost certainly less in 1953 than in 1952.
18. Bloc interest in purchasing non-strategic
commodities from non-Communist countries
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has until recently been slight, in accordance
with Bloc economic policies calling for the
greatest feasible degree of self-sufficiency.
Moreover, it is probable that for the same
reason Bloc demand for imports of strategic
goods would, on the whole, have remained low
in relation to the pre-World War II level, even
in the absence of non-Communist export con-
trols. These controls have, however, re-
stricted Bloc imports of strategic goods and
thus contributed to the decline of Bloc trade
with non-Communist countries and to the
modification of the pattern of that trade.
Non-Communist export controls have had a
greater effect upon the external trade of Com-
munist China than upon the trade of the
remainder of the Soviet Bloc, but they have
not been the most important cause of China's
rapid integration into the Bloc trading area.
Recent Developments
19. Although there is no evidence that Bloc
leaders have abandoned their emphasis upon
industrial expansion, military preparedness,
and self-sufficiency, the following develop-
ments since early 1953 suggest a policy of
increasing trade with the non-Communist
world :
a. Bloc countries have recently made sev-
eral offers and have signed agreements to in-
crease their trade with non-Communist coun-
tries, including several countries with which
they had no previous trade agreements.2 For
example, Bloc countries have recently shown
increased interest in trade with Latin
America, South Asia, Egypt, Greece, and other
parts of the non-Communist world. Trade
agreements recently concluded for the first
time between Bloc and non-Bloc countries
include those' between Bulgaria and India,
and between the USSR and Argentina. The
recent agreement between the USSR and
France is the first since 1934.
2 See Schedules I, II, and III for a summary of
data on recent trade agreements and other trade
o arrangements between the USSR and non-Com-
munist countries. Only a small proportion of
total Soviet trade with the non-Communist
world is conducted under such agreements and
arrangements.
b. In some of these agreements increased
imports of non-Bloc consumer goods have been
accepted by the Bloc, while capital goods, stra-
tegic metals, petroleum, and increased quanti-
ties of primary goods have been allotted for
export. The Bloc has already made some
shipments of goods of this type. Trade agree-
ments between Bloc countries and certain
Latin American countries are good examples
of this development.
c. The Bloc has recently demonstrated
greater willingness to use multilateral trading
techniques and to balance certain accounts in
transferable currencies. For example, the
USSR has been selling gold for sterling to
support purchases from the sterling area and
other countries. With Finland the USSR has
agreed to settle its expected deficit partially
in non-Bloc currencies.
II. BLOC ECONOMIC WARFARE
BY MEANS OF TRADE
20. Trade is potentially the most important
instrument of economic warfare available to
the Bloc. It is impossible, however, for the
Bloc to wage economic warfare of serious pro-
portions against the non-Communist world
solely by shutting off Bloc exports of strategic
commodities, since the non-Communist world
does not depend upon the Bloc for such goods.
Economic warfare through trade must there-
fore be conducted by the Bloc mainly in. three
ways: (a) by offering to engage in increased
trade with certain non-Communist countries;
(b) by building up trade with certain non-
Communist countries to such a level as to
create a state of dependence upon the contin-
uation of that trade; and (c) by cutting off
or by threatening to cut off trade with non-
Communist countries.3 By these means the
Bloc may seek to achieve such objectives as
weakening of non-Communist export controls
and reducing support for Western defense pro-
grams. By increasing trade, or promising to
increase trade, the Bloc might also in certain
countries and especially in certain groups
encourage more favorable political attitudes
and enhance the influence of local Commu-
See NIE-59, "Probable Economic Effects of a Sev-
erance of East-West Trade," 16 April 1953.
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nists. Where trade agreements resulted in
the establishment of permanent Bloc trade
missions in non-Communist countries, these,
missions could be used for purposes of political
warfare.
21. The Bloc has recently made several at-
tempts to use increased trade or promises of
increased trade for what appear to be eco-
nomic warfare purposes. At the Moscow Eco-
nomic Conference in April 1952, an attempt
was made to use offers of increased trade to
create dissatisfaction with Western, and par-
ticularly with US, controls on exports to the
Bloc. Communist China has bartered rice for
rubber from Ceylon on terms more favorable
than Ceylon could have obtained elsewhere,
thus creating dissatisfaction in Indonesia and
Malaya with export controls. Attractive trade
offers made by China to Japan have been
made conditional upon Japanese agreement
to ship strategic commodities. New Bloc
trade agreements with Finland, Iceland, Iran,
Argentina, and India are almost certainly mo-
tivated to some extent by the desire to improve
the political position of the Bloc in these coun-
tries and may have been drawn up with the
object in mind of creating dependence upon
certain kinds and levels of trade with the
Bloc. All of these moves, except the Moscow
Economic Conference, were also of direct eco-
nomic advantage to the Bloc.
Bloc Capabilities for Engaging in Increased
Trade with the Non-Communist World
22. Trade between the countries now compos-
ing the Soviet Bloc and the rest of the world
was in 1952 at about one-third of the 1938
level (measured in constant prices). This
reduction took place despite substantial in-
creases in world production and trade. By
1952 the Bloc gross national product was
about one-third greater than in 1938. In the
same period the external trade of non-Bloc
countries increased by 36 percent, and intra-
Bloc trade increased six to eight times.
23. We believe that there are economically
advantageous opportunities for substantially
increased trade between the Soviet Bloc and
the non-Communist world. A doubling, say,
of the 1952 level of such trade in the course
of a year or two would almost certainly bring
a net economic gain to the Bloc and probably
not significantly affect Bloc programs. A
doubling of this trade would increase Soviet
Bloc imports by $1.5 billion, or no more than
1 percent of Bloc gross national product, and
exports by $1.3 billion. In view of the rela-
tively small magnitudes involved, Bloc leaders
would probably not encounter any great diffi-
culty in disposing of the additional imports or
in making the additional exports available.
In their efforts to do so, they would enjoy the
advantage of complete control over a large
economy with great resources. Moreover, the
economic impact on the Bloc programs of a
doubling of trade with the non-Communist
world would be even less than indicated if
part of the increase were accomplished by
some rerouting of current intra-Bloc trade
through non-Communist trade channels.
24. Bloc leaders would probably encounter
some obstacles to the expansion of trade with
the non-Bloc world. The goods which West-
ern European countries would be most willing
to import from the Bloc, in order to save dol-
lars, are by and large agricultural products
and raw materials. Before World War II
such items were traditionally exported from
Eastern Europe on a large scale in exchange
for manufactured goods. It is unlikely, how-
ever, that the Bloc could restore this trade
pattern. Industrialization has proceeded rap-
idly in the USSR and in some of the Satellites,
while the output of Bloc agricultural products
and raw materials has lagged behind the ex-
panding requirements of the Bloc itself. Any
substantial future increase in external trade
will probably have to involve increased Bloc
exports of manufactured goods. Bloc at-
tempts to increase its exports of manufactured
goods to the non-Communist world would en-
counter difficulties, at least for a time, in the
designing, production, and merchandizing of
such goods in competition with Western pro-
ducers. Even Czechoslovakia and East Ger-
many would be hampered initially in such
trade by the loss of former commercial con-
tacts with the West. In addition, the Bloc's
past trading practices have given it a poor
reputation.
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25. A doubling of the 1952 level of Bloc trade
with the non-Communist world, in any pat-
tern which such an increase would be likely
to assume, would entail some temporary, re-
tardation of the Bloc's progress toward. self-
sufficiency. However, -by stockpiling and
maintaining standby capacity the Bloc could
lessen its vulnerability to subsequent interrup-
tion of imports from the West. By carefully
choosing exports and imports, the Bloc could
probably also minimize any possible disruptive
effect which increased trade would have on
Bloc economic programs. Furthermore, ex-
pansion of trade could help the Bloc to realize
its immediate program for increasing the
availability of consumer goods and ultimately
contribute to the achievement of self-suffi-
ciency at higher levels of output.
26. The Bloc could probably expand its ex-
ternal trade to more than twice the 1952 level
without greatly retarding -progress toward
self-sufficiency, disrupting basic programs, or
making a significant reallocation of resources.
However, a further expansion of external trade
would increasingly involve changes in the
economy of the Bloc which Bloc leaders would
be progressively less willing to accept.
Receptivity of the Non-Communist World
to Bloc Trade Offers
27. There is a high degree of receptivity in
many non-Communist countries to proposals
for increased trade with the Soviet Bloc be-
cause of the widespread belief that such trade
would help to:
a. Eliminate or alleviate balance of pay-
ment difficulties;
b. Restore historically profitable trade pat-
terns;
c. Develop larger and more diversified mar-
kets and sources of supply, and in some cases
secure protection from the uncertainties of the
US market;
d. Improve terms of trade; and
e. Improve political relations with the Bloc
and so postpone or avoid war. (The "neu-
trals" want to trade with both worlds as an
expression of their independence.)
28. Receptivity to Bloc trade offers will vary
greatly from country to country and will de-
pend as much on political as on purely eco-
nomic factors. Most receptive to Bloc trade
offers would be those countries which: (a) find
it difficult to satisfy their economic needs
within the trading area of the non-Communist
world; and (b) distrust the leadership of the
Western Powers or lean toward a neutralist
position on issues between the Soviet Bloc and
the non-Communist world. A general eco-
nomic recession in the US or in the non-Com-
munist world as a whole would almost cer-
tainly increase non-Bloc interest in trade with
the Bloc, dissatisfaction with controls on ex-
ports to the Bloc, and vulnerability to Bloc
economic warfare measures.
29. On balance, we believe that an attempt by
Bloc leaders to induce a doubling of the 1952
level of trade with the non-Communist world
would probably succeed. It would meet with
a favorable public response in many non-Com-
munist countries, and would almost certainly
result in net economic gain for the countries
concerned.
Consequences to the Non-Communist
World of Bloc Economic Warfare by
Means of Trade
30. The most immediately effective economic
warfare measures which the Bloc is likely to
employ would be directed at the non-Commu-
nist export control system. The Soviet Bloc
could put pressure on the export control sys-
tem and cause international and internal dis-
sensions in the non-Communist world by mak-
ing offers of increased- trade or by actual
increases of small magnitude. If one non-
Communist state yields- to Bloc inducements
to undermine the export control system, the
receptivity of other states to similar induce-
ments will increase, and the Bloc will find it
progressively easier to obtain strategic goods
as well as to cause dissension in the non-Com-
munist world over export controls.
31. If the total external trade carried on be-
tween the Soviet Bloc and the non-Communist
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countries in 1952 were doubled or tripled, it
would still be only a small percentage of the
total trade of the non-Communist countries:
However, if such an increase in trade were
largely concentrated upon those non-Commu-
nist countries which are most vulnerable to
economic warfare measures, it would cause an
important proportion of. the foreign trade of
those countries to be carried on with the Bloc.
The economic stability of those countries
might thus become dependent upon a con-
tinuation of this trade. Under such circum-
stances the governments and peoples of those
countries might become disposed to improve
their political relations with the Soviet Bloc,
with a consequent weakening of the cohesive-
ness of the non-Communist world. Bloc lead-
ers could also exert pressure upon the govern-
ments of those countries by reducing, or
threatening to reduce, the flow of trade.
32. Such Bloc economic warfare measures
against individual non-Communist countries
could be effectively countered without sig-
nificant strain upon the over-all economic re-
sources of the non-Communist world. How-
ever,. disagreements as to the seriousness of
the threat of Bloc economic warfare,. and as to
countermeasures, could produce significant
strains within the non-Communist world. On
the other hand, if it could be made apparent
to non-Communist countries that the Soviet
Bloc was seeking to use trade to weaken their
economies and might eventually use it. to ex-
tort political and economic concessions, the
net result might be an increase in non-Com-
munist cohesion and reduced receptivity to
Bloc trade offers.
Economic Warfare Against Western
Europe by Means of Trade
33. In 1952 trade with the Soviet Bloc ac-
counted for less than 3 percent of the total
international trade of the countries of West-
ern Europe. Those countries which in 1952
had more than 3 percent of their total trade
with the Bloc are listed below with imports
from the Bloc and exports to the Bloc shown
as percent of total trade :
TRADE WITH THE BLOC AS PERCENT OF TOTAL
INTERNATIONAL TRADE OF CERTAIN WESTERN
EUROPEAN COUNTRIES, 1952
Finland
..................
19
26
Austria
..................
11
13
Iceland
..................
7
8
Sweden
..................
6
8
Turkey ...................
4
5
Denmark ................
4
4
Italy .....................
4
4
Norway ...................
3
5
Switzerland ..............
3
4
34. Because of special circumstances Finland
and Austria carry on a large percentage of
their trade with the Bloc. They are therefore
vulnerable to economic pressures. Italy,
which carries on a much smaller proportion
of its total trade with the Bloc, is also vul-
nerable because of widespread unemployment,
especially in industries producing strategic
goods, and because of local Communist
strength.
35. Western European countries are generally
receptive to Soviet Bloc offers of increased
trade. There is a widespread and frequently
exaggerated belief in the possibilities for ex-
pansion of trade with the Bloc.
36. Some Western European countries : have
serious export marketing problems because of
overvalued currencies or high production
costs in specific industries. Finland, Austria,
and Italy, for example, have many high-cost
producers of metal products who are particu-
larly interested in Bloc markets and who may
be expected to become more interested if the
demand for their products diminishes in non-
Communist markets. The Soviet Bloc has al-
ready brought pressure to bear on Italy in an
attempt to force Italy to relax its export con-
trols and to create discord between Italy and
the US. Poland and Czechoslovakia have cur-
tailed deliveries of coal to Italy and have made
the restoration of the former volume of deliv-
eries conditional upon the export of strategic
goods.
Bloc Economic Warfare by Means of Trade
. with the non-Communist Far East
37. The non-Communist countries of the Far
East are not now heavily dependent upon
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trade with the Soviet Bloc. Current trade
between these countries and the Bloc amounts
to between 3 and 4 percent of their total inter-
national trade. Four-fifths of their trade
with the Bloc is with Communist China and
one-fifth with the European Soviet Bloc.
Most non-Communist countries of this area
are highly receptive to Bloc offers of increased
trade, and there is a widespread feeling that
the existing export control system is unrea-
sonable.
38. Japan offers an important target for Bloc
economic warfare by means of increased trade.
Many Japanese look upon increased trade
with the Bloc as a panacea for their current
and prospective economic difficulties, and as
an essential to the development of a satisfac-
tory political position in Asia. These hopes,
however, are based on what we believe to be
overoptimistic estimates of the possibilities of
expanding trade with the Chinese mainland.
We do not believe that Japan's annual trade
with Communist China, even with the removal
of present restrictions, and with an intensive
trade promotion effort on the part of the Bloc,
could amount to more than $350 million each
way. This would produce a one-third increase
in Japan's current level of total exports.
Trade on this scale would by no means be a
panacea, but it would contribute substantially
toward easing Japan's economic problems.
39. More concrete and attractive Communist
trade _ overtures to Japan can be expected to
increase agitation in Japan for the relaxation
and ultimate removal of restrictions on trade
with the Soviet Bloc. Such overtures would
almost certainly strengthen neutralist- groups
in Japan and those forces that are determined
to reassert Japan's independent position in
respect to world problems.
40. Some of the other Southeast Asian coun-
tries would be targets for Bloc economic war-
fare principally because they might hope to
find in the Bloc additional export outlets for
their surplus stocks of rubber and rice. Fur-
thermore, in Burma and Indonesia, trade with
the Bloc is viewed as a desirable step toward
the relaxation of international tensions in
Asia. There may be some skepticism about
the practical possibilities for a satisfactory
trading relationship with the Bloc in view of
past failure of publicized Bloc offers of trade
and assistance to materialize. However, In-
donesia has recently signed a trade agreement
with Communist China which may result in
some shipments of rubber, and Burma report-
edly is negotiating trade agreements with
both Communist China and the USSR.
Finally Communist China can apply some
economic pressure on the UK by manipulating
its trade with Hong Kong.
Bloc Economic Warfare by Means of Trade
with South Asia
41. Soviet Bloc trade with South Asian coun-
tries, with the exception of Ceylon, has not
shown any considerable upward trend. Dur-
ing the past three years, trade with the Bloc
has made up less than 3 percent of India's
total trade. India signed an agreement with
the USSR in December and would probably
welcome the opportunity to demonstrate its
neutralism by increased trade with the Bloc.
However, the agreement makes no specific
commitments as to imports and exports, and
may not lead to any significant expansion of
present trade volume. In the case of Pak-
istan, the importance of Bloc trade declined
in 1953, principally because of lower ship-
ments of raw cotton to China. One percent
of Pakistan's imports in 1953 came from the
Bloc and about 5 percent of exports were sold
there, compared with 22 percent in 1952.
Since the conclusion of the rubber-rice barter
agreement with China, Ceylon's trade with
the Bloc has risen to about 12 percent of im-
ports and 16 percent of exports and is of con-
siderable importance to Ceylon. The econo-
mies of most of the countries of South Asia
depend heavily upon the volume and price
.of their exports-cotton and jute in Pakistan,
tea and rubber in Ceylon, and jute, cotton
textiles, and tea in India. Any offer from
the Bloc to buy steadily more of these prod-
ucts at favorable prices would be attractive to
the countries of the area. However, the avail-
ability of tea for export in Communist China,
and the fact that China is continuing to
expand its output of raw cotton and jute, are
likely to limit the Bloc's willingness to absorb
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these particular goods from South Asia in
quantity and on a continuing basis.
42. Afghanistan has always conducted a con-
siderable part of its trade with the USSR.
Recently, owing mainly to larger purchases of
petroleum, this trade has increased moder-
ately. In addition, under an agreement an-
nounced in January 1954, the USSR is making
a loan to Afghanistan valued at $31/2 million
and is supplying technicians for the construc-
tion of grain storage and other facilities.
These Bloc moves may be aimed at countering
US assistance to Afghanistan.
Bloc Economic Warfare by Means of Trade
with the Middle East
43. Bloc trade has become increasingly im-
portant to Egypt (12 percent of Egypt's total
imports and 16 percent of exports in the first
half of 1953) particularly in view of the recent
decline in UK purchases of cotton. Bloc trade
has also been significant for Iran (about 13
percent of total foreign trade in 1952 and
somewhat less in 1953) because it provides a
market for the agricultural products of Iran's
northern provinces, provides essential im-
ports, and decreases the pressure on Iran's
limited foreign exchange., Iran's total trade
is low, however, compared with the period
when oil was being exported. The rest of the
Middle East has had very little trade with the
Bloc.
44. The countries of the Middle East, except
Turkey, would probably be highly vulnerable
to Bloc economic warfare carried on by means
of trade. There is wide dissatisfaction with
the area's general economic and political de-
pendence upon the West, and strong neutral-
ist tendencies with respect to the conflict
between the Soviet Bloc and the Free World.
There is no indication that any government in
the area would wittingly accept Communist
influence or domination, but several, notably
Egypt, Syria, and Israel, might enter into far-
reaching agreements with the Bloc for the
sake of direct economic benefits and in the
hope of securing further advantage by play-
ing off the Bloc against the West.
Bloc Economic Warfare by Means of Trade
with Latin America
45. The trade of Latin American countries
with the Soviet Bloc in 1952 probably com-
prised less than 1 percent of the total foreign
commerce of those countries, but decreasing
demand and lower prices for Latin American
exports, especially in the US, has aroused the
area's interest in the possibility of expanding
its trade with the Bloc. Special impetus was
given to this interest in August 1953 by the
signature of a trade agreement between Ar-
gentina and the USSR. The agreement, the
first concluded by the USSR with a Latin
American country, included provision for Rus-
sion delivery of $30 million of capital equip-
ment on credit. A number of other countries,
notably Brazil, Chile, and Uruguay, appear to
view expanded trade with the Bloc as a partial
solution to their current need for export mar-
kets and for non-dollar sources of machinery,
equipment, and industrial raw materials. In
some countries, the question of trade with the
Bloc is an issue which is being exploited by
Communists and, to a lesser extent, by ex-
treme nationalists. If the Soviet Bloc suc-
ceeds in substantially increasing its trade with
Latin America, this development might fur-
ther complicate Latin American relations
with the US and strengthen Communist in-
fluence in certain Latin American countries.
Probable Courses of Action
46. During the next few years the economic
policy of Soviet Bloc leaders will probably in-
clude an attempt to expand trade with the
non-Communist world. This effort will of it-
self yield economic warfare opportunities. The
Bloc will probably exploit these opportunities,
especially if it estimates that economic and
political conditions in the non-Communist
world increase receptivity to Bloc trade and if
there are increasing evidences of conflict in
the non-Communist world over the question of
trade with the Bloc. However, we do not be-
lieve that the Bloc will make large expendi-
tures of resources or modify other programs in
order to seek economic warfare objectives.
Moreover, Bloc leaders will continue to be wary
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of dependence upon trade with the outside
world, and will take steps to protect the Bloc
against the effects of sudden loss of such trade.
III. UTILIZATION OF ECONOMIC AID AND
TECHNICAL ASSISTANCE FOR
ECONOMIC WARFARE PURPOSES
47. There are many opportunities for Bloc
economic warfare by utilizing grants, loans,
and/or technical assistance or promises of all
three. The Bloc has made a few gestures of
this kind, including technical assistance to
India and Afghanistan and the recent agree-
ment to lend Finland the equivalent of $10
million. Such opportunities are greatest in
those underdeveloped areas where anti-West-
ern sentiment or "neutralism" is already
strong and where local Communist parties are
strong enough to make capital out of any
such moves.
48. The Bloc will probably make further ges-
tures of assistance to underdeveloped areas,
and will seek to exploit their propaganda value
to the utmost. However, there is as yet no
evidence that the Bloc is willing to undertake
substantial aid programs. The exports in-
volved in such programs might seriously in-
terfere in the next few years with the Bloc's
programs for increasing the availability of
consumer goods and for industrial develop-
ment and greater self-sufficiency. Further-
more, Bloc leaders probably realize the diffi-
culties of competing with the US in this field.
In some countries, moreover, Bloc leaders may
believe that present bad economic conditions
provide a favorable setting for the growth of
Communist influence.
IV. BLOC ECONOMIC WARFARE UTILIZING
GOLD AND MANIPULATION OF
CURRENCY AND COMMODITY MARKETS
49. The Bloc gold reserves, which are esti-
mated at $3 to $5 billion, and its current gold
production (variously estimated at from $200
to $500 million) constitute an economic war-
fare potential. Since the death of Stalin, Bloc.
leaders may have a changed conception of the
potential usefulness of gold to the Bloc. They
may now be less anxious to build up gold
stocks and may even be willing to draw on
them. An. obvious use of gold would be in
connection with an effort to increase trade
with the non-Communist world. The sale of
Bloc gold to finance an excess of imports
would enable the Bloc to gain some of the ad-
vantages of increased trade with selected non-
Communist countries without a balanced ex-
change of commodities with each country.
50. The Bloc's gold stock might also be used
in connection with attempts to manipulate
currency markets in the non-Communist
world in order to achieve economic warfare
objectives. Practically all countries, however,
have currency controls, stabilization funds,
and other means of protecting their currencies
against such manipulation. Bloc efforts to
manipulate the price of gold in non-Commu-
nist countries would not have much effect
since nearly all gold sales in and between
these countries take place at a price regulated
under the articles of the International Mon-
etary Fund, to which most non-Communist
countries adhere. In the few minor countries
where currency or gold price manipulation
might be attempted with some expectation of
success the economic warfare gains would be
so small or uncertain that we do not believe
the Bloc will undertake such measures.
51. In recent years Bloc gold sales have run at
an estimated annual rate of $60 to $80 million.
In 1953 they reached $150 million, with sales
concentrated in the latter part of the year.
These releases seem to be explained by balance
of payments considerations and particularly
by a shortage of sterling in the Bloc. There
is as yet no evidence that gold sales are con-
nected with an economic warfare effort.
52. The Bloc is not likely to attempt to
achieve economic warfare objectives by flood-
ing commodity markets in the non-Commu-
nist world. The Bloc has exportable surpluses
of only a few commodities, notably manga-
nese, chromite, and tungsten. The Bloc could
throw large quantities of these commodities
on the market at lower than present world
prices, thereby creating distress among non-
Communist producers. None of these com-
modities, however, accounts for enough of any
producing country's earnings to have a seri-
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ous effect upon the economy of that -country.
Neither would disturbances in these markets
affect over-all non-Communist industrial or
military potential. Such disturbance would
cause ill-will toward the Bloc in underdevel-
oped producer countries and thus handicap
the Bloc's efforts to gain strength in those
countries. Bloc supplies of petroleum, which
the Bloc is now selling in the non-Communist
world, are not now large enough to upset the
petroleum market seriously. In the case of
other commodities, the Bloc could disrupt
markets only by offering goods for sale at the
expense of internal requirements.
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CURRENT USSR EXPORT COMMITMENTS TO THE NON-COMMUNIST WORLD;
SELECTED PRODUCTS
COMMITMENT AND EXPIRATION
Petroleum Products
Belgium
gas oil
100,000 tons
T.A. to 31 Dec. 1954 a
Finland
petroleum products
790,500 tons
T.A. to 31 Dec. 1954
France
crude oil
(400,000 tons) L
T.A. to 30 June 1954
West Germany
diesel oil
$6 million
Barter, signed Jan. 26,
1954
Greece
fuel oil
300,000 tons
T.A. to 28 July 1954
Iceland
petroleum products
200,000 tons
T.A. to 1 Aug. 1954
Italy
crude oil
200,000 tons
T.A. to 26 Oct. 1954
Italy
fuel oil
100,000 tons
T.A. to 26 Oct. 1954
Sweden
petroleum products
600,000 tons
T.A. to 31 Dec. 1954
UK
petroleum products
100,000 tons
Contract, 30 Jan. 1954
Israel
fuel oil
100,000 tons
Barter, 3 Dec. 1953 ,
Israel
fuel oil
100,000 tons
Option to 31 Mar. 1954
India
crude and products
(not specified)
5 year T.A.
Afghanistan
petroleum-products
(not reported)
T.A. to 30 June 1954
Argentina
crude
500,000 tons
T.A. to 5 Aug. 1954
Argentina
petroleum products
$500,000
T.A. to 5 Aug. 1954
Denmark
petroleum products
200,000 tons
Soviet offer
Japan
crude oil
223,000 tons
Soviet barter offer
Belgium
grains
200,000 tons
T.A. to 31 Dec. 1954
Denmark
wheat
50,000 tons
T.A. to 30 June 1954
Finland
grains
265,000 tons
T.A. to 31 Dec. 1954
France
corn
65,000 tons
T.A. to 30 June 1954
Italy
hard wheat
100,000 tons
T.A. to 26 Oct. 1954
Norway
grains
110,000 tons
T.A. to 31 Dec. 1954
Sweden
corn
10,000 tons
T.A. to 31 Dec. 1954
Coal
Belgium
anthracite
60,000 tons
T.A. to 31 Dec. 1954
Finland
coal and coke
300,000 tons
T.A. to 31 Dec. 1954
France
anthracite
200,000 tons
T.A. to 30 June 1954
Greece
anthracite
10,000 tons
T.A. to 28 July 1954
Italy
anthracite
100,000 tons
T.A. to 26 Oct. 1954
Japan
Sakhalin coal
350,000 tons
Barter deals approved
Argentina
coal
300,000 tons
T.A. to 5 Aug. 1954
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13
USSR EXPORT COMMITMENTS (Cont'd)
QUANTITY OR VALUE
Manganese
Belgium
Belgium
Finland
France
Italy
Norway
Sweden.
West Germany
Chrome
Belgium
France
Italy
Norway
Sweden
West Germany
ferro-manganese
manganese ore
manganese ore
manganese ore
manganese ore.
manganese ore
manganese ore
manganese and
chrome ore
chrome ore
chrome ore
chrome ore
chrome ore
chrome ore
(see manganese ore
above)
10,000 tons
T.A. to 31 Dec. 1954
90,000 tons
T.A. to 31 Dec. 1954
30,000 tons
T.A. to 31 Dec. 1954
30,000 tons
T.A. to 30 June 1954
25,000 tons
T.A. to 26 Oct. 1954
30,000 tons
T.A. to 31 Dec. 1954
15,000 tons
T.A. to 31 Dec. 1954
$4.8 to 6.0 million
Barter deal 26 Jan. 1954
2,000 tons -
T.A. to 31 Dec. 1954
35,000 tons d
T.A. to 30 June 1954
15,000 tons
T.A. to 26 Oct. 1954
30,000 tons
T.A. to 31 Dec. 1954
20,000 tons
T.A. to 31 Dec. 1954
Nickel
West Germany nickel $900,000
T.A. - Trade Agreement, annual unless otherwise specified.
"This quota deleted 18 February 1954; exports of petroleum products had occurred by then and may con-
tinue.
This quota added 18 February 1954.
This quota deleted 18 February 1954.
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SCHEDULE II
CURRENT USSR IMPORT COMMITMENTS FROM THE NON-COMMUNIST WORLD;
SELECTED PRODUCTS
Shipsa
Belgium
Belgium
Belgium
Denmark
Denmark
Finland
Finland
Finland
Finland
Finland
Finland
Finland
Finland
France
Italy
Italy
Italy
Italy
Sweden
Sweden
UK
West Germany
Japan
Netherlands?
refrigerator ships
cargo ships
floating cranes
refrigerator ships
ship repairs
ice breaker
tankers, 1,100 tons
ocean steamers, 3,200
tons
ocean trawlers
ocean tugs
fishing vessels
lake barges
floating cranes
cargo ships
cargo ships
refrigerator ships
tugs
floating cranes
trawlers
refrigerator ships
trawlers
fish cannery vessels
ship repairs
QUANTITY OR VALUE
3
14
16
56
8
6
3
3
15
4
20
5
20
10
approx. $3.5 million
T.A. to 31 Dec. 1954
'T.A. to 31 Dec. 1954
T.A. to 31 Dec. 1954
T.A. to 30 June 1954
T.A. to 30 June 1954
T.A. to 31 Dec. 1954
T.A. to 31 Dec. 1954
T.A. to 31 Dec. 1954
T.A. to 31 Dec. 1954
T.A. to 31 Dec. 1954
T.A. to 31 Dec. 1954
T.A. to 31 Dec. 1954
T.A. to 31 Dec. 1954
T.A. to 30 June 1954
Long-term T.A. 1948 U
Long-term T.A. 1948
Long-term T.A. 1948
Long-term T.A. 1948
T.A. to 31 Dec. 1954
T.A. to 31 Dec..1954
Contract
Barter deal 26 Jan. 1954
Barter deals
Electric Power
Equipment
Belgium
Italy
Equipment to produce
180,000 kilowatts
500 kilowatt installa-
tions
Power station equip.
25 units
7 million kroner
T.A. to 31 Dec. 1954'
T.A. Long-term, 1948 T.A. to 31 Dec. 1954
Equipment for Food
Processing and
other Light
Industries
Belgium
10 million rubles
T.A. to 31 Dec. 1954
Denmark
p.m.
T.A.-to 30 June 1954
Sweden
8 million kroner
T.A. to 31 Dec. 1954
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Butter, Lard, and
Cheese
USSR IMPORT COMMITMENTS (Cont'd)
QUANTITY OR VALUE
COMMITMENT AND EXPIRATION
Denmark
butter
10,000 tons
T.A. to 30 June 1954
Denmark
butter
7,000 tons
1953-1954 contracts
Netherlands
butter
13,000 tons
1953 contracts
Sweden
butter
5,000 tons
T.A. to 31 Dec. 1954
Australia
butter
2,000 tons
1953 contract
New Zealand
butter
3,000 tons
1953 contract
Uruguay
butter
300 tons
1953 contract
Denmark
lard
4,000 tons
T.A. to 30 June 1954
Argentina
lard
1,500 tons
T.A. to 5 Aug. 1954
Netherlands
cheese
1,750 tons
1953 contract
Argentina
cheese
3,000 tons
T.A. to 5 Aug. 1954
Belgium
herring
5,000 tons
T.A. to 31 Dec. 1954
Denmark
herring
8,000 tons
T.A. to 30 June 1954
Iceland
herring
13,000 tons
T.A. to 1 Aug. 1954
Iceland
herring
5,000 tons
1953 contract
Iceland
frozen fish
21,000 tons
T.A. to 1 Aug. 1954
Norway
herring
56,000 tons
T.A. to 31 Dec. 1954
Netherlands
herring
18,500-19,000 tons
1953 contracts
Sweden
herring
2,000 tons
T.A. to 31 Dec. 1954
UK
herring
18,000 tons
1953 contract
Denmark
beef
9,650 tons
1953 contract
Denmark
pork
6,000 tons
T.A. to 30 June 1954
Netherlands
meat
5,000 tons
1953 contract
Argentina
preserved meat
5,000 tons
T.A. to 5 Aug. 1954
Argentina
pork
3,000 tons
T.A. to 5 Aug. 1954
Argentina
mutton
5,000 tons
T.A. to 5 Aug. 1954
Uruguay
meat
3,000 tons
1953 contract
Union of South
Africa
meat
1,200 tons
1953 contract
New Zealand
meat
$1,500
1953 contract
Australia
Belgium
meat
rayon fiber
(not reported)
5,000 tons
T.A. to 31 Dec. 1954
Belgium
artificial silk yarn
1,800 tons
T.A. to 31 Dec. 1954
Belgium
wool
6 million rubles
T.A. to 31 Dec. 1954
Belgium
woolen materials
1 million rubles
T.A. to 31 Dec. 1954
Belgium
hosieries
1 million rubles
T.A. to 31 Dec. 1954
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USSR IMPORT COMMITMENTS (Cont'd)
Textiles and Fibers (continued)
France
France
France
Greece
Italy
Italy
Italy
Netherlands
Netherlands
Norway
UK
Argentina
Iran
Afghanistan
Uruguay
Australia
New Zealand
artificial silk yarn
artificial silk cloth
wool cloth
cotton
cotton cloth
rayon
artificial fiber cloth
woolens
rayon
rayon fiber
textiles
wool
cotton, wool
cotton, wool
wool
wool
wool
QUANTITY OR VALUE
. 2,000 tons
2 million meters
800,000 meters
1,000 tons
1,000 tons
2,000 tons
1 million meters
500,000 meters
500,000 meters
1,000 tons
$1.4 million
20,000 tons
(not reported)
(not reported)
(not reported)
(not reported)
(not reported)
T.A. to 30 June 1954
T.A. to 30 June 1954
T.A. to 30 June 1954
T.A. to 28 July 1954
T.A. to 26 Oct. 1954
T.A. to 26 Oct. 1954
T.A. to 26 Oct. 1954
contract
contract
T.A. to 31 Dec. 1954
1954 contract
T.A.. to 5 Aug. 1954
T.A. to 31 Mar. 1954
T.A. to 30 June 1954
1953 contracts
1953 contracts
1953 contracts
Norway
2,000 tons
Belgium lead 2,000 tons T.A. to 31 Dec. 1954
Belgium sheet lead 2,000 tons T.A. to 31 Dec. 1954
France lead 3,000 tons T.A. to 30 June 1954
Iran lead and zinc ore (not reported) T.A. to 31 Mar. 1954
Ships often require more than a year for construction, so that delivery will come after the expiration
date of trade agreement under which commitments are made.
"These Italian commitments were made at the time when the current annual agreement expiring 26
October 1954 was signed, but they fall under the long-term rather than the annual agreement.
'A number of different kinds of ships for the USSR are under construction in Dutch shipyards, some un-
der a long-term 1948 agreement and others outside it. There is no current annual agreement; it is not
clear what new commitments were made in 1953.
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SCHEDULE III
CURRENT USSR TRADE AGREEMENTS WITH NON-COMMUNIST COUNTRIES
COUNTRY AND
DURATION
Belgium
year 1954
Denmark
1 July 1953-
30 June 1954
Finland
year 1954
Finland
10 years from
6 Feb. 1954
France
3 years from
1 July 1953-
Greece
28 July 1953-
28 July 1954
Iceland
1 August 1953-
1- August 1955
Italy
27 October 1953-
26 October 1954
Norway
year 1954
ESTIMATED VALUE OF
LAST AGREEMENT
$140 million
$42 million
$241.3 million
- Soviet loan of $10 mil-
lion at 2.5% interest
$52.9 million (first
year's quotas)
$20 million (may be
exaggerated)
$20 million
$29 million
1952 TRADE
TURNOVER
$26.4 million
$23.6 million
$236.6 million
Second protocol to long-
term agreement of 18 Feb.
1948; last protocol expired
1 May 1951
Renewal of noncommodity
provision of trade agree-
ment of 8 July 1946; last
renewal expired 8 July
1950
Protocol to. trade agree-
ment of 13 June 1950.
First proposed. decrease,
since war in level of trade
Finns can obtain non-Bloc
currencies
$24.5 million First postwar trade agree-
ment
$20,000 First postwar trade agree-
ment.
0 First trade agreement
since 21 June 1947 (date
of signature)
$54 million Renews 1952 protocol
without change; capital
goods for USSR under
1948 trade agreement
agreed on at same time
$21.7 million Decreased Norwegian alu-
minum quota, increased
Soviet manganese and
chrome quotas
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CURRENT USSR TRADE AGREEMENTS WITH NON-COMMUNIST COUNTRIES (Cont'd)
COUNTRY AND ESTIMATED VALUE OF
DURATION LAST AGREEMENT
Sweden $60-70 million
year 1954
Egypt
Iran $110 million in 1953
Unconfirmed re- trade agreement
port that 1954
trade agreement
now signed
Afghanistan Trade agreement value
1 July 1953- and 1952 trade not re-
30 June 1954 ported
(not confirmed)
Afghanistan Soviet loan of $3.5 mil-
8 years from lion at 3.5% interest
27 January 1954
1952 TRADE
TURNOVER
$64.5 million Projected increase in trade
after 1953 decrease
.... Payments agreement
signed 18 August 1953;
trade agreement may be
signed soon, would be first
postwar
$45 million . USSR probably became
Iran's largest trade part-
ner in 1953; no word on
value of 1954 trade agree-
ment
India
No definite quotas
$9 million
5 years from
2 December 1953
Argentina
$150 million
$6,000
5 August 1953-
4 August 1954
Uruguay
no quotas
Annual;
unknown
date
Little is known of this
trade agreement except a
list of products; may not
have definite quotas
Loan for construction of 2
wheat warehouses, 1 flour
mill, 1 bakery in Afghan-
istan using Soviet mate-
rials and technicians
Trade agreement without
quotas signed after failure
to conclude barter agree-
ment in 1953. Vague offer
of Soviet technical aid for-
mally accepted in ex-
change of letters
Includes Soviet credit of
$30 million for capital
goods purchases
"Bankers agreement;"
lists products without
quotas
Declassified and Approved For Release 2012/09/14: CIA-RDP79RO1012AO03300010001-5
 Declassified and Approved For Release 2012/09/14: CIA-RDP79RO1012AO03300010001-5
M VT I-$ Gr
Declassified and Approved For Release 2012/09/14: CIA-RDP79RO1012AO03300010001-5