PROSPECTS FOR SOVIET-JAPANESE TRADE

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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01141A002700090001-1
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 29
• Document Creation Date: December 23, 2016
• Document Release Date: August 12, 2013
• Sequence Number: 1
• Publication Date: June 1, 1963
• Content Type: REPORT

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SECRET
N? 3
Economic Intelligence Report
PROSPECTS FOR SOVIET-JAPANESE TRADE
CIA/RR ER 63-16
June 1963
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
SECRET
GROUP 1
Excluded from automatic
downgrading and
declassification
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SECRET
Economic Intelligence Report
PROSPECTS FOR SOVIET-JAPANESE TRADE
CIA/RR ER 63-16
WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
SECRET
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FOREWORD
This report is based to a large extent on information contained in
official government announcements and press releases emanating from
Tokyo and Moscow. The statistical data were derived from the UN Com-
modity Trade Statistics and the US Department of Commerce Country-by-
Commodity Series.
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CONTENTS
Summary and Conclusions
Page
1
I.
Background and Current Structure of Trade
3
II.
Pressures for Increased Soviet-Japanese Trade
5
A.
Japanese Participation in the Development of Siberia
5
B.
Restrictions on Japanese Trade with the US
5
C.
Impact of the EEC on Japan
6
III.
Factors Limiting Soviet-Japanese Trade
8
A.
Most-Favored-Nation Treatment
8
B.
Duration of the New Agreement
8
C.
Japan's Unfavorable Balance of Trade
8
D.
Soviet Demands for Credits
10
IV.
Limitations on Trade in Selected Commodities
11
A.
Steel Pipe
11
B.
Purchases of Soviet Crude Oil
12
C.
Coal and Pig Iron
14
D.
Timber
14
Appendix
Statistical Tables
17
Tables
1. Geographic Distribution of Japanese Trade, 1956-61 . .
.
.
19
2. Geographic Distribution of Japanese Exports, 1956-61 .
?
?
20
3. Geographic Distribution of Japanese Imports, 1956-61 .
.
.
21
4. Commodity Composition of Japanese Exports to the USSR,
1959-61
22
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CONTENTS
5.
Commodity Composition of Japanese Imports from the USSR,
Page
1959-61
23
6.
Japanese Commodity Trade Balance:
Total Trade and Trade
with the USSR, 1956-61
24
7.
Japanese Trade with the USSR:
Planned and Actual,
1958-62
25
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PROSPECTS FOR SOVIET-JAPANESE TRADE*
Summary and Conclusions
Negotiations have been concluded recently in Moscow for a new long-
term Soviet-Japanese trade agreement to replace the 3-year agreement
which expired in December 1962. The new agreement does not provide for
any substantial increase in Soviet-Japanese trade and should not lead
to any significant increase in Japanese de endence on the USSR either
as a market or as a source of supply.
Both economic and political factors will limit the expansion of
Soviet-Japanese trade. Japan has been faced with a growing unfavorable
balance in its total trade as well as in trade with the USSR. The
Japanese government's recent liberalization of quantitative restrictions
on commodities could lead to a further deterioration in its balance-of-
payments position. To counteract this trend, Japan is currently employ-
ing foreign exchange controls and exerting pressure on private business
to forestall undue expansion of imports. The expected limitation of
imports from the USSR, especially imports of crude oil and timber, will
also reduce the possibility of any Japanese dependence on Soviet sup-
plies. Moreover, even if trade is expanded as much as Soviet announce-
ments envisage, this exchange will continue to represent only 2 to 3
percent of total Japanese trade.
. On the other hand, increased competition in Free World markets,
especially from the European Economic Community (PEC) countries, greater
difficulties in marketing in the EEC area itself, and US restrictions on
imports from Japan all provide support for the various commercial and
leftist groups in Japan that desire closer ties with the -Soviet Bloc.
In view of these current difficulties, Soviet offers to permit Japanese
participation in the development of Siberia appear inordinately appeal-
ing. It is probable, however, that many of the problems currently being
encountered in Free World areas can be mitigated through negotiations
with the countries involved and that, in any event, their impact would
not be sufficiently great to warrant the risks involved in shifting a
greater share of Japanese trade to Bloc markets. The Japanese govern-
ment's fear that economic dependence will lead to greater susceptibility
to Soviet political pressures, coupled with continuing efforts by the
US government to discourage any substantial increase in Japanese-Bloc
* The estimates and conclusions in this report represent the best
judgment of this Office as of 1 May 1963.
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economic relations, should effectively limit the expansion of Japanese
trade with the USSR.
In addition to the factors limiting total trade between Japan and
the USSR, there are factors that are peculiar to specific commodity
trade. Fear of economic dependence on the USSR has restricted the ex-
pansion of crude oil imports from the USSR. As a result, exports of
steel pipe, which the USSR tried to link to Japanese oil purchases,
have also been restricted. Rising domestic production coupled with
diminished requirements has reduced Japanese requirements for imported
pig iron. Finally, competition from third countries has reduced Japanese
requirements for imports of Soviet timber.
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I. Background and Current Structure of Trade
The Japan-USSR Joint Declaration of December 1956, which terminated
the state of war and reestablished diplomatic relations, created a basis
for the expansion of economic relations between the two countries. The
Declaration provided that the countries should place their trading and
commercial relations on a "stable and friendly basis" as soon as pos-
sible. Subsequent negotiations led in 1957 to the signing of a 1-year
trade agreement -- Japan's first trade agreement with a Communist coun-
try. This agreement called for trade of $30 million each way with the
settlement of any imbalance to be made in pounds sterling. Japan and
the USSR also signed in 1957 a 5-year Treaty of Commerce and Navigation,
which guaranteed most-favored-nation treatment and allowed exceptions
only if they were necessary to protect the national security (a conces-
sion to Japan's COCOM commitments) or the international financial re-
serve of either country.
A protocol signed in 1958 extended the original trade agreement for
another year and set the total trade turnover for 1959 at $70 million.
During the negotiations for this protocol the USSR enCouraged the Japanese
to import products from the Soviet Far East, mainly raw materials, rather
than goods from the European USSR, which it could sell more profitably in
the markets of Western Europe.
In March 1960 a 3-year trade agreement, covering 1960-62, was signed.
It called for trade valued at $210 million each way during this period
with the total turnover for 1960 to be $125 million. The agreement
further stipulated that all necessary payments between the two countries
would be effected in convertible currencies. During the negotiations,
Japan agreed in principle to extend credits of an undetermined amount
on terms similar to those granted to the USSR by Western European coun-
tries. The trade quotas for 1961 and 1962, determined in later protocols
to the original agreement, differed from previous arrangements in that
they provided for an unbalanced trade. Total trade for 1961 was to be
$160 million, with Japanese imports valued at $75 million and Japanese
exports at $85 million, and for 1962 these goals were set at $105 mil-
lion and $120 million, respectively. The planned export surplus in-
cluded in these recent agreements represents a Japanese attempt to off-
set partially the large import balances accumulated in its trade with
the USSR since 1958. Japan's imports exceeded the plan during every
year after 1959, whereas its exports reached the planned level only in
1962. As a result, imports from the USSR increased by 268 percent,
from $39 million in 1959 to $145 million in 1961, and exports grew only
from $23 million to $65 million (an increase of 184 percent).
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The imbalance in Soviet-Japanese trade is viewed with some concern
by the Japanese government as a factor contributing to the deterioration
of its over-all balance-of-payments position. The rapid expansion of
the Japanese economy, which began in 1958 and was further accelerated
by Prime Minister Ikeda's program to double the national income by 1970,
contributed to a rapid rise in over-all imports at a time when unfavor-
able foreign market conditions (particularly in the US and Southeast
Asia) and a strong domestic demand led to a slackening in exports.
A substantial portion of the increase in Japanese imports from the
USSR can be attributed to the expansion in purchases of Soviet fuels
from $7.7 million in 1959 to $60 million in 1961 (representing 19 per-
cent and 41 percent, respectively, of total Japanese imports from the
USSR). Crude petroleum accounted for most of this increase, rising from
4 percent of total imports in 1959 to 23 percent in 1961. Imports of
Soviet petroleum were encouraged in part by a foreign exchange alloca-
tion system* which favored low-priced supplies without regard to the
transportation cost involved. Imports of pig iron also increased sub-
stantially from $0.7 million in 1959 to $27.6 million in 1961. Manu-
factured goods in general increased from $5 million in 1959 to $36 mil-
lion in 1961.
In spite of the rapid expansion of Japanese trade with the USSR
from $22 million in 1957 to $211 million in 1961, it is still only a
small portion -- 2 percent -- of total Japanese trade. By comparison,
the US, Japan's most important trading partner, accounts for about 30
percent of Japan's total trade, while other Asian countries (excluding
Communist Asia) account for about 25 percent of Japan's trade (see
Tables 1 through i 3**).
Japan exports mainly manufactured goods and machinery (85 percent
of total exports in 1961), while its imports consist primarily of raw
materials and fuels (63 percent of total imports). Its commodity trade
with the USSR has followed this basic pattern, with exports consisting
mainly of iron and steel (26 percent), ships (6 percent), other machinery
and transportation equipment (33 percent), staple and artificial fibers
(6 percent), and yarns and thread of synthetic fibers (8 percent), while
its imports have been mainly oil (crude, 23 percent; petroleum products,
9 percent), pig iron (19 percent), coal (9 percent), and lumber (16 per-
cent) (see Tables 4 and 5***).
*
See
IV, B, p. 12, below.
**
Pp.
19 through 21, below.
***
Pp.
22 and 23, respectively, below.
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II. Pressures for Increased Soviet-Japanese Trade
Anticipating the negotiations for a new trade agreement for 1963,
the USSR, with the support of Japanese leftist groups, for many months
has been pointing out the advantages for Japan of an expansion of its
trade with the USSR. Soviet offers to expand trade, especially in the
new market to be developed in Siberia, are even more appealing when
contrasted with the increasing restrictions that Japanese exports are
facing in other countries, particularly the US and the European Eco-
nomic Community (FC) countries.
A. Japanese Participation in the Development of Siberia
In 1957 the USSR recommended to Japan that it try to expand its
trade with countries that still had underdeveloped areas to be built up
rather than with countries that were, in fact, its trading rivals. In
line with this recommendation the USSR suggested the possibility of
Japanese participation in the development of Siberia. Soviet negotiators
reasoned that the development of Siberia would mean not only a new market
for Japan but also a nearby one where Japanese goods could compete more
effectively with those from Western Europe.
Soviet promotional efforts continued to increase and finally led,
in August 1962, to the visit of a Japanese industrial mission to the USSR
to investigate the actual possibilities for Japanese contribution to the
development of Siberia. Although several contracts important to over-all
Japanese-Soviet trade were signed during this trip, little progress was
made in the plans for Siberian development.
A key stipulation in Soviet proposals for the development of
Siberia has been that Japan supply equipment on credit with payment to
be made later with the goods that are produced in the newly established
Siberian industries. The most important project of this type and the
one most frequently discussed is the Siberian oil pipeline that allegedly
is to be built from Irkutsk to Nakhodka. The USSR wants Japan to supply
the pipe for this line on credit to be repaid with Soviet crude oil that
is shipped through the finished line. Soviet insistence upon credit
terms and Japan's reluctance to accept increased supplies of Soviet oil
thus far have been the major obstacles to any agreement on Japanese par-
ticipation in Siberian development.
B. Restrictions on Japanese Trade with the US
Japan, faced with a growing trade imbalance, is concerned about
the serious consequences for its exports of any dislocation in its trade
with the US, which now takes about 25 percent of total Japanese exports.
The Japanese government is particularly apprehensive that the current
consolidation of the US tariff list will result in higher tariffs for
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some Asian goods; the US, however, has tried to reassure the Japanese
government by promising to lower tariff rates on other goods in com-
pensation for those that are raised in the list. In addition to the
tariff restrictions placed on Japanese exports by the US, there are
also voluntary Japanese restrictions which control the level of exports
of some goods. For example, since 1956 Japanese industry has observed
a gentleman's agreement to limit its exports of cotton textiles to the
US. Voluntary controls on exports cover about 4o percent of Japan's
exports to the US and have caused additional discontent among Japanese
businessmen.
Moreover, faced with a balance-of-payments problem of its own,
the US recently has been trying to reduce its imports through its "Buy
American" campaigns, and this policy has already affected Japan's
foreign earnings. Although the US government has assured Japan that
this is only a temporary policy, at recent US-Japanese trade talks
there was no indication that the campaign would be abandoned soon,
but instead Japan was urged to liberalize its quantitative controls
on imports even further.
C. Impact of the EEC on Japan
The successful development of the EEC poses a double threat to
the future expansion of Japanese exports in that the Japanese fear not
only a reduction in their exports to the countries of the EEC but also
increased competition from these countries in other markets, particularly
in underdeveloped areas. The USSR has played frequently on these fears
by stressing actions of the EF,C countries that are detrimental to Japan.
Soviet spokesmen have drawn attention to the rejection of most-favored-
nation treatment for Japan by the RECts employment of the General Agree-
ment on Tariffs and Trade (GATT) exception clause, Article 35 (see below);
to the imposition by the EEC of dual duties and other restrictive measures
against imports of those Japanese goods that are competitive with indig-
enous European products; and to alleged EEC dumping activities in Japan's
traditional markets in Southeast Asia.
Although the value of Japanese exports to the EEC has been grow-
ing steadily and the EEC has been taking an increasing share of Japanese
exports, the Japanese have been worried because the rate of growth of
their trade with the EEC has been falling. Japanese exports to the EEC
countries grew from $139 million in 1957 to $213 million in 1961 and were
expected to reach $230 million by 1962. The EEC's share of total Japanese
exports rose to 5.0 percent in 1961 and was expected to reach 5.2 percent
in 1962. At the same time, however, the rate of growth fell from 30 per-
cent in 1960 to 20 percent in 1961 and may have dropped as low as 8 per-
cent in 1962.
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The main restriction on Japanese trade with the EEC has been
Article 35 of GATT, which allows members to approve the membership of
a new country without granting that country full GATT concessions. When
Japan became a member of GATT, 14 countries, including all of the EEC
countries and the UK, invoked Article 35 and under it refused to extend
most-favored-nation treatment to Japan. Since then, Germany has in ef-
fect given Japan most-favored-nation treatment and the UK, as a result
of recent negotiations, soon will grant the same privilege. Italy main-
tains normal GATT relations with Japan but enforces other discriminatory
measures against it, while the Benelux countries* invoke Article 35 but
limit their discrimination to a small number of items. Only France con-
tinues to enforce large-scale discrimination against Japan; it still has
270 items on its negative list.
Japan hopes to find a temporary solution to these problems
through negotiations with the individual countries rather than with the
EEC Commission because the present discriminatory policies are national
in character rather than part of a common EEC policy and also because
Japan believes that the powers of the Commission are still rather limited.
Individual negotiations are to be initiated soon with Belgium-Luxembourg
and with France, and several of the EEC countries have already indicated
their willingness to replace Article 35 with "sensitive lists" of Japanese
goods, the import of which they feel would be disruptive to their econo-
mies.
When the EEC's common tariff is fully applied, however, Japan
will face additional barriers that cannot be offset through negotiations
with individual countries. Although the common agricultural policy will
not have much impact on the type of agricultural products that Japan ex-
ports, the common external tariff on manufactured goods will apply to a
large part of Japan's exports to the FRC -- in 1961, manufactured goods
and machinery made up almost 60 percent of Japanese exports to the EEC
countries. Although the total result of the common external tariff will
be a lower effective tariff, Japan, because of its pattern of trade with
the RFC, will face higher over-all tariffs. Almost 4o percent of Japan's
exports of manufactured goods and machinery to the EEC are purchased by
the Benelux countries, whose tariff rate will increase substantially when
the common external tariff is applied, while another 45 percent of these
exports go to Germany, whose tariffs also will increase somewhat. Unfor-
tunately for Japan, the effect of these increased tariffs will not be
offset by lower rates in Italy and France: these countries currently
absorb only 15 percent of Japanese exports in these categories.
At least in the short run, however, perhaps the most serious
problem confronting the growth of Japanese exports to the EEC will arise
* Belgium, the Netherlands, and Luxembourg.
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as a result of the simultaneous elimination of tariff barriers within
the TFC. Further increases in intra-TC trade expected at this time
undoubtedly will occur partly at the expense of trade with third coun-
tries such as Japan.
III. Factors Limiting Soviet-Japanese Trade
The issues that prolonged the recent Soviet-Japanese negotiations
for a ,new trade agreement include the following: renewal of the most-
favored-nation clause; the period of time to be covered by the agreement;
Japan's unfavorable balance of trade; Soviet requests for credits; and
the desire of the USSR to increase exports of raw materials, especially
oil and timber. The disadvantages associated with these issues apparently
outweigh the advantages to Japan of increased trade with the USSR and will
limit any immediate expansion of Soviet-Japanese trade. Political pres-
sures, especially from the US, also will serve to limit expansion of this
trade.
A. Most-Favored-Nation Treatment
The Treaty of Commerce and Navigation which established most-
favored-nation treatment between Japan and the USSR was due to expire
in May 1963, and a preliminary discussion of its provisions was under-
taken during the recent negotiations for its renewal. Although many
Japanese feel that the benefits of the most-favored-nation clause accrue
mainly to the USSR, it is unlikely that this clause will be eliminated.
The USSR, apprehensive that Japan might try to cancel the clause, pressed
for the elimination of the cancellation provisions in the Treaty, but the
Japanese delegation apparently rejected this proposal.
B. Duration of the New Agreement
In keeping with its long-term planning procedures, the USSR sug-
gested that the new agreement cover a minimum of 5 years or even a 7-to-
10-year period. The Japanese government, on the other hand, prefers that
its commitments not exceed a period of 3 years. The USSR offered to pur-
chase nine chemical plants if the Japanese would extend the agreement from
3 years to 5. The Japanese, however, have continued to oppose any exten-
sion, and the USSR has given in on this point.
C. Japan's Unfavorable Balance of Trade
Faced with an increasingly unfavorable balance of trade, both in
its over-all trade and in its trade with the USSR, Japan has been forced
to give primary consideration to the achievement of a balance in its trade
accounts. It is likely that fulfillment of this basic goal will rule out
any significant increases in Soviet-Japanese trade in the immediate future.
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The difficulties encountered by Japan in its attempt to solve
its balance-of-trade problem -- and indeed the development of the prob-
lem itself -- derived in large part from the pursuance of two other
important policy objectives: Prime Minister Ikeda's plan to double
Japanese national income by 1970 and the trade liberalization program.
Whereas capital investment was the most significant factor determining
the rapid rate of expansion in the Japanese economy during 1960-61, the
program placed serious strains on the Japanese balance of payments (see
Table 6*). Investments in plant and equipment increased in 1960 and 1961
by 45 and 38 percent, respectively, contributing to increases in imports
of machinery of about 15 and 50 percent during the same years. Moreover,
imports as a whole increased 25 percent in 1960 and 29 percent in 1961
compared with a growth in exports of only 18 percent in 1960 and a sharp
drop to 4 percent in 1961.
Simultaneously, the Japanese government, under heavy pressure
from the other industrialized nations,of the Free World to liberalize
its controls on imports, agreed to eliminate quantitative restrictions
on commodities comprising 90 percent of the value of its imports in
1959.** This commitment, which was made to the International Monetary
Fund, was only partially honored, 88 percent liberalization having been
achieved by the October 1962 deadline, with action on the more "sensitive"
items still pending. Fears of the Ministry of International Trade and
Industry and other vocal Japanese groups that liberalization would lead
to harmful increases in imports of the goods freed, although often ex-
cessive, have been further nurtured by the continuation of Western im-
port restrictions on the products in which Japan is most competitive.
As a means of slowing down new investment in plant and equipment
and improving its international payments position, the Japanese govern-
ment in late 1961 adopted a tight money policy which has succeeded in
recent months in curbing the implementation of investment plans and in
bringing about a decline in imports. Simultaneously, the export picture
has improved as a result of increased efforts by Japanese businessmen to
supplement falling domestic demand throuel increased foreign sales. The
government also has taken steps to offset the expected results of the re-
cent liberalization. In June 1962 an extensive increase in tariff rates
went into effect, and the government is considering another increase on
* P. 24, below.
** The liberalization program does not apply to goods that were not im-
ported in 1959, a year when imports of many goods were severely re-
stricted. The 10 percent not freed probably represents a greater share
of Japanese trade today than it did in 1959. In addition the liberaliza-
tion did not benefit all of Japan's trading partners equally: there are
still 262 items that have not been liberalized, including goods such as
automobiles and television sets, which the US would like to sell in Japan.
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the commodities recently liberalized. In order further to limit im-
ports, a "Buy Japanese" campaign has been launched and reductions have
been made in the foreign exchange budget for imports.
To supplement the general measures taken to correct its payments
problems, the Japanese government also has attempted to regulate trade
with specific countries with which it has an unfavorable balance. Japan
has incurred an import surplus in its trade with the USSR during every
year since normal trade relations were established. Although the Japanese
government has tried to correct this situation by insisting that the trade
agreements provide for balanced trade, this procedure has proven ineffec-
tive inasmuch as Japanese imports generally have exceeded those planned
while exports have fallen below the planned level (see Table 7*). In an
attempt to offset deficits incurred earlier, the trade agreements cover-
ing 1961 and 1962 called for a surplus of Japanese exports to the USSR.
The record for 1961 indicates an increase, however, in the unfavorable
balance of trade with the USSR, and, although a great improvement was
effected in 1962, it is not known as yet if the export surplus materi-
alized as planned. Moreover, it is possible that the USSR will attempt
to maintain its export surplus in trade with Japan as a means of earning
convertible currencies to cover payment deficits in trade with other Free
World countries, particularly in the underdeveloped areas.
Japan also has tried to influence the balance of trade through
revisions in the commodity lists accompanying the trade protocols. Inas-
much as the USSR usually pays cash for raw materials and semiprocessed
goods (while insisting on deferred payment terms for machinery and equip-
ment), the 1961-62 lists increased the proportion of these goods in the
total of Japanese exports to the USSR. In 1962, Japan also placed further
limitations on imports of several key commodities from the USSR: planned
oil imports were set at 3.4 million tons** which, although double the
figure planned for 1961, represented an increase of only 17 percent above
the actual imports during that year; planned imports of timber were re-
duced to half of their 1961 level; and planned purchases of pig iron were
cut from 500,000 tons in 1961 to 200,000 tons in 1962.
D. Soviet Demands for Credits
In negotiating sales to the USSR, particularly of capital equip-
ment, the Japanese have been confronted with Soviet demands for credit
terms "equal to those offered by the countries of Western Europe."
Japanese businessmen have been especially sensitive to the implication
that their European competitors have been permitted to arrange more
liberal credit terms.
* P. 25, below.
** Tonnages are given in metric tons throughout this report.
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As a result of pressures from these groups -- and against the
background of the Japanese government's claim that it has been unable
to determine the actual terms provided by Western European countries --
Japanese contracts on occasion have carried easier credit terms than
those permitted by most Western countries. In fact, the NATO countries
have agreed to ban the extension of government-to-government credits to
Communist countries (with the exception of credits provided for in PL 48o
agreements) and to guarantee only medium-term loans (2 to 5 years). The
only exceptions to the NATO agreement involve deliveries of ships and
aircraft, but there is no known instance of utilization of this clause.
Only two Italian credits, which were slightly in excess of 5 years, are
known to have been granted over the prescribed limitations.
Japan's limited foreign exchange reserves, coupled with pres-
sures from the US, have been instrumental in the Japanese government's
decision to tielten its credit policies toward Bloc countries. Re-
cently the Ikeda government imposed a ceiling on outstanding medium-
term credits to the USSR. Although this ceiling, which is to increase
from $230 million in 1962 to $368 million by 1965, seems unduly high
relative to the level of trade between the two countries, it is possible
that the full amount available will not be drawn. The government also
has taken other steps to tielten the easy credit terms previously granted
to Bloc countries. An export application involving a relatively small
delivery of ships, for example, recently was rejected because the company
requesting it had granted terms to a Communist country that were too
liberal. The government announced that it will permit delivery on the
earlier contract for ships valued at $96 million carrying terms of 30
percent down with 6 years to pay but would from now on insist on 30 per-
cent down with the remainder to be paid over 5 years.
IV. Limitations on Trade in Selected Commodities
Since the unilateral renunciation by Communist China of its trade
agreement in 1958, the Japanese government has been particularly sensi-
tive to the argument -- propounded especially by the US -- that it is
unwise to permit a growth in dependence on trade with a Bloc country,
either in general or in specific commodities. This principle, coupled
with a myriad of domestic economic forces, has served to place limita-
tions on the growth of Japanese trade with the USSR in several of those
commodities that traditionally have provided the major basis for the
exchange.
A. Steel Pipe
The Soviet proposal that Japan supply the pipe for a pipeline
in the Soviet Far East has offered Japanese steel producers an oppor-
tunity to increase substantially their exports to the USSR. In 1961 an
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agreement involving Japanese exports of 28-inch steel pipe and associated
pipeline equipment valued at $250 million, to be repaid with 17 million
to 18 million tons of Soviet crude oil over a 3-to-5-year period, ap-
peared to be imminent. The agreement, however, was not concluded, because
of the unwillingness of the Japanese to commit themselves to substantially
increased imports of Soviet crude oil. The completed pipeline, with all
pumping stations in place, would have an annual capacity of 18 million to
20 million tons, of which the USSR insisted Japan must take at least 10
million in order to make the pipeline profitable. The USSR does not con-
sider this pipeline as a part of its Seven Year Plan (1959-65) and has
left the initiative for any new developments on this project solely to the
Japanese.*
Recent Soviet difficulties in obtaining sufficient quantities of
large-diameter pipe for oil and gas pipelines, caused by inadequate do-
mestic supplies and NATO restrictions on exports of large-diameter (above
19-inch) pipe to the USSR, resulted in renewed Soviet efforts to purchase
such pipe in Japan. Thus far, Japanese industry has offered to sell the
USSR 43,400 tons, of which the Japanese government reportedly has approved
the sale of 25,000 tons, valued at $3.8 million.
Reports of the Japanese government's approval of these sales to
the USSR met with immediate opposition from the NATO countries, which
had just adopted a resolution that "to the extent possible" they would
stop deliveries of large-diameter pipe to the Soviet Bloc under existing
contracts and would prevent new contracts. It was feared that pressures
from steel manufacturers and other commercial interests in Western Europe
would make it impossible for their governments to adhere to the resolu-
tion diauld the USSR be able to obtain an alternate source of supply in
Japan. Althou& not a member of NATO, as a result of pressures from the
US and Western Europe the Japanese government apparently has agreed at
least for the time being to limit exports of pipe to the USSR to the
25,000 tons already committed.
B. Purchases of Soviet Crude Oil
Since the first Japanese purchase of Soviet crude oil in late
1958 (11,000 tons from Sakhalin), these imports have grown until they
are now Japan's most important import from the USSR. In 1961, purchases
of Soviet crude oil constituted 23 percent of total Japanese imports
from the USSR and accounted for 6.4 percent of total Japanese crude oil
imports.
* For the limitations on the expansion of Japanese imports of Soviet
crude oil, a factor on which the Far East pipeline apparently depends,
see B, below.
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The fear that economic dependence on Soviet oil could lead to
political pressures from the USSR and the desire to expand the share
of the domestic market for the Japanese-owned Arabian Oil Company have
been important factors, however, in the formulation of the policy of
the Japanese government to limit imports of Soviet crude oil to a
maximum of 10 percent of the Japanese market. During the recent trade
negotiations with the USSR the Japanese delegation actually tried to
lower the oil import quota for 1963. Under Soviet pressure, however,
Japan agreed to increase the planned imports of oil to 3.5 million tons
rather than expand its imports of other raw materials. Although the new
figure' is about 13 percent above estimated actual imports in 1962 (about
3.1 million tons), it represents a declining percentage of Japan's grow-
ing oil imports and little more than the quota originally planned for
1962 (3.)-i million tons).
The Japanese government feared that the lifting of controls on
crude oil, which was to be part of the general liberalization in October
1962 (the benefits of which would have to be extended to the USSR because
of the most-favored-nation agreement between the two countries), would
lead to an influx of low-priced Soviet crude oil. Although postponement
was considered, the government finally approved the liberalization of
crude oil, hobing that other factors would limit the feared expansion.
The liberalization program itself eliminated use of the foreign
exchange allocation system which had contained features advantageous to
Soviet suppliers of crude oil. This system had been designed in part to
encourage oil companies to find low-cost supplies by rewarding those
companies that imported oil at low f.o.b. prices with a larger share of
foreign exchange at the next allocation. Although Soviet crude oil on
a c.i.f. basis was only slightly cheaper than that of other suppliers,
the longer haul for Soviet oil resulted in a lower imputed f.o.b. price,
making it doubly attractive under the exchange allocation system.
A more serious factor limiting further increases in imports of
Soviet crude oil is the continued preeminence of Western suppliers in
the Japanese market. Inasmuch as long-term contracts between these
suppliers and Japanese firms account for about 85 percent of the Japanese
crude oil market, Western companies are able to exert considerable pres-
sure on their Japanese affiliates to limit purchases of competitive crude
oils. In addition, Western companies have refused to refine Soviet crude
oil in their facilities, thus limiting the ability of Japanese firms to
handle these imports. Even the Japanese company Idemitsu Kosan, the
largest importer of Soviet crude oil and not an affiliate of a Western
firm, must be responsive to some degree to Western pressures inasmuch as
it buys a major portion of its oil from Western sources.
Another potential means of limiting the expansion of imports of
Soviet crude oil by independent companies is through implementation of a
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new law which gives the Ministry of International Trade and Industry
broad regulatory powers over that industry. It has already been sug-
gested that one of the clauses in this law, which requires permission
from the Ministry of International Trade and Industry before refiners
can expand or alter their facilities, be used to limit the expansion
of the refining capabilities of Idemitsu Kosan. US pressures have also
been brought to bear on Japanese importers of Soviet crude oil. For ex-
ample, in 1961 the US government canceled a jet fuel supply contract
with Idemitsu Kosan, in order to "avoid giving any encouragement whatso-
ever to the expansion of Soviet oil exports in Free World markets."
C. Coal and Pig Iron
The magnitude of Japan's imports of coal and pig iron from the
USSR in the past has been dictated by its desire to increase sales of
steel to the USSR. Although the USSR continued to insist during the
recent trade talks that its steel purchases be tied to continued Japanese
acceptance of Soviet raw materials, high inventories and the generally
depressed conditions in the Japanese steel industry have forced the
government to pursue a more restrictive policy in regard to future im-
ports of both coal and pig iron.
Japan, which has already taken measures to protect its de-
pressed domestic coal industry, is now supplementing these measures by
efforts to reduce purchases of coal from foreign sources. Supplies of
coal from Sakhalin are readily expendable, inasmuch as they are of a
relatively poor quality and can be replaced easily by coal from low-
grade domestic deposits. The Japanese desire to decrease imports of
Soviet coal is reflected in the quotas contained in the new trade
agreement, which call for imports averaging a little less than 1 mil-
lion tons annually for the next 3 years compared with the 1962 quota of
1.4 million tons.
The recent expansion of domestic production of pig iron coupled
with surpluses resulting from the fall in demand for steel have led to
lower requirements for imports of pig iron as well. The need to reduce
imports of pig iron and to trim existing commitments wherever possible
resulted in the establishment of a quota for 1963 calling for Japanese
imports of 500,000 tons of Soviet pig iron (reflecting little if any
increase over actual imports in 1962) and in the Japanese refusal to
take more than 100,000 tons after 1963. Soviet opposition to these low
figures resulted in the omission from the final agreement of any quotas
for 1964 and 1965.
D. Timber
Imports of timber represent a significant but declining share of
total Japanese imports from the USSR. Although imports of timber increased
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in value terms from $12.3 million in 1959 to $23.6 million in 1961,
their share of total trade fell from 31 to 16 percent during this
period.
Japanese importers of timber, expecting an increase in domestic
demand and higher prices in 1962, signed several long-term contracts with
suppliers in the Soviet Far East. Because of an influx of lower priced
US timber, a decline in domestic prices, and the government's tight money
policy, these importers found themselves overcommitted and had to appeal
to the Soviet government for reductions in the price and volume of their
import commitments and for a delay in payment. The Soviet government at
first refused to grant any concessions and threatened to suspend its im-
ports of Japanese goods if contracts were not honored. Later it offered
to reduce the price of ordinary and pulp lumber on condition that the
Japanese take delivery of the entire amount contracted for in 1962.
Some Japanese businessmen accepted this offer, but others insisted on
greater concessions if they were to meet their commitments at all. The
USSR finally agreed to defer deliveries of timber under the 1962 quota
until the first quarter of 1963.
In the recent trade talks the USSR renewed its demands that Japan
increase its timber imports. Japan has refused and instead has offered
to buy 1.8 million tons in 1963, which is only a slight increase over
actual purchases in 1962 (1.6 million) and a decrease from the amount
planned for that year (2.0 million).
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APPENDDC
STATISTICAL TABLES
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Table 1
Geographic Distribution of Japanese Trade 2/
1956-61
1956
1957
1958
1959
1960
1961
Million
Percent
Million
Percent
Million
Percent
Million
Percent
Million
Percent
Million
Percent
Country
US $
of Total
US $
of Total
US $
of Total
US $
of Total
US $
of Total
US $
of Total
Free World
5,549.8
97.1
6,955.7
97.5
5,742.9
97.4
6,944.4
98.7
8,348.0
97.7
9,726.6
96.8
Of Which:
US
1,613.4
28.2
2,228.4
31.3
1,745.5
29.6
2,162.6
30.7
2,661.6
31.1
3,169.3
31.5
Canada
213.1
3.7
231.3
3.2
197.3
3.3
267.6
3.8
323.0
3.8
382.4
3.8
EEC 12/
217.5
3.8
364.2
5.1
270.9
4.6
313.4
4.4
383.7
4.5
524.6
5.2
UK
129.5
2.3
171.6
2.4
164.0
2.8
206.2
2.9
219.7
2.6
251.8
2.5
Other EFTA J
69.4
1.2
131.4
1.9
104.9
1.8
122.2
1.8
166.4
1.9
214.7
2.1
.Free World Asia
1,606.4
28.1
1,882.9
26.4
1,595.2
27.1
1,902.6
27.0
2,221.7
26.0
2,359.6
23.5
Sino-Soviet Bloc
167.7
2.9
173.4
2.5
152.6
2.6
95.7
1.3
198.4
2.3
320.2
3.2
Of which:
USSR
3.6
0.1
21.6
0.3
40.3
0.7
62.5
0.9
147.0
1.7
210.8
2.1
Total
5,717.6
100.0
7,129.0
100.0
5,895.5
100.0
7,0140.2
100.0
8,546.4
100.0
10,0146.8
100.0
a. Because of rounding, figures may not add to the totals shown.
b. European Economic Community (the Benelux countries -- Belgium, the Netherlands, and Luxembourg -- France, Italy, and West Germany).
c. European Free Trade Association (Austria, Denmark, Norway, Portugal, Sweden, Switzerland, and the UK).
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Table 2
Geographic Distribution of Japanese Exports 2/
1956-61
1956
1957
1958
1959
1960
1961
Million
Percent
Million
Percent
Million
Percent
Million
Percent
Million
Percent
Million
Percent
Country
US $
of Total
US $
of Total
US $
of Total
US $
of Total
US $
of Total
US $
of Total
Free World
2,419.4
97.1
2,773.6
97.4
2,792.3
97.4
3,412.7
99.0
3,981.5
98.2
4,132.8
97.6
Of which:
US
549.4
22.0
603.7
21.2
688.9
24.0
1,047.7
30.4
1,107.4
27.3
1,072.7
25.3
Canada
69.1
2.8
63.7
2.2
76.1
2.7
114.1
3.3
119.2
2.9
116.6
2.8
EEC 12/
106.4
4.3
139.0
4.9
122.4
4.3
133.0
3.9
174.6
4.3
212.7
5.0
UK
63.0
2.5
73.1
2.6
104.6
3.6
102.8
3.0
120.6
3.0
114.7
2.7
Other hi,lA 2/
42.4
1.7
79.9
2.8
64.9
2.3
77.3
2.2
108.0
2.6
128.9
3.1
Free World Asia
966.5
38.8
1,088.0
38.2
983.9
34.3
1,109.3
32.2
1,306.8
32.2
1,384.6
32.7
Sino-Soviet Bloc
73.3
2.9
75.7
2.6
73.4
2.6
32.9
1.0
73.4
1.8
103.1
2.4
Of which:
USSR
0.8
o
9.3
0.3
18.1
0.6
23.0
0.7
60.0
1.5
65.4
1.5
Total
2,1492.6
100.0
2,8)49.3
100.0
2,865.8
100.0
3,11.11.5.6
100.0
4,054.9
100.0
4,235.9
100.0
a. Because of rounding, figures may not add to the totals shown.
b. European Economic Community (the Benelux countries -- Belgium, the Netherlands, and Luxembourg -- France, Italy, and West Germany)
c. European Free Trade Association (Austria, Denmark, Norway, Portugal, Sweden, Switzerland, and the UK).
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Table 3
Geographic Distribution of Japanese Imports 2/
1956-61
1956
1957
1958
1959
1960
1961
Million Percent
Million
Percent
Million
Percent
Million
Percent
Million
Percent
Million
Percent
Country
US $
of Total
US $
of Total
US $
of Total
US $
of Total
US $
of Total
US $
of Total
Free World
3,130.5
97.1
4,182.1
97.7
2,950.6
97.4
3,531.8
98.3
4,366.5
97.2
5,593.8
96.3
Of which:
US
1,064.1
33.0
1,624.7
38.0
1,056.6
34.9
1,114.9
31.0
1,554.3
34.6
2,096.6
36.1
Canada
144.0
4.5
167.6
3.9
121.3
4.o
153.5
4.3
203.7
4.5
265.8
4.6
EEC 12/
111.1
3.4
225.2
5.3
148.5
4.9
180.3
5.0
209.1
4.7
311.9
5.4
UK
66.5
2.1
98.5
2.3
59.4
2.0
103.4
2.9
99.1
2.2
137.1
2.4
Other EraA 2/
26.9
0.8
51.5
1.2
40.0
1.3
44.9
1.2
58.4
1.3
85.7
1.4
Free World Asia
639.9
19.8
794.8
18.6
611.4
20.2
793.3
22.1
914.9
20.4
975.0
16.8
Sino-Soviet Bloc
94.5
2.9
97.6
2.3
79.2
2.6
62.8
1.7
125.0
2.8
217.1
3.7
Of which:
USSR
2.9
0.1
12.3
0.3
22.2
0.7
39.5
1.1
87.0
1.9
145.4
2.5
Total
3,224.9
100.0
4,279.8
100.0
3,029.7
100.0
3,591+.6
100.0
4,491.5
100.0
5,810.9
100.0
a. Because.of rounding, figures may not add to the totals shown.
b. European Economic Community (the Benelux countries -- Belgium, the Netherlands, and Luxembourg -- France, Italy, and West Germany).
c. European Free Trade Association (Austria, Denmark, Norway, Portugal, Sweden, Switzerland, and the UK).
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Table L.
Commodity Composition of Japanese Exports to the USSR 2/
1959-61
Commodities
1959
1960
1961
Thousand
US $
Percent
of Total
Thousand
us $
Percent
of Total
Thousand
us $
Percent
of Total
Crude materials (inedible),
except fuels
1.2.82
15.1
5,611-3
9.4
6,333
9.7
Chemicals
678
2.9
1,333
2.2
718
1.1
Machinery and transportation
equipment
9,966
44.3
17,11-03
29.0
25,544
39.1
Steel ships
8,087
35.1
11,202
18.7
3,895
6.0
Manufactured goods
8,879
38.6
35,550
59.3
32,557
49.8
Iron and steel
5,450
23.7
26,714
44.5
16,914
25.9
Stainless steel pipe
800
3.5
11,307
18.8
8,237
12.6
Yarn and thread of synthetic
fiber
1,174
5.1
3,272
5.5
5,411
8.3
Rubber belting for machinery
0
0
1,406
2.3
3,726
5.7
Miscellaneous, not elsewhere
specified
23
0.1
52
0
233
0.4
Total
23,028
100.0
59,981
_
100.0
65,385
100.0
a. Because of rounding, figures may not add to the totals shown. Data in Tables 4 and 5 differ slightly from
those in tables based on UN statistics.
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Table 5
Commodity Composition of Japanese Imports from the USSR
1959-61
Commodities
1959
1960
1961
Thousand
us $
Percent
of Total
Thousand
US $
Percent
of Total
Thousand
us $
Percent
of Total
Food and live animals
2,791
7.1
6,l8)+
7.5
1,510
3.1
Crude materials (inedible),
except fuels
18,331
46.4
26,188
30.1
32,543
22.4
Wood and lumber
12,281
31.1
15,606
17.9
23,635
16.3
Raw cotton
2,667
6.8
6,598
7.6
4,604
3.2
Mineral fuels, lubricants,
and related materials
7,652
19.4
27,291
31.4
60,057
41.3
Crude petroleum
1,396
3.5
15,217
17.5
33,028
22.7
Heavy fuel oil
879
2.2
3,632
4.2
13,431
9.2
Coal
5,047
12.8
7,681
8.8
13,255
9.1
Chemicals
5,330
13.5
7,569
8.7
11,361
7.8
Potassium chloride
4,248
10.8
5,940
6.8
8,713
6.0
Manufactured goods
5,353
13.6
19,211-1
22.1
35,755
24.6
Pig iron
678
1.7
13,322
15.3
27,614
19.0
Miscellaneous, not elsewhere
specified
37
0.1
259
0.3
1,165
0.8
Total
39,494
100.0
87,032
100.0
111.5)1.21
100.0
a. Because of rounding, figures may not add to the totals shown. Data in Tables 4 and 5 differ slightly from
those in tables based on UN statistics.
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Table 6
Japanese Commodity Trade Balance: Total Trade and Trade with the USSR
1956-61
Million US $
1956
1957
1958
1959
1960
1961
Exports
2,492.6
2,849.3
2,865.8
3,445.6
4,054.9
4,235.9
Of which:
Exports to the USSR
0.8
9.3
18.1
23.0
60.0
65.4
Imports
3,224.9
4,279.8
3,029.7
3,594.6
4,491.5
5,810.9
Of which:
Imports from the USSR
2.9
12.3
22.2
39.5
87.0
145.4
Net Japanese iiports 2,./
732.3
1,430.5
163.9
148.9
436.6
11575.0
Of which:
Net imports from the USSR pi
2.1
3.0
4.1
16.5
27.1
80.0
a. Because of rounding, net figures may not check with the balance of imports and exports shown.
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Table 7
Japanese Trade with the USSR: Planned and Actual
1958-62
Million US $
Year
Imports
Exports
Total 1./
Planned
Actual
Planned
Actual
Planned
Actual
1958
28 to 30
22
28 to 30
18
56 to 60
4o
1959
35 1,2/
39
35 12/
23
70
62
1960
62 12/
87
6212/
60
125
147
1961
75
145
85
65
160
211
1962
105
122 2/
120
130 2/
225
253 2/
a. Because of rounding, figures may not add to the totals shown.
b. Available data for total turnover divided equally between imports and exports.
c. For 10 months only.
-25-
S-E-C-R-E-T
Declassified and Approved For Release 2013/08/12 : CIA-RDP79R01141A002700090001-1
Declassified and Approved For Release 2013/08/12 : CIA-RDP79R01141A002700090001-1
SECRET
SECRET
Declassified and Approved For Release 2013/08/12 : CIA-RDP79R01141A002700090001-1