FINNISH -SOVIET FIVE- YEAR TRADE AGREEMENT 1955-60

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00935A000200390004-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 14
• Document Creation Date: November 9, 2016
• Document Release Date: September 2, 1998
• Sequence Number: 4
• Publication Date: August 24, 1954
• Content Type: MEMO

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US OFFICIALS ONLY
INTELLIGENCE MEMORANDUM
FINNISH-SOVIET FIVE YEAR TRADE AGREEMENT
1955-60
CIA/RR IM-392
24 August 1954
THIS MATERIAL CONTAINS INFORMATION AFFECTING THE
NATIONAL DEFENSE OF THE UNITED STATES WITHIN THE
MEANING OF THE ESPIONAGE LAWS.,.TITLE 18., USCG SECS.
793 AND 794, THE TRANSMISSION OR REVELATION OF
WHICH IN ANY MANNER TO AN UNAUTHORIZED PERSON IS
PROHIBITED BY LAW.
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
US OFFICIALS ONLY
C1 7'.'1 /"1 T T T
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CONTENTS
Page
Summary . . . . . . . . . ... . .. . . . . . . . . . . . . . . 1
I. Introduction . . . . . . . . . . . . . . . . . . 1
II. Trade Protocol, 1954 . . . . . . . . . . . . . . ? . . 3
III. Long-Term Agreement, 1956-60 . . . . . . . . . . . . . . . . 3
A. Negotiations . . . . . . . . . . . . . . . . . . . . . 3
B. Finnish Exports . . . . . . . . . . . . . . . . . . . . . 4
C. Finnish Imports . . . . . . . . . . . . . . . . . . . . . 4
D. Special Features and Provisions . . . . . . . . . . . . . 4
IV. Trilateral Agreements . . . . . . . . . . . . . . . . . . . 5
V. Credit and Loan Provisions . . . . . . . . . . . . . 5
VI. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . 7
1. Trade of Finland with the USSR, 1936-54 . . . . . . . 8
2. Commodity Trade of Finland with the USSR, 1948-53 . . . . . ? 9
3. Projected Trade of Finland with the USSR, Trade Agreement
1956-60 . . . . . . . . . . . . . . . . . . . . . . . . . . to
Appendix
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CIA/RR IM-392
(ORR Project 42.574)
FINNISH-SOVIET FIVE YEAR TRADE AGREEMENT
15-o
Summary
Large reparations payments by Finland to the USSR in the years 1944-52
had the effect of gearing the Finnish economy to Soviet requirements.
When reparations payments were completed in 1952, the Western market situ-
ation was such that Finland was forced to turn to the Soviet Bloc for in-
creased trade. Since 1952 the proportion of Bloc trade in total Finnish
trade reached a high of over 30 percent, with the USSR replacing the UK
as Finland's major trading partner. The terms of the new 5-year trade
agreement between Finland and the USSR follow this general trend, with
projected trade increasing steadily over the 5-year period.
Soviet exports to Finland have been consistently less than imports
from Finland; consequently, Finland has built up a large ruble balance.
In an effort to adjust this imbalance, trilateral agreements with Satel-
lite countries have been arranged and have been partially successful.
With Finland's trade increasingly oriented to the Bloc, Finland has
.been desperately seeking means to procure unavailable Western exchange.
Recent Finnish-Soviet credit and trade agreements have recognized this
need. Although the USSR has agreed to grant Finland a $10-million gold
loan and pay a limited portion of future deficits in gold or foreign
currencies, the negotiations leading up to these agreements were domin-
ated by the fact that the USSR is the only market available for much of
Finnish metal and wood production.
I. Introduction.
As provided by the Armistice of September 1944'and confirmed by the
Paris Treaty of 1948, reparations in commodities amounting to over $500
million were delivered by Finland to the USSR in the 8 years subsequent
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to the Armistice..1/* These deliveries consisted primarily of metal manu-
factures, ships, and wood products. Since more than one-half of the
reparations deliveries consisted of commodities not previously exported
by Finland, payments during the first years, worked a great hardship on
the Finnish economy. During the first 5 postwar years it was necessary
for Finland to borrow $373 million, chiefly from the US and Sweden, for
investment in the metal-working and ship-building industries. Reparations
deliveries in 1946 accounted :'or 5.6 percent of the Net National Product
of Finland. In 1951, however, the expansion program had progressed con-
siderably, and reparations deliveries accounted for only 1.8 percent of
the .. Net. National Product.
When reparations were about to end in September 1952, Finland was
faced with the problem of finding: foreign markets for the type of goods
formerly delivered as reparations. Western markets were unable to
absorb significant quantities of these commodities, principally metal
products and wood-products, for several reasons:
1. Since the post-Korean boom the world demand for wood and
wood products had declined considerably, causing a drastic
drop in prices and art extremely competitive world market.
Consequently, Finland's largest industry, wood and wood prod-
ucts, was faced with a situation of rigid production costs
and declining world rsarket prices. J
2. Finland's newly expanded metal-working industry, now the
second largest industry, was a high-cost. producer. Also,
since it.was expanded to fulfill reparations obligations to
the USSR, it was geared to Soviet requirements which did not
necessarily correspond to the needs of Western markets. L4.
Therefore, Finland was forced to turn to the USSR,,pwhere the export
possibilities were more favorable than in the West.. Consequently, in
September 1952, when reparations deliveries ended, Finland and. the USSR
concluded a supplementary agreement to the 1952 trade agreement which
increased the trade of these countries for the remainder of 1952 and in-
creased the exports and imports for each of the years remaining under the
5-year agreement (1953-55) ty $43.7 million.**
* Footnote references in arabic numerals are to sources listed in the
Appendix.
** All quotations in rubles have been converted in this memorandum to
US$ equivalents at the rate of 4 rubles per dollar.
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II. Trade Protocol, 1954.
In November 1953, a trade protocol was'signedbetween Finland and the
USSR establishing the level of trade between the' two countries for 1954?
The value of Finnish exports set by this protocol was $19.5 million higher
than the export values set by the long-term agreement for 1954. In addi-
tion, the value of Finnish imports was set at $4.2 million higher than
the import value set by the long-term agreement. Both import and export
values established by this trade protocol were lower, however, than'the
values established by a trade protocol for'1953. The scheduled=reduction
in Finnish imports was probably due to a more realistic alignment of
actual Soviet exports and trade agreement commitments, while actual Fin-
nish exports of metal industry products were cut 10 percent on the
grounds that Finnish prices'were too high. (See Table 1.*)'
Machinery and equipment from Finland will constitute 50 percent of
Finland's exports to the USSR in 1954, and 34 percent of these exports
will consist of ships. Wood and wood products will comprise 43 percent.
The import commitments established by this protocol are generally favor-
able to Finland because they enable Finland to'import most of its require-
ments of grain, fodder, petroleum products, sugar, and cotton. 5/
The agreement included provisions for the adjustment of Finland's
export surplus by trilateral agreements with Satellite countries and by
payments from the USSR in gold and Western currencies. These provisions
will be discussed in Sections TV and V, below.
III. Long-Term Agreement, 1956-60.
A. Negotiations.
Negotiations for the new long-term agreement which began in March.
1954 were concluded on 16 July 1954. Preliminary reports indicate that
Finland hoped to limit annual exports to not more than $150 million and,
imports to about $100 million, or to approximately the same level of trade
as was set by the 1954 agreement. 6/ The USSR, on the other hand, had
requested an expansion of Finnish exports to $217.5 million annually.
When negotiations ended, however, and the agreement was signed, it.stipu-
lated that Finnish exports were to reach a high of $163.7 million. The
Finns seem to have won a slight victory in this respect, although they
were forced'to give in to Soviet desires for increased' ship-construction
commitments. In general the commodity component;of Finnish-Soviet trade
is similar to that' of previous years. (See `Table 2.**) 7/
Table 1 follows on p,. 8.
Table 2 follows on p. 9.
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B. Finnish Exports.
Finnish exports under the terms of the new 5-year trade agreement
will steadily increase throughout 1956-60. Exports are to increase from
$147.5 million in 1956 ($6.5 million above the planned exports for 1954)
to $163.7 million in 1960. (See Table 3.*) A comparison of actual. trade
with that projected under trade agreements since .1950 indicates that
Finnish export commitments to the USSR have been met. Consequently, it
seems safe to assume that Finnish export commitments set by this new
long-term agreement probably will be delivered.
The commodities to be exported by Finland under this agreement
are essentially the same as were exported under the 1950 agreement. The
new agreement calls for the delivery of another 10,500-horsepower ice-
breaker (similar to the three now under construction for the USSR under
the present long-term agreement), a new giant icebreaker of 20,000 horse-
power, 8 tankers, and 15 cargo ships. These tankers are probably of the
size of those previously constructed for the USSR (1,100 DWT and 4,000.
DWT). Other Finnish exports include machine tools for working metal,
prefabricated houses, sawn timber,. pulpwood, cellulose, paper cardboard,
and paper goods. 8/
C. Finnish Imports.
Finnish imports from the USSR are to remain lower than Finnish
exports. The agreement provides that Finnish imports will increase from
$107.5 million in 1956 ($7.5 million above the value set for 1954) to
$123.7 million in 1960. Recor1ed trade values for the years 1951-53
indicate that Soviet exports have consistently fallen short of commitments
stipulated in trade agreements. Therefore, should this situation continue,
the export surplus in favor of Finland will be even larger than the trade
agreement figures would indicate. Soviet exports will consist of cereals,
sugar, fodder, synthetic fertilizers, liquid and solid fuels, metal, rolled
metal, cotton, chemicals,-and furs. 9.~
D. Special Features and Provisions.
Special features and provisions of the new long-term trade agree-
ment include
1. A provision that the trade surplus in favor of Finland will be
adjusted by trilateral agreements with several Satellite countries and by
payments from the USSR in gold and Western currencies. These.provisions
will be discussed in detail in Sections IV and V. respectively.
* Table 3 follows on p. 10.
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2. An Appendix, consisting of a joint declaration for the promo-
tion and maintenance of international peace and security "in conformity
with.the principles of the UN" and for the understanding of the two govern-
ments that "only collective forces of all states regardless of social
structure can insure security of peoples since the struggle for peace and
against threat of new war is in the general interest of all states."
3. The Appendix also includes an agreement to raise the legations
in the respective capitals to the status of embassies and to exchange
ambassadors.. 10
This is the first time in Finnish-Soviet trade relations that such
a political appendix has been connected to an economic agreement. 'It seems
to reaffirm some of the principles of the Treaty of Friendship signed by
the USSR and Finland in 19484
IV. Trilateral Agreements.
The use of trilateral agreements with Satellite countries to compen-
sate for a surplus of Finnish exports to the USSR is not anew arrange-
ment in Finnish-Soviet trade relations. Trilateral agreements were
provided for in the 1950 long-term agreement and were used with some
success. Trade imbalances in 1951 and 1952 were covered by trilateral
agreements with Czechoslovakia and Poland. A large imbalance in 1953
was only partially covered, however, by such agreements. 11 In the 195)4
agreement, provision was also made for the trade imbalance to be covered
.partially by trilateral agreements. 12
Since Finnish industries are dependent on imports of raw materials,
many of which the Satellites are unable to supply, trilateral agreements
with Satellite countries offer only limited assistance to the export
surplus problem., Consequently, in the latter months of 1953 Finland
proposed that the UK and France enter into trilateral agreements with
Finland and the USSR for 1954. Trilateral agreements involving another
Western country would enable Finland to import Western raw materials.
These proposals were, however, turned down by both the UK and France. 13/
V. Credit and Loan Provisions.
In early February 1954, an agreement was signed in Moscow under which
the USSR granted Finland a $10-million standby credit. The credit may be
drawn upon in either gold or foreign exchange within the next 3 years at
the discretion of the Finns. Any amount borrowed is to bear interest at 2.5
percent and is to be repaid over a period of 10 years in the same medium
in which it is received. 14 So far as is known, this is the first gold
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or convertible currency loan granted by the USSR to.a non-Soviet Bloc
country.
In commenting privately on the loan agreement, a member of the Finnish
delegation pointed out that there was no obligation on Finland's part to
draw upon the credit except as that country might wish to do so in order
to strengthen its exchange reserves. It was also pointed out that there
were no present plans for making.use of the credit.
At the time the credit was negotiated, the USSR also agreed to settle
the 1954 Finnish export surplus (expected to amount to over'$16 million.)
in gold and foreign exchange. This scheme, under which a quarter of the
anticipated Finnish-Soviet tr-ade.imbalance is to be settled in gold or
convertible currencies, was e,lso made part of the 1956-60 trade agreement
signed in July 1954. (See Teble 3.) The Finns recently received a pay-
ment of $5 million worth of gold from the USSR under the 1954 trade agree-
ment. 16
In spite of Communist propaganda to the contrary, neither the credit
agreement nor the gold-convertible currency provisions in the 1954 and
1956-60 trade agreements represent a bargain for Finland. In late 1953,
Finland had a $10-million balance in its clearing account with the
USSR 17 and Finnish ruble clearing was being offered in "unlimited
amounts" at an 18-percent discount by a Finnish bank to a large US-firm. 18
Furthermore, the Finns had been subsidizing at substantial losses re-
exports of large quantities of Soviet Bloc goods as one method of, getting
rid of unusable Bloc imports. In order to minimize such losses, and turn
the ruble balances into a usable form, the Finns had for some time been
negotiating for the conversion of these excessive balances. into gold or
Western currencies, as it was entitled to demand underthe terms of its
1950 trade agreement with the USSR.. It was from such a position of weak-
ness -- the small supplier dominated by the giant buyer -- that the
recent series of Finnish-Sov:Let trade and credit agreementswere'negoti-
ated.
It had previously been made plain by the US Secretary of State that a
Finnish request for help in meeting its hard currency needs would receive
sympathetic consideration in Washington. 19/ Furthermore, the USSR could
have paid its existing debts to Finland in hard currency. It is possible
therefore that the Finns accepted the credit agreement under Soviet pressure,
as the only alternative left to holding onto unusable ruble balances and
possibly as a wedge toward securing convertibility of a fraction of the
trade imbalances planned under the 1954 and the succeeding 5-year trade
agreement.
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As a dominant purchaser, the USSR is in a position to gain increasing
control over the Finnish economy. The February credit agreement and the
political covenants discussed during negotiations of the recent Finnish-
Soviet trade agreements are symptoms of the utilization of Soviet power.
So long as the Finns are forced, by uncertain Western markets and their
own rigid internal cost structure, to orient their trade toward the USSR,
the trend of a stronger Soviet voice in Finnish economic and political
affairs can be expected.
VI. Conclusions.
1. Since the end of World War II the Finnish export industries have
become increasingly dependent on Soviet Bloc markets. This dependence
has followed in part from the buildup of a high-cost metal-working'indus-
try needed to meet Soviet reparations.
2. The new 5-year trade agreement, signed in July 1954, provides for
a continuing increase in Finnish-Soviet trade, though not so great as
the USSR had originally asked. The Finnish commitments under past Finnish-
Soviet,trade agreements have in large part been met or exceeded, so it may
be expected that the projected level of Finnish exports under the present
5-year agreement will also be met. If Finland's total foreign.trade re-
mains at a level near that of. previous years, the Soviet Bloc, chiefly
the USSR, will consequently increase its share, which now stands at 30
percent. The main hope of reducing Finland's economic dependence on the
USSR lies in increasing trade with the West -- an unlikely possibility
unless Finnish processing and manufacturing costs can be reduced or world
prices of metal and wood products increase.
3. In spite of Communist propaganda to the contrary, neither the
credit agreement nor the gold-convertible currency provisions in the 195+
and 1956-60 trade agreements represent a bargain for Finland.
Finland has been losing steadily in its trade, with the USSR and
therefore it was from a position of weakness that it accepted the Soviet
standby credit offer.
The conversion of ruble balances into usable form is provided for in
the 1950 agreement, and Finland had for some time been negotiating for
conversion of the excessive balance to gold or Western currencies. As
a dominant purchaser, the USSR is in a position to maneuver credit and
payment negotiations in its favor..
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Trade of Finland with the USSR a/
1936-54
Thousand US
Exports
Trade
Exports
(Excluding
Reparations
and Former
German
Former German
Total
Year
Imports
Balance
Assets
Reparations
Assets
Exports
1936
3,084
- 2,268
816
1937
3,584
2,325
1259
1938
2,603
- 1,665
938
1945
91,200
1946
24,477
+ 9,549
34,026
64,500
1947
28,852
- 3,149
25,703
76,506
15,532
117,741
1948
51,207
+ 346
51,553
84,894
1o,467
146,914
1949
34,880
+18,665
53,545
74,286
8,425
136,256
1950
23,676
+ 3,441
27,117
34,113
3,572
64,802
1951
41;390
+26,217
67;607
53,899
121,521
1952
81,581
+37,700
119;281
35,721
155,002?
1953
89,647
+55,875
145,522..
145,522
1954 b/
82,200
+52,500
134,700
134,700
a. Including reparations and return of former German assets.
b. Annual rate - January - April.
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Commodity Trade of.Finland with the USSR
1948-53
Thousand US
Exports to the USSR a/
1948.
1949
1950
1951
1952
1953
Food, Beverages, and
Tobacco
2,893
3,091
405
1,596
14
Wood and Wood
Manufactures b/
57,315
44,293
16,113
46,136
69,117
56,100
Chemicals
84
60
9
1,748
901
Manufactured Goods
'.''2./t80
11,361
2,705
4,599
14,209
19,231
Machinery and Transpor-
tation Equipment
64,387
77,287
45,447
70,044
68,274
68,994
Miscellaneous Manufactured
Articles and Others
455
164
123
292
56
282
Total
146,914
136,256
64,802
121,071
155,000
145,522
Imports from the USSR
Foodstuffs
Beverages and Tobacco
Inedible Crude
37,913
703
19,525
132
16,469
426
30,750
685
64,611
616
60,169
394
Materials Except Fuel
1,492
2,160
1,220
2,439.
3,517
9,519
Mineral Fuels
2,351
4,732
2,676
.
2,682
1,200.
7,101
Chemicals
2,335
2,057
1,156
176
967
2,740
Manufactured Goods
5,401
4,831
413
3,280
9,734
7,614
Miscellaneous and Others
1,012
1,443
1,316
1,378
936
2,110
51,207
34,880
23,676
41,390
81,581
89,647
a. Including war reparations.
b. Including synthetic fibers and wood pulp.
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Table 3
Projected Trade of Finland with the USSR
Trade Agreement 1956-60
Thousand US $
Year
Tinports
Exports
Balance
1956
107,500
147,500
+40,000
1957
108,700
148,700
+4o,ooo
1958
117,500
157,500
+40,ooo
1959
120,000
16o,00o
+4o,ooo
1960
123,700
163,700
+4o,ooo
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APPENDIX
SOURCES
1. London Financial Times, 12 Mar 1954.
2. IR No. 64 02, Finland's Current Economic Problems, 23 Nov 1953. U.
3. State, Foreign Source Despatch No. , Helsinki, 27 Feb 1952. U.
4. ID, No. 1236, "Increased Trade with.East May Follow Completion
of Finnish Reparations," 25 Sep 1952. C.
5. State, FSD No. 385, Helsinki, 14 Dec 1953. C.
6. US ARMA, Helsinki, No. AGC-20-54, Joint Weeka 10, 11 Nov 1954. C.
7. US ARMA,, Helsinki, No. AGC-56-54, Joint Weeka 28, 15 Jul 1954. S.
8. State, Incoming Telegram, Mc~s~g
Use 0 l LoJ~i a 81, 18 Jul 1954. Official
9. 2 JA5a
10.
11. State, FSD No. 797, Helsinki
Ma
1951
,
y
.
State, FSD No. 557, Helsinki, 10 Jan 1952. C.
State, FSD No. 547, Helsinki, 4 Mar 1953. C.
12. State, FSD No. 385, Helsinki, 14 Dec 1953. C.
13. State, FSD No. 285, Helsinki, 20 Oct 1953. C.
14. State, FSD No. 506, Helsinki, 16 Feb 1954. U.
State, FSD No. 642, Helsinki, 17 May 1954. C.
15. US ARMA, Helsinki, No. AGC-12-54, Joint Weeka 6, 11 Feb 1954. C.
16. International Financial News Surve , 18 Jun 1954.
17. London Times, 1 Nov 1953? U.
18. Unpublished 00 in response to S/TF requirement. C, US OFFICIALS
ONLY.
19. State, Telegram to Helsinki, 21 Dec 1954. S.
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US OFFICIALS ONLY
US OFFICIALS ONLY
L'1 T 1'l T T T
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