IMPLICATIONS OF FINNISH TRADE WITH THE SINO-SOVIET BLOC

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00935A000400010002-8
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 29
• Document Creation Date: November 9, 2016
• Document Release Date: August 25, 1998
• Sequence Number: 2
• Publication Date: April 2, 1956
• Content Type: IM

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INTELLIGENCE MEMORANDUM
IMPLICATIONS OF FINNISH TRADE
WITH THE SINO-SOVIET BLOC
CIA/RR IM-424
2 April 1956
WARNING
THIS DOCUMENT 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
TRANSMISSION OR REVELATION OF WHICH IN ANY MANNER TO AN
UNAUTHORIZED PERSON IS PROHIBITED BY LAW.
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
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Summary and Conclusions . . . . . . . . . . . . . . . . . . . . 1
I. Historical Background . . . . . . . . . . . . . . . . . . . 2
II. Reparations . . . . . . . . . . . . . . . . . . . . . . . . 3
III. Trade and Credit Arrangements . . . . . . . . . . . . . . 7
A. Postwar Trade . . . . . . . . . . . . . . . . . . 7
B. Trade Agreements . . . . . . . . . . . . . . . . . . 8
C. Credit Provisions . . . . . . . . . . . . . . . . . . . 9
D. Trilateral Arrangements . . . . . . . . . . . . . . . . 9
IV. Extent, Implications, and Consequences of Finnish Trade
with the Soviet Bloc . . . . . . . . . . . . . . . . . . . 10
A. Extent of Finnish Dependence . . . . . . . . . . . 10
B. Implications and Consequences . . . . . . . . . . . . 11
C. The Finnish View . . . . . . . . . . . . . . . . . . 13
Appendixes
Appendix A. Supporting Statistical Data . . . . . . . . . . . 15
Appendix B. Source References . . . . . . . . . . . . . . . . 21
Tables
1. Finnish War Reparations to the USSR, 1944-52 . . . . . . 4
2. Commodity Composition of Finnish Exports and Reparations
Deliveries, 1935-37, 1944-52, and 1953 . . . . . . . . . .
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Page
3. Indexes of Finnish Industrial Production, Selected Years,
1938-54 . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. Finnish' Imports, by Country of Origin, 1938, 1945, and
1947-54 . . . . . . . . . . . . . . . . . . . . . . . . . 15
5. Finnish Exports, by Country of Destination, 1938, 1945, and
1947-54 . . . . . . . . . . . . . . . . . . . . . . . . . 15
6. Finnish Foreign Trade, by Trading Areas, 1938 and 1950-54 . 16
7. Finnish Trade with the USSR and the Sino-Soviet Bloc, as a
Percentage of Total Foreign Trade, 1913, 1938, and
1946-54 . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8. Finnish Trade with the Sino-Soviet Bloc, by Country of
Origin and Destination, 1954 . . . . . . . . . . . . . . . 18
9. Finnish Trade with the USSR, by Commodity Groups, 1948-53 19
10. Projected Finnish Trade with the USSR Under the Trade
Agreement of 1956-60. . . . . . . . . . . . . . . . . . . . 20
Following Page
Finnish Foreign Trade, by Trading Areas, 1938 and
1950-54 . . . . . . . . . . . . . . . . . . . . . . . . . 8
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CIA/RR Im-424 S-E-C -R-E-T
(ORR Project 42.982)
IMPLICATIONS OF FINNISH TRADE WITH THE SING-SOVIET BLOC'
Summary and Conclusions
The economic losses incurred by Finland in two wars with the
USSR and the stringent provisions imposed by the peace treaty of
1947 left Finland impoverished and vulnerable to Soviet economic
encroachments. Soviet insistence that Finland deliver reparations
valued at more than US $500 million,** primarily in products of
the metalworking and shipbuilding industries, commodities not
previously exported to any large extent by Finland, substantially
compounded the economic burden.
The forced expansion of Finnish industry, primarily geared to
deliveries of reparations, left the Finns dependent on Soviet markets
even after such deliveries had been completed. By the end of 1953
the Sino-Soviet Bloc accounted for almost one-third of Finnish for-
eign trade, and the USSR displaced the UK as the principal trading
partner of Finland.
The serious decline in the world demand for wood and wood prod-
ucts and the inability of Finland to find suitable markets in the
West for products of its metalworking and shipbuilding industries,
in which Finland does not have a comparative advantage in trade,
have made it imperative, in Finnish eyes, to retain their markets
in the Sino-Soviet Bloc.
Finnish dependence upon the USSR as a primary market for Finnish
industrial production, in turn, has engendered a substantial reliance
upon the Soviet Bloc as a source of supply. Faced with the prospect
of increasing its already large accumulation of inconvertible currency
from the Bloc, Finland has been obliged to import large quantities
of goods from the Bloc. Finland has been forced to re-export many
of these goods, often at considerable loss. Total Finnish require-
ments for imports of petroleum, coal, bread grains, sugar, fodder,
fertilizers, and, to a lesser extent, of iron and steel, ferroalloys,
and cotton now are filled almost entirely by the Soviet Bloc.
* The estimates and conclusions contained in this memorandum represent
the best judgment of QER as of 1 January 1956.
x Dollar figures are given in current US dollars unless otherwise
specified.
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That such close commercial ties with the Soviet Bloc constitute
a latent danger to Finnish independence and make Finland vulnerable
to Soviet pressure is evident both to Western observers and to the Finns
themselves. There is little evidence, however, of any immediate threat
to Finnish economic or political integrity. The inability of Finland
to find suitable imports from the Soviet Bloc and its reluctance to
accumulate larger ruble balances militate against a substantial increase
in Finno-Soviet trade in the foreseeable future. Finland :Ls intensify-
ing its efforts to lower its costs of production and to increase the
ability of its metalworking and shipbuilding industries to compete in
both the domestic and foreign markets. There is evidence that, if the
USSR were to curtail suddenly its imports of Finnish products, Finland
could, after a period of initial adjustment, adapt itself to new pat-
terns of production, consumption, and trade with the non-Bloc areas.
This readjustment, of course, would depend upon Western willingness and
ability to absorb the bulk of the traditional Finnish exports.
1. Historical Background.
Before World War I the position of Finland as an autonomous Grand
Duchy attached to the Russian Empire led inevitably to strong commercial
ties with the Empire. Russia occupied first place among the trading
partners of Finland and accounted for about 30 percent of total Finnish
foreign trade. In fact, Finnish industry had been geared so closgly
to Russian requirements for imports that in 1913, Russia absorbed 62 per-
cent of the pulp and paper, 98 percent of the leather goods, 84+ percent
of the metal manufactures, 98 percent of the stone and mineral produc-
tion, and 97 percent of the products of the spinning and weaving mills
exported by Finland. 1/*
The Russian revolution and subsequent Finnish independence substan-
tially altered the traditional pattern of Finnish foreign trade, and
after 1920 the USSR accounted for little more than from 2 to 3 percent
of the total foreign trade of the new Finnish Republic. This rapid
decline was primarily a result of the Soviet policy of limiting imports
to vitally needed capital goods in an effort to hasten Socialist con-
struction and economic self-sufficiency. Not until 19+0 was any con-
certed effort made to expand the exchange of goods between the USSR and
Finland, and a trade agreement concluded in June of that year was abro-
gated by war.
* For serially numbered source references, see Appendix B.
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In the meantime, the UK had quickly become the major market for
Finnish exports. The UK was to remain the principal trading partner
of Finland until 1953. In 1938, the last full year of normal trade
relations, 42.7 percent of the value of total Finnish exports went
to the UK, compared with 14.8 percent to Germany, 9.2 percent to
the US, 2.8 percent to Sweden, and. 0.5 percent to the USSR 2/
Finnish involvement in two major conflicts (1940-45), coupled
with the particularly stringent provisions of the peace treaty imposed
by the USSR, left Finland impoverished, with its foreign trade
practically at a standstill. Finland was forced to cede to the USSR
approximately 13 percent of its territory, including 11 percent of
its cultivated land; 432 plants which had contributed more than 10 per-
cent of its total industrial production; 600 miles of railroad trackage,
approximately 17 percent of the total; plants which had produced
32 percent of its prewar hydroelectric power; and many valuable ports
which had handled almost 20 percent of Finnish prewar: exports. 3/
Especially hard hit were the woodworking plants that had pro-
duced the bulk of Finnish exports before World War II. Among the
plants surrendered to the USSR were 65 saw and planing mills, which
had produced 12 percent of the total production in 1938, and many
other factories and plants, which had accounted for 26 percent of
the chemical pulp, 15 percent of the plywood, 12 percent of the
mechanical pulp, and 5 percent of the paper produced by Finland.
It has been officially estimated that the economic loss in the ceded
territories represented almost 13 percent of the prewar natural
resources of Finland. 5/
11. Reparations.
The difficulties that beset the already strained economy of
Finland were increased by the reparations that were imposed by the
armistice treaty of September 1944 and later confirmed by the peace
treaty of 1947. Finland was obliged to pay in kind to the USSR war
reparations amounting to $300 million (1938 dollars), payable within
a 6-year period. Although subsequent agreements reduced the sum to
$226 million (1938 dollars) and extended the term of payment to
8 years, the Soviet demand that deliveries of reparations include
many commodities not previously exported by Finland forced an expansion
of Finnish industrial production. 6/ Aided, however, by US and
Swedish loans totaling $373 million, chiefly for investment in
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metalworking and shipbuilding industries, Finland was able to fulfill
its reparations obligations, and by September 1952 it had. delivered
to the USSR commodities worth more than $500 million. 7/
Finnish war reparations to the USSR, 1944-52, are shown in Table 1.
Finnish War Reparations to the USSR a/
1944-52
Cost of Reparations b/
Reparations as a Percent of
Million
Total
Year
Current
Dollars c/
Billion
Finnmarks
Budgetary
Expenditures
Total
Exports
1944
0.2
0.27
0.7
4.3
1945
91.2
8.17
19.3
61.0
1946
64.5
8.78
14.4
27.6
1947
76.5
to. 40
14.2
1.8.7
1948
84.9
11.55
11.1
1.7.0
1949
74.2
12.23
10.9
15.7
1950
34.1
7.85
6.1
8.7
1951
53.9
12.40
6.8
6.2
1952
35.7
8.25
4.1
5.0
Total
515.2
79.90
a. Except for the value of reparations in dollars, data were de-
rived from source 8/.
b. Excludes former German assets.
C. 9/
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With more than one-half of all deliveries to the USSR scheduled
to consist of commodities not previously exported, Finland was forced
to begin new lines of manufacture quickly, and production was reor-
ganized to meet the demands for reparations. The commodity composi-
tion of Finnish exports and reparations deliveries in 1935-37, 1944-52,
and 1953 are shown in Table 2. The figures, given.in percentages
of total values, indicate the magnitude of the modifications in the
Finnish industrial structure required by the deliveries of reparations
to the USSR.
Commodity Composition of Finnish Exports
and Reparations Deliveries
1935-37, 1944-52, and 1953
Total Exports
Reparatns
1
Total Exports
1935-37
2/
0
1944-52
1953
Wood and paper products
83.9
27.8
77.6
Metalworking products
2.8
72.2
10.7
Machinery and equipment
31.2
Ships
35.3
Electric cable
5.7
Agricultural products
8.7
Other
4.6
Total
a. 10/
b. 11/
100.0 100.0 100.0
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The major burden, of course, fell on the Finnish metalworking
and shipbuilding industries, because 35.3 percent of the total value
of, reparations was to consist of shipping of various types; 21.2 per-
cent, of machinery and equipment; and 5.7 percent, of electric cable.
Deliveries during the first years of industrial reorganization nec-
essarily consisted largely of used ships and wood products, but the
value of the products of the metalworking and shipbuilding industries
steadily increased from 17 percent of the value of all reparations
in 1954 to almost 99 percent during the last 4 years of such deliveries. 12/
The war itself had provided some impetus to the Finnish metal-
working industry, but deliveries of reparations required an even more
rapid expansion. The indexes of Finnish industrial production in
selected years, 1938-54, are shown in Table 3. 13/
Table 3
Indexes of Finnish Industrial Production
Selected Years, 1938-54
Year
Total Industry
Wood and Paper
Industries
Metalworking
Industry
Other
1938
100
100
100
100
1945
87
64
117
89
1952
166
109
235
179
1954
189
141
231
203
From an industry producing primarily for the domestic market and
employing little more than 44,800 persons in 1938, the metalworking
industry has become the second largest in Finland, employing over
80,000 workers, 30 percent of the total industrial labor force. Pro-
duction has increased to almost two and one-half times that of 1938,
and in 1951, the peak production year of the metalworking industry,
it accounted for 27 percent of the net value of total industrial
output. 14/
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Approximately paralleling the growth of the metalworking industry
was the Finnish shipbuilding industry, which produced 571 vessels of
various types for delivery as reparations. Between 1944 and 1949,
personnel employed in the steel shipbuilding industry increased from
4,560 to 7,404, by 64 percent, and employment in the wooden and
composite shipbuilding industry increased from 590 to 4,556, by
670 percent. 15/
III. Trade and Credit Arrangements.
A. Postwar Trade.
Once Finland was committed to the maintenance of close polit-
ical relations with the USSR by the peace treaty of 1947 and the
Finnish-Soviet Mutual Assistance Pact of 1948, closer economic ties
with the USSR were inevitable. The expansion of Finnish commercial
exchanges with the USSR, which was the result in part of pressing
postwar reconstruction needs, the inaccessibility of Western sources
of supply, and the heavy burden of reparations, brought about important
modifications in the direction and composition of Finnish foreign
trade.
The most striking feature, of course, was the increasing
prominence of the Soviet Bloc in Finnish foreign trade. From the
relatively insignificant 0.5 percent of total Finnish exports that
went to the USSR in 1938, the proportion rose to a peak of 25.4 per-
cent in 1953.* The European Satellites also registered gains in
trade with Finland as the result of trilateral agreements that were
designed to compensate for Finnish-Soviet trade imbalances. Under
these agreements, Finnish imports from the Bloc increased from 14.3
percent of total imports in 1947 to 34.4 percent in the peak year
of 1953. Meanwhile, the UK forfeited its position as Finland's
chief trading partner, a position which it had occupied since 1917.
It is notable, however, that the large proportion of Finnish trade
with the Soviet Bloc in 1953 was due less to any sizable increase
in purchases from the Soviet Bloc than the steady decline in Finnish
exports to the Free World after the Korean War,.*
* See the chart, following p. 8, and Tables 5 through 10, Appendix A.
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B. Trade Agreements.
Before 1947 the exchange of goods, other than reparations,
between Finland and the USSR proceeded on an ordinary clearing basis,
with payments made through dollar accounts opened by the central
banks of both countries. Under the terms of a trade agreement con-
cluded in December 1947, however, Finnish commercial relations with
the USSR were more firmly established, and provisions for the most
favored nation principle and the right of mutual free transit were
included. The commodity composition of Finnish-Soviet trade adhered
generally to traditional patterns, with Finland importing wheat,
rye, sugar, oil products, and fertilizers and paying for these im-
ports with prefabricated housing, sawn timber, woodpulp, and paper. 16/
By 1952, however, with deliveries of reparations to the USSR
virtually completed, a considerable change was evident in the nature
of Finnish exports. For the first time in Finnish history, products
of the greatly expanded shipbuilding and metalworking industries
accounted for a significant share of Finnish free exports to the
USSR. This change was confirmed first in the 1952 supplement to
the 5-year Finnish-Soviet trade agreement concluded in 1950 and then
in a trade protocol signed in November 1953, which dealt with trade
in 1954. The latter agreement provided that machinery and equipment
were to constitute 50 percent of Finnish exports to the USSR in 1954,
including 34 percent which was to consist of ships. Wood and wood
products accounted for 43 percent of the remainder. Finland imported
from the USSR most of its required grain, fodder, petroleum products,
sugar, and cotton. 17/
In July 1954, a second 5-year trade agreement with the USSR
was concluded for the years 1956-60. In general the commodity com-
position of Finnish-Soviet trade remained similar to that of previous
agreements. Ships are to account for 38 percent of the total value
of Finnish exports to the USSR; products of the metalworking industry,
22 percent; and wood and-paper products, 33.4 percent. 18/ Finnish-
Soviet trade is scheduled to show a steady increase in both directions
during the 1956-60 period. An annual Finnish export surplus of
$40 million is to be compensated for partly by trilateral deliveries
from the European Satellites and partly by convertible currency
supplied by the USSR. A ceiling of 60 million rubles is established
for the deficit, which may be accumulated by either party. If ex-
ceeded, the sum must be settled in gold, dollars, or some other
mutually acceptable currency. 19/
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SECRET
1 1938 and 1950-54
q IF
SECRET
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C. Credit Provisions.
In February 1954, the USSR granted Finland a credit of $10 mil-
lion, to be drawn upon either in gold or foreign exchange at the dis-
cretion of the Finns. The amount borrowed within the stated 3-year
period is to bear interest at 2.5 percent and is to be repaid in the
same medium over a period of 10 years. This credit was the first
to be granted in gold or convertible currency by the USSR to a country
outside the Sino-Soviet Bloc. It was followed by a similar credit
extended to Finland in January 1955. Thus far Finland has drawn a
total of $7.5 million to support currency reserves of the Bank of
Finland and for specially selected productive purposes.
D. Trilateral Arrangements.
The use of trilateral agreements with the European Satellites
to compensate for the surplus of Finnish exports to the USSR has
been provided in the long-term agreement of 1950 and in all subse-
quent trade arrangements with the USSR. Since 1951, Finnish trade
imbalances with the USSR have been covered, in whole or in part,
by trilateral arrangements which have included, at one time or
another, each of the Satellites except Bulgaria and Albania. By the
end of 1954, Finnish credit in the clearing account with the USSR
had been reduced to 21.5 million rubles, as compared with nearly 30 mil-
lion rubles a year earlier and about 60 million at its peak during
1954. In an effort to reduce its indebtedness, the USSR not only
encouraged trilateral trade arrangements with the Satellites but
also made direct settlements with Finland in gold and foreign currencies.
In 1954 such settlements totaled 40 million rubles. 20/
The ruble clearing arrangements, however, have substantially
nullified any advantages which might have accrued to Finland from
its excess of exports to the USSR. Unable to find suitable imports
from the Soviet Bloc and needing raw materials from the Free World,
Finland has been obliged to offer ruble clearing to the West at sub-
stantial discounts. The Finnish government also has been required
to subsidize, with considerable loss, the re-export of large quan-
tities of unusable goods from the Soviet Bloc.
Neither the credit agreements nor the provisions of the trade
agreement for 1956-60 wholly solve the Finnish problem of accumulated
ruble clearing, nor do they restore to Finland the freedom of choice
it would have if Soviet payment for Finnish exports were made in hard
currency.
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S-E -C -R -E -T
IV. Extent, Implications, and Consequences of Finnish Trade with
the Soviet Bloc.
A. Extent of Finnish Dependence.
The reliance of Finland upon the Soviet Bloc as the primary
market for its industrial products has engendered considerable
dependence upon the Bloc as a source of supply. Although Finland
re-exports a substantial portion of its imports from the Bloc, in
an effort both to rid itself of unwanted imports and to purchase
needed raw materials from the West, a significant share of Finnish
foreign trade is firmly wedded to the markets and products of the
Bloc.
Although Finnish-Soviet trade declined by 4.5 percent in
1954 as compared with 1953, Finland remained heavily dependent upon
the Soviet Bloc as a market for its industrial output. Ninety-six
percent of the value of exports of ships went to the Bloc (while
Finland itself purchased vessels abroad), as well as 90 percent of
all exports of machinery, copper, and copper products. Although
Finland exports its forestry products largely to the West, 98 per-
cent of all its exports of prefabricated houses went to the USSR
in 1954. At the same time the USSR supplied 72 percent by value of
the bread grains imported by Finland, 92 percent of the petroleum
products (largely of Rumanian origin), 97 percent of the sugar,
43 percent of the cotton, 51 percent of the fodder, and 52 percent
of the fertilizers. Poland and the USSR supplied 71 percent of
Finnish imports of coal and coke, and the Bloc supplied 58 percent
of the automobiles imported by Finland. 21/ If Finnish-Soviet
commitments under the long-range trade agreement are met, Finnish
dependence upon imports from the Soviet Bloc will increase consid-
erably.
Perhaps even more significant in linking Finnish foreign
trade with that of the Soviet Bloc has been the forced expansion
of Finnish industry, geared to'Soviet requirements for imports,
which resulted from the.compulsory delivery of reparations. The
importance to Finland of export markets in the Soviet Bloc has
been increased by the serious decline in the world demand for wood
and wood products, the inability of Finland to find suitable markets
in the West for goods primarily fashioned to Soviet needs, and the
generally noncompetitive character of Finnish exports. For example,
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the cost of ship construction, according to the mission of the Inter-
national Bank for Reconstruction and Development to Finland, is 30 to
40 percent above that of Western shipyards. 22/
B. Implications and Consequences.
The economic and political implications of the progressive
increase in Finnish trade with the Soviet Bloc are viewed with mis-
givings by most non-Communist observers both in and out of Finland.
The Finnish shipbuilding and metalworking industries continue to rely
almost exclusively on the USSR as an export market. Finland relies
almost completely on the Bloc, and on the USSR in particular, for
imports of petroleum;, coal, bread grains; sugar, fodder, and ferti-
lizers. Finnish reliance on the Bloc is significant also in the case
of iron and steel, ferroalloys, cotton, and a number of other indus-
trial raw materials. Finnish imports of machinery, tractors, and
automobiles, which hitherto had come almost entirely from the West,
have recently been received in increasing volume from the USSR,
Czechoslovakia, and East Germany.
The pitfalls of overdependence on markets in the Soviet Bloc
have been made clear to the Finns on a number of occasions. Perhaps
the most recent demonstration has. been the serious, decline in the
Soviet market for Finnish exports of prefabricated houses. Soviet
imports have decreased from approximately $32.4 million_in 1952,
to $28.1 million in 1953, to less than $24.1 million in 1954.* The
Finnish anticipation of exporting 750,000 square meters of prefab-
ricated houses annually to the USSR, as provided under the agree-
ment for 1956-60, 23/ was frustrated by the Soviet announcement
that the USSR would take only 250,000 square meters in 1955. 24/
The prospect of finding compensatory markets for this relatively
high-cost industry are slim indeed, and it is difficult to gauge
the economic dislocations which will result from the curtailment of
production in one of the most important branches of Finnish industry.
Although the situation remains potentially dangerous for
the Finns, there appears little indication of any immediate threat
to Finnish economic or political integrity. If the USSR were to
* Finnish dependence upon the Soviet market is evidenced by the
fact that of total exports of 787,000 square meters in 1954, the
USSR took 754,000 square meters.
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cut its trade ties with Finland suddenly, and if Western markets
could again absorb the bulk of the items traditionally exported by
Finland, it could adjust to new patterns of production, consumption,
and foreign trade with the Free World. The period of adjustment
would be uncomfortable but not fatal. The Finnish metalworking
industry already sells from 70 to 80 percent 25/ of its output to
the home market. If the costs could be measurably decreased or sub-
sidies were arranged, projects such as the modernization of the over-
age merchant fleet and the repair of rolling stock in Finland could
provide ample employment for its shipyards and metalworking industries
for years to come. Soviet supplies of grain, oil, and coal presumably
could be replaced by the Free World. In terms of Western resources,
annual Finnish requirements of 200,000 tons of wheat and 2 million
tons of coal are not very large.
The degree of Finnish economic dependence on the USSR does
not approach the degree of economic dependence of the Balkan countries
on Germany before World War II, when 60 to 70 percent of Balkan trade
was with Germany. Even in 1953, the peak year of Finnish trade with
the Soviet Bloc, over two-thirds of its trade was still with the Free
World; and prospects do not seem very good for Soviet-Finnish trade
to exceed substantially its present proportions. Trade with the
USSR will be governed to a large degree by the ability of Finland
to find suitable imports from the USSR and to decrease its already
sizable accumulation of inconvertible Bloc currencies. It will also
depend upon the willingness of the USSR to increase its purchases
of Finnish forestry products despite the fact that the USSR itself
is an important producer of timber.
There is little reason to believe that the USSR would hesitate
to attempt to scuttle Finnish industry by a sudden curtail;,ment of
trade, if Finnish behavior warrented such a drastic measure. Barring
such a contingency, however -- and there is little to indicate that
Finland will soon repudiate its policy of "friendly neutrality"
toward the USSR -- drastic Soviet action appears unlikely. The
USSR probably realizes that any further Soviet economic pressure
upon Finland which the Finns deem inimical to Finnish national in-
terests is likely to result in a net political loss for the USSR.
Finnish reliance upon the Soviet Bloc is not only of potentially
serious consequence to Finland itself, but to all of the Free World.
Finnish trade with the Bloc is a convenient mechanism by which the
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USSR is able to circumvent Western export controls. Finland has
received from the West raw materials and components for use in the
production of strategic goods for the Soviet Bloc. Because Finland
is not receiving economic or financial assistance from the US, it
is not subject to the provisions of the Battle Act, and there is no
legal sanction which can be invoked to force Finland to delete strategic
items from trade with the Bloc. The advisability of any COCOM agree-
ment to impose export controls on Finland by the West is open to
question. Such pressure would undoubtedly be fiercely resented in
Finland and would perhaps result in the strengthening of Finnish
ties with the USSR.
It is difficult to generalize concerning the many divergent
views on increased economic ties with the USSR held by the Finns.
Official opinion, however, has become sufficiently solidified to
warrant certain conclusions. Influential Finns apparently are well
aware of the potent political weapon which their economic dependence
has given the USSR. Faced with the immediate alternative of either
deactivating the costly metalworking and shipbuilding establishments
or relying on the Soviet Bloc to buy enough pr-xducts to sustain these
industries, however, the Finns have apparently chosen the latter
course.
To a large extent Finnish opinion is crystallized in the
views of President Kekkonen, who has welcomed the excessive develop-
ment of Finnish shipbuilding and iron and steel industries and hopes
that Finland may win a high level of prosperity through increased
commercial exchanges with the USSR.
At the conclusion of Finnish reparations payments to the USSR
in September 1953, when he was Prime Minister, Kekkonen declared:
But on the day upon which war reparations
conclude, we must also, and by preference, look
forward. We must guarantee full activity in
out, modern industry which has sprung up on
the basis of the war reparations. We can best
do this by maintaining close and trusting trade
relations with the Soviet Union, which knows
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our products and through experience relies
upon our capacity to deliver. If we can man-
age to take /dvantage7 of our trade with the
Soviet Union in proper fashion, then eight
years of plenty will follow the eight lean
years. 26/
Others are not hesitant to blame the Western powers for the
present predicament of Finland, in that they permitted. the USSR to
impose such heavy burdens of reparations on Finland at the end of
the war. Almost all Finns are satisfied, however, with their post-
war economic achievement and feel confident that they can hold their
own against possible Soviet encroachments.
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 Approved For Release 1999/09/2
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O I C A-RD 19T00935A000400010002-8
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S-E-C-R-E-T
Table 6
Finnish Foreign Trade, by Trading Areas a/
1938 and 1950-54
1938 1950
1951
1952
1953
1954
Dollar area b/
1.6
14.6
25.7
23.1
16.4
16.9
Sterling area, c/
5.9
46.5
102.8
76.9
50.9
68.2
EPU (except UK and Ireland) d/
7.9
64.9
140.9
140.6
83.9
103.6
Sino-Soviet Bloc e/
0.7
26.0
46.0
69.1
83.3
87.5
Other countries
0.8
18.3
26.7
29.0
19.0
32.5
Total
16.9
170.3
342.1
338.7
253.5
308.7
a. 29
b. To 1952, US and Canada. After 1952, US, Canada, Mexico, Cuba, and
Venezuela.
c. To 1952, UK, Ireland, Egypt, South Africa, Southern Rhodesia, India,
Pakistan, Ceylon, British Malaya, Australia, and New Zealand. After
1952, the British Commonwealth.
d. Sweden, Norway, Denmark, Iceland, Netherlands, Belgium-Luxembourg,
West Germany, Austria, France, Italy, Greece, Turkey, Portugal, and
Switzerland.
e. USSR, Poland, Czechoslovakia, East Germany, Hungary, Rumania,
Bulgaria, and Communist China.
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Table 7
Finnish Trade with the USSR and the Sino-Soviet Bloc
as a Percentage of Total Foreign Trade a,/
1947-54 -
Percent of Imports
Percent of Exports
Year
USSR
Bloc
USSR
Bloc
1947
11.3
14.3
12.4
31.1
1948
12.5
19.0
14.7
31.8
1949
11.4
19.5
15.3
32.8
1950
7.9
18.0
7.7
20.7
1951
76
16.0
8.3
17.1
1952
12.1
19.4
17.5
25.6
1953
21.4
34.4
25.4
31.4
1954
17.8
28.7
21.5
27.9
a. Figures are based on current value and include
reparations and transfers of former German assets. 30/
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Table 8
Finnish Trade with the Sino-Soviet Bloc
by Country of Origin and Destination a/
1954
Exports
Imports
USSR
33,718.4
20,327.7
Poland
3,354.3
6,452.3
East Germany
2,702.0
4,572.0
Czechoslovakia
1,043.9
4,171.9
Hungary
793.9
1,152.5
Rumania
520.6
6,105.3
Bulgaria
113.8
274.2
Communist China
1,514.9
655.1
Total 43,761.8 43,711.0
a. 31/
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Table 9
Finnish Trade with the USSR, by Commodity Groups a/
1948-53
Thousand US $
Exports to the USSR b/
1948
1949
1950
1951
1952
1953
Food, beverages, and tobacco
2,893
3,091
405
1,596
14
Wood and wood manufactures c
57,315
44,293
16,113
46,136
69,117
56,100
Chemicals
84
6o
9
1,748
901
Manufactured goods
21,780
11,361
2,705
4,599
14,209
19,231
Machinery and transportation
equipment
64,387
77,287
45,447
70,044
68,274
68,994
Miscellaneous manufactured
articles and Others
455
164
123
292
56
282
146,914
136,256
64,802
121,071
155,000
145,522
Imports from the USSR
Foodstuffs
37,913
19,525
16,469
30,750
64,611
60,169
Beverages and tobacco
703
132
426
685
616
394
Inedible crude materials
except fuel
1,492
2,160
1,220
2,439
3,517
9,519
Mineral fuels
2,351
4,732
2,6(6
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
b. Including war reparations.
c. Including synthetic fibers and woodpulp.
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S -E -C -R -E -T
Table 10
Projected Finnish Trade with the USSR
Under the Trade Agreement of 1956-60
Thousand US $
Year
Imports
Exports
Balance
1956
107,500
147,500
14o,ooo
1957
lo8,700
148,700
440,000
1958
117,500
157,500
140,000
1959
120,000
160,000
+4o,ooo
1960
123,700
163,700
+40,000
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S-E-C -R-E-T
APPENDIX B
SOURCE REFERENCES
Evaluations, following the classification entry and designated
"Eval.," have the following significance:
Doc. - Documentary
1
- Confirmed by other sources
A
- Completely reliable
2
- Probably true
B
- Usually reliable
3
- Possibly true
C
- Fairly reliable
4
- Doubtful
D
- Not usually reliable
5
- Probably false
E
F
- Not reliable
- Cannot be judged
6
- Cannot be judged
"Documentary" refers to original documents of foreign governments
and organizations; copies or translations of such documents by a staff
officer; or information extracted from such documents by a staff offi-
cer, all of which may carry the field evaluation "Documentary."
Evaluations not otherwise designated are those appearing on the cited
document; those designated "RR" are by the author of this report. No
"RR" evaluation is given when the author agrees with the evaluation on
the cited document.
1. Kaila, T.T. "Russia's Place in the Foreign Trade of Finland,"
Bank of Finland Monthly Bulletin, no 9, Sep 28, p. 27-29.
U. Eval. RR 2.
2. Commerce. Foreign Commerce Yearbook, 1939, Washington, 1942.
U. Eval. RR 2.
3. Wright, J.H. Finland, London, 1953, p? 1. U. Eval. RR 2.
State, OIR. IR rpt no 6402, Finland's Current Economic Problems,
23 Nov 53, p. 21. C. Eval. RR 2.
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4. Platt Raye. Finland and its Geography, New York, 1955,
p. 167. U. Eval. RR 3.
5. State, OIR. IR rpt no 6402 (3, above).
6. State, OIR. IR rpt no 6301.3, Soviet External Trade and
Finance -- A Basic Study, 24 Aug 54, p. 65-78. S. Eval. RR 2.
7. CIA. CIA RR IM-392, Finnish-Soviet Five Year Trade Agreement,
12L5-6o, 24 Aug 54, p. 2. S/US ONLY. Eval. RR 2.
8. State, OIR. IR rp_t no 6402 (4, bove), p. 23. C. Eval. RR 2.
9. CIA. CIA/RR IM-392 (7, above), Table 1, p. 8. SUS ONLY.
10. Statistical Yearbook of Finland, Helsinki, 1955. U. Eval. RR 2.
11. State, OIR. IR rpt no 6565, Recent Trends in Finnish Ship-
building, 23 Jun 54, p. 3. S. Eval. RR 2.
12. Navy. 00I-818-52, 11 Nov 52. C. Eval. RR 3-
13. Luther, Georg. "The Structure of Industrial Activity in
Finland," Bank of Finland Monthly Bulletin, Mar 55, vol 29,
no 3, p. 20. U. Eval. RR 2.
1.+. State, OIR. IR rpt no 6402 (4, above), p. 28. C.. Eval. RR 2.
15. NIS-12, Finland, sec 36, "Merchant Marine," Nov 50, p. 12. C.
16. Palmroth, Gunnar. "Trade Between Finland and the USSR," Bank
of Finland Monthly Bulletin, no 9, Sep 54, p. 21. U. Eval. RR 2.
17. CIA. CIA RR IM-392 (7, above), p. 3. S/US ONLY.
18. "New Trade Agreement with the USSR," Bank of Finland Monthly
Bulletin, Jul 54. U. Eval. RR 2.
19. State, Helsinki. Dsp 40, 30 Jul 54, p. 2. S. Eval. RR 3.
20. Army, Helsinki. DA: IN 112285, 19 Jan 55, WEEKA 2, EC ON. C.
Eval. RR 3-
21. State, Helsinki'. Dsp 386, 23 Feb 55, p. 4. OFF USE. Eval. RR 2.
22. State, OIR. IR rpt no 6585, Recent Trends in Finnish Ship-
building, 23 Jun 54, p. 16. S. Eval. RR 2.
23. State, Helsinki. T 242, 31 Jan 55. OFF USE. Eval. RR 3.
24. Ibid.
25? State, Helsinki. Dsp 413, 12 Jan 53. S. Eval. RR 3.
26. State, Helsinki. Dsp 197, 24 Sep 52. C. Eval. RR 3.
27. Statistical Yearbook of Finland, Helsinki, 1954. U. Eval. RR 2.
Bank of Finland Monthly Bulletin, Mar 55. U. Eval. RR 2.
28. Ibid.
29. State, Helsinki. Dsp 496, 16 Feb 53, encl no 3, p. 7.. U.
Eval. RR 2.
Ibid., Dsp 386, 23 Feb 55, encl no 6, p. 1. U. Eval. RR 2.
30. Commerce, Bureau of Foreign Commerce, International Economic
Analysis Division. Annual Exports of the Free WorldL to the
Soviet Bloc, 1947-53, Value Series, Revised. U. Eval. RR 2.
-24-
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Ibid., Annual Imports of the Free World from the Soviet Bloc,
19117-53, Value Series, Revised. U. Eval. RR 2.
Ibid., Exports of the Free World to the Soviet Bloc, 1954,
Value Series. U. Eval. RR 2.
Ibid., Imports of the Free World from the Soviet Bloc, 1954,
Value Series. U. Eval. RR 2.
31. Army, Helsinki. DA IN 115680, 19 Jan 55, WEEKA 2, p. 8; C.
Eval. RR 3.
32. CIA. CIA/RR IM-392 (7, above), p. 9. S/US ONLY.
33? Ibid., p. 10. S/US ONLY.
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S-E-C-R-E-T
S-E-C-R-E-T
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