MEMORANDUM FROM RADM J. B. MORIN, SAGAM 135, DATED 16 JUNE 1977 - PROPOSAL FOR IC PARTICIPATION IN P-M SIMULATIONS (U)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80B01554R003400180001-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 13
• Document Creation Date: December 19, 2016
• Document Release Date: September 21, 2005
• Sequence Number: 1
• Publication Date: June 29, 1977
• Content Type: MF

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Washington. D. C. 20505
2 9 JUN 1977
MEMORANDUM FOR: Lt. Gen. Samuel V. Wilson, USA
Director, Defense Intelligence Agency
SUBJECT: Memorandum from RADM J. B. Morin, SAGAM 135,
dated 16 June 1977oposal for;IC Participation
in P-M Simulations
1. I am most enthusiastic about Jim Morin's memorandum with
regard to IC participation in SAGA's forthcoming simulations. I
appreciate your following through on this one and pledge full
support from the Intelligence Community for this new effort to
develop better ways for the Community to support political and
military decision-makers.
2. I'd like to make sure that the IC participants include
representatives of all three of our principal collection agencies.
It seems to me one of the most important things we should be
attempting to do is to establish the procedures for retasking
our intelligence collection effort to meet particular crisis
situations. These simulations should provide the collectors an
opportunity to put their heads together and decide which assets
are most applicable and how they make them dovetail together.
3. Charge on and thanks.
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2 9 JUN 1977
MEMORANDUM FOR: Deputy Director for Intelligence
FROM: Director of Central Intelligence
Attached is a copy of a paper on economic relations with
the Soviet Union written by Marshall Shulman. I note on page 3,
paragraph 4, that he contends that we are receiving some benefits
of reverse technology flow from our trade with the Soviet Union.
I would be interested in your assessment of whether this really
is a useful or important technological input to our economy and
any other comments your economists might have on Shulman`s thesis,
cc D/DCI/NI
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 "Zarshall D. Shulman
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TOWARD A NATIONAL POLICY ON ECONOMIC
RELATIONS WITH THE SOVIET UNION
Introduction
This paper is intended as a contribution to the structuring of
discussion of the elements involved in formulating a national
policy governing the development of economic` relations with the
Soviet Union. It seeks to bring within a single frathe of reference
some of the disparate approaches to the subject which have
characterized discussions of it within the American business
community, in the Congress, and on the part of the Executive
branch- -approaches which have tended to emphasize different
and often conflicting considerations.
From the point of view of the government, the development
of economic relations is an important component of the total
relationship with the Soviet Union. From the point of view of
the individual firms involved in these economic relations, the
paramount consideration is the profitability and dependability of
the transactions entered upon. The relationship between govern-
ment and the private business sector regarded as normal in
other aspects of our national life requires adaptation to the
situation in which the autonomous and pluralistic institutions of
the United States engage the centralized institutions of the Soviet
Union, and in which a mixture of adversary and cooperative
considerations continue to characterize the relations between
the two countries. It seems evident, therefore, that the interests
of individual firms need to be fitted into a larger framework of
national policy based upon a calculus of relative advantages and.
risks in the expansion of economic relations with the Soviet Union,
and that there is a need for a further development of the criteria
and institutional arrangements by which these economic relations
are to be conducted.
During the debates that attended the enactment of the Trade
Reform Act of 1974 and the extension of the Export-Import Bank
legislation in that same year, attention was largely focused on
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the issue of the relationship of trade policy to the restrictive Soviet
emigration practices. If and when U. S. trade policies are reconsi-
dered, it is clear that a broader range of considerations will need
to be taken into account in the formulation of a national policy
approach to the matter.
Background
The active interest of the Soviet Union in an expansion of
economic relations with the United States, as well as with other
advanced industrial nations, appears to stem from certain short-
comings in the Soviet economy, particularly in industrial and
agricultural productivity, and in the advanced technological sector.
These shortcomings reflect structural problems in the Soviet
economy, the adjustment of which involved political and organiza-
tional resistance, and which will therefore take time to resolve.
In the meantime, the Soviet leadership seeks to expand the impor-
tation of agricultural products, consumer goods, manufactured
goods, capital investment, and advanced technology, to ease
shortcomings and to allow time for the internal organizational
adjustments required. This interest appears to be an important--
although not necessarily a compelling- -factor in the present Soviet
emphasis upon a foreign policy of reduced tension.
In considering what the United States response should be to
this Soviet interest, it is necessary to weigh the U. S. interest
in the continuation or further development of this line of Soviet
foreign policy, and the benefits ' and risks to the United States of
the flow of goods, credits and technology to the Soviet Union.
Since putative effects are involved on both the benefit and risk
sides of the calculus for which firm evidence is lacking, the
exercise inevitably involves judgments and uncertainties, but
it is necessary that we strive for as much clarity as possible
about the questions at issue, and the range of uncertainty that
can be affected byradjustments in the criteria governing alter-
native trade policies.
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Possible benefits to the United. States of expanded trade with the
Soviet Union
Among the economic benefits to the United States, the following
have been most frequently cited:
1. Employment. It is estimated by the Department of Commerce
that each $1 billion of exports generates an average of between
35, 000 and 40, 000 lobs in American industry. Many of these
jobs are said to be in industries and parts of the country in
which unemployment has been relatively high.
2. Balance of Trade. Department of Commerce figures show
that the favorable balance of trade of the United States in
its trade with the Soviet Union was $973. 35 million in 1973,
$257. 84 million in 1974, and $1, 555.91 million in 1975.
3. Raw Materials. In 1975, the United States imported approxi-
mately $95 million worth of petroleum and petroueum products,
crude and partly refined, from the Soviet Union. In addition,
52 per cent of platinum-group metals consumed in the U. S.
were imported from the Soviet Union, 22 per cent of chrome
ore, 5 per cent of nickel, and 26 per cent of titanium. * An
argument has been made that the capital cost of stockpiling
such minerals can be reduced to the extent that regularized
trade with the Soviet Union can assure a dependable source
of supply of such minerals. ,
4. Reverse Technology Flow. Although advanced industrial
technology has been an important element in U. S. exports
to the Soviet Union, a number of recent studies have
emphasized the importance of technology flow to the United
States from the Soviet Union, particularly in energy (trans -
mission of power, underground coal gasification, above-
ground oil shale processes, atomic and magneto-hydrody-
namic power generation), metallurgy, mining, medicine,
`These and all subsequent figures are from the Bureau of East-West
Trade, U.S. Department of Commerce.
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and a variety of miscellaneous fields. The number of
patents granted by the U. S. Patent Office to the Scv iet
Union increased from 66 in 1966 to 382 in 1973, and
continues to rise substantially.
5. Stabilization of Grain Exports. TI-r- agreement providing
for annual purchases of grain by the Soviet Union from
the United States of between $6 and $8 billion is expected
to stabilize the grain market.
Among the political benefits to the United States, a number of
assumptions have been advanced which are difficult to test in practice,
and therefore remain matters of judgment. Among these assumptions
are the following:
1. The prospect of expanded economic relations is an important
factor motivating the present Soviet emphasis upon somewhat
reduced international tension, and that it is in the interest of
the United States to see this policy direction strengthened and
developed, since many international problems in which the
United States is involved would be more difficult if US-Soviet
relations were conducted at a high level of tension and
confrontation.
D
2.
A more specific aspect of the previous point is the expectation
that the prospect of an expansion of economic relations can
serve to restrain Soviet behavior in crisis situations, or at
least can strengthen the argument in favor of moderation as
Soviet policy-makers weigh the relative advantages and dis -
advantages of degrees of intervention or of arms shipments
into troubled. areas. The question of whether the United
States can or should try to regulate its economic relations
with the Soviet Union in order to achieve this specific effect
is examined in the subsequent discussion of leverage.
3. In a longer-term and less specific sense, it is argued
that the expansion of economic relations will involve the
Soviet Union more deeply and more integrally in the world
economy and will strengthen those interests in Soviet poli-
tical life that have a stake in an interdependent economic
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relationship with the non-Communist world. The long-
term effect of this development, it is argued, will be to
encourage a trend toward the evolution of Soviet policies
toward responsible participation in efforts to solve global
economic problems. Against this expectation, it has been
argued that in the past the Soviet Union has developed
external trade relations when its interests required them,
and cut them off when its interests changed. The question
remains to be examined whether these precedents from
the past are applicable to the present, or whether the
development of an advanced industrial technology in the
Soviet Union will involve the Soviet Union more deeply
and more inextricably in the world economy than was the
case in the Stalin period. A tentative judgment may be
advanced on this point that the Soviet Union has moved in
the past five years to an unprecedented extent away from
its previous autarkic separation from the world economy
and is qualitatively more deeply involved in an inter-
dependent relation with other advanced industrial societies;
that there are, however, still significant nationalist
tendencies in the Soviet Union that would seek to limit or
to reverse these trends; and that these tendencies might
become ascendent if the prospect of economic relations
with Western Europe, North America and Japan were
perceived as unpromising, but that this development is
otherwise not probable.
Possible risks and disadvantages for the U. S. in expanded economic
relations with the Soviet Union.
The most direct risk of expanded economic relations, and parti-
cularly in the flow of advanced technology to the Soviet Union, is that
this could have the effect of strengthening Soviet military capabilities,,
either directly, by the military uses of imported manufactures or
technology, or indirectly, by making it possible for the Soviet regime
to transfer to the xmilitary sector resources that would otherwise be
required in its industrial sector.
A related apprehension is that imports from the West, including
not only manufactured goods and technology but also grains, could
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strengthen Soviet economic capabilities abroad, and. that these could
be used to our detriment. An example would be the increased Soviet
ability to export grain to India as a result of grain imports from the
United States.
In a more general sense, it can be argued that the Soviet import
from abroad of consumer goods, manufactures, grains, capital., and
advanced technology relieves the Soviet leadership of constraints
arising from these shortcomings of the Soviet. economy, which would
otherwise circumscribe its freedom of action domestically and in
foreign policy. This argument raises the question whether an econo-
mically isolated Soviet Union, to the, extent that this is possible,
would become more quiescent or more reckless in world affairs.
One can only speculate about the probabilities, but it would appear
to be a prudent judgment that the involvement of the Soviet Union in
a network of relationships with the world economy is more likely to
encourage a long-term evolution of the Soviet system in the direction
of international responsibility than would its isolation. Underlying
this judgment is the assumption that the upheaval that might result
in Soviet politics from a successful effort to overstrain the Soviet
system by economic isolation or by the forced pace of military
spending would not be likely to produce changes in a direction
desired by other countries.
Finally, among the possible disadvantages of expanded economic
relations with the Soviet Union, it is argued that a greater degree of
dependency upon Soviet sources of minerals or petrochemicals, or
the deepening of the Soviet debtor relationship to other countries,
would give the Soviet Union a greater capability for political manipu-
lation than it now has.
In summary judgment, while none of the foregoing risks and
disadvantages can be dismissed as unimportant or fanciful, they
must be weighed against the previously listed benefits and advantages.
The calculations on both sides of the ledger are necessarily speculative,
and the balance is largely a=matter of judgment. In practice, a policy
which seeks to maximize the advantages and to limit the risks of
expanded economic relations would require a substantial degree of
coordination and control, and would. have to be administered in
accordance with clearly defined criteria. Whether this is possible
is discussed In a subsequent section.
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Does the U. S. have the economic capability to exercise leverage?
If the United States were to withhold advanced technology from
the Soviet Union, to what extent would the Soviet Union be able to
obtain equivalent technology from Western Europe and Japan? The
experience of recent years suggests that, with some qualifications,
most of the American advanced. technology that has been exported
to the Soviet Union would be available to it from Western Europe
and. Japan, including foreign subsidiaries and licensees of American
corporations. The exceptions concern the most recent generation
of new technology in some cases, and projects of such a large scale
that they cannot be handled without American participation. Computer
technology would be an example of the former, oil and natural gas
exploration and development of the latter.
This leads to the further question of the extent to which the
Soviet Union could develop a comparable level of technology by its
own efforts, if this technology were not available from the United
States, Western Europe or Japan. The consensus of the American
business community appears to be that, given time and the willing-
ness to deflect resources from other needs, the Soviet Union,
together with Eastern Europe, could develop equivalent technology.
The development by the German Democratic Republic of the ES-1040
computer and related peripheral equipment is cited as an example
of this capability. Even granted this capability, however, a number
of questions remain for further investigation. How critical is the
time factor for the Soviet Union, for example, in the development
of its oil and natural gas resources? What are the costs, political
and economic, of having to divert resources to achieve this substi-
tution? And from the Western point of view, is it desirable to force
the Soviet Union and Eastern Europe to develop their own technology
and research capability, rather than to remain dependent upon
Western continuing advances in these fields?
In addition to American technology, there is a question of how
important, in the ',.,calculation of U. S. advantage, is the ability of
the United States to extend credits, either through the Export-
Import Bank or at commercial rates through private banks. It
appears to be the case that so long as Western Europe and Japan
are willing to extend large-scale government credits to the Soviet
Union, the American business community- regards itself as being
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in a seriously disadvantageous position without the help of Export-
Import Bank credits, and many examples can be cited to support
this point. However, several factors may have an effect upon this
situation in the future. The scale of Soviet indebtedness may be
approaching a level at which further West European and Japanese
credits will become more difficult to obtain. On the other hand,
the development of direct and-indirect compensation agreements
may lessen the Soviet need for credits. As of the present; ter
are still strong arguments being made that the absence of Export-
Import Bank credits substantially reduces the. competitive position
of U. S. firms relative to those of Western Europe and Japan, and
to that extent reduces the capability of the United States to exert
leverage upon the Soviet Union through trade.
The absence of Most Favored Nation status for the Soviet
Union, some say, similarly serves to limit the strength of the
United States' competitive position, partly for its psychological
importance as a symbol of equality, and partly because it limits
the prospect of the development of manufactured goods in the
Soviet Union and even more in Eastern Europe, for marketing in
the West to ease the shortage of hard currency.
One sector of the economic relationship in which the United
States is in a relatively strong position is in the sale of grain,
and particularly of feed grain, to the Soviet Union. Other sources
of grain are available, but not on th , equired by the Soviet
Union, especially in the case of eed'grain. U. S. economic inte-
rests in grain sales, however, utility of relying on grain
as a major source of leverage.
What political effects should the U. S. seek to achieve through trade?
In the development of a national policy governing trade with the
Soviet Union, the issue most in need of clarification is whether the
political benefits to be sought are mainly those that would result
from the long-term effects of the economic relations themselves,
or whether trade should be made conditional, explicitly or implicitly,
upon shorter-term changes in specific aspects of Soviet behavior.
The case for the long-term beneficent effects of the expansion
of economic- relations, most strongly argued in the business com-
munity, is difficult to defend on the basis of historical precedents,
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and rests upon' assumptions that cannot by their nature be proved
in any short period of time. Nevertheless, since the alternative
course also has its risks, the argument for a measured accep-
tance of trade as a long-term stabilizing factor in the relationship
does not seem unduly imprudent.
The most extreme argument for the use of specific economic
leverage is that it should seek to reduce the totalitarian character
of the Soviet regime, on the grounds that a "true detente" is only
possible if checks and balances and a reduction in -secrecy are
introduced into the Soviet political process. The main difficulty
with this argument is that it exceeds any reasonable scale of
feasibility. Even if the Soviet need for foreign trade were much
greater than it now is, the Soviet leadership could not be expected
to accept conditions for that trade which are patently intended to
undermine the system upon which its authority rests.
Less extreme, but still directed at internal aspects of the
Soviet system, are the arguments that dominated the discussions
of the Trade Reform Act of 1974, that the expansion of trade
should be made conditional upon the observance of human rights
in the Soviet Union, and in particular upon the right of emigration.
Our experience since 1974 suggests that such frontal and public
demands will not necessarily be successful. Whether less publicly
explicit pressures could have useful marginal effects, at least upon
such feasible human rights objectives as the reunion of families, is
not clear and remains to be tested,
The most reasonable political purpose to which economic
relations can be directed is to reduce the danger of war, since
this is a paramount objective of national policy. In practice,
this would mean that the expansion of economic relations would
be encouraged unless the Soviet Union provocatively aggravated
local crisis situations, and unless the Soviet Union unreasonably
exacerbated the military competition. This would not mean that
the Soviet Union could be forced to capitulate to American condi -
tions for the settlement of local crises, or in arms control nego-
tiations, but that a reasonable codification of the restraints to be
expected in the acknowledged competitive relationship would be
agreed upon and observed. Since this would not require of the
Soviet Union restraints greater than the United States itself would
be willing to observe, it would not appear to the Soviet Union as
an unreasonable or unfair exercise of economic leverage.
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A summary judgment on this point would be that although it
cannot be confidently asserted that the greater involvement of
the Soviet Union in international trade will encourage a long-
term evolution in the direction of responsible participation in
the international community, it would be a reasonable expec-
tation on which to base American trade policy with the Soviet
Union, provided that sufficient coordination can be exercised to
limit the risk of strengthening Soviet military capabilities. As
a secondary and shorter-term purpose, the measured develop-
ment of economic relations can reasonably be made conditional
upon Soviet restraint in crisis situations and in military compe-
tition, again provided that the volume and. the content of those
economic relations are made capable of adjustment as the situa-
tion requires. The effort to use economic leverage for other
purposes, with marginal exceptions, would be less effective
and would reduce the effectiveness of this primary objective of
U. S. policy in relation to the Soviet Union.
Through what instrumentalities can the desired effects be achieved?
Perhaps the most easily adjusted instrument is credit, since it
is more flexible, less subject to domestic dislocations, and less
subject to domestic political rigidities than trade contracts already
undertaken. For this purpose, credits granted on a case-by-case
basis for individual export transactions, as was the practice of the
Export-Import Bank in the past, provide more flexibility and control
than the extension of general lines of credit, as has been the general
practice in Western Europe.
The level of advanced technology to be permitted to enter into
East-West trade represents another instrumentality capable of
adjustment, for the dual purpose of limiting the risk of military
application and of responding to changes in the international
situation.
As has previously been mentioned, the adjustment of grain
shipments for purposes of economic leverage does not appear to
be a feasible instrument, because of the humanitarian issues and
our own major economic interests.
Control over the total volume of trade through licensing
procedures provides some possibility of leverage adjustment, but
is of limited value because the cumbersome procedures do not
permit "fine tuning, " and involve hardship and uncertainties for
American firms by complicating and delaying the negotiating process.
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Coordination of trade policy.
It is evident that a measured trade policy which seeks to
limit the risks and to maximize the political and economic
advantages of expanded economic relations with the Soviet
Union requires the establishment of national rules and proce-
dures, and the improveme nt of instruments of coordination.
Opinions in the business community appear to differ on
the question of whether the. asymmetries between the centralized
trading institutions of the Soviet Union and the pluralism of auto-
nomous firms on the American side require some protection for
the latter to ensure an equality of bargaining positions. There is,
however, minimum agreement that clarification of the applicability
of anti-trust legislation to firms involved in foreign trade is
required, to permit a degree of coordination among these firms
beyond what is acceptable in domestic trade.
A review is clearly required of the present functions and
practices of such instruments as the East-West Foreign. Trade
Board, the National Advisory Committee of the Export-Import
Banks, COCOM, and the licensing procedures of the Department
of Commerce, to ensure a consistent and expeditious coordination
of trade policy.
Finally, it is evident that the effectiveness of a national trade
policy along the lines described in this paper will require improved
coordination of policy with Western Europe and Japan. Although the
difficulties of achieving full coordination are evident, the strongest
possible diplomatic efforts are warranted to improve COCOM pro-
cedures and minimum criteria to govern practices with regard to
credits and advanced technology.
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