PROGRESS REPORT ON NSC 5403 (FINLAND)
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CIA-RDP80R01731R003000080002-3
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T
Document Page Count:
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Document Creation Date:
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Document Release Date:
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Sequence Number:
2
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Publication Date:
October 21, 1954
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REPORT
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COPYl(O'.
OPERATIONS COORDINATING BOARD
Washington, D. C.
PROGRtSS REPORT ON NSC 5403 (FINLAND)
REFERENCE;
rzno from
OCB FILE NO. 43
xecutive ,secretary, NSC, 1/25/54
State Department, NSC reviews completed
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This document contains information affecting the national defense of the
United States, within the meaning of the esPionage laws, Title 18, Sec-
tions 793 and 794, U.S.C., the transmission or revelations of which in
any manner to an unauthorized Person is Prohibited by law.
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OPERATIONS COORDINATING BOARD
Washington 25, D. C.
November 17, 1954
MEMORANDUM FOR THE OPERATIONS COORDINATING BOARD
SUBJECT: Progress Report on NSC 5403 (Finland)
The attached Operations Coordinating Board Progress Report
on NSC 5403 "United States Policy Toward Finland," dated October
20, 1954, was noted by the National Security Council on November
9, 1954, Action No. 1267.
The previous draft of this report dated October 6, 1954
is obsolete and may be destroyed in accordance with the security
regulations of your agency.
erli btaats
OCB Executive Officer memo to NSC,
subject as above, dated 10/21/54,
with attachment as listed.
OCB File No. 43 TOP SECRET
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OPERATIONS COORDINATING BOARD
Washington 25, D. C.
October 21_ 1954
MEMORANDUM FOR: Mr. James S. Lay, Jr.
Executive Secretary
National Security Council
SUBJECT: Progress Report on NSC 5403 (Finland)
(Policy Approved by the President, January 25, 1954)
There is attached the first Progress Report on NSC 5403,
"United States Policy Toward Finland" covering the period from
January 25, 1954 through September 15, 1954. This report was
approved by the Operations Coordinating Board on October 20, 1954.
In considering this report, the Board noted that since the
cutoff date of this report Finland has shown interest in obtaining-
a loan of 3 to 5 million dollars and will probably apply to the
Export Import Bank in the near future.
Elmer B. Staats
Executive Officer
Progress Report on NSC 5403
(Finland), dated 10/20/54.
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October 20, 1954
PROGRESS REPORT ON NSC 5403
UNITED STATES POLICY TOWARD FINLAND
policy Approved by the President, January 25, 195/,
A. SUMMARY OF MAJOR ACTIONS
(References are to paragraphs of ANNEX "A" - Detailed Development
of Najor Actions.)
1, Assistance toward convertibility of currency. The Finnish
Government has been informed that the U.S. would support some type
of appropriate assistance to Finland through the International Mone-
tary Fund or perhaps some other channel which might be available.
Exploration of various possibilities is under way. However, action
must await moves toward convertibility for major trading currencies.
(Para. 9)
2. U.S. support of Finnish requests to the International Bonk.
The interest of the U.S. with regard to the Finnish economy and our
desire to assist Finland in any feasible manner was explained to
officials of the IBRD in support of a pending Finnish request for an
additional loan. As a result, the Bank expanded both the number of
personnel and the scope of the study of the mission which it sent to
Finland. It is understood that the mission is recommending a loan of
';~10 to tirll million. (Para. 10)
3. Possible Finnish membership in the European Payments Unan.
In response to Finnish approaches on this subject, the Finns were
assured of U.S. monetary support; however, after careful study the
Finnish Government decided that it would not seek to enter EPU but
instead would await moves toward convertibility in the expectation
that it could participate. (Para. 11)
4. Allotment and use of million in Finnmarks. A ti6 mil:?'ion
allotment was made to Finland by FOA. in February 1954 for purchases
under the Surplus Agricultural Program. The current plan is to use
the resulting proceeds in Finnish currency for the purchase of Finnish
products. (Para. 12)
5. Facilitatin Finnish exports and dollar earnin s.
a. FOA procurement. Although FOA has actively attempted
to include Finland in procurement programs, few actual transactions
have materialized. These efforts will be continued. (Para. 13)
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b. Brazilian ship contracts. The strong interest of the
U.S. in Finland's obtaining Orders under a Brazilian ship program
(in case U.S. firms do not obtain them) has been expressed on a ntumn
ber of occasions to the Brazilian Foreign Office . (Para. 13)
c. NATO Infra-Structure Program. An exploration of the
possibility of Finnish participation in the construction of PLATO
infra-structure projects is under way as a part of the over-all
consideration of participation of non-NATO countries in such pro-
grams. (Para. 13)
d. Treasury action relating to Finnish imports. The Hard-
board Association of the U. S. filed a complaint on June 30, 1953
alleging that Finnish suppliers were dumping hardboard in the U. S.
Following conferences with Finnish representatives during which it
was made clear that no other course was available under U. S. legis-
lation, the Treasury, on May 10, 1954, withheld appraisement of hard-
board importations from Finland pending final decision. On August 31,
1954 the Treasury determined that a finding of dumping with respect
to hardboard from Finland is not presently justified. (Para. 13)
6. Finnish cooperation on East-West-trade controls.
a. New five-year trade agreement with USSR. In July the
Finns signed a new trade agreement with the USSR covering 1956-60.
Finnish officials estimate that trade with the USSR averaged over the
five-year period will be about 10 per cent higher than in 1954, but
they also expect at the same time an expansion of trade with the West
of at least 10 per cent. A number of strategic export items were in-
cluded in the agreement over the objection of our Minister, a joint
statement on "peace" was issued, and the Soviet and Finnish diplomatic
missions were raised to embassy status. On the other hand, the Finns
resisted Russian pressure for a 50 per cent trade increase and a joint
statement favoring liblotov's proposal for a European association of
states. With regard to the proposed embassy status, the Finns en-
couraged, confidentially, Western powers to raise their missions to
embassies and the U.S., France and the U.K. took this coordinated
action on September 10, 1954? (Para. 15)
b. Ships for Communist China. Our Legation exerted con-
siderable effort to stop the contract. Partly as a result of our
efforts through meetings between our Minister and the shipbuilder,
the Chinese reluctantly accepted three 3200-ton vessels (rated lower
strategically on international lists) in place of an 8500-ton ship.
(para. 15)
7. Export of materials to Finland. The Department of the Army
has approved a request from the Finns for a small quantity of weapons
and ammunition to be used by the Finns for experimental research and
development. (Para. 16)
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8. Combatting, Communism. In addition to a full-range ISIS
program now in operation, ;plans have been completed for a program
to combat communism in the north of Finland. In proportion to popu_,
lation the exchange of persons program with Finland is the largest
in Europe. The program is considered highly effective. (Para. 1'7)
fIA will report separately
B. OPERATIONAL CONSIDIlPATIONS BEARING ON POLICY
9. The NSC paper has been in effect eight months. Based on
experience to date it is considered that the policy remains vilid.
It is the consensus that there have been some accomplishments as e
result of the policy and that U.S. actions concerning Finland since
January have contributed toward our basic objective of keeping Finland
oriented toward the West. The Board notes that the internal politleal,
psychological and subversive influence of the USSR in Finland:remr?nis
a problem. It recognizes the delicacy of any U.S. activities: in this
field.
C. EMERGING PROBLD4S AND FUrU ACTIONS
10. It is basic to our policy that Finland be economically
healthy and therefore less subject to Soviet pressure. Forti.iate1y,
the Finnish economic situation is considerably better at the: preseri
time than it was last January when NSC 5403 was approved. In vie% of
the present status of the Finnish economy, the question of a V emergency
type of economic assistance does not arise.
11. The fundamental need of the Finnish economy is, and has b en
since World War II, for internal reforms--chiefly of a fiscal nature,
and of the high-cost structure of Finnish industry. It is believed
that this problem can be attacked slowly and gradually and that U.S.
assistance can play a part. For example, the Finns have exprossec_
an interest in obtaining surplus U.S. agricultural items under
P.L. 480. The working group will follow the application closely
and examine various projects for use of the resulting local cur-
rency to strengthen the Finnish economy.
12. An effort is being made to bring Finland into the FGA pcr(:)-
gram for sale of U.S. coal for local currency as soon as details can
be worked out. The Finns have expressed an interest in 700,000 tons
because Poland, normally the principal coal supplier to Finland, is
not meeting its trade agreement commitments.
13. Thus, there is an opportunity to demonstrate U.S. willi; -
ness to assist Finland, to reduce Finnish deliveries of copper to
Poland in return for coal, and to use the resulting local currenc;r
to finance increased Finnish exports to countries receiving U.S. aid.
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14. The Treasury Department has one dumping case and one counter-
vailing duty case pending against Finnish companies. The Hardboard
Plywood Institute filed a complaint on November 30, 1953 alleging
dumping of Finnish plywood in the U. S. The Customs appraiser in
New York, on October 15, 1953, raised the question whether counter-
vailing duties should be applied to Finnish plywood because of a
grant or bounty to Finnish exporters. A representative of the 33uresu
of Customs will go to Helsinki early in October to ascertain the facts
relating to these cases. If a finding of dumping or subsidy re cults,
importations of Finnish plywood would be liable to additional cIutiee.
Should this occur, it would present a significant problem on which
the working group probably would wish to make recommendations to
the Board. (Para. 13)
15. A special problem has emerged as a result of the recent
trade agreement with the USSR; that is the question as to whatmighL.
be done on our part to prevent or hinder delivery to Russia of the
highly strategic icebreakers and tankers. There may be no adequate
solution to this problem. However, one possibility which will be
explored is the desirability and effectiveness of obtaining agreement,
by COCOM countries to withhold exports to Finland of embargo-type
components which are destined for use in the Finnish ship construction
program for Russia.
D. EXTENT OF AGENCY INTERESTS
16. Treasury participated in the preparation of this Report.
Attachment:
ANNEX "A" - DETAILED DEVELOPMENT OF MAJOR ACTIONS.
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ANNEX "A" - DETAILED DEVELOPMENT QF MAJOR ACTT IONS
Statement of Actions by Paragraphs of NSC 5403:
Paragraph 9: "Be prepared, at Finnish request, to make available
limited economic assistance to Finland, if required to achieve the
foregoing objective, including, if necessary, seeking a waiver of
Battle Act requirements."
In July the President of the Bank of Finland and the Director
approached our Minister on the subject of the possibility that the
Finnmark might become convertible at the same time that other
Western countries make the convertibility move. They stated that
the chief requisite for such a move by Finland was adequate monetary
reserves and asked if the U.S., at the proper time, would be willing
to extend a standby credit in order to bring Finland's monetary
reserves to the level deemed necessary. The Finns were told that
we agreed on the desirability that Finland move toward converti-
bility if its general financial situation permitted, and that the
U. S. would support some type of appropriate assistance to Finland
through the International Monetary Fund or perhaps some other channeK".
which might be available. It was pointed out that there was no need
for urgent action on this matter and that various possibilities of
assistance would be explored. The possibility of credits by the
Federal Reserve System is under review by the System.
Finland's external financial position has improved since
NSC 5403 was adopted. Aside from the $5 million sale of tobacco
and cotton for local currency mentioned above, no U. S. aid has been
programmed for Finland. It should be noted, however, that in the
current fiscal year U. S. ability to extend dollar aid would be
limited since dollar funds which will be available to FOA for all
purposes will be severly limited. (See also action under 12 below)
Paragraph 10: "Continue to support Finnish requests to the Inter-
national Bank for sound loans to meet investment and development
requirements."
The International Bank for Reconstruction and Development has
made four loans to Finland approximating $38 million since 1949
and as of the end of 1953 a Finnish request for an additional loan
had been pending at the Bank for several months. The Bank expected
to send a small team (three perspns) of experts to Finland in con-
nection with this application but no specific date had been set.
A first meeting was held with IERD officials on December 15, 1953,
at the request of the Department of State. The interest of the
U. S. with regard to the state of the Finnish economy and our
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desire to assist Finland in any feasible manner was explained to
Bank officials. The need for precise and full. economic data on
Finland was set forth in considerable detail and the Bank was re-
quested to consider seriously sending an expanded team of experts
to Finland as soon as possible. As a result of these discussions,
an IBRD mission of seven persons departed for Finland about the
middle of April and stayed until about mid-May. The report of the
mission has not yet been issued but it is understood that it will
recommend another loan of some $10411 million which would be ox-P,
tended in Western European currencies. About two-thirds of the
loan would be devoted to purchases of machinery and equipment for
the woodworking industry and most of the remaining one-third for
equipment for electric power projects. When the Bank's complete
report is made available it will, of course, be of considerably
assistance in making a correct determination as to the need for
economic assistance and the sectors where investment would be most
worthwhile. The report should also be of considerable interest and
use to Finnish Government officials and perhaps some of the recom-
mended courses of economic action can be put into effect by the,
Government.
The Working Group will continue to follow closely the oourse
of this loan application.
Paragraph 11: "Support Finnish initiative, if it develops, to
become a member of the European Payments Union, and if necessary,
contribute towards an initial credit for Finland in the European
Payments Union."
Several informal Finnish approaches on this subject were
received by our Legation officials during the latter part of 1953,
and it was evident the Finns were interested in an exploration of
the possibilities of EPU membership. After study they were informed
in February that if they wished to associate themselves with the
European Payments Union they could be assured of United States
support and further that the United States would consider the
necessity for an initial credit position and of contributing toward
it. Although the Finns were not informed, it had been decided to
consider contributing $10 million from Mutual Security funds. At
the same time a study was requested by the Organization of Eutopear
Economic Cooperation Secretariat of the Finnish payments position
in order to see how Finland might fit into and benefit from F 'U
membership.
Our missions in Sweden, Norway and Denmark were also informer
of Finnish interest in EPU and the subject was discussed with
appropriate government officials in Norway and Sweden, especially
with regard to the point of possible Scandinavian sponsorship for
Finland. In June the Finns completed their own study of advantages
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and disadvantages of an association by them with EPU and informed
our Legation that they did not believe that it would provide a
solution to Finland's external payments problems. The principal
reasons appeared to be the probable limited life of EPU and the
greater advantage of Finland attempting to participate in a con-
vertibility move which they believed would occur soon. Other
reasons against joining were Finland's unwillingness to accept
EPU liberalization requirements in view of insufficient currency
reserves, and possible objections to Finland entry by other EPU
countries. The Finns did, however, express appreciation for the
offer of assistance from the United States.
Our Legation has recently been queried as to any possible
change in the Finnish viewpoint as a result of recent developments
which make it appear that progress toward convertibility may not
be quite as rapid as hitherto envisaged, and secondly that EPU
has been reviewed and will continue at least through Fiscal 1955
unless a substantial degree of convertibility is achieved in the
meantime. It is believed, however, that the Finnish position will
remain the same.
Paragraph 12: "Seek to stimulate the import of Finnish products
by the West, particularly the United States, the United Kingdom
and Western fiermany ? "
A 4$5 million allotment was made to Finland in February 1954
for the purchase of cotton and tobacco under Section 550 of the
Mutual Security Act (surplus agricultural commodities program).
The FOA press release of February 11 on this transaction was giver
minimum publicity by USIA media in view of the sensitive negotiations
and Soviet Finnish trade negotiations. Of the resulting local
currency proceeds, up to 1>2 million worth of Finnmarks has been
earmarked for the purchase of items useful in earthquake rehabili-
tation projects in Greece. The utilization of the remaining `;3
million worth of Finnmarks in this program has not been decided
although several projects are under study by the U. S. agencies
concerned. The most promising is the possibility of utilizing;
these Finnmarks for the purchase of prefabricated housing units
for use in the refugee program in Berlin.
Finland's external financial position has improved since
NSC 5403 was adopted. Aside from the $>5 million sale of tobacco
and cotton for local currency mentioned above, no U.S. aid has
been programmed for Finland. It should be noted, however, that
in the current fiscal year U.S. ability to extend dollar aid would
be limited since dollar funds which will be available to FOA for
all purposes will be severely limited.
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Paragraph lis "In various administrative actions, including those
involved in U. S. procurement programs, aid to other countries, and
import regulations, take into account the desirability of facilitat-
ing Finnish exports and dollar earnings."
FOA Procurement
FOk has had an active program in operation to attempt .o in-
clude Finland in FOA financed procurement. However, owing to the
limited range of products offered for export by the Finnish econom;
few actual transactions have materialized, including contracts for
transporting FOA financed petroleum products in Finnish tankers.
U. S. financed off-shore procurement of a military nature has been
precluded owing in part to Finnish reluctance to engage in the
manufacture of warlike equipment. State has asked Defense to
explore again theposoibilities of OSP in Finland. The Army is,
currently considering procuring ordnance equipment from Finland
for technical study.
Brazilian Shl-D Contracts
The Brazilian Government has had under consideration, since
at least the fall of 1953, a large ship construction program and
Finnish shipbuilders discussed with Brazilian authorities during
1953 the possibility of obtaining part of these contracts. Our
strong interest in furthering the possibility of Finland obtaining
these orders (in case U.S. firms do not obtain them) has been dis-
cussed several times with the Brazilian Foreign Office. So fart
however, details of the shipbuilding program have not been approved
by the Brazilian Government. If and when the program goes through,
it is believed that there might be a possibility for some type of
barter arrangement to be worked out for the benefit of Finland.
Possible Finnish Participation in NATO Infra-Structure Pro~,
As further evidence of U. S. interest in Finland's economy,
the United States is suggesting that Finland approach the proper
NATO authorities with a view to participating in the international
NATO infra-structure program in the context of the recent decision
to operate this program on the principle of international competitive
bidding.
T#eapury Action Relating to Finnish Imports.
Two dumping and one countervailing duty case under U. S.
Tariff Acts have been pending throughout 1954. With regard to
the industry complaint that Finnish suppliers were dumping hard-
board in the United States, it was made clear to Finnish repre-
sentatives that the only course which Treasury could follow wan
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to withhold appraisement of such imports from Finland pending fins::
decision on the charge. The Finns raised their U,. S. prices in
April but not enough to bring them surely above foreign market value.
Treasury press releases with respect to initial U. S. actions on
Finnish hardboard were furnished USIS in Helsinki with policy guidance
specifying a minimum of publicity in view of anticipated unfavorab..e
reaction. Usually Treasury requires special high-premium dumping
bonds but in this case (and in similar ones from now on) it was de-
cided that bonds covering ordinary duties were sufficient. On August
31, 1954 the Treasury stated that a finding of dumping with respect
to hardboard from Finland is not presently justified. Trade in this
commodity is now normal.
A dumping charge and a countervailing duty question had been
raised in connection with Finnish plywood exports to the U. S.
Preliminary information does not support the dumping charge but a
representative of the Bureau of Customs will go to Helsinki early"
October to ascertain the facts relating to these cases. Apsemen,
of Finnish plywood has been informally suspended since ? rc , pursuant
to a provision of the Customs Manual. No formal notice has been given
of this fact. The Finns have not complained about this action: and the
trade (about $3 million annually) did not appear to be affected throtWh
June, the latest month for which statistics were available. If a
finding of dumping or subsidy results from an analysis of the facts,
importations of Finnish plywood would be liable to additional duties.
Should this occur, it would present a significant problem on which the
Working Group probably would wish to make recommendations to the Board.
(See also action under Paragraph 12 above.)
Para9ra 15: "While recognizing Finland's peculiar position with
relation to the tiSSR, seek practicable Finnish cooperation on Fast-
West trade controls."
N? Five--Year Trade Agreement with USSR
In Julys after several months negotiation, the Finns signed
a new trade agreement with the USSR covering the period 1956-60.
The signing of an agreement 18 months before its effective date
was apparently a result of Soviet initiative and undoubtedly part
of pverall Soviet policy to bring Finland closer and closer to the
MM. Total trade during the period is projected at about $1.5
billion in accordance with specified lists of commodities. Compe-
tent Finnish officials estimate that Finland's trade with the tMSR
averaged over the period will be about 10 per cent higher than In
1954 but they also expect at the same time an expansion of trade
with the West of at least 10 per cent. If this occurs, Russian
participation in Finnish trade would not increase but remain per-
centage-wise at about the same figure as in 1953 and 1954. Finnish
officials have informed us that they regard the relatively small.
trade increase agreed with the USSR as a signal victory on the part
of Finland in view of the fact that the Russians pressed hard for a
50 per cent trade increase.
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During the lengthy negotiations, our Minister discussed with
top-level Finnish officials on numerous occasions our desire that
there be as few strategic Finnish export items as possible in the
agreement, and the strength of U. S. feeling on this matter is
made known at every opportunity. Nevertheless, the final agree-
ment contains a large number of items of strategic concern, es-
pecially three icebreakers, 20 tankers and 3-4000 tons of copper
and copper products. Whereas the existing agreement contains about
33 per cent Finnish shipyard products, the new one includes about
37 per cent of the total for such items.
The Soviets attempted to make the signing of the trade agree-
ment dependent on the issuance by the Finns of two statements,,
one associating the Finns with the Soviet peace campaign and the
other expressing Finnish approval of Molotov's proposal for a
European association of states. The Finns succeeded in avoiding
subscribing to the latter, but did consider it necessary to join
in a communique on the subject of "peace" which they considered
did not really go any further than they had already gone in con-
nection with the Finnish-Soviet Treaty of Friendship of April 6,
1948. The Russians, in fact, accepted a modified Finnish draft
of the communique. Nevertheless, a psychological impact was
created by the issuance of a joint statement on "peace" in con-
junction with a trade agreement,
In another unexpected political move tied to the trade agree-
ment the Soviets proposed raising the diplomatic missions of the
two countries to embassy status. In this matter also the Finns
felt that they could not avoid assenting. At the same time they
encouraged, confidentially, Western powers to raise their missions
to embassies, and the United States, France and the United Kingdom
took this coordinated action on September 10, 1954.
Shins for Communist China
In March, the Finnish Government informed our Legation that
a Finnish shipbuilder was negotiating construction of a (second)
8500-ton cargo ship for Communist China. Under instructions, our
Legation exerted considerable effort to stop the contract. Partly
as a result of our efforts and of meetings between our Minister and
the shipbuilder, the outcome of the Finnish-Chinese negotiations
as embodies in the trade agreement was reluctant Chinese acceptance
of three 3200-ton vessels (rated lower strategically on international
lists) in place of the 8500-ton ship.
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pa aaranh 1b: "Although a careful case-by-case review should be
made in order to minimize any contribution which U. S. exports to
Finland might make to the Eastward flow of strategic items from
Finland, continue to export available materials which are necessLtry
to Finland's economy."
On July 9, 1954, the Department of the Army approved a request
from the Finnish Government, received through the U. S. Army Attache,
for weapons and ammunition to be used by the Finns for experimental
research and development. This materiel (value approximately 1~28,30C
will be delivered to Finland about October of this year and will be
provided without cost to that country.
Paragraph 17: "Covertly assist Finland to combat communism."
Combatting Communism
In addition to a full-range USIS program, which includes press,
films, and library activities, plans have been completed for a
program to combat communism in the North of Finland. Publications,
films, and exhibits will be directed to the inhabitants of logging
camps and isolated communities in the provinces of Lapland, Oulu,
and Kuohio,. The project, which is strictly an overt operation,
has the approval of the Finnish Government.
Exchange of Persons
In proportion to population the exchange of persons program
with Finland under P.L. 265 and P.L. 584 is the largest in Europe
and has resulted in a constant flow to the United States of Finnish
leaders and specialists. The program is considered highly effective.
Finnish officials have given strong praise to the beneficial effect
of the program on Finnish American relations.
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NUMBER OF PAGES
NUMBER OF ATTACHM TS
ATTENTION: This form will be attached to each Top Secret document received by the Central Intelligence Agency or assiB
within the CIA and will remain attached to the document until such time as it is downgraded, destroyed, or trT lsmit=
CIA. Access to Top Secret material is limited to those individuals whose official duties relate to the material. Es+ h alter
ant Top Secret Control Officer who receives and/or releases the attached Top Secret material will sign this form at I indi
custody in the left-hand columns provided. The name of each individual who has seen the Top Secret document and the
dling should be indicated in the right-hand columns.
REFERRED TO
RECEIVED
RELEASED
;EN BY
OFFICE
SIGNATURE DATE
TIME
DATE
TIME
NAME AND OFFICE SYMBOL
NOTICE OF DETACHMENT: When this form is detached from Top Secret material it shall be completed in the appropri to spE
transmitted to Central Top Secret Control for record.
THE TOP SECRET MATERIAL DETACHED FROM THIS FORM WAS:
BY (Signature)
DOWNGRADED ^
DESTROYED C1
DISPATCHED (OUTSIDE CIA) TO
Approved For Release 2003/09/02: CIA-RDP80RO
`1 003000080002-3
T 3h Secret
A- tttside of
,~,, or assist-
period of
ate of han-
FORM NO. roc REPLACES 38-13
TOP SECRET
1 AUG 54 GV WHICH MAYBE USED.
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