AUSTRIA: TECHNOLOGY TRANSFERS TO THE SOVIET BLOC

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84M00044R000200590001-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 21
• Document Creation Date: December 22, 2016
• Document Release Date: January 20, 2011
• Sequence Number: 1
• Publication Date: June 1, 1983
• Content Type: REPORT

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M
Director of
Central
Intelligence
Soviet Bloc
Austria: Technology
Transfers to the
Technology Transfer
Intelligence Committee
TTIC 83-10003
June 1983
Copy A A -A
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Director of Secret
Central
Intelligence
Austria: Technology
Transfers to the
Soviet Bloc
This paper was prepared b
Technology Transfer Intelligence Committee.) 25X1
Comments and queries are welcome and may be
directed to
Secret
TTIC 83-10003
June 1983
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The DCI's Technology Transfer Intelligence Committee (TTIC) serves as
the focal point within the Intelligence Community on all technology
transfer issues. The Committee coordinates Community activities and is
the principal source of intelligence support for those US Government
entities responsible for policy and action on technology transfer issues. It
works with other Intelligence Community committees and appropriate
agencies to ensure that intelligence information collected on technology
transfer is consistent with the DCI's priorities and guidance and meets the
needs of Community production organizations.
Mr. Bohdan Denysyk
Mr. L. Britt Snider
Dr. Robert L. Bingham
Mr. A. R. Cinquegrana
Mr. Steve A. Saboe
LTC Alan D. Blackburn
Mr. Merrill T. Kelly
Mr. Bobby Ellison
Mr. E. R. Atkinson
Mr. Lyle J. Theisen
Commerce
Defense
Energy
Justice
State
Air Force
Army
Navy
Treasury
FBI
Maj. Jack K. Lyons
(Executive Secretary
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Secret
This study was prepared for the Economic Defense Advisory Committee
and for the Senior Interagency Group on the Transfer of Strategic
Technology by an interagency working group of the DCI's TTIC. It was
approved by the TTIC on 2 May 1983.
Working Group Members
Mr. Roger Lewis
Mr. Dennis Varnau
Mr. John Harris
Mr. John Otto
DoE
Air Force/FTD
FBI
Army
Mr. Steve Saboe
Mr. Bowman Miller
Dr. Don Quinn
State
State
The TTIC Export Control Subcommittee (EXCON) played a special role
in the development of this study. is Chairman of EXCON. 25X1
iii Secret
TTIC 83-10003
June 1983
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Secret
Summary
Soviet Bloc
Austria: Technology
Transfers to the
Bloc.
We believe the Austrian Government is willing to assist the United States
in restricting the flow of US and possibly other Western technology to the
USSR and Eastern Europe. This is in large part because Vienna wants to
avoid losing access to US technology. Because Austria's neutrality and free
trade posture encourages trade with Communist countries, Vienna will not
agree to curtail the transfer of indigenously produced strategic technology.
The Soviet Bloc in 1981 accounted for about 11 percent of Austria's
exports, and, by the end of 1982, credits to the Soviet Bloc amounted to
$6.9 billion-about 10 percent of the total Western loans to the Soviet
increasingly diversifies into the high-technology areas.
part, do not appear to be the target of Bloc acquisition efforts. Soviet
interest in Austrian industry may change, however, as Austrian industry
Most illegal sales appear to involve trading firms that acquire equipment in
other countries and transfer it to the Bloc. Austrian products, for the most
firms or individuals.
? Austrian designed and produced high technology.
The transfer of high technology to the USSR and Eastern Europe occurs
through a number of transfer channels. For COCOM-controlled equip-
ment, it occurs through:
? Legal sales of Western technology with important military applications
for Warsaw Pact countries.
? Commercial diversions or illegal sales of Western equipment by Austrian
sent to the East to repair equipment.
More than 100 Austrian firms or entities have been identified by the
Department of Commerce as suspected diverters of equipment to the Soviet
Bloc. These firms are largely low capitalized small businesses and trading
firms and, more often than not, act in concert with firms from other
countries besides the country where the equipment was originally pro-
duced. These firms are often involved in computer or microelectronic
importing and/or manufacturing. Austria also is a major servicing center
for Eastern Europe; spare parts are stored there and technicians can be
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Other militarily-relevant transfers have occurred through legal trade
channels. For example, the Austrian firm GFM has sold since the late
1960s at least 26 automated rotary forges to the USSR that have been
used to produce gun barrels for the T-72 tanks and T-64 tanks, towed and
self-propelled artillery, assault rifles, and machineguns. Austria's domestic
weapons industry, however, is directed toward its own defense, and no
significant arms sales are made to Soviet Bloc countries. Austria does
export a wide variety of military equipment and armored vehicles to other
Third World countries.
Other channels for technology acquisitions in Austria are the large number
of international organizations headquartered in Vienna.
To stem the loss of Western technology through Austria would require a
greater commitment of political, financial, and personnel resources to
develop new and more efficient mechanisms to enforce strategic trade
controls. We have no evidence that the Austrian Government has the will
or intention to make the necessary effort.
Secret vi
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The Legal Framework for Controlling Technology Transfers
1
Arms Exports and Policy
5
Austria's High-Technology Industries
6
Austrian-Designed and -Produced Equipment That COCOM
Defines as Controlled
7
Diversions of Controlled COCOM Equipment
8
Transfers Through International Organizations
8
Transfers of Equipment and Technology That is Not Controlled
10
Austrian Cooperation: Problems and Prospects
10
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Secret
Austria: Technology
Transfers to the
Soviet Bloc
Austria Views its Neutrality
Austria's status was legislated by the Neutrality Act
of 1955, which created an international position un-
known in Austria's 1,100-year history. The neutrality
question is almost always cited by Austrian officials
whenever the subject of technology transfers to the
Soviet Bloc is raised. Although the US Embassy has
commented that the legal impact of neutrality on
Austria's technology transfer decisions is often over-
stated, it cannot be ignored.
Austria's neutrality has been largely defined by the
philosophy of its political leaders, particularly Bruno
Kreisky, the Austrian Chancellor between 1970 and
1983. Not only does he play an important role in
fashioning Austria's neutrality today, but he also was
the leading Austrian foreign affairs expert in 1955
when the State Treaty and Neutrality Act were
signed. Austria specified that its policy of "armed"
neutrality would be patterned on the Swiss model.
Because the State Treaty prohibited Austria from
maintaining guided or mass-destruction weapons,
however, Austria's ability to defend itself and live up
to its "armed" neutrality was limited. An additional
factor in Austria's neutrality is the position taken by
the Soviets, who have occasionally reminded Austria
of its neutrality whenever they believed Vienna might
be straying from Moscow's interpretation. We believe
that this pressure is not lost on the Austrians, who not
only are grateful to the United States but also fearful
of the Soviets. Both the Soviets and the United States
are signatories of Austria's State Treaty.
What has developed, however, is an Austrian policy of
"active neutrality" that includes a role as peacemak-
er. Kreisky's position was that Austria has a special
duty to promote detente between NATO and the
Warsaw Pact even though Austria is politically pro-
West. The combination of Austria's "active neutral-
ity" policy and Kreisky's political position have had a
number of implications for Austrian technology trans-
fers to the Soviet Bloc:
? Austria believes that it must treat East and West
equally and therefore cannot discriminate in trade.
? Vienna believes that it should not be pressured to
control indigenously developed technology.F-
The Legal Framework for Controlling
Technology Transfers
The Ministry of Commerce, Trade and Industry
(MCTI) has primary responsibility to authorize ex-
ports and reexports of Austrian-origin commodities. If
agricultural products are involved, the Ministry of
Agriculture is the authority, although MCTI permis- 25X1
sion also may be required on occasion. The export of
weapons also requires MCTI authority as well as
concurrence from the Austrian Council of Ministers.
In some cases, these ministries may delegate authori-
zation to grant export licenses to the governors of the
provinces
The statutory basis for Austrian export regulations is
the Foreign Trade Act of 1968 and its amendments.
Import restrictions and export restrictions on
Austrian-made products pertain to only a few items
such as petroleum, natural gas, penicillin and other
antibiotics, chemicals, certain agricultural items, and
selected steel products. However, Vienna may suspend
the principles of unrestricted exports of other products
and introduce controls on any products in case of:
international obligations (for instance, UN sanctions
against Rhodesia); a trade imbalance with another
country; or a threat to the national economy. Such
controls, however, are temporary and must be re-
moved whenever these conditions are corrected. In
these areas, Austrian export regulations mirror the 25X1
short supply and foreign policy stipulations in US
trade regulations.
Although the Foreign Trade Act treats the exports of
Austrian products liberally and does not have provi-
sions to control an Austrian commodity once export-
ed, the Foreign Trade Act does not permit the
reexport of foreign goods or technology that have
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entered the commerce of Austria (customs duties
paid) unless permission is granted by the authorities of
the originating countries. Such authorizations are
kept on file in the Ministry of Commerce. Austrian
law, however, does not deal with the disposition of
foreign goods that transit the country. Violators of the
Foreign Trade Act may incur fines of more than
$10,000 and up to four years' imprisonment if export
approval has been obtained illegally
Besides the Foreign Trade Act, Austrian firms are
usually bound by contract or conditions of the US
export license to abide by US export regulations. For
example, if a US firm legally sells a computer to an
Austrian company with the condition that the com-
puter would not be transferred to a Bloc country but
such a transfer occurs and is detected, the Austrian
firm would face penalties under US export laws, such
as denial of import privileges from US firms. More-
over, Austria is one of the few non-COCOM countries
that issues an International Import Certificate for
controlled products shipped legally to Austria. In the
United States, this certificate is sent to the Depart-
ment of Commerce and represents an undertaking by
Austria to exercise legal control over the disposition of
In addition, Austria agreed in an exchange of letters
on 1 February 1983 with the United States to new
procedures to protect US technology and equipment
transferred legally to an Austrian company. Under
these procedures, the US firm wishing to export high-
technology items to Austria must agree with the
Austrian importer on safeguards against the un-
authorized use of this technology. The Austrian firm
then takes this agreement to the MCTI, which deter-
mines whether or not the firm can be trusted to meet
the terms of the agreement. If so, MCTI then issues
an import authorization, thereby forming the basis for
Austrian participation in guarding the US technology
and also providing an official basis for approaching
the Austrians at a later date, should something go
awry. After being informed of the import authoriza-
tion, the US Department of Commerce issues an
export license to the US firm. Because the agreement
is not based on Austrian law and does not specify US
technology and products, it could be used with other
countries.
Austria's customs officers are responsible for monitor-
ing the flow of exports and imports, but their re-
sources are limited and targeted primarily at arms
and drug smuggling. A customs agreement between
the United States and Austria allows inspections by
US Customs agents when US export control violations
occur in Austria. US Customs officers have averaged
between 10 to 12 cases annually and have indicated
that, until the technology transfer problem with the
United States became an issue, cooperation with
Austrian customs officials had been good. Austrian
customs procedures, like those of their West European
counterparts, are not thorough and facilitate easy
cross-border transfers of commodities. If this were not
the case, normal trade in Europe would be hindered.
Physical inspections by the Austrians are infrequent,
and spot checks of reexports occur only following
tipoffs.
Economic Relations With the Soviet Bloc
By far the leading area of Austrian contacts with the
Soviet Bloc is foreign trade, a sector that plays an
important role in the Austrian economy and account-
ed for 56 percent of the Gross Domestic Product in
1981. Austria has been a unique gateway to markets
in the East because of historical, political, and geo-
graphical considerations. The trade has been helped,
in part, by the establishment of a number of firms in
Austria that specialize in East-West trade. For exam-
ple, the Information Office for the Promotion of
Foreign Trade in Vienna-a nonprofit organization
with branch offices in Warsaw, Bucharest, and
Sofia-was established to counsel commercial mem-
ber firms concerning marketing conditions and prac-
tices in Eastern Europe, transfer of counterpurchase
commitments, switch transactions, and joint ventures.
In addition, a number of experienced "barter houses,"
mainly affiliates of Austrian and foreign international
banks, offer their services in resolving countertrade
obligations.
In 1981 Austria's trade with the Soviet Bloc account-
ed for 11 percent of Austria's total exports and 12
percent of its imports. Of the seven Soviet Bloc
importing countries, no single country accounted for
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Table I
Austria's Trade With Soviet Bloc Countries, 1977-80
Bulgaria
36.0
36.5
40.1
45.6
44.8
0.3
0.2
0.2
0.2
0.2
Czechoslovakia
198.5
242.3
320.4
449.0
395.2
1.4
1.5
1.6
1.9
1.9
East Germany
85.7
97.3
118.1
163.8
162.0
0.6
0.6
0.6
0.7
0.8
Hungary
198.2
182.5
239.5
334.7
316.2
1.4
1.1
1.2
1.4
1.5
Poland
147.7
149.6
201.7
238.4
163.4
1.0
0.9
1.0
1.0
0.8
Romania
72.1
81.0
85.0
105.4
105.1
0.5
0.5
0.4
0.4
0.5
USSR
509.6
610.8
768.2
1,018.6
1,309.4
3.6
3.8
3.8
4.2
6.2
Total Soviet Bloc
2,355.5
2,496.1
8.8
8.8
8.8
9.7
11.9
Bulgaria
49.3
62.0
92.8
117.0
118.8
0.5
0.5
0.6
0.7
0.8
Czechoslovakia
212.9
220.7
216.0
235.1
205.4
2.2
1.8
1.4
1.4
1.2
East Germany
103.7
121.6
168.7
227.6
210.2
1.1
1.0
1.1
1.3
1.3
301.3
373.8
352.8
378.6
420.0
3.1
3.1
2.3
2.2
2.7
Poland
356.2
370.3
434.4
Romania
113.8
146.0
214.6
USSR
278.8
370.2
510.4
474.4
484.7
2.9
3.1
3.3
2.7
3.1
Total Soviet Bloc
1,416.0
1,664.6
1,989.7
2,093.4
1,804.2
14.5
13.7
12.9
12.1
11.4
Total exports worldwide
9,789.0
12,127.6
15,429.4
17,369.5
15,807.8
more than 3.1 percent of the overall 11 percent share.
Austrian imports from the Soviet Bloc, however, were
somewhat less broadbased. The Soviet Union account-
ed for about half of the 11.9 percent total (table 1).F_
Despite Austrian efforts to court the Soviet Bloc
market, the trade balance with the Bloc has been
deteriorating. While Austrian imports from the Soviet
Bloc increased from 9 percent in 1977 to 12 percent in
1981, the share of Austrian exports to the Soviet Bloc
declined from 14 percent in 1977 to 11 percent in
1981-the lowest since 1955. As a result, Austrian
trade with the Soviet Bloc deteriorated from a surplus
of about $170 million in 1977 to a deficit of $690
million by 1981 primarily because of Austria's grow-
ing energy imports. Yet preliminary indications from
1982 show a decline in this deficit, as Austria was
able to increase its exports and reduce its imports. F-
The Soviet Union remains an important trade partner,
primarily as a supplier of energy products. It provides
about 25 percent of Austria's oil products and all of
its natural gas. From 1975 thru 1981 Soviet energy
exports to Austria accounted for about 83 percent of
the total exports to Austria (table 2). Table 3 shows
Austria's major exports to the Soviet Union for 1975
through 1981, which include a wide variety of ma-
chinery, ferrous metals, and pipes. Austria's highly
regarded machine-tool sector accounted for about 5
percent of their exports to the Soviet Union for this
period. The Soviets regard Austrian trade highly as
reflected in a December Pravda article by Soviet
Minister of Foreign Trade, N. Patolichev, who reiter-
ated the steady growth in Soviet-Austrian trade and
indicated that "spheres of cooperation" were being
extended.
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Table 2
Soviet Exports to Austria
1975-81
Table 3
Soviet Imports From Austria
1975-81
Energy
83.2
Hard fuels
5.7
Oil and oil products
39.9
Gas
37.6
Lumber and related products
3.0
Cotton fiber
1.5
In recent years, on a per capita basis, Austria has
been by far the most generous creditor to the Soviet
Bloc. Although Austria's share of the entire Soviet
Bloc trade with Western countries is only 5 percent,
nearly 10 percent of loans by Western banks to the
Soviet Bloc were contributed by Austrian institutions.
In the past few years, the level of total credits has
increased dramatically, rising from $4 billion in 1979
to more than $6.9 billion today, although the rapid
increase slowed in 1982. One explanation for the
dramatic increase in credit is that the Bloc countries
are just now drawing down longer term credit agree-
ments that were granted by Austria, but not reflected
in the statistics at that time.
Austria's credit situation is caused in part because the
government encourages trade to reduce the deficit and
unemployment. Another factor is the Austrian prac-
tice of financing major industrial projects that include
orders for non-Austrian goods. For example, Voest-
Alpine is sharing part of its order for the construction
of a steel plant in the Soviet Union with Italy's Nuovo
Pignone, although Austria is providing all the financ-
ing.
Besides trade and credit activities, other areas of
Austrian-Soviet Bloc cooperation are under way.
Tourism is important to the Soviet Bloc countries as a
source of hard currency. It has been aided by visa-free
100.0
32.3
Machine tools/forging-pressing equipment
4.9
Wire and cable
2.7
Chemical machines and equipment
2.5
Industrial fitting/mountings
3.5
Ships and shipbuilding equipment
4.4
Other
14.3
Rolled ferrous metals/pipe
29.1
Chemical products
5.8
Clothing (such as outwear, knit goods, leather
shoes)
12.5
14.5
5.8
tourist travel-up to 30 days-between Austria and
Hungary, Romania, Bulgaria, and Yugoslavia. In
addition, Czechoslovakia and Austria signed an
agreement in 1975 allowing visa-free business travel.
Austria's Arms Industry and Sales Abroad
Since 1955 Austrian leaders have maintained that
their country's neutrality requires a domestic industry
to provide equipment for Austria's defense forces.
They believed that reliance on imported arms could
compromise Austria's ability to pursue a neutral
foreign policy, but at the same time, Austria's defense
industry is limited by financial constraints and indus-
trial capacity. In addition, a clause in the 1955 State
Treaty prohibits Austria from either producing or
procuring offensive weapons, including missiles. Aus-
tria attempts, nonetheless, to meet most armed forces
requirements with domestic weapons technology and
production.
Any weapons technology Austria imported came from
the West and not the Soviet Bloc. About 40 percent of
Army materiel still must be purchased from foreign
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OCCfCl
suppliers, including all of the country's military air-
craft and most of its tanks and artillery. Since 1954
about $400 million worth of arms have been imported,
including fighter aircraft from Sweden and helicop-
ters from the United States. Austria is only prohibited
by the State Treaty from buying arms from West
Germany.
Although not large by Western standards, the Austri-
an defense industry plays an important role in the
Austrian economy. Approximately 7,500 engineers
and technical specialists in about two dozen firms
work exclusively on military products. Most of the
firms are privately owned. But the country's largest
arms manufacturer, Steyr-Daimler-Puch (SDP),
which employs 17,500 workers and depends on mili-
tary hardware sales for more than one-fourth of its
business, is largely owned by Creditanstalt in which
the government holds extensive shares. In addition to
the domestic producers, Austrian arms manufacturers
have invested abroad to increase production of Austri-
an arms outside of the country to avoid undue domes-
tic political constraints on export decisions. For exam-
ple, SDP has established factories in Greece and
Nigeria, and there are other Austrian-owned muni-
tions facilities in Iraq and Syria.
Products. Austria builds a wide variety of military
equipment to include armored vehicles, all-purpose
trucks, artillery pieces, and infantry weapons. Perhaps
the most important weapons produced by Austria are
armored vehicles-light tanks, armored recovery ve-
hicles, and armored personnel carriers. The most
sought after, the SK-105 Kuerassier light tank (PJK),
was developed in 1965 by SDP, which produces all of
Austria's armored weapons. The tank, which is based
on a modified armored personnel carrier of domestic
design, appeared in prototype in 1967 and entered
serial production in 1971. Since then, more than 400
vehicles have been produced, and at least half have
been exported. More than 143 subcontractors have
contributed to its production, and all the parts are
indigenously manufactured.
Other armored vehicles produced include its Greif
armored recovery vehicle, and its Sauer armored
personnel carrier. More than 450 Sauers were built,
primarily for the Austrian armed forces. Austria also
is considering producing a 20-mm AA vehicle, which
would be manufactured for export. Unlike all other
armored vehicles produced in Austria, SDP is not
slated to build the AA vehicle; rather, Voest-Alpine
AG, primarily a steel products and machine-tool
manufacturer, will be building the vehicle.
Additional military vehicles include: the SDP-pro-
duced Pinzgauer, a four-wheel drive vehicle used as a
personnel carrier; the quarter-ton, 4 by 4 jeeplike
Haflinger truck; the Steyr 680 M, a 2.5-ton 4 by 4
truck; and the Haflinger II, a three-quarter to one-ton
all-terrain vehicle. Annual output of the Pinzgauer is
about 2,500, although annual plant capacity is esti-
mated at 30,000 vehicles. Plans call for exporting
about 11,000 Haflinger IIs.
For years, Austria had a limited capability to produce
artillery, but recently it has been producing the
155-mm GHN-45 Howitzer, which is based on a
Canadian design. Austria's artillery production is
limited by the State Treaty, which precludes the
production of weapons with a range above 40 kilome-
ters. Austria circumvented that restriction by building
the artillery pieces for export that use Belgium long-
range rounds which carry over 40 km.
Infantry weapons represent the industry's strongest
sector. These, for the most part, are produced by
SDP. The industry produces small arms in calibers
through 9 mm, of which the 5.56-mm Sturmgewehr
77 (AUG) is considered one of the world's best assault
rifles. Production capacity is now about 90,000 annu-
ally. Other small arms produced for export include
the MPI 9-mm submachinegun and the AM-180 22
caliber rapid-fire submachinegun. The AM- 180 is
produced under a US contract.
Arms Exports and Policy. Because the cost of equip-
ping Austrian forces from the domestic industry is as
much as 25 percent higher than the cost of compara-
ble systems in other countries, there has been a strong
incentive to achieve greater economies of scale and
reduce unit production costs by producing arms for
export. Such exports also have provided a valuable
source of foreign exchange with earnings of about
$600 million since 1954, which more than balances
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the arms import bill. Business as well as labor benefit
from the arms trade. An SDP official has calculated
that a worker on one of the company's defense
projects brings in approximately $81,640 in sales,
whereas a worker involved in one of its nonmilitary
projects accounts for only $45,200 in sales. Conse-
quently, industry and labor groups can be expected to
continue to pressure the government to approve arms
exports despite some domestic opposition from other
groups.
In Austria, the Minister of Interior authorizes weap-
ons sales abroad in coordination with the Ministers of
Defense and Foreign Affairs. For the most part,
Austria's arms export policy could be considered
rather liberal, although its official policy does exclude
exporting arms to countries that are at or near war,
and where there is a danger of weapons being used to
violate human rights. The human rights provision,
however, does not include small arms. In the interest
of domestic economic considerations, Vienna will
probably continue the balancing act between main-
taining strict neutrality and sanctioning arms exports
to areas of tension. In the past, they have approved
sales to democracies as well as to both leftwing and
rightwing totalitarian regimes. Austrian arms sales to
the Soviet Bloc countries, however, have been limited
to ammunition and rifles. These were sold to Bulgaria
in 1969 and 1976.
The arms trade also has proved useful in furthering
Austria's foreign policy objectives with the Arab
states-the major suppliers of their oil-many of
whom would rather purchase arms from neutral Aus-
tria than either the West or the Soviet Bloc. For
example, in 1980, an Austrian consortium signed an
agreement with Iraq to construct the Saad Munitions
Plant. The plant will produce small- to very-large-
caliber ammunition. Although the negotiations began
before the outbreak of hostilities with Iran, Austria
ignored their own rules on arms sales to countries at
war. Saudi Arabia also has purchased about $100
million worth of rifles, machineguns, and diesel trucks
in recent years.
by Socialist youth groups and leftwing Catholic orga-
nizations opposed sales to Latin America because they
were convinced that rightwing regimes would use the
Austrian arms to suppress domestic dissent, which
was often led by Socialist and Catholic activists.
Other domestic political factors-including a finan-
cial scandal in the SPO-contributed to the negative
decision. Another denial concerned the proposed sale
of about 100,000 assault rifles to Communist China
with additional sales pending. In this instance, the
Soviet Union protested strongly, and Vienna decided
not to go ahead with the transaction.
Austria's High-Technology Industries
Until recently, Austria's domestic high-technology
industries-particularly those whose products are de-
fined by COCOM as controlled-were limited and
did not offer a major target for Soviet Bloc acquisi-
tions. Domestic production of computers and periph-
eral equipment is negligible, and Austria has to
import hundreds of millions of dollars worth of these
products each year to meet its own requirements. The
production of business equipment is also rather small.
It includes only cash registers, dictaphones, simple
copying devices, punches, and staplers. Medical in-
struments and equipment, including a variety of com-
puterized diagnostic equipment, are produced only in
limited quantities-only $35 million in 1980-where-
as the country imported $99 million of medical instru-
ments that same year. A similar situation exists for
other scientific and analytic instruments where local
production worth $75 million in 1980 mostly consisted
of standard equipment such as electrical recording
instruments and temperature and humidity measuring
devices. In Addition, the manufacture of advanced
production and test equipment is practically non-
existent; imports are relied on almost exclusively
($50 million in 1980).
Vienna has realized the need to upgrade its industrial
base and diversify into more high-technology areas,
which, when coupled with Austria's already high-
quality machine-tool and optics production, may
make it a more fertile ground for Bloc acquisitions of
advanced technologies
Despite Vienna's liberal policies, all sales have not
been approved. A prime example was the refusal in
1980 of the proposed sale of PJKs to Chile. The
Austrian Socialist Party's (SPO) left wing, supported
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The Austrian electronics industry is moving away
from relatively simple products-such as radios, and
black and white television sets-toward more sophisti-
cated items, such as video recorders, wordprocessing
systems, and small business computers. Other projects
leading to domestic production of semiconductors-
the Voest-Alpine case, CNCs for machine tools, and
microprocessor-based industrial and appliance con-
trols-are in the negotiation and planning stages.
Finally, there is the planned introduction in 1988 of a
new digital computerized telephone system. Installa-
tion will take 10 years at an estimated cost of $200
million annually. Four Austrian firms and the govern-
ment are working on this project.
East-West Transfers
Firms and individuals in Austria have transferred
high-technology equipment to the Soviet Bloc for
many years. The situation in Austria is complicated,
however, by a number of factors. Because Austria is
neutral and free from COCOM restrictions, the dis-
tinction between a legal or illegal sale is often vague.
Moreover, unlike other European neutrals, Austria
does not have informal arrangements to monitor the
sale or production of equipment defined by COCOM
as controlled within its territory. However, Vienna
claims that it voluntarily abides by US rules.[
The number of reported Austrian cases involving
illegal sales of COCOM equipment has been compar-
atively low-some 27 cases since 1966, compared
with 129 for West Germany, 43 for Switzerland, 29
for France, and 33 for Japan. We also have no
evidence that Vienna supports illegal sales of
COCOM equipment. Vienna has been aware of the
overall problem for many years, particularly since
demarches by the US Government were made several
years ago. It also is well aware of the legal sales that
have displeased the United States.
The transfer of high technology to the Soviet Bloc
through Austria occurs in a number of ways. For the
equipment and technology defined by COCOM as
controlled, the transfers include Austrian-designed
and -produced equipment, commercial diversions or
illegal sales of Western equipment by Austrian firms
or individuals, and legal sales of Western equipment.
Other areas for technology acquisition in Austria
occur through the large number of international
organizations headquartered in Vienna. In addition,
Soviet and East European intelligence services have
collection operations aimed at sensitive high technol-
ogies. Also, transfers of equipment or technology that
are not controlled by COCOM, but which occur
through normal trade channels, aid the Soviet Bloc
economies and might indirectly benefit their military
Austrian-Designed and -Produced Equipment That
COCOM Ddines as Controlled. The most publicized
and perhaps most significant irritant in US-Austrian
relations concerning transfers has been the sale since
the late 1960s of at least 26 automated rotary forges 25X1
to the Soviet Union by the Austrian firm, Gesellschaft
fuer Fertigungstechnik and Maschinenbau A. G.
(GFM). These exceptionally efficient forges are used
to produce gun barrels. The GFM process can simul-
taneously shape and rifle the hollow gun-barrel
blanks. The process improves the precision and quali-
ty of the forgings, reduces subsequent machining time
and requires less metal, energy, and manpower. The
Soviets use the forges to produce barrels for the T-72
and T-64 tanks, towed and self-propelled artillery,
assault rifles, and machineguns.
Because of the success the Soviets had with GFM
equipment, in 1972 they tried to negotiate a GFM
license to produce their own small-caliber rotary
forges, but GFM refused. The USSR then tried to
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induce GFM to build a plant in the USSR or Eastern
Europe. GFM also declined this offer. Although the
Soviets failed to acquire the technology directly, they
continued to import substantial quantities of forging
equipment. Indeed, between 1975 and 1980, the
USSR became one of GFM's largest customers,
buying more than $70 million worth of gun-barrel
forging machines alone. Most recently, the Soviets
have ordered an SXP 85, the largest rotary forge ever 25X1
developed by GFM, with delivery slated for this year.
Vienna's position on the sales is that it is free to
market Austrian technology to all customers. The
GFM forges contain no US or other Western technol-
ogy. Austria also claims that, although the forges
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have a dual function, they were designed primarily for
civilians. Between 1975 and 1980, the Soviets bought
$50 million worth of equipment from GFM that was
clearly sold to the civilian sector. Finally, Austria
argues that as a neutral power it cannot restrict the
sale of items to Warsaw Pact states if those same
products are available to the West. The US arsenal at
Watervliet uses GFM equipment to produce barrels
for the M-60 and M-1 tanks. Undoubtedly, however,
it is the substantial export earnings generated by these
sales that appeals to Austria.
The United States is concerned about robotics in the
machine-tool sector and is working on controlling it
under COCOM.
firms know about, if not sponsor, diversions of
COCOM-controlled equipment to the Soviet Bloc.
More than 100 Austrian firms or entities (including
possible misidentifications and duplications) have
been tentatively identified by the Department of
Commerce, but almost none of these have been
approached by the US or Austrian authorities about
their activities. Austrian firms do not appear to be a
primary target of acquisition attempts-perhaps be-
cause they produce little indigenous high technology
of interest to the Soviet Bloc. Rather, Austrian firms
act mainly as procurers and freight forwarders for
equipment bought in other Western countries. Our
information also indicates that US equipment is
diverted more than any other. At least several com-
puters, a number of integrated circuits-including
microprocessors-several oscilloscopes, and several
pieces of US semiconductor manufacturing equip-
ment have reached the Soviet Bloc illegally through
Austria.
Diversions of Controlled COCOM Equipment. We do
not have a clear profile of the type of Austrian entities
that play a role in the diversion effort. It does not
appear that the management of major Austrian firms
or subsidiaries of Western firms are engaged in the
trade, although their employees may be. But we do
see the involvement of small businesses with low
capitalization and heavy participation by various trad-
ing firms. Austrian firms, more often than not, also
act with firms from other countries besides the coun-
try where the equipment was originally produced.
This obscures the original diverter in the process.
There is, however, ample evidence that some Austrian
Legal Sales of COCOM Equipment. Because of its
borders with Eastern Europe, Austria also is a major
conduit for legally licensed sales of COCOM-con-
trolled computer technology to the Soviet Bloc. Most
of these transfers involve sales of equipment through
subsidiaries of Western firms in Austria such as
Control Data, Burroughs Computer Systems, Digital
Equipment Corporation, Hewlett-Packard, IBM, and
Siemens. The largest markets are minicomputers and
software; we believe that much of this equipment has
been sold to the Soviets through Austrian marketing
representatives. Austria also serves as a major servic-
ing center for Eastern Europe; spare parts are stored
there, and technicians can be sent to the East to repair
equipment.
Transfers Through International Organizations. Be-
cause of Austria's neutrality and the promotion of
Vienna as an international center, Vienna has become
the headquarters of a number of international organi-
zations, including the Organization for Petroleum
Exporting Countries (OPEC), the United Nations
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International Development Organization (UNIDO),
the International Institute for Applied Systems Anal-
ysis (IIASA), the International Atomic Energy
Agency (IAEA), and the International Patent Docu-
mentation Center (INPADOC). Many of these orga-
nizations include among their members a wide variety
of international specialists who can be openly ap-
proached by their Soviet Bloc counterparts-some of
whom have intelligence credentials. Any exchanges
that might occur through oral or written communica-
tions-most of which are not controlled-offer an
additional method of technology transfer that may
supplement the flow of equipment to the Soviet Bloc.
The lack of resources or desire by the Austrians to
monitor these activities contributes to potential flows.
The best example of Soviet Bloc use of these organiza-
tions is their involvement with IIASA.' IIASA is
funded by private US organizations, the USSR, and
15 other nations, including most East European coun-
tries. While participating in genuine scientific re-
search and systems analysis studies, the Soviets also
have used IIASA to acquire scientific and technical
data. Although it appears that the information ob-
tained by the Soviets is not controlled by COCOM,
some Soviet staff members have acquired proprietary
Western technical data without paying for it. The
Soviets also have had access to leading Western
scientists through IIASA and to Western firms that
also participate in the Institute's work, such as Sie-
mens, IBM, Shell, and Bechtel.
We believe that, in their work at IIASA with comput-
ers, the Soviets have derived considerable benefits.
IIASA provides access to Western scientific data
bases through the Euronet, Tymnet, Telenet, and
European Space Agency Computer networks. More
importantly, however, they probably have gained
hands-on experience with the large Western comput-
ers, that are not available in the Soviet Bloc, through
various timesharing arrangements. In addition, the
Soviets have access to a CRAY-I computer in the UK
through the Euronet system. Such access permits
high-speed running of large-scale modeling efforts.
Although the Soviets claim that the CRAY-I is being
used for climate modeling, we cannot rule out possible
military applications. The experience working with
large-scale computers and the attendant software has
almost certainly helped Soviet Bloc scientists at
IIASA.
Although the Soviet Bloc has excellent access to data
banks through IIASA, some of the same data-bank
functions of IIASA are also available to them else-
where. For example, the Soviets have access to the
Lockheed "Dialog" data base through IIASA, but
because Lockheed has more than 19,000 subscribers
in 60 countries for the "Dialog" system, the Soviets
probably could gain access to the system some other
way. Additionally, through numerous other outlets in
Europe, including their own firms in Belgium and 25X1
Finland, the Soviets are able to access other data
bases available through IIASA.
The concerns with IIASA have not centered on
hardware transfers, but there have been two possible
equipment transfers. A computer model may have 25X1
been transferred through IIASA several years ago.
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Transfers of Equipment and Technology That Is Not
Controlled. By far the greatest number of transfers of
equipment and technology to the Soviet Bloc has been
through normal trade channels. Austria has sold
licenses to Soviet Bloc nations to build rail welding
machines, a steelworks, a metallurgical combine, and
a turnkey plant for hydrocracking, and it plays a role
in supplying pipe and other equipment for pipeline
construction in the Soviet Union. The Austrians also
have helped in rolling stock and in engine technology.
Austrian Cooperation: Problems and Prospects
Austrian officials claim the State Treaty and the
Neutrality Act prevents them from stemming the flow
of technology eastward. However, the State Treaty
merely "prohibits (Austria) from promoting a political
or economic union with Germany," and the Neutral-
ity Act states that "Austria will never in the future
accede to any military alliances nor permit the estab-
lishment of military bases of foreign states on her
territory." While both of these provisions prohibit
Austria from joining organizations such as NATO,
the provisions do not prohibit Austria from entering
into bilateral arrangements with any country except
West Germany. For example, Austria and the United
States agreed to a comprehensive General Security of
Military Information Agreement in December 1982,
provided it is simply not transiting the country.
which will be signed shortly. The agreement permits
on-site security surveys of representative military and
industrial facilities. Domestic legislation also does not
preclude Austria from protecting foreign technology,
rotary forges.
Economic and Political Considerations. As a small
country with limited export potential, Austria can be
expected to guard its markets closely. As a result,
Austrian officials believe that they cannot prevent the
sale of equipment, including arms or technology made
in Austria, especially if it will affect jobs at home.
Many of their firms are small and heavily dependent
upon Eastern markets. Austrian officials fear that
restrictions may jeopardize access to these markets;
these same firms are among the financially most
troubled in the country. For example, in 1981 Voest-
Alpine lost nearly $175 million. Economic consider-
ations also weigh heavily in the continued sales of the
Media scrutiny of technology transfers and Austria's
ambitious credit policy with the East has grown
considerably over the last few months. The Austrian
press has been generally critical of the US position, at
times ascribing domestic political motives. This could
force the Austrian Government to defend Austrian
interests and sovereignty. On the other hand, the
Austrian public remains overwhelmingly pro-West,
and the Austrian Government appears eager to re-
solve the matter quickly. This may be why the
Austrians have not raised the issue recently, claiming
instead that there are no outstanding issues with the
United States. The visit by State Secretary Lacina to
arrange the technology transfer agreement with the
United States underscores this point.
Prospects. Given neutrality, economic, and other con-
siderations, we doubt that the Austrians will agree to
limit the sales of their own technology to the Soviet
Bloc. They have cited this frequently, most recently
during State Secretary Lacina's visits. This aspect of
the problem will increase as Austrian firms increas-
ingly expand their manufacturing capabilities into the
COCOM-controlled areas of equipment. They also
are unlikely to restrict the activities of international
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organizations in Vienna, a position that enjoys popu-
lar support. There also is little Austria can do to curb
intelligence activities of the Bloc, unless they curb
activities of Western services as well. Action against
either is rather unlikely because most intelligence
activities in Austria appear to be directed at countries
other than Austria.
The recent agreement between Austria and the
United States should lead to a better monitoring of
legal sales of US technology and equipment to Austri-
an firms, but it will not curb the illegal sales of US
and other foreign equipment diverted through Aus-
tria. A limiting factor for Austria is their ability to
finance and to staff any enforcement effort. Most of
the diversions of COCOM-controlled equipment in-
volve equipment that was shipped illegally to Austria.
Consequently, the receiving Austrian firm in the
diversion route most likely has no document indicat-
ing that the firm is legally bound to protect the
equipment from transfer to the Soviet Bloc. If the
equipment were of US origin, Austrian officials might
even offer the argument that diversions actually are
caused by US firms trying to circumvent the US
embargo.
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