(UNTITLED)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R000900540001-5
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 11
• Document Creation Date: January 12, 2017
• Document Release Date: November 10, 2010
• Sequence Number: 1
• Publication Date: May 24, 1983
• Content Type: MEMO

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The attached memorandum-was requested
by Gordon Streep, Deputy Assistant to the
Undersecretary of State for International
Organization Affairs, for use during the
UNCTAD VI meetings in earl June. The
memorandum was prepared by
Trade Branch/Soviet Economy Division, and
transmitted to State through OGI/ECD/TW
,'with other materials for the UNCTAD meetings.
JOHN A. MO GOM RY
Chief
Trade Branch
Soviet Economy Division
Office of Soviet Analysis
Date 31 May 19 8 3
FORM
5-75 101 EDITIONS IOUS
Distribution: SOV M 83-10095
Original & 1 - Addressee
1 -
SOVA/SE/D
1 - D/SOVA
1 -
SOYA/PS
1 - DD/S OVA
1 -
S OVA/E S
1 - DC/PES
1 -
SOVA/CS/D
1 - DDI Action Staff 1 -
SOVA/DI/D
1 - ED/DCI 1 -
SOVA/EA/D
1 -
SOYA/PA/D
1 - NIO/Economics
1 -
SOVA/TF/D
1 - NIO/USSR-EE
1 -
SOYA/SF/D
1 - NIO-at-Large
1 -
SOVA/SE/T
1 - SA/IA/DCI
5 -
CPAS/IMC/CB
SOVA/SE/T
(31
May 83)
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Canral htdllgnoe Ag n
24 May 1983
UNCTAD Report on Socialist Trade: A Critique
r
The Offices of Soviet and European Analysis have reviewed
the February UNCTAD VI report entitled "Trade Relations Among
Countries Having Different Economic and Social Systems and All
Trade Flows Resulting Therefrom". The paper, which was prepared
by a Soviet official on the staff of the UNCTAD Secretariat, is
little more than a restatement of standard Soviet rhetoric on the
subject. Our main concern is that the report overstates the
significance of the Soviet Union and Eastern Europe in
international trade, especially with regard to economic relations
with the Less Developed Countries. This memorandum highlights
areas where 1) analytically weak arguments occur and 2) Soviet
and East Eurg can trade relations could be given a more balanced
perspective.
Soviet Foreign Trade Activity
Although the UNCTAD report makes no reference to the links
between foreign trade and the domestic economy, the foreign trade
sector has traditionally been viewed by Soviet economic planners
as a residual element in the domestic economy. The level and
composition of imports are determined by internal requirements
needed to meet economic goals that cannot be filled from domestic
production. Exports in turn are driven primarily by the need to
earn foreign exchange to pay for imports. During the 1970s,
Soviet planners looked increasingly to trade with non-Socialist
countries to improve industrial productivity and to offset
domestic shortfalls in agriculture and the steel industry.
Consequently, trade with the non-Socialist countries did indeed
grow rapidly during the 1970s, with imports and exports each
rising from $4 billion in 1970 to $36 billion in 1981.
This memorandum was prepared byl (Soviet Trade
Branch, Office of Soviet Analysis with a contribution from the
Office of European Analysis. Any comments should be addressed to
Chief of the Soviet Economy Division
SOV M 83-10095
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Institutional Arrangements
Many of the developments that are praised in the UNCTAD
report (establishment of mixed companies, participation in joint
ventures, and use of compensation and industrial cooperation
agreements) as reflecting qualitative changes in East-West trade
are really only institutional adjustments to permit the general
expansion of Soviet trade. These practices are rather narrowly
focused on marketing Soviet products and services. Moreover,
many of these activities are common trade practices among firms
The report also emphasizes the key role played by long term
trade and economic cooperation agreements in expanding trade with
non-Socialist countries. While these types of agreements
undoubtedly serve a useful political purpose, they carry little
economic weight. In economic terms, most of these agreements are
nonbinding and serve more to outline the signatories' desire to
expand trade relations and to suggest potential areas for
expansion than to plan actual trade flows. Moscow also puts
stock in such long term arrangements because they help Soviet
planners in establishing a framework from which annual and long-
term plans can be developed. These kinds of agreements have
little if any practical value for market economies where national
planning is not emphasized, although for some LDCs which engage
in national planning, cooperation agreements may be helpful. In
any event, a ,large expansion of trade among non-Socialist
countries has occurred without such a profusion of general
agreements.
Trade Trends
Trade with the Developed West has been more important to the
Soviet Union than to its Western partners, a point which is
ignored by the Soviet author. Although basically self-
sufficient, the USSR does rely on imports, especially from the
West, to relieve critical shortages, spur technological progress,
and generally improve Soviet economic performance. On the other
hand, the "anti-cyclical and stabilizing macro-economic impact"
of East-West trade on the developed countries, referred to in the
UNCTAD study, has been small. Trade with the Socialist countries
accounts for less than 5 percent of total OECD trade, and trade
with the USSR accounts for less than 2 percent. Moreover, the
share of OECD exports going to Communist countries has declined
since 1975. Similarly, trade with the Soviet Union has not
played an important role in the trade and economies of most LDCs,
with the exception of a few countries such as Afghanistan, India,
and Argentina.
The extent of Soviet economic relations with the LDCs has
also been exaggerated in the UNCTAD report. Soviet trade with
the LDCs has been concentrated on a select group of countries and
commodities which can provide the USSR with political, strategic,
and economic benefits. Moreover, the share of the non-Communist
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LDCs in total Soviet trade, as shown in table 3 of the UNCTAD
report, appears much larger than it actually is because the
author includes the Communist LDCs (Cuba, Vietnam, Laos,
Kampuchea, China, Mongolia, and North Korea) in his data on the
trade of developing countries. These countries are generally
defined by the Soviets as Socialist countries. In the context of
the report these countries, which account for 35 percent of tle
$18.5 billion cited in the report, should have been excluded.
The actual share of the non-Communist LDCs in Soviet trade is
small, only 15 percent of the total.
Soviet trade with the non-Communist LDCs remains confined to
relatively few countries, despite its rapid growth during the
1970s (see table 1). Although the Soviet Union in its official
trade statistics has reported trade with up to 67 developing
countries, more than 80 percent of this trade has been with no
more than 15 of these countries. Trade has become more
concentrated since the mid-1970s. Soviet exports during this
period to India and Iraq soared and by 1981, accounted for 37
percent of total exports to the LDCs. As a result of the rapidly
growing trade with India combined with sharp increases in
agricultural imports from Argentina, the share of these two
countries in Soviet imports from the LDCs rose to 50 percent in
1981. Except for the rising agricultural trade with South
America, Moscow has focused its trade expansion on the
strategically important countries in the Middle East, Southwest
Asia and North Africa.
Contrary to statements made in the UNCTAD study, the Soviet
market has not offered most LDCs the opportunity to develop non-
traditional exports (see table 2). Although Soviet imports more
than doubled between 1975 and 1981, most of the growth was a
consequence of rapidly rising imports of agricultural imports as
Moscow compensated for agricultural production shortfalls through
increased imports of grain, sugar, meat, and other commodities.
With the exception of some of Moscow's largest trading partners,
imports from individual LDCs are concentrated on one or two
commodities. Although the share of manufactured commodities,
including a small amount of machinery, in Soviet imports from the
LDCs is comparable with OECD trade with these countries,' these
imports come almost entirely from India, Syria, and Egypt.
1 Although the total trade number given in table 3 of the UNCTAD report is
consistent with data given in the Soviet Foreign Trade Handbook, the breakdown
into country groupings cannot be duplicated, especially on Soviet imports.
Even with the Communist LDCs included, the values given in the UNCTAD report
exceed Soviet import data by $1.3 billion in 1980 and $2.6 billion in 1981.
In contrast, the export data differ by only $188 million in 1980 and not at
all in 1981.
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Moscow in particular has not viewed the Newly Industrialized
Countries (NICs) as a potential source for a wide-range of
manufactured commodities, especially for machinery and consumer
goods. Although Soviet agreements to purchase manufactured
commodities from a portion of its export revenues, noted in the
UNCTAD report, have probably been fulfilled, their impact on the
overall level of such purchases has been minimal. Argentina and
Brazil are both unhappy with Soviet unwillingness to
significantly expand such purchases. (This attitude could
change, however, if the USSR decides to begin looking for
alternate sources of Western equipment as a result of the
deterioration of East-West relations and US-im osed restrictions
on the export of certain types of equipment.)
Economic and Military Links
Soviet export strategy to the non-Communist LDCs is designed
to ensure maximum gains to the USSR at the least cost. The
limited commodity structure of the trade also reflects Moscow's
inability to supply many of the wide-ranging commodities required
by the LDCs. Soviet exports are concentrated among those items
with few other available markets outside of the socialist camp.
Exports of machinery and transport equipment--for both the
military and civilian sectors of its LDC partners--account for as
much as 75 percent of total exports to the Third World.
(Military exports alone could account for as much as 65 percent
of the totals) Exports of raw materials--especially of fuels--
which are easily marketed in the Developed West are mainly
reserved for Moscow's most important LDC partners (see table
3)
The Soviet economic aid program is designed to partially
support Moscow's exports of machinery and equipment. While this
program is still considered to be an instrument for expanding
Soviet influence in the Third World, Soviet officials constantly
emphasize that economic aid projects should be mutually
advantageous. Thus the Soviets have been focusing on projects
and countries that promise the greatest returns, for example in
raw materials needed by the Soviet economy. This has meant a
growth of Soviet commercial ventures abroad and broader long-
range programs to dovetail with Moscow's economic plans. Unlike
most Western aid, Soviet economic aid is largely tied to the
exports of Soviet machinery and equipment. In addition, credits
extended in recent years have become less concessionary than
traditional development aid, which allows 12-year payments at
2.5- to 3-percent interest. Moscow has also increased its
participation in projects, such as the development of Iraqi oil
fields, which earn substantial amounts of hard currency through
the sale of Soviet machinery and technical services.
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High Aid Number?
The UNCTAD report states that net Soviet economic assistance
actually disbursed to developing countries between 1976 and 1980
equaled 30 billion rubles (about $44 billion). While we cannot
confirm such a high level of aid without more detailed
information about the composition of the estimates, we do believe
that they are overly generous. Information available to us
indicates that Soviet economic assistance to both Communist and
non-Communist developing countries in that period was in the 14-
17 billion ruble range ($20-25 billion) on a gross basis, which
would exclude Soviet receipts from interest payments and debt
repayment. We do not have a detailed estimate of the level of
debt servicing, but the net assistance figure estimates that only
a small part went to non-Communist LDCs over the period. Most of
this aid went to Cuba and Vietnam, partly in the form of price
The difference between the Soviet's stated net aid figure of
30 billion rubles and our net estimate of 14 billion rubles is
probably in part the cost of the services of academics and
technicians. Even though we believe that many of these costs are
repayable in hard currency on a current account basis, the
Soviets probably include them in their estimates because they
feel that they bear much of the cost of these services. The
services of these people could add an additional 3 billion rubles
($5 billion)-a year in aid, or 15 billion rubles ($21 billion)
over the five year period. We estimate that 40-45,000 Soviet
technicians were in Communist and non-Communist LDCs in 1981.
East European Role
The UNCTAD report makes virtually no distinction between the
USSR and East Europe even though in many respects trends in their
trade relations and trade policies differ substantially. As
relatively small economies, the East European countries are more
dependent on foreign trade than is the USSR. Moreover, during
the 1970s, many of the East European countries implemented even
more ambitious programs to improve domestic production through
imports from the Developed West than did the Soviet Union. Their
inability to transform imports from the West into export
performance has been in no small measure responsible for the
external financing problems that have surfaced in Eastern Europe
in recent years. Rather than analyzing the internal factors
responsible for poor export performance, the UNCTAD report puts a
greater emphasis on the negative impact of Western trade
restrictions on the development of the Socialist economies. As
in the USSR, the general East European response to recent
financial problems has been to cut imports, an action which
perhaps calls into question the statements in the UNCTAD report
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about the continuing expansion of trade. As with the USSR, this
point is missed by the author. The report also excludes trade
trends in 1982, a year of major trade adjustments.
The principal purpose of East European (like Soviet).
economic aid and credits is to promote exports of machinery and
equipment. The East Europeans also have actively marketed
military-related equipment and economic and military technical
services. Both the military and economic aid programs of the
East European countries complement the Soviet effort. The USSR,
without assuming formal control over its partners' programs,
strongly influences the selection of targets and the timing of
Optimistic' Prospects
The author of the UNCTAD study ends on a decidedly upbeat
note in the discussion of the prospects for further trade between
the Socialist and the non-Socialist countries. This optimistic
stance, however, seems unwarranted. Recent trends indicate that
the rate of growth in East-West trade relations will continue to
slow considerably from the pace achieved in the 1970s. In
particular, the windfall profits from rapidly rising oil prices
that allowed the USSR to expand non-Socialist trade in the 1970s
are unlikely to be repeated during the 1980s. With the expansion
of earnings from its major export item thus constrained, Moscow
will find it difficult to continue to expand imports. Foreign
exchange shortages of the past two years already have pushed the
USSR and Eastern Europe to reduce the volume of trade with the
rest of the world, primarily through absolute reductions in
imports. In the main, these trade cuts were self-imposed,
reflecting the need for external financial restraint rather than
political restriction.
The UNCTAD report also ignores the fact that Soviet planners
are anticipating slow growth in trade with the non-Socialist
countries during the 1981-85 period. Although the current five-
year plan does call for an annual average growth rate in foreign
trade of 4.1 percent, as stated in the UNCTAD report, much of
this expansion is expected to come from the USSR's Socialist
partners. According to a November 1981 statement by Baybakov,
the deputy chairman of the State Planning Committee, Soviet trade
with other socialist countries will grow by 5.5 percent per
annum. This implies a growth rate for trade with non-Socialist
countries of only 2.3 percent per year.
In any event, the UNCTAD report states that further
increases in Soviet and East European trade will depend on export
expansion and an improvement in commodity structure. Only
fleeting reference is made of the need to improve the quality of
their exports. We believe that the issue of quality of
manufactured exports will be a major stumbling block to any
substantial expansion of trade. For the most part, manufactured
goods are of poor quality and are non-competitive in Western
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markets. Our analysis indicates that non-energy exports for the
USSR will grow in real terms by only 1 to 2 percent per year
through 1990. Earnings from energy exports will be constrained
by slowly rising or perhaps even declining oil prices, domestic
production constraints, and the need to supply domestic and
socialist customers. Increases in natural gas exports beyond
those currently contracted for in connection with the Siberia-to-
Western Europe pipeline will depend on West European demand,
which is currently weak. Prospects for the expansion of East-
West trade are, therefore, far from rosy.
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Table 1
USSR:
Trade with Selected Less Developed Countries in 1981
(Million US $)
Exports
Imports
Communist LDCs
6,566
3,914
of which :
Cuba
3,829
2,853
Vietnam
1,007
232
Mongolia
1,094
346
North Korea
388
348
Laos
50
1
China
115
131
Kampuchea
83
3
Non-Communist LDCs'
11,525
10,630
of which:
India
1,479
1,854
Iraq
1,259
52
Argentina
43
3,297
Brazil
23
742
Iran
569
653
Afghanistan
471
440
Libya
264
502
Syria
387
350
Egypt
339
372
Algeria
157
117
Morocco
176
187
Ethiopia
189
28
Angola
149
11
Nigeria
218
27
Pakistan
106
67
Ghana
negl.
54
Malaysia
21
243
Philippines
1
218
Thailand
11
434
Ivory Coast
1
142
Residual3
4,938
209
1 OECD definition of non-Communist LDCs which includes: 1) all countries of Africa
except the Republic of South Africa; 2) all countries of East Asia except Bong K*Iig
and Japan; 3) all countries of Latin America except Cuba; and 4) all countries ilnl
the Middle East and South Asia, except Israel, Kampuchea, Laos, Vietnam and Turkep.
2 Imports from Iraq have fallen off sharply since the onset of the Iran-Iraq war in
1980 due to a cessation of oil deliveries. Imports peaked in 1978 at $603 milliob.
3 The difference between total reported exports to the developing countries and
Soviet reporting on exports to individual LDCs.
Source: Soviet foreign trade statistics.
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USSR: Imports from Non-Communist Less Developed Countries (f.o.b.)
(Millions T $)
1970
1975
1976
1977
1978
1979
1980
1 1
Total
1,225
4,076
3,618
3,920
3,995
4,702
7,507
10.450
of which
Agricultural products
883
2,366
2,054
2,124
1,942
2,322
4,573
6,665
Petroleum and petroleum
products
25
552
535
5381
7491
9251
8311
1,1031
Natural gas
22
253
234
2602
2652
1782
2542
269
Other raw matefials
28
140
108
144
180
195
206
226
Manufactured goods
209
550
492
534
523
577
897
1,208
of which
Textiles
113
332
299
349
314
343
488
$90
Machinery and equipment
3
26
27
32
62
65
65
121
Other
93
192
166
153
142
163
344
497
Other commodities
58
215
195
320
336
505
746
979
1 Estimated from Soviet imports of unspecified category 2 from Iraq, Libya and Iran (in
1981 only).
Iranian natural gas exports were estimated from the difference between total reported
Soviet imports from Iran and imports specified by type.
Source: Soviet foreign trade statistics
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USSR: Exports to Non-Communist Less Developed Countries (f.o.b.)
(Million} TS $ )
1970
1975
1976
1977
1978
1979
1980
81
1,976
4,550
4,878
7,121
8,267
9,186
10,096
11,525
Militaryl
1,048
2,521
2,942
4,810
5,860
6,126
6,176
7, 440
Civilian
928
2,029
1,936
2,311
2,407
3,060
3,920
4,085
of which
Machinery and equipment
529
884
979
1,133
1,349
1,574
1,617
1,481
Fuels
67
468
481
653
571
965
1,490
10689
Petroleum and petroleum
products
60
422
446
615
543
939
1,455
1,649
Ferrous metals
94
104
49
50
44
54
92
65
Chemicals
16
118
42
71
78
71
182
287
Wood and wood products
59
162
153
169
139
143
239
237
Agricultural commodities
94
115
75
74
72
95
114
.157
Consumer goods
36
86
87
96
97
105
96
98
Other
33
92
70
65
57
53
90
71
1 This item was estimated from the reported export residual in published Soviet/LDC trade
figures (i.e., the difference between Soviet reported exports to the LDCs and Soviet reporting
on exports to individual LDCs), unspecified exports to individual LDCs, and specific commodj ty
exports which are assumed to be entirely or partially for military use.
25X1
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