ECONOMIC PENETRATION BY THE SINO-SOVIET BLOC: NOTES ON THE ORGANIZATION OF INTELLIGENCE SUPPORT FOR A COORDINATED U.S. PROGRAM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP62-00328A000100510092-9
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 9
• Document Creation Date: December 9, 2016
• Document Release Date: July 11, 2000
• Sequence Number: 92
• Publication Date: November 30, 1955
• Content Type: NOTES

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30 November 1955
ECONOMIC PENETRATION BY THE SINO-SOVIET BLOC
NOTES ON THE ORGANIZATION OF INTELLIGENCE
SUPPORT FOR A COORDINATED S. PROGRAM
I, Bac round
A. For the past several years, the Bloc has been assiduously
promotin its economic relations with certain non-COCOM areas, partly
(perhaps) for commercial reasons but primarily as a means of gaining
political and economic influence, or as an entering wedge for espionage
and subversion, This phenomenon has come to be known as "economic
penetration", As used in the EDAC structures the term "economic
penetration" refers specifically, though not exclusively, to transfers
on favorable terms (usually long-term credit or barter) of capital
equipment (including military equipment) to underdeveloped free-world
countries. It also.. includes trade missions, trade fairs and exhibiticts
visits of technical personnel,, trade manipulation and the like, (See
Dodge Council Staff Study No. 12; cf. Minutes of 3 May 1955 Meeting
of EDAC Working Group V.)
B. The United States Government is now moving rapidly toward a
program which will entail the systematic determination and inter-
national negotiation of measures as necessary and appropriate to
prevent or combat Bloc economic penetration of free-world countries.
Adequate intelligence support of such a.program would require several
broad types of data and analysis. It,w ould also require continuing
coordination of intelligence production and substantive liaison
between intelligence and action elements,
IIo Problem
What are the assigned responsibilities and capabilities of the
various U.S. government agencies and components for the intelligence
support of such a program? What inter-agency groups exist or should
be created for the coordination of action and intelligence support?
In particular, what roles should be played by EDIC and RR/D/E?
(Covert activities and collection, both overt and covert, are
beyond the scope of this memorandum,)
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III. Conclusions
A. Within the United States Government, economic penetration
by the Bloc is a matter of major economic defense concern.
Therefore:
a) It is an EDAC matter.
b) Responsibility for the planning, inter-agency coordination
and review of intelligence support should be assumed by ERIC.
c) Within CIA, the intelligence coordination function should
be performed by D/E, which already has the responsibility, the
experience and the necessary channels (including those with 00 and
the DD/P organization).
B. Adequate intelligence support of a major U.S..effort to
counter economic penetration would exceed the present Lion
of any single department or agency. The principal contributors
would probably be: State (OIR, ECD and the geographic desks concerned),
ICA (MDAC and RSR), Commerce (BFC) and CIA (ORR, OCI, OSI, ONE).
Within ORR the principal contributors would probably be D/S and D/E,
(Dft would be an important consumer).
Co The 1/ST materials in D/ (on free-world traders and
institutions as well as suspect transactions and procurement attempts)
would be an invaluable and unique contribution. The E/ST collation
system, facilities,--and reference service (also unique) are-welI
adapted to the requirements of such a program. For these reasons,
E/ST alone is capable of maintaining the necessary surveillance
of specific East-West economic transactions and the traders,
institutions and techniques involved. In addition, E/C could
contribute expertise and judgment in relating Bloc trade capabilities
and plans to the specific vulnerabilities of free-world countries
(areas of penetration), and in evaluating the significance of
specific Bloc exports.
D. An adequate inter-agency mechanism for carrying out such
a program would include:
model.
a) A. surveillance and action group under EDAC, on the DCN
b) An FDIC subcommittee,
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IV. Policy Directives and Recommendations
A. The 1953 national policy directive, which established present
economic defense policies, viewed the problem from the.free-world
side and described it as "decreasing reliance" or "excessive
dependence". One of its stated "general objectives" is: "To decrease
the reliance of free world countries an trade with the Soviet blocs"
Other provisions describe how this objective can be accomplished,,
notably by encouraging trade within the free world and developing
alternative markets and sources of supply. The directive also spells
out the risks arising from excessive economic dependence on the Blocs
that the Bloc will be better able, first to procure strategic commodities
and services, and, secondly, to influence the policies and economies
of free world countries?
B. The recommendations made by the CFEP Steering Group in mid-1955
repeated, almost word for word, the national policy provisions described
above, and added the followings
"32. a. Give careful attention to attempted Soviet
bloc penetration of less developed countries
through trade and development and technical
assistance offers, assuming initially that
the then existing U.S. foreign economic
policies and assistance programs will serve
adequately as the general answers or counter-
weight to Soviet bloc economic penetration
moves, but being prepared to take such
additional action as the particular situation,
examined in the complete context of total
U.S. foreign relations and programs, is then
deemed to require.
b.
Insure that U.S. foreign economic policies
and programs take appropriate account of the
desirability of reducing so far as practicable
the scope for successful Soviet bloc economic
penetration,
Attempt to make the peoples and governments
of less developed countries aware of the
existence, nature and purpose of U0S. assistance,
and discreetly employ suitable opportunities
to advise such governments to keep alert to
inappropriate activities or undisclosed designs
for which Soviet bloc development assistance
projects might be a mask."
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0. Insofar as they went beyond the national policy directive,
the CFEP Steering Group recommendations were derived from Staff
Study No. 12, which had been produced several months earlier by
EDAC Working Group V. This Staff Study, though it dodges some
basic questions (especially with regard to a suitable U.S- program
and its implementation), was carefully considered and fully coordinated.
It assumes "initially" that existing US. foreign economic policies
and assistance programs "serve as the general answers or counterweight
to Soviet Bloc economic penetration moves". It then says: *The U0S.
Government will wish to give careful consideration internally to
every Soviet Bloc offer of economic development assistance to under-
developed countries". This statement is later repeated as a
recommendation. As to the need for intelligence support, the Staff
Study recommends that the United States try to anticipate Soviet
economic penetration moves and adapt its countermeasures to "the
special and differing circumstances in each country which. the Soviet
Bloc seeks to penetrate"; and further says that psychological warfare
countermeasures, though "beyond the ken of the working group","may
merit some consideration".
V. Administrative Histoi
A. Arrangements any Pro Asals
The history of pertinent arrangements and proposals within the
U.S0 Government relating to Bloc economic penetration can be briefly
summarized.
1. IWG Case No. 56, established on 16 September 1953, was a
proposal for a study of Soviet economic penetration. It included an
attachment, provided by MDAC, listing a number of specific questions
which such a study should undertake to answer. The IWG producing
agencies disagreed on the scope, importance and necessity of the
proposed study; no action was taken; and the case was closed.
2. Beginning with the Indian steel-mill case in late 19548
EDAC Working Group V (at Executive Committee request) reviewed
several specific major instances of Bloc economic penetration.
(Its terms 'of reference contained a catch-all provision for "economic
defense matters which have not been specifically assigned to any
other EDAC Working Group and which lie outside the immediate scope
of the Battle Act"). In 1955, it produced two papers on the subject,
one for the 0CB ("Economic Penetration of Asian Countries by the
Soviet Bloc") and a later one for the CFEP (Staff Study No. 12).
It also considered the subject at a meeting in August and another
in September,
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3. In mid-1955, a special staff was established within
D/3/TF for the study of Bloc economic penetration. The work of
this staff is continuing, and to date includes one paper.
4. In November, 1955, the terms of reference of Working
Group III (the successor to Working Group V) in the new EDAC
structure were revised by the EDAC Executive Committee so as to
include responsibility for planning economic defense counter-
measures to Bloc economic penetration,
B. Related Activities
1. On 16 January 1953 the EDAC Steering Group (now Executive
Committee) established a working group on "decreasing reliance".
This working group submitted its formidable report (ED/EC D.27)
and simultaneously went out of existence on 29 July 19530,
2. IWG/CI-2 of 3 March 1953, prepared in response to a request
of the EDAC Steering Group (now Executive Committee), recommended
that CIA designate or establish a unit "to process current East-
West trade intelligence". By memorandum of 16 March 1953, the AD/RR
approved and directed the establishment of such a unit (D/E/ST).
The IWG had recommended that this unit perform the function, among
others, of East-West trade analysis, "showing the flow of specific
commodities, the use of particular transshipment points, and the
techniques of procurement employed". Trade analysis of this type
.would have been a very useful contribution to the study of Bloc
economic penetration. Because of personnel limitations, however,
...D/E has never been able to carry out this Ik'G recommendation except
in a limited and sporadic way?
3. At the request of the EDAC Steering Group (now Executive
Committee), the IM (now EDIC) on April 23, 1953 established a
Subgroun on External Financial Operations of the Soviet Bloc (IWG
.Case 44). The final report of this subgroup (IWG/R?-16, dated
11 March 1954),though rough and in some respects incomplete,,
contains a detailed analytical outline which could well serve as
a guide for further studiee?on the financial aspects of economic
penetration.
4. In March 1954, the EDAC Executive Committee approved a
program for the study of "Soviet Bloc Trade Trends and Tactics",
under which several papers were prepared for submission to COCOM
including "The Soviet Bloc Trade Offensive in Latin America
(ED;'EC D-56/2, dated 26 May 1954).
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5. On 17 May 1955, EDIC established a Case on Bloc
exports of capital equipment and industrial materials. Under
this Case, a study has been made of Bloc exports of machinery
and transport equipment (Supplement 1 to EDIC/Ilk 13, dated
22 August 1955), and other such studies are planned.
6. From time to time, usually on request, OIR has produced
a large number of regional studies on underdeveloped free-world
areas, treating the subject of economic penetration with varying
degrees of fulness and specificity. On several occasions, it has
also compiled related materials (notably on trade agreements and
comitments) for the use of action agencies.
7. FOA (including MDAC) has dealt extensively with the
subject in the Fourth and (especially) Sixth Battle Act Reports
and in the Second Quarterly Report of FOA for 1955.
$. Keen interest in the subject has been expressed by a
number of Congressional committees and subcommittees, chiefly
the Joint Subcommittee on Foreign Economic Policy and the Senate
Subcommittee on Technical Assistance Programs. In 1955, the
latter issued a Staff Study on Soviet Technical Assistance in
Non-Communist Asia.
C4 Current Research
1. As of mid-November 1955, OIR was bringing IR 6880 up'to
date at the request of MAC Working 'Group V (now tiorking Group III),,
It has also been requested by the same working group (on:September 29,
1955) to bring up to date its numerous earlier studies of economic
penetration in Asia and Latin America.
2, In late November, 1955, OIR and ICA/MDAC.xeremai ng an
?,extensive compilation. on.a..crash basis, of materials relating to
trade agreements and trade between the Bloc and tanderdeveloped
free-world areas (chiefly or exclusively in Asia). Simultaneously,
the E Area of ORR was working on a similar (perhaps identical)
request from the same requester (the Director of ICA).
3. Current research being done by the special staff in
S/TF hats not been ascertained?
4 No other major intelligence research on this subject
has been found to be in progress within the United States Movernment.
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VI. DIE Responsibilities and Capabilities
A. Coordination
D/E has been assigned, and performs, the function of coordinating
within CIA the production of all intelligence required for the support
of economic defense policies and programs. Since the economic defense
community bears a major responsibility with respect to Bloc economic
penetration, the coordination of Agency intelligence support on this
subject is a D/E function.
This type of coordination includes inter-office and inter-agency
coordination, CIA representation on inter-agency working groups and
committees for economic defense, and liaison between requesters
and CIA producting elements. It also involves the following activities:
to The provision of guidance on economic defense production
requirements,, When D/E receives a request for economic defense
intelligence support, or develops one on its own initiative, it must
review the request for "reasonableness and validity" and revise it
accordingly; must summarize previous intelligence on the same or
closely related subjects; and must explain and justify the request
to the producer(s), Apart from such individual requests, it mist
also keep the producers informed of pertinent economic defense
activities, and help them to plan research for economic defense
support?
2. The provision of working coordination ? i.e., "bird-dogging"
production in. various ways, such as helping to determine what
additional research is required, if any, helping to set and keep
deadlines, suggesting and helping to evaluate source materials,
methodology, etc,,
3. The review of support papers with respect to economic
defense significance and adequacy to meet the specific request and
general economic defense needs,
4 Combining (incorporating, reconciling, adapting, etc.)
contributions received from various producers.
5. Presentation in the most useful form for economic defense
purposes,
6, Sanitizing the product, and getting approval to release
it for the required use?
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B. Production
With respect to intelligence production, the chief D/E
contribution would be based upon E/SP materials (on free-world
traders and institutions as well as suspect procurement efforts
and transactions in East-West trade),- These materials are not
duplicated elsewhere. They would be essential in analyzing the
patterns and methods of Bloc procurement and the direction and
character of efforts by the Bloc to expand its economic influence
in the free worlds The E/ST collation system and facilities,
which are also unique, would be extremely useful, especially for
the development of data on financial transactions,
With these and other intelligence materials (especially
intelligence on supply positions and on the size composition trends of East-West trade), D/E could also erial and
in relating Bloc trade capabilities and plansvto the specifics assistance
vulnerabilities of free-world countries and in evaluating the
net adfantage of individual transactions and trade agreements
proposed or effected between Bloc and free world countries and
the significance to the Bloc of specific exports, In performing
its assigned function of coordination, D/E would combine these
materials with intelligence produced by product for economic defense significance, andttoepreese t itein the
form most useful to the other EDAC agencies?
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Selected Bibliography
A Program to Reduce Free World Reliance on Trade with the Soviet
Blocs ED EC Do2?, July 29, 1953 SECRET . First in dater, size,
scope and insight. Two years in preparation. Primarily
concerned with Western Europe, but includes data on non-European
areas now in the limelight. Formidable reading, Valuable for
treatment of concepts and definitions.
The Soviet Bloc Trade Offensive in Latin America. ED/EC D-56/2,,
May 261954 CONFIDENTIAL Packaged for COCO:. Rather
disappointing.
Recent Developments in Soviet Bloc Trade with South Asia.
IR 29, September 10, 1954 (SECRET). Especially comprehensive.
Recent Sinn-Soviet Economic Efforts to Penetrate Non Comm t
Asia. IR 80, April 5s 1955 CONFIDENTIAL . The most recent
and the best of a number of OIR Reports ou this subject.
Economic Penetration of Underdeveloped A ryas b the Communist
Bloc. CFEP Staff Study No. 12, June 1, 1955 CONFIDENTIAL.
Thorough, but non-committal on some vital questions (especially
those relating to a suitable US program and its implementation).
Recent Soviet Economic Activities in the Free :;orld. ICA/ECD,
July 11, 1955 (SECRET),, A factual survey, effectively
superseded.by IP-412 (below). Detailed but frequently in error.
Si.no-Soviet Bloc orts of Machinery and Transport Equipment to
the Free World. Supplement 1 to EDIC ID=a3, August 22 1955.
CONFIDENTIAL . Interesting but not sufficiently complete or
detailed. Interpretation very inadequate. See also,. EDIC/ID?13.
April 27, 1955 and FDIC Case 10, May 1?, 19550
Special Survey of Select Soviet Bloc Economic Activities in Certain
Free World Countries. CIA RR IP?412, September 22 1955 (SECRET .
A useful factual surrey. Short on analysis and interpretation.
1955 (UNCLASSIFIED). A good unclassified account. Detail d and
generally accurate.
Technical Assistance in
Non-Communist Asia. Staff Study No. 3,
Senate Subcommittee on Technical Assistance Programs, June 10,
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