SIGNIFICANCE OF WESTERN EUROPEAN EXPORTS TO THE SOVIET BLOC

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78-01617A000300280001-4
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 48
• Document Creation Date: November 9, 2016
• Document Release Date: July 20, 1998
• Sequence Number: 1
• Publication Date: February 1, 1949
• Content Type: IM

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1617A000300280001-4
CEIY3 AL ITI'TM LIGEIRE AGENCY
1 February l94
ITIPELLIGEIICE NET iOBANDUi4 NO 127
SUB=Ts Significance of Western European Exports to the Soviet Bloc
1, Gorscrl Statist o
$a The problem of this paper is to estimate the political and
economic consequences to the Soviet bloc which could arise from the
denial of imports of selected items from Western countries.
The Soviet Union and its Satellites have already not nuwrous
obstacles in their quest for Western manufactures and raw materials,
It is assumed that by a united embargo they would be completely denied
certain industrial requirements, It is further assumed that U carport
controls on items in the I -A and 1 lists will be continged asd that
the Scandinavian countries, the UK, Switzerland, Western G rIn *r, and
the other countries of Western Europe will strictly adhere to the embargo,
g, Ib attempt has been made to assess the feasibility of aj lying
such an embargo,
S1, In this report the following are considered Soviet Satellites:
Finland, Poland,, Czechoslovakia, Hungary, Rumania, Bulgaria, Yugoslavia,
and Albania, The Soviet Zone of Germany is also included in th:a cate?-
gory, Austria is not included since It is subject to a pro-Western govern-
ment, and Soviet interference with this government so far has not been
decisive. Economically the country operates as a units with Soviet in-
fluence limited mainly to Soviet-controlled industrial and petroleum
interests, For all practical purposes, Finland must also be considered
a part of the Soviet bloc, even though the Soviet Union has thus far
not seen fit to make it a full-fledged satellites, The Kremlin can reduce
Finland to complete dependence whenever such a move is required by Soviet
policy. Yugoslavia, on the other hand, is becoming increasingly isolated
from the Soviet bloc because the Soviet Union cannot now afford to meet
Tito' a terms of political and economic equality,
Dociunent No. Oct
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2 C rove
enc usions.
a. Economic Cgnseauer e2'.
If the USSR and its Satellites are un&1e to procure certain
essential industrial requirem?nt; from Western Europe, economic develop-
ment in the Soviet orbit would be seriously retarded and production in
many lines would decline. Important segments of the industrial economy
eo7rid not meet their plan requirements in terns of physical units pro-
duced. Capital goods production, which is the foundation for the ex-
pansion of industrial potential for war, would be seriously impeded.
Industrial retrogression would be especial?.-y evident in the Satel-
lite states since the Soviet Union Iwo priority on essential machinery,
equipment, spare parts and industrial raw materials. A serious economic
decline in the Satellite states would offer an excuse for lioscow to tighten
its control further; however, despite such moves, the Satr'llite contribu-
tion to Soviet economic strength would be considerably less. Czechoslo-
vakia,, Finland, Hungary, Poland and the Soviet Zone of Germany would be
more seriously affected than the predominantly agricultural countries
of Albania, Bulgaria, Rumania, and Yugoslavia. The avowed Soviet policy
of accenting heavy industry and military production at the expense of
consumers goods would become more evident. Additional emphasis would be
directed toward production of machinery, equipment, industrial raw materials,
and armament, while consumer lines of production would befurtfior curtailed.
Agricultural production, however, would probably be satisfactory.
The dollar volume of West European exports to the Soviet bloc has
not been impressive in either the prewar or the postwar period. The types
of items', however, are such that they are of critical importance to the
industrialization of the entire eastern area. Without these exports from
the West many basic components of the Soviet orbit economy would suffers
Electrio Po}per
The primary shortage in the electric power industry throughout the
Soviet bloc is in electrical equipment such as steam turbines, water wheels,
large generators, boiler sheets and tubes, and, in spare parts for replace-
nents in existing installations.
The expansion of electric power has a leading priority in most of
the countries throughout the bloc. The expansion of many other industries
is predicated on the achievement of plans for electric power.
Petroleum.
Insufficient quantities of refinery and oil-well equipment with
which to meet the planner' production of high-grade refined products as -
stitutes the major difficulty of the oil industries of the USSR and Satellites,
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Shortages of dril:'.ing equipment and pipe will, hamper the expa :lion
of crude oil production and the continued shortage of catalytic cracking
equipment will have a serious effect on the supply of high-octane gasoline.
Shortages of petroleum will have a disadvantageous effect not only on the
military aspects of expansion (particularl - the Soviet air arm) but on many
industries as well.
Iron. Steel and Fg A11ove.
The Czechoslovak and Polish iron and steal industries are dependent
upon large imports of high-grade Swedish iron ore. Discontinuance of
delivery of swec?ish ore would result not only in a decrease in production
in the immediate future but also in the following two or three years until
blast furnaces could be converted to process exclusively the lower grade
Soviet bloc iron ore.
All the industrial Satellites are basing plans for the modernization
and expansion of existing facilities upon the procurement of steel producing
equipment from the US and the UK, without which iron and steel production
goals will not be attained,
Nor-Ferrous Tietals.
The shortage of tin in the Soviet bloc necessitates large imports
from outside sources. The airplane manufacturing and food packaging in-
dustries are especially dependent on this tin supply and any export re-
strictions by the West would reduce production.
The copper supply of the Soviet bloc is sufficient if the Yugoslav
supply is included.. E cclusion of Western and Yugoslav copper from the
Soviet bloc would have serious effect on numerous branches of Industry.
Although a lead embargo would hove immediate disadvantageous ef.'eats
in the Soviet bloc, intensification of efforts would be made to increase
domestic production in the long run. Yugoslavia could ease the. shortage
but apparently is unwilling to do so at present,
Chg.
The USSR and Satellites are short of certain chemical equipment,
such as glass-lined reactors, special valves, recording and control ap--
paratus,,many alloys for special uses' and vacuum and pressure pumps.
Without the importation of this equipment from the -lest, .So et chemical
production in many lines would become steadily less efficient until such
tine as the USSR has the technical knowledge and installs the industrial
capacity to supply the Soviet needs.
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Rubber.
The requirements of the Soviet bloc for natural rubber must be net
by imports from rubber producing areas. Repbrte purchases and deliveries
for 1948 are sufficient for at least one year without further imports', and
by conservation, present stocks night last substantially longer. Synthetic
rubber production in US"R and the Soviet Zone of Germany is large, suffi-
cient to supply- all present require- :opts of synthetic rubber. Additional
facilities are planned for Poland, Czechoslovakia, !Yugoslavia, and Bulgaria.
Production may bo delayed and decelerated by l cks of equipment and. spare parts.
Trananorttation
The Soviet orbit, with the exception of Yugoslavia, will attain its
railroad freight transportation plans regardless of an e'tbargo. The embargo
will, however, impair attempts to expand capacity. Failure to obtain rails,
track materials, electrification equipment, motor trucks and components,
steel ship plates and marine equipment will prevent realization of plans
for railroad construction, double-tracking, railroad electrification,
highway transport and ship building.
I.3achine Tools an Erecision Instruments.
Basically, the USSR is still a machine tool importer, even though
ter 3orarily satiated? i ' a glut of dia- ntled suppllet which have not been
adequately absorbed by the economy. The industry ;is backward in engineering
processes and machinery design and its production in over--simplified in ranwo
of size and types. Although Czechoslovakia produces quality machine tools,
quantity of production is low.
Quality and quantity of production of precision instruments in the
Soviet bloc is low. although some i-tprovement may be expected in time due
to availability of Gernan technical personnel and production resources in
the Soviet Zone of Germany.
Ant f ti ti~ n Be~.ringq.
Expansion of any industries within the. entire Soviet bloc would
be impossible if imports of antifriction bearings and producing equip-
ment are embargoed. Suer restrictions immediately affect the whole fiid
of industrial machinery and would have far-reaching effects on the military
and industrial potential of the USSR and Satellites.
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]i. Political Conseq epees.
(1) Goon .
(a) The political effect of economic dislocation and dis-
tress in the S#;.tellite area would be strongest in industrialized countries:
I .e.9 Finland, Czechoslovakia, Pol.and,? and Hungary. It would be some-
what weaker in the agricultural Balkan countries,
(b) Although political and social unrest might increase as
a result of a further lowering of the living standard, the Soviet-lacked
local governments would be able to prevent this unrest from getting out
of control. Purges would be initiated or continued; however, neither
dissatisfaction with living conditions nor opposition to the Coirliinist
regimes would result in defections similar to that of Tito. Consequently,
major political changes could not be expected.
(a) Soviet and ."satellite propaganda would try to evade
responsibility for the Kremlin2a inability or unwillingness to extend
assistance, and would make the US the scapegoat for economic distress.
(2) =cm
(a) Finlarnd. As one of the most anti-Co iriun .at elements
in Eastern Europe, the Finnish people would, at least temporarily,
recognize the motives for a Western embargo of, essential items to the
Soviet orbit. If this sympathetic view should become too articulate,
the Kremlin might bring about the overthrow of the present government
and impose a Communist regi ie upon Finland.
(b) Yugoslavia. This nation, which is no longer within
the Soviet orbit except for its ostensible support of the 1ESR in
foreign affairs, has been for some time subject to virtual economic
boycott of certain critical imports from the Soviet bloc. To out off
Western trade with Yugoslavia would tend to. worsen its predicament to
the extent that the stability of the Tito regime might eventually be
endangered and that it might be supplanted by a government subservient
to Moscow.
(c) East ggMM. Economic dislocation and deterioration
of prevailing conditions in East Germany would strengthen German
opposition to the USSR but would not impair Soviet control of this
region. On the other hand, continued economic distress would militate
against the success of a German puppet regime upon which the Soviet
authorities could rely.
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(3) Concluei__oa.
It is estimated that limiting trade with the non-Communist
world would put an additional burden upon the already strained Soviet
system of control. Economic distress in the Satellite countries would
prevent the development of that stability in Eastern f'urope thich is
a vital objective of Soviet policy. Since consolidation of the Soviet
bloc is based upon the integration of Satellite politics, oco c r, and
military strategy, the obstruction of any one, of these aspects would
affect the success of the others.
Consequently, it is believed that economic dislocation
in the Satellite area 'could considerably delay or impede Soviet
political and military plans for expansion.
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3, Economic and Political Obiect veg.
11. Economic Goals.
The primary economic goal of the USSR iq the development of its
economic potential for war. Within its own borders the Soviet Union
has furthered this objective by concentrating on heavy industry and
military production and by the geographical concentration of industry in
strategic areas. In the Satellite countries, the same objectives are
evident and are implemented through Soviet economic control and coordi-
nation of the various economies. Only Yugoslavia and Finland cannot
currently be considered as, members of this economic orbit, although
Finland's economy is strongly influenced by political ties with Moscow,
In the Satellite sphere, the long-range goal of the Kremlin is
complete economic integration of the Soviet bloc. The most recent
stop in this direction was the creation of the Council of Mutual Cconomic
P.ssistanoe in January of this year. This simply formalized measures
which had already been taken for coordinating these economies and pro-
vided a more effective mechanism for closer coordination and eventual
economic integration.
(1) Egow-mic Qoordiraation.
Since the conclusion of hostilities in Europe, the USSR has
actively pursued a plan of economic penetration and domination of the
Satellite countries and the occupied areas. This domination has been
achieved by various means, such as peace treaties, secret protocols,
bilateral trade, mutual assistance, economic collaboration pacts, and
general control of internal economic life through political tics, Thus,
the Soviet Goverment directly, or through the puppet Communist regimes,
has broad control of the major aspects of economic planning, production,
and distribution. To date, many of the agreements for coordinating
economic activity have not been sufficiently implemented to be of real
value, and no effective system for over-a1.l direction has been established,
However, there is considerable evidence to.indicate the extent of exist-
ing control,
(a) The Kremlin has, in several instances, either dictated
the outline of the economic plans of certain countries, or has at least
required that such plans be submitted for approval.
In Czechoslovakia the USSR has ordered a shift from
light industry, a leading source of foreign em:ohange before the war, to
heavy industry, the products of which are directed to the "oviet Union
or certain of the less industrialized Satellites. To assist in this
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program, in recembeer 194, Pbseow provided a 200 million dollar loan
in gold and hard currency to replenish Czechoalovalcia's depleted foreign
exchange balance. The important stipulation was that Czechoslovakia
procure sufficient machinery and Industrial raw materials to meet Soviet
demands for fabricated and semi-fabricated products.
In Rumania,, Czechoslovakia, and Hungary, there is evidence
that the Soviets have ordered military production for the strategic bene-
fit of the USSR. Expanded munitions output, construction of military
airfields, and the development of rail lines for strategic purposes are
outstanding examples of such production.
Tito recently complained that the Kremlin had planned
to give Yugoslavia the status of a '-'colonial," for the purpose of
supplying the orbit with certain industrial raw materials. Tito ob-
jected to this lbsoow plan, and his dissatisfaction was undoubtedly
one o* the main factors in the Cominform rift.
In addition to evidence by indirection that the Soviet
planners dominate the Satellite economies, there are statements and
actions of individual states which more directly confirm this position.
The belated withdrawal, on Soviet insistence of Poland, Czechoslovakia,
and Finland from the first l?lershiLU Plan discussions in Paris, and
Bulgaria's announcement of Kremlin approval of their new economic plan,,
are but a few of the n merous admissions of Soviet authority.
(b) In the former energy countries of Rtnmla and Hungary..
Soviet control is facilitated through the management of the jointly-
owned companies, involving the mast basic industries such as oil.., shipping,
aviation, banking, and chemicals; and through reparations. It is estimated
that substantial portions of the trade in these countries is accounted
for by reparations deliveries and products of the joint companies. In
Finland, the USSR also exercises control through reparation demands,
(c) The USSR is intensely interested in the joint industrial
developments within the area, as evidenced by the insistence on Polish-
Czechoslovakian economic cooperation in the creation of a "Second Ruhr"
in the Silesia-Morawska Ostrawa Basin, and in the joint use of the Oder
River and the Port of Stettin. It is reported that lbscow has under-
taken to supply Poland with steel mill equipment and other heavy machinery
for the Silesian Basin project. Similar projects are being worked out
between other countries,
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OF"- 4OWN01b tow
(d) I'itual economic assistance pacts and the military
protocols often appended thereto, are in existence among virtually all
of the orbit countries. These pacts provide for exchange of commodities
and technical assistance, division of production tasks, foreign exchange
credits, standardization of products, integration of armament industries,
and, in the event of war, pooling of military supplies, economic resources,
commwnications, and transport.
(e) Soviet supervisory and technical personnel are
present in the more strategic industries in the various Satellite countries,
Their presence, is reported in munitions and war material industries, such
as Skoda, in addition to joint enterprises where they would be expected.
In some instances, they are military personnel.
(f) At this stage, the Moscow domination of oollectivi-
zation of agriculture in the Satellites has been indirect and has manifested
itself primarily through (a) the promotion'of political leaders favoring
the program and demoting. those opposed, (b) the use of the Cominform to
propagandize the program, such as the 28 June 1948 blast against Tito
charging him with favoring the individual wealthy farmer class, and (c)
the use of the Commuunist,(i.e., Soviet) -controlled Satellite press to
publish articles glorifying the life oft the collective farms of the USISR.
(g) The Soviet Union has for some time been making a
vigorous and sustained effort to integrate inland traffic within the orbit
through agreements, joint ownership of transport companies, and direct
control over the transport facilities. The degree and type of Soviet
transport control varies in each country but iv greater in Bulgaria,
Czechoslovakia, Hungary, Poland, and Rumania, than in Yugoslavia and
Finland. Soviet Army officers are placed at all levels of administration
and operations on theliumgsrian railroads, Control by the Soviets in
Bulgaria and Czechoslovakia is facilitated by existence of organizations
for the overall coordination of transport. In Poland and Rumania,
ministries of communication appear to be the instruments of Soviet con-
trol, In addition, joint Soviet-Satellite companies have been established
for inland m terway transport in Hungary,. Yugoslavia, and Rumania., through
which control can be exercised by the Soviets. Since the Tito rift, Soviet
control has been relaxed over all transport in Yugoslavia except inland
waterways. In the case of Finland, the Soviets have only a transit agree-
ment,
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(h) The USSR, to a large extent, controls distribution
as veil as planning and production, In internal trade, there are many
instances where industries in which the USSR is primarily interested
are given priority in the allocation of raw materials,. equipment, and
labor. In bilateral trade between the Srtellite states, the USSR has
attempted to establish a higher degree of self-sufficiency through a
shift away from prewar dependence on 11eatern countries. The forced
alteration of the trade pattern in general has not been economic, in
the short run, and, despite this poi tear percentage decline in trade with
the West, over fifty percent of total trade is still with countries
outside the Soviet orbit,,
In addition to shifting the trade pattern between
Satellite countries, and between the Satellite states and the West,
the Soviets have employed foreign trade to exploit this area for
their own benefit. Not only has the Kremlin used reparations and -e
joint companies to drain these economies, but they have also largely
dictated the items to be exchanged and the terms of trade. Price fixing
on imports and exports has been a particularly useful instrument in
this respect, Control over gold movements and hard currency holdings
has given further leverage to the Kremlin.
The USSR not only benefits from production within
the Soviet domain, but also often gains from Satellite trade with
the Vest, either through re-exports to the USSR or through Satellite
procurement of raw materials which are fabricated for export to the
Soviet Union,
(i) The existence of dictatorial governmental powers has
enabled the Soviet Union, since its inception, to maintain a strong
grip on the economic life of the countryl Based on periodic planning,
the principal feature of the Soviet economic structure, various economic
-ministries are assigned specific tasks and goals by the State Planning
Connlssion. This planning body, together with the 141nistry of Finance
which controls the highly centralized banking system, currency, and,
credit, wleldt tremendous power over Soviet economic production.
The introduction of the Soviet pattern of economic
organization into the Satellite areas is clearly evidenced through
a series of measures adopted by the latter. These measures have affect-
ed every aspect of economic activity of the Satellites. The ownership
of industry, banks.. insurance companies, and trading companies, was
given to the states through'the process of nationalization. In addition,
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Economic Iftnistries and Industrial Centers (or their equivalent)
have be=-rn setup in many states to supervise planned production
in the factories.
The elimination of privately-owned banks and insurance
monies has placed the entire financial resources of these countries
at full disposal of the governmental agencies. The governments thus
exercise full control over the credit policies and coordinate financial
neaaurea with production planning, The control of budgetary expenditures
and revenues enables these nations to divert funds for sty purpose de-
sired, such as development of the war potential, without the knowledge
or acquiescence of the population. By elirdrating private trading eom-
panies, the governments have acquired a monopoly in foreign trade,, one
of the most important inatrumenta for regulating internal economic life.
Private trading in precious metals and foreign exchange is strictly
forbidden.
It must be amphasized that many of the aforementioned
measures for ooordi:tation of the Soviet and Satellite economies have
been more apparent than real, PJo over-all effective control has yet
been established, However, the framework and experience for eventual
economic integration is gradually being developed in the fields of
planning, production, distribution, foreign trade, and economic organi-
zation.
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(2) Economic Plans.
W
The Soviet fourth Five-Year Plan has as its primary objective
"the restoration and development of heavy industry and railway transport,
without which the rapid and effective recovery and development of the
entire national economy could be impossible."
The iron and steel industry, to a large extent, sets the pace
for the development of all industry. According to plan, in 1950 the smelt-
ing of iron and steel and the production of rolled goods is to exceed the
prewar level by 35 percent. Production of coal, petroleum and electric
power in 1950 is planned to be 43 percent above the prewar figures. By
1950, the machine-building industry is to have do 1 its output as com-
pared with the prewar effort. The production of synthetic rubber is to be
doubled.
On the other hand, per capita production of textiles, footwear,
and hosiery in 1950 is planned at an average level of only 23 percent over
the extremely low prewar level. In 1950, the per capita annual availability
of shoes and hosiery will be approximately 1.2 and 2.9 pair respectively,
if these plans are met.
The per capita production of grain (predominant in the Soviet
diet) in 1950, if the production plan is met, will be about seven percent
below the 1940 level.
Including grain with vegetable oils, sugar and fish, the average
per capita increase in production in 1950 as compared with 1940 in estimated
at only six percent,
Despite the huge amounts of machinery, equipments and raw
materials obtained as war booty, reparations or "imports" from Germany,
Austria, and Eastern European countries, the`1JSSR will require many imports.
191+0 and 1950 plan
1940
Adial
1950
percent Increase
over 1940
(in metric tons)
iron
15,000,000
19,500,000
3
Steel
18,,300,000
25,400,000
39%
Rolled ? tal
000
100
13
000
17,300
366
Coal
,
,
166,000,000
,
250?000,000
of
Petroleum
319000,000
35p400,000
Electric Power M050 billion 82 billion
64%
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Sam
Economic plans for the development and strengthening of the
various nations, controlled directly and indirectly by rk-scow, reflect
a high degree of uniformity in the broad objectives.
In all countries the accent on the development of heavy
industry will be at the expense of the economic level of the average
consumer.
In those countries where collectivization of agriculture is
to take place, the Government's control over the agricuultura, economy will
be at the expense of the farmers' standard of cell-being and freedom.
In the more industrially advanced countries, such as Czecho-
slovakia, Poland, and Hungary, the accent will be on the production of
finished and semi-finished products, including machinery, chemicals, trans-
portation equipment, and rolled steel. In the industrially backward
countries, such as Bulgaria,, Rumania, and Albania, the emphasis will be
on the extractive., metallurgical, and potter industries.
The role of foreign trade in Satellite plans is and win
continue to be, important to the attainment of these industrialization
goals; the composition of import requirements will strongly reflect the
emphasis on heavy industry.
The Bulgarian Five-Year Plan became effective on 1 January
1949. In this plan, greatest importance is attached to stpanded capacity
and production in coal, electric power, construction materials, metallurgical
goods, machinery, heavy chemicals and agricultural machinery. Light
industry is scheduled for relatively smaller gains, but is to be suf-
ficiently expanded to provide an exportable surplus. The over-all increase
in industrial volume for the five-year period is planned at 119 percent,
and heavy industry alone is to show a 320 percent rise. However., even
this impressive percentage advance will not give an industrial base to the
Bulgarian economy worthy of international note,
tinder the plan, foreign trade is to supply a part of the
industrial requirements for machinery and materials. Although light
industry is scheduled for relatively small gains, it will be sufficiently
expanded to provide an exportable surplus to offset imports of heavy
industry.
C c' ,osl,4y
The bill for the Czechoslovak Five-ear Plan went into effect
1 January 1949. Primary emphasis has been placed on the development of heavy
industry as opposed to light industry. The volume of industrial output is
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to increase by 57 percent, metal production by 93 percent, and the
heavynachinery industry output by 300 percent. Since Czechoslovakia
is already a highly industrialized country, the achievement of these
goals would add significantly to Soviet economic potential.
Prior to the war, light industry vas a leading source of
foreign exchange. This means that some substitute for the prewar
exports of light industry must be found. The foreign trade plan is
organically linked with the economic plan, and the ability to import
(particularly from the test) will have considerable hearing on the
attainment of industrial objectives.
,roan,
Finland has no economic plan similar to those of the USSR
or the Satellite countries. Industrial enterprise is based on forest
products, and leading industries are engaged.in the production of lumber,
pulp, and paper.
As early a s 1945, the gross value of Finland's total indus-
trial production exceeded that of 1938 by 50 percent v.ith the lumber and
wood-products industry exceeding the 1938 level by 42 percent, in terms
of gross value of products.
Finnish economy is strongly dependent upon foreign trade.
Current foreign trade is being influenced by needs of shipbuilding,
mechanical, electrical and wood-processing industries working for the
war reparation requirements. Only the surplus will be available for
export to other countries to obtain foreign exchange for'the payments
of imports to Finland.
Jaohinery, trucks, and other aids to production accounted
for a large part of Finland's imports. It is a cneeivable, therefore,
that a total embargo on exports to Finland might have some effect on
industrial production, at Finland's expense, however, rather than at
the expense of reparations to the USSR.
?oviot Zone - Germany
The Two-Year Plan of the Soviet Zone of Germany, adopted
30 June 1948, is almost completely unrealistic because it takes little
account of prevailing conditions in the Soviet Zone, particularly the
acute shortage of r vi materials. Virtually the only natural resources
of the area are extensive deposits of lignite (brown coal) and vast
reserves of potash.
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Overall production in 1950 is to increase 20 percent over
1948 to a level of 81 percent of that of 1936. Steel production in
1950 is to be more than four times that of the low level of 200,000
tons in 1948. Lignite output is to be raised to 123 million tons or
116 percent of 1947 output. Hor:ever, there is little prospect of.
significantly improving the economic status of the Soviet Zone unless
the. USSR reverses its present dismantling and reparations policies.
The labor force will be ample, but machinery and equipment will be
inadequate.
Even though there may be increases in the production of
consumer goods, the population will hardly benefit, since reparation
payments will probably absorb such increases. In agriculture, the
Zone is reasonably self-sufficient.
It is probable that a large proportion of increases in
production of commodities important to the USSR will result from an
increase in productivity of labor brought about through a system of
food incentives.
&i t
In 1946-47, Hungary prepared the Three-Year Plan for
recovery and development. Under its schedule, industry is to exceed
the 1938 production level by 27 percent in 1949-50. The largest in-
creases were to be registered in the production of machinery (68 per-
cent over 1938), electric power (42 percent), chemicals (40 percent)
and mning (38 percent). More specifically, annual coal output is to
reach 11.5 million metric tons, production of rolling stock and loco-
motives is to be 6,500 and 160 respectively; tractors are to be turned
out at the rate of 3,700 per annum, and electric poorer capacity is
scheduled to y1.old two billion M H annually. Steel output, by the
planning year 1948-49, should run about 800,000 metric tons annut?;lly.
As in the cases of Czechoslovakia and Poland, the success
of the plat hinges to a large degree on meeting the foreign trade goals.
'Machinery, industrial equipment, transportation equipment, lumber, iron
ore, coke, scrap metals, non-ferrous metals, ferro-alloys, cotton, and
wool are all marked for import.
Poland
although the output of consumer goods was stressed in the
first years of the current Four-Year Plan (1946-1949), capital goods and
the extractive industries have been receiving increasingly greater atten-
tion in each succeeding year. This pattern of production, accenting
heavy industry, is similar to the economic trend in the other Satellite
countries?
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Largest increases over the prewar level of production are
assigned to coal, coke, electric power, locaanotives, rolling stock,
agricultural equipment, and chemicals, Steel and metalworking machinery
are also marked for sizable advances. In general, the per capita pro-
duction of producers' goods should be 250 percent above the 1938 level.
As a partial indication of actual industrial strength,
Polish industry by 1949ziiould be producing 8 billion 41 of electric
power, 80 million metric tons of coal, 1.5 million metric tons of rolled
steel, 300 locomotives, 14,800 freight cars, 6,550 pieces of metal and
woodworking machinery, and 92,000 metric tons of sulphuric acid.
Considerable dependence is placed on the foreign trade
section of the plan which in the last year, 1949, is to provide sub,
stantial quantities of raw materials and investment goods through imports.
Foreign capital is presumed to make up 15 to 20 percent of the invcst.'met
total,
.
Rmania,
Rumania has prepared no long-range economic plan similar
to tole of the other Satellites. Immediate objectives have been announced
in a one.-Year Plan for 1949, with primary emphasis assigned to the develop-
ment of heavy and extractive industries. More specifically, this includes
significant increases in the production of crude oil, iron ore, cast iron,
processed metal products, agricultural machinery and implements, coal,
lumber, cement, caustic soda, sulphuric acid, lampblack, and cotton and
woolen textiles. Of these industries only petroleum has any real-inter-
national significance, and Rumania's industry in general is still in the
incipient stage of development.
The export-import program is an integral part of the plan
and the expansion of trade is essential to the attainment of the plan
objectives.
Yui*oslevia
At the inception of the Five-Year Plan in 1947, speeches
by Tito, iebrang (Chairman of the Federal Planning Commission), and
Kidric minister of Industry), all emphasized in the strongest terms
the contention: that the foundation of the Plan is increased production
for heavy industry, mining, electrification, and the rehabilitation
and new construction of communication and transport facilities.
These objectives were restated by Tito in a speech on
26 Iovember 1918, in spite of his admission cd difficulties arising
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.from the changed relations with his former allies. He said, "The main
target for the 1949 phase of the Plan will be capital construction in
basic heavy industries and housing fqr the rapidly increasing industrial
population." He strongly asserted that "local interests much not dis-
locate the general plan" and added "eft we have created the basic con-
ditions of our indt ialization.....then we will throw ourselves into
production of articles needed by 22 people."
Combined planned production of industry,' mining, and
electric power in 1951 is to be almost five times the 19391evel, with
industrial production at 64 percent of total production in 1951 as compared
with 45 percent in 1939. 'Of total industrial output the production of
capital goods in 1951 is to be 57 percent of the total while the production
of "consumption items" is to be 43 percent. This is an exact reversal of
the situation in 1939.
Strong efforts are being made to expand vitally-needed foreign
trade, particularly in view of the fact that the US6R has reduced the
volume of trade with Yugoslavia by seven-eightbs. Yugoslavia has recently
executed a 4120,000,000 short-term trade agreement with Great Britain,
with provision for negotiation of a long- term agreement. Yugoslavia is
also trying to expand trade with Switzerland,, Sweden, and the Letherlands.
,a significant item, under Belgrade date line of 23 January 1949, is the
reported shipment from Yugoslavia to the US of ;3,676,000 worth of non-
ferrous metals since 1 December 1948, an amount almost equal to similar
total,shipments in the year 1947.
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%W *10W
8 Political Gcials.
Orthodox Communist doctrine considers the capitalist system a
declining civilization, to be replaced by the "socialist" system, and
precludes the possibility of 'the enduring coexistence of the two.
Implicit in this doctrine is the unchangeable goal of Soviet foreign
policy: eventual domination of the nations of the world through uni-
versal acceptance of the Corim mist ideology as it is interpreted in
floecow. While the means by which this goal is to be attained will vary
from region to region, the Kremlin's basic policy In Europe is believed
to be the completo consolidation of Ecstern ruropo, including East Ger-
marny, as a bridgehead vital to Soviet security. This consolidation can
be achiever' only by suppressing nationalism in the area. The Cor_minform
was organized to achieve this along with political confomity. The
organization of an Economic Council formalizes economic coordination.
The possible future esta',liahnent of a Defense Council --. following the
conclusion of a T Torth Atlantic pact -- may well' coordinate the .Satellite
area militarily under Soviet Command.
Fir an where the Kremlin has not yet established political con-.
trol is as yet free of the degroe of integration achieved in other
Satellites, though the USSR may decide, at its leisure, when and how to
establish such control.
Yugoslavia, hiving once been a leading satellite, resisted the
Kremlin's exploitation and withdrew from the orbit, with the result that
initial measures for economic integration and military coordination were
intexrr upted. Since there is no chance for an Ir iediate return to the
Tkacovito crap, Yugoslavia will remain, for the time being, outside the
area of integrationp even though it has not relinquished its theoretical
opposition to Western "imper: ilism" o
East Germany is scheduled for eventual integration into the Soviet
orbit. The USSR must, therefore, attempt to break down German nationalism
and to develop reliable Communist elements for the assumption of control.
Communist political control is essential for any effective cooperation
between East Germany, Poland, and Czechoslovakia, particularly in the
field of economic planning.
It is believed that economic and military assignments to implement
Soviet plans. are given anywhere within the security-zone on the basis of
specific needs. With nationalistic rivalries, eliminated, Eastern Europe
will be organized as a unit, and the resources of the area - political,
economic, and strategic _- will be pooled and distributed under orders
from Moscow.
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*NORA Noe
4a Deoe n ence on Western Europe for Selected IteMR.
(1) Electric Po .
With the exception of the ISSR and Czechoslovakia.. no
country in the Soviet orbit appears to have facilities capable of producing
all its requirements of mechanical and electrical machinery for generating
electric power. To-meet these requirements, there must be access to (a)
foreign markets, which, for the principal items of electrical equipment
are virtually limited to Western Europe, the British Isles, the Scandinavian
countries, and the US; (b) reparations and requisitions; and (c) mutual
assistance within the orbit.
It appears that since the war, the USSR and Czechoslovakia
have not only restored but also somewhat augmented their electrical manu-
facturing industry and should, therefore, be in a position to render some
assistance to the Satellites. The amount of this assistance cannot now
tie accurately measureed, however, and it would be seriously affected by
restriction of imports from foreign markets, which are now important sources
of electrical equipment.
Finland, Poland, and Hungary have significant electrical
manufacturing industries, which, however, are not large enough to be of
material assistance to the other Satellites. The remaining countries-of
the orbit are largely dependent on outside sources for heavy mechanical
and electrical machinery and equipment.
The oft repeated objective of greater mechanization and
electrification of manufacturing processes cannot be attained without
adequate supplies of electric power. While old methods can still be-
relied upon, production goals, based on greatly increased use of electricity,
cannot be reached without its
The cumulative effect of an early total embargo of exports of
electrical machinery and equipment, such as steam turbines, water wheels,
large generators, and boiler sheets and tubes, would almost surely be
failure to reach industrial goals in all the orbit countries., with the
possible exception of the USSR itself. For example, assuming that the
USSR and Czechoslovakia can take care of themselves and render some assis-
tance to the Satellites } er present conditions, if needs now met from
sources outside the orbit were borne by the manufacturing facilities of
the USSR and Czechoslovakia, they could not meet the added requirements
and still realize their own industrial expansion plans.
A total embargo, aside from its immediate result--failure to
reach the planned industrial goals--would also have collateral effects
on transportation and agriculture in that it would slow up railroad and
rural electrification. Continued restrictions on electric power would
contribute to labor unrest and create considerable inconvenience, parti-
cularly in the larger urban centers. This could have a serious effect on
morale., particularly when accompanied by continuous pressure to meet
planned deadlines.
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$R has extensive manufacturing facilities for heavy 10
mechanical and electrical machinery capable of producing the largest
sized turbines, generators, transformers,. boilers, and boiler tubes.
Although the Soviet Five Year Plan envisages tremendous increases in
the installed capacity of electric stations (doubling the prewar plant
capacity by 1950), the progress to date has been brought close to the
goals by Soviet manufacturing ability plus reparations, requisitions,
and foreign purchases. The USSR is still buying from Western countries,
but electrical purchases from the US have fallen from 44 million in 1946
to $5j - million in 1948, probably as a result of US restrictions. The great
volume of new equipment required to meet the Plan for the Electric Industry
probably precludes much "leeway for foreign defaults or domestic deficiencies.
Ajk=jj is entirely dependent on imports for additions to its
electrical facilities and could be'of no assistance to other orbit countries.
However, curtailment of imports of such equipment would have little effect
on Albania's predominantly agricultural economy.
Maria depends largely on imports for additions to its
electric facilities. Present demand for electric power is far ahead of
supply, particularly in the Sofia area. Planned hydro development, already
behind schedule (30 percent of the goal), would be seriously affected by
an embargo.
C z choslovekia is probably the most nearly self-sufficient of
the Satellites, not only in the supply of electric power but also in its
ability, in the event of an embargo, to continue additions and replacements
to its plant capacity. Czechoslovakia is now exporting such items as large
steam turbo-generators, electrical measuring instruments., and switchboard
equipment. In 1948, a 25,000 Ki and a 45,000 XV steam turbo-generator were
shipped to Denmark by the Skoda Works. In July 191+8, exports of-Czech
electrical apparatus reached the highest point since prewar, and if the rate
for the first seven months of 1948 could be maintained for the rest of the
year, the 1948 exports should almost equal those for 1946 and 191+7 combined.
Czechoslovakia is, therefore, pre-eminent among the Satellites in the pro-
duction of electrical equipment.
In FLU19W, demand for electricity outstrips supply, and the
Finns are strenuously trying to add to their hydro plant resources. This
program would be seriously affected by an embargo because Finland is now
attempting to buy in all foreign markets, including tS, to supplement its
own manufacture. Electric power restrictions are now in effect, and the
paper and pulp industries, backbone of the Finnish economy, are being retarded
by the shortage. Lack of power will probably result in failure to meet
requirements for heavy reparations to USSR ($300,000,000 in manufactured
goods by 1953).
in mar ,although there is considerable manufacture of heavy
machinery in the Budapest area, it is not enough to meet the electric ex-
pansion planned for Hungary. Present imports of electrical machinery,
principally from Czechoslovakia and the USSR, would dry up in the event of a
total embargo.
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Po nd is in a relatively good position in electric power
supply, but still does not have enough to meet the demand if the plan is
to be met. Most Polish electric power is generated in thermal plants in
which the boiler and steam equipment is reported to be old and in poor
condition, requiring extensive replacements and additions, much of which
must come from outside sources. Boiler tubes are a particularly critical
item since they require alloy steel as well as special care in manufacture.
The Polish Government now has cn order a 60,000 R 1 steam turbine from
Switzerland, as well as large boilers and high-tension switching equipment
from western Germany. An embargo on electrical generating equipment
would quickly be reflected in a shortage of power and a reduction in coal
production, the latter the most important item in the Polish economy. Lack
of sufficient coal would not only have a serious effect industrially on-
Poland and the neighboring orbit countries but would also reduce Poland@e
prime. source of foreign exchange.
Rumania is almost entirely dependent on outside sources for
heavy machinery and electrical equipment. It has only a small manufacturing
capacity and can therefore be of little help to the orbit countries. The
Rumanian econony will be.less seriously affected by an embargo than most
of the other Satellite economies since it is less dependent on electric
power. However, failure to develop the power industry will seriously
retard planned industrial-development.
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(2) ~ .
Insufficient refinery and oil-wen equipment with which to
meet the planned exploration of new fields and planned production of high-
grade refined products, constitutes the major difficulty of the Soviet
oil industry. This industry has never been self-sufficient in oil equip-
ment and has had to rely heavily on foreign countries, especialIy.tha IS.
Another adverse factor is the Soviet limitation in operational efficiency
and maintenance caused by a shortage of skilled workers and proper repair
facilities.
Although the ISSR is apparently fulfilling its crude-oil pro-
duction goals, the shortage of high-grade refined products indicates that
up-to-date refining equipment continues to be the outstanding deficiency
in the Soviet petroleum industry. This deficiency, which retarded the
prewar development of the petroleum industry, was aggravated during the war
by destruction of plants producing refinery equipment and by conversion of
oil-equipment plants to armament production. Recent IB restrictions on the
export of petroleum equipment and products to the USSR have also been effec-
tive in bringing about this shortage.
Soviet refining capacity now exceeds crude oil output-by about
forty percent, but, because of-the restricted cracking plant capacity and
limited'plant flexibility, high-octane gasoline is in relatively short
supply and will continue to be for several years at least. Catalytic
cracking facilities are very Limited. Domestic production of improved
cracking units is still in the experimental stage, introduced only after
the end of the war with the shipment of four Houdry units under lend-lease.
The orders for two plants were cancelled at the end of the war, and the
general lack of technical skill in the Soviet petroleum industry will
obviate full utilization of the two completed units. This shortcoming is
evidenced by Soviet overtures for technical assistance from the TS companies
that took part in installing the plants.
The lend-lease refineries represent only four percent of the
total crude-intake plants in the W SR; yet because the Soviets had no
catalytic cracking units prior to their receipt, they take on a special
significance. Withholding shipments of this type of equipment from the lB
would not only have the effect of restricting Soviet production of light
fractions, particularly high-octane gasoline, but would also accentuate the
present shortage for several years. (Reported completion of the first
Soviet-made catalytic units indicates that the 1SSR is attempting to pro-
duce equipment in imitation of the American Houdry units.)
Also in short supply are pipe,: drilling equipment, fabricated
steel, and other material required for Soviet crude-oil production. Increases
in crude output achieved in 1948, however, suggest that there has been some
improvement in the supply of this equipment.
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Since the planned expansion of the petroleum industry
depends on the availability of equipment, the USSR has placed heavy
emphasis on the rapid development of the Soviet oil field equipment
industry in order to lessen Soviet dependence on foreign sources of
supply, By 1950, Soviet oil-field equipment production is planned to
be 2.5 times the output in 1940, with a considerable increase in the
variety of items manufactured. An indication of Soviet requirements
may be found in the $10 million worth of equipment shipped to the USSR
from the US; about?half was drilling equipment, and the remai eg cement-
ing and prospecting equipment. A shortage in fabricated steel and
measuring and control instruments will further hinder the expansion of
oil equipment production.
The Soviets have improved their postwar supply of oil. field
equipment by dismantling oil field facilities in the Satellites. The
difficulties now being encountered in the Rumanian oil industry are
attributable to the removals of large and diversified types of oil
equipment from Rumanian oil fields. In Austria it has been reported
that the Soviets in 1945 removed eighty percent of the oil-well drilling
and field maintenance equipment. It is also estimated that the Soviets
dismantled in Germany synthetic fuel equipment totalling approximately
1 million tons in refined products capacity.
Recent Soviet trade - arrangements with Czechoslovakia and
Sweden indicate that the Soviets are concentrating particularly on obtain-
ing pipe and tubsfor their oil fields. Czechoslovakia is expected to
deliver 50,,000 tons of oil-well tubing by 1952. Sweden is scheduled to
deliver 955 drills by the end of 1953, or an average of about 160 drills
per annum for a six-year period. A recent report. indicates that the Czechs
have concluded another trade agreement to deliver more oil field equipment.
This Czech-Soviet negotiation, however, may have merely clarified the
amount that was to have been delivered under the previous arrangement.
While the Soviet Union is expected to continue importing
badly needed oil field equipment, it will probably make a gesture of supply-
ing oilfield equipment to Poland. In view of the shortage of equipment
in the Soviet Union, it is doubtful if these shipments will indicate that
the Soviets can adequately assist the Satellites in overcoming the critical
shortage of their petroleum equipment,
US shipments of approximately $64 million worth of petroleum
equipment to the USSR during 1941-194" was a decisive factor, in keeping
the Soviet petroleum industry in operation. TB shipments from 1945?-48 of
some $44 million worth of equipment aided the Soviet oil industry to a
point where the present production has reached the 1941 level. A continua-
tion of such oil equipment shipments to the USSR would aid the Soviets in
production and increase the rate of expansion.
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A GSestern embargo on oil-field and r+fiuery-equipment
shipments would not drastically hamper present So nt oil, proth tioa.
Rather, this action on the part of the fleet would be iastr e;atsi..,n
1' nits soviet oil field exploration and azpl oitation, -would d'la ? ex-
pansion of refinery facilities prinoipai y for the production of Ugh-
octane gasoline,, and would also delay any Soviet schemes of stockpiling
strategic quantities of high-octane gasoline and lubricants.
ktpjAU& production of crude oil is sufficient to meet
present requirements; however, there are definite shortages of special
refining equipment for the production of high-octane -asoline an certain
other petroleum products. Aviation gasoline is so inadequate that it
has been necessary to curtail aharply all civil aviation in Czechoslovakia
and Yugoslavia. P,ibtor gasoline is in short ' supply in Bulgaria, C zechos] o-
vaki.a, Yugoslavia, enl. the Soviet Zone of Germany. ? There is a general
shortage of lubricating oils tkroighout the entire Soviet bloc.
The success of the various "Planed depends chiefly on the
ability of the Satellites to obtain machinery and equipment. As a result
of the premature exhaustion of .reserves in Rumania, the -future of its
petroleum indzatry hinges on its ability to obtain drilling and refining
equipment for the development of new fields. The same is true in Hungary
and Czechoslovakia. Because sufficient machinery and equipment cannot
be obtained within the Soviet countries, they have been forced to turn to
the West. Rumania, especially, cannot hope to attain the goals set unless
it obtains rigs, motors,, tool joints, drill collars, bits, drill pipe,
easing, and other specialized equipment. 'The 5Mcst5 s' nthetie gasoline
plant in Czechoslovakia is operating at only a fraction of capacity as a
result of its failure to obtain squi.r.nt promised from the French Zone
of Germany. Efforts to obtain the necessary machinery and equipment made
in the ti$, the iS, Sweden, Switzerland, Italy, France, Belgium, Brazil,
Bizone of Germany., and the French Zone of Germany have met with little
success. A number of trade agreements between East and West have included
oil, equipmento As far as can be ascertained, however, no significant
amounts of oil equipment have been received in the Satellites from the
West since early 1948. At that ti .c the M sent a shipment to Constanta.
Since the Tito-Cominform broak, Y +slavia has been-forced
to turn to the Wept for crude petroleum and products. Its efforts have
been successful to some extent. Purchase's have reportedly been made in
Trieste, Tangier.. the Middle East, tho TM, and Italy. The tE is consider-
ing the shipment of lubricating oil ansd..grease to Yugoelaviao An embargo
on such shipments would be very serious for Yugoslavia, but would have
little or no effect on the USSR.
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(3) iron and Steel and Ferro Eil1oys.
The Soviet orbit could use considerably more iron and
steel but will be able to manage with present output even though this pro-
duction is not meeting the ambitious economic plans of the bloc. High
quality iron ore is the principal deficiency of the Soviet bloc.
Both the Czechoslovakian and Polish iron ands teel indus-
tries are dependent upon large imports of Swedish iron ore for mixture with
orbit ores to improve the quality of the furnace feed. Ins illations and
equipment in these countries are designed and constructed for processing
mixed ores of this kind and cannot be easily adapted to handle alone the
lower grade and lower quality ores available in the bloc.
Rolled and semi-finished steel products from Poland and
Czechoslovakia are an important contribution to the Soviet v:ar potential.
Cessation of shipments of high-grade iron ore from Sweden to Czechoslovakia
and Poland would paralyze lhe steel industries of these two countries and.
indirectly would seriously affect steel production throughout the SatellitQ9.
From two to three years viould be needed before complete conversion of equip-
ment could be made to utilize low-grade iron ore.
Satellite countries are basing their steel plant moderni-
zation and expansion plans on imports of installations and equipment from
the Viest9 principally from the US and the UK. Inability to procure this
machinery and equipment is retarding significantly the achievement of ob-
jectives. Unsuccessful Soviet attempts to import such equipment from the
krest are also contributing to the Soviet failures to meet planned gbaals
for steel production. Total embargo against the bloc would retard expan-
sion even further. This action would force the USSR either to help the
Satellites materially at its own expense or to accept a lesser contribution
of the Satellite countries to the overall production of the Eastern bloc.
IM
USSR steel production in 1948 is estimated at 17.4 million
metric tons and will at most reach 20.0 million metric tons in 1949. This
compares to 1940 steel production of 18.3 million metric tons. It is
likely that the 1950 goal of 25.4 million metric tons of steel will be met.
Limiting factors in Soviet steel production ares inade-
quacy of conveniently located quality coke, difficulties in the production
of metallurgical equipment, inadequate technical knowledge and ability,
shortages of certain ferro-alloys, and inadequate transportation facilities
to handle requirements and production of the iron and steel industry.
25
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The total embargo on the shipment of metallurgical
equipment from the West would impede the realization of the Soviet steel
expansion goals.
Soviet Zone of Gerniaav
Although the steel Production of the Soviet Zone of
Germany is relatively small, it is a contribution to the total steel pro-
duction of the Soviet bloc. In addition, the Zone has sizeable quantities
of scrap, much of which is shipped direct to the USSR. 40
A .bania
Albania has no iron and steel industry. An insignificant
quantity of chrome and manganese is mined.
DMIgarj&
Bulgaria has no iron and steel industry, but it does have
rich chromite deposits,, some manganese ore and a small coking industry.
Jxparts are for the Soviet bloc.
9zech2aleVAJA
The Czechoslovakian iron and steel industry, which pro-
duced an estimated 2,370,000 metric tons of raw steel in 1948, is of parti-
cular importance. to the Soviet bloc because of its production of special
steels and products plus the technical skills involved in processing. The
coke industry is well developed and.provides a surplus for export. Iron-
ore mined in the country is of a low grade and must-be supplemented by
large high-grade ore imports from Sweden and a lower quality from the USSR.
In 1948, an estimated 937,000 metric tons were produced in Czechoslovakia
which vas augmented by imports of 1,026,000 metric tons from Sweden, 400,000
metric tons from the USSRaid 20,000 tons from France,. Since Czechoslovakian
blest furnaces are designed to blend high-grade Swedish orn with the lower
grade, cessation of shipments of Swedish ore would paralyze the nation's
heavy industry until changes were made in the furnaces to permit the use
of only lower grade ore.
Czechoslovakia is negotiating to import 1,300,000 tons of
Swedish ore in 1949, but Sweden has offered only about half of that amount.
With the view of future independence from ore imports from the -rest, the
Czechoslovak Government is planning the construction of blast furnaces in
Slovakia to utilize native, low-grade iron ore. Thus Slovakian and Soviet
iron ores would form the basis of the steel industry in Czechoslovakia.
26 -
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Scrap is in short supply in Czechoslovakia, and attempts
are being made to import scrap from Bizonia and the Soviet Zone of Germany.
In 1949, an estimated 800,000 tons of rolled steel will
be shipped to the U36R. Embargo on the purchase of installations and
equipment for the Czech steel industry and on the shipment of high-grade
iron ore would have serious effect on the Czech steel industry. It would
affect,-indirectly, the Soviet heavy industry.
Finla
Finland, which processed an estimated 85,000 metric tons
of steel in 1948, imports coke, iron ore, pig iron, crude steel, scrap,
rolled steel and ferro-alloys in varying amounts from both rsestern and
Soviet bloc countries. Restrictions by the Vest on such exports wwould
significantly reduce production. Such restrictions, however, would have
little effect on the USoR except that the Soviet bloc would have to sup-
ply Finland's deficiencies4
Hunearv
lxpansion and modernization of the Hungarian iron and steel
industry, which produced an estimated 650,000 metric tons of raw steel in
1948,depends largely upon imports of machinery and equipment from the West.
Such expansion could provide rolled steel for the USSR and other Soviet bloc
countries,
Poland
Poland produced about 1,800,000 metric tons of raw steel
last year, but its ample reserves, of low-grade iron ore must be supplemented
with large quantities Qf Swedish ore and lesser amounts from Norway and
France, Scrap is in short supply but could be made up within the'Soviet
bloc. Discontinuance of high-grade iron ore exports from the West would
necessitate major changes in furnaces to-permit the exclusive use of lower
grade ores.
Rumnla
Rumania's iron and steel industry is relatively small.
Production amounted to only 183,000 metric tons in 1947, and depends on
importsror metallurgical coke, iron ore, some pig iron, crude steel and
rolled products. However; Rumania ships large amounts of manganese to the
Soviet bloc countri ens,
Rumania needs imported installations and equipment to
rehabilitate and expand its iron and steel industry.
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,L os1an
In 1948,about 80 percent of Yugoslavia's iron ore pro-
duction of 613,000 metric tons was exported to the USSR. Raw steel pro-
duction was estimated at 235,000 metric tons in 1948. The country is
entirely dependent on outside sources for metallurgical 'eoke, and to meet
the 1949 coke target more than 500,000 metric tons will have to be imported.
Yugoslavia has a large exportable surplus of antimony and also ships out
some manganese, but it is dependent entirely on foreign sources for other
ferro-alloys.
Expansion of the iron and steel industry requires machinery
and equipment imports from the Viest. Immediate needs are a blooming mall
and coke plants.
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(4) UAL-,Ferrous 921018-
It is estimated that Soviet tin Production in 1949 will
be under 9,000 toes while requirements will total at least 179,500 tons.
In the Satellite States there is practically no production. Inability
of the TESR to obtain tin under the allocations procedure of The Combined
Tin Committee has consequently forced the Soviets to obtain it by smuggling
from southeast Asia and China.
A total embargo would be felt almost immediately by
the entire Soviet bloc.. At present, apparent tin consumption in Czecho-
slovakia, and Hungary is greater than the CM allocation granted them.- In
1948 the situation was as follows:
Allocation
C O-Unky LWA' MLU (2? o
(Long (Long Tons)
Czechoslovakia 2100 1391
Finland 240 250
Hungary 720 162
Poland 1200 2125
Rumania I80
Yugoslavia 420 610
The balance made up from small imports from ERP countries
and the Soviet Zone of Austria and from the smuggling from southeast Asia
and China. The present search for new sources of supply and the increase
in purchases demonstrate the seriousness of the shortage within the orbit.
Co_nr. . .
Mile primary production and secondary recovery of copper
in the USSR may equal 250,000 tons in 1949, requirements will run from
300,000 to 350,000 tons. The lower figure may be nearer the mark because
aluminum has been substituted for copper in many inst=ces.
Imports from the Soviet Zone of Germany and repatations
in copper from Finland ease the need from other-sources. If it could
also be procured from Yugoslavia, there would be practically no shortage.
Thus far, copper has been obtained from Belgium, Norway, and Chile. Sig-
nificant quantities have been obtained through the satellites. Finland
has bech shipping copper to Russia,., and, in tum, importing it from the
Hest to most its own industrial needs. Czechoslovakia exports copper to
the USSR in the form of manufactured articles.
The supply of copper within the Satellite countries is suf-
ficient to meet their requirements., if Yugoslavia makes her resources
available for, with the exception of Poland and Hungary, the Satellites are
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NWII =j"ORu
all partly self-sufficient in its production while Yugoslavia has 4
surplus for export,
A total embargo would cause-the Soviet orbit to restrict
the use of copper. If Yugoslavia were to withhold its supply fro the
Soviet bloc entirely, the shortage would be serious. In view of Ytugo-
elavia's trade shift to the West, it is doubtful that the Soviet bloc
will receive sufficient supplies from that source.
.
As a result of low mine production and metallurgical diffi-
culties, lead production In the WSR during the war fell off considerably.
Mine production now is probably higher. The metallurgical problems have
been largely overcome, but the TDSRR will still be unable to supply its
needs.- Poland and Germany will make up some of the deficit, and Bulgaria
may also help, but unless imports are obtained from Yugoslavia, there
will still be a deficit. As in the case of copper, lead sent to the
Satellites will help the USSR directly and indirectly.
The Satellites are fairly well supplied with lead. Yugo-
slavia and Poland have large szapplies, with a surplus for export. Rumania
is self-sufficient and Czechoslovakia partly so. Bulgaria can supply a
quantity of lead ores for export. Hungary depends mostly upon imports,
some of which can be obtained from the Soviet Zone of Germany. These
supplies, plus available secondary lead, should most Satellite require-
Monte.
An embargo on lead would cause an acute shortage in the Sovie'
orbit unless substantial quantities could be obtained from Yugoslavia.
At the present time it is unlikely that Yugoslavia would be willing to make
up this deficit.
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(5) al
Prior to World tar IT,, all of the countries of Eastern
Europe Were dependent upon Germany for most of the chemicals essential
to their econonq, with the principal exception of a for basic heavy
chemicals largely used for the manufacture of fertilizers or in their
limited heavy industries. It was the plan of the I. G. Farben to gain
complete control of essential intermediates, dyes, drugs, pharmaceuticals,,
and many essential solvents. .A. substantial part of the German chemical
industry was located in what is now the Soviet ,Zone and in the present
-western provinces of Poland. ]cost of these plants were destroyed or
seriously damaged during the war. The remaining usable equipment was
claimed as reparations after the war by the USSR and the Satellites.
In .addition, a part of the equipment in the chemical plants of the i5
and British Zones was claimed for reparations.
The USSR realized the necessity for chemicals, both for the.
civilian econory and for industrial mobilization to sustain a war, It
was also ealized that the Satellite countries must have basic chemical
production in order to supply the needs of agricultu o and in order to
utilize the chemical by-products from other industries, such as coke ovens,
petroleum refineries, and gas plants. Hence, under the reparat ons agree-
went, removal of plants and equipment to the USSR and the Satellites
was effected for these expansion purposes. In expanding its ecru chemical
production, there is evidence that the Soviet Union plans restrictive
production of certain products in the Satellites in order to increase
their dependence and to control the production of chemicals, as did I.G.
Farben before the war. Since much of the reparations equipment was ,
unusable by the time it arrived at its destination,, the Soviet Union,
according to reports, Is supplying new and heavy equipment from its own
production.
The Soviet Union has had the assistance of German scientists
and engineers in designing, rehabilitating, and operating; its chemical
plants. In view of this technical help it is safe to assume that the
USSR has a large volume of production of basic chemicals and that the
quality is improving. (Tonnage production of most products, however, is
from 1/5 to 113 of that of comparable products in the W.)
Prior to the war, most Soviet chemical plants were of German
design and used German, equipment. Although some useful equipment and
spare parts were obtained under reparation., in view of the destruction of
German plants manufacturing ohemical equipment,, it is doubtful that the
Soviets can obtain other parts or units and must, therefore, manufacture
these required spare parts and new units themselves.
This will be a tremendous undertaking. Glass-line equipments
special valves$.recording and control apparatus, many special alloys for
special use, reactors, and vacuum and pressure pumps will be needed. All
of this equipment requires specialized knowledge, technique, and skilled
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labor to manufacture, and, it is questionable whether the Soviets can
perform all of these functions. None of this specialized equipment is
produced in any of the Satellite nations, with the possible exception of
limited production in Czechoslovakia. Therefore, without the importation
of special equipment from the West, Soviet chemical production in many
lines will become steadily lose efficient until such time as the USSR has
the industrial knowledge and the capacity for supplying the needs. A
strict priority on requirements will have to be set up.
In spite of the expansion of the Chemical Industry, it is
improbable that the Soviet Union makes all of even the most essential
chemical products. There is little likelihood that the TBSR will be able
to make up any chemical deficiencies from the Satellites for many years
to come,
P?land
Prior to the Ware Poland produced limited tonnages of heavy
chemicals, primarily for the fertilizer Industry in the eastern provinces.
Poland was, therefore, dependent upon Germany for most organic chemicals.
With the transfer of this territory, those plants not destroyed were lost
to the T.ESR# but in returns, Poland obtained a large and complex chemical
potential in the plants. located in the former Bast. German territory. Although
reportedly 80 percent destroyed, many of these plants have been rebuilt and
rehabilitated with reparation equipment. In consequence, sufficient heavy
chemicals such as sulphuric acid, alkali, and alcohol are now produced to
meet the agricultural and heavy-industrial economy. In additions plants for
recovery of basic coal-tar products from coke ovens have been started. Benzol
and toluol in excess of national requirements are being produced, and some
Benzol is being offered for export, even to the West. The British trade
agreements recently signed will supply a tonnage of u:ns ffiod chemicals
essential to the now Polish industrialized economy. Bece.ass the Poles re-
ceived insufficient amounts of equipment from reparations, the USSR is
supplying Poland with some necessary heavy equipment. It is believed that,
for some time to come, the T.ESR not only will receive little benefit from
the Polish Chemical Industry other than some coal-tar intermediates, but
will probably be forced to send equipment and certain finished products into
Poland in order to keep up Polish economy.
C zeQhoslova .
The Czechoslovakian irdustrries were dependent upon the German
Chemical. Industry for their essential fine chemical requirements. A limited
tonnage of heavy chemicals necessary to the fertilizer and soap industries
was produced, howeverf, Since the wrar, there has been in Czechoslovakia a
definite realization that a Chemical industry is essential - to industrial
recovery, and efforts are now being made to install capacity sufficient to
satisfy these needs within the next two years. Organic intermediates will be
obtained from Poland over and above this production. The Czechoslovakians
plan to produce a substantial share of dyestuff requirements. Pharmaceutical
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production is being : pa iod, and at present the large -volume products
representing about 10 percent of the number of the essential pharmaceutical
products we being produced The balance must be obtained from the West.
The country can help the USSR in only a. limited manner for many years.
From the mobilization standpoint, production of wasential military
chemicals is negligible.
Production of, chemicals in Rumania is eac:trenely small. The
total annual, production of sulphuric acid necessary for fertilizer pro-
duction anti used in almost all industries is less than one-half day's pro-
duction in the TiS; in :fact, practically all chemicals must be imported,
Companies jointly owned with the USSR have been combined to produce ferti-
lizers and a few basic chemicals, but the USSR is controlling production
and suppler of all other products. Additional carbon black production is
being installed to satisfy Soviet-bloc needs.
2akwrll
Bulgaria is not an industrialized co-cntx'y, and like the rest
of the Balt.an nation.a, was formerly dependent upon Germany for chemicals.
Sulphuric acid and atmospheric nitrogen plants are being installed to
produce, fertilizer chemicals,
in samaary, although a complete embargo of List 3A and 113 will
impede the development of Soviet bloc industry and. agricif ture, it will
also emphasize the necessity of accelerating the installation of capacity
to produce the ossen,,, chemicals. For insta+ce, to make up the serious
shortage of carbon black, the T,SR, having the neesaay rant materials, can,
given time, produce sufficient quantities to meet internal requirements. In
the case of the chemicals essential for propellents and military explosives
in list U, the USSR, having dye-plant and nitrating Ino:iledgo, can male
these materials if forced to do so.
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oll
(7) Trawprortation
Railroads are by far the most important transport facility
in the Soviet bloc and account for the movement of about 90 percent of all
inland freight traffic. All transportation facilities in the W SR and
Satellites was severely damaged and disrupted duming the war but are now
moving freight traffic at about the prewar rate.
In 1948 the Soviet and Satellite railroads carried a total
of apprwdmately 481 billion ton kilometers of freight, amounting to 98
percent of the annual ton kilometers carried just prior to the outbreak
of the war. The USSR alone carried 417 billion of the above total and
virtually equalled the prewar level, A significant factor in postwar
traffic development has been the greater average length of haul as com-
pared 'w th yrowar which requires more transportation per ton of freight
originated. Therefore, while total transportation produced measured in
ton kilometers is now near prewar ]ever in the entire area, the total tons
originated is lagging behind somewhat. (See Appendix I)
Plana exist in nearly every country, including the USSR, for
ambitious Increases in freight traffic accompanied by increases in the
inventory of motive power and rolling stock, extension and double t.racking
of rail lines, and in some cases railroad electrification. The Soviet Union
is planning for a total of 532 billion ton kilometers of freight traffic
in 1950, an increase of 27 percent as compared with 1948. The Satellites
plan increases during the immediate future ranging from 12 percent in
Hungary to 250 percent in Yugosslavi,a. To achieve these increases In traffic
plans also exist for increased production of locomotives and cars, and for
an increaaased supply ate. rails.
The current stock of locomotives compares favorable with that
held, before the war. In certain countries it is actually larger and is
composed of unite with higher tractive effort. :Freight cars, while somewhat
below the prewar total in the Satellites., are more plentiful in the USSR
today than they were in 1939. The average capacity of freight cars has
increased during the postwar period through the building pf larger ears.
The USSR is receiving material assistance in building pup its
supply of transportation equipment from the Satellite producers of this
equipments G sechoslovakia, Finland, Hungary, Poland,, Rumania, and the
Soviet Zone of Germany. The Soviet ikon has shipped small amounts of
transport equipment to Albania end Bulgaria only. These are intended
chiefly for 'military purposes. In addition, some German transportation
equipment has been made available to the Satellites. There is a smell ex-
change of transport equipment (largely components) between the Satellites
that produce this equipment, and these countries have also made certain
items available to Bulgaria and Yugoslavia after fulfilling Soviet and
domestic reequirements.
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Curt ailment of US and '.Jeatern 1nropean exports of railroad
equipment will neither prevent achlovement of railroad fright ? ,ransport plant
in the USSR nor in any of the Satellites except Yugos:[.avia. Attainment
of these plane, although of the gv3ateat importance to economic and mili-
tary strength, will not mean that transportation vi. ill no longer be a weak-
ness*
While there is sufficient production of b+,nam locomotives raid
freight cars within the orbit t3 fulfill inventory platen for these items?
production of steel rz:?.Is is ii2uffioient fnr vaplademeitts, and assistance
from the West will br, neeeesavy for completion of ambitious plans for
railroad construeti(fl QnA d!*rbie tracking. Moreovers dtt"ieieoies iz the
production of mate?:ials for s'4lroFO a l!ectrifice?tion wil%- prevent the orbit
from achieving itr plans in :his" field.
Pleas for railroad construction, double track fig and electri-
fication r.,re important for increasing the traiCic capacity f the railroad
systems, but falluro to compt.ete these plans viii not materially affect the
economic and military strength of the orbit.
Post.rar emp& t} the lB R and Satellites has 'on on the
development of : aiaroad~'Li.
ile
$ Passerger trmifie is at a ~~l. parable to pre~:rar but passenger service and accommodations he.7,3 dete~_?,,ynted
asworpared wiih prewar etaadards. If no assistance is obtaixi from
west, freight traffic will probably be maintained at the a xpenaoof
passenger seriice and the equality and porisibly quantity of the 3 utter may
be affected. It must be vamembered, howover,, that passenger tra fit can
be curtail -:i with little r:ffect on the coonomia and military potential.
Inland waterways, highway tr?insport, and civil aviation cur-
rently carry a small pw*u of inland traffic, The potentialities of
'ki-wOO
facilities are limited, and even if developed to the fu .l est, =an inorgase
total freight movements 7ery little.
Inland watezrays will continue to aarsy their share of the
traffic burden without assistance from the West4, but current plans for
highway transport probably cannot be achieved Without imports. Aircraft
production is sufficient te, most plans for civil, aviation..
The merchant nmines which is Is,-g=. }::Away than in the prewar
period, is concentrated in the fleets of t'h= zaR, Finland, Yugoslavia,
and Poland. The Soviet.and Polish fleets have been increased through
lend-lease and reparations. This has offset the Finnish and Yugoslav losses.
Demands on the merchant fleet are being met, and unless pur-
chases and charterings of Western shipping are halted, plans for tonnages
can be achieved. Without western aid, plans for shipbuilding will not be
achieved, because of shortages of skilled labor, finished steel, oom-
pone3nts, and technical assistance. (See., Appendix IT-)
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The Soviet orbit, with the exception of Yugoslavia, grin
attain its railroad freight transportation plane. despite.a Western
embargo on railroad equipment. Such an embargo would, however, prevent
realisation of plans for railroad construction, double-tracking, rail-
road electrification, highway transport and shipbuilding. Moreover,
further deterioration of railroad passenger service and accommodations
may be expected if exports are stopped, since achievement of the railroad'
freight traffic plans can be accomplished only at the expense of passenger
service.
While the railroad freight traffic plans are most important
for economic and military strength, achievement of the planned goals
does not mean that transportation generally will no longer be a woakness.
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%wi
(By Thousand Uetric Tons)
CCU M
1948
...
..
Bulgaria
6,000
8,450
Czechoslovakia
73,000
75,156
Finland
15,700
1,600
Germany
180,009
78,000
20,074
17,984,
P
Poland
n
75,000
113,000
Rumania
27,632
20,000
Yugoslavia
l9.032
Total
4,16,438
353,670
USSR
e
594,
(21IILD TOTAL
99 t
lo
93
Bulgaria
(By iIil.lion Ton..Kilameters)
1,007
1,955
Czechoslovakia
18,450
13,690
Finand
2.7
n
2
515
Germany
23
4
,
10,200
Hungary
2,534
2,898
Poland
23,368
25,000
Rumania
6,019
3,907
Yugoslavia
4,24-2
Total
8
64.,065
USSR
4S,8l0
c;UND TOTAL
490,490
4g
A Including area east of Oder-Neisse line..
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20 not_, fives
Bulgaria 510
Czechoslovakia 4,115
Finland 753
Germany 7,415
Iiungary 1,876
Poland 5,16(i
Rumanx: 3,615
Yugopiavia ,
"otal 25;,618
Ur?
GRAflD TOTAL
1w
1,000
5,410
791
6,000
1.9570
5,860
2,645
2537
52,37+
1w
1
300
30
18O
176
250
70
Fret O
Bulgaria
.L0,646
15,000
0
Czechoslovakia
97,000
86,600
16
650
Finland
24,588
19,600
,
1
200
Germany
100,000
70,000
,
1
300
Hungary
40,035
35,000.
,
7
000
Poland
155,932
145,000
,
16
000
Rumania
56,294.
74,200
,
3
250
Yugoslavia
20
-2ka!
,
2
0 0 *
Total
815
536
501
906
_
.
'
USSR
,
ry
4 , Q
Q
,
870,000
4
',4000
Q,-
GRAND TOTAL -1,321,215 1,371,906
Q
127,409
* Possibly suspended.
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APPENDIX ,,
SOVIET kND SILTI;LLITE Pr1ERGfl0T
(1000 Gross Tons and Over
te
a.
Soviet Urion
354
1,136,000
560
1,964,4594
Finland
232
531,000
168
416,754
Yugoslavia
98
376,000
38
164,382
Poland
31
114,000
42
159,967
Rumania
25
103,000
2
12,367
Bulgaria
8
23,000
1
4,191
Hungary
6
23,000
1
1,002
Albania
Czechoslovakia
-
--
1
1,756
TOTAL *
754
2,286,000
81.3
2,725,013
Postwar totals are tentative. Bulgaria, according to other estimates,
has 20,000 GT, Poland 164,000, and Finland 392,000.
+* Including Lend-Lease Vessels totalling 535,000 GT.
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(a)
Machinery production and industrial installations cannot
be evaluated, even in part, in terms of quantity; those additional
factors must be considered a Jechnologioal stanndards, size of unit or
installation, quality of component parts, processing for quantity (a
matter of engineering skill), and replacement of manpower (ration of man-
power to machine power).
The application of these factors to aiW field of industry
demonstrates that the advantage lies overwhelmingly with the West, To
some degree, the industrial development of Czechoslovakia and Hungary,
the strongest units in the Soviet industrial complex, furnishes a few
items of acceptable quality but insufficient quantity. The t8SR produces
certain other items in some quantity, but totally lacking in quality.
The field of machinery and industrial installations includes: machine
tools, mining, oil and construction equipment, agricultural machinery
(tractors), precision instruments (mechanical and otherwise), optical .
and electrotecbnical equipment, power lifing equipment (cranes, ate.)
ferrous and non-ferrous metals processing equipment (from classifiers to
blooming mills), primary power equipment (Diesels, turbines, etc,),
abrasives, and all other capital equipment and its related industries
making component parts.
one Tools - The present Soviet inventory should be ade-
quate in quantity in a limited number of items. With. the exception of
approximately 100,000 machine tools, furnished by the US under lend-
lease, Soviet additions to inventory since 1940, in the order of 700,000
units, represent the dismantling of equipment in the border countries or
in controlled areas, resulting in deficits of required production equip-
ment in the Soviet Zone of Germany,, Poland, Hungary, Austria, and Ruaaaia.
Much of the value of this additional equipment to the ESR must be dis-
counted because of damage in transit, lose and lack of required spare -
parts and auxiliary tooling supplies such as cutters and abrasive products,
breakage in dismantling and installation, shortage of facilities for full
utilization of equipment, and the lack of engineering and skilled labor.
To some extent the addition of looted and lend-lease equipment represents
a potential reserve of constantly depreciating equipment.
Soviet machine tool production is involved in a technological
struggle. At the end of the war, existing installations were obsolete,
over-simplified in range and typo, and handicapped by poor workmanship
and poor quality of materials. The industry has sought partially but
unsuccessfully to rectify these mistakes in the postwar period., with the
result that production has fallentelow even the goals of the third (prewar)
Five Year Plan. Consequently, the WSR is still basically a machine tool
importer. Requirements have been temporarily net from dismantled and
looted supplies which have not been fully absorbed by the economy.
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Range of types, size, and quality are far more significant
than the factor of quantity production in estimates of machine tool values.
Oalty Czechoslovakia, of all the Soviet orbit States, meets Western
European technical standards in a for limited (light and mediums) sizes
of machine tools, such as light turret lathes, one or two models of
multiple drills, horizontal planers, and milling machines. Though quality
is adequate, production techniques are antiquated; hence there are limita-
tions,to quantity production. Current production, mostly of medium to
small-size machines, is about 10,000 units yearly. This is roughly equal
to the Swiss output and less than that of Italy. In view of the Moscow-
directed conversion of the Czechoslovakian machinery industry production
to heavier types and special items to meet Soviet deficiencies, it is
questionable whether even this present standard can be maintained. If
this conversion is to be successful, it requires a motor change In
organization and additional equipment for which the Czechs are dependent
upon Western Europe and the tE,
Precision ,trumente - Soviet production of-precision instru-
ments is limited to basic mechanical and measuring instruments such as
micrometers, calipers, and a few simple gauges, aid rulers. These are of
poor quality. The TSR has not yet started the manufacture of Johaunsen
blocks (a world-wide standard precision measuring device), Various scales
and gauges, copies of iB and Western European products, have been "invented"
by Russian scientists.. but production has been nil.
However, German technical and production resources in the
Soviet Zone for the manufacture of a wide range of standard precision instru-
ments should be assumed to be at Soviet disposal if facilities are provided
in the MBSR. 9 start toward the production of precision optical instruments
has apparently been made with the partial removal of Zeiss facilities to
the 1SR, thereby providing technique, facilities and personnel for a
previously non-existent industry.
Hungary produces some technical precision equipment, primary
medical instruments, but not in great quantity nor in a wide range. Czecho-
slovakia. has made some instruments for use within that country, but only on
a "custom basis." It remains an importer of precision instruments,
While the Satellite countries have made ambitious plans for
developing heavy industry, even partial realization is dependent on
technical assistance and fabricated equipment from Western Europe and the
lB. Thus while there exists within the bloc the ability to create tieces
of industrial equipment which will satisfy the five governing factors, the
capacity is so limited that only one product at a time can be made from the
thousands of types, sizes and characters of industrial machines required9
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(9) Ant, tion a ' as,
With the exception of the Soviet Union
and the Soviet Zone of Germenn. thew are no sources of anti.
friction (bell, roller, and needle) bearings within the Soviet orbit.
Ended industrialization, within the Soviet Union or the Satellites,
will be unsuccessful if the Soviet orbit is to depend on its own re-
sources for this oommodity. Even the Soviet orbit?s utilization of
existing industrial equipment is complicated by the fact that standard
bearings (presupposing standard quality on the best world level) are
among the few vulnerable and non-durable parts In all types of nachinery.
Therefore, a very large part of bearing production goes S into new
equipment, but into replacements and repairs.
Since the USSR may be considered the sole source of
bearings within the orbit (total Soviet Zone, Germany,, production
goes~to the Soviet), the industrial effort within the orbit must de.
pend on the adequacy of the Soviet antifriotion-bearing supplies, un-
less such bearings are imported from some other country.
Present estimates of Soviet production vary from 30
million unite per year to 60 million. The bulk of evidence indicates
that the former figure is the more reliable. (The latter estimate seems
to include repaired bearings for which aparox mtely 50 percent of the
Soviet bearing meunufacturing equipment is used.) Parts used in repaired
bearings must come from prime production.- Soviet papers have even re-
quested citizens to turn in steel bells. This production rate compares
with a Western European capacity of over 200,000,000 units a year and
a DS capacity production rate of 4M,000,000 a year, or a total Western
World production rate of from 400 to 600 million units a year.
The absence of self-sufficiency in orbit bearing production
becomes much more striking when one considers the factors of quality and
variety of types. The largest Soviet factory produces only 200 types of
bearings (other Soviet factories probably account for another 100 types).
In contrast, 30,000 types exist in Western production, of which 5,000
are basso-standard bearings. In addition to the limited range, the quality
of Soviet-produced bearings Is adjudged to be the poorest of any of those
made in the principal production centers of the world.
The two essential features of producing bearings of adequate
quality are material (which involves highly technical engineering, use of
electric furnace alloy steel of high carbon, chromium,, and nickel-molyb??
denum content); and precision machinery which requires the finest type of
machine tools, cutting tools, grinding abrrasives, and skill.
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In the production processes alone, the Soviets employ
techniques which have been obsolete for 25 years. The poor quality
of Soviet bearings shows itself in the unecononLo and unfeasible attempts
to repair bearings, the constant complaint of users within the USSR, and
the rejedtiona of Soviet bearings by Satellite technicians as unusable
even in the smell quantities that have been suppplied.
In recognition of the Soviet industry's own inadequacies
with respect to quality, Soviet factories formerly furnished all tractor
and farm oquipment with a complete duplicate set of bearings for repair
and maintenannce. During 1948,, however, Soviet users of such equipment
have complained that this practice has ceased. Since production-usere
(transportation, min-, farm equipment, and machine tools) have more
frequently blamed breakdowns and work stoppage on bearing failures than
on any other component part, it would seem that the failure to supply
duplicate sets may worsen an already bad situation. likewise, since the
quality of Soviet bearings is so poor, it is likely that more than 50
percent of the Soviet's annual production is required for normal repair
and replacement of existing bearings. (US-produced standard bearings are
generally rated at 3,800-5,000 hours life at =xbm capacity. some
bearings used in precision instruments, however, have to be replaced
every two months).
The problem for the Soviet Union becomes Immeasurably
greater as time passes, both because of the constant increase of new
equipment inventory, and the replacement required in looted and import-
ed foreign- ads equipment. There is some evidence that the Soviets have
even purchased new equipment from outside the orbit in orderto procure
certain special bearings, with the intent of either discarding the equip-
ment or trying to replace the Western bearings from Soviet production.
Beyond the fact that Soviet production cannot replace
standard bearings in equipment manufactured outside the orbit, the
Soviet position in regard to, foreign-made equipment becomes even more
vulnerable in the field of machine tools, which require many special
bearings. From a factory study it seems apparent that most of the Soviet
machine tools are of foreign manufacture. The US alone, under Lend-Lease,
supplied 100,000 units to the USSR. Of the 700,000 machine tools avail-
able in the Soviet Zone of Germany, it is believed that the Soviets have
acquired the greater part. Although this increment (quite apart-foram the
extensive import of machine tools before the war), may not be in total
use, and though some cannibilization would be economically permissible,
neither factor provides a stabilizing solution, nor will it deter more than
temporarily the increase of the Soviet inadequacy in bearing-production.
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24eanwhile, in the Satellite states, the problem has already
become acute. Under the beat of circumstances the supply of bearings has
existed on a hand-to-mouth basis, depending almost entirely on imports from.
Western States, particularly Sweden. The existence of German stocks of bear-
ings (mainly war supplies accumulated by the Germans), were of temporary
help. European imports from the US remained abnortally high until March
1948 restrictions. Swedish production sources were taxed to the limit
and even now consist of heavy backlogs, After the March 1948 restrictions
on US exports were imposed, the shortage of bearings In the Satellite
countries became notably more severe.
Czechoslovakia, the most industrialized. of the Satellite
nations, has been the chief sufferer. Smuggling; activities and haggling
over a handful of bearings have become standard practice. In one instance,
a plane was sent directly to Sweden to bring back to Czechoslovakia less
than a dozen bearings. Permanent machine breakdowns have been noted which
resulted from the lack of bearings. Temporary work stoppages in factories
have been necessary. Although Czechoslovakia actually produces a neg-
ligible quantity of bearings, the process has never been successful, either
in quantity or quality. The Czechoslovakian God has constantly
made and revised plans for the erection of a new bearing plant but at
present is making no headway because of dependence on unobtainable US
machine tools.
Poland has held off an acute shortage by settling its
account with Swedish SKF, and importing bearings through Third-Party
countries. Because of progressiive failure of both of these sources, how-
ever, the Polish situation is becoming more acute, It is to be noted
that both Poland and Csechoslovskia, in spite of indigenous need, have
been buying bearings for direct export to the USSRR. No such actual in~-
stances have been reported for the other Satellites but quantities sought,
would indicate a similar condition. Poland is also reported planning
the erection of a ballbearing plant. Hungary produces a negligible amount
of bearings and has made most strenuous efforts to procure them through-
out the world. ?
There is no evidence of a pooling and priority arrangement
for the distribution of this commodity within the Soviet orbit. In all
cases, the priority of demand has been established by the Soviets, and
re-distribution has been solely within the Soviets' power. Thus, for
instance, Rumania has officially boasted of receiving a shipment of some
3,000 bearings from the Soviet Union. (If this-shipment'is similar to
others made by the Soviets to the Satellites, in all probability the
bearing manufacturer was other than the Soviet Union). In turn, it has
become quite apparent that Czechoslovakia and Hungary have also taken
45
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their boaringshortage problem to the USSR. Mutual assistance in the
purchase of bearings outside of the Soviet orbit seems possible and
probable. It was reported, in September 1948, that Bulgaria was seeking
$200,000 worth of bearings from the US through Italy. When this effort
apparently failed, the same figure was used in seeking a trade agreement
with Italy. Hungary, in September 1948, asked for $200,000 worth of
bearings from Switzerland, when a trade agreement was being sought. It
was reported, in Tlovember 1948, that officials of the Soviet Zone of
Germany had been ordered to-set aside $$200,000 for the purchase of bear-
ings. in addition, all Satellites have sought fantastic quantities of
bearings well above their normal prewar requirements which according to
State Department reporters included more than a single customer country,e
potential needs,
It has already been noted that, as war stocks diminished'
and abnormal imports from the 15 were shut off, the shortage of bearings
became more acute, and that direct s uggling and exploiting of illicit
purchases through Third-Party interests resulted, Such purchases have
been made both for US bearings and for other makes. The trade seems to
have included such widely separated points'as- rgentina, Tangier, and
Iceland. In any case, the quantities so handled have been insufficient
to permit more than a very temporary solution. All reports indicate that
the small quantities of bearings have been allocated for use in equipment
of the greatest priority, Although bearings are but one of many factors,,
industrial reports from all of the Satellite countries have emphasized
the lack of bearings in explaining factory failures to meet production
plane and other work stoppage,
The Soviet Union has apparently made no recent direct effort
to procure bearings. The bulk of evidence, however, would indicate that
Satellite endeavors have included the USSR an the potential user. In
certain specific instances, reports have shown the USSR to be the direct
benefactor of Satellite imports, notably Fblish. In Czechoslovakia, since
much of the equipment using bell-bearings was to be manufactured for the
Soviet accounts it is obvious that the USSR benefits indirectly. Soviet
efforts to procure Austrian bearings, both in equipment and: as units, have
been notable. USIA, the official Soviet purchasing agent in Austria, has
paid premiums for smuggled Austrian and German bearings, an well as making
exchanges of certain equipment dependent upon procurement of bearings for
its own account. In Rumania, the 3,000 or more bearings reported to have
been shipped by the Soviets were presumably to be used by the State rail-
ways, which presumably would benefit the Sovietged oil industry. (No
confirmation however, of the Soviets actually shipping bearings to Rumania
has been received.)
.. 46 -
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ONNOM
Western European countries have now reached the stage
of rehabilitation in industry which would seem to permit an export of
bearings to the Soviet orbit sufficient to fill all practical needs
for a year. Of Western European exports of bearings, the Swedish supply
is tho most iriportant, both in terms of quantity and quality. No in-
forn ti!rt ^; sts which accurately shows Swedish exports of bearings to
the Soviet orbit countries. However, if this prime source would adhere
to an embargo along with Italy, Fiance, Switzerland, Germany, and the
United Kingdom, it is quite possible that Eastern European countries' plans
for further industrialization not only could be out short but that such
an embargo possibly would seriously disrupt existing industrial processes.
If maximum efforts were made by Satellite and Soviet countries, two
solutions might be possible in a period from three to five years hence,
The first expectation would be that new plants would be
created. At present, however, all such plans (including those of Poland
and Czechoslovakia and the USSR).hinge on Western assistance both for
technique and equipment, while even such plants as would be built in the
aforesaid period would. be insufficient to balance quantity imports alone,
much, less quality.
The second solution is a re-designing and re-building of
equipment substituting plain bearings for all rolling antifriction sur-
faces, and consequent replacement of all existing machinery utilizing
roller bearings. Such an under would be tremendously difficult
and would not lessen any of the Immediate shortages. In addition, even
if successful, such a step would put Eastern European industrial processes
in an extremely inferior technological and productive position as compared
with the Went. Such a step would be, in affect, replacing a power lathe
with a cold chisel,
-/+7-
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rove For Release : CIA-RDP78-01617AD0030028000
1-4
'WESTERN
CAPA
PRODUCTION
TYPES
QUALITY
LUROPE
IN UNITS
Sweden
25,000,000
Several. thousand
Superior.
Standard & Special
aircraft and
S a
UK
55 000000
ditto
ditto
Germany
prewar - 92,000,000
Military limita-
Iailitary li-
resent - unknown
tions only
mitations only
Austria
2,400,000
Standard primarily
Equal prewar
Some special aircraft
German stan-
dards
France
251,000,000
Several thousand
World average
Mostly standard
Switzerland
4,400,000
Primarily special
bearings
Superior
Italy
22,000,000
Mostly standard
Majority cheap.
bearings
quality, gen-
_..
..~..~. _
a a
Total
133,800,000
,
excluding G a a
2 0 00QQ)
USA
400,000,000
All types
Superior Air-
craft and
TOTAL
533 000,000
USSR
30 - 60,000,000
Approx. 300
Very poor. No
aircraft or
instrument
Sov. Zone
1 - 3,500,000
Dependent on 90% of balls and rollers
Germany
(2 of 3 plants)
from Bi-Zone.
(dismantled)
Present production entirely devoted
to r 2 air of bearings .
Czechoslovakia
Negligible
Few small sizes - dependent on
Western Germany
,r
for component is
Hun ry
Ne igible
Poland
---
Rumania
Bulear,La
....-
Y oslavia
~...~.
~..-...
Finland
-_-
.
48
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Nam* "Milow
(10) I=trist Die ndsa
Since the production of industrial dianmonds is almost
nil in the USSR and in the Satellites, practically all requirements,
totaling between 500000 and 100,000 carats per ;year, must be obtained
outside the Soviet sphere. Current difficulties in the purchase of these
items abroad have forced the USSR to procure a part of its requirements
through smuggling. In addition, the USSR has probably acquired some
from the Satellites which, however, are themselves dependent on outside
sources of supply.
L1, total embargo would not be felt at once, since stock
have been built up in the past, but within a year or so the failure to
procure this item would significantly impede industrial production.
49 to,
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