SOVIET ECONOMIC DEPENDENCE ON THE WEST

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP83T00233R000100030006-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 35
• Document Creation Date: December 22, 2016
• Document Release Date: April 29, 2010
• Sequence Number: 6
• Publication Date: January 1, 1982
• Content Type: REPORT

Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
Directorate of Secret
Intelligence
Soviet Economic. Dependence
on the West
ico ti COPY
Return, to O ;j;.j ;;try
Secret
SOV 82-10012
January 1982
copy 3 2 2
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
25X1
Directorate of
Intelligence
on the West
Soviet Economic Dependence
Information available as of 12 January 1982
has been used in the preparation of this report.
This assessment was prepared by the Soviet
Economy Division, Office of Soviet Analysis, with
contributions from the Technology Transfer
Analysis Center of the Office of Scientific Weapons
Research. Comments and queries are welcome and
may be directed to the Chief, Trade Branch,
European Analysis.
Secret
SOV 82-10012
January 1982
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
Soviet Economic Dependence
on the West
Key Judgments The dramatic surge in Soviet trade with the West during the 1970s
resulted largely from a growing dependence by the USSR on foreign
machinery, technology, and farm products. Hard currency imports grew
ninefold, from less than 25 percent of total imports to nearly 40 percent. By
1980, imports from the West were equivalent to 15 percent of Soviet grain
utilization and 10 percent of steel consumption.
During the 1970s Soviet exports to hard currency countries also climbed,
led by energy and other raw materials. By 1980, 40 percent of all Soviet ex-
ports of fuels were paid for in hard currency. Western trade dependence on
the USSR, however, was much less than Soviet dependence on the West.
Imports from the USSR in 1980, for example, represented only 2 percent
of imports by OECD countries. Because foreign demand for Soviet exports
did not match Moscow's increased appetite for Western goods, a payments
gap developed that was financed by large Western credits, both commer-
cial and government backed.
Given Soviet reluctance to make systemic changes, the USSR's economic
prospects for the 1980s indicate a continued-and perhaps even greater-
need for Western goods and credits. Indeed, Western imports are particu-
larly well suited to help alleviate the very problems that confront the
Soviets during this decade-declining productivity and resource shortages:
? Likely imports are concentrated in sectors crucial to raising technological
levels and productivity.
? Imported oil and gas equipment could help find and work reserves needed
to offset depletion in existing fields.
? Food imports are crucial to maintaining living standards, essential for
worker morale and productivity.
Without access to Western goods and technology, the Soviets would be
forced to go it alone or rely more on CEMA sources. This would entail ma-
jor losses in quality, reliability, and productivity. Moreover, valuable time
would be lost because the Soviet economy's scarce stock of resources could
not be stretched to accommodate a sudden demand for import substitutes.
The Soviets probably would see time as the greatest loss because they
believe that their economic problems will be toughest in the short and
medium term and that the 1990s will bring some relief.
Secret
SOV 82-1001 2
January 1982
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
In any event, the USSR will face some difficult choices in attempting to
maintain trade links with the West. As a result of an expected decline in oil
exports, Moscow will be losing its major foreign exchange earner in the
1980s and will not have the cash to buy Western goods and equipment in
the volume it has in the recent past. A hard currency bind surfaced in 1981
that already is beginning to force Moscow to trim import plans. The USSR
can maintain import levels in the face of declining foreign exchange
receipts only by dramatically stepping up its Western borrowing. But to do
so would also raise the Soviet debt burden. In the absence of Western
loans, Moscow would have no choice but to cut imports back drastically.
Any reduction in trade with the West would put pressure on Eastern
Europe to help fill the gap. Although the trading patterns of Eastern
Europe and the West with the USSR are similar-exports of machinery
and manufactures in return for imports of raw materials-Eastern Europe
would not be a viable substitute. The technological level of its goods,
although higher than the USSR's, is still far below that of the West.
Moreover, the East Europeans are experiencing economic problems of their
own and do not have the industrial capacity to cope with increased Soviet
demand. Nor are they in a position to provide any significant relief on the
agricultural front. Indeed, many of the East European countries compete
with the Soviets for world grain supplies.
Secret -iv
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
Key Judgments
The Development of the USSR's Trade With the West 1
The Western Perspective 4
Soviet Dependence in a Macroeconomic Context 6
Soviet Dependence in Key Sectors 8
Eastern Europe as a Backstop 13
Soviet Dependence on Western Trade by Sector 17
Agriculture 17
Oil and Gas Equipment 18
Minerals and Metals 20
Chemicals 20
Machinery 22
High-Technology Products 25
1. USSR: Share of Hard Currency Trade in Total Trade
3. USSR: Hard Currency Debt to the West
4. USSR: Relationships Among Defense and Civilian Industries 5
5. USSR: Hard Currency Trade With Selected Countries, 1980 6
6. Measures of the Importance of Soviet-Western Trade to Major 7
Western Countries, 1980
7. USSR: Hard Currency Commodity Exports Other Than Oil 11
and Gas
8. Hard Currency Payments If Import Volume Increases by 3 Percent 12
Per Year
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
2. USSR: Total Debt Under High and Low Oil Export Projections 13
3. USSR: Import Capacity Under Credit Restrictions
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
Soviet Economic Dependence
on the West
Introduction
The 1970s witnessed a dramatic surge in trade be-
tween the USSR and the West' as the Soviet Union
increasingly looked outside its borders for help in
raising the technological level of Soviet plant and
equipment, relieving industrial bottlenecks, and in-
creasing living standards. This paper explores the
degree of economic dependence that has developed
over the last decade-a necessary first step in deter-
mining the potential for economic leverage-and pro-
jects the importance of this relationship to the USSR
in the 1980s in light of the USSR's deteriorating
economic performance.
The Development of the USSR's Trade With the West
Internal Soviet economic policy decisions as well as
detente contributed to the surge in Soviet-Western
commercial relations in the 1970s. As postwar pro-
ductivity gains evaporated and domestic growth
slowed early in the decade, Moscow turned to the
West for equipment and technology to spur the
economy. Expectations were also high in the West,
where businessmen hoped to sell equipment and tech-
nology from underemployed capital goods industries
and to develop a large and growing market for
consumer goods in the USSR. The Politburo's deci-
sion to give full support to the Brezhnev program for
upgrading the Soviet diet was taken as an added sign
that more attention would be given to the consumer,
which would in turn require large imports of Western
agricultural products. The West also viewed the
USSR as an important new source of energy supplies
as well as a supplier of timber, various ores and
metals, diamonds, and other raw materials.
USSR: Share of Hard Currency
Trade in Total Trade a
Crude oil and 26
petroleum products
40
43
10
72
25X1
Natural gas
2
34
48
0
0
NA
Machinery and
equipment
5
9
3
22
37
26
Agricultural products
14
24
25
27
42
66
Grain
5
1
0
73
87
90
Consumer goods
23
26
13
12
9
9
a The importance of hard currency trade in total trade is understated
in Soviet statistics because of the favorable prices the USSR extends
to the CEMA countries for exports and imports. In 1980, for
example, exports to Eastern Europe would have been $7 billion
higher had Moscow received world market prices for the goods it
shipped there, but Soviet imports from Eastern Europe would have
been $10 billion lower had world prices prevailed.
The Soviet Perspective. Purchases from the West as a
share of total Soviet imports rose dramatically, from
23 percent in 1970 to 38 percent in 1980 (table l)-a
nearly ninefold increase in value terms and a twofold
increase in volume terms (figure 1). Purchases of 25X1
machinery, ferrous metal products, and foodstuffs-
especially grain-have dominated Soviet imports (ta-
ble 2). Because a large share of Soviet purchases of
capital goods was financed by Western credits, Soviet
hard currency debt increased to an uncomfortably
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
USSR: Hard Currency Trade
Million
US $
Percent
of Total
Million
US $
Percent
of Total
Million
US $
Percent
of Total
Million
US $
Percent
of Total
Million
US $
Percent
of Total
Million
US $
Percent
of Total
Total
2,201
100
7,835
100
23,498
100
2,708
100
14,257
100
26,017
100
Of which:
Fuels
493
22
3,887
48
15,095
64
8
NEGL
497
3
700 a
3
Crude oil and petroleum products
387
18
3,276
41
12,028
51
8
NEGL
497
3
700 a
3
Natural gas
13
1
220
3
2,706
12
0
0
0
0
0
0
Coal and coke
93
4
391
5
362
2
0
0
0
0
0
0
Machinery and equipment
140
6
560
7
1,388
6
927
34
4,593
32
6,039
23
Ferrous metals
129
6
167
2
246
1
279
10
2,567,
18
3,469
13
Chemicals
67
3
256
3
765
3
208
8
742
5
1,565
6
Wood and wood products
365
17
712
9
1,476
6
84
3
214
2
203
1
Agricultural products
205
9
572
7
478
2
615
23
3,856
27
8,800
34
Grain
22
1
3
NEGL
0
0
101
4
2,323
16
4,400
17
Other
183
8
569
7
478
2
514
19
1,533
11
4,400
17
Consumer goods
76
3
215
3
152
1
260
10
436
3
745
3
a Estimated.
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
Figure 1
USSR: Historical Trends
in Merchandise Trade
Imports
Exports
high level in the mid-1970s (table 3), leading to more
cautious borrowing and buying through the remainder
of the decade.
The USSR had considerable difficulty in assimilating
the equipment and technology it bought from the
West. In every sector, reports abound of construction
delays and incomplete mastery of the new technology.
Nonetheless, imports from the West unquestionably
helped the USSR deal with some critical problems,
particularly in certain manufacturing sectors:'
' See the appendix for a more detailed description of the contribu-
tion that imports from the West have made to various sectors of the
? In the 1970s, imported chemical equipment, ac-
counting for about one-third of all Western machin-
ery purchased by the Soviets, was largely responsi-
ble for doubling the output of ammonia, nitrogen
fertilizer, and plastics and for tripling synthetic
fiber production.
? The Soviets could never have accomplished their
ambitious 15-year program of modernization and
expansion in the motor vehicle industry without
Western help. The Fiat-equipped VAZ plant, for
example, produced half of all Soviet passenger cars
when it came fully on stream in 1975, and the
Kama River truck plant, which was based almost
exclusively on Western equipment and technology,
now supplies nearly one-half of the Soviet output of
heavy trucks.
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
As for agriculture, Soviet grain imports averaged 14
million tons per year in the past decade. In 1981,
grain purchases coupled with record imports of meat,
sugar, vegetable oil, and soybeans and meal totaled
nearly $13 billion, accounting for 40 percent of hard
currency expenditures. Without Western grain, Soviet
consumers would not have had the increase in meat
consumption that they received in the early 1970s,
and the fall in per capita consumption of meat would
have been far worse in the late 1970s.
Western imports have also contributed to Soviet
defense capabilities. Some products of the imported
equipment and technology are used by the Soviet
military-for example, trucks from the Kama River
plant. Other imports help in the production of impor-
tant inputs for defense industries-for example, nu-
merically controlled machine tools, specialty steels,
and plant and technology to produce them. Finally,
because most defense industries also produce for the
civilian economy (table 4), purchases of Western
machinery for the civilian sector help ward off the
encroachment of civilian requirements on the produc-
tion schedules of defense plants.
The Western Perspective. Trade between the USSR
and the West, though substantial (table 5), does not
mean nearly as much to the West as it does to the,
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
Secret
Commercial debt
400
6,900
Government-backed debt
1,400
3,600
Gross debt
1,800
10,500
Assets with Western banks
1,200
3,100
600
7,400
Debt service
300
1,800
Debt-service ratio (percent) b
10
18
5,200 5,900 7,000 7,800 8,200 8,500
14,900 15,700 16,500 18,300 18,200 19,300
4,700 4,500 6,000 8,800 8,600 7,000
10,200 11,200 10,500 9,500 9,600 12,300
2,300 3,100 4,100 4,000 4,900 5,000
17 19 21 15 16 15
a Preliminary.
b Debt service as a percentage of earnings from merchandise exports,
sales of arms and gold, interest, invisibles, and transfers.
? Large computer systems and minicomputers of
Western origin have been imported in large num-
bers (1,300 systems since 1972) because they
(a) have capabilities that the Soviets cannot match,
(b) use complex software that the Soviets have not
developed, and (c) often are backed up by expert
training and support that the Soviets cannot dupli-
cate.
line construction.
Imports from the West also played a key role in
supporting the energy and agricultural sectors. Be-
cause of Soviet deficiencies in drilling, pumping, and
pipeline construction, the USSR bought about $5
billion worth of oil and gas equipment alone in the
1970s. Soviet purchases covered a wide range of
equipment that will add substantially to future energy
production. Submersible pumps purchased from the
United States, for example, are estimated to have
added roughly 2 million b/d to Soviet oil production
in recent years. Similarly, the Soviet offshore explora-
tion effort would not be nearly as far along as it is
without access to Western equipment and know-how.
Meanwhile, West Germany and Japan have provided
most of the large-diameter pipe needed for gas pipe-
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
USSR: Relationships Among Defense
and Civilian Industries
Defense Industry Principal Civilian Other Closely
Lines at Final Related Civilian
Assembly Plants Production
Technologies
Ballistic missiles Metal consumer goods, None
machine tools a
Aerodynamic Metal consumer goods, None
missiles excavating equipment b
Fixed-wing combat Metal consumer goods, None
aircraft parts for agricultural
machinery
Fixed-wing support Civilian transport air- None
aircraft craft, metal consumer
goods, hand tools
Helicopters Civilian rotary-wing None
aircraft, metal con-
sumer goods
Naval surface ships Merchant and fishing Pumps, machine
ships, chemical storage tools, mining
tanks, parts for trans- equipment
portation and agricul-
tural machinery
Submarines Merchant ships, oil Pumps, machine
Other armored
vehicles
and locomotives transportation
equipment
pipelines, parts for tools, mining
transportation and ag- equipment
ricultural machinery
Railroad rolling stocks Construction and
The share of Argentine trade is high because of
Buenos Aires' new role as a major grain supplier to
the USSR.
Western reliance on Soviet imports is substantial,
however, for some commodities and certain industries.
In 1979, the USSR provided 8 percent of West
European energy supplies. Soviet petroleum deliveries
accounted for about 10 percent of total West Europe-
an oil imports. Within Europe, the shares ranged from
an average of 5 percent for the EC countries to 14
percent for Austria and Sweden. In 1980, the USSR
also supplied 15 percent of French and West German
consumption of natural gas, 22 percent of Italian
consumption, and 60 percent of Austrian consump-
tion.
Although the emergence of alternative Western sup-
pliers and newer processing technologies has eroded
the attractiveness of Soviet metals and minerals in
recent years, the West still depends to some degree on
these imports. About 8 percent of the chrome ore and
5 percent of the nickel imported by the West comes
from the USSR. The USSR plays a major role only in
the platinum-group metals trade, accounting for
about half of such Western imports, with Japan and
the United States receiving four-fifths of this amount.
25X1
Certain Western industries and companies rely more
he
il..
the S
i
t market F
r e
m
ln about 10
av
on
ov
e
o
x
p
transportation percent of West German and Italian iron and steel
equipment exports, 40 percent of West German welded pipe
Artillery Agricultural machin- Construction and exports, and 10 percent of West German machine tool
ery, motors, and ma- transportation
chine tools equipment exports find a market in the USSR. One West
a One ballistic missile plant produces machine tools.
'b One surface-to-air missile plant produces excavating equipment.
USSR. Imports from and exports to the USSR repre-
sented only 2 percent and 3 percent, respectively, of.
OECD trade in 1980. The share of sales to the Soviet
Union in the total exports of the major developed
countries ranged from 0.7 percent for the United
States to 2.3 percent for West Germany and even
higher for Austria, Australia, and Argentina (table 6).
German firm ships three-fourths of its output of 25X1
large-diameter pipe to the Soviet market. In some
cases, Western exports translate into large numbers of
jobs. According to one West German study, over
300,000 jobs directly or indirectly depend on exports
to the USSR. In addition, the agricultural sectors of
the major Western grain-growing nations have wel-
comed the Soviets as customers. In marketing year
1980/81 Argentina and Canada-the two grain ex-
porters benefiting most from the US embargo-sold
85 percent and 31 percent, respectively, of their grain
exports to the USSR.
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
USSR: Hard Currency Trade With
Selected Countries, 1980
Total 23,498 26,017 - 2,519
Developed West 21,304 21,330 -26
Australia 9 1,194 -1,185
Austria 894 610 284
Canada 46 1,496 -1,450
France 3,453 2,326 1,127
Italy 3,235 1,438 1,797
Japan 1,463 2,730 -1,267
Netherlands 1,582 555 1,027
Sweden 546 496 50
Switzerland 686 620 66
United Kingdom 1,323 1,467 -144
United States 233 2,081 -1,848
3,067 1,714
2,194 4,687
47 1,790
34 390
729 398
252 443
1,132 1,666
machinery output; a third consecutive poor grain
harvest has worsened Moscow's hard currency pay-
ments position; and persistent food shortages and
increased prices for luxury goods are leaving many
Soviet consumers with less on their tables and less in
their pockets. Internal Soviet economic problems have
been compounded by the heavy burden of economic
support that the USSR has had to extend to its
Paradoxically, even as domestic difficulties mount,
Moscow's enthusiasm for expanding ties with the
West may be cooling. The aversion to the rapid
growth of hard currency debt in the mid- 1970s led to
slower growth in imports and a curb on new borrow-
ing. Western trade sanctions following the Afghani-
stan invasion also created uncertainty in Soviet minds
about the wisdom of becoming overly dependent on
East-West trade. The Polish crisis has reinforced the
position of those opposing too much dependence on
the West. The cautious formulation of the trade
section in the Plan for 1981-85 contrasts sharply with
the bullish trade prospects expressed in previous five-
year plan guidelines. In remarks to the Supreme
Soviet in November, State Planning Committee
Chairman Baybakov stated that in the current five-
year plan the USSR would concentrate a greater
share of its total trade volume on socialist countries.
He implied that the volume of non-Communist
country trade would grow only 2.3 percent a year
during 1981-85 compared with just over 5 percent in
1976-80.
Soviet Dependence in a Macroeconomic Context
Moscow's continued hope has been that access to
Western goods and technology would boost economic
growth by stimulating productivity and helping to
break critical production and construction bottle-
necks. The leadership realizes that it needs all the
help it can get to stem the continued slide in economic
performance. Average annual growth of GNP fell to
1.1 percent in 1979-80-the lowest registered in any
two-year period since World War II.
The disappointment must have been bitter last year as
the economy registered a third consecutive year with
growth at 2 percent or less. Stagnation in the produc-
tion of key industrial materials has crippled growth in
Another factor in the Kremlin's more subdued atti-
tude toward trade with the West may be the ex-
pressed disappointment over the contribution of im-
ported Western technology to industrial output. Some
sectors have experienced difficulties in absorbing the
new technology. Even in those areas where Western
technology clearly has helped (computers, the auto-
motive and chemicals sectors, and petroleum explora-
tion), the diffusion to Soviet designed and equipped
plants has been minimal. The leadership now seems
increasingly aware that importing foreign technology
is not a panacea for the economy and that policy
should concentrate on improving the performance of
the Soviet R&D sector and strengthening its ties with
production sectors.
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
Measures of the Importance of Soviet-Western Trade
to Major Western Countries, 1980
Exports to USSR as Percent of Imports From USSR as Percent of Percent of Trading Partner's GNP
Trading Partner's Total Exports Trading Partner's Total Imports
Exports to the Imports From the
USSR USSR
0.8
NEGL
NEGL
Japan
2.1
1.3
0.3
0.2
Netherlands
0.7
1.6
0.3
0.8
United Kingdom
0.9
1.5
0.2
0.4
United States
0.7
0.2
0.1
A too cautious approach to trade with the West,
however, probably is unrealistic. Soviet planners have
consistently understated the contribution that imports
from the West have made to the economy in the past.
Western-supplied grain, for instance, currently ac-
counts for 15 percent of utilization in the USSR. In
any event, Moscow must realize that Western imports
are exceptionally well suited to helping it with the
problems peculiar to the 1980s-that is, negotiating
the difficult transition to "intensive" development and
coping with resource shortages.
Specifically, Western imports could help:
? Maintain some growth in the standard of living.
Food imports, especially grain and meat, will be
crucial for consumer morale-with its attendant
effects on productivity. Without substantial imports
of farm products, per capita food consumption
(expressed in value terms) could well stagnate in the
1980s.
? Prevent fuel shortages. Imported Western oil and
gas equipment can help locate and develop the new
oil and gas resources needed to offset depletion of
existing oil deposits.
? Remove some industrial bottlenecks. Steel short-
ages, for example, are holding back the growth of
the civilian machinery sector. Larger purchases of
steel would help counter the effects of inadequate
investment in new steel capacity. 25X1
? Boost productivity. Imports of Western plant and
equipment seem small since they constitute only
about 5 percent of total domestic investment. But
the contribution of Western equipment to total
output is proportionately larger since its productiv-
ity is higher than that of its domestic counterpart.
Indeed, a renewed emphasis on machinery imports
to supplement domestic machine building-the sec-
tor most crucial to technological progress-must be
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
especially tempting now when the growth of the
labor force and of civilian machine-building output
is sluggish and military requirements preempt a
rising share of machinery production for civilian
use.
Relieve pressure resulting from defense spending. A
continuation of high growth rates for defense de-
spite the low economic growth rates projected for
the 1980s could lead fairly quickly to stagnation in
the civilian machine-building sector and living
standards. Imports of Western plant and equipment,
on the other hand, could bolster the civilian indus-
trial base.
Hard currency trade-which is expected to be more
crucial in the 1980s than ever before-is even more
important to the USSR than implied by the numbers.
Although imports from the West are equal to only 1.6
percent of Soviet GNP,' the impact of a complete
cutoff of trade would be substantially greater. The
need for Western agricultural products, as pointed. out
earlier, is particularly vital. Several major develop-
ment projects would be seriously delayed-if not
abandoned-if imports were eliminated. Disruptions
due to lost imports would not only hit those factories
and sectors directly dependent on Western inputs but
would spill over to other plants as well. Because the
USSR's scarce stock of resources could not be
stretched quickly to accommodate a sudden demand
for import substitutes, the Soviet system would find it
difficult to cope with a fall in East-West trade.
Soviet Dependence in Key Sectors
Soviet reliance on Western imports varies widely from
sector to sector. The degree of dependence in agricul-
ture as well as the major branches of industry-
energy, metals and minerals, chemicals, machinery
and high-technology goods-is described in detail in
the appendix. Our review considers (a) reliance on
Western imports to date, (b) prospects for continued
dependence, and (c) the impact if trade with the
West-and specifically the United States-were cur-
tailed.
' This figure was derived by dividing Soviet hard currency imports
in 1980 (converted from the ruble value by using the 1980 ruble/
dollar foreign exchange rate) by the CIA estimate of 1980 Soviet
GNP in current dollars. A set of dollar-ruble ratios was used to
The sectoral analysis strongly suggests that:
Western imports have been instrumental in bringing
certain sectors to their present stage of develop-
ment, and that the wide gap that still exists between
Soviet and Western technology allows the Soviets
to profit substantially from continued trade with
the West.
The Soviet technological lag is particularly evident in
the machine-building industry-the strategic base for
accelerating technological progress. Imports of ad-
vanced types of Western machine tools are necessary
to supplement the general purpose tools that still
dominate Soviet output. Computer numerical control
(CNC) machine tools, for example, are fairly common
in the West but exist in the USSR only as prototypes.
Similarly, the Soviet robotics industry is far behind its
Western counterpart. Soviet enterprises currently pro-
ducing robots do not have series production capabili-
ties, and their products are primitive by Western
standards.
Meanwhile, the Soviets still pattern their major devel-
opments in large computers and minicomputers on US
designs that are essentially two generations behind
current US offerings.
If denied access to Western imports, the Soviets
could go it alone but only with substantial losses in
quality, reliability, and productivity.
What is true for machine tools and computers is true
to some extent in many other sectors, but particularly
in those that depend on Western equipment and
technology for across-the-board expansion and mod-
ernization. Chemicals, construction, earthmoving
machinery, and telecommunications equipment are
examples. The Soviets are relying on a broad range of
imports from Eastern Europe and the West to up-
grade these sectors.
If deprived of Western technology and goods, the
USSR could not adjust quickly or completely;
valuable time would be lost, adding significant
strain to an already stretched economy.
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
The Soviet energy sector is a striking example. The
inability to use Western oil technology such as sub-
mersible pumps and enhanced oil recovery technology
efficiently, for example, would significantly retard
efforts to keep current fields producing and delay
plans to exploit new ones. The losses in gas and oil
production from a denial of working equipment and
technology would probably amount to 2-3 million b/d
(oil equivalent) in the mid- and late 1980s, of which
the larger part would be gas. Construction of gas
pipelines, the chief constraint on Soviet ability to
expand gas production, depends heavily on imports of
Western pipe and compressors, and Soviet capabilities
for producing such equipment are stretched to the
limit. In the longer run, the ability to use foreign
technology is critical to developing offshore and deep-
er onshore reserves that are needed to increase oil
output. Timing is equally important for obtaining
Western equipment for exploring, lifting, and trans-
porting natural gas. As for steel, the Soviets could
eventually develop the capacity necessary for specialty
steels and large-diameter steel pipe. But they need
this steel now for their machine-building and energy
sectors.
A similar analysis holds for Soviet agriculture. After
three consecutive poor harvests, Moscow has been put
in the position of having to import large amounts of
grain (at least 30 million tons annually) for at least
several years to boost per capita meat consumption
and rebuild depleted stocks.' If the USSR bought no
grain after 1981, average meat production could be
cut by about 2 million tons a year, even if grain output
returns to a trend level. An embargo on both grain
and meat would reduce per capita availability of meat
by roughly 20 percent. The loss of Western grain
would force the USSR to choose between reducing
herd numbers (and with it future meat production),
implementing rationing, halting agricultural exports
to client states, and/or drawing down strategic grain
reserves. While the end result of a denial of grain and
other agricultural imports from the West would not
cause hunger, the per capita availability of quality
foods would decline and the average diet would
deteriorate.
? if only US-Soviet economic relations were shut
down the Soviets in the short run could generally
switch to other Western and some East European
products and technology, but only with losses of
time and efficiency. 25X1
The major exceptions are submersible pumps, super-
phosphoric acid (SPA), and corn. Submersible pump
orders cannot be filled currently by foreign firms or
US subsidiaries abroad; it would take about two years
for production capability to start up overseas. The
United States also is the only large-volume source of
SPA. Soviet fertilizer plants purchased from France
were designed specifically to use SPA of US origin.
The suspension of US SPA shipments in 1980 forced
Moscow to use less effective materials, thereby ad-
versely affecting agricultural production in 1980 and
1981. Finally, Moscow cannot get all the corn it wants
from non-US suppliers. Argentina is the only major
grain-growing country with some capability to in-
crease corn production; the EC, Canada, and Austra-
lia mainly grow wheat, which is usually more expen- 25X1
sive and less suited for some of the balanced feed
rations that the Soviets are trying to introduce.
The Role of Credits 25X1
Western willingness to extend credits to the USSR-
an important factor in the rise of Soviet imports in the
1970s-will be a key element in both the scale and
timing of Soviet imports in the 1980s. Western credits
provided approximately 12 percent of the USSR's
import capacity between 1971 and 1978. Thanks to
the rapid increase in oil and gold prices, Moscow was
able to sustain growth in Western imports in 1979-80
without an increase in its net debt. 25X1
The USSR, however, is encountering a hard currency
bind and, with no relief in sight, faces even more of a
crunch in the coming years. The only potential large
export earner on the foreign exchange horizon is the
Yamal gas pipeline, the first line of which will not
begin operation until 1986 or later. Even then, earn-
ings from the project will not come close to offsetting
the decline that we project in oil earnings until 1990.
increase. To cover projected grain needs, build the gas
Meanwhile, Soviet dependence on trade with the
West is not expected to diminish, and may well
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
pipeline, and sustain the flow of other nonagricultural
goods, the USSR would have to boost its hard curren-
cy imports and debt considerably more than the 1981-
85 plan implies.
To suggest the magnitude of the USSR's hard curren-
cy needs and constraints, we have constructed a
balance-of-payments accounting model to project-in
1981 US dollars-trends in the USSR's hard curren-
cy foreign exchange accounts through 1990. The
model, which consists of a series of standard account-
ing identities, projects overall payments trends with
assumed values for key earnings items such as the
volume and price of oil and gas, gold and arms sales
and-in a reference case-import requirements.
Our calculations assume that agricultural imports
drop from their peak of $12.5 billion in 1981 to $11
billion in 1982 and to $10 billion a year in 1983-90.
One or more bad harvests in this period could, of
course, raise Soviet agricultural import needs consid-
erably. We have also assumed that imports of machin-
ery and equipment, other than for the Yamal pipeline,
remain at $6 billion through most of the decade while
imports of nonagricultural, nonmachinery items such
as steel, pipe, and chemicals grow at the same rate in
real terms as in 1976-80. Imports for the Yamal
pipeline total $2 billion annually during 1982-88. C
Overall, imports that must be paid for in hard curren-
cy are projected to grow under these. assumptions at
an annual average rate of 3 percent during 1982-90,
slightly faster than implied by Planning Chairman
Baybakov in his plenum address last November on the
1981-85 Plan but not as fast as the annual 5-percent
rate recorded in 1976-80. In view of the resource
constraints that the USSR faces in the next several
years, a slower rate of increase in import volume
would make it more difficult for Soviet planners to
deal with prospective shortages and raise the techno-
logical level of domestic fixed investment.
Moscow cannot expect much help from merchandise
exports in paying the rising import bill. The key
variable in the calculation is Soviet oil exports whose
earnings have increased sharply in the past decade as
a result of spiraling world market prices. To cover the
range of likely Soviet oil options, we have projected
two extreme scenarios: (a) oil exports constant at 25X1
about 900,000 b/d through 1985 and then dropping to
zero by 1990; and (b) oil exports falling to 100,000
b/d by 1985 and to zero during 1986-90.5 Because of
soft demand in Western Europe for oil, prices are
projected to fall in real terms over the next two years
before leveling off for the rest of the decade. Gas
exports, on the other hand, are expected to rise to $4
billion by 1985 and then jump to $9 billion as the
Yamal pipeline goes into operation in 1986. In 1989,
gas earnings will reach $12.5 billion if a second
Yamal line is built. This assumption allows for a 25-
percent increase in the real price of gas (currently
undervalued in relation to other fuels) during the
decade. In all, the gas project will add nearly $9
billion annually to Soviet hard currency earnings.
Commodity exports other than oil and gas, mean-
while, are held constant at $9 billion a year through-
out the period. While some individual export items
(platinum-group metals and diamonds) will continue
to be in demand in the West, most items in the
USSR's export catalogue are products not well suited
to Western markets (machinery) or for which Western
demand has weakened (timber and other metals). If
anything, our assumption may be optimistic. The 25X1
volume of these exports in 1980 was lower than it was
in 1978 (table 7), and further slippage occurred in
1981. Volume exports of wood and wood products fell
more than 25 percent between 1976 and 1980. Real
exports of machinery and equipment and of diamonds
leveled off in 1978-80, and sales of ferrous metals and
agricultural products fell sharply between 1975 and
1980. In light of the sluggishness forecast for the
developed Western economies and in view of produc- 25X1
tion problems in the USSR, we doubt that export
earnings will rebound in the next several years.0
Nor are the prospects especially bright for earnings
from other sources. For these projections we have
assumed that Moscow will sell-at $400 per troy
' These exports represent sales to the West for hard currency. We
assume that exports to Eastern Europe, Vietnam, and Cuba
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
USSR: Hard Currency Commodity
Exports Other Than Oil and Gas
Total
1,801
2,281
2,430
2,313
2,994
3,160
2,821
Coal and coke
93
86
89
88
70
65
58
Machinery and
equipment
140
277
319
314
514
566
507
Wood and wood
products
365
361
449
427
405
380
328
Agricultural
products
205
264
227
256
175
138
112
ounce-all of the gold produced each year in excess of
domestic requirements, and that arms receipts will
remain at the 1981 level of $5 billion a year.6
Earnings from transfers and invisibles (including
freight and tourism but excluding interest earned) are
held constant at the current level of $1 billion a year.
Interest earnings on Soviet assets in Western banks
are projected to add another $0.9 billion a year to
overall receipts. The level of interest earnings is based
on the assumption that Soviet assets in Western banks
remain at $7 billion a year through 1990, and that
they earn interest of 13.5 percent a year.
For the projections of debt service, we assumed an
average annual interest rate of 13.5 percent on new
commercial debt and a rate of 7.8 percent on new
government-backed debt and debt incurred for the
Yamal gas pipeline. We assume that the average
maturity for medium- and long-term commercial
debt-which accounts for about two-thirds of total
commercial debt-and for government-backed debt is
five years. For the Yamal pipeline, we have built in a
6 Estimates of hard currency arms exports, which are prepared by
the Office of Global Intelligence, are currently being reviewed and
may be revised upward.
three-year grace period with repayments over eight
years. Short-term debt is held at one-third of total
commercial debt throughout the 1980s. Finally, net
expenditures under "errors and omissions" are held at
the 1980 level of 12 percent of merchandise exports.'
This assumes that the Soviets provide no extraordi-
nary hard currency assistance to Poland after 1981.
25X1
With the above assumptions, the model was used to
determine financing requirements for maintaining an
assumed 3-percent annual real growth in imports. Our
projections (summarized in table 8) suggest that under
the high oil scenario, gross debt would rise from a
respectable $19 billion this year to $38 billion in 1985
and $98 billion in 1990 (in 1981 US dollars). Under
the low oil scenario, debt would rise to $60 billion in
1985 and to $163 billion in 1990. Western credits
would be needed to cover approximately two-fifths of
the USSR's imports in 1982-90 under the first scenar-
io, and three-fourths under the second! In either case,
the debt service burden, while probably still manage-
able in 1985, would in the late 1980s be considered far
too heavy by both Western lenders and the Soviets. L
25X1
Almost any alteration in financing terms would raise
the cost to the USSR of doing business with the West.
At present Moscow benefits substantially from subsi-
dized credits extended by its major trading partners in
Western Europe and Japan. Roughly 40 percent of
the USSR's outstanding debt carries terms with
interest rates which are 4 to 5 percent below commer-
cial market rates. A denial of concessionary financing
terms on the roughly $2 billion a year the USSR now
receives in official financing, for example, would rais25X1
Moscow's debt service costs by an average of $100
million per year in 1982-90 (figure 2).
' "Errors and omissions" is a balancing item included in balance-of-
payments analysis to account for unrecorded financial flows. For
the USSR, the account includes such items as hard currency aid to
Poland and credits extended to finance exports such as oil to 25X1
European customers and machinery to LDCs.~
' As a sensitivity check, the same high and low oil scenarios were
run with imports rising by 2 percent annually rather than by 3
percent. Debt in the high oil scenario climbed to $37 billion in 1985
and $85 billion in 1990. In the low oil scenario, it reached $52
billion in 1985 and $150 billion in 1990. 25X1
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83TOO233ROO0100030006-5
USSR: Hard Currency Payments If Import Volume
Increases by 3 Percent Per Year
Billion 1981 US $
Except as Noted
-6.1
-11.2
-19.7
-17.4
23.9
22.5
21.7
14.0
21.7
Oil
11.5
9.5
0.0
1.1
0.0
Natural gas
3.4
4.0
12.7
4.0
12.7
Other
9.0
9.0
9.0
9.0
9.0
Merchandise imports
-30.0
-33.7
-39.1
-33.7
-39.1
Receipts from gold
2.0
4.2
4.2
4.2
4.2
Receipts from arms b
5.0
5.0
5.0
5.0
5.0
Invisibles and transfers
1.0
1.0
1.0
1.0
1.0
Interest receipts
0.9
0.9
0.9
0.9
0.9
Interest payments
-2.0
-3.7
-9.6
-5.5
-17.4
Current account balance
0.8
-3.8
-15.8
-13.9
-23.6
Errors and omissions
-3.4
-2.8
-2.7
-1.8
-2.7
Uncovered financing requirement
2.6
6.6
18.5
15.7
26.3
Credits drawn d
5.6
11.2
31.2
22.0
47.1
Less principal repayment
-3.0
-4.6
-12.6
-6.4
-20.8
Gross debt
19.3
38.4
98.0
59.8
163.1
Debt service
5.0
8.3
22.3
11.8
38.2
Debt-service ratio a (percent)
15
25
68
47
116
a "High oil" assumes hard currency sales plateau at 900,000 b/d
through 1985 then drop to zero in 1990; "low oil" assumes oil exports
fall to 100,000 b/d by 1985.
b Estimates are currently under review by the Office of Global
Intelligence.
c Totals may not add due to rounding.
d Includes a $1.5 billion drawdown of Soviet assets held in Western
banks in 1981.
e Debt service as a percentage of earnings from merchandise exports,
sales of arms and gold, interest, invisibles, and transfers.
Neither the Soviets nor Western bankers, of course,
would permit such a massive Soviet financial burden
to develop. Moscow instead would have to settle for
lower import levels than assumed in our reference
scenarios because any reduction in the volume of new
Western credits would lower Soviet import capacity
substantially. To estimate a more realistic import
capacity, the model calculations were reversed so that
imports could be projected with assumed values for
future Soviet credit drawings. Three scenarios were
constructed for each oil export profile: (1) a scenario
limiting the USSR to 1980 drawing levels of $4.5
billion per year, all at commercial terms with interest
rates at 13.5 percent; (2) a scenario limiting drawings
to $2.5 billion per year at commercial terms; and (3) a
scenario that assumes no new credits are drawn. In
each case, financing for the Yamal pipeline project is
unaffected by Western credit restrictions. These cal-
culations are summarized in table 9 and in figure 3.
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83TOO233ROO0100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
Figure 2
USSR: Total Debt Under High
and Low Oil Export Projections
In all three cases, Soviet import capacity is substan-
tially below the level required to allow East-West
trade to ease the USSR's economic problems appre-
ciably in the 1980s. If Moscow can maintain existing
oil export levels through 1985, it could probably
postpone deep reductions in imports until after 1985,
even if it received no new credits. If Soviet oil exports
declined substantially before 1985, however, Moscow
almost certainly would have to reduce its imports
more rapidly. The Soviets would incur less debt but
would also have much less access to Western goods
and technology. Western credit restrictions in this
situation would accelerate the decline in Soviet import
capacity in 1982-85 but would not make much differ-
ence thereafter. After the mid-1980s the differences
All commercial terms
Mixed terms
in debt service among the three scenarios begin to
offset the differences in the volume of new credit
drawings. 25X1
In all of our scenarios, we have projected Soviet hard
currency payments through 1990 in 1981 US dollars.
Thus, we have assumed that export prices-except for
oil and gas as noted above-and import prices move
together. Because of the decline in real oil prices in
1982-83, Soviet terms of trade deteriorate in those
years but improve somewhat throughout the rest of
the decade due to the continued rise in real gas prices.
The projections would be less pessimistic if Western
economic growth-and demand-picked up enough
to cause another round of increases in the real price of
oil and other raw materials.
Eastern Europe as a Backstop
Eastern Europe could provide the USSR little direct
assistance if imports from the West are forced back.
Eastern Europe is certainly in no position to fill
Moscow's immediate needs for grain and meat or even
the longer term requirements for raw and industriz25X1
materials. Nor is most of the large amounts of
machinery and equipment that the East Europeans
ship to the USSR anywhere near the quality or
technological level of that available in the West.F_~
The USSR could, however, realize substantial gains if
it were to cut back on economic assistance to Eastern
Europe-notably the subsidization of exports of goods
marketable in the West and the willingness to permit
deficits in bilateral trade. Moscow reportedly has
already notified the East Europeans that it intends to
cut crude oil deliveries. A diversion to the West of 10
percent of oil deliveries now going to Eastern Europe
would add $2 billion a year to Moscow's hard curren-
cy earnings. Nevertheless, political considerations
may force the USSR to help Eastern Europe at the
expense of its own economic interests. Not only will
Poland's need for large amounts of aid continue into
the foreseeable future, but some of the other East
European countries are also experiencing economic
difficulties.
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
USSR: Estimated Import Capacity
Billion 1981 US $
Except as Noted
Reference case with uncon-
strained borrowing:
Imports
30.0
33.7
39.1
33.7
39.1
Total debt
19.3
38.4
98.0
59.8
163.1
Debt-service ratio (percent)
15
25
68
47
116
With new credits limited to $4.5
billion at commercial rates:
Imports
(As a percent of reference-case
imports)
30.0
29.6
(88)
25.7
(66)
22.2
(66)
25.7
(66)
Total debt
19.3
30.8
34.6
30.8
34.6
Debt-service ratio (percent)
15
23
32
31
32
With new credits limited to $2.5
billion at commercial rates:
Imports
(As a percent of reference-case
imports)
30.0
29.3
(87)
25.5
(65)
21.9
(65)
25.5
(65)
Total debt
19.3
24.9
23.3
24.9
23.3
Debt-service ratio (percent)
15
18
22
24
22
With no new credits:
Imports
(As a percent of reference-case
imports)
28.6
(85)
26.5
(68)
21.2
(63)
26.5
(68)
Total debt
19.3
16.9
10.1
16.9
10.1
Debt-service ratio (percent)
15
12
11
17
11
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
Secret
Figure 3
USSR: Import Capacity Under
Credit Restrictions
I I I I I I
20 1980 82 84 86 88 90
Commercial credit at
$4.5 billion
Commercial credit at
$2.5 billion
20 1980 82 84 86 88 90
- Unrestricted credits
- No new credits
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
Secret
Appendix
Soviet Economic Dependence
on Western Trade, by Sector
Agriculture
The USSR has been a net importer of agricultural
products over the past decade. Since 1978, however,
the need for imports has been rising as a consequence
of three successive bad harvests. In 1981, grain
purchases and record imports of meat, sugar, vegeta-
ble oil, and soybeans and meal increased the Soviet
hard currency import bill for agricultural commod-
ities to almost $13 billion, well above the $8.8 billion
in 1980 and the $5.5 billion in 1979. Agricultural
imports in 1981 claimed an estimated 40 percent of
total hard currency purchases; they claimed 23 per-
cent in 1978, the most recent good agricultural year.
Even with these imports, however, per capita avail-
ability of agricultural products fell short of the 1978
level by 3 percent.
million tons. Moreover, the USSR will continue to
need large imports-at least 30 million tons of grain
annually-for at least the next several years, even
with trend grain crops, merely to boost per capita
meat consumption: 25X1
If all Western suppliers were to suspend grain sales to
the USSR before the 1982 harvest, Moscow would be
forced to:
? Reduce herd numbers to alleviate some of the
pressure on available feed supplies; this would lower
the following year's meat production.
? Implement rationing and other conservation
measures.
? Halt meat and grain exports to client states.
? Perhaps draw down strategic grain reserves.
Grain. Grain-the USSR's largest farm product im-
port-is supplied largely by the West. The USSR was
a net importer throughout most of the 1970s, with
grain accounting for 50 percent or more of hard
currency spending on agricultural commodities in all
but three years of the decade. The need for grain
derives from the early years of the Brezhnev-Kosygin
regime, when the leaders promised consumers larger
supplies of quality foods, particularly livestock prod-
ucts. Meat availability has become a yardstick by
which the Soviet consumer measures the change in his
level of living. As a result, meat is important for
worker morale and productivity.
After three consecutive poor grain harvests, imports
of grain will play a more critical role than ever before.
A grain crop of 170 million tons (our December
estimate) would be about 65 million tons below the
Soviets' planned output. Moscow will try to cover as
much of the shortfall as possible. We believe imports
will move at close to maximum port capacity-
estimated at 45 million tons a year-during the'
marketing year 1981/82 (1 July-30 June) even if the
1982 grain crop returns to a trend level of around 215
25X1
Denial of grain by the United States alone would have
a far more limited effect, even in the short run,
because Moscow could buy most of the grain it needs
this year and next from other suppliers, as it did after
the US partial embargo following the Soviet invasion
of Afghanistan. The USSR would probably have to
pay premium prices for some of this grain, however.
In the longer run, Moscow could overcome a US
embargo in terms of quantity by expanding its trade
with the major grain exporters; non-Soviet grain 25X1
purchasers whose traditional suppliers entered the
Soviet market could be supplied out of US stocks.
In terms of quality, however, achieving the desired 25X1
mix of grain under a US embargo would not be
possible. Most observers agree that the USSR prefers
to concentrate its grain imports on wheat and corn in
roughly equal proportions, and the United States is
the world's major corn exporter. Of the other major
exporters, only Argentina has the capacity and cli-
mate to increase corn production. 25X1
Nongrain Commodities. During the 1970s, hard cur-
rency expenditures for nongrain agricultural products
exceeded those for grain in only three years, but
registered fairly steady growth. In 1980, purchases of
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
nongrain products-largely meat, butter, vegetable
oil, sugar, and soybeans and meal-more than dou-
. bled from the 1979 level, and in 1981 they grew by
another two-fifths. Without these imports, per capita
availability of quality foods would have declined
substantially, and the average diet would have dete-
riorated.
While a total Western embargo of these products
would not cause hunger, it would probably increase
the "starchy-staple" ratio, as it forced the population
to consume an increasing share of calories from grain
and potatoes. The already serious food shortages
would become more widespread, and worker morale
and productivity would suffer correspondingly. Be-
cause the United States supplies few nongrain prod-
ucts, a US embargo would have little effect.
Imports of soybeans and soybean meal have become
increasingly important as domestic output of oilseeds
has declined and as the need to stretch feed supplies
for livestock has grown. Soybean meal in particular is
a concentrated source of protein and can substantially
improve the nutritional balance and efficiency of
livestock rations. Western restrictions on oilseed and
meal exports to the USSR would delay improvement
in feeding efficiency and slow the increase in meat
output. Although most of their imports of soybeans
and meal came from the United States during the late
1970s, the Soviets can fill their needs from other
suppliers. They have already signed long-term agree-
ments with Argentina and Brazil for 1 million tons of
soybeans annually through 1985. Brazil will also
provide 400,000 tons of soybean meal annually over
the same period. Western Europe also became a
major exporter of soybean meal to the Soviets last
year (it produces the meal from US soybeans). F_
Serious technical problems face the Soviet petroleum
industry-in drilling, oil production, and pumping
equipment, in pipeline construction, and in the devel-
opment of remote oil and gas fields. Natural gas
production is growing rapidly and is being counted on
to sustain the nation's energy output and hard curren-
cy earnings when oil production falls. But these hopes
are threatened by inadequacies in the Soviet capacity
to produce large-diameter pipe and compressors.
The USSR will need to import a broad range of
Western petroleum equipment to help overcome its
energy problems. The list could include equipment for
exploration, drilling, production, offshore operations,
oil refining, gas processing, and pipeline construction.
Exploration Equipment. The Soviets already have
found most of the relatively shallow, easily located,
accessible oil and gas deposits. They specifically need
Western seismic and well-logging technology to boost
oil reserves in the 1980s. Because there is usually a 5-
to-6-year lag between discovery and production,
Western equipment ordered today is unlikely to have
much impact on oil production before the late 1980s.
A multilateral embargo could severely constrain Sovi-
et exploration. Unilateral controls by the United
States may have little or no effect. Foreign firms can
supply most Soviet needs with little or no degradation
in quality. But we do not believe that the Soviets can
improve their own exploration technology (that is,
geophysical hardware and software) rapidly enough to
affect production before the 1990s.
Drilling Equipment. The Soviets plan to nearly dou-
ble the amount of drilling for oil and gas in 1981-85
and to increase it further in the late 1980s, but their
drilling productivity is poor by international stand-
ards. Western rigs, drill pipe, tool joints, drill bits,
blow-out preventors, and drilling-fluid technology al-
ready provide substantial aid to Soviet drilling efforts.
The Dresser drill-bit plant, expected to be in operation
declining fields, to increase output elsewhere, and to soon, will enhance Soviet oil production by the late
help locate and develop reserves. 1980s beyond what the Soviets could do themselves.
Western assistance in bringing the plant on stream
would have a considerable effect on the rate and
Oil and Gas Equipment
During the 1970s the USSR bought about $5 billion
worth of oil and gas equipment from the West-about
$800 million worth from the United States alone.
(These figures exclude large-diameter pipe, discussed
on page 19.) The Soviets continue to purchase West-
ern equipment to minimize the fall of production in
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
Secret
quality of production over the next few years. Al-
though the United States is the world's leader in the
production of drilling equipment, producers in Japan
and Western Europe could eventually supply the
Soviet market. A unilateral US embargo may there-
fore not have much bite.
Production Equipment. The Soviet oil industry faces
rising fluid-lift requirements in the 1980s, as the
amount of water produced along with the oil in-
creases. According to Soviet plans, a large additional
volume of fluid-well over 6 million b/d-must be
lifted in 1985 simply to maintain production of oil at
the 1980 level of about 12 million b/d. To handle the
high volume of fluid, the Soviets plan to double the
number of wells producing oil with the help of
submersible pumps and gas-lift equipment.
Imported equipment is important for this effort be-
cause the capacity and quality of Soviet-made sub-
mersible pumps and gas-lift equipment are low. US
producers now have a monopoly in producing high-
capacity pumps, but if these remain embargoed, other
Western suppliers could enter the field within about
two years. Each high-capacity US pump produces on
the average about 1,000 to 1,500 b/d of oil under
Soviet conditions. The Soviets probably hope to im-
port about 100 such pumps annually (in the 1970s
they imported a total of 1,200). The water-cut prob-
lem in Soviet oilfields is getting worse, and a program
to produce a good high-capacity submersible pump
domestically has not yet been successful.
In addition to high-capacity pumps, Western equip-
ment playing a significant role in Soviet oil develop-
ment includes gas-lift equipment, well-completion
equipment, wellhead units, and Christmas-tree assem-
blies. The USSR also has an increasing need for
Western enhanced-oil-recovery technology. Enhanced
recovery projects have long leadtimes, however, and
the effect of Western assistance would be relatively
small and felt only after 1985.
Offshore Equipment. The Soviets' least explored pro-
spective areas for new petroleum discoveries are off-
shore, and their oil and gas production in the late
1980s and beyond will depend heavily on the explora-
tion and development of continental shelf areas. The
Soviets already have received substantial assistance
from the West, and continued assistance could speed
development in the Caspian area. A US embargo
applied unilaterally may make little difference. 25X1
COCOM restrictions would have very little effect
after 1985, because nations who are not COCOM
members would be able to provide equipment by then.
Firms in Finland, Singapore, Mexico, and Yugoslavia
can already supply most of the USSR's current
offshore needs and could supply all by the late 1980s.
Production of the few drilling components now pro- 25X1
duced only in the United States could be quickly
introduced abroad.
Oil Refining and Gas Processing Equipment. The
Soviets intend to expand their secondary refining and
gas processing industries substantially in the 1980s.
Although they are relying primarily on their own
production or on equipment imported from Eastern
Europe, future expansion will require Western inputs.
25X1
Gas Pipeline Equipment. Although the CEMA coun-
tries produce most of their own oil pipeline equipment,
the USSR relies extensively on the West for gas
pipeline equipment-large-diameter pipe and valves,
compressors, and pipelayers. The USSR imported
10-12 million tons of line pipe in the past decade at a
cost of $4-5 billion. Pipelines are the principal bottle-
neck in Soviet gas production, and a COCOM embar-25X1
go on pipe, compressors, and pipelayers would be a
major setback to the industry.
High-quality large-diameter pipes and valves are cur-
rently produced only in Western Europe and Japan.'
Although the Soviets have recently built a plant to
manufacture large-diameter pipe, they have yet to
master production of pipe of this size. Pipelayers
capable of handling this pipe are produced only in the
United States and Japan, although Fiat-Allis in Italy
probably could begin production in a year or so. Large
'Although the Soviets produce pipe up to 1,420 mm (56 inches) in
diameter, little is for natural gas pipeline service. Most Soviet pipe
is spiral welded and lacks the high-strength, low-alloy metallurgy of
Western steel for Arctic pipeline service. Most of the large pipe
imported by the USSR is fabricated with a single longitudinal weld
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
turbine compressors of the type sought by the Soviets
for the Siberia-to-Western Europe pipeline are built
in the United States and the United Kingdom. Small-
er, units are built by firms in France, Germany, Italy,
and Japan; none of these has yet attempted to make a
20-to-25-megawatt unit, although a French firm has
the necessary licensing.
A multilateral COCOM embargo on gas pipeline
equipment could reduce gas production substantially
by 1985 and by even more after that. Unilateral
restrictions on US equipment in this area, however,
may have minimal impact. The United States does
not produce the pipe or valves sought by the USSR,
and pipelayers and compressors can be supplied from
abroad. Foreign production of industrial compressor
turbine shafts, rotors, and stators (now subject to US
control) could begin in time to prevent a delay in
completion of the pipeline.
Minerals and Metals
The USSR does not rely on the developed West to
satisfy its requirements for any minerals or metals
except steel and molybdenum. (Molybdenum is a
critical alloy with a wide range of military and civilian
applications.) The United States sells no steel to the
USSR but is a major provider of molybdenum. The
Soviets buy only small amounts of tin, cobalt, and
tungsten through metals dealers in the major Western
capitals; the bulk of Soviet purchases are made
directly from the major less developed producing
countries.
Steel imports will be needed for several years to
overcome inadequate investment in steel capacity.
Imports of large-diameter pipe will be especially
important for the Siberia-to-Europe gas pipeline. De-
nial of these Western supplies would hit the energy
and machine-building sectors particularly hard in the
coming years. Since Western Europe and Japan sup-
ply almost all of these goods, a denial limited to US
products would have little impact.
The USSR also needs continuing access to Western
metallurgical technology if it is to reduce its depend-
ence on imports of Western specialty steels. The
French are helping to build the important Novolipetsk
steel plant, which will produce 7 million tons of
specialty steels per year when it comes on stream
(1986 at the earliest).
Soviet imports of molybdenum increased sharply in
the 1970s (from 3,000 tons in 1970 to 13,000 tons in
1980), to a point where purchases now exceed annual
domestic production. Concern about growing depend-
ence on the West may be responsible in part for the
Soviets' recent interest in obtaining new supplies from
Mongolia. If they were denied supplies before the
connection could be made, however, they probably
could buy through a chain of brokers fairly easily or
use East European trading organizations acting as
purchasing agents for Soviet customers.
Chemicals
The Soviets have bought sizable quantities of Western
chemical equipment and related process data for more
than two decades. In the 1970s alone, purchases
amounted to at least $9 billion, or about one-third of
their total orders of Western equipment. During most
of the 1970s the Soviets concentrated heavily on
plants for the production, handling, and storage of
fertilizers. Since 1978 the trend has been toward
orders of equipment for producing plastics, synthetic
fibers, and rubber products. The US share of Western
chemical equipment imported by the USSR was small
throughout the decade-only about 7 percent-be-
cause Moscow generally has viewed US firms as
providers of process technology and engineering de-
sign rather than equipment.
totaled nearly $1.6 billion in 1980.
Soviet purchases of chemical equipment have increas-
ingly been associated with product buy-back or "com-
pensation" deals, under which Western firms agree to
long-term purchases of Soviet products that are usual-
ly manufactured in the Western-equipped facilities.
Soviet exports of such manufactured chemicals to the
West for hard currency amounted to $765 million in
1980, 11 times the 1970 level; earnings from buy-back
deals now account for one-third or more of Soviet
hard currency earnings from chemical exports. In
spite of the growth in such exports, the USSR remains
a net importer of chemicals. Imports from the West
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
With Western assistance, the Soviet output of ammo-
nia, nitrogen fertilizers, and plastics has doubled in
the past decade, and output of synthetic fibers has
tripled. Soviet use of Western technology has been
especially critical in the production of ammonia.
Large plants based at least in part on Western
technology provided all of the nearly 11 million tons
of ammonia capacity introduced during 1976-80.
Since 1969 the Soviets have ordered 45 ammonia
plants that use Western technology and/or equip-
ment; 30 of these have used US technology. This
Western help has allowed the USSR to become the
world's leading ammonia exporter-about 2 million
tons in 1980 (less than 100,000 tons in 1975). Exports
of other chemicals are not as substantial, but the West
Europeans already have begun to complain about the
dumping of Soviet polyethylene and polyvinyl chloride
in their markets.
Soviet plans call for continued substantial orders for
Western chemical equipment and/or technology to
produce urea, pesticides, ethylene, benzene, and
downstream petrochemicals. They also call for 14
additional ammonia plants during 1981-85. In view of
deficiencies in Soviet pesticide development and a
current stress on achieving a better balance in devel-
opment between pesticides and fertilizers, the USSR
also probably will seek Western pesticide production
equipment. Plans to develop large chemical complexes
in West Siberia probably will include purchases of
Western equipment for producing fertilizers, plastics,
manmade fibers, synthetic rubber, and a number of
petrochemicals.
In addition to equipment, Moscow will have to buy
chemical products from the West, including phos-
phate materials, plastics, dyes, pesticides, manmade
fibers, and catalysts. To this end it has already signed
several major trade and technical cooperation agree-
ments with Western firms. Among the most impor-
tant are a $6.5 billion 10-year reciprocal trade agree-
ment signed in late 1980 with France's Rhone
Poulenc. The French firm will supply equipment and
technology, pesticides, fertilizers, and animal feed in
exchange for such energy-intensive chemicals as
naphtha, ammonia, methanol, and possibly crude oil.
A similar $1.5 billion 10-year reciprocal trade deal
signed in early 1980 with Italy's Montedison requires
the Italian firm to supply seven chemical plants
(together valued at $800 million) in return for raw
materials, fertilizer, and petrochemicals. Other,
smaller trade agreements signed with UK and Japa-
nese firms will guarantee the Soviets supplies of oil-
recovery chemicals, pesticides, dyes, plastics, and
catalysts. 25X1
Denial of Western chemical equipment and technol-
ogy would slow future increases in Soviet production
of consumer goods and chemical-based industrial
materials, would hurt agricultural production, and
would delay progress toward a more efficient chemi-
cal industry with enhanced export capabilities. With-
out Western equipment, the Soviets would have to
import many more chemicals than they currently 25X1
do-or cope with more serious shortages than they
already have.
The US role is especially visible with regard to Soviet
efforts to upgrade its domestic fertilizer industry. The
United States is the only large-volume source of
superphosphoric acid (SPA)-a chemical that the
Soviets' "liquid complex" fertilizer plants purchased
from France were designed specifically to use. The
suspension of US SPA sales in 1980 delayed the liquid
complex fertilizer program by more than a year
because most of the available substitute material was
of a lower grade and was unsuitable for use in the
program. Shortages of SPA probably reduced agricul-
tural production in 1980 and 1981. (The United
States resumed SPA sales in mid-1981.) Any future
denial of SPA would force the Soviets to find alterna-
tives. These might include: 25X1
? Installing evaporators to concentrate merchant-
grade phosphoric acid (which is more easily ob-
tained) to SPA.
? Altering the design of the liquid complex fertilizer
plants to use merchant-grade phosphoric acid.
? Importing additional phosphate materials.
All these alternatives would require more time and
Denial of US chemicals other than SPA would have
little impact on the USSR. In 1980 the United States
supplied, in value terms, only 0.1 percent of the
pesticides, 2 percent of the plastics, and 4 percent of
the manmade fibers imported from the West. (Two
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
years earlier the comparable US shares were about 10
percent, 5 percent, and 6 percent.) Denial of pesti-
cides, plastics, dyestuffs, manmade fibers, and cata-
lysts by the entire West, however, would affect Soviet
agriculture and industry, as well as the consumers.
Domestic output of these chemicals is inadequate in
both volume and quality. A cutoff of Western plasti-
cizers (which facilitate the preparation of plastics and
increase their flexibility and toughness) would create
problems in Soviet plastics processing. A cutoff of
pesticides, especially herbicides, would reduce some
crops, particularly corn and sugar beets. In the long
term, the Soviets could expand their own production
of these chemicals and/or arrange specialization
agreements with East European countries, but during
the adjustment process their production would be less
efficient.
Machinery
Motor Vehicles. In the mid-1960s, when the USSR's
ambitious 15-year program for modernizing and ex-
panding motor vehicle production was begun, the
USSR could not provide the necessary investment.
Specialized machinery for mass production was in
short supply, and most Soviet-built production equip-
ment did not meet modern world standards for effi-
ciency, reliability, and accuracy. Planners turned to
the West for massive help, spending an estimated $3
billion for automotive production equipment and tech-
nology between 1966 and 1980.
Although substantial quantities of machinery were
purchased for passenger car plants, the truck industry
received the lion's share of the imports. About one-
half of Soviet hard currency investments were for the
Kama Truck Plant alone. The United States provided
Kama with automated foundries-among the most
advanced in the world-and automated diesel engine
machining and assembly lines. The Likhachev Truck
Plant (ZIL), a major producer of trucks for the
military, was another major recipient of Western
truck manufacturing technology. Machinery for these
and other Soviet motor vehicle plants was supplied by
US, Japanese, and West German firms.
With the completion of the 15-year program last year,
investment in the automotive industry probably will
return to lower levels. Modernization of existing
facilities will continue, but no new truck or passenger
car plants are called for in the current Five-Year Plan
period (1981-85). Thus a Western denial of technology
and goods for this sector would have only minor
impact in the immediate future. The Soviets have on-
the-shelf plans to install new capacity for heavy
trucks, however, which could be activated after 1985,
creating a large new demand for Western production
technology.
Construction Equipment. Plans for a number of im-
portant programs have been delayed because con-
struction and earthmoving equipment has not been
available in sufficient variety or quantity to build
plants. Soviet industry, for example, did not even
begin production of a 75-ton off-highway truck until
the late 1970s, more than 10 years after its planned
production date. Even now, heavy-duty diesel engines
from Czechoslovakia are used to power the vehicles.
Plans to produce heavy industrial tractors and bull-
dozers have been delayed by faulty tractor and engine
designs. The USSR also lacks the capacity for pro-
duction of transmissions, suspension systems, and
heavy-duty axles (capable of supporting weights of 50
tons. or more).
The USSR plans to produce its own equipment with
imported plant and technology. Under a recent con-
tract with Fiat, Italians will supervise construction of
a turnkey facility to produce earthmoving equipment.
Negotiations are under way for the purchase of
production technology for industrial tractors and en-
gines. The USSR currently is building a plant using
US technology to produce electric wheel drives. Soviet
officials have also expressed interest in obtaining
licenses and production help in setting up production
facilities for US tractors. For several years, how-
ever-until these programs are completed-the
USSR still will need to, buy a substantial amount of
construction and earthmoving equipment from the
West.
Denial of Western goods would seriously disrupt
Soviet plans to become more self-sufficient and would
force them to use less efficient equipment. The East
European countries manufacture some of this equip-
ment-Poland produces a heavy-duty bulldozer, for
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
example, and Romania produces a 100-ton off-high-
way truck-but their production is too small and the
product mix is too limited to meet Soviet demand. At
the same time, dependence on US equipment and
technology is not especially significant. Fiat of Italy
and Komatsu and Sumitomo of Japan, in particular,
now match-or have the technological capability to
match-US-produced off-highway trucks, industrial
tractors, and earthmoving equipment.
Mining Equipment. Soviet industry provides most
additions to the USSR's park of mining and earth-
moving equipment. Nevertheless, imports have been
important, especially where higher capacity machines
are required. Between 1972 and 1980, the Soviets
imported about $1.6 billion worth of mining and
earthmoving equipment-about one-third of the total
from the United States and most of the remainder
from Japan and West Germany. Imports consist
primarily of heavy-duty dump trucks, excavators,
bulldozers, and mining drills. Western-supplied min-
ing equipment has been less important to the USSR;
most of this equipment is provided by Eastern Eu-
rope-notably East Germany, Czechoslovaki- --'
., , , 25X1
The South Yakutia coal mines, developed with Japa-
nese assistance, have been the Soviets' largest mining
project, in terms of the amount of equipment imported
for it. Earthmoving equipment, particularly bulldoz-
ers, is also vital to gold-mining operations in the
Magadan, Irkutsk, and Lena regions, as well as to
other coal- and ore-mining efforts. In most cases, the
Soviets produce the equipment, but not in the quality
or capacity required. Development of the vast open-pit
Siberian coal mines, as well as continued development
-of mines elsewhere, requires enormous earthmtw na
and hauling capability. 25X1
We believe that the Soviets will continue to depend on
Western equipment in the 1980s. Increased imports of
large-capacity dump trucks, for example, could speed
the development of the Ekibastuz coal-mining com-
plex, where hauling capacity, not mining capacity, is
the chief constraint. Since most of the equipment can
be supplied by Japanese or West European producers,
the denial of US equipment by itself would not do
much damage to the USSR. Without access to West-
ern equipment, the Soviets would encounter problems.
The biggest impact would be the grounding of some of
the existing machinery by the lack of new spare parts.
These would be mainly short-run problems, however;
in time the Soviets could increase imports from
Eastern Europe or shift their own pr25X1on lines.
25X1
Machine Tools. The USSR is the world's largest
producer of both conventional and numerically con-
trolled (NC) machine tools. Much of the output,
however, consists of general purpose machine tools
that are relatively easy to produce in large quantities,
rather than special-purpose and complex types. More-
over, many models of machine tools are kept in
production well past obsolescence-in some cases up
to 20 years. These practices yield economies of scale
that lower the cost of producing machine tools but
sacrifice diversity in the product mix.
25X1
Because of its historic emphasis on capital goods
production, including military durables, the USSR
uses large quantities of machine tools, especially for
metal cutting. In many cases, heavy machinery can be
produced only by metal-cutting techniques, and a
large stock of general purpose metal-cutting machine
tools is needed to supply the needs of a huge repair
and spare parts sector (itself the result of poor quality
in original equipment).. Moreover, because the ma-
chine tool park is so large, a substantial quantity of
machine tools is needed just to replace the aging and
obsolescent portion of that park. 25X1
because of a basic lag in electronics.
In recent years, the production of machine tools has
fallen short of requirements. Output of metal-cutting
machine tools actually has fallen in the past five
years. A few new plants were activated during the
1970s for the production of automatic transfer ma-
chinery for the automotive industry, but little new
capacity has been added in most areas of machine-
tool production. Conventional Soviet machine tools
are ruggedly built but lack the reliability, precision,
and flexibility of their US counterparts. Advanced
machine tools, such as numerically controlled types,
are less advanced than those in use in the West
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
In 1965 the USSR began a major effort to increase
domestic production of NC machine tools and, hence,
to raise the general level of machine-tool technology.
Indeed, by 1977 Soviet NC tool output exceeded that
of the United States by nearly 50 percent. This jump
was accomplished by the same policy that helped
retard technological advance in the production of
conventional tools: namely, the concentration of re-
sources on a few simple models of limited usefulness
rather than on a variety of custom-made models.
Throughout the 1970s, Soviet NC technology was by
and large limited to two-axis point-to-point machines.
Some three-axis contouring models were developed,
but production was limited and their quality was
suspect. Computer numerical control (CNC), which
was being increasingly used in the West by 1980,
exists in the USSR only in prototypes. Soviet develop-
ment and production of NC tools has been impeded
by the poor quality of controller, electromechanical
positioning, and feedback devices and by the relatively
backward state of minicomputer technology.
Technological deficiencies and production gaps in
both conventional and NC machine tools prompted
the USSR to turn to imports to meet its needs.
Imports of Western machine tools exceeded $4 billion
over the past decade. Three-fourths of these imports
were conventional types of machine tools. Some were
needed to supplement domestic production (automat-
ed lathes); some to acquire levels of precision and
productivity superior to that available domestically
(US gearcutting machinery); and some because the
Soviets had no domestic counterparts (closed-loop,
multiaxis NC machine tools). The USSR also buys a
substantial volume of machine tools from Eastern
Europe, even though they are less advanced than
those purchased from the West. East Germany, for
example, exports up to half its annual output to the
USSR, and other suppliers include Czechoslovakia,
Hungary, and Yugoslavia.
Nearly 80 percent of total machine tool imports from
the West during the past decade have originated in
Western Europe, especially in West Germany and
France. Non-COCOM countries such as Austria,
Switzerland, and Sweden have also been small but
important suppliers. (MAAG of Switzerland is one of
the world's top producers of precision grinding ma-
chinery.) The United States and Japan have each
supplied approximately 10 percent of total Soviet
imports. The United States supplies mainly transfer
lines and gearmaking machinery for the automotive
industry and precision grinding equipment for the
bearing industry. Japan provides NC machining cen-
ters and other automated tools.
Present COCOM controls restrict sales to Communist
countries of only the more advanced types of NC
machine tools and of some specialized machine tools
for military production. Most Soviet machine tool
purchases have been noncritical, but the USSR also
has purchased advanced equipment when COCOM
member nations have chosen to interpret an ambigu-
ity in COCOM definitions in its least restrictive sense
and to downplay the strategic implications of the
machine tools being sold. The Soviets have also
tended to respond quickly to changes in COCOM
regulations. When restrictions on three-axis machin-
ing centers and boring mills of small size and limited
accuracy were relaxed in 1977, for instance, the
USSR quickly increased its purchases of such equip-
ment, especially the more sophisticated models avail-
able in West Germany and Japan.
The Soviets apparently intend to continue to import
machine tools, especially advanced types of NC ma-
chine tools and machining centers. They probably
believe they need them to raise the level of productiv-
ity in industry. US restrictions, in isolation, would
have little effect on Soviet purchases, since much of
the advanced NC machine tool. technology is now
diffused throughout the industrialized world and
available from foreign suppliers.
Industrial Robots. The robotics industry in the USSR
is in its infancy, with production in recent years
limited to about 350 units a year. None of the
enterprises currently producing robots has a series
production capability. By the end of 1980, the USSR
had an estimated 1,500 to 2,000 robots in use-well
below the 5,000 that had been planned. Moreover,
many of these were of foreign origin.
By Western standards, Soviet industrial robots are
relatively primitive. Most are first-generation ma-
chines that perform either a single repetitive function
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
or an unvarying sequence of functions. They lack the
microprocessor controls, large memories, and ad-
vanced sensors needed for pattern recognition and
adaptive operation. More complex robots are under
development, but only a few experimental models
have been made.
Pending the development of a viable domestic indus-
try, the Soviets have turned to imports for a low-cost
supply of reliable industrial robots. More than 500
robots have been purchased from Hungary, and an
unknown number from Japan, France, and Italy. The
USSR also has been looking to foreign suppliers for
design and manufacturing technology.
Although the Soviet robotics industry may expand
dramatically in the next few years, substantial im-
ports probably will be needed for some time. The
Soviets have approached several Japanese firms to
discuss acquiring industrial robot technology and
related know-how. Renault of France and the USSR
plan to jointly develop miniature robot drive units and
industrial robots for serial production. Without West-
ern help, the Soviets would face serious delays in
developing their robotics industry. Currently, they
need robots to help improve productivity in mass-
production industries. The United States leads the
world in advanced robot technology, but the Soviets'
most pressing need is for simpler types for routine
applications, such as repetitive welding operations in
car manufacturing. They may well prefer Japan to the
United States as a supplier of robots, since Japan has
a greater production capacity and more experience in
practical applications.
High-Technology Products
Computers. Despite impressive gains in the number,
variety, and performance of Soviet computers over the
past decade, the technology gap between the USSR
and the West is large and growing. The Soviets have
patterned their major developments in large comput
ers and minicomputers on US designs that are essen-
tially two generations behind current US offerings. In
addition, their implementation of these designs has
been imperfect, hampering progress in closing the
gap.
Reliability of Soviet computer systems is still a serious
problem, due in part to the poor quality of imported
materials and in part to a lack of modern production
and test equipment in computer plants. Especially
serious has been the inability of the USSR or its East
European partners to supply the large numbers of 25X1
high-speed, high-capacity magnetic disk auxiliary
memory devices that are essential for the operation of
modern data processing computers. Proper software
and other support (such as maintenance and spare
parts) also have been deficient or absent altogether.
25X1
In the field of computers, the USSR has had an 25X1
extensive cooperation agreement with the countries of
Eastern Europe since 1969. The East Europeans have
been supplying native computers, peripherals, and
parts, but their computer industries generally suffer
from the same problems that plague the Soviets and
are unable to meet Soviet requirements.
These weaknesses in the. CEMA computer industries
have induced the Soviets to "buy Western." Since
1972 they have imported more than 1,300 computer
systems valued at $400 million, as well as $70 million
worth of add-on peripheral equipment and spare
parts. The vast majority of computer systems import-
ed-95 percent of the units and 64 percent of the
value-have been minicomputers, generally for use in
research and development. The relatively few large
systems purchased have been for high-visibility, high-
priority projects such as the Kama River Truck Plant,
the Moscow regional air traffic control system, and 25X1
the Olympic Games system.
25X1
The USSR imports large systems and minicomputers
from the West for several reasons. Western systems
may have performance capabilities the Soviets cannot
match, may use complex software that the Soviets
have not developed, and may be supplied with expert
training and support that the Soviets cannot dupli-
cate. Buying Western minicomputers is also attractive
because domestic production is so limited and because
software packages available with Western models are
more versatile.
25X1
25X1
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
The United States has a unique capability only at the
leading edge of the technology-the very high-speed,
high-capacity scientific computers and the most ad-
vanced peripherals and microprocessors. The USSR
prefers US products, however, even in the categories
of lower level minicomputers and large computers
that are routinely approved for sale to the USSR. A
major US advantage is that any one of several
manufacturers can provide a complete range of hard-
ware, software, and support. Even the Japanese,
whose hardware is technically competitive, admit to
being behind the United States in software and
support. Soviet users are also more familiar with US
products because their own designs are based on
them. 25X1
COCOM controls on computers are extremely com-
plex. In general, however:
? Low-performance computers, including most mini-
computers, may be exported at the discretion of the
exporting country without submission to the
membership.
? Somewhat more powerful computers, including
many high-speed, high-capacity computers, are sub-
ject to a procedure requiring a pro forma submission
to the membership. The members have agreed in
advance to approve their export if certain conditions
are met.
? The most powerful computers require unanimous
agreement of member countries for sale to pro-
scribed destinations.
In the minicomputer arena, literally dozens of firms
are technically able to compete with the United States
for Soviet business. They are located in COCOM
countries (Japan, the United Kingdom, France, West
Germany, Italy, Canada, Norway, the Netherlands,
and Denmark) as well as in countries like Brazil,
Austria, Switzerland, and Israel. Controls on mini-
computers are ineffective because of this general
availability and the provisions authorizing exports at
the discretion of the exporting country.
Larger computers of the type that COCOM has
agreed in advance to approve also are available from
other COCOM countries. They are built in Japan by
Fujitsu and Hitachi, in the United Kingdom by ICL,
in France by CII, and in West Germany by Siemens.
The United States could not prevent other COCOM
countries from exporting their own large computers-
unless (1) it were willing to renege on its prior agree-
ment not to object to exports by others and (2) other
member countries were willing to acquiesce to US
objections.
Unilateral US action thus may not markedly restrict
the Soviets' acquisition of Western computers. Most
of their business in minicomputers and large comput-
ers could be readily transferred to other countries, in
and out of COCOM. Japanese industry, for example,
can supply systems of completely domestic origin over
the full size range. The United States could prevent
sales of the most powerful computer systems-those
requiring agreement in COCOM-by exercising its
veto. However, such computers have never been ap-
proved for sale to the USSR in any quantity.
In the case of some foreign systems, the United States
can exercise some control on sales to the USSR
because parts and peripherals are of US origin.
Foreign manufacturers could design their own prod-
ucts, if necessary. 25X1
The USSR will no doubt continue its occasionally
successful efforts to acquire the most powerful West-
ern computers illegally-whether legal sales are halt-
ed or not. If they are, the Soviets might attempt to
increase their illegal acquisitions if they could also
acquire the-related software and support applications.
East European countries would be unlikely to divert
legally acquired computers to the USSR for fear of
discovery and sanctions. However, they might be
willing to help the USSR acquire computers (as they
have other items) if their own involvement in the
transaction were not overt.
Microelectronics. Rapid advance in microelectronics
requires a broad range of parallel advances in the
technologies of production and test equipment, mate-
rials, assembly, and packaging. The Soviet electronics
industry has not made those advances-in large part
because of its strong military orientation. Paradox- 25X1
ically, the military priority claim on resources does
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
not encourage rapid technological advances. The phi-
losophy behind Soviet military hardware design gen-
erally requires use of the "tried and true" in the
development of new weapon systems.
During the past decade, the USSR has acquired a full
range of microelectronics-related technology, materi-
als, and equipment from the West totaling several
hundred million dollars. These purchases have includ-
ed unembargoed items, embargoed items legally ap-
proved for export by COCOM, and embargoed items
acquired illegally and clandestinely. The overwhelm-
ing majority are embargoed items that have been
obtained illegally by diversion. This method has some
limitations, however. Illegal chanels do not easily
convey a manufacturer's installation, training, or
maintenance services or provide easy access to spare
parts-and this reduces the effectiveness of the equip-
ment in Soviet facilities.
Most of the equipment that has been acquired illegal-
ly originated in the United States. In the past few
years, both Japan and West European countries have
become important suppliers of diverted equipment to
the USSR. Firms in Italy, Switzerland, the United
Kingdom, and West Germany have diverted basic
materials and technologies, and firms in these coun-
tries, plus France, have diverted some advanced pro-
duction equipment. No single European country can
supply Moscow with the spectrum of US or Japanese
microelectronics technologies, but Western Europe as
a whole can meet a significant percentage of its needs.
Even though the United States is no longer the sole
supplier in any single area of microelectronics tech-
nology, the Soviets still prefer US equipment. They
have found some non-US products to be poor substi-
tutes, and the United States can supply the full range
of state-of-the-art technology from basic materials
through final test.
If technology and products currently available to the
Soviets through legal channels were denied through
stringent new export policies, the Soviets would try to
compensate by accelerating illegal purchases. So far, 25X1
COCOM attempts to arrest the flow of illegal pur-
chases have been unsuccessful. 25X1
Telecommunications. The function of the Soviet com-
mon carrier telecommunications system resembles
that of the Bell System and the independent telephone
companies in the United States. It provides communi-
cations services to government, the military, com-
merce and industry, and the general public. Like the
other industrialized countries, the USSR has expe-
rienced a rapid growth in demand for these services.
The Soviet common carrier system cannot fully satis-
fy the demand in either quantity or quality. The
USSR is therefore engaged in a major ongoing effort
to expand and modernize it.
Although the USSR is one of the world's major 25X1
producers of communications equipment, its produc-
tion capacity is inadequate, and the technological
level of domestically produced equipment is not equal
to world standards. The USSR therefore supplements
domestic production with imports from East Europe-
an and non-Communist countries. The United States
is not a major supplier.
The USSR buys communications equipment such as
radio relay links, switching equipment, and transmis-
sion equipment from Eastern Europe for use in its
common carrier system. Some of these items are 25X1
indigenous East European products, while others re-
sult from joint development efforts with the USSR. A
few items are manufactured in Eastern Europe under
license from Western companies. The United States
has no way of preventing these sales to the USSR=
The USSR also imports communications equipment 25X1
from COCOM countries, as well as from such coun-
tries as Sweden, Yugoslavia, and' Finland. Even in the
case of COCOM countries, controls are not effective.
Most types of equipment needed by the USSR are 25X1
either not on the control list or subject to procedures
that authorize exports at the discretion of the export-
ing country. The United States thus does not now 25X1
have the opportunity to veto transactions.
One case where COCOM controls do apply involves a
$172 million contract for the sale by a French com-
pany to the USSR of computer-controlled telephone
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
switching equipment, together with a turnkey facility
for its manufacture. The facility would give the
Soviets a serial production capability for modern
telephone exchanges of a type they cannot make now.
The technological level of the equipment exceeds that
currently required for the communications system,
but Soviet interest in it is reasonable. Switching
equipment has an operating life of decades, so it is
appropriate to anticipate future requirements.
France apparently now agrees with the US contention
that the proposed transfer of manufacturing technol-
ogy should not be allowed to proceed. Nevertheless, if
the sale is stopped, the Soviets could obtain less
sophisticated switching equipment and production
technology currently not subject to COCOM restric-
tions.
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
 Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5
Secret
Secret
Sanitized Copy Approved for Release 2010/04/29: CIA-RDP83T00233R000100030006-5