SOVIET FOREIGN ECONOMIC POLICY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700030066-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 26
• Document Creation Date: December 22, 2016
• Document Release Date: January 18, 2011
• Sequence Number: 66
• Publication Date: April 28, 1972
• Content Type: IM

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-r/ U
Secret
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
Soviet Foreign Economic Policy
Secret
28 April 1972
ER IM 72-66
104
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law,
OROUP 1
xxCLUntn FROM AUTOMATIC
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
28 April 1972
Soviet Foreign Economic Policy
1. The USSR traditionally has pursued a policy
of maximum economic independence from the West. So-
viet planners attempt to ensure that most Soviet re-
quirements for foreign goods are met within the Euro-
pean Communist world. In this system, the role played
by the monopolistic state trading corporations and
the fact that foreign trade prices bear no systematic
relation to domestic prices have served to insulate
the Soviet economy from economic developments in the
outside world. As a result, about two thirds of So-
viet foreign trade is conducted with other Communist
countries, mostly with Eastern Europe (Table 1). Of
the one third with the non-Communist countries, 60
percent is with the developed countries and most of
the latter is hard currency trade.
2. The goal of independence from the West has
been basically achieved. The USSR is now largely a
self-sufficient economic entity with vast and di-
verse resources, a well-developed industrial base,
and a large internal market. In aggregative terms,
foreign trade plays only a small role in the economy.
Exports (or imports) represent about 2 1/2 percent of
GNP, compared with 4 1/2 percent in the US. In re-
cent years, however, the USSR has tempered its policy
of self-sufficiency in order to obtain from the de-
veloped West the advanced technology and industrial
equipment needed to accelerate growth and reduce the
gap in productivity between itself and the West. So-
viet technological development continues to lag behind
that of the West, and imports of technology and equip-
ment continue to account for a substantial portion of
the increasing volume of trade with the West.
Note: This memorandum was prepared by the Office of
Economic Research and coordinated with the Office of
Current InteZZigence.
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USSR: Foreign Trade
by Major Area
(Exports plus Imports)
$ 24.5 Billion
Other
71 Communist
$11.2 Billion
$1.6.2 Billion
12%
Eastern
Europe
Less
14% Developed
Countries
Developed
West
1960
1965
1970 513575 4-72
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Geographic Distribution of Soviet Trade a/
1960
1965'
1969
1970
Area
Exports Imports Exports
Imports Exports Imports' Exports Imports
5,564
5,628
8,175
8,058
11,655
10, 327
12,800
11, 739
Communist countries
4,211
3,978
5,556
5,610
7,682
6,696
8,367
7,644
Eastern Europe
3,074
2,795
4,553
4,673
6,198
6,011
6,758
6,634
China
817
848
192
226
28
29
25
22
Other
320
335
815
712
1,456
656
1,584
988
Free World
1,352
1,650
2,618
2,448
3,973
3,631
4,433
4095
Developed West
983
1,080
1,438
1,601
2,230
2,495
2,345
2,780
Less developed
countries
336
565
911
845
1,169
1,119
1,291
1,298
Unspecified b/
33
6
270 c/
2
574
17
797
17
a. Because of rounding, components may not add to the totals shown.
b. Largely military-related exports to less-developed countries.
a. Including Hong Kong.
Selected Soviet Commodities Traded with the Developed West 2/
Million Per-
Million Per-
Million Per-
Million Per-
Commodity
US $
cent
US $
cent
US $
cent
US $
cent
Exports
Total
Crude oil and petroleum
products
291
20.2
506
24.7
468
21.0
528
22.5
Coal and coke
100
7.0
100
4.9
115
5.2
131
5.6
Wood and wood products
297
20.7
338
16.5
346
15.5
386
16.5
Cotton fiber
59
4.1
102
5.0
77
3.5
37
1.6
Base metals and manufactures
203
14.1
210
10.2
168
7.5
209
8.9
Food
91
6.3
143
7.0
198
8.9
121
5.2
Furs and pelts
54
3.8
54
2.6
49
2.2
46
2.0
Other
198
13.8
314
15.3
299
13.4
336
14.3
Unspecified
144
10.0
285
13.9
510
22.9
551
23.5
Imports
Total
2,144
100.0
2,495
100.0
2,780
100.0
Machinery and equipment
510
31.9
896
41.8
1,118
44.8
1,099
39.5
Base metals and manufactures
116
7.2
157
7.3
177
7.1
236
8.5
Chemicals
140
8.7
195
9.1
215
8.6
214
7.7
Wheat and wheat flour
366
22.9
121
5.6
28
1.1
122
4.4
Manufactured consumer goods
63
3.9
259
12.1
276
11.1
280
10.1
Other
374
23.4
422
19.7
500
20.0
593
21.3
Unspecified
33
2.1
92
4.3
180
7.2
236
8.5
Because of rounding, components may not add to the totals
Largely platinum group metals, nickel, and gem diamonds.
25X1
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3. Soviet foreign trade policy is an integral
part of foreign policy, and the USSR's conduct of
trade and trade negotiations often serves to further
its political aims. For example, the Soviet agree-
ment to include West Berlin within the area to be
covered by the recently initialed Soviet - West
German trade agreement (a concession heretofore
refused by the USSR) is designed to help Brandt
push his Eastern treaties through the Bundestag.
In this regard, the Soviets have a penchant for
negotiating cooperation and trade agreements with
the developed Western countries as a means of fos-
tering Soviet legitimacy as a reliable trade partner
and bolstering its prestige. These agreements also
benefit the USSR by providing it with valuable tech-
nical data at little cost. The Soviet desire to con-
clude a trade and cooperation agreement with the
United States should be viewed partly in this light.
4. The Soviet interest in obtaining advanced
equipment and technology from the West will continue
for the foreseeable future. The current five-year
plan (1971-75) will require substantial imports from
the West, particularly in the automotive, gas, oil,
chemical, telecommunications, and electronics in-
dustries. During the last five-year plan period
(1966-70), Soviet imports of Western machinery and
equipment increased from $560 million to $1.1 bil-
lion (Table 2). These imports are expected to con-
tinue at this high level throughout the 1971-75 plan
period, as evidenced by the sharp upsurge in Soviet
orders for Western plant and equipment since the end
of 1970.
5. Consumer goods imports have also become a
major element in Soviet trade with the West since
the large wheat imports of the mid-1960s, Grain
imports declined steeply after 1966 but rose again
in 1970-71, and grain will be a major import item
for at least the next few years. Imports of meat
have also been unusually high in the past two years.
Meanwhile, imports of manufactured consumer goods,
especially clothing and footwear, have grown sub-
stantially since 1966. Soviet interest in increas-
ing consumer welfare is manifest in the willingness
to spend hard currency for consumer goods.
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USSR: Selected Industrial Western
Trade Partners
1970 a/
Million US $
Exports
Imports
Balance
Total Industrial West
2,345
2,780
-435
Of which:
United States
64
115
-51
Japan
379
345
34
United Kingdom
465
248
217
West Germany
257
375
-118
Finland
287
303
-16
Italy
212
313
-101
France
140
319
-179
Canada
8
131
-123
Sweden
117
144
-27
Netherlands
168
80
88
Estimated Soviet Drawings
and Scheduled Repayments on Western
Medium-Term and Long-Term Credits
Estimated
Scheduled
Net
Outstanding
Debt at End
Year
Drawings
Repayments
Interest
Credits
of Year
1959
60
12
0
48
48
1960
125
37
2
86
136
1961
165
70
6
89
231
1962
180
106
10
64
305
1963
140
130
14
-4
315
1964
170
147
15
8
338
1965
190
149
17
24
379
1966
275
149
20
106
505
1967
305
152
29
124
658
1968
510
215
38
257
953
1969
630
270
57
303
1,313
1970
750
326
79
345
1,737
1971
a/
850
411
99
340
2,176
a. Preliminary.
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Soviet Payments Problems
6. Throughout most of the 1960s, the USSR
bought more than it sold in trade with hard cur-
rency countries (Table 3). The difference was fi-
nanced in part by selling gold, but mainly by bor-
rowing and buying on credit. Soviet indebtedness
to the West, principally long-term, has grown rap-
idly in recent years and apparently exceeded $2
billion by the end of 1971 (Table 4).
7. Soviet exports to the West are expected to
grow by, perhaps 7 - 7 1/2 percent annually during the
1970s* compared to more than 9 percent in the 1960s.
Preliminary estimates for 1971 indicate exports grew
less than 5 percent. Net hard currency earnings
from tourism are expected to increase markedly and
may average $100 million by 1975. On the other
hand, debt service charges are rising rapidly and
were equivalent to about'17 percent of export earn-
ings in 1970. If, as estimated above, the growth
of Soviet exports to the West slows markedly, the
ratio of debt service to exports will soon surpass
20 percent and could exceed 25 percent before long.
Even with the rising credit drawings, debt service
is likely to exceed the drawings in the mid-70s.
Net credits will thus be negative, which means that
Soviet capacity to import will be diminished.
8. The USSR thus may have to draw on its gold
reserves or ration its imports more strictly. The
USSR now has more than $2 billion in gold reserves,
and its net annual accumulation (production less
Estimates range from 5.8 percent to 7.4 percent.
Projections of Soviet exports to the West were made
by fitting various statistical trends to historical
data and by analyzing changes in supply and demand
for major Soviet exports. A 7.4 percent growth im-
plies the value of exports would approximate $3,350
million by 1975, $4,150 million by 1978 and roughly
$4.8 billion by 1980. Exports late in the decade
would be larger if certain raw material deals come
to fruition.
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consumption) is about $200 million. Currently
the Soviets can take advantage of high free market
prices for gold, but massive sales would rapidly
bring the price down. If the USSR chooses to ration
its imports more strictly, imports of highly prized
Western equipment and technology will be maintained
to the extent possible, but there probably will be
greater substitution of technology for equipment.
The USSR has been importing manufactured consumer
goods from the West at a rate of about $250 million
annually since 1966. Although these imports are
candidates for pruning, the leadership would resort
to this reluctantly.
9. Soviet imports can be increased further
by what might be termed self-liquidating credits--
credits that create new exports out of which debt
is paid. Some recent contracts have stipulated
repayment in the product of the installation built
with Western credit. The only sizable contracts
of this type now in effect are the 1968 Soviet-
Japanese timber agreement, the 1971 Soviet-Japanese
wood chip agreement, and the Soviet gas-for-pipe
deals with Austria, Italy, and West Germany. Soviet
exports of gas and wood generated by these deals
will be earning more than $100 million annually by
1973. Another gas-for-pipe deal for $373 million
is about to be concluded with West Germany, and
contracts with France and Japan are expected. The
export projections above are adjusted to include
these deals.
10. The export projections used here do not,
however, include several large self-liquidating
deals under discussion. The largest and most im-
portant of these is the proposed Soviet-US lique-
fied natural gas (LNG) agreement. If an agreement
is reached next year, Soviet gas could begin to
move at a rate of 1 billion cu. ft. per day by
1978 (estimated value, $183 million annually), and
by 1980 Soviet exports might be valued at $365
million. The $1.6 billion in US equipment would
be delivered on credit (possibly during the period
1974-77) and would be paid off by, perhaps, 1984.
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Million US $
Exports b/
Imports
1948
28
87
1949
7
39
1950
1
38
1951
Negl.
d/
27
1952
Negl.
L/
17
1953
Negl.
a/
11
1954
Negl.
a/
12
1955
Negl.
a/
17
1956
4
24
1957
4
17
1958
3
18
1959
7
29
1960
39
23
1961
46
23
1962
20
16
1963
23
21
1964
147
21
1965
45
43
1966
42
50
1967
60
41
1968
58
58
1969
106
51
1970
118
72
1971
162
58
a. Deria~_e~rom US data, rounded to the nearest
million doZZars.
b. Including re-exports.
e. F.A.S. general imports.
d. Less than $1 miZZion.
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11. Another large deal being discussed is an
exchange of Soviet oil for Japanese pipe and equip-
ment for a pipeline from Irkutsk to Nakhodka (about
2,650 miles). The $1 billion or so in Japanese pipe
and equipment would be repaid by Soviet oil deliv-
eries through the pipeline. A minimum of 20 million
tons of crude oil annually for 20 years has been
discussed. At $15-20 per ton, the $1 billion credit
would be paid off at a rate of $300-400 million an-
nually or in 3 to 4 years, after which the USSR
would be earning, these amounts annually for at
least the remaining years of the agreement.* A
number of other large projects have also been dis-
cussed with Western firms and governments.
US-Soviet Trade Prospects
12. The US was one of the USSR's principal
trading partners prior to, during, and immediately
following World War II (in the latter two periods
trade consisted largely of US Lend Lease shipments).
The relatively low level of US-Soviet trade since
1948, when the United States accounted for about
18 percent of Soviet foreign trade with the Indus-
trial West, is in large measure due to the state of
US-Soviet political relations. Table 5 shows the
development of trade since 1948.
13. There were only modest increases in US-
Soviet trade until 1969 (except for 1964, when the
US exported large quantities of wheat to the USSR).
Most of the recent increase has resulted from the
growth of US exports (e.g., machine tools and chemi-
cals in 1969 and construction equipment and chemicals
in 1971). Even in 1971, however, the US accounted
for only about 4 percent of total Soviet trade with
the Industrial West (exports 6 percent and imports
2 percent). Table 6 compares Soviet trade with the
Industrial West and with the United States in re-
cent years.
*If an agreement is reached by the end of 1972,
oil could be moving by 1978. Soviet imports of
Japanese pipe and equipment probably would take
place during 1973-76.
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USSR: Trade with the Developed West
and the United States
(Million US $)
US-25 34 r
7-1 ' ire
1960 1965 1970
5135764-72 Exports
60 65' nil 115
1960 1965 1970
Imports
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USSR Trade with the industrial West
and the United States
1965-71
Million US $
Industrial West 1
United States Y
Year
Exports
Imports
Exports
Imports
1965
1,438
1,601
43
44
1966
1,711
1,742
50
42
1967
1,886
1,782
41
60
1968
' 2,051
2,144
58
57
1969
2,230
2,495
51
106
1970
2,345
2,780
72
118
1971
2,450 c/
2,800 c/
58
162
a.
Based on Soviet statistics; exports and im-
ports f.o.b.
b. Based on US statistics; exports (US imports)
f.a.s., imports (US exports) f.o.b.
c. Preliminary estimates.
14. A major reason that the US has not shared
in the growth of Soviet trade with the West is the
restrictions the US has maintained on its trade
with the USSR. The most important restrictions
have been:
a. Prohibition on government credits and
credit guarantees (now permitted at
Presidential discretion).
b. More stringent export controls than
those of our NATO allies and Japan.
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c. Denial of MFN treatment.
d. The 50/50 shipping requirement on
grains (now abolished).
e. The embargo on seven types of Soviet
furs.
Other factors instrumental in holding down US trade
with the USSR in the past include public hostility
to Soviet goods and the reluctance of US business-
men to sell in the Soviet market. There are also
economic constraints, particularly the limited US
market for Soviet goods--mainly raw materials--
which are widely sold in Western Europe, and dis-
tance.
15. In projecting US trade with the USSR in
the 1970s, it is assumed that the most important
US restrictions will be dropped, that is, Eximbank
credits will be granted, MFN treatment will be re-
stored, and US export controls will be reduced more
or less to the COCOM level. It is assumed, moreover,
that the climate in the US for expanded economic re-
lations with the USSR will continue to improve.
16. US exports have previously experienced
sharp increases and subsequent declines, e.g., the
$125 million increase in 1964 (wheat) and a decline
in the next year by $100 million. Similarly, the
commodity composition of US exports to the USSR
has frequently changed in response to changes in
Soviet demand. Projections, therefore, are likely
to be unreliable. A reasonable expectation would
be that US exports to the USSR would grow to $1 bil-
lion by 1980, if several major projects come to
fruition. This would mean an increase in the US
share of total Soviet imports from the Industrial
West from 6 percent to between 18 and 20 percent.
17. The following table presents an optimistic
projection of US exports to the USSR through 1976.
Exports reach $650 million in 1976. The tables
include $1 billion in feed grain delivered over a
five-year period, as was suggested during the
visits of Secretary Stans and Secretary Butz.
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a. Assuming T billion in exports of agricultural
products during the period FY 72/73 to FY 76/77
plus $185 million ordered for delivery in FY 71/72.
b. Excludes hides and skins.
c. Estimated.
Estimated Commodity Composition
of US Exports to the USSR a/
Million US $
Year
Total
Agricliltural
Products _
Machinery and
Equipment
Other
1970
119
2
45
72
1971
162
35 c/
60 c/
67
1972 c/
450
250
150
50
1973 c/
450
200
200
50
1974
500
200
250
50
1975
550
200
300
50
1976
650
200
400
50
Availability of long-term credit and an easing of
US export controls are necessary for achieving
these projected levels.
18. Some of the US machinery and equipment
lines in which the USSR has expressed interest are
automotive manufacturing equipment, deep well
drilling equipment, automatic oil transfer and
storage systems, gas transmission equipment, roll-
ing mill equipment, off-the-road vehicles, elec-
tronics (computer equipment, semi-conductor manu-
facturing equipment, testing equipment), instruments,
data transmission equipment, and numerically con-
trolled machine tools. The US probably will continue
to export other items not currently affected by re-
strictions, including raw hides, wood pulp, various
chemicals, and other items. The US may also share
in the growing Soviet imports of consumer goods.
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19. US imports from the USSR have increased
little in recent years and consist almost entirely
of raw materials and semimanufactures. Chrome
ore, residual fuel. oil, platinum group metals,
and gem diamonds have become more important in
recent years.
20. Prospects for growth are more bearish for
US-imports from the USSR than for US exports. If
MFN treatment were restored to the USSR and other
import restrictions were removed, e.g., the fur
embargo, there probably would be some growth in
Soviet exports. The most likely candidates for
expansion are Soviet diamonds, wood products (ply-
wood), fish products, nickel, and a few other
items such as manganese ore, hydrofoils, carpets,
and plate glass. Low sulfur residual oil may
also be sold in increasing quantities. With the
possible exception of natural gas late in the 1970s,
however, the commodities on which the USSR chiefly
depends to earn hard currencies are in the main un-
likely candidates for export expansion in the US.
These include oil (except residual fuel oil), cotton,
softwood lumber, and coal and coke. These major
Soviet export commodities probably would not be
exported to the US because of quota restrictions,
lack of demand, supply constraints in the USSR, or
inability to compete in price without evoking
charges of dumping. The growth of US imports from
the USSR is therefore likely to lag significantly
behind that of US exports throughout most of the
decade, resulting in substantial US surpluses which
would have to be offset in part by US credit.
21. In their behavior at trade negotiations,
the Soviets have sought to convey the impression
that they are dealing with the United States from
a position of strength. In the January 1971 dis-
cussions with US representatives, Soviet negotiators
presented a possible LNG agreement with the US as a
Soviet concession. Similarly, in discussions of a
long-term grain agreement they are demanding "con-
cessional" terms, including credit terms well beyond
what can be legally offered. This sort of behavior
rests on a strong tradition among Soviet foreign trade
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representatives, who place a great premium upon
stimulating competition among prospective partners
and upon beating the capitalists at their own game.
While the Soviet negotiating stance is tough, how-
ever, the USSR evidently wants to conclude a trade
agreement with they US, not only in order to acquire
advanced technology and equipment and agricultural
products, but also to demonstrate that the US has
accepted the USSR as an equal.
Soviet Policy Toward the EEC
22. Over the years, Moscow has reluctantly, but
gradually, changed its attitude towari. the European
Economic Community (EEC). Soviet propaganda has
portrayed the EEC as a hostile economic-political
bloc, which would discriminate in trade against the
USSR and CEMA and eventually grow into a strong
economic and political force in Europe. Toward the
mid-1960s, it became apparent that the USSR could not
frustrate the development of the EEC and that it was
merely a matter of time before it would have to rec-
ognize economic and political reality in Western
Europe and deal with the EEC on an official basis.
23. In 1970, the USSR admitted informally that
it no longer opposed European communities and that it
expected the United Kingdom to enter the EEC. The
USSR, however, has so far refused to deal with the EEC
on an official basis and has continued to negotiate its
trade agreements with the individual members. To a
great extent, it has been able to stave off official
recognition of the EEC because the French and West
Germans have refused--for different reasons--to accept
a common commercial policy toward Communist countries.
24. The recent remarks by Brezhnev recognizing
that the EEC is a fact of life mark a significant
departure in Soviet policy. On 22 March 1972, Soviet
Foreign Minister Gromyko confirmed that a "change in
principle" toward recognition of the EEC had been
approved by the Politburo. While the USSR is adopting
a new policy toward the EEC, Brezhnev pointed out
that "our relations with the participants" in the
EEC will depend on the extent to which they, in turn,
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will "recognize the realities in the socialist part
of Europe" and the interests of the CEMA member
states, in particular.
25. It is difficult to forecast how the USSR
itself will deal with the EEC. Although it now
publicly accepts its existence, the USSR still dis-
trusts it. Similarly, it is uncertain what Moscow
has in mind for future EEC-CEMA relations. To the
extent that CEMA can negotiate with the EEC as a
group, Soviet ability to control individual East
European states will be increased. In addition,
CEMA's bargaining position will be strengthened,
and it may therefore try to get some concessions,
especially for agricultural goods. In recent years
markets in the EEC for such Eastern products have
faced difficulties because of the EEC Common Agri-
cultural Policy. In coming out for relations in a
CEMA-EEC framework, the Soviets are clearly trying
to keep their Eastern European allies in line and to
head off independent approaches. This tactic may
not succeed for long, however, particularly if the
EEC holds to its present unwillingness to deal in
such a fashion.
Soviet Economic Policy Toward France
26. Since De Gaulle's visit to Moscow and the
signing of the Soviet-French declaration in 1966,
the USSR has tried to use what little economic lev-
erage it had to encourage French separatist policies
within thi Western Alliance. Twice De Gaulle vetoed
British entry into the EEC, and, thanks largely to
the French, the adoption of a common EEC commercial
policy toward the Communist countries has been post-
poned till at least 1975.
27. Pursuant to the 1966 declaration, several
intergovernmental commissions and committees were
formed, charged with finding practical means to
fulfill the existing commercial, economic, and sci-
entific agreements as well as exploring possibilities
for new exchanges. The USSR tried to use these com-
missions and, with more success, to promote its own
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lagging exports to France to acquire scientific and
technical data. French scientists generally agree
that the flow of information has been :largely one
way--toward the USSR.
28. France, which still trails Japan, West
Germany, and the UK in trade with the USSR, is seeking
a larger share of the Soviet market. It has been gen-
erous with credit for major Soviet investment pro-
jects, e.g., for the construction of the Kama River
truck plant in 1972 and for individual purchases of
capital equipment. Moreover, the French have been
among the leaders in Western Europe in removing re-
strictions on imports from the USSR. All French
quantitative restrictions on Soviet goods are to be
removed by 1974.
29. Brezhnev's visit to Paris in 1971, although
primarily political in its objectives, apparently
was also designed to instill new life into Soviet
economic policy toward France. A ten-year extension
of the 1966 Soviet-French cooperation agreement was
signed, and a number of new industrial agreements
were concluded. Trade and cooperation probably will
expand, but growth will continue to depend on the
political as well as the economic needs of each gov-
ernment.
Soviet Economic Policy Toward West Germany
30. West Germany emerged as a major industrial
power by the late 1950s, and the USSR began to look
increasingly to that country to supply equipment and
technology needed for its own industrialization. The
USSR concluded its first postwar trade agreement with
West Germany in 1958 and, upon its expiration, another
three-year trade agreement in 1961. In spite of the
inability of the two countries to negotiate another
trade agreement, West Germany emerged as a major
western supplier to the USSR during the 1960s.
31. The USSR began to warm up to West Germany
after Willy Brandt became chancellor in 1969, hoping
to reap benefits from the new West German Ostpolitik.
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In August 1970, the two countries signed a non-
aggression treaty and immediately began negotiating
a long-term trade agreement. After holding out for
more than two years, the USSR has finally agreed to
the formal inclusion of West Berlin as part of the
West German trading area. On 7 April 1972, the two
countries initialed a long-term agreement on trade
and economic cooperation but, according to the
Soviets, its signature will be delayed until rat-
ification of the non-aggression treaty.
32. Discussing relations with West Germany at
the last Supreme Soviet meeting, Foreign Minister
Gromyko called for industrial cooperation, partic-
ipation of West German firms in the exploitation of
Soviet mineral deposits and the foundation of associated
industrial complexes, broad exchanges of scientific
and technical achievements, and a considerable ex-
pansion of trade. The USSR clearly hopes to attract
West German assistance and capital for Soviet economic
development, as well as to acquire West German tech-
nical and managerial expertise. Perhaps indicative
of the scope and scale of the agreements which may
follow are the two Soviet - West German gas-for-pipe
deals, the first concluded in 1970 and the second
about to be signed. Together they provide the USSR
with long-term credits in excess of $600 million to
be repaid with future deliveries of natural gas. They
also provide the USSR with a guaranteed market for
its natural gas exports for a period of up to twenty
years.
Soviet Economic Policy Toward Japan
33. Japan is now the leading Soviet trade partner
in the Industrial West. Soviet foreign trade policy
toward Japan has been based on the USSR's desire
to expand imports of Japanese finished products
and to encourage Japanese participation. in the
development of Siberia and the Soviet Far Eastern
provinces. In addition, by expanding trade with
Japan, the Soviets hope to convince the Japanese
that the potentialities of continued Soviet trade
and Siberian development significantly outweigh
the gains Japan might derive from increased economic
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ties with Communist China. Moscow also hopes closer
economic relations will promote better political
relations.
34. The USSR has promoted the possibilities of
Japanese economic assistance in the development of
Siberian rRw material resources. Stressing the
Japanese advantage to be gained from long-term Soviet
raw material deliveries, the USSR views Japanese
assistance as a means of developing isolated regions
with a minimum of Soviet investment. Soviet proposals
for joint development have traditionally required
Japanese investors to finance the cost of related
infrastructure (e.g., railroads, housing) in addition
to the cost of developing the extractive industry
itself. Japanese investors, however, viewing Soviet
proposals in competition with similar possibilities
in other parts of the world, have often been deterred
by the large capital costs involved in Siberian de-
velopment. Japanese investors are also reluctant to
invest in projects which may antagonize the Chinese
and thus jeopardize the possibilities for future
Sino-Japanese trade. Many Japanese leaders, moreover,
remain insistent that the USSR relinquish control of
the "northern territories"--those islands seized by
the USSR from Japan at the end of World War II--in
return for substantial Japanese investment in Siberian
projects. While Moscow has made veiled suggestions
that the "territories" issue may be open to negotiation,
the USSR has continued to assert- that discussions on
cooperative ventures shou'd not be tied to such other
issues.
35. Several cooperative ventures in the Soviet
timber industry and in Soviet port development have
led to a significant growth in Soviet imports from
Japan during the last two years, and the substantial
orders placed by the USSR for Japanese machinery and
equipment indicate that this trend will continue.
The Soviets are anxious to conclude agreements for
the development of the $1 billion Irkutsk-to-Nakhodka
oil pipeline. This project would eventually pro-
vide the USSR with a significant source of hard
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currency earnings. The Japanese Government has yet
to commit itself to assisting in the construction of
the pipeline and may well link such support to a re-
negotiation of the "northern territories" question.
The Soviets hope to demonstrate to Japan that the
USSR, not Communist China, offers the best prospects
for profitable economic relations over the long run.
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Soviet Economic and Military Aid to Less Developed Countries
Extended and Drawn a/
Million US $
Economic Aid
Military Aid
Total Aid
Extended
Drawn
Extended
Drawn
Extended
Drawn
Total
7, 728
3,861
7,541
6,503
15,669
10,364
1954-61
2,703
551
2,113
977
4,816
1
528
1962
70
254
416
800
486
,
1,054
1963
239
344
387
574
626
918
1964
825
375
872
335
1,697
710
1965
372
351
262
331
634
682
1966
1,276
335
449
455
1,725
790
1967
290
287
515
443
805
730
1968
379
297
462
455
b41
752
1969
480
338
329
408
809
746
1970
198
352
1,064
956
1,262
1,308
1971
896
377
1,072
769
1,968
1,146
a. Extended refers to the commitment to provide aid, either as -a
grant or on deferred payment terms. Credits allowing .5 years or
more for repayment are included. Downpayments are not included
as aid. The amount drawn refers to aid deliveries.
Total Soviet Economic and Military Aid to Major Recipients
Extended and Drawn
1954-71
Million US $
Economic Aid Military Aid
Extended
Drawn Extended
Drawn
Extended
Drawn
Total
7,728
3,
861
7,941
6,503
15,669
10,364
India
1,612
978
1,119
822
2,731
1,800
Egypt
1,197
729
2,485
2,395
3,682
3,124
Afghanistan
705
5 80
455
285
1,160
865
Indonesia
114
110
1,092
858
1,206
968
Iran
601
310
325
235
926
545
Iraq
554
152
1,002
6 70
1,556
822
Pakistan
475
90
64
20
539
110
Syria
234
169
582
573
816
742
Algeria
426
136
395
286
821
422
Turkey
371
96
0
0
371
96
Other
1,439
511
422
359
1,861
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Soviet Economic and Military Aid
To The Less Developed Countries
Soviet assistance to the less developed coun-
tries, which totaled about $15.5 billion at the end
of 1971, is part of Moscow's drive to reduce the
economic and political ties of these countries with
the West. By providing an alternative source of
capital and technology, the USSR has helped to
diminish their dependence on the West while creat-
ing new markets for its own goods and enhancing its
political image. The most dramatic shift in na-
tional political-economic relationships, attrib-
utable largely to the Soviet aid program, has taken
place in Egypt.
All Soviet aid is "tied" and generally carries
less concessionary terms than US aid. Almost all
economic aid has been provided under credits re-
quiring repayment over 12 years, with interest of
2.5 percent, while military assistance has allowed
discounts from list prices equivalent to a 40 per-
cent grant and repayment over 7-10 years at 2 per-
cent interest.
Soviet aid commitments, which are divided almost
equally between military and economic aid, rose from
an annual average of $425 million during 1954-59
to about $1 billion a year in the 1960s and $1.6
billion in 1970-71 (Table 8). Military assistance
was the more significant component in 1970 and 1971,
reaching $1 billion in each year. Though commitments
for economic aid were $900 million in 1971, they were
less than $200 million in 1970. From the inception
of its aid program in 1954, the USSR has concentrated
its commitments in a few countries of the Middle
East and South Asia (Table 9). Egypt and India
account for 36 percent of all Soviet economic aid
extended and 45 percent of its military aid.
Afghanistan, Iran, Iraq, Pakistan, and Syria account
for another 30 percent of total Soviet aid. Again
in 1971, Moscow's major commitments were to countries
in the middle East and South Asia. Egypt received
$350 million of military aid; Iraq, $250 million;
and India, $200 million. Egypt, Iraq, and Pakistan
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(the latter in January) each received some $200 mil-
lion of economic aid in 1971.
By the end of 1971, about two thirds of the
total aid committed had been drawn. The implemen-
tation ratio for military aid (about 80 percent) is
higher than the ratio for economic aid (about 59 per-
cent) because of the much longer lead times required
for constructing economic projects than for the de-
livery of arms. Drawings on economic credits were
$350-million in 1970 and $375 million in 1971. Mili-
tary drawings more than doubled in 1970 over the 1969
level, rising to about $1 billion. Two thirds of
the total drawn was accounted for by deliveries to
Egypt, primarily for its air defense. Drawings on
military aid were $770 million in 1971, $150 million
of which went to India.
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