INTELLIGENCE MEMORANDUM EAST GERMAN FOREIGN TRADE POLICY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700020005-3
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• Document Page Count: 32
• Document Creation Date: December 22, 2016
• Document Release Date: March 2, 2010
• Sequence Number: 5
• Publication Date: August 1, 1971
• Content Type: IM

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4q 0,7
Secret
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
East German Foreign Trade Policy
Secret
ER IM 71-152
August 1971
Copy No.
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WARNING
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Its transmission or revelation of its contents to or re-
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GROUP 1
C,cluded from aaiomoiie
downgrod:ng and
do tin ii ilk at inn
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
August 1971
INTELLIGENCE MEMORANDUM
EAST GERMAN FOREIGN TRADE POLICY
Introduction
1. After World War II the USSR and Eastern Europe J replaced
West Germany and Western Europe as the chief market for East Germany's
machinery and other manufactures and its main source of fuels, metals,
and other materials. By the 1960s the rapid growth of Soviet and East
European manufacturing, in isolation from market forces, had created
serious imbalances between supply and demand. This memorandum deals
with the consequences for East German foreign trade policy. It touches
on but does not explore the implications for foreign policy and for domestic
economic policy.
Conclusions
2. East Germany is being forced to adjust to an overabundance of
machinery and a rising scarcity of materials throughout the CEMA area.
The once large East German export surplus in machinery with the USSR
and Eastern Europe is fast shrinking, and the import surplus in raw materials
and semimanufactures, although still large, has increased very slowly since
1. The terms Eastern Europe and the East European countries include
Bulgaria, Czechoslovakia, East Germany, Hungary, Poland, and Romania.
2. References to CEMA (the Council for Mutual Economic Assistance)
are to the European active full members - the USSR and the
above-mentioned East European countries. CEMA also includes Mongolia
as an active full member, Albania as an inactive member, and Yugoslavia
as an associate mnember.
Note: This memorandum was prepared by the Office of Economic Research
and coordinated within the Directorate of Intelligence.
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the mid-] 960s. Changes it the composition of East German trade have come
mainly in imports. As shown in Figure 1, East German machinery imports
in 1970 from CEMA reached more than five times the 1960 level. At the
same time, imports of industrial consumer goods from CEMA nearly
quadrupled, and imports of Soviet military end items more than tripled.
On the other hand, imports of fuels, ores and metals, nonmetallic minerals,
and chemicals from CEMA rose by only 40%, in spite of large increases
in a few products, notably crude oil, and there was an even smaller increase
in imports of textile fibers and yam, hides and furs, wood and wood
products, and foodstuffs.
3. In the early 1970s, the composition of East German imports from
the CEMA area will shift further in the same direction. Machinery imports
are expected to more than double from 1970 to 1975, and imports of
industrial consumer goods and of military end items will probably continue
to rise rapidly. Imports of industrial materials and semimanufactures will
grow slowly, and imports of agricultural and forestry products and
foodstuffs from CEMA may even drop a little.
4. In order to meet East Germany's needs for materials, the regime
has had to turn to the West. East German imports of fuels, ores and metals,
other minerals, and chemicals from the West increased faster in the 1960s
than those of any other East European country except Romania. As shown
in Figure 2, they more than doubled from 1965 to 1970, and they provided
most of the increment in East German imports of these products. East
German imports of Western feed and foodstuffs also increased greatly. A
considerable further expansion of material imports from the West in 1971-75
is likely, although the East Germans do not publicly admit it. A continued
rapid increase in machinery imports from the West also is in the cards.
5. Changes in trade patterns with CEMA have led to two changes
in East German foreign trade policy. First the regime has agreed to support
its version of economic "integration" in CEMA after years of sceptical
indifference. The huge increase in East German machinery imports from
the area and the mounting difficulty of filling material requirements have
left the regime no choice but to accept new measures to coordinate the
East European economies with one another and with the Soviet economy.
Second, expanding needs for Western materials and machinery have forced
East Germany to increase its dependence on West Germany, reversing the
policy of the early 1960s. East German imports from West Germany rose
from $300 million in 1965 to over $600 million in 1970, greatly
embarrassing the regime in its efforts to discourage its East European allies
from "normalizing" relations with West Germany. But East Germany could
not afford to overlook the built-in advantages of the trade - exceptionally
favorable prices, easy access to credit, and, what is more, a relatively strong
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Figure 1
East German Imports from CEMA, Excluding Mongolia
Million US $
3,500 r-
Machinery and Equipment
Sovlet Military End items
Industrial Consumer Goods
Fuels, Ores and Metals, Non-metallic Minerals,
and Chemica, s
1 Other Commodities
0 I 1 I
1955 1960 1965 1970
Figure 2
East German Imports from the Free World,
Including Yugoslavia
Million US $
1,500 -
Indu
i
l
t
a
r
s
Consumer
Goods
Non-metallic minerals, and
Chemicals
'Chiefly textile fibers and yarn, wood and wood products,
hides and furs, animal feed, and foodstuffs
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position in the West German market. East Germany needs to exploit these
advantages, and the regime will have to pay a political price - either to
tolerate closer West German relations with its East European allies or to
face worsening East German relations with them.
6. The East German domestic economy has just begun to adjust to
the growing economic imbalances in CEMA. In 1968-70, at the insistence
of Walter Ulbricht, East Germany maintained the pace of economic growth
at a rate of 4-1/2% per year 3/ by going deeper in debt. In the last two
years, East German indebtedness rose by $400 million to the industrial
West (about one-half to West Germany) and by somewhat more to the
USSR, Poland, and Hungary. Ulbricht's successors must live more frugally.
They will continue efforts to upgrade exports and thus strengthen East
Germany's bargaining position in CEMA and its competitive position in the
world market. But that is at best a slow process; in the short run, East
Germany is likely to be forced both to go further into debt and to cut
the rate of economic growth.
Trade with the USSR
7. The development of trade with the USSR, which has been more
than 40% of total East German trade throughout the 1960s, has had the
deepest influence on East German trade policy and economic development.
The average rate of growth in this trade dropped from 14% per year in
1956-60 to 6% in 1961-65, rising to 8% in 1966-70. At the same time,
the composition of Soviet deliveries changed. Deliveries of raw mar Trials
and semimanufactures, which had gone up rapidly throughout the 1950s,
grew slowly in the 1960s. In contrast, deliveries of machinery and
equipment, negligible till the late 1950s, rose in 1970 to a level 10 times
that of 1960 and shipments of military end items rose to over three times
the 1960 level. Accordingly, the share of raw materials and
semimanufactures dropped from 83% in 1960 to about 60% in 1970,
whereas for machinery and equipment the share rose from 4% to 18%,
and for military end items from 11% to 19%. (For the development of
East German imports from the US?R, see Table 1.)
8., A slowdown in the growth of Soviet exports of raw materials
and semimanufactures was to be expected in the 1960s. The enormous rise
in these exports from the very low levels of the early post-war period had
provided the main stimulus for East German recovery, especially after 1955.
By that time the USSR was supplying most of the increment in East German
supplies of fuels, ores and metals, wood, and textile fibers. With the
completion of East German recovery, the growth rate was bound to decline,
3. Estimated growth of gross national product.
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Composition
of East German Imports from the USSR
Percent of Total
1955 1960 1965 1969 1970
Machinery and equipment 1.0 3.6 7.8 18.1 18.5
Total itemized except
machinery and equip-
ment 83.4 85.7 80.1 62.1 62.4
Fuels and lubricants 12.7 14.8 16.4 11.8 11.4
Ores and concentrates 3.5 2.8 2.4 1.6 1.8
Base metals and manu-,
factures
Chemicals
Wood and wood products
Textile raw materials
Grains
Other feed and food-
stuffs
industrial consumer
goods
Other
Residual (military end
items).
Total
21.8 30.0 31.0 23.9 2'4.0
1.8 1.8 2.4 2.6 2.9
0.6 3.8 6,3 5.6 5.9
20.1 9.4 7.7 4.6 4.8
17.7 12.6 4.8 6.3 6.0
2.4 7.7 5.5 3.3 3.5
0.9 0.7 0.5 0.7 0.9
1.9 2.1 3.1 1.7 1.2
15.6 10.7 12.1 19.8 19.1
100 100 100 100 100
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and with it the requirement for additional Soviet material deliveries,
although East Germany would of course remain heavily dependent on the
USSR. That fact was reflected in the 1961-65 trade agreement, which
provided for an increase of only 8% per year in material deliveries as against
the 22% annual rate of 1956-60. That agreement was fulfilled, some
shortages -- as in ferrous metals - being offset by additional deliveries of
other products, including fuels.
9. But the outlook had already begun to change as a result of the
Soviet economic slowdown of 1962-63. Khrushchev's euphoric view of
Soviet capabilities then gave way to a more sober view, in which available
resources - including raw materials -- seemed hardly equal to Soviet
obligations and ambitions. The full effect of the change in Soviet outlook
was felt in negotiating the trade agreement for 1966-70, after Khrushchev's
successors had taken over. Soviet offers and East German requests for
materials were further apart than ever before, and the distance did not
diminish as negotiations dragged on through 1965. The final agreement,
concluded in December 1965, which provided for only about 6% annual
increase in material deliveries, was such a blow that the head East German
planner, Erich Apel, killed himself rather than sign it.
10. Moreover, within two years, the Soviet government in effect
"renegotiated" the agreement, cutting back sharply a number of
commitments for materials -- including hard coal, rolled steel, aluminum,
copper, and petroleum products. Additional commitments of coke and iron
ore did not begin to offset the cutbacks.
11. The final result was that actual Soviet deliveries of materials
increased in total value by only 3% per year in 1966-70, half the rate implied
on the original agreement. J Crude oil deliveries rose by 14% per year,
and there were significant increases in a few other commodities - rolled
steel (8% per "ear), lead and zinc (3% and 5%, respectively), and apatite
ore and concentrates (9% per year). J But deliveries of petroleum products
fell to only a fraction of the 1965 level, and coal deliveries dropped by
almost one-half. Deliveries of copper, cotton, and wool also dropped
substantially until 1970, when deliveries were up sharply. And there were
no significant increases over the 1965 level for other important materials,
including coke, iron ore, pyrites, pig iron, and wood. Table 2 compares
the total amounts delivered in 1961-65 with those agreed on and actually
delivered in 1966-70.
4. Soviet deliveries at current prices increased at almost 12%. There was
a price reduction of about 4% from 1965 through 1969.
5. Lead and zinc deliveries were higher in 1969 than in 1970, although
in many other cases deliveries rose sharply in 1970. Imports of some other
commodities not mentioned here also rose substantially over the period:
other imports dropped.
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Soviet Deliveries of Materials to East Germany
Thousand Metric Tons
Actual
1961-65
Scheduled
1966-70
Actual
1966-70
Crude oil
16,434
36,100
37,773
Petroleum products
2,645
N.A.
570
Hard coal
30,264
31,500
20,168
Hard coal coke
7,304
6,000
6,712
Iron ore
6,154
G,000
6,455
Pig iron
3.370
3,700
3,619
Rolled steel products
8,028
12,000
11,171
Copper
172
Aluminum
294
Lead
168
Zinc
138
Apatite ore and
concentrates
(P
O
)
1
200
2
5
,
1,927
Pyrites
Timber
486
540
530
Sawn lumber
8,643
10,600
10,764
Cotton
418
410
408
Wool
82
Cellulose
193
a. Un ess otherwise indicated.
b. Thousand cubic meters.
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12. While Soviet material deliver--.s leveled off, the growth of Soviet
exports of machinery and equipment to East Germany accelerated. In the
original trade agreement the rate of increase for 1966-70 was set at 17%
per year, well below the 23% rate of 1961-65 - not surprisingly, since
the 1965 base was three times the 1960 level. In 1967, however, the USSR
proposed to send additional machinery to compensate for the slower growth
of material deliveries, and exports for the period rose by an average annual
rate of 25%.
13. Throughout the 1960s, Soviet machinery exports were heavily
concentrated in transportation, agricultural and construction equipment. Big
diesel freight engines, commercial aircraft, trucks and tractors, passenger
automobiles, and bulldozers and excavators together accounted for
two-thirds of the total value. 6/ Soviet deliveries of industrial equipment
are substantial only in two cases, machine tools and electrical and
electronic equipment.
14. The volume of East German machinery exports to the USSR is
much larger, but most of these exports fall into the same general category.
Transport equipment, construction and mining machinery, and agricultural
machinery make up one half of the total; machine tools and electrical goods
almost another one-fourth. The products exchanged are, for the most part,
quite distinct - East German passenger and freight cars and Soviet
locomotives, East German ships and Soviet aircraft and automotive
equipment, East German harvesting equipment and milking machines and
Soviet tractors, East German presses and forges and Soviet metalcutting
and metal-shaping tools, East German marine diesel engines and diesel
generators and Soviet electronic equipment. In short, the two countries
"specialize" in distinct lines of equipment.
15. Evidently, specialization has been intended to minimize close
interrelationships in machinery production between the two countries. In
very few cases do the USSR and East Germany exchange closely related
types of machinery - models of different sizes or complementary
machines - and in practically no case have they exchanged components
or subassemblies. Specialization has meant the development of a few lines -
indeed a few models - of investment goods. With the exception of
equipment for the engineering industries, very little of the trade in
investment goods is intended for the manufacturing industries.
The Rationale of Soviet Trade Polite
16. Soviet tradh policy toward East Germany chaug?d in the 1960s
because of a growin;; imbalance between supply and demand in the Soviet
6. If the value of spaie nfrts is included.
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economy and throughout the CEMA area. The USSR, like the East European
countries, was producing an ever larger exportable surplus of machinery,
hardly any of it saleable on the open market. But in the USSR and
throughout the area, raw materials were becoming scarcer and more
expensive to produce. The USSR, the chief exporter of raw materials in
the area, was developing high-cost raw materials from new sources to
supplement materials from older sources that were being exhausted. Even
at a higher cost, Soviet planners foresaw that Soviet industry would not
be able to supply growing demand at home and in Eastern Europe while
expanding material exports to the West to pay for the advanced technology
needed to "catch up."
17. These considerations explain mounting Soviet insistence on
substituting machinery for materials in exports to East Germany. East
Germany relied far more on the USSR and far less on tre West for raw
materials than any other East European country except Bulgaria.
Presumably, the Soviet government took the position that it was only fair
to require the East Germans to reduce their reliance on Soviet materials.
East Germany could afford to do so in spite of its lack of exportable
foodstuffs and industrial materials -- on which the other East European
countries rely in trade with the West -- because of its unique access to
the West German market. These considerations would explain why East
Germany received much less favorable treatment for materials in the late
1960s than the other East European countries, with the exception of
Romania.
18. In addition, the USSR in 1967 required East Germany to "invest"
in the Soviet oil industry. A great deal of Soviet capital was tied up in
expanding crude oil output, and the Soviet government found it only fair
that the East Germans should make a contribution. Czechoslovakia had
already agreed to provide actual equipment for crude oil extraction as a
large part of its investment. East Germany does not produce much in the
way of oilfield equipment, and the USSR was quite willing to settle for
other goods. The deal provided for East German exports of various goods
or, credit through the mid-1970s in exchange for crude oil shipments
apparently running from 1971 into the early 1980s. The total amount
involved has never been stated, but at a guess might run to as much as
$2 billion each way for the period of the contract. Recently the East
Germans have made a similar deal to obtain Soviet natural gas, and have
announced that they will also "contribute" to the mining of copper and
asbestos. They are also negotiating terms of participation, along with other
East European countries, in other Soviet prbjc--ts, including a new combine
to produce iron and steel.
19. The USSR would apparently have been satisfied with less sweeping
shifts in trade patterns if the East Germans -- and the other East European
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regimes - had accepted Soviet proposals for changing the terms of trade
by raising prices for raw materials and sem.imanufactures relative to prices
of finished goods, especially machinery. Khrushchev brought up the idea
of raising raw material prices in CEMA trade in 1 962 in his proposals for
moving toward economic "integration." His successors pushed the idea even
harder in 1966-67. They argued in effect that it cost more to produce
raw materials in the CEMA area than it did to produce machinery. These
proposals gave new life to an endless debate on CEMA price policy that
had begun in the 1950s.
20. But the East European countries were unwilling to proceed.
Obviously, East Germany and Czechoslovakia, with large export surpluses
in machinery trade, stood to lose heavily by the proposed changes in price
structure. But the other countries as well - with the exception of Bulgaria -
were likewise opposed. The reason was undoubtedly that the proposed
changes would tend to curb the expansion of machinery trade -- and
output - a matter of at least as great concern to the less industrialized
countries, which were still "catching up", as to East Germany and
Czechoslovakia.
21. It is hard to say just how such a shift in CEMA prices would
work and what effect it would have. But a significant shift would clearly
make the export of machinery much less advantageous. It could ever
happen, as often in the case of machinery sold in the West, that the materials
used would bring in about as much as the machinery itself, sometimes more.
Even in such a case, the regimes might not willingly give up the expansion
of machinery output "for the sake of output" - and barter for the sake
of barter. But the practice would be more exposed to criticism from
economists and others within the regimes, which would add to pressures
for basic changes in economic policy.
22. The steps that the USSR actually took in dealing with East
Germany, to be sure, also encourage criticism and, in the long run, changes
in East German policy, for they bring home the disadvantages of relying
so heavily on the export of machinery that cannot be sold advantageously
on the world market. That state of affairs progressively reduces East German
freedom of action in deciding on production and investment and must in
the longer run lead to increasing integration with the Soviet economy and
to a wholesale assimilation of Soviet - and East European -- technology.
The East German elite has not yet accepted that as inevitable.
Parallel Trends in Trade with Eastern Europe
23. Very much the same thing happened in East Germany's trade
with the East European countries, strongly reinforcing the effects of changes
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in East German-Soviet trade. East Germany's exports of machinery to the
area in 1966-71) increased by less, even in absolute terms, than its machinery
imports. East European deliveries of foodstuffs and industrial materials
continued to rise, but very slowly, financed by increased East German
exports of consumer goods and chemicals. The East European countries
insisted on these shifts for the same reasons as the USSR: they were
generating export surpluses of machinery that coed not be sold in the
West and were trying to maximize their material exports to the West.
24. The shifts in machinery trade with Eastern Europe were very rapid
(see Table 3). In 1960, East Germany's machinery exports to the area were
almost 2.4 times its imports, and the ratio was still 2/1 in 1965. By 1970,
it had dropped to 1.3/1. The extreme case is in trade with Bulgaria: East
German machinery deliveries in 1960 were 32 times the return deliveries
of Bulgaria; the ratio dropped to about 3/1 in 1965 and to about 2/1
in 1970. But to one degree or another the same thing occurred with all
countries except Romania, / with the result that in 1970, when East
Germany's machinery exports to the area were less than two and one-half
times the 1960 level, its imports were nearly 5 times the 1960 level.
25. East German material imports from Eastern Europe grew very
little during the late 1960s, as nearly as can be determined from incomplete
data. After 1965 imports of coal and coke (from Poland and
Czechoslovakia), petroleum products (chiefly fu )m Romania and Poland),
and ores declined sharply, although bauxite shipments from Hungary rose
(the peak was in 1967). Steel and chemical deliveries were up enough to
offset the decline, but not much more. Data on changes in shipments of
industrial materials from Eastern Europe are shown ;n Table 4.
26. Agricultural and food imports from Eastern Europe did much
better, chiefly because of substantial rise in imports of processe:i foods
from Bulgaria, Hungary, and Poland. These imports account for practically
the entire increase in 1966-70 in CEMA deliveries of agricultural products
and foodstuffs.
East German Responses
27. The East German response to these changes in the composition
of trade with the USSR and Eastern Europe involved new developments
in economic policy beginning in 1966-67. First and foremost, the East
Germans struggled to balance requirements for raw materials and
7. The contrasting treatment of Bulgaria and Romania -- the latter having
achieved little net gain in machinery trade with East Germany -- as with
other East European countries suggests that political attitudes as well as
economic motives were involved.
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East Germany
Ratio of Machinery Exports to Imports
in Trade with Eastern Europe
1960
Bulc; .ria
32.0
3.1
2.0
Czechoslovakia
1.4
1.5
1.1
Hungary
2
1.4
1.3
Poland
6.5
4.4
1.45
Romania
1.4
1.3
1.9
ai
All countries
2.4
2.0
1.3
a. Reflects relationship in 1968.
East German Imports if Selected Fuels,
Ores, and Metals from Eastern Europe
Thousand Metric Tons
a. Untess otherwise indicated.
b. May include some nonferrous rolled products.
1960
1965
1969
Hard coal
2,827
3,034
2,734
Coke
1,308
1,660
1,512
Brown coal and briquettes
5,455
5,199
4,040
Petroleum products
26
35
28
Coke oven gas (million cub
ic 20
13
8
meters)
Ferrous metals
87
288
353
Nonferrous metals
63
6P
68
Bauxite
200
100
183
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semimanufactures, chiefly by increasing imports from the West, even though
that entailed increasing dependence on West Germany. Second, the East
German leadership, which had been following a cautious economic policy
since 1962, tried to force expansion of the electronic equipment and
petrochemical industries in order to strengthen East Germany's bargaining
position in CEMA and its competitive position in the world market. Third,
the regime swung to the support of economic "integration" in CEMA after
years of evading the issue.
Balancing Material Requirements
28. The East Germans increased imports of Western materials
dramatically in the 1960s, especially the late 1960s, in the effort to keep
the economy going at full speed, in spite of two bad winters (in 1968-69
and 1969-70) and two years of poor farming weather (1969 and 1970).
They were able to case shortages somewhat, particularly of coal and power,
by installing new generating equipment, reducing growitik rates for some
,naterial-intensive and power-intensive products and, in 1969-70, by raising
output of brown coal after years of allowing output to decline. They also
put more emphasis on collecting and using scrap and waste materials. But
only by greatly increasing imports from the West could the leadership pursue
its ;) nbitious goals for industrial growth.
29. Imports of Western fuels, ores and metals, nonmetallic minerals,
and chemicals doubled from ;965 to 1970 and accounted for almost the
entire increment in imports of these products. The rise in imports of Western
agricultural and forestry products, associated scmimanufactures, and
foodstuffs was much less rapid - an increase of less than 20'%> -and prices
rose significantly. Even so, imports from the W'st accounted for about
one-third of the increment in imports of these products as well.
30. Changes in the commodity composition of i;nports from the West
indicate clearly where the areas of greatest shortage were. Imports of a
few commodities increased slowly or even dropped. Steel imports from the
West rose less than 30`%, above the 1965 level, and East Germany almost
maintained the 19'i5 level of steel exports to the West. Western deliveries
of fertilizer dropped, as Soviet deliveries of phosphates and concentrate,"
increased and as the East German chemical industry expanded domestic
output of nitrogen fertilizer. Otherwise, imports from the West jumped.
As a share of imports, Western hard coal and crude oil rose from about
3% to about 15';%, of the total. Given the sharp drop in Soviet deliveries
of petroleum products, the increase in the share of Western fuels in total
fuel imports was even greater. Western deliveries accounted for most of
the increase in total supplies of copper and an important addition to supplies
of zinc and aluminum 'res and concentrates. Rising chemical imports
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continued to account for is large and growing share of' imports of such
products as synthetic rubber, synthetic fibers, synthetic dyestuffs, plastics,
and pigments. By 1969, Western deliveries of chemicals accounted for almost
two-thirds of all East German chemical imports. Table 5 shows data for
selected imports of Western materials in 1965 and 1969, with partial
repotting for 1970.
31. East German needs were fewer but still important for some other
products. Of these, the most rapidly growing were animal feed and feed
supplements - chiefly corn and oil cake -- in short supply not only in
East Germany but in the whole CEMA area and increasingly important as
the regimes sought to expand and assure supplies of meat and dairy
products. Large increases in imports of coffee, citrus fruit, and cigarettes,
also intended to ease public feelings about persistent shortages of many
goods, also came largely from the West. These products account for the
growth of imports from the West in the whole category covering agricultural
and forestry products and associated semimauufactures, including
foodstuffs. Most other imports from the West in these categories declined
in the ',ate I960x.
32. The increase in material imports involved a reversal of East
German policy in that it increased economic dependence on trade with
West Germany, long called "interzonal trade" (IZT). ?j In th early 1960s
the East Germans had succeeded in reducing that dependence. They had
cut back the West German share of their trade with the West. As trade
revived in 1964-65, they had swung away from importing commodities such
as steel and chemicals, which increase day-to-day dependence of output
on imports. Instead they had raised imports of machinery and were thus
in a position to increase or reduce imports - or do without. if need be --
with minimal disruption to output, exports, and consumption.
33. In the period 1966-70, and especially in the last two years, the
East Germans went back on this policy in order to expand supplies of
fuels, nonferrous metals, chemicals, and animal feed from West Germany,
along with an even greater increase in machinery imports. West Germany
led the increase in imports from the West, providing over one-half the
increment in imports from the West and nearly one-half of the total imports
from the West in 1970.
8. The West Germans now call it "trade with the German Democratic
Republic and East Berlin the Last Germans call it "trade with the Federal
Republic of Germany" plus "trade with Westberlin."
9. As shown in Western trade data, which for the period still understate
the trade of some Western countries with East Germany, although to a
declining extent. In East German trade data, trade with West Germans' is
understated, cltieflt' b)' entering it on the basis of one "accounting mnit rr
(West German murk) equal to one East German mark.
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East German Imports from the West
(Including Yugoslavia) of Selected Fuels, Ores
and Metals, Nonmetallic Minerals, and Chemicals
Thousand Metric Tons
1965
1969
1970
Coal
306
854
919
Coke
36
52
50
Crude oil
115
767
1,600
a/
Bauxite
100
62
N
A
Alumina
11
43
.
.
47
Zinc concentrate (zinc content)
2
20
11
Cobalt ores and concentrates
Negl.
10
N.A.
ron and steel products
402
510
515
Electrolytic copper
Nsgl.
13
13
Aluminum
3
5
N.A.
Other nonferrous metals
Clay and other refractory
5
],7
N.A.
materials
Pyrites
14
30
N.A.
Negl.
21
N.A.
Asbestos 17
Phosphate fertilizer (P2O5
48
N.A.
content) 26
47
54
Nitrogen fertilizer 203
78
32
Synthetic rubber 2
6
Synthetic fibers 2
4
5
Synthetic dyestuffs 1
3
N
A
Polyethylene 1
5
.
.
3
Polystyrene 1
3
N.A.
Polyvinylchloride Negl.
3
2
17nspecified synthetics and
plast',cs 5
8
N
A
Titanium dioxide 4
11
.
.
4
a. This mate, base on contracts and partia information
on de Ziveries, is probably high.
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34. In order to increase imports from West Germany at such a rate,
the East Germans bought on credit to a growing extent and by the end
of 1970 owed about $500 million to West German banks and suppliers,
including $150 million on "swing credit," which carries no interest and
no time limit for repayment. About $200 million of this indebtedness was
acquired in the two years 1969-70.
35. The rapid rise of trade with, dependence on, and indebtedness
to West Germany was awkward for the East German leadership, not only
because it ran counter to a policy of growing independence from and
aggressiveness toward West Germany but also, and especially, because it
undercut East German efforts to discoura6:: other East European countries
from improving relations with West Germany.
36. But the economic advantages in trade with West Germany, derived
from earlier agreements on "Inierconal trade," evidently outweigh the
political disadvantages in the minds of the East Germans, 't'hese advantages
include better terms of trade, a rising swing credit limit, and an unusually
well established position as a seller in the West German market. The
advantage in terms of trade, taken alone, has been valued by East German
staff' economists at about $137 million a year, and by West German writers
at any where from $100 million to $ 190 million a year. Under an agreement
reacncd in 1968, the swing credit limit was to rise with the trade, providing
an ever-expanding free credit. Finally, Fast Germany sold several times as
much to West Germany as to any other Western country and was practically
free of he quota restrictions on sales of food, textiles, and ~-Ie-:wing that
still apply generally in East-West trade. In addition West Germany nfi cd
uniquely fa-orable prices for brown coal briquettes, wheat, and many other
products.
Forecd Development of L'Xf)ort Industries
37. East Germany could undoubtedly have avoided su ;h a large
increase in imports from West Germany by cutting back the rate of growth
somev hat after 1967. But the decision taken, as a result of the rapid shifts
in supply and demand o'i the CI-MA market, was just the reverse -- to
force the economy to she limit in the effort to develop new export
industries. Walter Ulbricht resolved to push the development of the
electronics and petrochemical industries at any cost in the hope of giving
East Germany more competitive exports that could be sold on East German
terms in CEMA or else in Western markets. In Ulbricht's eyes this objective
justified the reversal of his earlier policy of reducing dependence on West
Germany.
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38. The pursuit of this policy led East Germany into serious economic
difficulties in 1969-70 - bottlenecks in supply, rapidly growing tic-ups of
investment projects, and an unfavorable balance of payments, In addition
to the $200 million rise in indebtedness to West Germany, indebtedness
to the USSR rose by nearly $275 million, a deficit of about $200 million
accumulated with the industrial countries together with one of about the
same with Hungary and Poland. All told, East German indebtedness rose
by over $800 million in the two years. Clearing account surpluses into other
areas reduced the overall two-year deficit to some $650 million, but these
surpluses cannot be used to settle other debts. 10/
39. The rise in indebtedness involved painful economic and political
consequences. Toward the end of 1970, East Germany was in default on
paymetts due to many Western suppliers and was fearing still worse trouble
in 1971. The East Germans may have gotten some help from Western
creditors and perhaps from the USSR as well to help tide them over.
40. During the first half of' 1971, moreover, they fell behind in their
efforts to improve the trade balance with West Germany and the USSR.
Even after overcoming the supply difficulties that still dog the economy,
the new leadership will have its hands full meeting obligations to the USSR
which now amount all told to m: much as $1 billion. Indebtedness to the
West is more likely to rise than fall.
41. In short, the East German attempt to strengthen its export
position Icft the regime in serious difficulties, which contributed to the
replacement of Walter Ulbricht as leader. His successors will have to be
more circumspect and will doubtless defer to Soviet advice on economic
policy.
Acceptance of C'IiMA Integration
42. In one important respect, the Fast 6ermans have already given
way to Soviet pressure - and to the facts of life -- by agreeing in 1970
to support economic "integration" in CEMA. The Fast Germw!is had a long
record of tactful silence on this issue, going rack to 1962, when Khrushchev
came out in favor of a "supranational" planning stai'f for ('EMA. East
Germany, as the big net exporter of machinei-y and net importer of materials
in Eastern Europe, was perhaps fearful of being otitvot"J on questions of
specialization. allocation of ni,tterials, anal pricing. In any va~,% the past
Get mans felt that "integrationi" with the USSR was enough anct were
sceptical about getting useful c'treements among so many countries with
divergent interests.
10. 77te'se es:unatc's reflect not onl,t' llte trade halite--?e /)III also the habnce
on other ac counts. partic marls for transpor! scrric es.
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43, The change in the East German position became known with the
publication in the foreign trade journal in March 1970 of three obviously
authoritative articles defining East German support of CEMA "integration."
The articles ruled out the creation of' any supranational institution to direct
the COMA economics, at any rate "in the present historical period."
Integration would involve no relaxation of international controls or the
foreign monopoly. Strong exception was taken to the Hungarian approach,
though it was not ascribed specifically to Hungary. The East Germans
accepted the need to develop "socialist commodity-money relations and
the market categories connectetl therewith," but only as a subordinate
aspect of planned "step-by-step socialist integration." This position, of
coarse, closely parallels the Soviet position.
44. This public notice of East German support undoubtedly was
preceded by official actions in CE-MA in 19(9 during the long series of
meetings that followed the 23rd "special" CEMA Council in April 1959,
Political pressures, particularly from the USSR, undoubtedly were heavy,
but economic pressures probably were decisive in getting the East Germans
to fall in line. Not only did they need Sovi^t economic help to continue
with the push for developing the electronic. and petrochemical industries
in 1970, the East Germans also had to recognize that the overabundance
of machinery and the scarcity of materials would require much closer
coordination. If East Germany was to absorb steadily increasing amounts
of machinery from all its allies, decisions on "specialization" were necessary,
together with better enforcement of contracts for delivery. Soviet insistence
on increasing "contributions" from Eastern Europe in the development of
resources would also require common decisions.
45. For East Germany, as for the other East European countries, the
prospect of closer economic coordination has rather increased than reduced
the importance of trade with the west. They all see the development of
alt,rnativ;: markets and sour':es of supply as the key to maintaining or
improving the regime's bark ;fining position within CEMA. It is only an
apparent paradox, therefore, that the rising pressure for "integration" must
lead East Germany to renew and intensify its efforts to compete in the
world market.
Trade Agreements with the USSR and -:astern Europe in 1971-75
46. Further pressure on the East German economic position has
resulted from trade agreements with the Soviet and East European
govermmmts for I971-75. Preparations began in 1967, and discussions
commenced in earnest in 1968, both with trading partners and in CEMA
meetings. The East German planners knew that they had to reckon with
a continuation of the trends of the 1960s, but as usual pressed until the
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very end for more favorable terms than they could expect to receive. The
main agreements were completed in 1970 -- the s,tpremely important
agreement with the Soviet Union in August - but a great deal remained
to be worked out at the end of the year, and a good !,iany contracts have
still to be concluded.
47. In particular, the Last German regime had hopes of' persuading
the Soviet government to be somewhat more penerous with mat^rials in
the 1970s and to offer a market for the projected rapid increase in output
of electronic equipment. To be sure, the planners accepted a continued
rapid increase in imports of Soviet machinery; they were to rise at least
20% per year to about 35'/, of total Soviet exports to East Germany by
1975. But given a projected total increase of 13'y, per year in total trade,
plenty of room was left for substantia' increases in other Soviet deliveries,
not only crude oil but also most other materials. Even in late 1969, the
plan,:ers were projecting a small increase in iron ore deliveries and substantial
increases in deliveries of manganese and chrome ore, asbestos, apatite
concentrates, and coke. Only coal shipments were shown as dropping --
the need for coal obviously would drop, as it had long since in Western
Europe, as East Germany finally completed conversion of the railroads and
the chemical industry to oil.
48. At the same time, the enormous growth in projected East German
exports of electrical and electronic equipment, which were to rise at 27.51%.
per year, was expected to ease the requirement for exporting heavy industry
equipment and, of course, the need for steel to make it with. By 1975,
electrical and electronic equipment alone was to account for 29'%% of total
machinery and equipment exports to the USSR, as against about I0% then
projected for 1970.
49. In 1970, however, when it became obvious that the East Germans
were not up to carrying out their ambitious plans, the USSR set terms
that severely limited future adventures of' this sort. For a reconstruction
of the trade agreement for 1971-75, see Table 6.
.50. Under this agreement, Soviet machinery deliveries are to rise to
appoximatcly three times the 1970 level, or at about 25/", per year, as
high a rate as in the late 1960s, and a breathtakin? increase, given a rise
of less than 9;,, per year in overall Soviet exports. As a result the share
of machinery will grow from about I9' of total deliveries in 1970 to 37":;
of the 1975 total.
51. Apart from a substantial further rise in crude oil shipments at about I 1 i, per year, they will total 64.5 million tons in the five years and deliveries of natural gas that are to begin in 1973 and will amount
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Table 6
1970 , 1975 V
Billion Per- Billion Per- Index
U_ S $ _ cent -US $ cent (1970 = 100)
East German Imports
Machinery and equip-
ment 0.36 19 1.08 37 300
Crude oil and
natural gas 0.14 7 0.31 11 221
Other commercial
imports 1.06 55 1.02. 34 95
Residual (chiefly
military end items) 0.37 19 0.54 18 146
Total 1.93 100 2.94 100 152
East German Exports
Machinery and equip-
ment 0.99 57 1.55 55 157
Chemicals and other
materials 0.15 9 0.25 9 167
Consumer goods 0.35 20 0.66 189
Residual (chiefly
uranium deliveries) 0.24 1,. 0.38 13 158
Total 1.73 100 2.84 100 164
a. Figures for 1970 are from Soviet trade statistics. East
German published totals differ only slightly, and the breakdown
in East Germa,t internal statistics probably is about the same,
although published East German statements suggest some serious
discrepancies.
b. Estimates for total imports and exports projected for 1975
represented the announced total for turnover and an estimate of
East German earnings on invisiblea and repayment of Soviet credits.
Machinery imports are estimated from the statement that they
will triple by 1975. Imports of crude oil and natural gas are
based on estimated deliveries (in physical terms) times agreed
prices. "0t:`,er commercial imports" are estimated as a residual
in total commercial imports, based on the statement that ma-
chinery imports will represent 45% of total imports. Parallel
usage for 1960 indicates that the total here includes only com-
mercial imports. The residual in the total, chiefly military
end items, is ..f course very sensitive to the balance-of-
payments estimates used in calculating imports and exports from
the figure given for turnover.
East German machinery exports are estimated from the state-
ment that thei, would rise by "over 50%" and from information
on total machinery turnover in 1971-75. Exports of chemicals
and other materials are calculated as a residual in commercial
exports. Consumer goods exports are calculated from the 1970
base given and from the total value agreed upon for 1971-?5,
on the assumption of a constant rate of increase. The residual,
chiefly uranium deliveries, is projected at sh` same rate as in
1966-70.
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to 3 billion cubic meters by 1975, Soviet deliveries of materials on balance
are not to increase. (This is indicated by "Other commercial imports" in
Table 6.) Shipments of iron ore are sure to decliiw sharply, and chrome
ore deliveries are to rise much less than as prof' cEed the year before. Ferrou,.,
metals shipments are to remain at about the level of 1966-70 and imports
of nonferrous metals will rise slowly at best. Coal deliveries will of course
drop; by how much cannot be determined. Imports of' cellulose, wood,
and textile fibers are unlikely to rise at all; they may fall somewhat, In
total value, Soviet deliveries of materials are to increase even more slowly
than in 1966-70.
52. East Germany for its part is committed to rintinuing much the
same pattern of exports as in the 1960;, chiefly of material-intensiv;;
machinery and consumer goods. Indications have been given of plans for
deliveries of ships, agricultural machinery, and railroad equipment -- three
of the more important categories throughout the postwar period -- and fc.?
trade in data processing equipment, which is just beginning to develop.
53. Shipbuilding, which accounted for 16'/ of total machinery
deliveries to the USSR in 1970, is likely to decline as a share in the 1970s.
Deliveries wil! still be large - 108 vessels in 1971-75 totaling 440,000
deadweight tons, or substantially more than total East German output in
1970. While output of' ships is to go up, sales to other customers, in ;iuding
the domestic merchant fleet, fP;ing fleet, and navy, probably will account
for most of the growth in otr;put. Nevertheless, big trawlers, many with
freezing equipment, supply ships for the Soviet fishing fleet, research ships,
and dry cargo ships together with some naval craft and repair work will
remain a major East German export to the USSR.
54. The value of exports of agricultural machinery to the USSR, on
the other hand, will triple during the five years. East German export; ineleje
specialized combines, grain-cleaning and drying equipment, and milking
machines. Agricultural machinery is to rise from about 5'1,% in 1970 of all
ma';hinery deliveries to about 101/o in 1975.
55. Deliveries of railroad equipment will also increase substantially,
growing by 13:75 about 90;6% above the 1970 level. The share in machinery
deliveries should go up from nearly 10'/ in 1970 to I2%% in 1975. As at
present, deliveries will lie chiefly of' long-distance passenger cars (and
complete trains) and cold-storage freight cars. The value of these shipments
will amount to more than $750 million over the five years. Soviet
counter-deliveries of some 200 heavy diesel locomotives (3,000 and 4,000
horsepower), to conipf;,c the often-postponed conversion of the railroad
system, will be of the same magnitude. The conversion, as already noted,
will much reduce consumption of' coal; what the railroad burns still
amounted in 1969 to nearly 30'1:% of' total Mast German hard coal
consumption.
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56. East Germany still plans on a large increase, in exports of data
processing equipment and components, though nothing like the increase
originally projected. Totai exports to and imports from the USSR in this
category are to amount to about $760 million in 1971-75. Even after
allowing for excer"onally high prices in this new field - corresponding
to high costs of production - the figure implies very rapid growth in trade
in computers and peripheral equipment. If deliveries each way are to be
about aqual, then projected East German deliveries in 19'5 would probably
run over $100 million, but probably would still come to ic:ss than 10%
of total East German exports of machinery and equipment. The achievement
of the goal for exports depends on putting into series production within
the next year or so two new plants started in 1970 for producing computers
and components.
57. Consumer goods will remain important in East German deliveries.
The projected value of deliveries, $2.6 billion over the five-year period,
will rise to almost one-fourth of total East German exports to the USSR.
Clothing is the single most important item; East German clothing, which
is schlock to the American eye, is well suited to the tastes of Soviet planners
and consumers alike. Furniture is another important item, of less than
top quality and mediocre design and equally acceptable. Domestic
appliances, musical instruments of various kinds, electronic equipment,
ceramics, and housewares also are sold in substantial and growing amounts.
58. In all likelihood East German chemicals and other materials will
contribute a growing shar% of exports in the I 970s, increasing by 60%a to
80% from 1970 to 1975. This estimate, based on Table 6, is a best guess,
which is in keeping with a continued rise in the residual (mostly uranium
deliveries) at the fairly rapid rate of the late 1960s. East Germany has
said practically nothing about chemical exports to the USSR in 197':-75,
'lut they probably will continue to rise as fast as total exports. East Germany
can hardly expect to expand its petrochemical industry largely with Soviet
crude oil without a comparable rise in the return flow of chemical products
to the USSR.
59. The trade agreements with Eastern Europe for 1971-75 projected
less drastic changes in the East German position, but, even so, further
restricted East German imports of materials. The agreements, as "finally"
negotiated in late 1970 and early 1971 -- in larger amounts with Bulgaria,
Hungary, and Poland than originally foreseen - implied a rise of 59% in
the overall trade from 1970 to 1975. 11/ (For estimated trade turnover,
11. The total volume in 1971-75, however, will run 69% above that in
1966-70.
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see Table 7.) Projected East German exports in 1975 are up by over 60%;
imports by about 55%. 12/
60. Trade in machinery and equipment is to increase as a share of
the total trade - from 55% of turnover in 1970 to 60% in 1975. East
German machinery imports from Eastern Europe are to rise by over 80%;
East German exports by 70%. Even by 1975, East Germany can still expect
to be a net exporter of machinery to Eastern Europe, by about the same
absolute amount as in 1970, but with a smaller relative balance, down from
29% to about 20%.
61. East Germany's net import surplus with Eastern Europe for goods
other than machinery, still quite small in 1970, is to become a substantial
export surplus in 1975. 13/ East German net exports of consumer goods
and chemicals to Eastern Europe do not cover its net imports of fuels,
metals and minerals, and food and agricultural products. The implied growth
from 1970 to 1975 of East German imports in all these categories taken
together is about 25%, whereas East German exports in these categories
are to increase by one-half. In view of a probable rise in imports of consumer
goods and military end items, East Germany is not likely to get a great
deal more in the way of raw materials and semirnanufactures in 1975 than
in 1970. Imports of agricultural products and food probably will remain
at about the 1970 level, and imports of fuels probably will decline. Imports
of hard coal from Czechoslovakia, for example, are to drop to less than
half of the level in recent years (with a commitment of only 1.6 million
tons for the whole period). Metals .;;:d chemical imports are likely to vise
significantly, but a considerable part of the increase will be offset by the
expansion of East German exports in these categories.
62. The rapid increase projected in East Germany's imports of
manufactures from Eastern Europe also involves a rapid growth of
cooperative arrangements, especially with the northern countries. These
include cooperative investment; joint production of automobiles and
investment goods; swapping of similar products, including consumer goods
and steel; and agreements for processing and refining metals, textiles, and
chemicals.
12. Partly as a result of repaving deficits on the balance qj'pa.Vineilts with
Poland and maintaining a large enough export surplus to avoid near deficits.
and partly as a result of financing iuvestinent in other East European
countries. Overall Gast German exports 10 the Conununist world are to
rise by "60% to 70%. " Given all estimated rise oJ' 64% in exports to the
USSR, exports to Eastern Europe should rise by roughly as nn c/i,
13. As a result of the increased East German export surplus.
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East Germany's Trade with Eastern Europe
Billion US $
1975
Index
1970 2/ Plan b
(1970 =
100)
East German Imports
Machinery
0.63 c/
1.15
183
Other goods
0.62
0.78
126
Total
1.25
1.93
154
East German Exports
Machinery
0.81 c/
1.38
170
Other goods
0.58
0.88
152
Total
1.39
2.26
163
a. Exports and imports were broken down into
machinery and other goods from partial data for
partner countries.
b. Data for the 1975 plan are projected from of-
ficial data on trade agreements for 1971-75,
assuming a constant rate of growth, except in the
case of C,eechosZovakia, for which 1975 planned
turnover is given. The breakdown of exports and
imports is based on estimates of the East German
surplus needed to eliminate balance-of-payments
deficits.
c. The somewhat higher figures given out by East
Germany are believed to include military end items.
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63. Poland will install two foundries in East Germany, will largely
build a sulfuric acid plant, and will provide most of the equipment for
a rolling mill. East Germany will provide Poland all the equipment for an
oxygen and air separating plant. East Germany will join with Czechoslovakia
and Hungary in building an automobile plant in Slovakia, reportedly with
a 'ipacity of 500,000-600,000 cars a year.
64. Exchanges of similar products include one for paper and paper
products with Hungary Involving exports of about $25 million each way
in 1971-75; a deal with the Czechs to swap passenger cars -- 12,000 Trabants
and 3,000 Wartburgs for 15,000 Skoda S-100 cars; a barter agreement of
$11 million with Hungary in consumer goods, including the swapping each
way of 170,000 pairs of shoes and assorted toys; the exchange of from
150,000 to 250,000 tons each way of assorted steel products by Poland
and East Germany; and the exchange of $25 million worth of measuring
instruments with Hungary.
65. The general message in all these exchanges is that the other East
European countries - especially Poland, Czechoslovakia, and Hungary --
have increasingly succeeded in getting their manufactures accepted by East
Germany on more or less even terms. The unique position to which the
East Germans have long had pretensions - a constant irritant in East
European relations - is slowly being abandoned of necessity. The political
as well as the economic significance of this process is evident.
Trade With the West
66. East German plans for 1971-75 apparently project only a slow
increase in trade with the West. According to the plan directives, the share
of trade with the West will drop from 28% of the total in 1970 to 25%%
during the period. That implies a rise of not much more than 40'/ in
trade. 14/ The regime apparently arrived at this figure by deciding not to
increase much - perhaps even to reduce - trade with West Germany. The
East Germans have great expectations for trade with other countries of
the industrial West. A senior foreign trade official, Gerhard Beil, has claimed
that trade agreements with several of them, including France, call for
doubling of trade by 1973 or 1974. East Germany also looks forward to
big increases in trade with some of the less developed countries. Although
14. The growth of total trade is projected at 9% to 10% per year, according
to an article in Wirtschaftswissenschaft, No. 7, Jufv 1971, p. 946. That
estimate is consistent with other information. Thus trade is to increase at
most to 61% by 1975. A 25% share of projected 1975 turnover amounts
to $3.79 billion, or 41 % more than the 1970 turnover -vith the West (using
official data).
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trade with one of' the most important of them, the United Arab Republic,
is to rise by only 60% in 1972-75, on.~ official speaks of tripling trade
25X1 with Latin America in a few years. Elopes are held out for a swift rise
in trade with Japan, which is still very small
67. But a 40% increase in trade with the West will hardly give East
Germany the additional material;. needed to maintain growth. It would
permit only about a I9% rise in imports from the West, on the strong
presumption that East Germany proposes not to increase its total
indebtedness to Western countries. I-low then are the East Germans to
balance plans for 1971-75, given that they cannot expect much of a net
increase in material imports from the CEMA countries?
68. The gap in supplies has been filled by projecting great "savings"
of materials in 1971-75, through recovery of more scrap and waste materials,
through making more use of domestic resources, and, above all, through
cutting specific consumption of electric power, coal, steel, and other
commodities. Unused steel scrap "reserves" are estimated by the East
Germans at 300,000 tons per year. Total consumption of materials per
mark's worth of industrial output is to drop by close to 2% per year during
the period. Specific consumption of fuels and electric power is to drop
by an average of 3.21/0 to 3.6% per year; that of rolled steel in the engineering
industries by 3-1/2% to 411o.
69. It would be surprising if the East German planners themselves
took much stock in these projections. The I 960s have not seen any
significant decrease in material consumption per unit of output, except in
the use of electric power. So long as the regime presses to maintain the
growth rate, consumption coefficients are not likely to drop much.
Something then will have to give, either the resolve to maintain the growth
rate or the decision to reduce dependence on West Germany -- and probably
both.
70. East Germany would need -.n increase of nearly 50% in imports
of raw materials and semimanufactures from the West in 1971-75 in order
to maintain the growth rate at about the level of the late 1960s as proposed
in the directives for 1971-75. This estimate assumes that total East German
material consumption would have to increase at about the same rate as
in 1956-70 and that imports from the West would have to provide about
the same share of the total increment in domestic consumption. To be
sure, East Germany is not soon likely to face such bad weather again as
in 1969-70. But on the other hand, inventories were drawn down in 1969-70
and must now be rebuilt. On balance, the assumptions seem reasonable.
East Germany can hardly expand its priority industries and the output of
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meat and dairy roducts without ,ontinuing to expand imports of
norilecrous m, chentic, ls, and I'eedstuffs from the West. Irnpc'rt:; of
crude oil are c )eesed to increase to at least 3 million tons by 1975. -tbutrl
twice the 1970 level; contracts have been signed for Imports of 2 million
tons !n 1971, The future of' steel imports is uncertain;
expect a large increase in I?ast German imports from the West. Coal imports
will remain at or below the 1970 level, though they will hardly drop) 10
th' extent projected in the plan for 1971-75.
71. Moreover, imports of Western machinery and equipment will
probably rise by well over 50;4. Even to obtain the same absolute increment
as in 1966-70 -- and the ambitio s growth plans probably call for more --
alt increase of 631/f, would he required. In addition, difficulties in satisfying
consumer demand may well lead to a sharp rise in imports of industrial
consumer goods.
72. In order to pay for such increases in limports -- close to 50',
for nntterials, o;ier 501%% for machinery, and a significant rise in consumer
goods imports - 'without any rise in indebtedness to the West over the
rv.riod, East German exports to the West in 1975 would have '? be more
than double the 1970 level. 151 Western markets might absc, r s!:01 an
increase - if the West German market is fully exploited. Demand has been
fairly strong for Fast German chemicals and some steel products. together
with consumer goods and selected machinery items. But Fast Germany
almost certainly cannot double its exports to the West while meeting
commitments to the Communist world. Exports to the Communist world
are to rise by 60"' to 70','%. - to CEMA alone by 63',. as shown, lrv Tables 6
and 7. Total East German exports rose by about 50';, in each of the last
five-year periods, and the East Germans themselves plan on raising exports
by at most a little over 60;"% in the present period.
73. With a widening gap between the need for imports and ability
to export, the East Germans can hardly afford not to exploit the advantages
of trade with West Germany. It may he argued that they expect the
advantages to be much less once West Germany has extended formal
recognition. '['hat would change the status of East-West German trade from
"intra-German" to international trade. It would then he hard to justify
continued exemption of' the trade from the provisions of the Treaty of
Rome, and West Germany would he required to establish the same tariff's
and quotas for East Germany as for other "state trading countries." But
the East Germans have indicated that they consider the special East German
status in trade with West Germany a vested interest and that they would
15. If exports f.o.b. arrd estimated imports c.i.J: in 1970 are used as a
base and total exports and imports in 1971-75 are balanced.
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insist on equivalent compensation of (Inc sort or another. As Willi Stoph
s1114tested in Junc I970 at the 1301 Party Plenlun, two can always play
at the tpunc of imposing tariff's 10/:
So far as our trade with the FI:(; is concerned, we take
Ille view that the acceptance of equal relations hetwecn the
(;IM and the FK(; on the basis of the law of nations can
only be advantageous. We cannot inlaftinc that the regime of
the FIM is bent cln a reduction of trade relations with the
GI)R. . .
A propos. the FRG in the year I')(-') piled up a trade
turnover of 24 billion marks wish the independent political
entity West Berlin. '111is surn will give something to think about
here and there if there is talk about advantages or disadvantages
in the lield of tariffs.
As stilted, we are at any little in it position to make
detailed representations on the entire problem. and it would
be better for the initiators to make an end as soon as possible
to certain propaganda and tendentious false information.
In addition, of course, the Fast (;crlnans claim that West Germany owes
them more than ;I billion marks, and renewed efforts to collect these
"debts" will doubtless to made.
74. The Ilonecker regime presumably will try to hold to its present
plates and policies as long as possible. for the sake of maintaining a strong
position on relations with West Germany and a bold front in domestic
affairs. But the regime can hardly go for more than a year on this basis
without Soviet help. liven it' the Soviet government reluctantly allows the
last Germans to go further into debt. the regime will have to find some
way of balancing its foreign accounts. Being practical politicians, the new
leaders will probably find a way to exploit Fast Germany's unique access
to the West German market and West German credits, perhaps even to
encourage "cooperative ventures." which have been ruled out up till
1(I. Ncucs Deutschland, l t, June 1970, p. t-. The same argument is
det'elopc'd in an article appearing shortly before, which also denles that
the trans of trade benc'f it l';ast Ce rman r. Ncucs Deutschland, 7 Junt' 1970.
1,. 5.
17. Set-, for example. the article cited above from Netics Deutschland,
7 June' 1970.
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now, 18/ At the same time, the regime will clouhtlcss try to teduce the
share of West (;erntany in total Iracle Willi the WecI.
75. F.ven on the most f;tvorahle assumptions -- inflicting the critical
one that Fast (;crmany will have Ihe political Ilexihilily to make full use
of the poaihililies of Itacle With and help I'rotn West (kettnany -- the l-:;rst
c;erntans will prolmbiy have to tecliice the rate of ceonomic growth dillittg
1971-75, In short, it will he hard for the Iloncekcr regime to avoid rising
Western cichts, a declining growl Ii tale, and increased dependence on West
Germatly.
Its. Except for contracts for processing materials -- in particular,
nonfccrrous mi-tats and crude oil - which alreacl,r plus all irttlrnrtarrt role
in trade -cwith ItWest Ce'rmanY.
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