THE ROLE OF REEXPORTS IN HUNGARIAN FOREIGN TRADE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01141A001400100002-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 28
• Document Creation Date: December 27, 2016
• Document Release Date: August 28, 2013
• Sequence Number: 2
• Publication Date: June 1, 1959
• Content Type: REPORT

Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
N? 51
ECONOMIC INTELLIGENCE REPORT
THE ROLE OF REEXPORTS
IN HUNGARIAN FOREIGN TRADE
CIA/RR 59-22
June 1959
CENTRAL INTELLIGENCE AGENCY
OFFICE OF RESEARCH AND REPORTS
tEz
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28 :
CIA-RDP79R01141A001400100002-2 ?
S-E-C-R-E-T
ECONOMIC INTELLIGENCE REPORT
THE ROLE OF REEXPORTS IN HUNGARIAN FOREIGN TRADE
CIA/RR 59-22
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28 :
CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
1 50X1
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28 :
CIA-RDP79R01141A001400100002-2
S-E-C-R-E-T
FOREWORD_
The document which is the principal source of this report, although
covering only the first 9 months of 1956 and of 1957, presents a unique
opportunity for insight into a facet of Hungarian foreign trade previ-
ously unexplored because of lack of data. On the basis of this evidence,
it is possible to conclude that Hungary makes such widespread use of re-
exporting in order to balance its international accounts that the com-
modity composition and geographic distribution of its trade are signifi-
cantly changed. The foreign trade techniques discussed in this report
undoubtedly are also practiced by other countries of the Sino-Soviet
Bloc; thus this report serves as a case study of the nature of attempts
by the Bloc to counteract the restraints of bilateralism.
-
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28 :
CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
S-E-C4R-E-T
CONTENTS
Page
Summary and Conclusions 1
I. General Importance to Hungary of Reexport Trade . . ? ? 2
II. Reexports in 1956 and 1957 3
1. Role of Reexports in Trade with the Bloc 6
2. Role of Reexports in Trade with the Free World 7
a. Bloc Goods Reexported to the Free World . 7
b. Goods of Western Origin 8
III. Reexport Policies and Techniques
Appendixes
Appendix A. Statistical Tables
9
13
Tables
1. Hungarian Reexport Account Balances, 1951-57
2. Export and Reexport Trade of Hungary, 1951-57
3. Percentage Distribution of Hungarian Reexports,
by Origin and Destination, January-September 1956 and
1957
5
14
15
4. Geographic Distribution of the Reexport Trade
of Hungary, January-September 1956 and 1957 16
S-E-CR-ET
50X1
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
S-E-C-R-E-T
Page
5. Distribution of Hungarian Reexports, by Type
of Exchange or Clearing Received,
January-September 1956 and 1957 17
6. Distribution of Hungarian Reexports to the Free World,
by Type .of Exchange or Clearing Received,
January-September 1956 and 1957 18
7. Hungarian Balance of Trade with Other Countries of the
Sino-Soviet Bloc, January-September 1956 and 1957 . . 19
8. Hungarian Imports Intended for Reexport,
January-September 1956 and 1957 . . ...... . . . 20
- vi -
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
S-E-C-R-E-T
THE ROLE OF REEXPORTS IN HUNGARIAN FOREIGN TRADE*
Summary and Conclusions
Since 1951, 'Hungary has found it necessary to supplement its
customary trading under bilateral agreements by engaging in a signifi-
cant volume of transactions in reexport trade. This reexport activity
is primarily a device to acquire foreign exchange which can be used in
markets where essential purchases are to be made or to meet financial
obligations where a trading deficit has accumulated. Inconvertible
foreign exchange available to Hungary in one market is used to purchase
goods having an immediate resale value in another market where funds
are needed. In addition, commodities are purchased to fulfill export
commitments when domestic production is lacking or insufficient to meet
requirements. The shrewd, opportunistic trading practices of Hungarian
commercial representatives often give 'to reexporting the appearance of
a typically capitalistic profit-making operation. In general, the over-
all effects of reexporting are that some of the advantages of a multi-
lateral trading system are thereby achieved and the commodity composition
of total trade is broadened.
Reexports accounted for 10 percent of total Hungarian exports in
1956 and for 6.4 percent in the first 9 months of 1957. The decline in
the latter period probably reflects the temporary disruption of trade
negotiations following the Hungarian revolt (October 1956) as well as
the exceptional internal requirements of the country at that time.
More than three-fourths of Hungarian reexports were directed toward the
Free World in 1957. Furthermore, 45 percent of the goods reexported by
Hungary were of Western origin.. These percentages indicate a substantial
amount of trading and financial activity between the Free World and the
Sino-Soviet Bloc. Reexport traffic generally has been advantageous in
that it has facilitated the acquisition of required imports, although an
analysis of reexport activity in 1957 shows that large financial losses
sometimes were incurred in reselling goods for hard currencies. State-
ments of foreign trade officials indicate that some transactions involv-
ing losses, although not to be encouraged, nevertheless are considered
worthwhile for political and economic reasons.
The recently established multilateral clearing system for countries
of the Soviet Bloc, although limited in its scope of operations, is
expected to facilitate transactions for trading partners in the Bloc
* The estimates and conclusions in this report represent the best
judgment of this Office as of 1 May 1959.
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
I Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
S-E-C-R-E-T
because credits with one country presumably can be used for making
purchases in another (but only after formal agreement by all parties
concerned). In the absence of free transferability of balances be-
tween the Free World and the Bloc, however, commercial arbitrage
through reexporting is a means of providing limited multilateralism
in trade. In view of the dim prospects for early establishment of a
successful East-West multilateral clearing system, Hungary probably
will continue to use reexport activity as an aid in balancing its in-
ternational accounts.
I. General Importance to Hungary of Reexport Trade.
Foreign trade plays a large part in the Hungarian economy, the
domestic value of its exported goods having ranged from 12 to 14 per-
cent of national income since 1955. About 65 to 70 percent of the
foreign trade of Hungary is normally carried on with other countries
of the Sino-Soviet Bloc, but trade with the Free World is also of im-
portance both in providing an export market for Hungarian goods and as
a source of raw materials. Since 1953, when trade with the Free World
had reached its lowest ebb because of the Stalinist policy of self-
sufficiency and the trade interruptions of the Korean War, increasing
emphasis has been placed on broadening the scope of Hungarian trading
activities throughout the world. Hungary now trades with 93 nations
and has interbank or interstate agreements with 41 of them. 1/* Per-
manent trade delegations have been set up in such widely scattered
cities as Rio de Janeiro, Damascus, and Bombay. g/ As a result,
opportunities to arrange reexport transactions have been greatly in-
creased,
Fundamental to Hungarian foreign trade is the concept of a purpose-
ful control of trade to achieve bilateral balancing, although, in spite
of intentions for a planned, balanced trade, imbalances are constantly
arising. To achieve bilateral balancing, a system of rigid quotas is
ordinarily used in conjunction with trade agreements, some flexibility
being added by the setting up of clearing accounts. In renewing pay-
ments agreements, consideration is given to the current status of the
clearing balance. If the clearing balance is excessive in one direction,
trade for the following year is so planned as to restore the balance.
With countries such as those in Western Europe, where most trading with
Hungary is in private hands, it is often difficult to achieve a bilateral
-2 -
S-E-C-R-E-T
50X1
50X1
50X1
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
S-E-C-R-E-T
balance. For example) there is no guarantee that Western importers will
use the import licenses issued to them or that Western exporters will ex-
port the goods for which licenses are available for shipment to a country
of the Soviet Bloc.
Hungarian reexport activity before 1951 was not substantial and was
not recorded separately, but since 1951 Hungary has engaged in reexport-
ing to an increasing extent in order to improve its conduct of foreign
trade. Reexports have become an important part of the export trade of
Hungary and, according to Hungarian officials, have been used for the
following reasons: to meet the requirements of trading partners for
goods in excess of Hungarian production or not produced in Hungary) to
earn badly needed convertible exchange, and to equalize imbalances in
the bilateral clearing accounts.
Reexports by Hungary represent a larger proportion of its total ex-
ports than is the case in most other countries for which data on reex-
ports are available. Reexports accounted for 12 percent of total Hun-
garian exports in 1955, 10 percent in 1956) and 6.4 percent in the first
9 months of 1957. A comparison of reexports and total exports is shown
in Table 2.* The reexports of the USSR were 9.4 percent of exports in
1956 and 7.4 percent in 1957. y In East Germany, the only other coun-
try of the Sino-Soviet Bloc for which data are available)** reexports
were about 1 percent of exports in 1956. By way of comparison, in 1957
in Ceylon reexports constituted 5.5 percent of total exports; in the UK,
3.8 percent; and in Canada, 1.9 percent. Japanese reexports were only
0.3 percent of total exports in 1956.
II. Reexports in 1956 and 1957.
Recent information sheds light on the importance of reexports in
Hungarian trade in 1956 and 1957 as well as on the extent to which
Hungary depends on reexport trade to supplement its foreign exchange
earnings and facilitate balancing its international accounts. LI/
* Appendix A, p. 14, below.
** In May 1958 a Bulgarian publication stated that the first Bulgarian
experience with reexport trade was in 1952 and 1953, that the country
was still "backward" in this type of trade, and that further develop-
ment of reexport trade was contemplated. 1/
- 3 -
S-E-C-R-E-T
50X1
50X1
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
S-E-C-R-E-T
This reexport activity shows that a certain element of multilateralism
has existed in practice in spite of the pattern of bilateral agreements
which are the foundation of intra-Bloc trade. The following tabulation
summarizes Hungarian reexports in the first 9 months of 1956 and of
1957, in million FE forints*:
Reexports
First First
9 Months Percent 9 Months Percent
of 1956 of Total of 1957 of Total
Total
495.3
100
241.5
100
To the Sino-Soviet Bloc
104.2
21
57.3
24
To the Free World
391.1
79
184.2
76
In terms of reexport activity, 1957 was not a good year, because
some disruption of reexport negotiations followed as a result of the
revolt of October 1956. Reexports in the first 9 months of 1957 were
about 50 percent less than in the first 9 months of 1956, which was a
more typical period.
As the tabulation indicates, the largest proportion of reexports
goes to Western countries rather than to other countries of the Sino-
Soviet Bloc. Further analysis of the origin and destination of Hun-
garian reexports shows that 33 percent of the total value of Hungarian
reexports in 1957 consisted of Western goods shipped to other Western
markets and that 43 percent consisted of Bloc goods shipped to the Free
World. Eleven percent of total reexports originated in other countries
.of the Bloc and were reexported to Bloc markets, and 12 percent origi-
nated in the Free World and were reexported to the Bloc. A more com-
plete survey of the origin and destination of Hungarian reexports in the
first 9 months of 1956 and of 1957 is shown in Table 3.** Data on in-
dividual countries and a comparison of reexports to total exports are
shown in Table 4.***
In assessing the comparative results of the 2 years, the Hungarian
Ministry of Foreign Trade has stated that, because of the decreased
volume of reexports in 1957, it was not possible "in every case" to
ease foreign-exchange tensions, and the equalizing of commodity bal-
ances and payment balances was not as effective as in 1956. Total ex-
change and clearing credits produced from Hungarian reexports in the
first 9 months of 1957 amounted to 241.5 million FE forints, of which
* The term FE forints throughout this report refers to foreign ex-
change forints. The official rate of exchange, 11.74 Hungarian FE
forints to US $1, may not reflect the true dollar value.
** Appendix A) p. 15, below.
*** Appendix A, p. 16, below.
- 4 -
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28 :
CIA-RDP79R01141A001400100002-2
S-E-C-R-E-T
201:5 million FE forints were realized in Western exchange and clearing.
This sum was a substantial reduction from the 392.6 million FE forints
in Western exchange and clearing gained out of a total value of 495.3
million FE forints received from reexports in the first 9 months of 1956.
The distribution of all Hungarian reexports, by type of exchange
or clearing received, in the first 9 months of 1956 and of 1957 is
shown in Table 5,* and the same distribution of reexports to the Free
World is shown in Table 6.**
Hungary has made available a separate accounting of imports which
were to be reexported, and this information makes it possible to corn-
pare reexports with imports for reexports. The reexport account bal-
ances in million FE forints during 1951-56 and the first 9 months of
1957 are shown in Table 1.
Table 1
Hungarian Reexport Account Balances 2./
1951-57
Million FE Forints
Year
Imports for Reexport 12/
Reexports LI
Balance of Reexport Trade
1951
311.6
355.5
+43.9
1952
407.1
435.2
+28.1
1953
416.1
472.o
+55.9
1954
644.3
733.6
+89.3
1955
853.3
845.3
-8.0
1956
582.3
579.9
-2.4
1957 2/
229.1
241.5
+12.4
a. The balances of reexport trade reflect the net effect of several fac-
tors. (1) The unusual system used by Hungary for valuing trade in 1952-56.
In that period, imports were valued on an f.o.b. foreign country basis
(shipping costs not included) and exports on a c.i.f. purchasing country
basis (shipping costs included). In 1957, Hungary returned to the system
in effect in 1951, which was to value imports c.i.f. Hungarian frontier
and exports f.o.b. Hungarian frontier. (2) Some reexport goods may have
been sold at higher) or lower, prices than their import cost. (3) The
total value of reexports includes sales of goods imported during the pre-
vious year. (4) In the case of negative balances, goods imported may
have remained in the warehouse unsold rather than having been reexported
in the current year.
b. 2/
c. First 9 months only.
* Appendix A, p. 17, below.
** Appendix A, p. 18, below.
- 5 -
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28 :
CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
S-E-C-R-E-T
1. Role of Reexports in Trade with the Bloc.
Reexports have served to satisfy commitments by Hungary to
other countries of the Sino-Soviet Bloc which could not be met through
domestic production and have provided opportunities for liquidating
both surpluses and debts in various Bloc ,markets. Reexport activity,
however, did not play an equalizing role in achieving a balance with
the Bloc as a whole in the first 9 months of either 1956 or 1957.
As shown in Table 7)* the net export surplus of total trade with the
Bloc was reduced in 1956 because of an excess of imports from Commu-
nist China on reexport account, and in 1957 reexport activity served
to aggravate the already large deficit of total trade with Bloc trading
partners, again primarily because of the China account.
The large deficit in both 1956 and 1957 in the Hungarian re-
export account with Communist China** points up the particular role
of China as a source of imports for reexport. Jeno Incze, Hungarian
Minister of Foreign Trade, stated in March 1958 at a news conference
in Peking that 50 to 70 percent of the goods acquired by Hungary from
China (primarily agricultural products) were reexported to other
countries. 12/ However, there was a large decline in gross Hungarian
imports from China for reexport between 1956 and 1957 -- from 188.5
million FE forints in the first 9 months of 1956 to 91.0 million FE
forint e in the corresponding period of 1957. 11/ Chinese internal
requirements, combined with the relatively poor crop year in China
(which reduced the availability pf goods normally acquired by Hungary
for reexport purposes), probably were largely responsible for the
decline, although the disruptions of the Hungarian revolt may have
had a bearing on this reexport activity in 1957.
Although reexport activity did not serve to balance Hungarian
trade with the Sino-Soviet Bloc in 1957, it nevertheless did yield
more Western exchange than in 1956. Of reexports to the Bloc totaling
104.2 million FE forints in the first 9 months of 1956, Hungary obtained
only 1.5 million FE forints in Western exchange. In the first 9 months
* Appendix A) p. 19, below.
** The reexport balance represents the difference between reexports
to China and imports from China for reexport.
- 6 -
S-E -C -R -E -T
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
S -E -C-R-E-T
of 1957, however, in spite of a greatly reduced volume of reexports
(57.3 million FE forints)) Hungary succeeded in obtaining from the
other countries of the Bloc 17.3 million FE forints of Western ex-
change, possibly reflecting hard bargaining on the part of Hungary
because of its critical foreign exchange requirements following the
revolt.*
2. Role of Reexports in Trade with the Free World.
In the years under consideration) reexports have served to
help to improve the over-all payments balance of Hungary with Western
countries. In the first 9 months of 1956 the convertible active
balance produced by direct commodity turnover with Western countries
(230.8 million FE forints) was increased through reexports by nearly
200 million FE forints. In the first 9 months of 1957 a deficit of
281 million FE forints in direct commodity turnover with the Free
World was reduced by one-third (99 million FE forints) through reex-
port earnings. In the case of Egypt alone an active balance resulting
from direct commodity turnover was increased through reexports by
nearly 20 million FE forints. 12/
a. Bloc Goods Reexported to the Free World.
The Hungarian Ministry of Foreign Trade has stated that
there is no method of satisfactorily surveying and analyzing the
balancing role of Bloc goods reexported by Hungary to the Free World
in 1957 because of the lack of data concerning the largest segment of
these goods -- those of Chinese Communist origin.** A portion of the
transactions involving Bloc goods reexported to the Fres World in 1957
was analyzed) however, to determine the cost of obtaining the Western
exchange acquired. Convertible Western exchange resulting from the
transactions amounted to 28 million FE forints. The costs included
26.1 million FE forints for the goods sold) plus freight costs of
* See Tables 3 and 5, Appendix A, pp. 15 and 17) respectively, below.
In 1956, reexports to the Bloc of 104.2 million FE forints minus Bloc
clearing received of 102.7 million FE forints equaled 1.5 million
FE forints received in Western exchange. In 1957) reexports to the
Bloc of 57.3 million FE forints minus 40.0 million FE forints Bloc
clearing received equaled 17.3 million FE forints received in Western
exchange.
** In the past) goods originating in Communist China which Hungary
reexported have been of great importance in producing convertible
Western exchange because the goods were purchased through the use of
Bloc clearing and sold mostly for free foreign exchange.
- 7 -
S -E -C -R -E -T
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
S-E-C-R-E-T
11.5 million FE forints and other expenses of 0.7 million FE forints, or
a total cost of 38.3 million FE forints. Thus 28 million FE forints of
Western exchange were acquired at a'cost of 38.3 million FE forints -- a
loss of 10.3 million FE forints on these transactions. Although this is
not a sufficiently large segment of trade from which to draw conclusions
as to the profitability of all reexports of Bloc commodities,* it does
show the large loss which sometimes results in acquiring Western exchange
and the necessity for Hungary to accept the loss in order to fulfill its
obligations. Most significantly) it represents an indication of the cost
of bilateralism. 1W
Of Hungarian reexport dealings in the first 9 months of 1957
in which Bloc goods were reexported to the Free World, 93 percent were
settled in German marks, British pounds, Swiss francs, and French francs.
Only 7 percent were settled in Austrian, Brazilian, Italian, and Turkish
clearing, but these transactions were profitable, however, especially
the reexports to Brazil. A significant active balance of 1.1 million
FE forints in the blearing account, which was achieved through reexports
of Bloc goods to Brazil, helped to offset the deficit of about 3.5 mil-
lion FE forints in direct trade turnover with Brazil.
b. Goods of Western Origin.
The strained foreign exchange position of Hungary with the
Free World in 1957 is clearly reflected in the significant shift which
took place in its imports for reexport. The Hungarian imports intended
for reexport in the first 9 months of 1956 and of 1957 are shown in
Table 8.** Imports from the Free World for reexport decreased about
two-thirds in the first 9 months of 1957. Furthermore, whereas 86 per.'
cent of the goods which Hungary reexported to the Sino-Soviet Bloc came
from Western countries in 1956) only 52 percent originated in Western
countries in 1957. There occurred declines in imports for reexport
from traditional Near Eastern and South American sources as well as in
imports originating in hard-currency countries such as Sweden and West
Germany. The policy in 1957 was to curtail the spending of convertible
and hard-currency holdings. In contrast to nearly 160 million FE for-
ints of hard exchange used in the first 9 months of 1956) the outlay in
first 9 months of 1957 was 40 million FE forints -- only 25 percent of
that of 1956. 15/
reexport of goods origi-
50X1
nating in other countries of the Soviet Bloc (presumably excluding Com-
numist China) generally meant a loss of 30 to 40 percent to Hungary.
losses could be made up only if Hungary in turn im- 50X1
ported from the Free World high-quality commodities not available in
the Bloc. 13/
** Appendix A) p. 20, below.
- 8 -
S -E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28 :
CIA-RDP79R01141A001400100002-2
S-E-C-R-E-T
III. Reexport Policies and Techniques.
Each year, Hungarian trade agreements include commitments to supply
industrial raw materials and agricultural commodities which cannot be
covered from domestic sources but which Hungary expects to fill by pur-
chases both from other countries of the Sino-Soviet Bloc and from the
Free World. The Hungarian economy is poor in industrial raw materials,
and, therefore, the proportion of these materials in direct export is
low. Of reexports,to.other countries of the Bloc during the first
9 months of 1957, 53.7 percent consisted of raw materials (excluding
agricultural products), compared with only 16.8 percent in direct trade.
Of reexports to the Free World, 22.1 percent consisted of raw materials,
compared with 10.9 percent in direct trade. Thus reexports raised the
proportion of raw materials in total exports. Agricultural products
comprised 73.8 percent of Hungarian reexports to Western countries and
raised the share in total exports of such products from 44.5 percent in
direct trade to 48.8 percent for total export turnover. The importance
of raw materials in total reexports probably reflects the relative ease
with 'which reexport transactions using raw materials can be effected
because of product standardization and the existence of organized markets.
Comparative advantages of trading Opportunities are carefully con-
sidered. The Ministry of Foreign Trade reported in October 1957 that
inasmuch as the prices of raw materials in other countries of the Sino-
Soviet Bloc were at that time lower than world market prices, it was
worthwhile to import raw materials from other countries of the Bloc in
exchange for Hungarian reexports of commodities of Western origin. Thus
it was then advantageous to spend hard currency for goods in the Free
World and to reexport these goods to the Bloc in exchange for raw mate-
rials rather than to pay higher prices for the materials in the West. lg
Analysis of particular reexport transactions brings out other
motives in Hungarian commercial dealings. Reexports of Western goods
to Yugoslavia in the first 9 months of 1957 resulted in a substantial
profit, whereas reexports of certain Italian and West German goods
(artificial fiber and cheese) delivered to Czechoslovakia represented
a loss. The loss was justified by the Ministry of Foreign Trade as a
commercial and political gesture made in the interest of maintaining
active trade contacts with the Free World.*
* That some transactions are arranged to balance the accounts of
a specific foreign trade enterprise is illustrated by attempts to
make up losses on the delivery of Italian synthetic fiber by means of
deliveries of Czechoslovak artificial fiber.
- 9 -
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28 :
CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28 :
CIA-RDP79R01141A001400100002-2
S-E-C-R-E-T
Increased emphasis is being placed on sales tied in with purchases.
The principal purpose of such tie-in transactions is to promote sales of
Hungarian goods where there is little likelihood of exports under the
usual. trading arrangements. Thus foreign exchange earnings may be in-
creased in areas where imports needed by Hungary are to be obtained.
These tie-in deals also create possibilities for exports in excess of
the commodity Cuotas set by 'countries importing from Hungary 17/
- Reexport trade also provides a means for the extension of Hungarian
economic contacts with underdeveloped countries of the Free World. In
certain situations where Hungary cannot use the products available in
the underdeveloped countries it is possible to purchase and reexport
them, thus building up trade connections and providing a market for
Hungarian goods. As of mid-June 1958, Hungary reportedly had arranged
through trade agreements With Colombia, Guatemala, Mexico, Morocco,
Tunisia, and Venezuela to buy raw materials in excess of Hungarian
domestic needs so that these goods could be resold on the West German
market. Some of the items reportedly were being offered at prices
well below the-established world market price. 19"
Hungary has often bought commodities from Western countries and
resold them in the West without permission of the original exporter.
Also, foreign goods, such as Argentine meat, Japanese yarn, and British
or Belgian coal, reportedly have been declared to be of Hungarian ori-
gin in order to facilitate reexport transactions. g2/
Hungarian trade officials are constantly on the alert for advan-
tageous reexport deals. In May 1957 the Hungarian trade mission in
Frankfurt discovered that West Germany currently had a reserve of about
1 million metric tons of cereal grain in its warehouses. Because the
new harvest was coming in, Hungarian officials estimated that they
could acquire 200,000 to 400,000 metric tons of the West German
cereal grain which they then could offer to Egypt in return for cot-
ton or other reexportable goods. They also were considering offering
some of the grain to Pakistan, whose import needs they believed might
not be met, because Pakistan's customary source, the US, was sending
large quantities to India. 21/
- 10 -
S -E -C -R -E -T
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28 :
CIA-RDP79R01141A001400100002-2
50X1
50X1
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
S-E-C-R-E-T
The Ministry of Foreign Trade in 1957 was searching for new ways
to satisfy its needs for convertible exchange to take the place of the
diminished possibilities for producing convertible foreign exchange
through its reexports of commodities of Chinese Communist origin. In-
creased reexport activity in soft-currency. countries proved worthwhile
because of the profits to be made through foreign-exchange conversions
and black-market currency operations, even though the goods turnover
did not always appear to be profitable.
Hungarian reexport activity may be expected to continue as long
as the present bilateral conduct of trade continues and as long as
distortions in pricing and production persist in the markets of the
Sino-Soviet Bloc. An improvement in quality and delivery schedules
for exports would place Hungary in a more competitive position in
Western markets and thus reduce somewhat the need for reexporting.
It is also possible that some reduction in reexport activity will
be brought about by the recently established intra-Bloc multilateral
payments system, which permits limited multilateral settlements with-
in the Bloc by mutual consent of the interested parties. But as long
as the conduct of foreign trade is primarily bilateral) it will be to
the advantage of Hungary to engage in reexport activity to alleviate
the strictures implicit in bilateralism.
50X1
50X1
50X1
- 11 -
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28 :
CIA-RDP79R01141A001400100002-2
S -E -C-R-E -T
APPENDIX A
STATISTICAL TABLES
- 13 -
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28 :
CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
Table 2
Export and Reexport Trade of Hungary Lti
1951-57
Million FE Forints
Year
Total Exports
(Including Reexports) Reexports
Reexports as Percent
of Total Exports
1951
4,645.8
355.5
7.7
1952
5,197.8
435.2
8.4
1953
5,904.2
472.0
8.0
1954
6,163.6
733.6
11.9
1955
7,147.9
845.3
? 11.8
1956
5,809.0
579.9
10.0
1957 12/
3,797.2
211-1.5
? 6.4
b. First 9 months only.
- 14 -
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
50X1
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
-
S-E-C-R-E-T
Table 3
Percentage Distribution of Hungarian Reexports, by Origin and Destination g
January-September 1956 and 1957
Reexports
(Million FE Forints)
Percent of
Total Reexports
Origin and Destination of Goods
1956
1957
1956
1957
Total
495.3
241:5
100.0
100.0
To the Sino-Soviet Bloc
104:2
atl
21.1
23.7
From the Bloc
14.6
27.3
3.0
11.3
From the Free World
89.6
30.0
18.1
12.4
To the Free World'
391.1
184.2
78.9
76.3
?
From the Bloc
194.9
104.9
39.3
43.4
- From the Free World
196.2
79.3
39.6
32.9
- 15 -
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
S-E-C-R-E-T
Table Ii-
Geographic Distribution of the Reexport Trade of Hungary
January-September 1956 and 1957
aJ
Million FE Forints
January-September 1956
January-September 1957
Total Exports
Reexports as
Pereent of
Total Exports
Reexports as
Percent of
Destination
(Including Reexports)
Reexports
Total Exports
(Including Reexports)
Reexports
Total Exports
Total
5,168.4
495.3
9.6
3,797.2
241.5
6.4
TO the Bloc
of which
3,216.0
104.2
3.2
2,502.7
57.3
2.3
East Germany
380.1
28.7
7.6
379.2
9.6
2.5
Poland
250.8
52.0 b/
20.7
155.6
4.2 b/
2.7
Rumania
122.5
7.8 J.
6.4
105.6
.0.9 12/
0.9
_
To the Free World
of which
1,952.4
391.1
20.0
1,294.5
184.2
14.2
Brazil
68.1
16.8
24.7
33.2
12.2
36.7
Egypt
68.4
7.4
10.8
81.9
19.8
24.2
Finland
66.o
18.0
27.3
47.0
1.7
3.6
Switzerland and
Liechtenstein
227.2
110.6
48.7
98.3
33.9
34.5
Turkey .
52.6
1.0
90.4
18.6
20.6 ,
West Germany
381.6.
66.4
17.4
222.8
20.6
9.2
b. May be understated because some goods sold for Western exchange may not have been included.
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
S-E-C-R-E-T
Table 5
Distribution of Hungarian Reexports .
by Type of Exchange or Clearing Received a/
.January-September 1956 and 1957.
January-September 1956
January-September 1957
Amount
Percent
Amount
Percent
Method of Payment
(Million FE Forints)
of Total
(Million FE Forints)
of Total
Total
495.3
100.0
241.5
loom
Bloc clearing
102.7
20.7
4o.0
16.6
Free World exchange
and clearing
392.6
79.3
201.5
83.4
a.. L71
- 17 -
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
Table 6
Distribution of Hungarian Reexports to the Free World
by Type of Exchange or Clearing Received 2/
January-September 1956 and 1957
Type of Exchange or Clearing
January-September 1956
January-September 1957
Amount
(Million FE Forints) Percent of Total
Amount
(Minion FE Forints) Percent of Total
Convertible exchange
of which
Dollars
Pounds
"Clearing II" hi
tearing III" Ei
of which'
- 392.6
201.5
100.0
329.8
84.o
146.3
72.6
62.4
166.o_
3.5
35.8
15.9
47.4
0.9
9.1
11.5
103.5
1.4
38.1
5.7
51.4
0.7
18.9
Brazil
16.8
4.3
11.6
Egypt
7.4
1.9
19.8
9.8
"Clearing IV" si
of which
19.9
5.1
13.4
6.7
Finland
18.o
4.6
1.9
0.9
Turkey
1.6
0.4
11.5
5.7
Other
3.6
0.9
2.3
1.1
a. Li
b. Hard currencies.
c. Definition unknown
- 18 -
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
S-E-C-R-E-T
Table 7
Hungarian Balance of Trade with Other Countries
of the Sino-Soviet Bloc 2/
January-September 1956 and 1957
Million FE Forints
January-September 1956
January-September 1957
Country
Direct
Trade Balance 12/
Reexport/
Balance 2/
Net
Balance
Direct /
Trade Balance 1?1
Reexport,
Balance 2/
Net
Balance
Total Bloc trade
+626.4
-111?3
+515.1
-1,72L9
-64.5
-1,789)1.
USSR
+314.0
+5.5
+319.5
-1,422.2
-3.1
-1,425.3
East Germany
-39.8
+21.9
-17.9
-256.7
+7.7
-249.0
Rumania
-6.5
+6.6
+0.1
-82.1
-1.0
-83.1
China
+43.1
-186.5
-143.4
-19.7
-84.3
-104.0
Others
+315.6
+41.2
+356.8
+55.8
+16.2
+72.0
a. Es
b. The direct trade balance equals exports of domestically produced goods minus imports for
consumption.
c. The reexport balance represents the difference between reexports and imports for reexport.
- 19 -
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
S-E-C-R-E-T
Table 8
Hungarian Imports Intended for Reexport 2../
January-September 1956 and 1957
Source
January-September 1956
January-September 1957
Amount
(Million FE Forints)
Percent
of Total
Amount Percent
(Million FE Forints) of Total
Total Imports for Reexport
512.7
100.0
Ma
100.0
From the Sino-Soviet Bloc
222.7
43.4
121.8
53.2
Communist China
188.5
36.8
2112.
9.7
Other Bloc
30.8 3o.8
13.5
From the Free World
290.0
456.6
107:3
46.8
Europe
of which
170.4
33.2
73.2
31.9
Sweden
20.9
4.1
5.3
2.3
Turkey
45.9
9.0
30.7
13.4
West Germany
18.3
3.6
8.5
3.7
Far East
of which
16.4
11
15.1 .
6.6
Burma
13.4
2.6
15.1
6.6
Near East
of which
19.5
L2
N.A.
N.A.
Egypt
14.4
2.8 -
N.A.
N.A.
North America
of which
31_34
'Li
l0.5
4.6
Canada
24.8 .
4.8
N.A.
N.A.
South America
of which
45.7
8.9
8.4
3.7
Brazil
37.1
7.2
6.5
2.8
- 20 -
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28 :
CIA-RDP79R01141A001400100002-2
le#
40 Next 2 Page(s) In Document Denied
e
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28 :
CIA-RDP79R01141A001400100002-2
50X1
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141.A001400100002-2
SECRET
SECRET
Declassified in Part - Sanitized Copy Approved for Release 2013/08/28: CIA-RDP79R01141A001400100002-2