(UNTITLED)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T01017R000101040001-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 13
• Document Creation Date: January 12, 2017
• Document Release Date: March 21, 2011
• Sequence Number: 1
• Publication Date: June 11, 1986
• Content Type: MEMO

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Central Intelligence Agency
Chief,
International Security Issues Division
Office of Global Issues
SUBJECT: Soviet Arms Licensing to the Third World
1. The attached memorandum assesses the outlook for Soviet licensing of
arms coproduction to the Third World. Moscow's traditional policy of seldom
granting coproduction is likely to erode in the next five years because the
Soviets will be forced to respond to Western canpetition or risk erosion of
their daninance in key arms markets.
Your comments and suggestions are welcane and may addressed to
Arms Transfers Branch
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Attachment:
Soviet Arms Licensing to the Third World
GIM 86-20142/86, 9 Jun 1986,
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CONFIDENTIAL
SUBJECT: Soviet Arms Licensing to the Third World
DDI/OGI/AT/ (10 Jun 86)
Distribution:
Dr. Darnell Whitt, Defense
Dr. Stephen D. Bryen, Defense
Policy, Defense
Gerald D. Sullivan, Defense
Col. William P. Stewart, Defense
Samuel W. Crawford. Defense
Morton S. Miller, State
Stanley Sienkewicz, State
Robert R. Strand, State
Edmund S. Finegold, State
Regina Eltz, State
John T. Tyler, Defense Security
Assistance Agency
Donald Fortier, NSC
SA/DDCI
Exec. Director
DDI
DDI/PES
C/OGI PG
OGI/EXS/PG (2 copies)
CPAS/IMC/CB (6 copies - 1 sourced)
C/CPAS/IMC
CPAS/SA
D/OGI/ADD/OGI
D/ALA
D/OEA
D/SOVA
D/EURA
D/NESA
D/OSWR
D/OIA
NIO/AF
NIO/EA
NIO/Econ
NIO/LA
NIO/NESA
NIO/USSR-EE
EIO/WE
DDO
DDO/CPD
DDO/SE
DDO/NE
DDO/AF
DDO/EA
DDO/LA
C/ISID (2 copies)
C/ISID
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Central Intelligence Agency
DIRECTORATE OF INTELLIGENCE
10 June 1986
Summary
The USSR's traditional policy of seldom granting its Third World
customers licenses to coproduce arms probably will erode during the next
five years as more of these countries establish or expand defense indus-
tries, and Moscow is forced to respond to aggressive Western efforts to
penetrate its markets. We believe Soviet policymakers have resisted li-
censing in the past out of concern that it might reduce clients' depen-
dence on Moscow and compromise arms technology. As Soviet licensing
expands, we believe Moscow's concerns will be proven right, with positive
implications for the United States. Moreover, we believe the USSR's slow-
ness in granting coproduction and the poor quality of Soviet production
technology will irritate Moscow's clients and create further opportunities
to loosen their ties to the Soviets.
This memorandum was prepared by Office of Global Issues. Information
available as of 10 June 1986 was used in its preparation. Comments and queries are
welcome and may be directed to the Chief, Arms Transfers Branch, International Security
Issues Division, OGI,
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The Limited Scope of Soviet Licensing
The USSR has licensed few arms for production in the Third World, although an
increasing number of these countries are seeking to build arms industries through li-
censing:
? India is the only country that coproduces major Soviet weapons on a large scale.
New Delhi began producing Soviet arms in 1962 and currently holds licenses for
the MIG-21bis and MIG-27 fighters, the BMP-2 armored personnel carrier, the
T-72 tank, and much of their related armament, munitions and support a ui -
ment
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? Egypt was a distant second to India in receiving Soviet arms licenses prior to
Sadat's decision to sever arms ties with Moscow. In the early 1970s, Cairo began
producing a range of arms, includin artillery. SA-7 rifles, anti-tank
guns, and RPG-7 rocket launchers and still pro- 25X1
duces these arms, although probably not with Soviet approval or assistance.
? Moscow built one small ammunition plant for Iraq in the 1950s and probably has
offered Baghdad new licenses for small arms and ammunition.
although some reports indicate the Soviets provide tech-
nical support to a few Iraqi arms factories.
? The Soviets may also have offered small arms factories to Libya,
ing, but it is unclear who built it or what it produces.
one)
(See table
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Incentives to produce arms indigenously include skyrocketing weapons prices, a desire
for increased industrial capability, national pride, desire for independent and secure
sources of arms, and hope for increased export earnings and reduced foreign exchange
costs. Initial efforts are usually limited to assembly of imported components, with plans
to proceed to indigenous production from raw materials. Small arms and ammunition
usually are produced under license first, and many Third World countries then try to
proceed to production of larger equipment, again starting with assembly. Most Third
World states never develop fully indigenous industries, remaining dependent on other
nations for expertise in design, tooling, manufacturing processes, and major components
of most military equipment, especially large items.
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The USSR has sold facilities for repair and overhaul of major military equipment,
including rights to fabricate some spare parts, to a few countries. We believe many
countries acquire these facilities to gain technical experience which can later be applied
to arms production.
Moscow's Warsaw Pact allies are somewhat more active in the coproduction
market, although as far as we know they have licensed no major combat arms to date:
? Czechoslovakia, which has a strong arms industry, has licensed indigenously de-
signed equipment. Prague is helping Libya set up its arms industry with con-
tracts worth $500 million for production feasibility studies, a small ammunition
plant, and facilities for overhauling L-39 aircraft,
Prague also has sold ammunition and truck plants, and overhaul facilities to India,
Iraq, Indonesia, Cuba, and Ethiopia.
? Other Warsaw Pact members have sold licenses for equipment they produce un-
der Soviet license. Bulgaria sold an AK-47 plant to Tanzania in 1980 although the
plant may not yet have been constructed. East Germany sold arms production
equipment to Syria in 1983. Warsaw Pact
countries have several contracts to help Iraq set up factories for such items as
munitions, machineguns and gas masks. We believe Moscow has allowed its al-
lies to extend licenses in these cases.
Why So Few Soviet Licenses?
We believe that several factors account for Moscow's very limited use of licens-
ing in transferring arms to the Third World.
We believe Moscow's primary objectives in transferring arms are political and
military rather than economic. To further these ends, the Soviets try to keep arms re-
cipients dependent on Moscow, not only for arms but also for spare parts and overhaul,
even though this often irritates the recipient. We believe licensing might facilitate sales,
but it also carries several risks which Moscow has learned threaten the more important
goal of control:
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? China's ability to use its Soviet supplied arms industry to maintain independence
from the USSR serves as a worst case example to Moscow of the dangers of li-
censing.
? The Egyptian case demonstrated that even limited licensing can reduce a client's
dependence on Moscow. Cairo coproduced only a few Soviet arms and had less
technical ability than Beijing, but was able to turn to other countries to keep its
production lines open and in some cases improve on Soviet designs. While
Moscow never threatened to cut off arms to Cairo during war, production of even
munitions, spare parts, and small arms gives a Soviet client some ability to ig-
nore a Soviet arms embargo in a short war.
? In addition, we believe that Moscow, like the United States, is worried that li-
censing will lead to the compromise of Soviet arms technology, particularly that
used in advanced equipment which favored customers such as India may copro-
The Limited Industrial Capability of many of Moscow's leading arms clients--Lib-
ya, Angola, Vietnam, Syria, and Ethiopia, for example--makes it unlikely that they could
produce many arms, even if the Soviets provided licenses. We believe, however, that
this factor is declining in importance-- most of the above states either have or are
looking for arms production despite their inability to do much more than assemble larg-
er equipment. In our view, many Third World countries are considering the future avail-
ability of licenses in purchase decisions.
Lack of Money is a final reason why several of Moscow's major clients cannot
obtain licenses. The Soviets can easily deny licenses to countries such as Ethiopia,
South Yemen, and Vietnam--which have little prospect of turning to other suppliers for
arms, and receive nearly all of their arms from Moscow at little or no economic cost.
The Challenge to Moscow
Soviet unwillingness to help its major arms clients develop defense industries
has led many to look elsewhere to acquire licenses and production equipment. West Eu-
ropean nations have long been willing to provide licensed production in order to in-
crease their export earnings and attach few or no political strings to sales. A variety of
reporting indicates Western technology is more attractive than Soviet because it is more
sophisticated. Moreover, many of Moscow's larger clients, like many other Third World
states, want to diversify their arms sources. We believe that a Soviet client trying to
diversify might seek licensing as a way to acquire Western arms because hard currency
costs are lower than in direct purchase. Diversification efforts probably have also led to
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coproduction of Yugoslav and Chinese arms, which are not sophisticated, but are more
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For these reasons some Soviet arms clients produce more arms under license
from other countries than from the USSR and Warsaw Pact:
? India produces a wide range of Western arms. For example, New Delhi has made
or is making West German submarines, French missiles, and British frigates, tanks,
and fighters. New Delhi also has turned to the West for aid in its indigenous
light helicopter, light combat aircraft (LCA), and main battle tank programs,
of Western components.
We believe these projects will include coproduction
? Algeria turned to West Germany in 1974 for rocket and explosives factories worth
$500 million. Open sources indicate Algiers is producing British patrol boats un-
der license. Algiers is negotiating with several West Eu-
ropean firms and Brazil for coproduction of ships, helicopters and armored vehi-
cles.
? Iraq contracted with Yugoslavia in 1976 for a number of factories to produce
munitions, small arms, and rockets. Austria, West Germany, Brazil, and France
also have sold Iraq licenses to coproduce arms. Most of these deals are for
small arms, munitions, and light artillery. Iraq apparently is delaying new pur-
chases involving coproduction because of the war, but we believe Baghdad will
eventually sign deals for air-to-air and anti-tank missile production and for jet
trainer assembly.
? Libya probably bou ht ammunition and explosives plants from Yugoslavia and
Turkey in 1980.
Soviet policy toward India indicates that Moscow has already responded to the
threat of the Western suppliers by offering coproduction. We believe the Soviets have
granted several licenses to New Delhi in direct response to India's expression of interest
in Western licenses or Western aid in various indigenous projects. Moscow offered
MIG-29 coproduction as a substitute for Mirage 2000 coproduction and the LCA project,
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In our view, the growing interest in arms production in the Third World coupled
with the challenge of Western suppliers willing to extend licenses will lead the USSR--
reluctantly--to offer coproduction to some of its major clients in the next five to ten
years to avoid erosion of its dominance in these markets. The Soviets will be most
forthcoming in countries such as Algeria, India, and if the war ends, Iraq. These coun-
tries already are diversifying arms sources and looking for licenses to produce a variety
of military equipment. Moscow also probably will offer some licenses to countries it
wishes to court, such as Peru and Nigeria. We believe the same set of forces governing
its own actions will lead Moscow to encourage or acquiesce in the extension of more
licenses to Third World countries by its Warsaw Pact allies. By contrast, in our view, the
USSR will offer few or no licenses to countries such as Vietnam, Cuba, and Syria--which
have less money, industrial capability, or ability to find alternate arms sources.
A few countries--Algeria, for example--may eventually acquire enough Soviet
production licenses and enough production capability to lessen their overall arms de-
pendence on Moscow. We believe that a country with licenses to produce most of its
small arms, munitions, and at least spare parts for major equipment would have a
sharply improved bargaining position with Moscow for purchases of other equipment
and would be less concerned about taking actions that threatened its arms ties to the
USSR because the threat of an embargo would be much less severe. Countries in this
position would be able to diversify sources of raw materials, machine tools, components,
and spare parts needed to run their arms industries by buying from countries such as
China, Yugoslavia and North Korea, and through programs such as "Bears Spares."
Those that pay hard currency for Soviet arms might have more money to diversify
sources of major arms, or to buy licenses to coproduce these arms, in our view, be-
cause payments to the USSR would be lower.
Expanded Soviet licensing will also, in our view, increase opportunities to gain
access to Soviet arms production and weapons technology. We believe that the ability
of Third World countries to safeguard such technology is much less well-developed than
Moscow's, and if a country broke with, the USSR, as Egypt did, it would have little incen-
tive to protect Moscow's technology.
Finally, expanded experience with licensed production of Soviet equipment itself
probably will cause some countries to become disillusioned with Soviet military aid.
Poor Soviet follow-on support, a frequent occurrence in direct sales, will probably also
occur in license agreements, causing production delays and more friction than is usual
with Western suppliers, in our view. We believe the low quality of Soviet production
technology also will lead some countries to conclude that they must turn to the West
for the advanced defense industries they hope to develop.
An Alternative Prospect
We believe there is an outside chance that in a few instances a Third World
country's expanding experience with Soviet licensing could in a sense backfire, resulting
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in greater, not lesser, dependence on Moscow. For example, it is not implausible that
the Soviets might decide to aggressively promote licensed arms production in Syria
even though there is little Western competition. Damascus might ultimately find itself
coproducing not only small arms, ammunition, and spare parts, but also major combat
arms. Under this scenario, Syria's investment in and commitment to Soviet-style pro-
duction methods would become so heavy that it would no longer be economically prac-
tical for Damascus to break suddenly with Moscow. Syria would have an entire industry
with a large workforce dependent on military trade with the Soviets. Soviet advisors in
the arms industry, and the close government contacts needed to ensure steady supplies
of parts, materials, and machining would give the Soviets opportunities to develop
stronger ties to Damascus. Also, we believe that Syria would in these circumstances be
more reluctant to threaten its ties to the USSR because in the event of a break with
Moscow finding outside help to keep the major arms plants running would be extremely
difficult.
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Appendix: Soviet Licensing To Communist States
In contrast to its policy in the Third World, Moscow built extensive arms industries for
most of its Communist allies in the 1940s and 50s. Eastern Europe, China, and North
Korea all benefited; China received over 100 factories to produce a full range of Soviet-
style conventional arms. Eastern Europe already had large indigenous arms industries,
but also began to make Soviet arms. Agreements with Eastern Europe continue, while
North Korea received a few addditional licenses in the early 1970s.
Moscow has not extended this generosity to Communist states in the Third
World. Vietnam received a few arms factories around 1960, some built by China. Cuba
has received no Communist license since the early 1960s--when Moscow was still soli-
difying its position in Havana. We believe Moscow wants to keep these countries as
dependent as possible to avoid any chance that they will follow Beijing's lead in charting
an independent course.
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