THE VULNERABILITY OF THE SOVIET BLOC TO A COMPLETE EMBARGO ON EXPORTS FROM THE NATO COUNTRIES AND JAPAN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01049A002400080001-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 45
• Document Creation Date: December 16, 2016
• Document Release Date: April 26, 2005
• Sequence Number: 1
• Publication Date: March 1, 1962
• Content Type: REPORT

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NOFORN
THE VULNERABILITY OF THE SOVIET BLOC TO A COMPLETE
EMBARGO ON EXPORTS FROM THE NATO COUNTRIES AND JAPAN
CIA/RR EP 62-13
March 1962
THIS DOCUMENT CONTAINS INFORMATION AFFECTING THE
NATIONAL DEFENSE OF THE UNITED STATES, WITHIN THE
MEANING OF TITLE 18, SECTIONS 793 AND 794 OF THE
U.S. CODE, AS AMENDED. ITS TRANSMISSION OR REV-
ELATION OF ITS CONTENTS TO OR RECEIPT BY AN UN-
AUTHORIZED PERSON IS PROHIBITED BY LAW.
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
NOFORN
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CONTENTS
I. INTRODUCTION . . . . . . . . . . . . . . . . .
II. CONCLUSIONS .
III. GROSS MEASURES OF THE IMPACT ON THE SOVIET BLOC
OF A COMPLETE EMBARGO IMPOSED BY NATO COUNTRIES ? . 8
IV. SPECIFIC VULNERABILITIES OF THE SOVIET BLOC
TO A NATO EMBARGO . . . . . . . . . . . . . . . . . 10
A. Machinery and Equipment - General 10
1. Chemical Equipment . . . . . . . . . 11
2. Metallurgical Equipment . . . . . . . . . . 12
3. Precision Instruments. . . ? ? 13
I.. Other Machinery and Equipmentp . . . . . .
? 14
B. Ferrous Metals . . . . . . . . . . . . . . . . . 15
C. Chemicals and Rubber . . . . . . . . . . . . . . 16
D. Fuels .
Page
E. Agricultural Raw Materials and Foodstuffs . . . 17
F. Shipping . . . . . . . . . . . . . . . . . . . 18
V. SPECIFIC VULNERABILITIES OF THE USSR TO
A NATO EMBARGO . . . . . . . . . . . .
19
A. An Embargo Against the;.Soviet Bloc .
1. Machinery and Equipment .
a. Chemical Equipment . . .
b. Metallurgical Equipment . ? ?
C. Instruments . . . ? ? '?
d. Other Machinery and Equipment/ . . . .
19
20
21
22
23
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Page
2. Ferrous Metals . . . . . .
Oth
3
24+
.
er Commodities . . . . . . . . . .
. . .
25
a. Chemicals . . . . . . . . .
b
R
25
.
ubber . . . . . . . . . . .
C
C
26
.
opper . . . . . . . . . . . . . .
. . .
26
B. An Embargo Against the USSR Alone
VI. SPECIFIC VULNERABILITIES OF EAST GERMANY
TO A NATO EMBARGO . . . . . . . . . . . .
. . .
28
A. An Embargo Against the Soviet Bloc . ?. .
. r
28
B. An Embargo Against East Germany Alone . .
. .
31
TABLES . . . . . . . . . . . . . . ... . . . . . .
. . .
32-38
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THE VULNERABILITY OF THE SOVIET BLOC TO A COMPLETE
EMBARGO ON EXPORTS FROM THE NATO COUNTRIES AND JAPAN
I. Introduction
This study is designed to analyze the economic impact on
various Soviet Blocr countries of a complete embargo on exports to
the Soviet Bloc from the NATO countries plus Japan.** Two studies
of partial embargo have been included, one of an embargo against
East Germany alone and one of an embargo against the USSR alone.
These studies have been included because of the likelihood that
the spur to action may develop from Berlin and also because an
embargo against East Germany alone is the most effective among the
various possible cases of geographically partial embargo that could
be applied against the Soviet Bloc. Thus, the limited and tran-
sient impact of an embargo against East Germany alone underlines
the futility of partial embargo in achieving much more than the
political impact which would derive from a demonstration of the
ability of the principal Western Allies to act in concert. We
do not discount the political and psychological effect of embargo.
Indeed, the political and psychological impact of embargo may be
considerably greater than the economic impact.*** Thus, if
limited political impact is sought, a partial embargo might be
employed in spite of the very small economic impact it would
produce.
An embargo against one country is of limited value simply
because of the ease of evasion and the multiplicity of possible
USSR, Czechoslovakia, Poland, East Germany, Hungary, Rumania,
Bulgaria and Albania.
For purposes of this paper references to NATO countries
include Japan unless otherwise specified.
SNIE 2-2-61, Soviet and Other Reactions to Possible US
Courses,of Action with Respect to Berlin, 11 July 19 1,
TS, Limited.
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techniques of circumvention. An embargo limited by application to
a single Bloc country is nullified by the only slightly more costly
expedient of changing the consignee of the shipment who made the
purchase from the West and diverting the shipment in transit or
upon arrival in the nation to which it was consigned from the West.
The commodity composition of present exports from the West to the
Soviet Bloc is such that there would be no other useful and
enforceable means of detecting their destination than by noting
the nation which places the order. It would perhaps be possible
to achieve some economic impact from a partial embargo if the
NATO powers were to agree to maintain their exports to other
Communist countries at a level no higher than the average of
recent years.
The ease with which a partial embargo can be circumvented
was amply apparent in the conduct of Sino-Soviet Bloc trade with
the West between 1954 and 1958 when a differential existed between
the severity of trade controls applied to Communist China and those
applied to the Soviet Bloc. We of course cannot assure that an
inversion of this process may not take place should the West
embargo exports to the Soviet Bloc while placing no additional
limitation on shipments to Communist China. Sino-Soviet relation-
ships in. recent months have been sufficiently uneasy, however, to
create a likelihood that the embargo would not be circumvented in
this manner without some distinct advantage to the Communist
Chinese from the transaction.
A partial embargo restricted in terms of its commodity cover-
age probably would be easier to police than a partial embargo
limited to selected Bloc countries and Mould be less subject to
circumvention. The embargoed nations can, of course, shift
resources including research and development efforts to offset the
loss. The shifts, however, are at the expense of some other
activity. The loss cannot be completely offset by domestic rearrange-
ments. If the items involved are already straining both productive
and developmental capacity, for example, rolled steel products, then
considerable difficulties and delays would result from the embargo
A complete embargo under the most comprehensive control has a
limited impact upon a diversified modern economy. This is amply
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clear in the findings that follow. The most pervasive influence of
an embargo is neither wholly economic nor wholly political and
psychological. Although the economic adjustments which an embargo
would require of the Soviet Bloc would be manageable, this is not
to say that the Soviet leadership would view such an embargo as
merely a minor irritant. The Soviet leadership has faced increas-
ingly difficult decisions in the allocation of resources among
major claimants -- military, industrial, agricultural, consumer,
foreign aid. Indeed, some degree of conflict among the claimants
may recently have developed. Thus, should an embargo require a
review of decisions already taken on resource allocation, it would
reopen old conflicts and, at the least, would aggravate already
vexing political and economic problems.
An important economic consequence of a general embargo which
is often overlooked is its impact upon the Soviet estimate of the
West's intentions. The USSR has been confident that the economic
benefit to individual businessmen from Soviet trade would preclude
the possibility of concert of action among the major Western powers.
The record of action in the West under COCOM and CHINCOM has
repeatedly verified the Soviet estimate. The Soviets view the
Capitalist West as incapable of concerted economic action which
might significantly reduce the income of the Capitalist Class.
The USSR tends to discount the use of economic sanction by the
West in any situation short of the exercise of force on a wide
scale. Thus, even though there has been some contingency planning
in the Bloc, Western application of a general embargo under any
other circumstance would probably catch Bloc leaders without a
satisfactory economic solution. Urgent action would therefore
be required to minimize the short-run effect of the embargo.
Simultaneously it might convey the prospect of a greater general
threat to Bloc security than the USSR now believes it faces from
the West.
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II. Conclusions
The Soviet Bloc today represents a largely self-sufficient
economic entity possessing a vast and diverse natural resources
base, a well developed and rapidly growing industrial plant, and
an increasingly skilled labor force. Pursuant to official
policy -- and aided in part by the impact of past Western trade
embargoes -= the countries of the Soviet Bloc have consistently
followed a course designed to achieve maximum economic independence
from the West. The longterm economic plans of the Soviet Bloc
countries rely for the bulk of their import requirements --
approximately for two-thirds of the total -- on intrabloc trade.
Nevertheless, trade with the NATO countries, currently accounting
for fifteen to twenty percent of total imports, continues to be
of considerable importance to the Bloc, and especially to the
European Satellites, as a supplement to domestic production and
as a means of obviating extensive domestic effort on research and
development.
At the outset it should be stated that the effect of a NATO
embargo, either partial or complete would not -- over a 2-5 year
period -= significantly reduce the Bloc's rate of economic growth.
Moreover, an embargo would of itself produce no diminution in the
production of military hardware and supporting equipment. Soviet
priority accorded to this area is well known. An embargo, could,
nevertheless, impose significant and continuing costs on the Bloc
economies. These costs, while small relative to total Bloc
capabilities, are large in absolute terms, and can not be ignored
by Bloc leadership. In this sense an embargo is useful as one in
an armory of weapons of retaliation or threat of retaliation.
In mid-1961, it was estimated* that the economic loss which
the NATO countries could impose on the entire Sino-Soviet Bloc
through embargo would amount to about $4 billion or about two
months growth. It was pointed out then that the European Bloc
would bear the major part of the loss, that in the European Bloc
some redirection of investment activity would be expected in order
* CIA, EP, July 1961.
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to compensate for the loss of capital goods imports from NATO
countries. The eventual effect of these adjustments to an embargo
would probably be concentrated on Bloc consumer goods industries
as resources were diverted to maintain military programs and
perhaps to supply the material requirements of the European
Satellites.
The vulnerability of the Soviet Bloc economy to a NATO
embargo in the early months of 1962 differs from that of mid-1961
in that (1) deliveries of Western machinery and equipment have
increased in volume, (2) in the case of East Germany detailed plans
have been constructed for coping with the contingency of a Western
embargo action, and (3) there are some evidences of imbalances
within the USSR economy today which were not present 6 months ago.
The fact of an increased rate of deliveries of Western machinery
and equipment, which tends to raise the degree of vulnerability., is
counterbalanced by the existence of contingency plans which, in
enabling the Bloc to react more quickly to an embargo once imposed,
tends to decrease the level of its vulnerability. These two
developments, therefore, tend to neutralize each other in effect,
leaving unchanged the overall degree of Bloc vulnerability to NATO
embargo action.
The evidences of economic strain within the USSR which have
appeared within the past month or two are difficult to evaluate.
The failure of non-agricultural investment to rise in 1961 over
the level of the previous years (the annual increase in 1961 was
2.5 percent, compared with a 1960 increase of 9 percent and a
1959 increase of 14+ percent)suggests that resources are strained.
The most impressive evidence of internal imbalances :iiess in the
fact that in 1961 residential construction failed to rise above
t e..1960 level, while non-residential construction increased
about five percent. At the same time investment in machinery and
equipment rose by perhaps eight percent. Because the Communist
economies operate with minimal inventories, their characteristic
tautness is often the source of imbalances. Shortages are a
familiar fact of life in Communist. countries, however, and
techniques for coping with them are highly developed; despite the
shortages gross National Product increased in 1961 by perhaps as
much as five percent.
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Whether an embargo levied at a time of internal economic
strain would impose a larger aggregate economic loss than the
same embargo imposed at another time, depends on the existing
degree of internal dislocations. If an economy were already
under severe strain, the additional stress imposed by an embargo
might well be sufficient to cause a complete reappraisal of
economic plans and reallocation of resources, where neither
internal strain nor embargo by itself would have had such an
effect. In this case the loss imposed by the embargo is multi-
plied. On the other hand if the internal strain is of minor
degree and confined to only a few economic sectors, its
existence is then irrelevant to the magnitude of the embargo's
impact. While it is clear that the Soviet economy is facing
increasingly difficult problems in the allocation of resources
and is generally under greater strains than in recent years
too little unfortunately is known at the moment regarding its
state to determine which case best describes reality. Two
additional thoughts, however, may be helpful.
In the very short run, imbalances take the form of
exhausted inventories and therefore of delays in production in
the consuming industries. An embargo would at least add to the
number of existing shortages, and might increase the intensity
of those already in existence if it shut off a flow of goods
whose inventories were already exhausted. In the latter case,
the immediate impact of the embargo would be multiplied by the
lack of inventories, the delays in production would be longer,
the repercussions through dependent industries more extensive
and thus the immediate disruption greater. Similarly, in the
intermediate term when imbalances take the form of a lack of
excess capacity and therefore inelastic supplies, an embargo
would either add to the list of goods already in inelastic
supply or would intensify the degree of unsatisfied demand
already in existence with further repercussions throughout the
economy. In either case, since Soviet imports from NATO
represent a wide range of industrial goods, it seems probable
that both the immediate impact and intermediate-term effects
of the embargo would fall on sectors already suffering shortages
and would thus be subject to multiplication.
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A long-term aspect of the economic stress presently being
experienced in the USSR is also relevant. Recent performance of
the Soviet economy suggests that it is becoming increasingly
difficult to maintain over-all growth rates at the high levels
of the mid- and late 1950's. The sources of rapid growth of the
early 1950's -- the rebuilding of war-devastated industries and
the expansion of basic industries, including the plowing of new
land -- have been largely exhausted. The extensive margin of
growth has been reached and further sources of growth must be
sought at the intensive margin -- in adapting more sophisticated
technology, in developing a diversity of specialized goods, in
rationalizing production and especially administration. Under
the Soviet system the difficulty of such a .rationalization implies
a growing premium on the gains from foreign trade. Imports of
precision, specialized items embodying new technology in raany
diverse fields, act to husband not only scarce research resources,
but even scarcer entrepreneurial and administrative resources.
Concern with economic efficiency through the whole range of output
is leading to an increased awareness of relative costs, not only
among industries internally, but as between a Soviet and foreign
industry. Thus it seems likely that the pressure to maintain
rapid growth rates will make the Soviet Bloc countries increasingly
concerned with international trade in the long-run, although the
greatest proportion of their trade will undoubtedly continue to
be with one another.
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III. Gross Measures of the Impact on the Soviet Bloc of
Complete Embargo Imposed by NATO Countries
The denial of all goods and services produced in NATO
countries to members of the Soviet Bloc would, under generous
assumptions of impact, cause a retardation in economic growth in
Communist Europe of $3 to 32 billion on an annual basis, This loss
would be the equivalent of 2 to 3 months' increment to output, and
would be borne primarily by the European Satellites. The estimated
cost of such an embargo to the USSR is less than $1.5 billion or
roughly one month's growth; that to the other countries of Eastern
Europe less than $2 billion or about 6 months' growth. The loss
would be felt most keenly in the months immediately following the
embargo. Because of the importance of NATO suppliers to Bloc
investment plans a denial of industrial machinery and equipment
would result in a slightly reduced long-run rate of economic growth,
although the loss in succeeding years would repLdlyydecline.
Recognizing the alternatives to imports from NATO open to the
Soviet Bloc, the actual loss experienced in the first year following
the imposition of an embargo might be considerably smaller than the
2 to 3 months growth estimated above. In fact, it has not been
possible to identify any single item imported from NATO which is
truly a "bottleneck" - i.e. - for which there is no possible substi-
tute. Other than investment goods, whose acquisition obviates
considerable research and development effort and therefore facili-
tates expansion of output, the only goods imported from NATO for
which the available alternatives are substitutes of considerable
inferiority are the special steels. Because these advanced steel
items, primarily rolled or specially alloyed forms, are already in
somewhat short supply within the Soviet Bloc, their output could
not be expanded to compensate fully for the loss of imports from
NATO. Nonetheless, substitution of other forms of steel for the
loss of special steels is technologically possible, and in many
instances, use of the inferior substitutes has only very recently
been abandoned by the Bloc. The shift to the less desirable input
could thus be accomplished with little ado. The result would be
a product of lower quality -- a pump, for example, whose useful
life would be diminished from 3 to 2 years.
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In the weeks immediately following the imposition of an
embargo, the degree of disruption which the Bloc economies would
experience would depend primarily on the level of their inventories
of imported materials. With sufficient reserves to tide them over
the period of adjustment to substitutes, the degree of disruption,
and therefore the size of the immediate impact would be negligible:
the burden of the embargo would fall entirely on growth rates. If
inventories are not sufficient to satisfy requirements during the
shift to substitutes -- and it seems likely that this would be true
in a number of industrial sectors especially in the European Satellites the immediate impact of the embargo could be of significant magnitude.
Because of the possibilities for substitution, however, the major
part of the economic cost. resulting from an embargo would probably
not occur immediately but rather during the first year after the
embargo.
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IV. Specific Vulnerabilities of the Soviet Bloc to a NATO Embargo
The Soviet Bloc has achieved a high degree of economic self-
sufficiency and is able to~meet most of its requirements for raw
materials, machinery, and equipment from indigneous production.
As a result, the imposition of an embargo by NATO countries could
not be expected to have more than a marginal impact on overall
economic growth within the Bloc, although the denial of certain
imports -- specifically equipment and technology for the chemical
and metallurgical industries as well as high-grade rolled steel
products -- would cause temporary disruptions and production short-
falls in selected Bloc programs. Lacking the flexibility afforded
by a well diversified industrial structure and generally more
dependent upon foreign trade, the European Satellite countries --
East Germany in particular -- would feel the impact of such an
embargo more acutely than the USSR, although the extent of this
impact would depend on Soviet capability and willingness to allocate
scarce resources on the basis of Bloc-wide, rather than internal
Soviet, priorities.
In 1961, Soviet Bloc imports from the NATO area are estimated
to have increased about L.5 percent over those of 1959, to a level
of approximately $2,400 million. The NATO countries thus accounted
for 16 percent of total Soviet Bloc imports, which are estimated
to have been approximately $1l+,4oo million. Although detailed
commoditiy statistics are not as yet available for all of 1961,
it appears that, following the trend established in previous years,
more than half of total Soviet Bloc imports from the NATO group
consisted of machinery and equipment and iron and steel products.
The impact of an embargo by NATO countries would necessarily
fall unevenly on the individual countries of the Soviet Bloc and
upon the individual sectors of their respective economies. The
following sections will discuss the extent of this impact on the
major areas of the Soviet and Satellite economies.
A. Machinery and Equipment - General
The NATO countries currently supply approximately 15 - 20
percent of total Soviet Bloc imports of machinery and equipment,
and about 70 percent of imports from non-Bloc sources. In 1961,
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these imports are estimated to have been valued at between $1+,000
million and $4,500 million, with NATO countries supplying more than
$600 million. Though -not large in terms of aggregate Soviet Bloc
imports of machinery and equipment, deliveries from NATO countries
are of some importance -- perhaps generally more qualitative than
quantitative -- to several Bloc-wide priority development programs,
especially those for the expansion and diversification of the chemical
and petrochemical industries, the expansion of iron and steel
industries, and the general program designed to raise labor produc-
tivity through increasing mechanization and automation of production
processes throughout industry.
1. Chemical Equipment
Soviet Bloc programs for the priority expansion of the
chemical and petrochemical industries -- especially for the manufac-
ture of plastics and synthetic fibers -- appear to be dependent
upon extensive imports from the West as domestic plant capacity and
production technology are inadequate to supply the over-all quantities
and product-mix of chemical equipment planned for installation.
The USSR, which is the major producer of chemical equipment in the
Bloc, has failed to meet its production goals for 1960 and 1961,
and similar failures are indicated for East Germany, probably also
for Czechoslovakia, and the other Bloc exporters of this equipment.
Based on available information, some 7.5 to 15 percent by value of
the equipment to be installed in Bloc chemical industries during
the current Plan Period 1,1959-65) will be purchased from the Free World.
More than 70 percent of total Soviet imports of chemical equipment
during 1959-61 came from the NATO area. Indications are that Czecho-
slovakia and Poland, and to a lesser degree the other Satellites,
will seek to purchase substantial quantities of chemical equipment
in the West between now and 1965, and that the receipt of such
equipment will have an important effect on their chemical programs.
Since Western countries other than NATO have little
or no capability for the production of chemical equipment, an embargo
levied by the NATO group would effectively deny essential chemical
plant, equipment, and technology to the Bloc. This embargo would
affect not only the growth of the chemical industry itself, but
also other sectors of the Soviet Bloc economies which depend upon
the raw materials and products from the chemical industries. Thus
denial of synthetic ammonia plants would affect the planned output
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of ammonia which is geared to agricultural requirements for nitro-
geneous fertilizer. Denial of polyethylene and other plastics
manufacturing plants would affect the goals for the production of
plastics intended as replacement for certain metals and for the
production of consumer goods. Denial of petrochemical plants
would affect the Bloc's capability for developing a petrochemical
industry and for using otherwise wasted by-products from petroleum
refining in the manufacture of organic chemicals.
Chemical equipment imported from the NATO countries
generally is highly instrumented, affording greater labor produc-
tivity, reduced costs, and increased quality in output. Moreover,
it usually incorporates the latest available production technology
and thus frequently serves as a prototype for domestic manufacture,
providing substantial savings to the Bloc in terms of costs for
research and development, and especially a saving in the time required
to effect the transition from blueprint to full-scale production.
In effect, Western chemical plant and equipment enables the Bloc to
achieve its planned goals in a shorter period of time than would
be possible if it were forced to rely on its own resources and
technical skills.
2. Metallurgical Equipment
Soviet Bloc production of metallurgical equipment --
nearly 400,000 tons in 1960 -- meets the great bulk of the require-
ments of the USSR and the Satellite countries. The total volume
of the imports of such equipment from the NATO countries in 1960
is not known, but it is not believed to have exceeded 10,000 tons.
An embargo of metallurgical equipment to the Soviet Bloc by NATO
probably would cause some delay and perhaps an underfulfiliment of
the 1965 production goals for special steels. Some of the European
Satellites, particularly East Germany, Rumania, and Bulgaria, have
indicated an increasing dependence on Western steel-finishing equip-
ment to obtain the capacity planned for 1965. A denial of the
equipment now on order or what is reportedly under negotiation with
NATO countries would delay the time at which many types of finished
steel now imported from NATO become available from domestic production.
To meet the growing requirements for metallurgical
equipment, the Soviet Bloc plans considerable increases in production.
By 1965 the USSR plans not only to increase the total production of
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this equipment by at least 50 percent over the 1960 level to over
300,000 tons, but to increase the Proportion of rolling
mill
went to meet the most pressing needs for this equipment within the-
Bloc. Similarly, Czechoslovakia plans to double its 1960 production
of metallurgical equipment tomore-~,t.han 180,000 tons in 1965 and
further increases are scheduled in East German production as well.
Soviet production of metallurgical equipment in 1961
fell slightly below the 1960 level. Perhaps because of this, and
because of the magnitude of demand for more advanced and instru-
mented rolling mill and finishing equipment and limited Bloc
capabilities to step up production -- as distinot.:'fromJincreases
of production in general purpose types of metallurgical equipment --
the USSR has apparently encouraged the Satellite countries to obtain such equipment from Western manufacturers.
3. Precision Instruments
The USSR, East Germany, Czechoslovakia and, to a
lesser extent,. Hungary have well-developed and diversified instru-
ment industries which provide the overwhelming bulk of Bloc supplies.
Although comprehensive information on Bloc instrument imports from
the NATO area is lacking, they are believed to be small relative
to domestic production in the Bloc. Exclusive of instruments
already installed in complete plants or as instrumentation of other
industrial equipment, Bloc instrument imports from all non-Bloc
areas in 1960 amounted to an estimated $35 million, reflecting a
considerable increase over earlier levels.
The present low level of Bloc imports from the NATO
countries -- the principal Free World producers of instrumentation --
is due in large part to the fact that the more advanced and sophis-
ticated instruments remain under strict COCOM controls. The Bloc's
imports have been highly selective, and have consisted of instruments
which are either not produced in the Bloc at all or are more tech-
nologically advanced than those produced in the Bloc.
Current long-term Bloc plans (through 1965),
for extensive mechanization and automation of production pr?cesses,
have increased substantially the Bloc's requirements for precision
instruments. Because Bloc production is not adequate to meet fully
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these growing requirements, it is expected that the Bloc, and
especially the USSR, will increase considerably its purchases of
certain Western instruments, automatic control systems in particular.
However, because even the expanded level of future purchases will
be only a small percentage of total Bloc supply, and since the more
advanced types of equipment are in many cases already embargoed,
a denial of all instrumentation equipment would have little effect
on Soviet Bloc fulfillment of plans for mechanization and automation
of industry, and would not exert a marked influence on overall goals.
The effect would be felt primarily in a relatively small number of
Bloc industrial installations and research facilities.
4. Other Machinery and Equipment
Soviet Bloc imports of machinery and equipmeht from
NATO other than, those already discussed, include food processing
and refrigeration equipment, textile machinery designed especially
for processing synthetic fibers, transportation equipment, and
smaller quantities of power equipment, machine tools, ball bearings,
and spare parts of all types. Generally speaking, these imports
are small relative to Bloc production and production capacity, and
the importance of advanced technology is not as crucial as is the
case in other types of equipment. Food processing and refrigeration
equipment, as well as textile machinery are largely consumer oriented.
The Bloc has generally adequate production capacity to supply the
bulk of this equipment as necessary, and can import such equipment
from Western countries outside the NATO group. Imports of trans-
portation equipment are primarily Soviet tanker purchases, estimated
at 300,000-550,000 DWT through 1965. Although these imports represent
a substantial portion of planned accessions to the Soviet tanker
fleet during the Plan period, their purchase in the West appears
to be more a matter of price and convenience to the USSR than lack
of domestic building facilities. The impact of an embargo on the
availability of transport facilities to the Bloc would be negligible
on the assumption that the tanker fleets registered in other than
NATO countries would be available to carry Soviet oil. Power equip-
ment, metal-working machinery, and ball bearings make up a very
small proportion of total imports of machinery and equipment from
the NATO countries, and an even smaller part of domestic production
within the Bloc. Here again Western countries other than those in
the NATO group would probably be able to make up any shortfalls in
imports resulting from an embargo.
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B. Ferrous Metals
Soviet Bloc consumption of rolled steel products (including
pipes and tubes) in 1960 was approximately 73 million tons, of which
less than 2.2 million tons, or about three percent of total Soviet Bloc
consumption, were represented by imports from the NATO area. Imports
into the USSR were 940,000 tons or 1.7 percent of Soviet consumption,
and imports into the European Satellites were 1.2 million tons, or
7.1 percent of Satellite consumption. In addition, Sweden, Austria,
and Yugoslavia provided 3+3,000 tons of rolled steel products, less
than one half of one percent of total Bloc consumption. Because of
the specialized types of steel imported, however, contributions by
the West probably were more significant than their share in Bloc
consumption suggests.
Although imports of rolled steel products from NATO
countries thus represented only a minor portion of overall rolled
steel consumption in the Soviet Bloc, their denial as the result
of an embargo would tighten supplies of high quality steels,
and tubes, but would not be a major or critical loss. Such anipes,
embargo would have a greater impact on the European Satellites,
especially East Germany, than on:,the USSR.
Shipments by countries in the NATO group included principally
hot and cold,:rolled, flat-rolled products, pipes, and tubes, and to
a lesser extent alloyed and cold-finished bars -- the types of rolled
steel which have been somewhat in short supply throughout the Soviet
Bloc. The Soviet Bloc countries exported a total of 338,000 tons
of rolled steel products to the NATO area during 1960, but there
is little substitutability between those products and the types
imported.
An embargo would affect the USSR principally in supplies
of 40" line pipe needed to complete the planned gas and oil pipe-
lines on schedule. The loss of the considerable tonnage already
contracted for and denial of further imports could delay not only
the USSR pipeline program, but the conversion in the Bloc to use
of more efficient fuels. To meet such a contingency, the USSR could
substitute the smaller-sized pipe available within the Bloc, or
intensify its efforts to step up production of the larger pipe.
The USSR might also suffer from a cessation of NATO deliveries of
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cold-rolled sheets and strip, particularly electrical sheets, in
which Soviet production technology has not caught up with the West.
An embargo of rolled steel products by NATO countries
would have a more pronounced impact on the European Satellites,
especially on East Germany, because of the larger share of consump-
tion represented by imports from the West. Having only slightly
more than a quarter of the USSR's production capacity for rolled
steel, the European Satellites have less latitude to adjust their
product-mix to provide for the loss of rolled steel products
imported from the West. The extent of the impact of an embargo
is influenced, however, by the extent of the adjustments in product-
mix and allocations to consuming industries which the USSR would
be capable and willing to make, and by the extent to which imports
from countries outside the NATO group could be increased:, to make
up for the shortfall. Excluding the possibility of transshipments
from NATO countries, however, it appears that the other Western
producers of rolled steel products -- primarily Austria and Sweden -
would have difficulty in replacing total Soviet Bloc losses of
rolled steel caused by an embargo. In view of this fact, and
considering the difficulties which the Soviet Bloc would face in
expanding the production of specialized rolling mill and finishing
equipment required to turn out the rolled steel products currently
imported from the West, the embargo would continue beyond the
period currently contemplated the tight supply within the Soviet
Bloc of specialized rolled steel products.
C. Chemicals and Rubber
Chemical imports from NATO countries -- about $190 million
in 1960 -- probably did not supply more than 1 percent of aggregate
Bloc chemicals consumption. The most severe impact on the Bloc's
chemical and chemicals consuming industries would come not from an
embargo by NATO countries on chemical exports, but rather from an
embargo on chemical equipment (disucssed in section IV A-1). It
is estimated that the denial of chemical equipment which the USSR
alone intends to purchase in NATO countries during 1962-65, ($500-600
million) could cause a shortfall in Soviet chemicals production in
1965 amounting to $1.7 billion, approximately 10 percent of output
slated for that year. The impact would be greatest on output of
basic petrochemicals and synthetic materials, although the effects
elsewhere would also be significant: nitrogeneous fertilizers and
tires are two examples.
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The effects of an embargo on chemicals would be rather
small, compared with likely impact of an embargo on chemical, equip-
ment. The Soviet chemical industry would be affected to a limited
extent by the denial of certain chemicals, particularly intermediates
for the production of plastics and tires, and of specialty items.
A denial of chemicals from NATO countries would also have some disruptive
effect on the European Satellites, but the general impact would be
relatively mild. East Germany continues to depend on NATO deliveries
for a small but vital selection of special chemicals. Czechoslovakia
imports 95 percent of its supplies of styrene monomer -- required
in plastics and synthetic rubber production -- from the United States.
Some of the other Satellites obtain high-quality carbon black from
NATO countries.
The Soviet Bloc also imports a relatively small quantity
of synthetic rubber from NATO countries -- estimated at from
25,000 - 50,000 tons in 1961. The impact of a denial of this syn-
thetic rubber is believed to be negligible, as there should be
little problem in replacing most of these imports with natural rubber
from Southwest Asia.
D. Fuels
The Soviet Bloc generally supplies all of its own fuel
requirements, and its imports from NATO countries are restricted
to high grade coking coal. This coal is required primarily by the
East German and Polish iron and steel industries, although a decline
in domestic production coupled with increased export commitments
has recently forced Czechoslovakia, too, to make some purchases in
the West. If these imports were denied, however, the USSR could
provide the supplies of coking coal required, although initially
there would be problems in adapting the lower quality (high sulphur
content) Soviet coals to Eastern European operations. Selective
blending of Eastern European coking coals with Soviet coking coals
would be one method of reducing the deleterious effect of the lower
quality of Soviet coals.
E. Agricultural Raw Materials and Foodstuffs
A NATO embargo would have little if any damaging effect
on the Bloc's ability to obtain needed agricultural raw materials
and foodstuffs. In fact, an unintentional effect of the embargo
might well be an improvement in the consumer diet within the Bloc,
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since high-quality foodstuffs previously exported primarily to NATO
countries would become available domestically. Most advrsa..y
affected by an embargo would presumably be Poland, which in" recent
years has obtained as much as one-half of total imports of wheat
from the United States, as well as substantial quantities of cotton
and some tobacco. The impact, however, would fall more healily on
Poland's balance of payments than on actual commodity supplies
within the country, for United States exports move under thePP.L. 48o
program,whic.h permits payment in Polish zlotys rather than foreign
exchange. In place of imports of United States and Canadian wheat,
Poland could draw in part on Soviet supplies, perhaps in exchange
for Polish meat products previously exported to the West. This type
of arrangement seems especially feasible in view of the fact that
the USSR has recently placed substantial orders for meat products
in Fiance which would be cancelled under an embargo, and the further
fact that the USSR exports some wheat to NATO countries which would
also cease under an embargo. Shortfalls in Polish cotton supplies
resulting from a denial of further exports from the United States
could also be compensated by imports from the USSR or Egypt, although
in either case the Poles would experience a foreign exchange cost.
F. Shi ping
At present levels the seaborne foreign trade of the Soviet
Bloc is about 87 million tons, of which Bloc ships carry an estimated
33 million tons. After the imposition of a NATO embargo this trade
would decline to 51 million tons. In addition to its own lift capabil-
ity the Soviet Bloc would have to acquire from non-NATO sources an
estimated 2 million DWT of shipping to move 18 million tons of seaborne
trade. This amount of shipping should be readily available from the
14 million DWT of shipping in those portions of the tramp fleets of
Panama, Liberia, and Honduras which are not effectively controlled
from the US, and the 7 million DWT of shipping in the freighter
fleets of Sweden, Finland and Yugoslavia.
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V. Specific Vulnerabilities of the USSR to a NATO Embargo
Against (A) the Soviet Bloc and (B) the USSR Alone
A. An Embargo Against the Soviet Bloc
Because the Soviet Union is for all intents and purposes a
self-sufficient economic unit, the general impact of a NATO embargo
would be marginal. The acceleration of imports from these countries
reflects the USSR's desire to "save time" in fhlfillin8i its self-
appointed task of overtaking and surpassing the US in per capita.
production and other economic indices. The impact of an embargo
would be greatest on the development of the Soviet chemical indus-
try and its pipe-line program and much less on other sectors. The
most that could be achieved by an embargo would be a delay in the
development of these sectors resulting in some minor retrenchments.
The economic viability of the Soviet state would not be affected in
any way.
Soviet imports from the NATO area, despite a rapid growth
which led to a doubling of imports between 1958 and 1961, still
account for only 17-18 percent of total Soviet imports. Imports
from this area amounted to an estimated $900 million in 1961,
having grown at a faster rate than those from any other area. Pacing
this increase in procurements from NATO have been machinery and equip-
ment imports, which experienced a four-fold increase between 1958
and the present. Machinery and equipment plus steel and steel
products make up the bulk of Soviet imports from the NATO countries.
1. Machinery and,Eguipment
Soviet imports of machinery and equipment in 1961 rep-
resented very nearly half of total estimated Soviet imports from
NATO countries. Of total Soviet machinery and equipment imports,
those originating from the NATO area accounted for about one-fifth
of the total, the bulk of the remainder coming from the European
Satellites. The importance of NATO machinery deliveries lies
mainly with chemical equipment, electrical machinery, textile
machinery, and a few other types, the major exporters of. which are
West Germany, France, the UK, Italy, the US, and Japan. The role
of West Germany surpasses that of all other NATO members! Soviet
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machinery imports from West Germany amounted to almost $100 million
or almost one-third of the total. in 1960. The importance of Italy,
Japan, and the US in Soviet machinery imports is more recent.
a. Chemical Equipment
Soviet imports of chemical equipment totalled 187 mil-
lion in 19601 of which the NATO group supplied-$1.32 million Y or
more than 70 percent of the total. This represented an 8-fold
increase over 1958.
The USSR places considerable emphasis on the growth
and development of its chemical and petrochemical industries, but
is having production difficulties in the manufacture of chemical
equipment. The Soviet Union, which is the major B1,Dc producer
of chemical equipment, did not meet its production goals in 1960
and 1961 and is placing considerable reliance on non-Bloc sources
for chemical equipment, plant, and technology, particularly in the
fields of petrochemicals and synthetics.
During the period 1958-1961 the USSR imported an
estimated $1.00 million of chemical equipment from NATO members.
This quantity could support an investment program of roughly
$1.1 billion and about the same amount of new sales of chemicals
and chemical products. In 1961 imports of chemical equipment from
NATO were equivalent to 60-70 percent of total Soviet production
and equipment. Soviet chemical equipment imports required from
NATO during the period 1962-1965': are conservatively estimated at
$550 million. Denial of this volume might disrupt investments of
1.5 billion rubles in output of chemicals and a shortfall of 1.5
billion rubles could occur in 19651 or 10 percent of the goal for
that year.* The impact would be greatest on the output of basic
petrochemicals and synthetic materials although the effects else-
where would be significant. The goals for synthetic ammonia
production, for example, are linked with the growth of agriculture;
the production of tire cord and rayon, with vehicles and cloth;
It is currently estimated that a shortfall of at least 10 per-
cent will occur without any embargo.
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plastics with the replacement of metals and for consumer goods;
and petrochemicals to use wasted by-products in place of agricul-
tural raw materials. Western chemical equipment and plants
imported into the USSR generally involve chemical technology
superior to that in the Bloc and the procurement of such technology
allows the USSR to overcome this deficiency. Procurement from the
West allows the USSR to use these imports as prototypes and to
allocate its research and development resources to other high
priority work. In effect,, the purchase of this equipment is the
purchase of time to permit a faster fulfillment of planned goals.
An important element in plans for the Soviet chemical
industries is the ate, cbmatlora of'...pro.c uction, and generally those
plants importouZrom the West are highly instrumented. The impor-
tation of such technology leads to considerable efficiencies in
production, and the incorporated instruments ease the domestic
shortage of process control instruments. In addition, equipment
which is procured from NATO .lightens the already heavy worlc-l.ad
of the Soviet machine-building industries.
It is doubtful that the USSR can meet its present goals
for chemicals and chemical equipment output even iz~ the absence
of an embargo. The embargo would deter the growth and development
of the chemical branches which are scheduled for large expansion
as well as those economic sectors which depend on raw materials
and products from the chemical industries.
The application of an embargo, however, would essen-
tially entail delays in the programs for the chemical and dependent
industries over the long term, and would compel Soviet leaders to
reduce some of the more ambitious goals for the chemical industry.
Inasmuch as this equipment would enhance the flexibility of the
USSR's industrial establishment and would reduce production costs,
its embargo would delay the diversification and ultimate indepen-
dence of Soviet industry from outside assistance.
.b. Metallurgical Equipment
The volume of metallurgical equipment imported by the
USSR constitutes a,small portion of pro uction. In 1960, the USSR
produced 218,000 tons of this equipment and imported about 2+,000
tons, of which 23,000 tons represented rolling mill equipment. An
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embargo on the USSR would have little direct impact on the supply of
Soviet metallurgical equipment inasmuch as the USSR obtains so
little from the West. Czechoslovakia and East Germany, the chief
suppliers, accounted for 21,000 tons of Soviet imports, while the
chief NATO suppliers, West Germany and France, accounted for 1,500
tons and Austria ~00 tons. Although there have been inquiries in
France} West,Germany, the UK, and Austria there is no evidence of
.Soviet purchases of the types of rolling facilities for which Soviet
needs are greatest.
The USSR nevertheless remains burdened with the respon-
sibility for producing for the entire Soviet Bloc most of the larger,
complex mills such as those required in the production of flat rolled
metals. There is evidence that the USSR is now.hard-pressed to meet
both export commitments and domestic requirements. Soviet production
of sorely needed rolling mill equipment, as well as of the metal-
lurgical equipment in general, in 1961 fell short of the 1960 level.
In. the case of rolling mill equipment, a vexing and persistent dif-
ficulty has been encountered in the coordination of designing,
planning and production functions for the larger, multistand mills
which may involve thousands of tons of equipment. Soviet production
experience for these more advanced types of rolling and finishing
equipment has been largely acquired only in the past 5 to 7 years,
and while competence has been demonstrated in the manufacture of
several continuous hot. strip and sheet mills, significant progress
in the production of continuous cold rolling mills and lines of
pickling, annealing, and finishing of strip and sheet products has
only recently been made. As a result,. Soviet production lead times
for the more sophisticated types of rolling mill and finishing
equipment are usually four to five years and even longer, compared
to about two years in the West.
c. Instruments
Soviet imports of precision instruments in 1960
amounted to $36 million, an increase of $11 million over 1955.
Only one-fourth of these imports originated outside of-the Bloc and
about one-fifth. was imported from the NATO area. By value, imports
from NATO represent less than one percent of output. In addition,
instruments were probably included in complete plants imported by
the USSR.
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Imports consist of small numbers of high quality, and
technologically advanced instruments for laboratory use and for
process control that are not produced in the USSR or in the Bloc or
are of a higher technological level than those produced in the Bloc.
These imports have included instruments for measuring high vacuums,
viscous fuels, and corrosive media; continuous fluid stream analyzers,
mass spectrometers, and electron microscopes.
It has been officially admitted that domestic output
does not meet domestic requirements. Thus it has been. stated that
output of instruments and automation devices in 1958 satisifed only
60 percent of domestic requirements and for some items the percentage
was considerably less. Despite progress since that time, require-
ments have ,expanded rapidly for mechanizing and automating industrial
processes and the Soviet press has often.complained,of delays in
commissioning plants because of lags in the delivery of instrumenta-
tion.
Soviet planned imports of instruments in 1965 are six
times those of 1960. Because of the need for the more sophisticated
instruments, particularly automatic control systems,, a significant
part of these imports is undoubtedly scheduled to come from the
West. A NATO embargo would impede to a minor extent Spvi.et plans
for mechanizing and automating industry and consequently would delay
labor productivity increases. The effect, however, would be felt
in a few industrial enterprises.
d. Other Machinery and EaI i~
uinment
Plans for expanding the Soviet tanker fleet to carry
its increasingly larger oil exports have resulted in a number of
orders to"Western shipyards for tankers to be delivered during the
Seven-Year Plan period. It is estimated that 500,000-750,000 DWT"
of tankers will be delivered to the USSR from Free World countries
by 1965. Large tankers - up to about 50,000 DWT -- are being
ordered from such countries as Italy and Japan, apparently for long-
distance-hauls. Smaller tankers are being ordered largely from
non-NATO countries such as Finland, Sweden, and Yugoslavia, total-
ling less than. 200,000 DWT. While the USSR has the capacity to build
its own larger tankers,. it has found it convenient to place these
orders with Western shipyards. The impact of an. embargo would be
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negligible on the assumption that present non-NATO tanker fleets are
underemployed and will be available to carry Soviet petroleum to
overseas customers.
The impact of a NATO embargo on other machinery cate-
gories would be considerably less than on such items as chemical
equipment since many of these imports can be obtained from Western
non-NATO countries such as Sweden, Finland, Austria, and Switzerland
or because they are marginal in terms of basic Soviet priorities.
Imports of textile and 1fooc~ processing machinery, for example,
are consumer-oriented. Conventional machinery types as well as
electrical machinery, metalworking machinery, and ball and roller
bearings can be obtained from Sweden, Switzerland, Finland, and
Austria, although these countries produce a narrower range of
machinery types than do the larger NATO countries.
2. Ferrout Metals
The imposition of an embargo by NATO would tighten
supplies of high-quality steels and pipe and tubes within the Bloc,
but the impact upon the USSR would not be critical.
Shipments by NATO countries have been principally hot
and cold flat-rolled products, pipes and tubes, and to a lesser
extent alloyed and cold-finished bars, the types of rolled steel;
which have been in somewhat short supply within the Bloc. An
embargo would affect the USSR principally in supplies of 40" line
pipe needed to complete the planned gas and oil pipelines on schedule.
Soviet requirements for 4+0" line pipe are estimated.at 2.l+.million
tons during-1959-65 and Soviet production is not likely to exceed
900,000 tons. To date, about 1+90,000 tons have been imported and
contracts for approximately 375,000 tons have been let. Sweden,
a non-NATO, supplier, is scheduled to supply 135,000 tons of 40"
.pipe over the next three years but it is doubtful that Sweden is
capable of providing much more than this amount. The capabilities
of Austria, Finland, and Switzerland are non-existent. The loss of
the tonnage contracted for could delay the Soviet pipeline program;
however, a reduction of the diameter of some of the lines to pipe
sizes available within the Bloc is possible, and through an inten-
sification of effort, Soviet domestic capacity for the production
of large-diameter pipe could be increased faster than now contem-
plated.
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Since Soviet exports of petroleum to the NATO countries
would be denied in the event of an embargo, it appears doubtful that
there would be great pressure on the USSR to acquire pipe from
any source for completion of those oil pipelines intended in large
part to supplement export capability. Such lines include the
branch of the USSR-European Satellite line which would link the
Baltic and/or Black Sea ports into the system, the line from Stalin-
grad designed to supply additional crude oil to Novorossiysk and
Tuapse, and the Al'met'yevak to Leningrad line. Consequently,
production of oil and gas line pipe and auxiliary equipment (pumps,
compressors, valves, fittings) would be concentrated on those
sectors of line which would be given priority. An embargo would
free other types of oil transportation equipment and its is possible
that the urgency for constructing significant lengths of new oil
pipeline systems to meet indigenous and Bloc needs would be substan-
tially reduced.
Further impact on the USSR might be caused by the
denial of cold-rolled sheets and strip, particularly electric sheets.
The USSR lags behind the NATO countries in the technology and equip-
ment for the production of such items and capacity for cold flat-
rolled products is not being installed as quickly as planned. A
shortage of cold-rolling capacity relative to ingot and semi-
finished capacity is evidenced by the Soviet conversion (hire-
rolling) deals recently made with Western European countries. The
lack of access to Western supplies of these items would not consti-
tute a critical loss to the USSR. The measure of the impact of an
embargo on the USSR would be affected, however, by the degree to
which the Soviet leadership would deprive domestic industry in order
to meet priority requirements of the Satellites, and by the extent
to which losses from NATO could be replaced by imports from non-
NATO countries, particularly Austria and Sweden. These two coun-
tries and Yugoslavia may be able to increase exports of rolled
steel, but not in the amounts necessary to offset the loss of NATO
deliveries.
3. Other Commodities
a. Chemicals
Soviet imports: of chemicals, including chemical
products, pesticides, dyes, and pharmaceuticals, from NATO countries
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amounted to about $30 million in 1960 or about one-fifth of the total
imported from all sources.
While the impact of an embargo on chemicals as a
whole would be negligible, the cessation in the supply of certain
chemicals:from these countries, particularly intermediates for the
production of plastics and tires (e.g., carbon black and tire cord)
and of specialty items such as ion-exchange resins would have a
somewhat greater impact on the Soviet chemical industry. Spot short-
ages of critical chemicals have occurred and are likely to occur in
the future, particularly in the event of an embargo, since the indus-
try is being expanded on a forced-draft basis. Nevertheless, the
impact of a chemicals embargo on the overall development of the
Soviet chemical industry would be no more than a negligible deter-
rent, to the rate of growth.
One of the key problems in the Soviet rubber indus-
try. is the development of a synthetic polyisoprene rubber to replace
natural rubber. Because of difficulties, the USSR has been forced
to continue importing natural rubber from the Free World; 200,000
tons annually during the period 1958-1960 and about 350,000 tons
in 1961. Most of this rubber originates in Malaya. All Soviet
synthetic rubber imports from outside the Bloc in 1960 came from
Italy (10,000 tons) and Canada (1,300 tons). Some of these imports
could be replaced by industrial non-NATO countries, but until the
USSR achieves more significant successes in the production of suit-
able synthetic rubber, it will have to rely heavily on natural
rubber imports.
c. Copper
While Soviet purchases of copper in the Free World
have remained steady at 100,000 tons annually for more than five
years, the USSR has gradually shifted its buying from the UK and
the Low Countries to primary producers, such as Rhodesia. and Uganda.
Imports supplement an estimated production of 425,000 tons (1960)
and Soviet exports (exclusively to its European Satellites) of
64,000 tons in 1960.
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In the event of an embargo, the USSR coUlc'. shift
its buying further to these and other countries, such as Chile,
which produces about 500,000 tons annually, Sweden, Finland, and
possibly Mexico, Peru, and South Africa.
B. An Embargo Against the USSR Alone
The USSR would sustain little direct economic effect from
the imposition of an embargo against it which did not include the
East European Satellites. Soviet imports of materials and manufac-
tured goods would move freely to the several European Satellite
countries (documented as East European imports of course) and there
be forwarded to the USSR. Soviet imports of machinery and equipment
from the embargo area would be more difficult. Imports of items
which are stock items at the producer establishment would move in
the fashion outlined above. Imports of complete facilities which
incorporate substantial expenditures for engineering, design, and
production technique would be substantially reduced. In some
cases the USSR might order the equipment through,East Europe and
supply the engineering and related expenditures itself. In other
cases it might forego the import all together. The total imports
foregone in the event of selebtive embargo would not exceed 50 per-
cent of Soviet machinery and equipment imports fit m NATO and would
probably amount to less than $100 million annually.
The effectiveness of a.selective embargo of this type
could be strengthened somewhat if it were accompanied by an
agreement among the NATO countries to limit exports to other
Communist countries to the average level of some recent period.
An agreement of this sort could be partially offset by Soviet Bloc
pooling of orders and priorities, but such action would throw the
cost of Soviet evasion upon the European Satellites. Such a con-
dition might lead to considerable Soviet restraint upon the use of
Satellite buying power and thus impose the principal incidence of
the embargo on the USSR.
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VI. Specific Vulnerabilities of East Germany to a NATO Embargo
ryas t Germany Alone
A. An Embargo Against the Soviet Bloc
A number of measures taken by the East German regime since
mid-1961 apparently has been successful in reducing East Germany's
short-run vulnerability to NATO sanctions against the Bloc. As a
result of improved contingency planning and, in particular, a
substantial increase in inventories of scarce high-quality steels,
the authorities have decreased considerably both the impact and
duration of the period of initial economic disruption which would
follow a NATO embargo. The dependence of East Germany on NATO for
imports of critical materials, however, will not significantly
decline before 1963- Quality steel, metallurgical equipment, and
a small number of essential chemical products imported from NATO
countries would not be obtainable elsewhere or could be acquired
only after a considerable lapse of time. In the one or two areas
where East German planners have reduced the economy's long-run
dependence on NATO supplies, the reduction has resulted either
from expanded domestic production capacity, as in the case of
certain chemicals, or from a specific commitment by a Bloc country
to replace NATO suppliers, as in the case of certain alloy steels
and pipe.
In planning against the short-run impact of an embargo,
the East German government instructed individual plant managers to
prepare plans against the eventualities of both West Germany and
NATO-wide sanctions in 1962. Of much greater importance, however,
was the sharp rise in East German imports of steel from West Germany
in the second half of 1961, resulting in a doubling of such
deliveries for the year over those of 1960, and a rise in East
German steel inventories. Steel deliveries from the NATO areas as
a. whole increased from 359,000 tons in 1960 to an estimated 550,000
tons in 1961, of which 440,000 tons originated in West Germany, and
NATO's share in total East German steel supplies rose from 9 percent
in 1960 to 12 percent in 1961. The increase in steel inventories,
mainly in the last quarter, may have been 200,000 tons or more.
Because this increase was associated with the rise in NATO deliveries
in the latter part of the year, it is likely that much of it was in
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the form of higher grade steels imported from the West. Although
the perennial decline in GDR first-quarter imports from West
Germany may have resulted in some drawing down of these inventories
during,the early months of 1962, stocks are still substantially
above those of early 1961 and may be expected to increase again
as interzonal trade picks up during the second half of the year.
In the event of a NATO embargo, inventories of quality
steels would be drawn down in order to maintain limited deliveries
to priority consumers while alternate sources of supply were being
developed and internal readjustments being made in the East German
economy. The short-run impact on East Germany is thus considerably
less than that estimated a year ago.* The longer-term problem of
getting along without these high-quality steels remains a substantial
one. A significant part of this gap could be met from the increased
steel capacity of other Bloc countries, particularly the USSR.
The extent to which this might occur would depend on the willingness
of the USSR to adjust its product-mix to accommodate East German
needs and on the Bloc-wide priority assigned to East Germany's steel
requirements. In fact, the current GDR program. to convert from the
German DIN to the Soviet COST industrial standards suggests a move
to facilitate the substitution of additional Soviet special steels
into the East German production complex. Such adjustments would be
costly to make and their achievement would take considerable time,
even after Soviet authorities had decided how and to what extent
the burden would be laid on the Soviet economy.
The program to reduce and ultimately eliminate East German
dependence on NATO countries, particularly West Germany, for steel
products is basically a plan to expand East Germany's domestic
rolling mill capacity. An important part of this increased capacity
is to be supplied by West Germany, with a.lesser part to be pro-
vided by other NATO countries. The East German regime has planned
approximately a dozen major installations for which it has ordered
West German equipment, including cold rolling mills, tube and wire
rod mills, and specialized finishing equipment. Tube mills and tube
EIC-Rll$, -Vulnerability of the East German Economy to Western
Countermeasures, December 1 O, SECET.
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drawing facilities, with an annual capacity of 60,000 tons also have
been ordered from a French consortium, which is to make its initial
deliveries in 1962. A NATO embargo against the Soviet Bloc would
have considerable impact on these plans. No more than insignificant
quantities of such equipment could be obtained from non-NATO coun-
tries in the West. A decision to produce the equipment in the Bloc
would result in substantial delays, particularly for specialized
finishing equipment.
Since 1960 East Germany has managed to reduce greatly its
former dependence on West German chemical products. This has been
achieved largely by shifting to Bloc sources of supply and by
increasing its own production of many products. To a lesser extent
it reflects a shift to other suppliers within the NATO area. There
remains, however, a small residual of vital products which the East
German authorities have as yet been unable to shift away from NATO
sources. Included in this hard core, the importance of which is much
greater than its relatively small volume of imports would suggest,
are rubber chemicals, certain plastics, and a small number of
special purpose chemicals. Although a NATO embargo now would have
considerably less impact on GDR chemical-consuming industries than in
the past, the denial of this small group of chemicals, all of which
are scarce within the Bloc, would necessitate costly adjustments in
the consuming industries, unless a decision were made to spread the
shortage over a larger number of Bloc countries.
In other products the impact of aN1TO embargo would be
insignificant. The coking coal supplies now acquired from the USA
and West Germany could be obtained from the Soviet Union, although
the shift to the lower-quality Soviet product, or its mixture with
higher-quality coking coals, would be initially costly. Require-
ments for NATO-supplied precision instruments,. which complement the
incomplete range of such equipment produced by East Germany, would
be difficult to transfer to Bloc suppliers because of a Bloc-wide
shortage of these products. Current levels of GDR instrument
imports from NATO amount to $8 million. East German exports of
certain electronics equipment, particularly television receivers,
would be affected by a stoppage of NATO supplies. The greatest
loss would be the picture tubes currently purchased from West
Germany.
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B. An Embargo Against East Germany Alone
East Germany's vulnerability to a NATO embargo has been
substantially reduced since mid-1961, mainly for the reasons
given in Part A, above. By establishing comprehensive contingency
plans against such an embargo, and by increasing inventories of
high-grade steel imported chiefly from West Germany, the regime
has diminished both the duration and the intensity of the initial
economic impact of NATO sanctions. East Germany's few critical
requirements for selected NATO products would be satisfied primarily
through purchases on the GDR's behalf by other Bloc countries the rapidity of their response depending on the thoroughness of Bloc
planning against such a contingency -- and to a lesser extent by
deliveries out of Bloc production. For these same reasons the long-
run effects, too, of such a partial embargo would be insignificant..
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WEST GERMAN EXPORTS TO SOVIET ZONE OF GERMANY
Value and Percent of Total NATO (Including Japan) Exports to Soviet Zone of Germany, 1959-61
Value - Millions of US
.1959
1960
1961 1/
January-June
July-December
January-June July-December
Value
Percent
Value
Percent
Value
Percent
Value
Percent
Value
Percent
134.6
75.5
122.2
73.2
108.4
66.2
120.1
66.1
114.1
64.9
Food, Beverages and
Tobacco and Mats and
Oils
14.7
40.8
13.3
41.o
11.3
37.9
14.3
45.1
Crude Materials
5.8
50.4
5.2
44.1
5.5
39.9
3.9
51.3
Mineral Fuels, Lubricants
and Related Materials
15.3
90.3
13.9
100.0
6.8
100.0
1.6
80.0
Chemicals
15.2
81.7
13.9
83,7
14.7
76.2
14.2
80.2
Manufactured Goods
59.7
85.7
54.2
80.8
47.4
72.4
53.7
67.0
(Of which Iron
and Steel)
(40.4)
(90.8)
(36.6)
(83.8)
(29.5)
(74.9)
(33.6)
(67.6)
Machinery and Transport
Equipment
23.1
92.4
21.1
85.8
20.7
86.6
29.5
88.1
Other Merchandise and
Miscellaneous Trans-
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0.8
40.0
0.6
100.0
2.9
32.2
1/ Commodity data for 1961 are not available.
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Soviet Bloc Consumption and Imports of Rolled Steel
(o00 MT)
Consumption
1959 1960
Soviet Bloc
of Which
USSR
65,940
72,645
(Including Pipe and
Tube)
European Satellites
50,767 55,300
15,173
17,345
S-E-C-R-E-T
Imx
Total
its from the West
1959 lg
1,997
848
(261)
1,149
NATO and Japan
1959 lg 6O-
2,516
1,645
2,173
1,093
678
940
(305)
(236)
(301)
1
423
6
,
9
7
1,233
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NATO (Including Japan) Exports to European. Satellites and Soviet Zone of Germany, 1959-61
Value - Millions of US $
1959
EurSat
January-June
East Germamy
EurSat
July-December
East Germany
Value
Percent
Value
Percent
Value
Percent Value Percent
514.7
100.0
178.2
100.0
565.3
100.0
167.0
100.0
Food, Beverages and
Tobacco and Fats and
'Oils
97.4
18.9
36.0
20.2
100.7
17.8
32.4
19.4
65.8
12.8
11.5
6.5
68.1
12.0
11.8
7.0
Mineral Fuels, Lubri-
cants and Related
Materials
15.9
3.1
15.4
8.6
14.2
2.5
13.9
8.3
6o.o
11.7
18.6
10.4
59.8
10.6
16.6
9.9
Manufactured Goods
170.1
33.0
69.7
39.1
189.3
33.5
67.1
40.2
(of which Iron
and Steel
(92.3)
17.9
(44.5)
25.0
(97.6)
17.3
(43.7)
26.2
25
Machinery and Trans
port Equipment
Other Merchandise and
Miscellaneous
Transactions
96.5 18.7 25.0 14.0
9.0
129.6 22.9 24.6 14.7
3.6 0.6 0.6 0.4
11TOTE: Data may not add to totals because of rounding.
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NATO (Including Japan) Exports to European. Satellites and Soviet Zone of Germ
(Continued) Y: 1959-61
January -June
Value
July-December
Percent Value: Percent
1961
January-Jun.e
EuS.at E.Ger.
V.a eueu Value
592 5
100.0
163.8
100.0
660
8
.
100.0
181
7
Food, Beverages and
Tobacco and Fats r
.
682.8 175.7
and oils
C
124.2
21.0
29.8
18.2
133.7
20.2
31 7
1
4
rude Materials
67.4
11
4
1
8
7.
Mineral Fuels,
Lubricants and
.
3.
8.4
72.1
10.9
7.6
4.2
Related Materials 8.4
1.4
6.8
4
2
Che
i
.
3.1
0.5
2.0
1
1
m
cals
Manufact
64.6
10.9
19.3
11.8
6o.-o-
9.1
17.7
.
9
7
ured Goods
(of which Iron
208.6
35.2
65.5
4o.0
238.7
36.1
80.1
.
44.1
and Steel)
Machinery and
Transport
(119.8)
20.2
(39.4)
24.0
(139.1)
21.1
(49.7)
27.4
Equipment --
Other Merchandise
and Miscellaneous
111.6
18.8
23.9
14.6
137.0
20.7
33.5
18.4
Transactions
7.7
1.3
4.7
2.9
16.1
2.4
9.0
5.0
Percent
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NATO (Including Japan) Exports to the European Bloc and USSR, 1959-61
Value - Millions of US
January-June
July-December
European Bloc USSR
European Bloc
USSR
Value
Percent
Value
Percent
Value
Percent
Value Percent
Food, Beverages and
Tobacco, Fats and
685.3
100.0
170.6
100.0
841.7
100.0
276.4
100.0
Oils
127.1
18.5
29.7
17.4
122.9
14.6
22.2
8.0
Mineral Fuels, Lubri-
cants and Related
83.4
12.2
17.6
10.3
94.4
11.2
26.3
9.5
Materials
15.9
2.3
--
--
14.2
1.7
--
69.1
10.1
9.1
5.3
73.5
8.7
13.7
5.0
(of which Iron
240.0
35.0
69.9
41.0
303.5
36.1
114.2
41.3
and Steel)
Machinery and
Transport
(125.5)
18.3
(33.2)
19.5
(181.3)
21.5
(83.7)
30.3
Equipment
139.3
20.3
42.8
25.1
226.9
27.0
97.3
35.2
Other Merchandise
and Miscellaneous
Transactions
10.5
1.5
1.5
0.9
6.3
0.7
2.7
1.0
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NATO (Including Japan) Exports to European Bloc and USSR, 1959-61
(Continued)
Value - Millions of US$
1960 1961 1/
January-June July-December January-June
European Bloc - US, R European Bloc JUSBR European Bloc USSR
Value Percent Value Percent Value Percent Value Percent Value Percent Value
Total- 93Q.9 100.0 338.4 100.0 1054.8 100.0
394.0 100.0 1094.3 100.0 411.5
Food, Beverages
and Tobacco,
Fats and Oils
Crude Materials
Mineral Fuels,
Lubricants and
Related
Materials
154.2 16.6 30.0 8.9 150.5 14.3 16.8 4.3 182.2 16.6
94.9 .10.2 27.5 8.1 118.5 11.2 46.4 11.8 141.9 13.0
.8.4 0.9
Chemicals 89.4 9.6 24.8
-- 3.2 0.3 0.1 Neg. 4.5 0.4
7.3 81.6 7.7 21.6 5.5 96.1 8.8
Manufactured
Goods 344.1 37.0 135.5 40.0 396.6 37.6 157.9 40.1 363.7 33.2
of which Iron
and Steel) (223.6)
Machinery and
Transport
24.0 (103.8) 30.7 (251.2) :;23.8 (112.1) 28.5 (235.3) 21.5
Equipment 230.4 24.8 118.8 35.1 286.4 27.2 149.4 37.9 282.1 25.8
Other Merchandise
and Miscellaneous
Transactions .9.5 1.0 1.8 0.5 18.0 1.7 1.9 0.5 23.8 2.2
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NATO (Including Japan) Exports to European Bloc and USSR, 1959-61
(Continued)
NOTE: Figures ma4r not add to totals because of rounding.
25X1
Commodity distribution was estimated from January-March data which were not available for USSR.
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S-E-C?ArF-~!.'
APB
lfsthotdo3ogical Note on Tstimate of 'fatal Impact
Corsoeptuiafy, there are avuilsbla several techniques for wing
the result on the output of an eoc is entity of a cb in the rate
of flaw of ruts. Co~uisideratioas of feeaebility limited the actual
measure of the' economic cost used in this Paper to two techniques. one
measures, under certain aesumpticns, the ' Vwl*iplied effects of the loss
of certain bottle leek-type inputs; the eeca 3 is based on.Ue average
inartemental capital-output ratio for the econocy as a whole.
(1) !Meat of Loss 2f"8ottleaeck" Inputs
this measure is based m4ia3y an a ca, ulation of lasses In the
Lott= t~ries where one --ppted cooamodity --- steel -.. is a primary
ia~ut, to which was added an extrame3y allowance for other losses.
The predominant rtanoe of steel in the short-run is due to the
fact that au Soviet Bloc pountries are et Uporters of steel from
W1O, especially at. the - higher g4olity and m~az processed types of
rolled steel; to the Sack of substantial mss capacity for producing
these steels in the bloc; and to the limited abort-term substitutability
of other materials for steel.
TO estimate the loss resulting from the denial of steel imports the
following aamm pttic ns were made s
(a) The So iet Bloc would be umbU to replace the of net
warts of ire s 'end steel formerly obtained in Tp s ?- eons
$00 million In 1960 -- for a year t
OUCUSa6 .~. es~area-. in other
words RIGO
net s~s in terms of valve would fall by the amount of these
(b) Around two thirds of the shortfall in steel supplies
($267 sluice) would be borne by the anted-prrocessing industries, the
other third affecting asi,aly constructio.
(0) Within the metal-processing Industries no other materials
could be substituted for steel, but adjustments in product Sseortpent
and nix of steel routs would permit all available steel to be utilized.
Gin the basis of input-output relatioashtps in the IL, Italy and
Palaed, it'. was estlasted that about $5 woar tl} ot VAch1nWy' or other
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S-E-C?R-3-T
metal products can be produced with each 4411 ar of steel input. Using
a multiplier of g the loss of *Wl ra#}U(m of steel 1 ar=t would result
in a loss of about $1.3 billion, of machinery and metal products.
Because of greeter Substitutability among construction materials
the nsltipliexr far steel used in construction should certainly be
smsetl'Ler than 5. A meltiplier or 2 was JuW a reasomble order of
m nitvdrea Giving an addltj0mei3 loss of acme $300 million, and a total
loss attributed to steel of about $1.6 b31]Jon.
y $500 million of Soviet Bloc s from NATO consist of
industrial materl*,3a and as i-canut'acturea (excluding iron and steel).
Dania], of tnagrne of these, particularly chemicala, might create bottle-
necks in certain industries. Om the other hared imports of textiles
and other materials for light industry tnidergo relatively little pro-
eessing alld little economic activity depends on them. A - mu3.tfplieer
of 3 applied to total imports of industrial materials and aemi-
memufactured other than steel would give a loss of $1.5 billion. The
total loss in production resulting: ram the disruption, in the supply
of materials and. z~te products would then amount to now
$3.1 billion.
The minder of Bloc imports from ?- some $1.0 billion,
consists of finiche$ ooodso (i - ) the denial of which
directly affects daimestie avo 134bilities and investments but has very
little abort-term Inset on out ut.. Thus we obtain lasses of slightly
over 0 bSllton without taking aqy account of the new domestic. uses
found for the former exports to OTO. Close to $0.5 billion, would, have
to be deducted-on account of food Slams, since former food exports to
W for most find ree y diamestio buyers, and there wild be now
and moor ost former exports of cbeni~s, nonferrous metals,.. nieehiuery.
consumer goods, if 'not for most of the coal, petroleum
and wood in the sh rt?rua.
The estimate or a loss of ,$3.5 billion, during the year following an
embargo is much more likely to be too high than too low for various
reasons iridic ated above. It is* probably more representative of the yearly
rate of lose for the 6 months or so following the enberao than of the
actual loss for the year.
In the short-ran. the European Satellites would probably bear the
bulk of the loans because they are more dependent then the USSR an
vapor
; M-otu those in the USSR for 1,Y sO, S is imports of steel. Losses in the Satellites
distribution of losses, however, would depend Snle t potime. The
licy. eventual
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(2)
Let Y QNP, 4Y a iaavestmerit in GNP, I OM MI
(1) (2) (3)
Y Y Y
t SR $200 billion
European Satelltte$ 75 bf l1 i on
6% 27%
5% 30%
(4)
(2F
4.6
6.0
Thus In the W8R, oaa the assurtion that anausl is its of
*300 aailliort of nadbinery and ,l t could not be rerp d
msahinesy "==its for 40 of the cost of capital. iavestae &t mad that
no aJustnent of domestic 1nvestoeat is >rtde to cao nsate for its
Zags, aaM=3 output would fail to rise by rougb3y 0 i1 tCM.
a tea year life, the aggregate l=g-tem cost of the e r voulA amount
to $1.5 bill I=. It jr, also assumed that the loss of other ieports from
NATO would be c ouater-balanced by. the availability of bloc goods that
vou14 otherwise have been exported to XWO; thus it is assumed that the
entire cost of the emlmrgo is represented in the output denied through
the ego of dachiaery and equipmeat.
83 oss' aptions are the basis for eatitmtiug that the loss
or $250-300 biLlion of European Satellite i,gports of z*chinery aM
equipment from countries vau1 t result in a lost ineremeat to
output of $1.0 to 1.5 billion.
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