SOVIET ECONOMIC AND TECHNOLOGICAL BENEFITS FROM DETENTE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00176R000900010002-5
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 40
• Document Creation Date: December 20, 2016
• Document Release Date: March 26, 2007
• Sequence Number: 2
• Publication Date: February 1, 1974
• Content Type: REPORT

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Soviet Economic and Technological Benefits from Detente
F Pages 1-
February 1974
Copy N2 397
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C?NEIDEL'LIL
F
Soviet Economic and Technological
Benefits from Detente
US-Soviet detente has already brought a succession of economic and technological
benefits to the USSR: grain to offset a crop failure, access to technology and equipment
previously denied, and long-term credits to finance imports. If detente continues, these
gains will accumulate. Nevertheless, overall Soviet economic growth is unlikely to be
affected appreciably. Machinery imports from the United States will be small relative to
total Soviet investment, and the USSR will continue to have problems in assimilating new
technology. The USSR, moreover, has alternative sources of goods and technology if.
US-Soviet relations sour. Moscow could benefit substantially, however, if it. is able to
acquire key military-related technology under the umbrella of detente.
The size and terms of the grain purchases from the United States undoubtedly were
influenced by the detente atmosphere. The prices paid for the grain were favorable, and
Commodity Credit Corporation credits helped the USSR at a time when it was incurring
its largest hard currency deficit in history. The US-Soviet maritime agreement also saved
the USSR hard currency, as the USSR was able to move several million metric tons of
grain on its own bottoms rather than on third-country ships.
Under detente, export controls were relaxed, and some highly prized US equipment
and technology became available to the USSR for the first time. Third-generation computers
and components and equipment for their manufacture were high on the Soviet shopping
list. If science and technology agreements just signed with US computer firms are
implemented, Moscow could modernize its computer industry and thus boost productivity
in both military and civilian industry. If negotiations for advanced semiconductor
production are successful, the Soviets also could be helped in developing complex
electronics systems and instrumentation for advanced weapons.
Heavy industry has also received technological aid from the United States. For the
Kama truck complex, the Soviets have been able to buy US equipment and technology
for the most advanced foundry in the world as well as other equipment not available
elsewhere. US technology probably can also help to alleviate the many serious problems
confronting Soviet oil and gas industries, particularly exploration and drilling in permafrost
and offshore.
Note: Comments and queries regarding this report are welcomed. They may be directed
t the Office of Economic Research,
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February 1974
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To a substantial degree. these machinery purchases -- like the grain imports -- have
been facilitated by US lone-term credits, both Eximbank and private. The terms of the
Eximbank credits are comparable with or better than those offered in Western Europe
and Japan, contributing to the already-existing world competition in promoting exports
to the USSR.
US-Soviet trade in technology still has a large potential for growth. Cooperative
ventures with US companies for the development of Soviet resources offer important
advantages to the USSR. US companies are able to provide the USSR with advanced
equipment, technology, and know-how to carry out the large internal development projects
ci!rrently scheduled. Equally important, the Soviets need to tap US financial markets for
government-backed credits if the massive Soviet imports needed for such projects are to
be financed at reasonable interest rates.
- So far in the detente period. the USSR has obtained US technology mainly through
the trade channel. At the same time, however, a network of officially sponsored
(government-to-government bilateral agreements has been built up which could provide the
Soviet economy with a good deal of US technology on an exchange basis. The US-USSR
Science and Technology Agreement has led to the conclusion of more than 20 agreements
between Soviet agencies and private firms. Most of the agreements call for general
cooperation. joint research and development, and exchanges of delegations, information,
;,rocesses, know-how, and licenses. Most agreements are also in high-technology industries
of prime interest to the USSR such as electronics, chemicals, energy, and construction.
The growing imports of machinery and equipment together with cooperative ventures
and bilateral agreements will transfer a substantial amount of Western technology to the
USSR - whether in the form of informal (and sometimes inadvertent) disclosure of
know-how, exchanges of technical data, or finished products. But the ultimate economic
effect of technological transfer through either machinery imports or informal contacts
and bilateral exchanges depends on how rapidly the technology is assimilated. Soviet R&D
and economic administration have been weakest in carrying technology from research
through the development and testing stages into production. Many of the reforms in
economic administration, science. and education in the past decade attempted to deal
with just this problem, but the reforms seem to have petered out. The Soviet economy
must do better in this area if imports of US technology are to have a substantial effect.
Other factors will also reduce the impact of US-Soviet trade and technological relations
on the USSR. First of all. US leverage is limited because the USSR can go elsewhere
for credits and roughly equivalent nachiner,, and technology. exLcnt i,i : few sectu!
ur fur a few giant project,. Second, the scale ,.)T such relations -- 11111(M--h ir!e!easing -
,',ill remain small relative to total production or trade. For example. imported US
equipment will be equal to no more than I';?" of the total value of equipment scheduled
to be installed in Soviet industry in 1971-75.
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The effect on military capabilities is another matter. Some US technology could help
the Soviets considerably in developing new weapons, especially in modernizing their
strategic weapons systems. Although thus far the trade, contacts, and technical agreements
associated with two years of detente have not transferred discernible amounts of military
technology, the changes in US-Soviet relations under detente have the potential to upgrade
Soviet military capabilities. While continuing their efforts to acquire such technology by
espionage and theft and by purchase from other countries who evade COCOM controls,
the Soviets will attempt to acquire military-related technology directly from the United
States by opening up new channels of transfer and widening existing channels. Whether
the full potential of transfer is realized depends in part on the care with which US firms,
scientists, engineers, and technicians treat the developing contacts. In this regard, the
guidelines set and administered by the US Government will be influential in determining
private attitudes and decisive in limiting the transfer of military-related technology.
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DISCUSSION
1. With the easing of tensions, particularly since the May 1972
Summit, there has been a substantial increase in economic, technical, and
scientific contacts and exchanges between the United States and the USSR.
Aside from political gains from the detente atmosphere, the USSR hopes
for concrete economic and technological benefits -- the acquisition, of US
goods, technology, and know-how, most of which have been denied to the
USSR since the beginning of the cold war.
2. In the past two years the decrease in tensions and detente have
brought the easing of US and COCOM export controls; Soviet imports from
the United States have risen sharply, US Government-backed credits have
been made available to the USSR, and numerous bilateral scientific and
technical agre7ments have been concluded. The future also holds out the
possibility of large commercial transactions between the two countries and
important technology transfers to the USSR. The purpose of this report
is to (a) review the nature of US-Soviet contacts and exchanges and
(b) assess the economic and technological benefits that the USSR has
obtained and may obtain as a result of detente.1 Because benefits to the
United States are not considered, this report does not provide a net
assessment of the benefits obtained by the USSR and the United States
from detente.
3. The conclusions of this report should be considered to be
preliminary because Soviet attempts to obtain US technology under detente
are still in an early stage. Little firm evidence is yet available in a number
of areas. Even where technology has been acquired by the USSR, often
little is known of the impact it has had on the Soviet industry involved.
Such factors as the energy crisis and changing attitudes in the United
States - particularly in Congress - on granting long-term credits to the
USSR also may affect these Soviet programs to acquire US and Western
technology.
The Impact of Detente on US-Soviet Trade Through 1973
Detente Establishes Preconditions for Greater Trade
4. The US-Soviet negotiations that created the political climate
known as detente also led to a marked change in the atmosphere regarding
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US-Soviet trade. The preconditions for a rapid growth in trade were met
when controls on US exports were eased, US credits became available, and
the shipping impasse was broken.
Export Controls Relaxed
5. One of the principal effects of detente has been the relaxation
of export controls. Multilateral (COCOM) controls and US unilateral
controls had been eased gradually over a number of years. Recent COCOM
List Reviews and the passage of the Export Administration Act of 1969
hastened the process. In 1972, Congress amended the Export Administration
Act, retaining the prohibition on exporting strategic items to the Communist
countries but narrowing the definition to allow freer export of items that
could be used for both military and civilian purposes. The Act required
that the US Commodity Control List (CCL) items not controlled under
COCOM agreements be eliminated unless their removal from controls would
be considered a national security risk. The 550 entries not under COCOM
control at the time the review began have been reduced to about 75. The
list is now made up largely of computer, electronics, and telecommunication
items. US policy positions on the above items and the technology for
producing them will be prepared in time for the next COCOM List Review,
which probably will begin in late 1974.
6. The change in the US attitude on trade controls has resulted in
US shipments to the USSR of items formerly banned and in US approval
of exports by other COCOM countries that the United States had opposed
earlier. In 1972 a series of US applications to design and sell machinery
for the Kama truck plant in the USSR were approved. The removal of
export restrictions on this equipment has given the USSR specialized
machinery and technology that was not available elsewhere and that the
USSR had sought for many years.
7. US policy perhaps has changed most significantly in the computer
and related electronic fields. Initial US reaction to the sale of
third-generation computers to Eastern Europe and the USSR was negative
because of the strategic uses to which these devices could be put and the
risk of diversion. The United States, therefore, devised a system of
safeguards intended to limit the risk of exporting third-generation
computers.2 Within this framework, the United States has given its approval
to the export of various third-generation computers throughout the
Communist area - including the export to the USSR for "peaceful research"
of two ICL 1906s, two ICL 1903s, a CDC 6200, an IBM-360/50, and
others. Despite the existing safeguard system and other end-use checks, it
2. Safeguards usually include complete access to machines by the computer firms' engineers and
the right to take random "dumps" of memory contents to be examined by computer experts.
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is probably -impossible to be certain that these systems are not being diverted
to strategic uses. Recent intelligence reports indicate that in the past year
at least two third-generation computers were directed from their intended
end uses in two East European countries to unknown activities within the
Soviet Union.
8. Similarly, during the past few years videotape recorders (VTRs) --
originally developed through US Government research and financing -- have
been approved for export in increasing numbers for civilian uses within
Communist countries. In December 1973, for the first time in the history
of trade controls, 17 highly sophisticated VTRs were approved for export
to the USSR. Because of their portability, exporting countries have thus
far been unable to place effective controls against the strategic use of these
recorders.
9. The United States no longer monopolizes the technology or
equipment used in the manufacture of printed circuit boards or
semiconductor packaging. As a consequence, several US firms have exerted
heavy pressure against. US export controls on technology and equipment.
COCOM approval has already been granted for the sale to Eastern Europe
of production machinery and technology used in the manufacture of
integrated circuits. The USSR has yet to purchase any US technology or
equipment for the production of advanced semiconductors, but some
technical" knowledge is being absorbed through increased technical exchanges
and greater contact with Western firms. More importantly, technical
knowledge and finished devices could be furnished to the USSR from Poland
and other East European countries under special agreements for mutual
cooperation in semiconductor R&D.
10. Several US firms are now negotiating to sell semiconductor
technology to a number of East European countries. One proposed
transaction with Poland includes the technology to produce US
state-of-the-art integrated circuits (MOS/LSI). Polish acquisition of this
technology would make it possible for the USSR to acquire this knowledge
and could significantly enhance its production capabilities over the long
term, particularly in areas of strategic concern.
Offer of US Credits
'11. A second major factor encouraging the growth of US-Soviet trade
during the detente period has been the opening up of a large new source
of trade credits to the USSR. With Eximbank financing available, US credit
terms now compete with those offered by other major Western suppliers
to the USSR - in particular, the United Kingdom, France, and Italy --
and compare favorably with those offered by West Germany. Lacking access
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to low-interest Eximbank and other US Government-backed credits before
1972, Moscow tended to look to other Western countries instead of to
the United States because the USSR's hard currency position required that
large purchases of machinery be made on medium-term and long-term credit.
The meager amount of Soviet imports from the United States was either
paid for in, cash or financed by short-term credits with generally no more.
than US $10 million outstanding at any given time.3
12. By the end of 1972, in sharp contrast to previous years, more
than $800 million in US short-term, medium-term, and long-term credit
had been made available to the USSR. Toward the end of 1973 this total
grew to roughly $1,400 million, most of which is associated with
low-interest US Government-backed credits. They include the following:
? Short-term bank credit outstanding as of I November 1973
of $49 million, compared with less than $5 million prior
to 1972;
Short-term non-bank claims outstanding as of 1 July 1973
of $73 million, compared with less than $5 million prior
to 1972;
? Long-term bank credits outstanding as of 1 November 1973
of $122 million; prior to 1972, private banks extended only
short-term credits to the USSR;
? Three-year CCC line of credit of $500 million; CCC credits
were not previously available to the USSR;
? $336 million in potential direct Eximbank long-term credits,
including authorizations for $158 million and preliminary
commitments for $178 million in direct credits (as of
mid-January 1974); Eximbank financing was not previously
available. for US machinery and equipment exports to the
USSR;
? $336 million in potential long-term credits from private
banks to match Eximbank participation; such financing
previously was- -precluded by the absence of Eximbank
participation.
3. This excludes exports of US capital goods financed by foreign lines of credit. For example,
because Eximbank financing was not available, US gear-cutting equipment for the Soviet FIAT plant
was financed by long-term Italian credits to the USSR.
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13. The decision to open the Eximbank window and the provision
of CCC credits signaled the beginning of a new era in US-Soviet.economic
relations and created an aura of excitement that attracted large numbers
of US bankers and financiers eager to enter into or expand financial relations
with the USSR. This development has greatly enhanced the USSR's ability
to pick and choose among suppliers of credit, thereby enabling the USSR
to extract credit concessions from the successful "bidders." For example,
all private US banks have so far waived the Eximbank insurance on their,
export credits to the USSR, thereby reducing the USSR's financing costs
by one-half percentage point. The large, multi-billion dollar liquefied natural
gas (LNG) projects and other US-Soviet projects now under consideration
envision expanded Eximbank participation as well as the mobilization of
large amounts of private funds on a long-term basis. The availability of
these huge sums to finance Soviet imports will depend on continued detente
and on Eximbank lending limitations.
US-Soviet Maritime Agreement
14. The conclusion of a US-Soviet Maritime Agreement in 1972 was
a third factor helping to promote trade. The agreement led to major
cutbacks in the US port security program (making it easier for Soviet ships
to visit US ports and increasing the number of US ports open to such
visits) and to withdrawal of a labor union's threat to boycott Soviet ships.4
Soviet cargo liners and tramp vessels can now participate freely in the
movement of US-Soviet trade (moved entirely on third-flag ships through
1968) and in the movement of US trade with other countries.
15. The USSR stands to save considerable hard currency by
participating in the movement of its imports from the United States. For
example, by using Soviet vessels in moving more than 3 million metric tons
of US grain, the USSR saved at least $40 million in hard currency, and
prospects for future earnings are good. It also stands to earn hard currency
by carrying Soviet exports to the United States and cargoes moving in US
trade with Europe and Japan. The USSR now has cargo lines linking the
US West Coast with Japan and other Far Eastern countries and linking
Great Lakes, East Coast, and Gulf ports with Europe. In the tramp field
(largely bulk cargo), Soviet ships under charter have made only a few
cross-trade voyages between the United States and third countries thi far.
4. US and Soviet merchant ships stopped calling at each others ports in 1950. Soviet ships were
excluded from US ports both by the threat of a boycott by stevedores of the International
Longshoremen's Association (ILA) at Great Lakes, East Coast, and Gulf ports and by the USSR's
refusal to put up with the inconvenience of US port security regulations applying to Communist
ships. In mid-1969 the USSR overcame its unwillingness to operate ships under the US port security
system and began a cargo liner service between Japan and US West Coast ports, where the ILA
has no jurisdiction. For most ports the Maritime Agreement reduces the number of days' notice
of arrival and increases the number of ports-of-call from 6 to more than 40.
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When the demands of the grain lift diminish, however, there should be
more opportunities for such voyages, especially for ships returning to Europe
after delivering Soviet cargoes to Cuba.
Soviet Imports from the United States Soar
16. The relaxation of export controls, the provision of trade credits,
and the shipping agreement have had a dramatic impact on US-Soviet trade
(see the chart). The USSR's imports from the United States increased much
faster than its sales to the United States. Purchases of machinery and
equipment and grain accounted for much of the growth in Soviet imports;
Soviet sales to the United States continue to consist principally of platinum
group metals, diamonds, and chrome ore, but fuel oil became an important
commodity in 1973 as well.5 As a result of the sharp upswing in the volume
of trade, the United States became the USSR's leading Western trade partner
in 1973.
Machinery and Equipment
17. In the last two years the USSR has contracted for about
$800 million in US machinery and equipment (see Tables I and 2). This
compares with more than $200 million in 1971 and some $30 million
annually in previous years. The US share of Soviet orders also has risen
since 1970 (see Table 1).
18. The machinery and equipment that the USSR has sought
especially in the United States include truck-manufacturing equipment,
computers, and certain other electronics equipment, as well as various types
of oil and gas field equipment. These are areas in which US technology
excels. Most of the other equipment and technology ordered from the
United States is available in a number of other countries, however.
19. For the Kama truck plant, the USSR contracted with Swindell
Dressier to design and coordinate the procurement of machinery for the
most advanced automated foundry complex in the world. Other Kama
purchases include gear-making machinery, automated transfer machinery,
and computer-controlled conveyor systems, all of which, for reasons of
durability, precision, or productivity, are technologically superior to systems
available in Western Europe.
20. Kama-built trucks will provide the USSR with badly needed
transport for use in agriculture, relieve overtaxed railroads of some of the
burden of freight hauling, and expand the supply of off-highway trucks
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US Trade with the USSR
US Exports by Commodity
Compared with US Imports
Grain
71%
Imports Exports Imports Exports
1966-70 1971
(average)
$55 $77 30% $57
rF negi.
70% f
39%
9%
52%
Imports Exports
1973
(estimate)
$1,200
Machinery
& Equipment
Other
12%
1966-70
(average)
33%
17%
15%
2%
33%
34%
20%
19%
1%
26%
14%
15%
8%
17%
Platinum Group
Metals
37%
Diamonds
8%
Chrome Ore
5%
Oil
25%
Other
25%
1973
(estimate)
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US Imports by Commodity
Imports Exports
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USSR: Machinery and Equipment Ordersl
Million US $
Average
From
1966-70
1971
1972
19732
Total
620
840
1,580
2,530
United States
30
240
345
435
Italy
160
65
170
625
West Germany
35
145
370
425
France
125
75
340
395
Japan
100
140
135
155
Sweden
30
10
15
145
United Kingdom
90
120
75
135
Other
50
45
130
215
1. Rounded to nearest $5 million.
2. Preliminary.
USSR: Machinery and Equipment Orders
from the United States
Category
Total
345
435
Chemicals
10
45
Oil refining and pipelaying
17
68
Metalworking and metallurgy
5
56
Motor vehicle manufacturing
136
182
Mining and construction
121
4
Electronics
15
22
Other
41
58
for use in the many roadless areas in the USSR. The Soviet military
establishment will benefit by retaining for its own use all-wheel drive trucks
that, because of persistent short supply, are often preempted for use in
agriculture, industry, and construction.
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21. The USSR has been seeking US technology across the whole
spectrum 'of computer manufacture, including central processing units,
peripherals, components (memories and integrated circuits), and
computerized test equipment. The Soviets also want to conclude
multimillion dollar, multicomputer system deals that include software and
training of specialists. For example, they would like to contract for a
regional air traffic control system and a system for production and inventory
control at the Kama truck plant. Most of this equipment and technology
is still embargoed under US and COCOM trade controls, although four large
US systems have been sold to the USSR under the COCOM exceptions
procedure. Although the benefits to the USSR from US computers already
acquired probably are not large, the USSR stands to gain substantially if
the large US systems now being negotiated are spld. These sales would
include training for specialists in software maintenance and systems analysis,
areas in which the USSR is particularly weak. Such training would make
possible the creation of a key cadre qualified to train, in turn, large numbers
of other specialists. Training in the operation and maintenance of large
computer systems is directly applicable to industrial as well as complex
military problems.
22. Some US firms in the semiconductor industry also have viewed
detente as an opportunity to expand sales. The USSR has not yet acquired
US equipment or technology for the production of integrated circuits or
other advanced semiconductors because these items are still embargoed. As
a result, the direct benefits from detente in this area have been restricted
to the random bits of production know-how that may have been acquired
through the technical exchanges program and through Soviet contacts with
US businessmen and scientists. Several US firms, however, are now
negotiating with the USSR for the sale of complete facilities for the
production of advanced types of semiconductors. Soviet access to a reliable
supply of these devices could speed Soviet development of complex
electronic systems and instrumentation for advanced weapons.
23. To help overcome the many serious problems confronting its
petroleum industry, the USSR has been especially active in negotiations
for US petroleum equipment and technology. Soviet problems include
exploring and drilling for oil and gas in permafrost and offshore, maintaining
production in older fields, building pipelines fcr transport of oil and gas,
and improving the quality of refined products. A recent exposition in
Moscow, at which US firms displayed the latest in petroleum equipment
and technology, aroused considerable interest among Soviet petroleum
officials and resulted in additional Soviet orders and purchases. Some of
the equipment -- down-hole submersible pumps, drill collars, and drill bits --
that the USSR has ordered in large quantities are in short supply in the
United States. Sales to the USSR of such equipment resulted in delayed
deliveries to US petroleum firms.
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24. Over the past 10 to 15 years the Soviet Union has purchased
a large volume of chemical equipment from the West. American firms,
.however, accounted for only a negligible share of the Soviet orders. The
United States usually supplied only technical data. Since detente, and
particularly during 1973, the US role in supplying chemical equipment and
technology to the USSR has grown. An outstanding example of what may
be in store for the future under detente is the 20-year, $8 billion agreement
announced in 1973 by the USSR and Occidental Petroleum Corporation.
This agreement calls for an exchange of fertilizer materials and the
construction of eight ammonia and two urea plants in the USSR. The Soviet
Union is to receive one million tons of concentrated phosphoric acid starting
in 1978 in exchange for Soviet-produced ammonia, urea, and potash. The
phosphoric acid should help to raise Soviet agricultural yields. In addition
to increasing yields, phosphate fertilizers can hasten the ripening of grain,
an important consideration in regions that have a short growing season.
25. The ammonia plants will each have an annual production capacity
of 500,000 tons; the largest Soviet-manufactured ammonia units in
operation have annual capacities of 200,000 tons or less. The ammonia
plants going to the USSR probably will incorporate technology belonging
to M.W. Kellogg Company. Kellogg is the world's most experienced firm
in engineering and erecting large single-train ammonia plants that use
centrifugal compressors and minimize unit energy requirements.
26. During 1972 and 1973 the Soviets bought 37 million tons of
grain from the West, including about 25 million tons from the United
States. Although the decision to buy US grain was motivated by Soviet
internal policy considerations, the exceptional size and the favorable terms
of the purchases from the United States no doubt were influenced by the
detente atmosphere. The extension of $500 million in CCC credits to
Moscow was especially important.
27. Soviet grain output is subject to extreme fluctuations. In 1972,
Soviet grain output fell by about 10% below the 1971 level as a result
of unusually poor weather. Without imports of Western grain, considerable
belt-tightening would have been necessary because grain and potatoes form
the core of the Soviet diet. Moreover, the drop in grain production came
at a time when the demand for grain as livestock feed was increasing rapidly.
A Brezhnev-sponsored program begun in 1965 to provide more meat and
other quality foods had boosted the use of grain for livestock feed. If
Western grain had not been available, the Brezhnev program would have
had to be interrupted and "perhaps abandoned. This would have been
extremely unpalatable to the leadership, which had pledged itself to better
the lot of the consumer.
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28. The success of the Soviet livestock program seems to depend on
continued access to Western grain. The Soviets could require grain imports
of 15 million tons annually through the rest of the I970s,,assuming an
average increase in grain output under normal weather conditions. Soviet
purchases this year illustrate their continued dependence on Western grain.
Despite a record net grain harvest of 170 million tons -- compared with
the previous high of 150 million tons in 1970 -- the Soviets contracted
for the delivery of 12 million tons of grain in fiscal year 1974. Although
this is only one-half the amount delivered in the previous fiscal year, iL
will cost them two-thirds as much foreign exchange because of high grain
prices.
29. Because the United States has such a large share of world grain
trade, a large Soviet grain requirement will almost have to include substantial
purchases from the United States. A number of prominent Soviet trade
and agricultural officials have admitted to US visitors that the USSR will
require long-term imports of food and feed grains from the United States
even if the USSR has good harvests.
30. The continued growth of Soviet imports from the United States
depends on a favorable climate for trade. Whether trade flourishes depends
in part on Congressional reception of the US-USSR trade agreement. If
detente seems uncertain, the credits necessary for an expansion of trade
may dry up. Equally as decisive for trade will be the attitude of American
business toward the large cooperative ventures that the Soviets are counting
on to support their growing acquisitions of US equipment and technology.
Such ventures are likely to materialize only in an atmosphere of confidence.
Trade Agreement and MFN Tariff Treatment
31. If Congress does not approve most-favored-nation (MFN)
treatment and ratify the US-USSR trade agreement signed in 1972,
US-Soviet economic relations will no doubt be dampened. Ratification of
the agreement on the other hand will do little more than provide formal
US approval of the upward trend in economic relations between the two
countries.
32. The lack of MFN treatment in the past has had a negligible effect
on Soviet exports to the United States. With few exceptions, Soviet exports
to the United States entered either duty free or suffered little or no
discrimination when subject to the full 1930 tariff rate. This is largely
because Soviet exports to the United States (and to other advanced market
economies) have been dominated by raw materials and semimanufactures,
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commodities generally at the low end of the spectrum of tariff
discrimination. Currently, the USSR could conceivably increase exports of
some commodities such as plywood, particle board, vodka, dressed furs,
sheet glass, and the like if it had MFN status. But, in the short run, the
additional foreign exchange earnings would be small.
33. Until the recent oil price increases, Soviet oil exports to the
United States 'faced discrimination because oil is subject to the full rate,
then equivalent to about 10% ad valorem, compared with roughly 4% or
less if the USSR qualified for MFN. Because the duty on oil is specific,
at today's higher prices the full rate's ad valorem equivalent is only about
3%, compared with an MFN rate of 2% or less - thus there is no longer
any effective discrimination between the two rates. US imports of Soviet
oil (mainly fuel oil) in the first nine months of 1973 were valued at nearly
$36 million, compared with about $7 million in all of 1972.
34. Benefits accruing to the USSR because of MFN might be
substantial in the longer term if the USSR is successful in carrying out
its current plans to produce manufactured goods designed for export to
the United States. The product lines envisioned in this future trade are
highly finished consumer-oriented goods that face significant discrimination
unless the USSR obtains MFN treatment.
Cooperative Ventures
35. Cooperative ventures with US companies probably offer the best
chance for large, continuing growth in US-Soviet trade. The USSR wants
US companies to provide advanced equipment, technology, and know-how
to implement the large development projects currently being considered.
US firms are frequently singled out because in many cases they have the
best equipment and technology. Equally important is the Soviet need to
tap US financial markets for the huge credits required for the massive Soviet
imports needed for such projects.
36. In addition to the Occidental project discussed earlier, the USSR
has signed preliminary agreements with US firms for two projects involving
the exploitation, transportation, and liquefaction of Siberian natural gas.
Together, the North Star and Yakutsk projects will require more than
$7 billion in long-term credits to finance Western (mainly US) exports of
equipment, with Soviet repayments to be covered by US and Japanese
guarantees to purchase LNG over a period of 20 to 25 years. If undertaken,
these projects will provide the USSR with access to US technology and
experience that would be extremely useful in developing other Siberian
natural gas and petroleum resources. Moreover, if exploration proves
successful, the Yakutsk project, as currently envisioned, will provide the
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USSR with an additional one billion cubic feet of natural gas daily for
either domestic use or additional exports.
37. US investment in other Soviet raw material development
projects - Sakhalin offshore deposits and the proposed Tyumen-Nakhodka
oil pipeline - is also being considered. US participation in offshore
exploration for natural gas and oil deposits appears particularly desirable
to Moscow because of the specialized equipment and large credits involved
and the need for US offshore drilling technology. The Tyumen pipeline
project, if realized, would generate more hard currency revenue for the
Soviets than the two LNG deals combined and has interested some US
firms.
38. East Siberian projects such as the Udokan copper deposits and
the Yakutsk coal fields are ventures that almost surely must have foreign
assistance if they are to be started in the next decade. Besides financing,
US participation would provide mining and ore processing equipment,
generally superior to Soviet equipment, and US managerial, planning, and
engineering skills.
39. The Soviets are also negotiating for the exchange of US industrial
processes and technology for Soviet metals and minerals. The best example
is a package of proposals put together by a group of US firms, which will
provide a variety of services, including specialists for construction,
preliminary and planning engineering, assistance in procurement of
equipment, advisory construction management, training of USSR operators,
start-up assistance, and royalty-free licenses to use the processes. In
exchange, the US participants will buy or accept as compensation for
services a number of metallurgical and other manufactured products.
39. The large cooperative ventures discussed above would provide the
USSR with significant inputs of technology and equipment and would
enable it to repay the credits with products. In terms of technology transfer,
the ventures differ little from direct purchases of turnkey projects because
they provide for nothing in the way of technology transfer or Western
assistance after the venture begins to produce.6 The Soviets, however, are
trying to elicit US comm^rcial participation in cooperative ventures that
offer continuing technology Transfer and Western assistance or that
otherwise maintain a vested US interest in the operation of the enterprise.
40. In discussions with some US oil companies for the exploration
of offshore oil deposits, for example, Soviet proposals have gone beyond
simple commodity pay-back arrangements. To interest US firms, which are
often loath to part with advanced technology and know-how for a fixed
6. Additional US assistance would he required, however, if product quality is not up to standard.
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Soviet payment, the USSR has indicated a willingness to establish jointly
owned firms. Under such a plan, US firms would receive a fixed percentage
of all crude oil discovered in return for their exploration expertise and
equipment.? In addition to a major share of crude oil output, the USSR
would acquire US equipment and access to drilling technology for the life
of the agreement.
41. The USSR also has considered offering equity participation, which
some US firms want if they are to make particularly valuable technology
and equipment available to the USSR. After proposing that a US firm
provide a plant under such terms, the Soviets backed off, however. The
two parties now are talking about a long-term technology sale by the US
company in return for periodic Soviet payments and an agreement not to
market the output outside the USSR.
42. In still other cases, the USSR has sought to enter into cooperative
agreements that would increase sales of their manufactured goods in the
West. The Soviets have held discussions with several US firms on the
marketing of Soviet products whereby the US firm would, where necessary,
modify Soviet . equipment to make it more acceptable to Western
requirements. Raymond Loewy, a leading industrial designer, has signed a
cooperative agreement with the Soviets that calls for the US firm to assist
in the design of automobiles, hydrofoils, and watches. The agreement, which
initially has a life of 2-1 /2 years, will provide the USSR with production
and marketing expertise useful in selling manufactured goods on Western
markets.
Soviet Acquisition of US Technology Outside the Trade Channel
43. The USSR has acquired foreign technology mainly by purchasing
machinery and equipment. However, other channels of transfer have
included the acquisition of technical data, attendance at international
meetings, visits to Western firms, and formal agreements for collaboration
in research and the exchange of scientific and technical information. Under
detente, Moscow has been pushing hard to tap all possible sources of US
technology.
Informal Contacts Increase
44. An important consequence of the detente atmosphere has been
an increase in personal contacts between US and Soviet managerial,
technical, scientific, and industrial personnel. In conferences and symposia,
as well as in commercial negotiations, useful information is likely to be
7. The Soviets may be reassessing this position. They are now suggesting that the oil repayment
be based on current world prices, making it a less attractive proposition to US firms.
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? inspection and acceptance of US equipment destined for the
USSR,
? contract negotiations,
? training of Soviet personnel in the use of US equipment and
technology,
passed along. In terms of importance to the USSR, the most important
of these contacts probably are those associated with visits by Soviet officials
to the United States. Aside from tourists and diplomats, about a thousand
Soviets arrived in the United States in 1973 in connection with commercial
activities and exchanges, including:
? attendance at exhibits and conferences,
familiarization with US plants and factories and with
banking,, marketing, shipping, and a number of other
activities.
47. In attempting to acquire as much information as possible, these
delegations often visit several firms. They normally claim that the USSR
is interested in acquiring the firms' products and/or technology or desire
to undertake some other profitable deal. A case in point was the lame
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45. Many of the several hundred scientists who visited the United
States to attend conferences arranged side trips to laboratories, private firms,
and universities. In addition, the commercial visits frequently entail visits
to plants and laboratories. Some of the visits are quick tours of various
plant and laboratory facilities, but those in connection with training and
with inspection and acceptance of US equipment last for weeks or months.
Other things being equal, the longer the stay, the greater the opportunity
to acquire information. Aside from firms with which the USSR has placed
orders, the installations visited generally are in those sectors which the USSR
has demonstrated an interest in developing: commercial aircraft, computers,
machine tools, electric power equipment, oil field equipment, chemicals and
chemical equipment, electronic equipment, mining equipment, and others.
46. A major aim of plant visitation is the acquisition of production
technology through observation and briefings at US manufacturing facilities
and laboratories. Soviet visitors usually ask many penetrating and detailed
questions and us.ially take extensive notes. The head of a recent delegation
visiting a US plant Mated that every member of his group was required
to write a report on all he saw and learned on their tour. This is probably
standard operating procedure on all Soviet visiting groups.
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delegation of Soviet aviation officials that visited the United States in the
fall of 1973. The delegation visited a number of installations and obtained
detailed briefings from officials of leading airframe and aircraft engine firms,
ostensibly to help determine which of these companies could best fulfill
Soviet requirements for manufacturing wide-body jets. The Soviet delegation
returned to the USSR having apparently succeeded in stimulating active
competition among the firms for Soviet contracts - if indeed, the Soviets
intend to make such purchases. If they do not, the information acquired
will help them in developing their own wide-body and possibly other
aircraft.
48. Access to US business and industry has also been facilitated by
the establishment of the Soviet Purchasing Commission in New York for
the procurement of equipment for the Kama truck complex. This
commission supplements the work of Amtorg, the permanent Soviet trade
organization in New York. The Kama River Commission was recently
expanded to handle the long-term Occidental agreement involving the
exchange of chemicals and the supply of US equipment, although the Soviets
were permitted to add fewer people than they asked for.
49. The Soviets unquestionably have increased their knowledge of US
technology through these visits and through personal contacts. In many
plants and laboratories the management is careful about what visitors see,
while in others where less care is exercised, the Soviet visitors may obtain
some useful information.
Bilateral Scientific and Technological Cooperation
Before the May 1972 Summit
50. Bilateral cooperation between the United States and the USSR
in science and technology (S&T) had its origin in a series of agreements
signed in 1958 under the US-Soviet exchange program. These exchanges
were arranged and monitored by the respective governments. The members
of the delegations, the topics, and the itineraries were approved in advance,
and the exchanges were balanced in terms of numbers and areas of access.
Data flow between the United States and USSR also took place during
this period at international meetings.
51. US-Soviet S&T collaboration had many of the same characteristics
seen in the USSR's bilateral programs with other countries - the evasion
of reciprocity and bureaucratic inertia on the part of the USSR. In
retrospect, the USSR gained more than the United States, principally
because the United States was ahead in practically all the cooperative areas.
In nuclear energy, for example, the Soviets acquired valuable information
from the United States on the technology of reprocessing nuclear reactor
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fuel elements and the water chemistry of light water reactors that enabled
them to surmount some troublesome problems.
52. The benefits to the USSR of the bilateral exchange program with
the United States were probably modest, but the USSR won greater
recognition for its science program by portraying itself as the equal of the
United States in the "big science" areas of space, nuclear science and
technology, oceanography, and the like. While the USSR acquired some
scientific data, it received little know-how of appreciable benefit to its
civilian economy or its military establishment.
53. In the late 1960s and the early 1970s the Soviets began looking
harder at ways in which Western technology could be brought to bear on
their internal problems. They recognized that bilateral programs were
inexpensive but that much of the desired technology was proprietary
information in the hands of private industry. As a result, the USSR seems
to have conceived a multidimensional approach to acquiring key technology
in selected high-priority areas. Overt, personal contacts in these areas were
increased through existing and new exchange agreements, commercial
overtures, and international forums. At the same time, long-term
cooperation agreements with Western governments and firms were
emphasized. The USSR prefers these agreements, at least initially, to be
all encompassing and government-to-government. Under this overall
umbrella, the USSR can then negotiate agreements with private firms and
organizations, often with firms or groups that would deal with it only as
a result of the government encouragement implied by or resulting from
the overall agreement.
Government-to-Government Agreements Under Detente
54. At the May 1972 Summit the United States and USSR signed
four major agreements for bilateral cooperation - agreements covering S&T,
exploration and use of outer space for peaceful purposes, environmental
protection, and medical science and public health. At the June 1973
Summit, five additional agreements for bilateral cooperation were signed.
Three focused on S&T - studies of the world oceans, transportation, and
peaceful uses of atomic energy.
55. In some respects these agreements simply strengthened the
administrative mechanism, not the substance, of cooperative efforts already
under way - such as those in oceanography, atmospheric modeling,
earthquake prediction, and nuclear energy. Nevertheless, these agreements
embodied some significant new features, especially as viewed by the Soviets.
First, the two governments gave a clear endorsement to bilateral cooperation
between the two countries. The language of Articles 3 and 4 of the S&T
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agreement was clearly of particular significance to the Soviets. Article 3
includes an explicit recitation of the various mechanisms for collaboration,
and Article 4 calls for each party to encourage and facilitate contacts and
cooperation.
*56. Since the signing of the first series of agreements in May 1972,
the Soviets have moved vigorously toward initiating specific collaborative
work projects with US scientists in a very wide range of subjects, including
joint manned space flight, non-nuclear energy R&D, chemical catalysis,
microbiological synthesis, and the application of computers to management.
In general, the Soviets have selected their most capable scientists and their
best institutes to participate in these bilateral programs. In addition, they
have seen to it that problems of longstanding concern to them have been
included in the overall program. In contrast to the pre-1972 exchange
program, which tended to stress basic scientific research, the current
program is oriented more. toward projects offering greater potential impact
over a shorter period of time - projects where additional work could lead
fairly quickly to improved products and stepped-up productivity for the
USSR. For example, joint US-USSR research on catalytic reactor modeling
and on the design and operation of thermal and hydroelectric power
stations, if pursued along the lines the Soviets probably envision, is likely
to benefit the USSR more extensively and within a shorter. period than
the more scholarly work in pure mathematics or theoretical physics carried
out under prior agreements.
57. Soviet activities during this year and one-half period clearly
continue the multi-pronged approach to obtaining Western know-how in
key technological areas of the previous decade. Computer technology is
a good illustration. Under the S&T agreement, the Soviets pushed for
cooperation in the application of computers to management, and at least
one aspect of many of the other subjects for cooperation -
magnetohydrodynamics (MHD), S&T information processing, metrology and
standardization, and water resource systems - involves the use of
computers. Moreover, the Soviets have signed agreements for joint research
with the Control Data Corporation (CDC) and the Hewlett-Packard
Corporation.
58. Furthermore, the overall bilateral program appears , to offer
opportunity for the transfer of US technology to the USSR insareas not
explicitly identified for cooperation. A modest amount of advanced US
semiconductor technology, for example, went to the USSR in the form
of medical equipment under the bilateral agreement on medical science and
public health, and other technology conceivably could be transferred in
small amounts under other agreements with little notice being taken.
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Agreements with Private Firms Under Detente
P
59. The USSR has markedly increased the number of direct contacts
with US industrial firms under Article 4 of the S&T agreement and has
signed agreements or protocols with specific US firms for cooperative
research.
60. US companies have given information to Soviet agencies in the
hope of getting a foothold in Soviet markets. The Soviets often exploit
this motivation by baiting US firms to enter into cooperative agreements
with hints of subsequent sales to the USSR. With few exceptions, the Soviets
have not revealed their own technology for possible licensing or trade with
the US firms. There is some feeling, however, on the part of many US
firms that there is not much Soviet technology that would interest them.
61. In bilateral agreements with private US firms, the Soviet State
Committee for Science and Technology (SCST) has been the principal
instrument on the Soviet side. This state committee has signed mc?:e than
20 long-term (mainly five-year) agreements with a variety of US firms.8
Most of these agreements are similar in content, calling for general
cooperation, joint R&D, and exchanges of delegations, information,
documentation, methods, processes, know-how, research results, production
samples, and licenses. Most of the agreements are grouped in industries of
high technology of great interest to the USSR, such as electronics, chemicals,
energy, and construction.
62. The earliest group of firms to sign S&T agreements with the USSR
were large multinational chemical firms, conglomerates of the type favored
by the USSR. Agreements in the chemical field between SCST and
Occidental Petroleum and BASF Wyandotte Corporation came in July 1972,
although the Occidental agreement also covered oil and gas, metal working
and metal coating, ecology, and construction. Further agreements with SCST
were negotiated by Monsanto, Union Carbide, Dow Chemical, and Armco
International in late 1973. As noted above, Occidental also entered into
a joint venture with the USSR involving the construction of fertilizer plants
and the exchange- of superphosphates. Most of the other firms hope that
similar trade arrangements will result from their participation in S&T
cooperation agreements. The pervasive Soviet interest in computer
applications is also in evidence in this initial round of agreements. Monsanto
has agreed to cooperate with the USSR on computer applications in the
chemical industry.
63. Another group of firms has signed agreements with SCST in the
electronics field, with emphasis primarily on computers and communications
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equipment. CDC signed a 10-year agreement to cooperate in all phases of
computer technology. The more standard five-year agreements were signed
by Singer Company, Hewlett-Packard, Litton, and General Dynamics for
cooperation in computers and other fields. International Telephone and
Telegraph also signed an agreement for telecommunications and related
fields. In these fields, the technology flow is likely to go in only one
direction, and the Soviet need is extensive. Although all of these firms
obviously hope to obtain large trade contracts, the extent of the trade and
technology flow will depend on trade control policy decisions because much
of this equipment and technology is still subject to export controls.
64. Brown .& Root, Inc., Dresser Industries, and Stanford Research
Institute have signed agreements with SCST for cooperation in the gas and
oil industries. These firms have much technology that the Soviets need,
and Brown & Root is already part of the consortium identified with the
US-Soviet North Star LNG project. Dresser has negotiated a license sale
to the USSR for Soviet production of a Dresser-Clark model compressor.
Bechtel Corporation signed an agreement with SCST that covers all branches
of heavy industry, but the USSR reportedly is most interested in Bechtel's
capabilities in the energy field.
65. General Electric (GE) signed a series of agreements with Soviet
ministries and SCST in 1972-73. An April 1972 agreement with the Ministry
of Heavy, Power, and Transport Engineering provided for the exchange of
research and development data on gas turbines, including the joint
development of gas turbines. An outgrowth of this was an agreement with
Elektrosila of Leningrad for the production of turbogenerators.
66. An agreement between GE and the Soviet Ministry of
Electrotechnical Industry in December 1972 called for exchanges of R&D
data on current commercial projects. In January 1973, GE and SCST signed
an agreement for joint development of electric power generating technology,
which could lead to licensing arrangements for the manufacture of GE
products in the USSR. This agreement established a formal policy between
GE and the USSR of general scientific and technical cooperation, and it
specified power generation technology - including steam, gas turbine, and
nuclear - as commanding immediate attention for mutual exchange and
development.
67. On 23 January 1974, Kaiser Industries concluded an agreement
with SCST. The agreement covers cooperation in the fields of
alumina-aluminum, iron ore mining, pellet production, coal mining, metal
fabrication, and others.
68. The most recent 5-year agreement concluded between a US firm
and SCST was the Lockheed agreement signed on 31 January 1974. The
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agreement provides for cooperation in navigation systems, civil aircraft
building, air traffic control equipment, and other areas.
Potential Benefits to the USSR from Bilateral
Scientific and Technological Cooperation
69. The benefits to the USSR from greater S&T cooperation are hard
to quantify but can be described in general terms. Without doubt,
implementation of the present array of agreements will bring many talented
Soviet scientists and engineers into intimate contact with' their US
counterparts in a wide variety of disciplines. This will serve to spark at
least some sectors of the USSR's lackluster civilian R&D program and to
help improve the management and quality of the work in these sectors.
Moreover, given the US lead over the USSR in practically every technology
identified for cooperation, the Soviets through these contacts should avoid
many of the mistakes they would otherwise encounter and thus achieve
shorter development times for selected projects. The potential for benefits
of this nature is substantial in certain areas -- for example, chemical
catalysis, micro-biological synthesis, and antipollution equipment all have
their roots in chemical process technology, areas where US superiority is
unquestioned. In non-nuclear energy R&D, the Soviets may gain access to
more accurate models of MHD phenomena afforded by stronger US
computer capabilities and to better designs for MHD channels resulting from
US specialization in this area. Also in the energy area, the United States
clearly excels in cryogenic technology, which is necessary for the operation
of superconducting magnets and transmission lines, and in the pollution
control and heat transfer technology associated with conventional thermal
powerplants. And in all the cooperative areas, those aspects of the work
involving sophisticated instrumentation and automated control represent a
potential boon to the Soviets, again because of the clear lead that the United
States has in these technologies.
70. Another less tangible but potential benefit to the USSR is a
marked enhancement of their international prestige in S&T. The gain is
illustrated very well by the joint Apollo-Soyuz Test Project (ASTP), which
will support the illusion that, despite a lack of manned lunar expeditions,
the USSR is on a scientific and technological par with the United States
in manned space flights. In fact, however, most of the technical and
managerial responsibility is being assumed by the United States. The ASTP
also offers the possibility of additional benefits to the USSR, such
as the closest look to date at US scientific, technical, and managerial
know-how as brought to bear on a major undertaking. Thus the USSR is
taking a minimum risk and expecting a maximum gain. Potential benefits
in prestige also exist in the geophysical sciences such as climatology and
earthquake prediction where some of the Soviets' creditable work will
receive greater visibility and thus gain more acclaim worldwide.
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71. The potential for gains by the Soviets in the nuclear energy field
also is extensive, once again because of a juxtaposition of US strengths
and Soviet weaknesses. Although the Soviets now have an operating
prototype fast breeder reactor, and the United States does not, they lag
in almost every aspect of fast breeder technology - core design, fuel element
behavior at high fluence levels, control rod materials behavior, component
fabrication, and quality control. In controlled thermonuclear reactions
(CTR) research the Soviets could gain markedly in the pellet implosion
approach to laser-induced fusion where US work has drawn extensively on
the skills and computers of its nuclear weapons designers. In the more
conventional areas of CTR, the Soviets could benefit from access to US
experience in the plasma heating of Tokamak systems, in 'conducting
diagnostic experiments, and in fusion reactor engineering concepts,
calculations, and experiments.
72. Soviet commercial aircraft have been improving steadily in terms
of world standards, but at least two- remaining technical hurdles must be
overcome before Soviet civilian aircraft can be considered truly competitive
in the world market. They must have (1) internationally approved
navigation systems and (2) performance in'terms of engine life and economy
comparable with Western aircraft. The USSR presently is attempting to
acquire advanced navigation systems by purchase of Western equipment and
technology. Improving engine performance may take longer, however,
because the Soviet metallurgical industry generally has not been able to
control quality adequately in the production of high-temperature materials
and because the direct military application of Western technology in this
field has kept it on the embargo list.
73. Finally, over the longer run, the technical agreements with US
computer firms offer the prospect of large benefits to the USSR. Under
the umbrella of these agreements, the Soviet could gain large-scale
manufacturing know-how for advanced central processers, peripherals, and
electronic components that it does not now possess, as well as advanced
software and training. In short, such agreements, if implemented, could do
a great deal for the Soviet computer industry. Before these agreements are
implemented, however, export controls will have to be relaxed considerably.
Problems in Assimilating Foreign Technology
74. The USSR has relied heavily on foreign technology throughout
its history. In practically every industrial sector, much of the technology
is of foreign origin. Technological transfer, however, has been too slow to
bring the Soviet Union abreast of Western technology. As a result, a
substantial technological gap persists in most parts of the economy. The
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Soviet campaign to acquire foreign technology is particularly vigorous now
because traditional domestic sources of economic growth have been drying
up.9
Research and Development
75. The great unevenness of the R&D sector has been a major
hindrance to the assimilation of US or other foreign. technology. Basic
research, particularly theoretical work, is considered strong, while applied
R&D has been weak except in priority military sectors (including military
applications of the space program), which attract the best scientific and
material assets. In large part, the weakness of applied R&D in the civilian
economy stems from its incompatibility with rigidly centralized direction
and management. In addition, the indifferent quality of many Soviet
engineers and applied scientists has hampered the civilian R&D effort. The
training of Soviet engineers and applied scientists is rather narrow, and many
of the engineers are best described as technicians by Western standards.
Piecemeal Purchase of Machinery
76. Imported machinery has been of less help to the Soviet Union
than expected in a great many instances, especially when bought piecemeal.
Frequently, the purchased machinery fails to mesh well with existing Soviet
equipment, with other foreign equipment, or with Soviet inputs within a
production process. In part, this interface problem is a natural one. The
Soviet applied R&D sector, however, takes an inordinate length of time
to solve problems of compatibility in the civilian economy. In the case
of the Kama truck factory, where most of the equipment is being supplied
by numerous foreign firms, Western engineers estimate that several years
will be required to interface all of the equipment into an integrated
operation. By the time trucks roll off the assembly line, they will be obsolete
by Western standards.
77. The USSR's difficulties stem partly from a tendency to import
equipment that is too advanced for rapid assimilation, given existing levels
of domestic technological development. This overreaching is especially
evident in the computer field but extends into other sectors such as
production of color television sets. In 1968 the USSR purchased from a
US firm a complete package of very advanced automated machinery and
technology for the fabrication of shadow masks for color television tubes,
capable of supporting an output of one million color television sets annually.
9. For a number of reasons, the rate of increase in the productivity of labor and capital inputs
fell off abruptly in the 1960s. Looking into the future, Soviet leaders recognize that the rate of
economic growth will not trend up again unless increases in productivity can be accelerated. Because
of lower birth rates, the labor force will eventually grow more slowly while the expansion of plant
and equipment is becoming harder to sustain in the face of competing demands for consumer goods.
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By the end of 1971, despite a year's training in the United States for four
Soviet technicians, the equipment still was not operational, and, in fact,
had suffered severe damage through improper operating procedures and poor
maintenance. Thus the Soviets were forced to procure, at a cost greater
than the original purchase price, additional technical assistance and parts
to restore the line to its original condition. This line, now operating at
only a fraction of its rated capacity, is a major bottleneck in Soviet
production of color television sets, which in 1972 reached a level of only
200,000 a year.
Secrecy
78. As a result of Soviet reticence to supply foreign companies with
information on how the imported machinery is to be used, purchased
Western machinery is sometimes less productive than it otherwise would
be. The Kama plant is an example; the buildings at the truck plant are
standing, and foreign equipment will have to fit into space allotments that
have already. been designated. Yet foreign suppliers have been hindered in
obtaining useful drawings of the factory and in obtaining permission to
visit the site. Where security is considered critical, the USSR would rather
forgo a purchase than release details necessary to make an interface possible.
For this reason, purchases of aircraft navigation equipment, radar
equipment, and the like have been deferred in the past.
Labor Quality
79. Assimilation of foreign technology also depends on the quality
of the labor force. Soviet workers must first master the unfamiliar and
complex foreign machinery; therefore, many foreign-built plants reach rated
capacity only after lengthy. delays. For example, the huge FIAT-equipped
passenger car facility in Tol'yatti became fully operational about 2 years
behind schedule. A major factor retarding assimilation of the technology
was the quality of the Soviet labor force. Soviet workers frequently shut
down an entire line to make minor adjustments to a single piece of
machinery. Despite intensive training in Italy, technicians commonly
reassembled machines improperly after repairs, and workers were casual in
their approach to the maintenance of precision machinery. Supervisory
personnel at the working level, reluctant to make even minor decisions,
bucked upstairs virtually all problem-solving decisions.
Spare Parts
80. To keep foreign plants and equipment operating, the USSR needs
a steady supply of spare parts and solid maintenance programs.
Shortcomings in these areas have often put foreign equipment out of
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commission. Foreign-made spare parts seem to be purchased only for
high-priority industries such as the chemical industry. Industries with lower
priority apparently get no foreign exchange to buy spare parts. Because
of the shortage of foreign spare parts, low-priority industries may favor
less modern domestic machinery or East European machinery, even if hard
currency is available for the purchase of original equipment from the West.
Cost of Turnkey Plants
81. Because of its problems in digesting imported technology
piecemeal, the USSR, as indicated earlier, has turned increasingly to the
purchase of turnkey factories. Foreign firms design the factory, supervise
construction, and are responsible for the selection and installation of
equipment; Soviet workers assume control once the plant is operating.
82. Turnkey plants have not proved to be a completely satisfactory
answer to the USSR's difficulties with foreign technology because they are
too expensive to buy on a massive scale and because they do not resolve
all of the interface problems. As in tl.e case of the FIAT plant, the Western
plants often require labor skills in construction and operation that exceed
the skills available on site in the Soviet Union. In addition, as the Soviets
found in taking over Western-built chemical plants, the processes sometimes
demand raw and semi-finished materials of a quality that the domestic
economy is not prepared to supply.
Management
83. It should be noted, too, that the Soviets' relative lack of
experience in managing large complexes of very modern technology may
cause problems. Soviet managers have been trained to concentrate an
meeting narrowly'defined production goals in an organizational environment
that does not promote the coordination of many complex parts. Western
corporate management has invested heavily in specifically training
middle-level managers in problems of complex organization before advancing
them to higher levels. The Soviets have displayed much interest in importing
these Western management techniques.
The Impact of US Technology
84. An assessment of the Soviet gains from technology transfer under
detente should consider both the economic and the military gains. On either
count, assessment is risky, primarily because measurement of technology
transfer is elusive. First, we do not fully understand the present Soviet
capability in some of the key areas for cooperation, so it is hard to judge
their needs and their ability to exploit the know-how they might receive.
Second, no satisfactory methodology exists for assessing the d .gree and
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consequences of specific examples of technology transfer. Third, in the case
of the bilaterals, Soviet gains depend to a great extent on the actions of
the individuals involved at or near the working level, particularly on the
US side - all of whom appear to have considerable latitude. Last, in the
case of the cooperative ventures and joint research involving US industry,
proprietary considerations will play a part, and each firm will have to decide
for itself how much technology it is willing to reveal or supply and what
it expects to receive in return. The judgments set out below are therefore
tentative.
85. So far, the impact of rising Soviet-US.trade on Soviet economic
growth has been small. The volume of trade has not been large enough
to have an appreciable effect on the Soviet economy. If trade and bilateral
contacts continue to develop, the benefits to the USSR will accumulate. 10
For several reasons, the increasing US-Soviet economic ties are likely to
be useful but not decisive in the efforts of the Soviet leadership to deal
with domestic economic problems.
The Question of Leverage
86. First of all, the United States has strong competition in supplying
technology to the USSR. To some extent, the growing importance of the
United States in Soviet machinery imports is politically motivated, not a
technical necessity. US companies are the preferred sources of automotive
equipment, oil field equipment, both computer hardware and software, and
civilian aircraft technology. In. other areas, such as oil field equipment for
Arctic exploration, the United States is the only technology source in the
eyes of the Soviets. The Soviets are also seeking equipment and know-how
from the United States in numerous other specialized areas such as
cryogenics, air traffic control, and advanced metallurgical processing. If
contracts cannot be reached with US companies, however, the Soviets
recognize that other countries often can provide technology that is as good
or almost as good. The USSR has had success, for example, in buying
computer hardware and some kinds of automotive equipment and machine
tools from Western Europe and Japan.
The Quantity of US Technology
87. Projections of US-Soviet trade suggest that the amount of
technology the USSR will receive in the form of imported machinery will
10. The United States, of course, will obtain substantial economic benefits in the form of hard
currency earnings from its exports and alternative (and sometimes cheaper) sources of imported
commodities. As indicated in the Introduction, this report does not attempt to strike a net balance
of gains.
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be small relative to total domestic investment. In the 197 1-75 plan period,
for example, American machinery will be equal in value to no more than
1% of the equipment installed in industry and will be less than 1/2 of
1% of all investment in equipment in the whole economy.
88. In specific narrow sectors, of course, the acquisitions of US
technology and machinery will have a relatively large impact. For example,
the ammonia plants now on order from the West incorporate Kellogg
technology, which is far more advanced than Soviet technology. By thc,
time they are completed, they will have a capacity of 8.7 million tons
per year. Operating through the 1980s, these plants would save the USSR
between 2 billion and 3 billion rubles, compared with the cost of building
and operating ammonia plants like those they already have. 11
The ,Speed of Assimilation
89. Because the quantity of embodied technology transferred from
the United States will be limited, greater weight attaches to its qualitative
impact. The imported machinery will be more productive than the
machinery available domestically, but clearly the contribution of US
machinery will be limited unless it can be duplicated and adapted on a
wide scale. Similarly, the technology acquired outside the trade channel
through direct and indirect contacts must be translated into blueprints and
brought to series production. Thus the efficiency of assimilation will be
critical in determining the effect of US technology on Soviet economic
performance. But, there is no indication that the USSR's record with respect
to assimilating foreign technology will improve markedly in either the short
term or the medium term.
The Allocation of the Detente Dividend
90. The technology transferred to the USSR will permit larger output
with the same amount of resources or, perhaps, the same output with fewer
resources. In either case, the additional resources present the leadership with
a policy choice - how to allocate this dividend among consumption,
investment, and defense. Some assessments of the effect of technology
transfer on economic growth or military spending assume that the freed
resources are allocated all to investment or to defense. While the Soviet
leaders are continually faced with the problem of balancing defense needs
against their economic objectives, defense has traditionally been afforded
the highest priority claim on the resources of the Soviet economy.
11. Such a saving is roughly equivalent to recent annual total investment in the chemical and
petrochemical industries, or alternatively may be compared with estimated total output of chemical
fertilizers during the 1980s of about 35 billion rubles.
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91. Recently, however, Moscow's announced policy has been to pay
more attention to consumer needs. This reorientation in favor of the
consumer was demonstrated concretely by Moscow's willingness to buy so
much Western grain in 1972-73. A policy trend in favor of the consumer
can also be detected in the allocation of national product. The share of
GNP devoted to consumption fell from 67% in 1956 to 59% in 1964. Since
then, however, the consumption share has been maintained at about 60%.
In addition, many of the most expensive investment programs - notably
those in agriculture and the chemical industry - will benefit the consumer
primarily. Because of the commitment to improving the population's
standard of living, additional resources will probably ultimately be used
mainly for producing consumer goods.
Military Capabilities
92. The USSR is pursuing vigorously a program to modernize its
strategic weapons systems. This program had its origins in the mid-1960s
before the onset of detente and the signing of the SALT agreements but
has continued unabated to the present time. The program seeks to introduce
advanced technologies along the lines pursued earlier by the United States
and incorporated into US offensive systems - for example, multiple
independently targetable reentry vehicles (MIRVs) and computer-controlled
in-flight navigation and guidance systems for ICBMs.
93. It is well documented that since World War II the Soviet Union's
military-strategic capabilities have benefited from advances made by the
United States. The USSR acquired US military technology by espionage
and theft, capture of equipment in wartime, and purchase from other
countries who evaded COCOM controls as well as by close scrutiny of the
open literature. These efforts have continued in the detente era.
94. Nevertheless, this way of acquiring US high-technology hardware
and know-how with potential military applications is often incomplete and
does not give the USSR capabilities equivalent to those the United States
enjoys. As in the case of civilian technologies, the Soviets have had only
mixed success in mastering and replicating the production technologies
involved - and, in general, the more complex the manufacturing technology,
the less creditable have been their accomplishments. In addition, controls
on the export of military-related technology to the USSR have been
reasonably successful, especially in the high-technology fields in which the
United States has had a pronounced competitive advantage. In assessing
the military benefits of detente to the Soviets, then, the following questions
should be addressed.
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? Is detente opening up new channels for the transfer of US
military-related technology to the USSR?
? Is detente affecting the flow of US military-related
technology to the USSR through existing channels?
Benefits to Date
94. Soviet military capabilities probably have not yet been affected
by the US-Soviet detente in spite of the numerous developments that have
taken place since early 1972. It is true that personal contacts between
Soviets and Americans in government, academic, and, most importantly,
industrial areas have increased substantially during this period. And Soviet
imports of machinery have expanded markedly during the detente period,
with contracts already signed pointing to still greater exports of equipment
to the Soviet Union. At the same time, the list of American firms that
have agreed to cooperate with Soviet organizations in science and technology
is growing week by week. Thus far, however, the trade, contacts, and
technical agreements have not transferred discernible amounts of military
technology. American firms have been relatively cautious so far in dealing
with Soviet delegations in sensitive technological areas. While export controls
have been relaxed, the critical areas of military-related technology have not
been affected appreciably. For example, the USSR is receiving help for
a backward computer industry, but the aid has not yet included technology
vital to advanced weaponry.
Potential Benefits
95. Two years of detente marked by traditional Soviet opportunism,
however, have laid the groundwork for the possible transfer of important
military-related technology to the USSR.
96. The cooperation agreements between American firms and the
USSR have opened up a new channel for the potential transfer to the USSR
of technology having ultimate military applications. Many of these firms
produce military or military-related equipment. This new channel, therefore,
could provide the USSR with valuable help through informal contacts, the
supply of finished equipment, or cooperation in R&D. Soviet initiatives
to US aircraft, computer, and metallurgical companies are of special interest
in this connection.
97. The flow of technology through existing channels -- trade,
technical exchanges, and the like - could also expand to encompass
military-related technology. Under detente, the attitude of US firms doing
business with the Soviet Union has changed. They are now requesting
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government approval for the sale of production technologies that they would
not have considered supplying to the USSR a few years ago. Some Soviet
acquisitions that are not now banned by export controls, moreover, could
be adapted in time for military purposes. Quality control procedures and
the employment of computers in managing complex development projects
are examples.
.98. Finally, detente is likely to improve Soviet prospects for obtaining
military-related technology by lowering barriers in third countries. To the
degree that the United States relaxes its controls on the export of strategic
goods, other countries will almost certainly let their standards fall to even
lower levels. The COCOM partners of the United States have generally been
less strict in applying controls, and they are strong competitors in some
of: the advanced technologies that the Soviets are seeking.
99. In short, the changes in US-Soviet relations under detente have
the potential to upgrade Soviet military capabilities. The flow of technology
already touches militarily significant areas in the computer and electronics
fields. Whether the full potential is realized depends in part on the care
with which US firms, scientists, engineers, and technicians treat the
developing contacts. Moreover, the guidelines set and administered by the
US Government will be influential in determining private attitudes and
decisive in limiting the transfer of military-related technology.
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APPENDIX
SOVIET SCIENTIFIC AND TECHNICAL COOPERATION
AGREEMENTS WITH US FIRMS*
1. American Can Company announced on 20 December 1972 that
it had signed a three-year agreement with the Ministry of Engineering for
Light and Food Industry and Domestic Appliances. The agreement covers
all aspects of container and packaging technology involving various segments
of American Can operations, but centers initially on high-speed can
manufacturing. The agreement reportedly stipulated an exchange of
technical information and specialists and a feasibility study regarding the
Soviet purchase of American Can high-speed equipment for manufacturing
tinplate cans.
2. Armco International signed a five-year cooperation agreement
with the SCST in December 1973. The agreement covers ferrous metallurgy
and off-shore oil projects, but Armco reportedly hopes the agreement will
spur a favorable Soviet decision on Armco's proposed projects, including
a $1.2 billion polyurethane complex for which Armco would be the prime
contractor.
3. Arthur Andersen and Company signed a protocol with the SCST
in Moscow on 25 May 1973. The agreement provides for the Andersen
accounting firm to hold a series of seminars in the USSR.on such topics
as production accounting, information systems, auditing and accounting
operations, and taxation. In addition, the agreement provides for Soviet
experts to visit the United States in an exchange program with the firm.
The Anderson Company also hopes to receive permission to open an office
in Moscow.
4. BASF Wyandotte Corporation, a member of the worldwide BASF
Group of chemical companies, signed an agreement for S&T cooperation
with the SCST on 17 July 1972. The five-year agreement calls for exchanges
in various fields, with the interests of several technical ministeries to be
coordinated by SCST. .
5. Bechtel Corporation on 2 July 1973 signed a five-year S&T
cooperation agreement with SCST. The agreement covers all branches of
heavy industry and calls for transfer of technology. The USSR reportedly
is most interested in the energy operations of Bechtel.
* The information available in these agreements is sketchy. Many of the firms no doubt regard
detailed information as proprietary.
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6. Brown and Root, Inc. signed a five-year agreement with the SCST
in May 1973. The agreement provides for the exchange of S&T information,
documentation, and production samples; exchanges of delegations and
specialists and trainees; organization of lectures and symposia and
demonstration of production samples; mutual consultation to discuss and
analyze S&T problems, principles, ideas, and concepts; joint research and
development; exchanges in research results and experience; and joint
programs and projects anywhere in the world. Other forms of cooperation
are to include exchange, acquisition, or transfer of methods, processes,
know-how, and/or licenses.
7. Control Data Corporation in October 1973 signed a 10-year
cooperation agreement with the SCST. The agreement could include
cooperation in the joint development of a technically advanced computer,
computer peripheral equipment, and information processing systems. Other
areas of cooperation may include software development and
communications equipment.
8. Dow Chemical is believed to have signed a standard five-year
cooperation agreement with the SCST in mid-1973. Dow had proposed a
draft for such an agreement in 1972.
9. Dresser Industries' subsidiary, American Petroleum Service
Division, in early November 1973 signed a five-year S&T cooperation
agreement with the SCST. An official of the Oilfields Products Division
of American Petroleum signed the agreement that provides for the exchange
of information, delegations of specialists, product samples, and research
results as well as joint R&D and implementation of programs and projects.
Initial cooperation is to be in increasing Soviet well-logging efficiency. A
licensing agreement has also been signed for Soviet production of a
Dresser-Clark model compressor.
10. Food Machinery Corporation (FMC) in November 1973 signed
a five-year cooperation agreement with the SCST. The agreement covers
joint R&D of farm machinery and agro-industrial plants and cooperation
in the food industry, production of soft drinks, packaging materials and
machines, and mining equipment. FMC is also negotiating with
Traktoroeksport for an order, expected to be worth almost S3 million, for
a complete set of machinery for growing and processing fruits and
vegetables.
11. General Dynamics Corporation and the SCST signed a five-year
S&T cooperation agreement in September 1973. The agreement involves
cooperation in the manufacture of telecommunications equipment,
computers, computer-operated microfilm equipment, asbestos mining and
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processing, commercial and special-purpose aircraft, ships and shipbuilding,
and navigation and weather buoys.
12. General Electric and the SCST on 12 January 1973 signed a
wide-ranging agreement for general scientific and technical cooperation.
Power generation technology, including steam and gas turbine and nuclear,
was identified for immediate attention. The agreement also calls for
exchange of specialist delegations, information, and production samples; for
exchange, acquisition, or transfer of licenses; and for joint R&D projects.
GE had signed two previous agreements, one with the Ministry of Heavy,
Power, and Transport Engineering in April 1972 for the exchange of R&D
on gas turbines and one with the Ministry of Electrotechnical Industry in
October 1972 for exchange of R&D on current commercial projects.
13. Hewlett-Packard signed an agreement with SCST on 28 May 1973
involving cooperation and exchanges on computers and other electronic
equipment and technology.
14. International Telephone and Telegraph (ITT) on 12 June 1973
signed a five-year S&T cooperation agreement with SCST. According to
ITT, the agreement provides for a trading of knowledge in four fields -
telecommunications, electronic and electromechanical components,
consumer products, and publishing of S&T data.
15. Joy Manufacturing Company signed a cooperation agreement with
the Ministry of Heavy, Power, and Transport Engineering on 25 July 1972.
The agreement provides for the exchange of technical licenses, scientific
documentation, and the results of R&D in the manufacture of mining
machinery. Exchanges of delegations of specialists also are expected.
16. Litton Industries has proposed and may have signed a general
S&T cooperation agreement with the SCST. Any agreement would cover
a wide range of technology, including electronic, chemical, and machine
building.
17. Monsanto Company signed a five-year S&T cooperation agreement
with the SCST on 9 October 1973. The agreement covers cooperation on
computer applications in the chemical industry and the developmer_1: of
products for rubber compounding. It also envisions exchanges of
information and delegations of specialists and the joint development of new
products and projects.
18. Occidental Petroleum signed a broad S&T agreement with the
SCST on 14 July 1972. The agreement provides for the exchange of S&T
information, documentation, specimens of products, delegations, and
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trainees; arranging reports, symposia, and mutual consultations with a view
to discussing and analyzing S&T problems; joint research, elaborations, and
tests; carrying out joint programs and projects; and exchanging the
know-how and licenses to manufacture products. The areas of cooperation
include production and processing of oil and gas; production of agricultural
fertilizers and chemicals; and metallurgy, ecology, and construction.
19. Singer Company on 11 September 1973 signed a five-year
agreement with the SCST for S&T cooperation and possible manufacture
of Singer products in the USSR. Initially, the accord calls for cooperation
in the fields of data collection and data communications, education and
training devices, aerospace and marine products, electronic instrumentation,
advanced sewing technology, textile machinery, climate control equipment,
industrial control equipment, and metering equipment. The agreement
covers the exchange of information, specialists. and production samples and
joint research, development, and testing. Singer reportedly expects to deliver
to the USSR computers, household appliances, cash registers, and navigation
equipment.
20. Stanford Research Institute on 18 September 1973 signed a
five-year agreement with the SCST to exchange scientific and economic
information. The agreement provides for exchanges of experts and joint
participation in a series of studies on business opportunities. Areas for joint
work are in determination of international business potential, arrangements
of international industrial conferences, application of S&T to develop the
economy and industry, and technical and economic estimation of various
measures in which Soviet, American, and international firms participate.
21. Union Carbide is believed to have signed a standard five-year
cooperation agreement with SCST in mid-1973. Union Carbide had
previously notified the SCST of its willingness to discuss such an agreement.
22. Kaiser Industries signed a five-year S&T agreement with SCST
on 23 January 1974. It calls for cooperation in alumina-aluminum
production; iron ore mining and pelletizing; coke, iron, and steel production;
metal products fabrication; and other areas.
23. Lockheed signed a five-year S&T agreement with SCST on
31 January 1974. It calls for cooperation in-navigation systems. civil aircraft
construction, air traffic control systems, oceanographic apparatus, and other
areas.
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