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NATIONAL INTELLIGENCE ESTIMATE
CONSEQUENCESELAXATION OF NON-COMMUNIST CONTROLS ON TRADE WITH THE SOVIET BLOC
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Intelligence Advisory Committee concurred In Mil estimate on IS March tin. See. however, footnote ol the Dlreetar ol Saial Intelligence, and the Assistant Chiel ol. Department ol thend th* Deputy Director lor InteOtgeiee. Tht Joint Staff, tot and It. Tht FBI abstained, th* subject bring ovtstdtts jurisdiction.
The tallowing member organisations Ol the Intelligence Advisory Committee participated with the Central Intel-hgence Agency In the preparation ol thii estimate- The intelligence organisations ol the Departments ol State, the Army, th* Haey. tke Atr Force, and The Joint Staff
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CONSEQUENCESELAXATION OF NON-COMMUNIST CONTROLS ON TRADE WITH THE SOVIET BLOC
THE PROBLEM
To estimate the economic, strategic, and poUtical consequences to the Soviet Bloc and the non-Communist worldelaxation of non-Communist controls on trade with the European Soviet Bloc (USSR and European Satellites).
SCOPE
This estimate is addressed to the general consequencesrogram of theand magnitude indicated in the Assumptions and docs not isolate the specific effects of decontrol of particular items.
ASSUMPTIONS
By "relaxation of non-Communistis meant the elimination ofand quantitative controls onto the European Soviet Bloc of all goods except the following, uponomplete embargo will be maintained:
and war equipment asthe international "Reference"List;
energy materials and
limited number of itemsequipment andincorporateand unique know-how;
fast merchant ships,specialized kinds of ships;
few metals such asand nickel ofreatof thc total world supply isin the Free World; and
ndustrial diamonds and selected manufactures incorporating them.
Present non-Communist controls on trade with Communist China would be maintained.
The US would not impose morecontrols on trade with the Bloc than its allies did.
Aaiy approach to the problem ofWorld trade must be made in the light of the estimate ofnd, which conclude in(a) that there is no sign that thc
ideological dynamism of the Communist regime is abating; (b) that thchostility of the Communist rulers toward the Free World remainsand (c) that their basic objec-
tJUOIt'D***
continue lo be an expansion ol their own sphere of power and the eventual domination of the non-Communist world.
Communist proposals and actions in the poUtico-economk field must beas designed primarily for theof their basic objectives. One of these-major objectives is the promotion of seJi-STUTlciency within the Bloc Bloc trade practices are only in part governed by the normal trade purposes of non-Communist countries.
Non-Comjnunist export controls have hampered the development of Blocand miliiary power. The volume of trade between the European Soviet Bloc and thc non-Communist world has declined by aboutercenthis decline has been partly caused by export controls. It has also been caused, in part, by Bloc policies of self-sufficiency and integration of the Satellites into the Bloc trading area.
The relaxation of non-Communiston trade with thc European Soviet Bloc would probably produce an increase in Bloc imports of decontrolled Items on the order of one-half billion dollarsbut the volume of such imports mightear or two range as high as one billionear.
Relaxation of non-Communist trade controls would increase Bloc economic capabilities. However, the over-all effect would probably not be significant
estimated Increase in Blocwould be small relative to Blocand
adjustments tocontrols and general Blocself-sufficiency under controls
have almost certainly reduced Bloc needs for the categories of goods which would be decontrolled.
The assumed program or relaxation of controls would improve the Bloc'sposition. There are almost certainly various bottlenecks in the Bloc economy which would be relieved by theof the items assumed to beCertain scarcities would beIn these ways the Bloc economy would gain advantages from theHowever, since we estimate that the assumed relaxation of controls would not significantly increase the total Bloc output ol goods and services and would be unlikely to increase the proportion of that output devoted to militaryor use, the increase in total Bloc military potential would almost certainly be small'1
Certain strategic gains would accrue to the Blocelaxation of non-Communist export controls, particularly in the short period following decontrol
1 The Director ol Naval Intelligence, thc Assistant Chief of. Department of the Army, and the Deputy Director for InteHlEcnce. The Joint Staff, believe that the last sentence ofshould be amended as follows:
"However, since we estimate that therclaxaUon of controls would not slg-nlflcanUy Increase the total Bloc output of goods and services and would be unlikely to Increase the proportion of that outputto military produeUon or use, theIn total Bloc military poteaUal would probably be smalluanUtatlvc basis. Qualitatively this Increase resulting froa the assumed relaxation of controls could provide slgnlflcanUf Important addlUons to Bloc military capabilities."'
'It must be borne In mind that under any sjstcm of trade controls, there Is always dancer that Individual Items capable of conferring strategic advantage may be obtained by thc Bloc. This dancer might be Increased by lelaxaUon of
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value lo the Soviet Bloc would be increased if Bloc leaders anticipate the outbreak of general war in the nearOver thc long run Bloc military capabilities would be somewhat enhanced by the slightly higher rate of economic development and the greater flexibilityelaxation of non-Communist trade controls would make possible.
Increased trade with the Blocupon relaxation of controls would have no significant direct economic effect on the US andodest over-alteffect on the non-Communist world. However, some Western European countries would anticipate significant economic gains from expansion of trade with the Bloc. It is improbable that such trade as Is likely to result from the relaxation of export controls would have any significant effect upon the military potential of the non-Communist world.
The relaxation of non-Communiston trade with the European Soviet Bloc, including the Soviet Par East, would considerably reduce theof existing non-Communist controls on trade with Communist China. In this situation, maintenance of these controls
would cause resentment in thccountries with an economicin trade with Communist China, particularly Japan.
he governments of most countries participating In the non-Communlstcontrol system now believe that the effect of present controls on Soviet Bloc power is disproportionately small into the domestic politicaland the loss of trade opportunities which these controls entail. The present arrangements are,rowing source of irritation and impatience with US leadership and of differences between other members over relative stringency of controls and enforcement. If controls are maintained as at present, dissension over them will contribute to theof certain non-Communistfor example France and Italy, to Bloc economic andelaxation of trade controls would probably influence the COCOM countries wliich favor it to be morein adrninistcring thecontrols, although pressures fordecontrol of individual items will probably recur.
DISCUSSION
OF NON-COMMUNIST EXPORT
CONTROLS UPON THE SOVIET BLOC
export controls,been developed progressively sincehave had some efTect in retardingBloc's over-all economicthc growth of Bloc militaryof these effects have been duo, inthe burden of the economicupon the Bloc by deprivation ofof strategic goods. The straineffecting these adjustments was greatestperiod Immediately following the Imposi-
tion of controls and has continued, though In diminishing Intensity. Growth of Blocpotential has been hindered also directly by controls upon the export ofarms and war equipment. Controls on arms and war equipment would not heby the program of decontrol assumed in this estimate.
t is probable that by this time the Bloc has carried out extensive adjustments to the imposition of non-Communlst export controls by reallocating scarce materials from the less stralegic industries, by developing substitutes.
and by providing new capacity (or production of formerly Imported goods. However, even after such adjustments have been made. It probably still costs the Bloc more to produce most of the controlled items than it would to purchase them In the markets of the non-Communist world. The Bloc's continuingfor certain Items controlled by the non-Communist export control system is clearly indicated, by the elaborate and costly means by which the Bloc seeks to Import these Items, By contrast, the Bloc has not. at least until recently, exerted itself to expand Its imports of consumer goods and other noncontrolled items.
Is evident, therefore, thatexport controls have hampered theof Bloc economic and militaryproblem fs to determine howeconomic and military power wouldby the assumed relaxation ofas well as to determine the effectsa decontrol program upon thestrength of the non-Communist world.
II. IEVEI ANO PATTERN OF TRADE BETWEEN THE BLOC AND THE NON-COMMUNIST WORID IN THE EVENT OF AOF TRADE CONTROLS
The Soviet Bloc
volume of trade between theSoviet Bloc and tliehas declined by aboutercentThis decline has been partlyexport controls. It has also beenpart, by thc Bloc policies ofIntegration of the Satellites into thcarea. II is unlikely that themake any important modificationbasic policiesonsequence ofof non-Communist tradeSoviet Bloc would probably not seek lothe importation of decontrolled itemslevel and pattern of the periodpreceding the imposition of controls.
e have estimated that. "The Bloc could almost certainly expand its external trade to. say, two or three times2 level without markedly retarding its progress toward self-
Most of thc goods that the Bloc Is currently and legally Importing are piobably Important enough to the Bloc so that their Importation would continue even after presently controlled Items became Hence the removal of controls would almost certainly result in an Increase in the total volume and value of Bloc importations from the non-Communist world, not simplyubstitution of new Imports for those presently purchased. To the extent that the efforts of the Bloc to maintain or to Increase trade with the non-Communist world have In the past been determined by the economic warfare objective of fostering dissension ln non-Communist countries over exportthe relaxation of controls would reduce the vigor of such efforts.
elaxation of controls on, trade with the European Soviet Bloc would permitChina to obtain the decontrolled Items via European Bloc countries. Communist China would thereby be enabled lo obtain from non-Communist sources commodities which It cannot now Import from such sources and which the European Soviet Bloc Isor unable to supply in adequateThe extent to which Communist China could obtain additional imports In thiswould depend on decisions of the Kremlin which would be affected by considerations of general Sino-Soviet relations, as well as by the increased ability of the European Sovicl Bloc to obtain decontrolled Items fromcountries. Moreover, the increase in trade between the European Bloc and the non-Communist world might also enableChina to develop additional exportIn non-Communist countries throughBloc countries and thus increaseChina's ability to pay for imports. These developments could not be prevented by present controls on shipping services and bunkers in connection with trade withChina, and would be facilitated if the relaxation of controls on trade with the Euro-
. -soviet Bloc Economic Warfare CapabiliUes and Courses ofaragraph 4.
pcan Soviet Bloc were to make non-Commu-nut ships more freely available for sale to European Bloc countries.
The Non-Communist World
conditions short of war or thethreat of war, It is likely thatproductive capacity In thewill result In increasing pressure tofor'the goods of the type whichdecontrolled- There will be enoughslack ln most non-Communlsteven to the absence of recession, tothem In Increased sales to theto supply additional exports on abasis may be assumed. In thea significant contraction of totalthe non-Communist world, the pressure to
find market outlets In the Bloc would Increase considerably.
Effect', of Relaxation of Controls upon the Level and Pattern of Trade
If the European Soviet Bloc responded to thc assumed relaxation of trade controls by resuming the Importation of decontrolled items at8 level, adjusted upward In proportion to tlie growth of the European Bloc economyhe annual volume of Bloc trade with thc non-Communlst world would probably undergo an increase on the order0 million. This calculation can only be takenough guide to the results of relaxation of controls. On the one hand. Bloc adjustments to non-Communlst trade controls and general Bloc progress toward self sufficiency under controls have almost certainly reduced Bloc needs for thcof goods which would be decontrolled. On thc other hand, it is possible that thc Bloc would take advantage of decontrol lo depart temporarily from its long-run policy ofexternal trade. In expectation of achieving self-sufficiency at higher levels of output In this event, Bloc trade with the non-Communlst world might,ear or two. exceed present levels by as much asillion.
In view of lhc time necessary for trade negotiations, production, and delivery, a
period of from two to three years wouldbe required before the maximum effects of the relaxation of controls were felt It is also probableonsequence of aof Soviet Bloc policies of self-sufflclency that there would subsequentlyecline in Bloc trade In relation to income and total world trade.
ow the Increase In Bloc Imports would be distributed among the decontrolled Items Is Impossible to determine. It is probable that the Bloc would be particularly Interested in Importing decontrolled Items In suchas precision Instruments, chemical equipment, electronic equipment, dieseland special-purpose ships. The Bloc would probably also desire to Import some Items of transportation equipment, certain types of ball and roller bearings and high alloy steel, certain types of lubricants and specialised petroleum products, and possibly some types of synthetic rubber. Metals wliich it is likely to wish to Importignificant scale include copper and possibly lead. The decontrolled goods which the Bloc would be most likely to want to buy would have to come mainly from Western Europe and the US.
III. EFFECTSELAXATION OF TRADE CONTROLS UPON THE SOVIET BLOC
Economic
lie over-all effect upon the European Bloc economy of the assumed relaxaUon of trade controls and the resultant increase in trade with the non-Communist world would depend upon the extent to which deprivation of the items proposed for decontrol limits Bloc output and Uie extent to which freeto non-Communlst sources of these items would stimulate the growth of Bloc output. Although il is clear that the Bloc wouldfrom decontrol of these items, themade by thc Bloc in response to the imposition of trade controls have gonefar to make the present importance for economic growth of imports of these Items less lhan it was at the time thc controls were imposed. Quantitatively, the effect upon the Blocontinuation of controls on the rale-
if rT.
proposed for decontrol Is the difference between what tt now costs the Bloc (In terms of economic resources) to procure those Items by all means (Including not only domestic production but also Illegal Imports andof premiumnd what those Items would cost If purchased lnmarkets ln the absence of conlrol. On this bajls it Is estimated that an increase of one-half to one billion dollars In trade ln the decontrolled items would resultetgain to the European Bloc of the order00ear, or aboutalfercent of European Bloc GNP.
are almost certainly variousln the Bloc economy which would be
.relieved by the importation of the Itemsto be decontrolled. Certain scarcities would be remedied. In these ways the Bloc economy would gain advantages from theWc believe It unlikely, however, lhat such expansions in individual sectors of the Bloc economy as would result from theImportations after decontrol would significantly modify the estimate of theto over-all Bloc economic capabilities as stated in
Stralegic
The Bloc wouldelaxation of non-Communlstcontrols which cannot be adequately measured by the comparatively slight effect whichelaxation would have on the growth of Bloc GNP or on militaryIf the increase In rate of growth of GNP were disproportionately concentrated In the fields of military and mil itary-supporting production, the Bloc wouldonsiderable strategic advantage from Its Increased access to non-Communist markets.
We believe, however, lhat the assumed program of relaxation of controls would not greatly advance the rate of growth of the Bloc's military potential, assuming controls lo be effectively maintained on thc categories listed in the Assumptions, and specifically on items consUtuting bottlenecks to military production. In the light of the various fac-
tors determining the Bloc's over-all allocation of resources, we believe that the assumedof relaxation of controls would probably not lead the Bloc lo Increase the proportion of Its resources allocated to military use. Since we estimate that the assumed relaxation of controls would not significantly increase the total Bloc output of goods and services and would be unlikely to Increase the proportion of that output devoted to military production or use, thc Increase in total Bloc militarywould almost certainly be small.*
ertain strategic gains would accrue to thc Blocelaxation of non-Communlst export controls, particularly ln the short period following decontrol. The opportunity to build up strategic stockpiles of suchas copper and lead, to acquire certain kinds of machinery and equipment, and to build up Its merchant fleet, would beuseful If the Bloc anticipated the outbreak of general war* In the near future. Over thc long run Bloc military capabilities would be somewhat enhanced by the slightly higher rale of economic development and the greater flexibilityelaxation of non-Communlst trade controls would make
Political
he relaxation of non-Communlst export controls as assumed would not significantly affect the political cohesion of the European Soviet Bloc. However, the continuation of
'Trie Director of Naval Intellieenee. UM Assistant Chief of. Department of Uie Army, and thc Deputy Director for Intelligence, The Joint StafT. believe that the last sentence of paragraphbould be amended as follows:
"Si act we estimate lhal thc assumedof controti would not stgrilncanUythe total Bloc output of foods and services and would be unlikely lo Increase Uie proportion of Uiat output devoted to military producUon. or use, the Increase In total Bloc military potential would probably be smalluaaUlaUve bmv Chuiiuuvely thU increase resulting from Uie assumedof conliols could provide tlfinlflcantly important additions lo Bloc military capa-untie*.*
'See, -Likelihood of Orneral War ThrouthIS February IM4._
1)
present control* over trade with Communist China might occasion some friction between China and thehe Kremlin exploited its monopolistic position as agent (or Chinese purchases o( decontrolled Items. While the Bloc would probably regard the relaxation of controls as In part removing an important target of psychological warfare In the non-Communist world. Bloc propaganda wouldcertainly attempt to portrayictory for the Communist "peaceloc economic planners, although they would be quick to takeof the opportunities offered to increase imports of scarce items, would nevertheless be inclined to view the relaxation with suspicion and (or some time after would be preparedeversal of non-Communist trade policy. The fundamental hostility of Bloc leaders to thc non-Communist world would remain
IV. EFFECTSELAXATION OF TRADE CONTROLS UPON THE NON-COMMUNIST WO RID
Economic
The Increase ln trade between the non-Communist world and the Soviet Bloc which would result from relaxation of trade controls, would haveodest over-all economic effect on the non-Communist world. In the next several years, however, such an increase in trade would be attractive to some Western European countries. Although thceconomic position of most Westerncountries is now stronger than at any time in the postwar period. Western Europe is likely to have unutilized capacily in themetallurgical, and engineering industrics. Thcse industries could readily supply thein exports to the Soviet Bloc without curtailing exports to other markets. Some nonCommunistroducing countries would also be benefitted, but only moderately. Increased trade with the Bloc would have no significant direct economic eflect on the US.
Increased trade with the Bloc would,offer dollar-saving opportunities (or Western Europe. The Bloc could increase by
about one-thirdillion dollars Ils present exports to Western Europe of grain. Umber, suear, and other primary products to replace purchases from the dollar area. In addiUon Uie Bloc could sell gold to Western Europe ln thc event of an import surplus. Although dollar savings are less Important to Western Europe than formerly because of the improved dollar position of the area; they may become of increasing significanceS. It US economic aid and extraordinary dollardrop sharply.
ost of the underdeveloped countries In the non-Communist world stand to gain litUe economically from such trade as ls likely to result from the relaxaUon of trade controls, and may actually suffer an economic lossesult of such trade. On the one hand, the only strategic commodities of any economic significance produced by these countries which might be decontrolled are copper and lead. With decontrol Bloc imports of these and certain other minor items might amount to $SO million per annum at Uie most. On the other hand, the Bloc will seek to pay for its increased imports chiefly through sales ot primary products. These exports by and large will compete with the exports ofcountries in the non-Communist world and could depress already weakening prices for such products as wheat and
increase of trade betweencountries and Uie Bloc based on Blocof decontrolled items would, ifin certain of the weakercountries, tend toegreedependence In those countriesBloc which Uie Bloc could exploit forwarfare purposes.,
Strotegic
is improbable lhal sucti trade asto result from the relaxation ofwould have any significantthe military potential of Uieworld. Relaxation of controls might
See NIESoviet Bloc Economic Warfare CapaWliUes and Courses ofarch IBM,
contributeelaxation of tensions between the non-Communist world and the Bloc. Any significant relaxation of tensions wouldlead some non-Communist countries to reduce their military expenditures.
Political
he present International system ofcontrols commands at best lukewarm support in tlie non-Communist world outside the US. The other members of theCommittee for the International trade control program (COCOM) regard the present arrangements as no longer appropriateeriod of apparent relaxation of tensions and view them as disproportionately costly Into their effect upon Bloc economic and military capabilities. They consider that these measures will not in the long run make an appreciable difference In Soviet Blocrelative to the capabilities of tlic non-Communist world. They believe that in the short run the risk of general war. while not absent, is not great enough to warrantthe gains from trade which they believe would follow the relaxation of controls. These governments, moreover, are under frequent pressure from various business and labor groups to authorize particular transactions now precluded under existing international restrictions. The present arrangements are.rowing source of irritation and Impatience with US leadership and ofbetween other members over relative stringency of controls and enforcement
f controls arc maintained as at present, future COCOM deliberations both on policy and on questions of particular transactions will probably be marked by persistent UK reluctance to support the US position. Since the other members of COCOM have never been willing to go further than the UK and have generally followed the lalter's lead, the US will probably meet Increasing opposition and progressive erosion of the present controlthrough the gi anting of exceptions and
the relaxation of enforcement. However, the UK and the other members ot COCOM will almost certainly not choose to run the risk of breaching their relations with the US over the issue of trade controls.
controls are maintained as atover them will contribute to the
vulnerability of certain non-Communistfor example France and Italy, to Bloc economic and psychological warfare.
countries would probably findlist of strategic Items which wouldunder the assumed program ofeasier to administer andthe present lists, and the characteritems on the short list is such as toon the retention ofelaxation of tradeprobably Influence the COCOMwhich favor it to be more cooperativethe remaining controls,pressures for further decontrol ofitems will probably recur.
3G. The relaxation of non-Communiston trade with the European Soviet Bloc. Including thc Soviet Far East, wouldreduce the effectiveness of existing non-Communist controls on trade withChina. In this situationof these controls would causeIn the non-Communist countries with an economic interest in trade withChina, particularly Japan.
or some of the weakerarge expansion of trade with thc Bloc could increase Soviet political influence. We believe that the Bloc would make aof controls the occasion forits efforts to augment the size and number of Its overseas trade missions and establishments, and that somestales would permit such augmentation. Whatever success thc Bloc achieves In this regard will contribute to Its potential for espionage, subversion, and propaganda.
Original document.
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