SOVIET BLOC ECONOMIC WARFARE CAPABILITIES AND COURSES OF ACTION

Created: 2/24/1954

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NATIONAL INTELLIGENCE! ESTIMATE

SOVIET ELOC ECONOMIC WARFARE CAPABILITIES AND COURSES OF ACTION

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The IntcllUjtnet Adotsiru Comtutttee concurred in this estimate on The FBI abstained, the tubjtc!sulc t, iU jsrisdicttcn.

Thertcnoer oegan'icUons of the IntcUtjenct ACvt*orp Committee participated mirk the Central Intel' liacnrt Apencu in the proration of this estimate: The mUHtpcnci trcantzotlont ctcpnrtmenis of State, the Arety, the h'avf. the Airheic?.

CENTRAL INTELLIGENCE AGENCY

' Approvoa for Kol^aiS

4 :'. 9

ct-

SOVIET BLOC1 ECONOMIC WARFARE CAPABILITIES AND COURSES OF ACTION

fKUBLCfrt

To estimate Soviet Bloc capabilities in the field of economicto Free World to Bloc economic warfare measures, and probable Bloc

THE PROBLEM

aviet Blocorld to Bloc

courses of action.

DEFINITION

Economic warfare is defined in this estimate as the use of economic measures to alter the relative power positions and alignments of opposing nations or groups of nations. This can be done by affecting either the relative economic strength of the nations in the two groups or reducing the size and effectiveness of the opposing group by causing political defections or, what is more likely, dissensions. This estimate will consider only those Bloc economic measures

the Bloc's political position in the non-Communist world;

the dependence of non-Communist countries on Bloc trade;

non-Communist support for controls on exports of strategic goodsBloc; and

the economic strength of the non-Communist world.

CONCLUSIONS

economic warfare capabilities of effect on the non-CommunistSoviet Bloc lie primarily in its ability over-all economic capabilities andweaken the political cohesion within on its military capabilities.

the non-Communist world by:

to increase trade; (b) actual increases in be exploited by

trade; and (c) threats to cut off trade o crcate re peaceru! and that it desires

where it has been built

to cooperate with the non-Communist

Soviet Bloc has very limitedIf vigorously pushed andfor undermining the economicby Communist propaganda, astrength of theto expand trade with theby denying goods and servicesworld could result in athe non-Communist worldweakening of prevailing hostilethe Soviet Blocerytoward the Bloc. At the sameand quantity of imports.offers of increased trade, even ifthese goods would have ain any considerable increase of

, trade, couldd to aggravate the dis-

"Thr USSR. Communist China. North Korea.

in- Eaiitm Eurojxiaof some ncn-Communist

- oconDT

countries with the existing export control system and even to weaken the system itself.

The Bloc could almost certainlyits external trade to. say. two or three times2 level withoutretarding its progress toward self-sufficiency. Such an increase in theof trade could easily be made acceptable to the non-Communist world and trade with the Bloc would still bemall percentage of the total trade of non-Communist countries.

Even with such increases, Blocwarfare could not by itself be the decisive factor in determining theof non-Communist states on major issues in the struggle between the Free World and the Bloc. In certain countries whose trade with the Bloc is. or could be, cf considerable importance to theirstability, Bloc economic warfare could add to local Communist strength, intensify existing neutralist tendencies, cause disagreement with some Western policies, and make US leadership more difficult tc exert. Examples of countries where the Bloc might expect to achieve such objectives are Finland.taly, Egypt, Japan, India, Iran,esia. and Chile. However, even in these, countries trade relations with the Bloc' will be of only secondary importance for their over-all foreign policy.

Bloc's economic policies will beto its over-all policies bothand foreign, and will reflect aof opportunism andthe present, this method ofeconomic policy is resulting inotten to increase trade,in selected areas withincreases. During the nextthe Bloc will probably attempt to exploit economic warfare opportunities associated with increased trade ofXers.olicy would hold out political gains that could be obtained at no net economic cost to the Bloc. We do not believe, however, that the Bloc willeconomic warfare measuresa large scale increase in total external tradearge expansion of external trade would increasingly involve changes in the economy of the Bloc which Bloc leaders would be progressively less willing to accept.

The Bloc will probably continue to use gold to pay for an excess of imports, and this may be done in connection withwarfare efforts utilizing trade. We do not believe that the Bloc will make extensive use of currency or geld price manipulation, or commodity dumping, as economic warfare te^hniques-

There are many opportunities for Bloc economic warfare utilizing economic aid and technical assistance, and the Bloc will probably make further gestures of assistance lo underdeveloped areas ohere it would expect to obtain the maximum propaganda benefits Irom suchIt is unlikely, however, that the Bloc will carry out substantial programs of this type exceptelective basis.

Soviet Bloc economic warfare measures could be effectively countered without significant strain upon the over-allresources of the non-Communist world, if prompt agreement on counter-measures could be obtained. However, disagreements as to the seriousness of the threat of Bloc economic warfare, and as to countermeasures. could producepolitical strains within the non-Communist world

DISCUSSION

BLOC TRADE POLICY AND ORGANIZATION

Troditionol Bloc Trade Policies and

oviet policy makers have in the past given highest priority to theindustrial and economic strength and to UK achievement of economic self-sufficiency trade since the mid-thirties has been low. relative to output and resources Such external trade as the Soviet Union hasin has been strictly controlled so as toaximum contribution to theof Sonet strength and to the reducuon of economic dependence upon outside sources of supply- This wade has generally consated of exports of industrial raw materials and foodstuffs, often at great hardship to thepopulation, tn exchange for imports of strategic raw materials and machinery and other industrial products useful (or theof industrial self-sufficiency.

Bloc economic warfare efforts in the past have not been extensive. They hare, for the most part, been confined to measures taken against certain selectedYugoslavia. Iceland, and Finlandto continuing attempts to weaken and tonon-Communlsi export controls.

8 Soviet external trade has been administered bystate monopoly Stale trading corporations, directly controlled b> Moscow, have generally been organized to handle Soviet imports or exports of particular commodiUcs. but in some cases to handle all tradearticular area.

Satellite foreign trade has been similarly administered by state monopolies. Theof the Council ol Economic Mutual Assistance inepresenting the USSR and Its East European Satellites, was an important step in consolidating thecountries into an economic bloc. There has been increasingly detailed plannin; and direction ol Satellite trade irom Mcwow.

Soviet trade policy, with its rigemwover the Satellites, has fawned ta the concentrationery highof the trace of Bloc countnes within the Bloc. The increase in bolh the relative and abso-uicof this trade has been particularly marked since World War II. The volume of trade among countries now composing the Bloc increased by six to eight times7 7 it composedi9 percent of their total external trade and2 TOj percent. Onlyercent of the Sov.ct! Union's total external trade andercent of -external trade of the Satellites (including that of Communist China) was with theworld

China's trade with the restBloc would have increased in anyto the Communist policy of seekingdependence on trade withcountries. However, the Koreanstimulated this tendency, bothexport controls applied byand China's need form Russia.

Trends in Trode between the Bloc ond Non-Communist Countries

peak of Sonet foreign tradeeither in physical volume or incurrent prices) came during the yearsfirst Five-YearUSSR was importing large amountsequipment Irom the West.gradually decreased as dontesttagrew.

s postwar reconstruction progressed, trade between the Soviet Bloc and the non-Communist world (measured tn consun; prices) partially recovered, and8 it had reached about half8 level of trade between the same areas.ith the economic consolidation of the Bloc ami Lhe impositionn-Cornmunist trade controls it began to decline and2 had ftUtn tc .bout one-third of3 level. ThU trad.almost certainly less3 than2

lsc Intcres; In pmchas'.ng nnn-fitntfeg commcdi'icj from ncn-Communis: country

bas until recently been slight, in accordance with Bloc economic policies calling for the greatest feasible degree of self-sufficiency. Moreover, it is probable that for tbe same reason Bloc demand fortrategic goods would, on the whole, have remained low in relation to the pre-World War II level, even in the absence of non-Commumst export These controls have, however, Bloc imports of strategic goods and thus contributed to the decline of Bloc trade with non-Communist countries and to the modification of the pattern of that trade. Non-Communist export controls havereater effect upon the external trade ofChina than upon the trade of the remainder of the Soviet Bloc, but they hare not been the most important cause of China's rapid integration into the Bloc trading area.

Recentlthough there is no rridence that Bloc leaders have abandoned their emphasis upon industrial expansion, military preparedness, and self-sufficiency, the followingsince3olicy of increasing trade with the non-Communist world:

a. Bloc countries have recently madeoffers and have signed agreements totheir trade with non-CommunistIncluding several countries with which they had no previous tradeor example. Bloc countries have recently shown increased Interest ln trade with Latin America, South Asia. Egypt. Greece, and other parts of the non-Communist world. Trade agreements recently concluded for the first time between Bloc and non-Bloc countries include those between Bulgaria and India, and between the USSR and Argentina. The recent agreement between the USSR and France is the first

'See Schedules I. n. and IIIummary of data on recent trade agreements and other trade arraneemenis between the USSRCom-munist countries.mall proportion or total Soviet trade with the non-Communist world isnder such agreement* and arrangement..

some of these agreementsof non-Bloc consumer goods hareby the Bloc, while capital goods, stra-metals. petroleum, and increasedof primary goods have been allottedThe Bloc has already madeof goods of this type. Tradebetween Bloc countries andAmerican countries are goodthis development.

Bloc has recentlywillingness to use multilateraland to balance certain accountscurrencies. For example,has been selling gold for sterlingpurchases from the sterling areacountries. With Finland the USSRto settle its expected deficitnon-Bloc currencies.

ii. BLOC ECONOMIC WARFARE

BY MEANS OFrade Is potentially the most important instrument of economic warfare available to the Bloc. It is impossible, however, for the Bloc to wage economic warfare of seriousagainst the non-Communist world solely by shutting off Blcc exports of straiegle commodities, since theorld does not depend upon the Bloc for inch goods. Economic warfare through trade mustbe conducted by the Bloc mainly in tliree ways: (a) by offering to engage in increased trade with certain non-Communist countries; (b) by building up trade with certain non-Communist countries toevel as totate of dependence upon theot that trade; and (c) by cutting off or by threatening to cut off trade with non-Communist countries* By these means the Bloc may seek to achieve such objectives as weakening of nan-Communist export controls and reducing support for Western defenseBy increasing trade, or premising to increase trade, the Bloc might alio in certain countries and especially ln certain groups encourage mere favorable political attitudes and enhance the influence of local Commu-

-SceTrobsble Economic Eflects ot actrade"'2

nists. Where trade agreements resulted In the establishment of permanent Bloc trade missions in non-Communist countries, these missions could be used for purposes of political warfare.

Bloc has recently made severalto use increased trade or promisestrade for what appear to bewarfare purposes. At the MoscowConference innmade to use offers of increased tradedissatisfaction with Western, andwith US. controls on exports toCommunist China has bartered ricefrom Ceylon on terms moreCeylon could have obtainedcreating dissatisfaction in Indonesiawith export controls. Attractivemade by China to Japan haveconditional upon Japaneseship strategic commodities. Newagreements with Finland. Iceland,and India are almost certainlyto some extent by the desire topolitical position of the Bloc in theseand may have been drawn up within mind of creating dependencekinds and levels of trade withAll of these moves, except theConference, were also of directadvantage to the Bloc.

Bloc Capabilities for Engaging in Increased Trade with the Non-Communist World

Trade between the countries nowthe Soviet Bloc and the rest of the world was2 at about one-third of8 level (measured in constanthis reduction took place despite substantialin world production and trade.2 the Bloc gross national product was about one-third greater thann the same period the external trade of non-Bloc countries increased byercent, and intra-Bloc trade increased six to eight times.

We believe that there are economically advantageous opportunities for substantially Increased trade between the Soviet Bloc and the non-Communist worid.oubling, say, of2 level of such trade in the courseear or two would almost certainlyet economic gain to the Bloc and probably not significantly affect Blocoubling of this trade would increase Soviet Bloc imports byillion, or no moreercent of Bloc gross national product, and exports byillion. In view of thesmall magnitudes involved, Bloc leaders would probably not encounter any greatln disposing of the additional imports or in making the additional exports available. In their efforts to do so, they would enjoy the advantage of complete controlarge economy with great resources. Moreover, the economic Impact on the Bloc programsoubling of trade with the non-Communist world would be even less than indicated If part of the increase were accomplished by some rerouting of current intra-Bloc trade through non-Communist tradeloc leaders would probably encounter some obstacles to the expansion of trade with the non-Bloc world. The goods whichEuropean countries would be most willing to import from the Bloc, in order to saveare by and large agricultural products and raw materials. Before World War II such items were traditionally exported from Eastern Europearge scale in exchange for manufactured goods. It is unlikely,that the Bloc could restore this trade pattern. Industrialization has proceededIn the USSR and in some of the Satellites, while the output of Bloc agricultural products and raw materials has lagged behind therequirements of the Bloc itself. Any substantial future increase in external trade will probably have to involve increased Bloc exports of manufactured goods. Blocto increase its exports of manufactured goods to the non-Communist world woulddifficulties, at leastime, in the designing, production, and merchandizing of such goods in competition with WesternEven Czechoslovakia and Eastwould be hampered initially in such trade by the loss of former commercialwith the West. In addition, the Bloc's past trading practices have givenoor repuiatlon.

A doubling of2 level of Bloc trade with the non-Communist world, in anywhich such an increase would be likely to assume, would entail some temporaryof the Bloc's progress toward self-sufficiency. However, by stockpiling and maintaining standby capacity the Bloc could lessen Its vulnerability to subsequentof imports from the West. By carefully choosing exports and imports, the Bloc could probably also minimize any possible disruptive effect which increased trade would have on Bloc economic programs. Furthermore,of trade could help Ihe Bloc to realize its immediate program for increasing the availability of consumer goods and ultimately contribute to the achievement ofat higher levels of output.

The Bloc could probably expand itstrade to more than twice2 level without greatly retarding progress toward self-sufficiency, disrupting basic programs, orignificant reallocation of resources.urther expansion of external trade would increasingly involve changes In the economy of the Bloc which Bloc leaders would be progressively less willing to accept.

Receptivity of the Non-Communist World to Bloc Trade Offers

igh degree of receptivitynon-Communist countries toincreased trade with the Soviet Blocof the widespread belief that suchhelp to:

o- Eliminate or alleviate balance ofdifficulties;

o. Restore historically profitable trade

larger and more diversifiedand sources of supply, and in someprotection from the uncertainties ofmarket;

terms of trade; and

political relatione with theso postpone or avoid war. <Thewant to trade with both worlds asof their independence.)

Receptivity to Bloc trade offers will van-greatly from country to country and willas much on political as on purelyfactors. Most receptive to Bloc trade offers would be those countries which: (a) find it cufficult to satisfy their economic needs within the trading area of the non-Communist world; and <b) distrust the leadership of the Western Powers or leaneutralist position on Issues between the Sovtet Bloc and the non-Communisteneraliccession in the US or in theworldhole would almostIncrease non-Bloc interest in trade with the Bloc, dissatisfaction with controls onto the Bloc, and vulnerability to Bloc economic warfare measures.

On balance, we believe thai an attempt by Bloc leaders tooubling of2 level ef trade with the non-Communist world would probably succeed. It would meetavorable public response in many non-Corn-munis: countries, and would almost certainly result In net economic gain for the countries concerned.

Consequences to the Non-Communist

World of Bloc Economic Warfare by Means of Trade

most immediately effectivemeasures which the Bloc is likelywould be directed at theexport control system. The Sovietput pressure on the export controland cause international and internalin the non-Communist world byoffers of increased trade or byof small magnitude. If onestate yields to Blocundermine the export control system,of other states to similarwill increase, and the Bloc will findeasier to obtaino cause dissension in theworld over export controls

SI. If the total external trade cairied onihe Soviet Bloche nun-Communist

countries2 were doubled or tripled, it would still be only ft small percentage or the total trade of the non-Communist countries. However. If such an increase In trade were largely concentrated upon thosecountries which are most vulnerable lo economic warfare measures, It would cause an Important proportion of the foreign trade of those countries to be carried on with the Bloc. The economic stability of those countries might thus become dependent upon aof this trade- Under suchthe governments and peoples of those countries might become disposed to improve their political relations with the Soviet Bloc,onsequent weakening of theof the non-Communist world. Bloccould also exert pressure upon theof those countries by reducing, or threatening to reduce, the flow of trade.

Bloc economic warfareindividual non-Communistbe effectively countered withoutstrain upon the over-al! economicof the non-Communist world.disagreements as to the seriousnessthreat of Bloc economic warfare, and asmeasures, could producewithin the non-Communist world.other hand. If it could be madenon-Communist countries that thewas seeking to use trade to weakenand might eventually use it topolitical and economic concessions,result might be an increase incohesion and reduced receptivitytrade offers.

Economic Warfare Against Western Europe by Means of Trade

rade with the Soviet Blocfor lessercent of thetrade of the countries ofEurope. Those countries which inmoreercent of their totalthe Bloc arc listed below withthe Bloc and exports to the Blocpercent of total trade:

TRADE Wmi TKF BLOC AS PERCENT OF TOTAL INTF.RN ATIONAL TRADE OF CERTAIN WESTERN EUROPEAN2

Finland

Austria

Iceland

Denmark

IUlr

Norway

Swaziland

Because of special circumstances Finland and Austria carryarge percentage of their trade with the Bloc They are therefore vulnerable to economic pressures. Italy, which carriesuch smaller proportion of ita total trade with the Bloc, is alsobecause of widespread unemployment, especially in industries producing strategic goods, and because of local Communist strength.

Western European countries are generally recepuve to Soviet Bloc offers of increased trade. Thereidespread and frequently exaggerated belief in the possibilities forol trade with the Bloc-

ome Western European countries have serious export marketing problems because of overvalued currencies or high production costs in specific industries. Finland. Austria, and Italy, for example, have many high-cost producers of metal products who areinterested in Bloc markets and whoexpected to become more Interested if the demand for their products diminishes in non-Communat markets. The Soviet Bloc hasbrought pressure to bear onn attempt to force Italy to relax its exportand to create discord between Italy and the US. Poland and Czechoslovakia havedeliveries of coal to Italy and have made the restoration of the former volume ofconditional upon the export of strategic goods.

Bloc Economic Warfare by Means of Trcde with tho non-Communist Far East

he non-Communist countries uf the Far East arc not new heavily dependent upon

trade with the Soviet Bloc. Current trade between these countries and the Bice amounts toercent of their totaltrade. Four-fifths of their trade with the Bloc is with Communist China and one-fifth with the European Soviet Bloc. Most non-Communist countries of this area are highly receptive to Bloc offers of increased trade, and thereidespread feeling that the existing export control system Is

Japan offers an important target for Bloc economic warfare by means of increased trade. Many Japanese look upon increased trade with the Blocanacea tor their current and prospective economic difficulties, and as an essential to the development of apolitical position in Asia. These hopes, however, are based on what we believe to be overoptimistic estimates of the possibilities of expanding trade with the Chinese mainland. We do not believe that Japan's annual trade with Communist China, even with the removal of present restrictions, and with an Intensive trade promotion effort on the part of the Elcc. could amount to more0 million each way. This wouldne-third increase in Japan's current level of total exports. Trade on this scale would by no meansanacea, but it would contribute substantially toward easing Japan's economic problems.

More concrete and attractive Communist trade overtures to Japan can be expected to increase agitation in Japan for the relaxation and ultimate removal of restrictions on trade with the Soviet Bloc. Such overtures would almost certainly strengthen neutralist groups in Japan and those forces that are determined to reassert Japan's independent position in respect to world problems.

Some of the other Southeast Asianwould be targets for Bloc economicprincipally because they might hope to And tn the Bloc additional export outlets for their surplus stocks of rubber and rice.in Burma and Indonesia, trade with the Bloc is viewedesirable step toward the relaxation of international tensions tn Asia. There may be some skepticism about the practical possibilitiesatisfactory trading relationship with the Bloc in view of past failure of publicized Bloc offers of trade and assistance to materialize. However,has recentlyrade agreement with Communist China which may result in some shipments of rubber, and Burmais negotiating trade agreements with both Communist China and the USSR. Finally Communist China can apply some economic pressure on the UK by manipulating Its trade with Hong Kong.

Bloc Economic Warfare by Means of Trade with South Asia

oviet Bloc trade with South Asianwith the exception of Ceylon, has not shown any considerable upward trend.the past three years, trade with the Bloc has made up lessercent of India's total trade. India signed an agreement with the USSR ln December and would probably welcome the opportunity to demonstrate its neutralism by increased trade with the Bloc. However, the agreement makes no specific commitments as to imporUt and cxpsris, may not lead to any significant expansion or present trade volume. In the case ofthe importance of Bloc trade declinedrincipally because of lowerof raw cotton to China, One percent of Pakistan's imports3 came frcm the Bloc andercent of exports were sold there, compared withercentince the conclusion of tlie rubber-rice barter agreement with China, Ceylon's trade with the Bloc has risen to aboutercent ofandercent of exports and is ofimportance to Ceylon. Tlieof most of the countries cf South Asia depend heavily upon the volume and price of theirand jute In Pakistan, tea and rubber in Ceylon, and jute, cotton textiles, and tea in India. Any cfler from the Bloc to buy steadily more of theseat favorable prices would be attractive to the countries of the area. However, theof tea for export in Communist China, and the fact that China is continuing to expand its output of raw cotton and jute, are likely to limit the Bice's willingness to absorb

these particular goods from South "Asia in quantity andontinuing basis.

has always conducted apart of its trade with theowing mainly to larger purchasesthis trade has increasedIn addition, under an agreementInhe USSR Isloan to Afghanistan valued at S3 isis supplying technicians for theof grain storage and otherBloc moves may be aimed atassistance to Afghanistan.

Bloc Economic Warfare by Means of Trade with the Middle East

trade has become increasinglytoercent of Egypt'sandercent o! exports inarticularly In view of thein UK purchases of cotton. Blocalso been significant for Iran (aboutof total foreign tradeessecause it providesfor the agricultural products ofprovinces, provides essentialand decreases the pressure onforeign exchange. Iran's totallow, however, compared with theoil was being exported. The rest ofEast has had very little trade with

countries of the Middle East,would probably be highlyBloc economic warfare carried on bytrade. There ls wide dissatisfactionarea's general economic and politicalupon the West, and strongtendencies with respect to thethe Soviet Bloc and the Freeis no indication that any govemmarea would wittingly accept Cowrr.or domination, but several,Syria, and Israel, might enter intoagreements with the Bloc forof direct economic benefits and inof securing further advantage byoff the Bloc against the West.

Bloc Economic Worfare by Means of Trade with Latin America

trade of Latin Americanthe Soviet Bloc2 probablylessercent of the totalof those countries, butand lower prices for Latinespecially in the US. has arousedinterest in the possibility oftrade with the Bloc. Special impetusto this interest in3rade agreement betweenand the USSR. The agreement,concluded by the USSR with acountry, included provision fordeliveryillion of capitalonumber of otherBrazil. Chile, and Uruguay, appearexpanded trade with the Bloc as ato their current need for exportand for non-dollar sources ofand Industrial raw materials.countries, the question of trade withis an issue which is being exploitedand,esser exuml, bynationalists. If the Soviet Blocin substantially increasing its tradeAmerica, this development mightcomplicate Latin Americanthe US and strengthen Communistin certain Latin American countries.

Probable Courses of Action

the next few years theof Soviet Bloc leaders will probablyan attempt to expand trade withworld. This effort will ofyield economic warfare opportunities.will probably exploit these oppoiif it estimates that economicconditions in theincrease receptivity to Bloc trade andare increasing evidences of conflictnon-Communist world over the questionwith the Bloc. However, we do notthat the Bloc will make largeot resources or modify other programsto seek economic warfareBloc leaders will continue to be wary

of dependence upon trade with the outside world, and will take steps io protect the Bloc against the effects of sudden loss of such trade.

Of ECONOMIC AID AND

TECHNICAL ASSISTANCE FOR ECONOMIC WARFARE PURPOSES

There are many opportunities for Bloc economic warfare by utilizing grants, loans, and/or technical assistance or promises of all three. The Bloc hasew gestures of this kind, including technical assistance to India and Afghanistan and the recentto lend Finland the equivalentillion. Such opportunities are greatest in those underdeveloped areas wheresentiment or "neutralism" is already strong and wh?ie local Communist parties are strong enough to make capital out of any such moves.

The Bloc will probably make furtherof assistance to underdeveloped areas, and will seek to exploit their propaganda value to the utmost. However, there is as yet no evidence that the Bloc is willing to undertake substantial aid programs. The exportsin such programs might seriouslyin the next few years with the Bloc's programs for increasing the availability of consumer goods and for industrialand greater self-sufficiency.Bloc leaders probably realize theof competing with the US in this field. In some countries, moreover, Bloc leaders may believe that present bad economic conditionsavorable setting for the growth of Communist influence.

ECONOMIC WARFARE UTILIZING

GOLD AND MANIPULATION OF CURRENCY AND COMMODITY MARKETS

Bloc gold reserves, which areat S3 to S5 billion, and its current(variously estimated atillion) constitute an economicpotential. Since the cicath of Stalin,mayhanged conception ofusefulness ol golti to the Bloc.now be less anxious to build upand may even be willing to. draw on them. An obvious use of gold would be in connection with an effort to increase trade with the non-Communist world. The sr-le of Bloc gold to finance an excess of imporls would enable the Bloc to gain some ol theof increased trade with selected non-Communist countriesalancedof commodities with each country.

The Bloc's gold slock might also be used in connection with attempts to manipulate currency markets in the non-Communist world in order to achieve economic warfare objectives. Practically all countries, however, have currency controls, stabilization funds, and other means of protecting their currencies against such manipulation. Bloc efforts to manipulate the price of gold incountries would not have much effect since nearly all gold sales in and between these countries take placerice regulated under the articles of the InternationalFund, to which most non-Communist countries adhere. In the few minor countries where currency or jold price manipulation might be attempted with some expectation of success the economic warfare gains would be so small or uncertain that we do not believe the Bloc will undertake such measures.

In recent years Bloc gold sales have run at an estimated annual rate of SCOillion.3 they0 million, with sales concentrated in the latter part of the year. These releases seem lo be explained by balance of payments considerations and particularlyhortage of sterling in the Bloc. There is as yet no evidence that goid sales arewith an economic warfare effort.

The Bloc is net likely to attempt to achieve economic warfare objectives bycommodity markets in the ncn-Commu-nist world. The Bloc has exportable surpluses ofew commodities, notablychromlte, and tungsten. The Bloc could throw large quantities of these commodities on the market al lower than present world prices, thereby creating distress among non-Commuiust producers. None of. accounts forny producing country's earnings tocti-

" tf

enin

effect upon the economy of that country Neither would disturbances In these markets affect over-all non-Communist industrial or military potential. Such disturbance would cause ill-will toward the Bloc inproducer countries and thus handicap the Bloc's efforts to gain strength in those countries. Bloc supplies of petroleum, which, the Bloc is now selling Ln the non-Communist world, are not now large enough to upset the petroleum market seriously. In the case of other commodities, the Bloc could disrupt markets only by offering goods for sale at the expense of internal requirements.

0ET

CURRENT USSR EXPORT COMMITMENTS TO THE NON-COMMUNIST WORLD;

SELECTED PRODUCTS

hnwfl

Products Belgium Finland France

West Germany

Greece

Iceland

Italy

Italj

Sweden

UK

Israel

Israel

India

Afghanistan

Argentina

Argentina

Denmark

Japan gas oil

petroleum products crude oil diesel oil

fuel oil

petroleum products crude oil fuel oil petroleum petroleum fuel oil fuel oU crude and petroleum crude petroleum petroleum crude oil

06 million

ons (not specified) (notons

too4 TA- to4 Barter, signed4

TA toA.4 TJV. to4 TA. to4 TA. to4 Contract.43 Option HiOT. lOt'. to4 TA4 TA.4 Soviet offer Soviet barter offer

Belgium

Denmark

Finland

France

Italy

Norway

Sweden

grains wheat grains corn

hard wheat

grains

corn

0

0

tons tons tons tons tons tons

to4 TA. to4 TA. to4 TA. to464 TA. to4 TA. to4

Coal

Finland

France

Greece

Italy

Japan

ArgcnUna anthracite

coal and coke

anthracite

anthracite

anthracite

Sakhalin coal

coal

ons

ow

to4 TA. to1 TA. to4 TA. to4 TA. to4 Barter deals4

- MB

-Jl

sac n

USSR EXPORT COMMITMENTS (Cont'd)

Belgium Belgium Finland France Italy Norway Sweden West Germany

lerro-manganese manganese ore manganese ore manganese ore manganese ore manganese ore manganese ore manganese and chrome ore

. to. to. to. to4 TJLtoSl4 TA to4

illion Barter deal4

Belgium

France

Italy

Norway

Sweden

West Germany

chrome ore chrome ore chrome ore chrome ore chrome ore (see manganese ore above)

0000 tons

to4 TJLtoM.4

West Germany

nickel

Barter deal4

- Trade Agreement, annuil unless otherwise specified.

'This quota deletedxports ol petroleum product! had occurred Br then and mar

'Tnn quoU added ISFeSruary IBMThliled

CURRENT USSR IMPORT COMMITMENTS FROM THE NON-COMMUNIST WORLD;

SELECTED PRODUCTS

Skips'

toec. ibm

4

4

to4

minionto4

to4

o4

A. to4

to4

to4

to4

to4

to4

to4

8

8

8

to4

to4

Westcannerydeal4

illion Barterdcals

Netherlands'

Electric Power Equipment

to produce

ilowatts

stationmillionto4

Equipment /or Food Processing end other light

millionto4 '

4

millionto4

USSR IMPORT COMMITMENTS (Cont'd)

Mt VALPr PATION

Lard, and Cheese

New

o4

ontracts

ontracts

ons to4

ontract

ontract

ontract

o4

4

ontract

4

Fish

Denmark

Iceland

Iceland

Iceland

Norway

Netherlands

Sweden

UK herring

herring

herring

herring

frozen fish

herring

herring

herring

herring

tons

0 tons

00ons

0 tons

T.A. to. to.3 contract TA.o3. to3 contract

Denmark

Netherlands

Argentina

Argentina

Argentina

Uruguay

Union of South

Africa New Zealand Australia

beef pork meat

preserved meat pork mutton meat

meat meat meat

tons tons tons tons tons tons tons

0 (not reported)

. to3..t TJL3 contract

3 contract

and Fibers

Belgium Belgium Belgium Belgium Belgium rayon fiber artificial silk yam wool

woolen materials hosieries

illionillionillion rubies

T.A. to. to4 TA. lo. to CI. to4

USSR IMPORT COMMITMENTS (Cont'dj

Norway

Lead

Belgium Belgium France Iran

aluminum

lead

sheet lead lead

lead and zinc ore

ons

ons (not reported)

TA.

TA. to4 TA. to. to44

oiten require moreear (or eoastrucuon.tba: eeUtery will come altar the exptratlna axu of trade agreement under which comrrjUrie.tU are made

Ital:an commitment* were made at the time when the current annual agreementas Mined, but Uiey CaU under the long-term rather than the annual agreement.

'A number of different Undi ol thipi tot the USSR are under conMrucUon In Dutch ihlpyarda. aornra lone-term IBIS agreement and others outaidr II. There li no current annua! agreement:ot clear what new eommltmonU were made

CDOntiT

USSR TRADE AGREEMENTS WITH NON-COMMUNIST COUNTRIES

*HB DVT'TIO*

VaICI OT

Last Ac*<tv*xt

owoio

4

illion

million Second prctocol to long-term agreement ofast protocol1

14

illion

million Renewal of noncommodity provision ofast renewal0

4

illion

million

to tradeofirst proposed decreaser in lew! o: trade

ears4

Soviet loannterest

Finns can obtain non-Bloc currencies

3 years3

Greece

1

15

Italy4

Koncay4

illion (first year's quotas)

illion (may be exaggerated)

illion

no estimate

illion

million First postwar trade

First postwar trade

0 First trade agreement since7 (dale of signature)

illion2 protocol without change; capital goods for USSR6 trade agreement agreed on at same lime

illion Decreased Norwegianquota, increased Soviet manganese and chrome quotas

oar. t

CURRENT USSR TRADE AGREEMENTS WITH NON-COMMUNIST COUNTRIES (Cont'd)

y tm

DURATION

Value or Last Awmuac

Tiudi

4

Egypt

illion

million

increase in trade3 decrease

Payments agreement signedrade agreement may be signed soon, would be first postwar

4 trade agreement now signed

4 (not confirmed)

ears from4

illion3 trade agreement

Trade agreement value2 trade not

Soviet loan% interest

million USSR probably became Iran's largesto word on value4 trade

is known of this

trade agreementist of products; may not have definite quotas

Loan for construction of 2

wheaturakery inusing Sovietand technicians

5 years3

No deftinite quotas

million Trade agreement without quotas signed after failure to concludeague offer of Soviet technical aidaccepted inof letters

544

Uruguay

Annual; date unknown

million

no quotas

Includes Soviet creditillion for capital goods purchases

0 "Bankersists products without quotas

Original document.

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