Created: 8/8/1950

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SUBJECT: Importance of Strategic Exports in East-test Trade

he 'redo of ESP oountriea with the Soviet Union and lto European Satellites (Eastern Europe, excepting Finland and Yugoslavia) amounted to lessercent of their total foreign trade. Hot more thenercent of thia European trade 'ith the Soviet orbit conslata of items classified by the OS asthus acceptance by the ERP countries of the OS expert control program would directly affect In the neighborhood ofercent of their total foreign trade. In terns of trade volume,omplete embargo oo trade with the Soviet Onion and ita Luropcon Satellitee would reduce the exports of ERP countries by0 minion. Becsuso tho OS proposals would effect no corehird of this trade andart of thia amount would be subjectedargo, tho direct reduction probably would not0 million. Taxing account of various Indirect effects (for example, an embargo on otrategic goods might adversely affect trade negotiations) and statistical inaccuracies, however, full compliance with OS security export proposals would probably rosultotalof the exports of EBP countries of0 million, for which alternative markets would be required (present total exportsillion).

OS export controls have mode it Impossible for the USSR and Its Satellites to obtain legally from other ocurcee most of the strategic supplies presently being obtained from Weatern Europe. In terms ofof resources, it would be enormously difficult snd costly for the Soviet orbit to develop indigenous Bupplleo of (or substitutes for) the strategic goods now oocdng from Weatern Europe. Western European Imports from the orbit (chiefly coal and grain) are, however, available elsewhere, and the cost to the West of shifting to other sources of supply would be comparatively email*

The reluctance of Western European Rovornmonto to restrict exports of security items to the Soviet orbit, aa proposed by tha OS, stems In part from their concern with maintaining and developing export marks to In

Hotei This memorandum has not been coordinated with the Intelligence organizations of the Departments of State, Army. Havy, nnd the

Air Force.





areas capable of supplying in return ndollar-savingB food ond row materials. The importance ofrade in contributing to the solution of Western Europe's balance of payments problem hoe been token es axiomatic* (The promotion of "East-West" trade is stated in the Foreign Assistance Act to be one of the objectives of the EGA.) The high level of preirar "Eost-West" trade and the "naturalf the industrial countrios of Western Europe with the agricultural and raw material producing countries of Eastern Europe have led to anotion that the US is interfering with the life line of Western Europo in seeking any curtailment of "East-West" trades Estimates in terns of billions of dollars hevo baen made es to the "cost" to Western Earope of full cooperation with the US security export control program.

Analysis of Western European trade statistics suggests that there haserious rds conception in many quarters ss to the over-all importance to Western Europe of its trade with the Soviet orbit. One factor which has been overlooked le that Finland and Yugoslavia account forhird of "East-Wont"tatistics) and thst no Interruption of any consequence in this trade is called for by tho OS export control proposals.

This disproportionate empanels on "EasWJcst" trade nay also have risen in part from hopes for on easy solution to the "dollaronblncdendency among statisticians analysing Europe's economic recovery problomo torewar levelostwar target, thereby ignoring the restrictive effects on "East-Wost" trade of Soviet efforts toward industrialization and integration of the orbit. Furthermore, in Western European capitals the pressures of private sellers may haveen exaggerated estimate of national economic InteroGt intrade with tho Soviet orbit.

Soviet orbit markets for Western European exports have proved neither adequate nor dependable. ore hopeful solution of the Western European trade problem is to be found in the opportunities for exports to underdeveloped areas of the world which are only beginning to bo. The extent of interim financing that night bo required from the US to shift Western European trade in that direction should beraction of the current rate of US assistance to Western Europo.

There is set forth below, for each of the eleven significant Western European trading countries, the value of its total trade with the orbit (Eastern Europe exclusive of Finland and Yugoslavia) and the percentage of each country's total world trade accounted for by such orbit trade,,



Trade of El oven Weatern European Ccpontrlea with the Soviet Orbit (Eastern Europe exclusive of Finland and9

Exporto to Orbit

Imports from Orbit

* of

% of




King don




ta ofountries' exports toillion.

Sun ofountries' imports fromillion.

# Exclusive also of the Soviet Zone of Germany, for uhlch stetiatica are not separately available. For all countries except Weatern Corncny, trade with the Sovaone ia statistically unlnportant (see

Bocouse of the omlaalon from thooe atatlstica of trade (and snuggling) with the Sovaone, Weotern Germany'a stake in trade with the orbithole is here seriously understated. These figuros for Western Ooimany do not, therefore, indicate the extent of the German interzonal trade problem.


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