SOVIET TRADE PRACTICES AND ACTIVITIES HARMFUL TO SATELLITE ECONOMY AND EAST-WES

Created: 5/2/1950

OCR scan of the original document, errors are possible

UT3LLIG2KCE mEUOaARDUm0

SUBJECT: Sarist Trade Practices and Activities Harmful to Satellite Economy and Eastr-ajost Trade

Foreword

The paramount economic objective of the USSR ia the enlargement of ita economic potential for war. hlaorders the Soviet Onion has furthered this objective by concentrating on heavy industry aadproduction and by establishing certain enterprises in strategic areas. In tba Satellite countrlss snd the Soviet cones of Germany and Austria, the USSR pursues tba same objective by exercising strict control over the Satellite economise and closely coordinating tbe Satellitewith each other and with that of tba OSSR.'

Tba USSR boaumber of dsvices to gain control over thaeeonoolee. In addition to tba rights gained through peace treaties, tha USSR has used its power to obtain vast concessions from the Satellites ln bilateral, mutual assistance, and economic collaboration paota, meet of them with secret protocols. Soviet control of Satellite internal econoala activity baa been achieved through local Communist parties. The Council of Economic mutual Assistance, oatabllebod In Januaryrovided the formal vehicle far coordinating tbe Sate^tejecauaaiss, anora effeotivo mechanism far eventual economic ilntegratian. Thus thecvist .Government directly, ar through the puppet Cocjtuaist regimes; hascontrol of tbe major aspscte of economic .planning, production, and distribution and in exercising this control has shorn Little or no regard for the national needs of the individual Satellite states.

y'Aj^pie evidence exists of Soviet af forte dominate the Satellite economies and to Impose limitations on Beat lent trade, tbe following four sections compile data, all rated as relisbls, which illustrate Soviet techniques nd describe certain specific instances of Soviet exploitation -and trad* practices. Tbe sections ore divided aa follows i

Economic Relatione,

Exploitation of Satellites Through Joint Companies.

Direoted Economic Sanctions Against lugoalavia.

Imposedcast-Vest Trade.

CONFIDENTIAL

Dotal This memorandum haa not been coordinated with gan lastions of tba Dapertmants oft

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Satellite cconania developQert and forolgn trade havo been forcefully dirocted toward thohe Soviet Union. This thoroughgoing to-Bdjesteent ia datMmantal to the eoonooiee of tho Soviet-cksdnatod otatea of Eastern Europj aa exemplified by the ftolowing inatanoear

1. Bulgariaell any of its production, including tobacoo, to tbe Hoot without Soviot peraiasion. ftil/wia has lost auoh of itsitflhle Earket for ite principal export product, and nest of tho tobacco taken oyer by tho USSR, by neons of unfavorable barter practices, is resold at high profit. .

2. CEechoBlovakiu has been foreod to- exportercent of Its shoe production to ths Soviet Union ot prices Jar bolov the price on tho Domestic oarket* For oxanplo, one shoe factory, which has deliveredillion pairs

with the controlled pricerowns for the oheapest boot on the Csoohoslcvuk narket, and tho official free nartct.nrioorowaa.

3. Tho USSR Las exploited Poland by foroing Poland to pay noro than tha world price for Soviethile paying hardly enough to cover the cost of. Polish production. For Instance,ha Soviet Unionon for. Polishoe: Polio?)fiva^ttrjes that naouat, nod Poland waa receiving! upon for cool exported to the West.

4. CsechoSlovakiaens of refined eager Ironrop to the Soviet Uolon, and Is cordtted to0 tons fromrap. Tbe Soviet Unionow prloo for tbe sugar* then resold itside of the orbit. Tbt only did tho USSR aoopste with Chechoslovakia in the latter'a normal wirkotn, but ih some, cases-undersold the Czechs with their own sugar. Bags for this year's crop arc marked "USSR Export Sugar."'

5* In the case of RnfjBPaa, grain shipped to the Soviet Union6 was noed by tho USSR toubstantial portion of its oontraot witn the UK. Rumanian lumbar consigned to the Soviot Union was shipped from Rumanian ports to Egypt and sold by tho USSR at prices Just below tho so offered by the Romanian Government.

oiifi^iTiAi:

6. The Soviet-Hungarian Trade Agreement,8 throughlluatratas how the USSR exploits and controls tredothe Satellltoo. The USSR, through lto agency "SCJUSPRCf2TPORT,agreed to deliTor toetric tone of blast furnsoe coke with tbespecifications: quality togs.ccording to the Sungran teat; caxSnno eulphnr oontontdnlnoB olso ofo; and priceero.b. Licartovoo on tho Cseon-Hungarian border. By9etric tons had boon delivered, nost of it Polish coke purchased by the USSR0 per metrio ton. According to tho terns of tho ofreenont, the USSR was to pay the freight ohargoo from Mexlmostl on tho PoliBh-Csooh border to Licartovoo, era-routingar ton. Despite repeated Ifungnrlan pro teats, coke oonalrnmcato arrived in Licertovco with tha freight unpaid. The iron and steal plants thet received tho coke vera compelled to pay tho freight charges to Thus tbe Soviet Union0 In9 to tha Hungarian iron and steel plants. Inho USSR agreed with the Csech railroad administration Unit tbe sun0 would be settled within the Soviet-Czechoslovak Clearing Agreeosnt and that the Czechs were to refund the already expended freight chsrgoa tb Hungary. Byhe Ctecas had not reimbursed Hungary, and the coke io continued to arrive with tho freight charges unpaid.

Soviet Union enema to rofard Satellite trade with the Hoot paboth to obtain materials for itoelf and to further exploit thePoland concluded an agreement for high-grade ore from Sweden, theincreased its defiance for iron products from Poland, thus deprivingthe advantages of lto agreement with Sweden.

(Source: Undisclosed.)

ercent of the Imports received by Rumania under ltowith Israel aro destined for the Soviet Union.

9. Csechoolovaklan opricultural production is hampered by obligatoryto tho USSR of superphosphate and other fertilizers.

(Source: Press Reports.)

10. Tho USSR has exerted pressure on the Csochoalovakian textile Industry to supply established quotas of finished products, but falls to reoiprooato with needed raw materials. Similar pressure bos been exerted upon Poland ond Hungary,

: ,L

11. Tho Iron ore Imported by Hungary fron tbe Soviot Union is the hematite ore found at Krlvoi Rog (Feercent). ercent of this ore ia either powdery or arrives in snail pieoesaa in sisse. Its reduction ia comparatively difficult, ond its composition varies with each ahipnent. Therefore, the use of this ore in blast furnaces,egree higher thanoroont, would bo expedient only if tho Hungarian plants had adequate agglomeration (sintering) oquipmout.

According to on agreement concluded between NIK (the Ihingarian Ministry of Heavy Industry) and the Soviet Governmentetric tons of Krlvoi Rog ore were to bo delivered to Hungary byespite Hungarian inability toetrio tonsingle year.

he Soviot and Hungarian governments renegotiatedto lastonths, that is, until The ironplants in Hungary, and consequently NIK, were willing to accepttons of ore from the USSR if It were possible toighercrushed into saoll pieoes,ow SlOe, content, and if ooko couldsupplied with tha ore. .The USSR, however, forced the Hungarians todo trio tons of Krlvoi Rog ore of the sane quality as received before.was agreed that tho samo poreen tape of tbe shipments would be bytho Fe content would bo not less thanercent, the SlOg not overand the HoO content notercent. The first shipmentwith an SlOp. content ofercent. The Hungariansercent figure applied to each consignment, while lhc USSR olairaad thatto theetrio tons. Tho Hun^rlana eventually wereto drop their ( *

zechoslovak Iron and steel produotloneen hampered since the wax-by being forced to consume Krlvoi Rog Iron ore fron the USSR. Although Krlvoi Rog Is known to have large deposits of high-grade iron ore, containing no sulphur and phosphorous, Soviet authorities have boon shipping to CzcohoSlovakia the powdered tellings which tho Germans left in their exploitation of Krlvoi Rog. The poor grade Krlvoi Bag ore shipped to tbe Caeons hasreater volume of ore per blast furnace charge, more fluxing and other ingredionts, and has increased the ooot of pig Iron production. esult, Czechoslovak steel authorities hnvo bean making strenuous efforts to increase imports of Iron ore from Sweden.

CONFIDENTIAL

(Sourcei US Consulate, Zurich, ReportnpriHaatTllli.)

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oviet directive to tha Csechoslovak Dotal pipe induotry to deliver largo quantitlea of pipe, principally oil field pipe, to the USSR has prevented Czechoslovakia from meeting promised deliveries to other countries.

14. The economy of tho Soviet Zone of Germany haa been hurtof scrap Iron and eteel resulting from forced exparte toend the

(Source:

15. The Satellites are forced to inport sono nachinery from tho USSR. The naohines offared by tba USSR, hovever, are frequently of poor quality, very old, expensive, delivered late, and lack operating ins true tione. Quotationsoviet longvall cutter of very old construction, for example, priced the machine ot, or about throes muchodern US or UK cutter uould oost.

very month Czechoslovakia is forced to ship thousands of eleotrio motors to tho USSR. The aotere require oatorlala, principally copper, which ore in such abort supply that production has often boon slowed or temporarily smrpendod. If Czechoslovakia bad been permitted to ship these motors to tho Vest, Czechoslovakia could havo obtained foreign exchange to purchase needed raw material unobtainable from the Sovlot Union.

17. The Data plant at si in, Ctoohoslovakla haa been receiving Sovlet-manufaa tared ball bearings as part payment for machinery which Beta rnnu-fac tores for the Soviet Union. Beta at first used Soviet ball bearings In this noehlnery, but tbe USSR now insists that Swedish bearings be incorporated Into tbe equipreent destined for the Soviet Union. Tha USSR haa even returned oldor Doter-aanafaoturcd tec binary to ft! In so that the Soviet becrlnga oould bo replaced by Swedish bearings. This appears toacit acknowledgement by the USSR that Itexchanging Inferior produote for thoee of hlghca* quality. Further, Cseohoelovafc purohaaeo of Swedish bear Inge foroipnent drains Ceeohoalovakia of muob needed exchange.

IS. Tba USSR la absorbing aboutercent of East German industrial production, thus causing critical shortages of needed materials andeoanoxic recovery. The USSR further exploits aest Osraany by buying Goat Oermsn goods at low prices end roexportlng themrofit. Foreign trade of tba Sovxons Inwas directed increasingly towards tbe last, with tba Soviet Unionercent. Tbe Sovaone delivered mnchlno

tools, as coll as. precision, nac&anTckl,tylical instruments, arge part of these products ess reexported by the Soviet Union on ite own account.

19o eeting of tha Conference of Nationalised Firna onn Lsipoig, rogarding0 trade agroerjent with USSR, it woo stated that produotion toast bo increased by at leastercent above present levels preferablyercentbee*use only tbe quantities produced ln excess of tbe present output uould be free for export.

urxngtoo icon coia usecnoaxuvuxa-eeenior planeseported price0 each. The eight which were delivered9 ware found to be practically useless because of unreliable flight Instrunonts, poor engines, and eeaorally .shoddy construction. An engine ohange was requiredro, spark plugs fouled after flights of two hours, and the landing gear una unsatisfactory. The wings of the deliverod planes had already dropped several centimeters, even though tho planes had been given only moderate use. onsequence the Czeobs grounded all of these planes indefinitely and cancelled ell future deliveries. There le no likelihood that tbe Czechs will get their money book for th*eceived.

The Soviet Union receives much of East Europe's produotion of newtransportation equipment. Furthermore, the USSR forces the Satellites to overload their own equlpraont. In Hungary, for example, the USSR haa' foroed the Hnngnrieas to0 ton" freight trains. Since the maximum load for the averageorn Euro peon freight train has normally beenons, the Increase seriously strains the equipment. Itexinnn load limits of freight oars have been revised upward and the period of service betweenand overhaul has been Increased. Ihangnrian railways carry almost twice as neck as prewar and =ach of the freight carried is for Soviet benefit.

22. 0 trade pactaercent of tho entire export produotion of Rumania, Bulgaria, ond Hungary is consigned to the Soviet Union, Rumanian petrol-run, for exnmple,e cold to tho USSR ot world prices which are far below production cost of ftcnanian industry. Such control over the Rumanian petroleum industry la mado possible through tho Joint corpeny, SovHom Petroleum. Tho USSl la guaranteed an annual profit froa thla company rer&rdleae of earnings Moreover, Rumanian oil vill bo re-sold at an additional profit by the USSR to Czechoslovakia, Bulgaria, Ifungory, and Poland. In return tho Sovlot Union will obtain valuable Industriol eommoditioe, ouch ao motorcars, locomotives, snd

L.ioe, oucn ao nctorcars, locoaot

ONFIDENTIAL

confid^jtial

rachinery fron Czechoslovakia. Inferior quality itens or thooo not especially useful to tho USSR uill be re-exported to tho SetolUto countries. Sinilorly, nuOrorton cool delivered to the Soviot Union la exported to other Satellite countrloa In exchange for machinery and other products,art of ouoh noohlnory, usually agricultural, la ro-oxparted to DnJgorin.

Direct trade between Eastern European countries and tbe Heat io either oubordlnr.ted to tho Interest of the Soviet Union or reducedrin.ram; for example, CBOchoelovakin oust procure large quantities of hides from Argentina in ordor to nsko deliveries to tho Soviet Union of ten million pairs of first-clans shoes.

In another way the Soviet Union nonopolisoo Satellite export pro-ductlcn ond foreign trade. The USSR sells Cseohoalovak textiles to India aad and Polish coal and Palearian tobacco to Italy.

Tho recently increased valuation of tho ruble in relation to other currencies enahleo tho DSiR to procure productsower price than fron tho Satellites. Moreover it affords the opportunity to tho Soviot Union to re-cell thooo productsigher price under tho guise of its own manufacture*

(Source: Tngoalav newspaper. Poll tike, i2ESTRICTED.)

onfidential f

Soviet Exploltatloa rfThrough Joint Comjaolea

The nature of Sovietexploitation through Jointthe Satellites nen further revealed,esult of the Tito's charges against the USSR were similar to the oharmea the US delegate in the ECS nestings st Geneva.

The USSR at that tine sought to Justify the existence of these companioe by claiming thay represented the fairest nethod for utilising Gorman assets in former Axis oountries.

The followingbelieved to

be reliable and illustrate Scrvxwv use ox mo joist, companywns of exploiting the Satellites. (It should be eor^aaised that many otheroould have been included.)

1. until its dissolution by the Yugoslav Government inoint company concerned with toaute River traffic) hadoviet managing director who ignoredgee lav colleaguecompany policiaa. JU3MD was managed in favor of Sovietexample, transportation charges were rigged In favor of Sovietbusiness was directed to Soviet rather than lugoelav river shipping,luficslaviaaring the first year ofthe USSR had contributed lees thanercent of ite halfcapital stock, whereas Jugoslavia had paid In sore thanercent

(SoBPcei byr the Tugoslav delegate to tha United motions iniijii 1 .' .

U Althongh lugaeiavia end the USSR ostensibly aere to ahare eouallyoint logcelav^SovietovletQan-oral. Director octaally had complete authority over operations. Tbe USSR contributed'sriceach, well above world market prices, while airfields contributed by Yugoslavia .ere drastically mdervsloed. Xugoelivla had to obtain gasolins raqeired for its airline (JAT) from Rumania at two or three times ths normal coat. The Joint airline wso allocated the most profitable routes and sought to monopolisetlonal traffic, while JAT was assigned unprofitable routes. anagedf?*nt airfit'}dB WJAT for tbe use of its own landing fields. Whon JUSTA was dissolved In lyUy, the USSRor each of the old planes which they had provided.

(Scarce* Borba,uoted by AA, Belgrade

j ONFIDENTIAL

The Jugoslav press reported tbe following concerning-

iJoviyt-Ruiianieii companies: "The position of general directors in those companies is held by Soviot citizens while lower positions of manage-meat are given to toinanlans. The functions of Rumanians are decorative and honorary becaaoa Soviet reprosontative3 decide all inportant questions.'1 Tho sane source also alleged that the OSSR had not sent even one single as chine to the joint company, Sovrontr actor, which was organised In

(Sourest QMS,)

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CONFIDENTIAL'

III. Soviet-Directed EConoadc Sanctions Against Yugoslavia,

After too XugraiUv^aciinform break ofho Soviet orbit Imposed the KreaOin^irected pro gran of economic sanctions which wasto disrupt the Jugoslav economy. The following examples of tha eanctlons iicposed ere believed to be reliable.

Policy inugoslav Foreign Minister Kardelj declared! "You know that tbe USSR, at' carried out toward the end, reduced the volume of saterial ex- change with Yugoslavia by more than eight times, even though Jugoslavia fully executed all its obligations under Uie treaty. Further, the USSR, toredit0 on the basis of an investment agree-meat ofelivered matarials valued at0 until tte middle8 ond then stopped fulfilling itsesides tble, the Administration of Soviet Property In Austria did not wanty rising from tha treaties conoludado between it and Yugoslavia, according to which this Adaiiniatratioa was to deliver to Yugoslavia six turbines valued attotaeen tho and of8 and tbe end ofven though Yugoelavia paid the entire deposit end freight amounting to

(Source: Belgrade Desp.SCRST.)

She Yugoslav lUnletry of19U9 tho bovlet union ess to barsons:ofvalued at ho5 Billionut failed to do so. Yugoslavia paid:advance tha sum6 million dinars for shipments which were notduring thev

: P;

People 'a Aoownuay on Mihistry of Heavy industry Xoakosok on

3. Hungary bad recGived advanced paymonts froa Yugoslavialion dinars against which goodsillion dinars were do live red prior to the Tito^ominform Hungary has rafuood to make reetitutlan en the balance. In bis speech cfaardelj claimed Hungary was given an advanceillion for investment in tbe joint aluminum enterprise, Tho project was abandoned end Hungary refused to repay Iba

aal fU sn fltmo

connpential

ulyoland suddenly announced tha suspension of all trodo deliveries to Yugoslavia. Poland olaiaed that trade with Yugoslavia rao broken off because of Yugoslav failure to sect its coamltnentBi actually lugoslavia had notorcant of Its coaailtaents to Poland, whereas Poland had net onlyeroent of its coonltaants to Yugoslavia.

confide

(Sourcei OO,

. CONFIDENTIAL1

Soviot laposodn East-lost Trade

_h_ HJir?oltt?Ct ^H*rankly stated In thel?u9 Cowdnfora Journal that trade between Bast and Hast, Inwith Lenin's -Mew Economica designed to nekscountries absolutely independent of tbe capitalist West, andincrease trade as seen. According; to Mine, Satellite trade withOnion will, in contrast, be pereenent, and the Council ofAasistanoo will serve aa an organisation to foster this tradeprovide for the -foundation and cryotalliaation of theseeccnosdc

Despite repeated Soviet prcnoucceaente In favor of trrradwdtrade, tba DbSK has refused, tans far, to renew trade^greeaemteEurope for logo. Meanwhile, Increasing Satellite antoaonlaaithat the Satellites as well are preperl^uaaCr

the guise of -these essentially new econcedeo farther reduce eccnomlo intercourse with tho Western world. In acre recent Booths, the oirect implementation of tbe announced policy of delimiting tradethe with td*8aestiCad * foUowin8 Sortet tactics0 trade negotiations

1. The USSR ia variably demanded strategic items of adlitery poteatlal in its negotiations with eastern ccuntries. In trade aegotiatiens^ith Belgium, the Soviet Union requested such items aa ceeeltriadnotrUl dla-

l^" MMaUwlr.ncc-acviet' talksbecause the USSR insisted on oil Umkars, ateem rollers,steel. The USSR also daman dad electrical equipment, ships,diamonds, end robber from The

(Sourcei MoscowECRETi

^^fi^5, 1 g

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71ECRET.

Hagme7or/CJBlTLtL.)

2* Conversely, the USSR has refused to export Items which the western countries .anted, and has attempted to force the mestern countries to take Soviet surplus ccmmcditlas in excess of their needs, or baa offered Inferior goods at cxceeelve prices. The USSKelgian request for white clover and flax seed, and wanted tbe Belgians toetrio tens of grain, whereas they neededetrio tens. Similarly, the

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CONFIDENTIAL

>ea to the French and offeredanganese requirements.

confidential'

DSSft was mrelllihe to supply chrome end to ship only one half or ono quarter of

MoscowQaYIDfco'TIAL,q

OIJFIDENTrALt

eptoBDor jyuy. SECRET.)

3e More recently, tbe USSR baafavorable balance of trade" with tba Heat. In tho caae of Belgium, thio request would have placed Belgiumositionebtor to tbe extentillion Belgian franca, although tbe USSR bed built upn previous years. It bald up psymoats for contracted Belgian merchandise, imilar tactic in negotiations with tbe French, tbe USSR demanded anexchange, with hard currency settlement favorable to tha Soviet ObIob.

In spite of tba accumulated surplus of overdHIni kronerba Soviet Union insisted on continued export surplus in Its trade with Norway0 which would be payable to the USSR on demand in US dollars or gold. Sweden andBotherlanda find themselvesimilar position as debtor natione, thus enabling the -USSR to extract substantial of dollars.

(Sourcei MoscowONFIbEHTIaLjOct

spucxawjr- iyic, SECRET3

efarosryl?$o,

Tbe Kremlin baa stalled FiBnisb-Soviet: trade talks for several The Soviet Union refused to make clner ita position snd rejected Finland'o proposal provisionally to carrytrade. During the nsgo-tlatlone tba USSR, in an obvious effort to exert pressure, etopped ehip-aenta to Finland, mora recent information indicates tbat tho USSR has finally decided to resume nogotiatlons.

(Source: CQHFIDEtfrjAL; Helsinki

ESTRICTED; Bslalnkl Reeka.

OWFTDERTIALj j

arch iy>Jt oreiosTj London Radio^ll

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ratllorrtTol of the It* Un wjuijaait. In noMroua la-

Soviat-lapoeed priorities haw, in many instances.im*

froa fulfilling their ccaadtnoots to tha

Agresaantreat quantities of thoSilesian coal sere delivered to tho USSR at the low price of SiIS'T ecifloc that Poland wasto^SveS to the USSR at preferentialons of coalons of coal during each of tha years?ndons

ccupation oTc^CsoSorB wopa. Meanwhile, Sweden was obliged to pay aa high0 per ten

S^i^ ,COJoVEVOT* Currontcondition; PolanT

ernPoland not only loses considerable foreign exchange but istrading with Western

(SoiuxeijoOBPlDasttlALi Bern

ESTRICTED; Rone,anuarySECRET| Tho Geraan Econoaic navies)

TtedAlbania mdaraa Sisilar:iong-te^cnwcdi^ credits, causing strain on tbe Czechoslovak economy^ have bean granted to

l^S^ Ctechoalev^ delirx^ncy in ^oll varies to

lcre to^aar?def 9 because of " to koep delivery precise s. Caechoslovakia net only about 30

radepaot with TbaMetbe^LaSof

There hasrastic reduction in trade between Switzerland end Csocho-

ttertBquotascuch Iteas aa sugar, coke, snd sacbinery. Likewise,was unable to furnish Denmark with the rolled mill productsdesired under0

fsMfflT j

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CONFIDENTIAL

Preeueably because of Soviot reo>lreamnts, Polish deliveriesUT bare been reported as being unreasonably slow. Moreover,OoTvraoont is unwilling to lncrssse quotas above the minimumT aU'8 granting licenses for isports of The OX, on the other hand. Is willing to continue endend has granted short-tern credits to finance Polish purchases,

Uonomlet,

esult of Sorlet exploitation, East Cersany la unable to seat or is alow la fulfilling its trade coaedtaeats to the Rest. As Xoag ss tho USSR has top priority. East Qeraany has difficulty, end in acce cases cannot aeet all its trade commitments even to the Satellites. In fact. East Ooraany can export goods only after fulfilling Its obligations for commercial shlpnents to the Soviet Union, Soviet reparations shipments, end filling the doaumds of the Soviet Military and Contracting Ccewdssioa/

Sovsoae policy is to sake itself as Independent of the Rest as possible, and to buy there only those items which cannot be obtained from the East. The East Berlin press9 announced openly that future trade policy should be directed toward the beet possible relations with Eastern Europe aad that Western Europe end tbe OS would hareelatively Insignificant role.

{%ZZZlLJ??a* Intelligence Report*ESTRICTED.)

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