Dependence of Soviet Military Power on Economic Relations With the West
Special National Intelligence Estimate
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DEPENDENCE OF SOVIET MILITARY -POWER ON ECONOMIC RELATIONS WITH THE WEST
Informationt1 -i) toed In Ihr precaution of thu Estimate.
THIS ESTIMATE IS ISSUED BY THE DIRECTOR OF CENTRAL INTELLIGENCE.
THE NATIONAL FOREIGN INTELLIGENCE BOARD CONCURS.
The (oSoyring irrlcOigenre organiiathns participated in the preparation of the Estimate:
The Central IrtHboaocc Agency, the Defame Inteaapence Agency, the Natk-ol Security Agency, ond Hm intc&gence organiioticati of tha Deportmenli ol State and Treawry.
The Aiiiitoni Chief of Staff lor Intrfpence, Deportment of the Army The Director of Novo! IntetJgence. Deportment ol the Noyy The AiBilont Chief of Staff, Inteftgence.of ft* A-he Direct of of Intelligence, Itaodquortert, Marine Corp*
This Estimate assesses the importance of East-West economic relations to Soviet military power in. It looks first at the Westource of military-related technology and then at the role of East-West trade in helping tlie Soviet leadership to continue to expand military programs in spiteevere economic slowdown. The Estimate concludesiscussion of the potential impact on the USSR of increased Western restrictions on East-West trade andtransfer.
The Estimate'docs not address the problem of securing Western cooperation in any expansion of controls over economic relations with the East or the impact of these controls on the Western economics. It does not consider how to stop leaks, diversions, the flow of open information, and espionage. Nor does it discuss the problem ofbetween Eastern Europe and the Soviet Union in Western export control policy.
The broad scope of the Estimate does not permit detailedof export control issues.
Acquisition of goods and technology from the West enhances Soviet military programs in two principal ways: by making available specific technologies that permit improvements in weapon and military support systems and the efficiency of military and civilian production technology; and by providing economic gains from trade that improve the efficiency of the economy and thereby reduce the burden of defense. Soviet military power is based fundamenUlly on the large size and diversity of ihe Soviet economy and the breadth of the Soviet technical and scientific base, on Soviet success in acquiring sophisticated technology in the West, and on the longstanding preferred status of the military sector.
The USSR recognizes that it will be hard pressed to maintain its relative position in the technical sophistication of its weapons compared wilh ihosc of the West. Moscow will therefore continue to seek Western technology useful for its future weapon systems by all means, including those illegal means that have been successful in the past, such as clandestine acquisition, illegal imports, and third-country diversions. The Soviets will especially need equipment and technology for their electronics, aerospace, and shipbuilding industries-Soviet economic performance has deteriorated to the point that, if military expenditures continue to expand as in the past, there will be few if any resources left with which to raise living standards. Even slow growth of the Soviet economy depends in substantial part on continued imports of Western machinery, grain, and equipment for the energy sector;
The USSR needs large-scale imports of Western food, especially grain, to increase food supplies even in good crop years, and to keep them from falling in bad years.
Western pipe and compressors are essential for the rapidof Soviet gas production, which will be the main source of additional energy supplies and hard currency in.
* Western equipment also is increasingly important in oiland imports of Western production equipment, especially advanced machine tools, would help to raise labor productivityime when the labor force will be growing much more slowly than in the past.
Western restrictions on nonstrategic trade, if broadly supported and sustained, would aggravate Soviet economic ptoblcms appreciably. Short of comprehensive Western restrictions onestern embargo on oil and gas equipment would have the greatestenial of new Western credits would probablyecline in overall Soviet hard currency imports. In none of these cases would unilateral US actions have much effect. Any decision to impose additional restrictions would have lo consider their impact on the West as well as on the USSR
Reduced economic capability would make allocations to Soviet military programs more painful but probably would not lead to cuts in these programs in the next several years. The Soviet military buildup has great momentum and domestic political support. Faced with what it would consider economic warfare. Moscow would be likely to turn to more autarkic economic policies, tighter internal discipline,ore truculent foreign policy. At the same time, it is highly probable that these policies would result in increased popular dissatisfaction, reduced worker productivity, further reductions in long-term investment in order to meet short-term needs, and greater inefficiency overall in the operation of the Soviet economy.
The West could slow improvement in the performance of Soviet weapons by ther they broadening controls over exports of military-relatedincreasing its efforts to plug leakages. While there is little likelihood that even comprehensive and sustained Western economic sanctions in the near, term would significantly affect Soviet militaryof which are already well undersanctions appliedumber of years could retard qualitative improvements to Soviet weapon systems and give rise to significant pressures internally to reduce military spendingime when the rest of the economy is in growing difficulty. This would be even more likely should the USSR's economic problems be more prolonged than the Soviet leaders expect and the remedies harder to find and slower to take effect.
a tune when the Soviet military positionthe Wert has never been stronger, theis under serious strain Even before the(he king-anticipated Ubor shortages, industrialgrowth continues to slow, agriculture haione crisis after.another, and shortagesmaterials, machinery, and consumercornoviet defense outlays, meanwhile,to rise, with the support of theI roubles in the civilian economy.
The Westource of theilitary-Related Technology
While the Soviet economy is large and diverse,road technical and scientific base, it has only been through anllocation of resources to defense that the Soviets have attained their present military power. Soviet weapons are designed to mini-miie the requirements for technologies in which theeficient, but the Soviets have turned to legal and illegal acquisitions of Western technologies (see tableo make up for domestic shortcomings.
The Soviet limed (orces arc being modernised in nearly every category of weapon systems. Soviethardware, which was al one lime dtstinguisbed for Its rugged simplicity, has been Qualitativelyuntil ii is in some Instances the technological equalnot superiorhardwarein Ihe West. Without Western technology, modernization and qualitative Improvement of Soviet military equipment would have proceededlower pace.
Through the acquisitions of Western technology and hardware, the Soviets have been able to satisfy certain RftD and production objectives
The reduction of engineering risk by following or copying proven Western designs.
The reductionime and production costs by the use ol Western designs andand equipment.
incorporation of countenneasurcs early in the Soviet weapon development process
In addition. Ihe Soviets have been able to upgrade critical industrial sectors such as computers,and metallurgy, as well as lo modernize Warsaw Pact industrial manufacturing capabilities. This has also helped to limit the rise In military product Im costs
on Western technology forces theto incur some vulnerabilities:
Locking themermanent lag behind the West, especially when whole systems are copied, as wiih general purpose computers.
Eschewing ihe better understanding of the leeb-nologv of the imported system which [hey would obtain by doing original research from scratch.
Directing new developments into paths that are better understood by the West than if the Soviets had originated their own designs thus cnabllnc Ihe West to evaluate Soviet designs more easily.
The Soviets historically have given high priority to ihe acquisition of Western technology. Indicating that such technology is of great valuehem The means of transfer arc shown in table i. Of aD the avenues lor technology transfer, clandestine collection, illegal trade diversions, and third-country transfers of defense- related technc4bgy have had the most direct impact on Soviet weapon systems. In recent years the Soviets have increasingly tasked the East European nations to act as surrogates in clandestine and illegal acquisitions of Western technology.
Over the past five years, Soviet Illegal trade efforts have concentrated on computers,air-breathing propulsion technology, guidance and navigation systems, underwater acoustical sensors, optical (Including laser-related) technologies, andmanufacturing processes and equipmentdiversions and evasions over the past several
Acquisitions From (he West in the Key Areas of Soviet Miiitaiy Technology
trade *eq>iiiiuofli of compkle lyWenu. hinlvirc iod wfiwire, *nd dimJaliixe
acouOiuon of peoprieUry mforrruliocv wJoiuuon of captured avionics and fireeontrcJ systems. Aof Western nunJcompuiai hive beenjnnuliury systems.
Acquisitionof completeMtatcut proccaciindnvinuficmnncrqnipment throutliillegil iridc
Signaltradeo( wito Mrcamcn.usoaMvl corapulCT ipj ofrawik tpca rvip irul yrcr.
trade acquisition oflo-ooin.saivity receiver..
and illegal aecjubitioo* of automated and rxeosion nuriuf.el urine equipment foi deClrorue*.
ACQoiMion of metal foils *od optical
lhro.rfa W'l 'ndluimds.
materials, and possibly optical and laserteqtrisilioaof documentation on production icchnccocy of weapons, amrauaitioa, aircraft roru. carbinend deetronic
Direct rd energy
and itlccil tradeil biviralioo receivers;ndof Evinced inertia!minuturc tnd UtcrequationUS equipment inchtdmr.oOowiog radars, sntiradUuco. mini! a. andclandestine acquisitionsr-to. ir andr (SANQ mao'le* and of(ASW) eruhc missile and tactical ballistic miugc guidance sabsysicrns; legal acqtiiskionmachinery for ball bearing production.
Aeqoltluo* of surKrcnnductior. roeicy storage systems and associated cryofcak cqaipment through legal trade.
IqjiI purchnes and intelligence; aajuiiitions of Western titanium alloys *nd welding ccjaiprctai.
of missile case filament-winding technologyod illegal trade, of some (round propulsion technology through lller.il andrade (dicacls. larbu>et,andnd of submarine nackar propulsion plant designs by clandestine means; legal and illegal purchases of ad-ancod jet engine fabrication technology and jet engine cairnthroagh dandcsiine means; arqouauonaptured je* engines fiom Vietnam.
Che.-nicai ci plosives Acousiic sensor) (ASW)
aecojsiuen of design* for various'w*rhcadi of RV-reUtcdalso -production" and "Chemical
Clandestine toqaisiMonof manufacturing dctaili of advanced high eiplosivo for nuclcjr weapons.
Acquisition through dandeailoc means ofec navigation and diroction-ftndirui oquipmcnt andthrough ilictal trade cuvorsion.
EiploiUlionof rapturedar and atrbonic intercept radir, clandestinedrJense radars aad aaKaan dpi cm for US SAM QTUms.
Oanckslinc acqabition of raforraation on US rcconoarMnce satdlitc lechnolory; iilegal trade acquUittoni of User iincofindcrs for lanka
were particularly heavy in the field of semiconductor manufacturing equipment, reflecting the Soviets* intent to improve their entire electronic components Industry.
Requirements for Foreign Trxhnc4ogy in
uring each of the last two decades the Soviets have deployedilitary and aerospace systems, newly designed or substantially modified. We expect this rate to conlinuc over (he next decade. Thus far we have Identifiedystems for development in, someof which we expect to be deployed by the. The new weapon systems reveal specific Infusions of Western technology. Most current Soviet weapons are of the third or fourth generation. Because theyell-established and srrphisticatcd military design andcapability of their own. the Soviets pursue
Selected Technology Transfer Mechanisms Used by (he Sorters
Directin Euibiiieuncteplun uta
Pitmu aad Lornics (iiauive (eachinc cJTori
Jniol venture* ind prodveuoa tail
n"tn with onioint coaUct
--vakiac. mulidiatoiiaiban hO"l
Technical data andeeaoMoU
ruk necJiuiwni. ind uki
Govenuocnul and imfkiniwl aquipoxal uU>
Siki of prodxu
SornuTic and technical and iladcol cathaagca
lcrilurr pooruU. nnf aiioca. technicalorample)
nfoenett trade ainvt, aad ohihiu
Houik bneSiceaoc untiei-.isi-jiru
ii arau trade
Uk|il trade In other eeanoediUa
Foctitn irinili InldliteooefSIGINT)
Cap" ire in oar
techiauloanes. It is in these areas that Soviet legal acquisitions of dual-use irchnolosy. com piemen trd by Illegal and clandestine acquisitions, are most likely to be concentrated.
uring the ISeXfa. advances in sopbasticated mtcioelcctronics and materials are expected to pace llie development of new weapon systems. The Soviets and (heir Warsaw Pact allies are also likely lo need many of the new Western critical componentand the production equipment and technology needed to manufacture them.
election of systems projected for the Soviets in significant mission areas fors shown in Ihe left column of tablehe key technologies (hat are required by Ihe Soviets lor these potential systems are displayed in the right column ofnd have been targets of known Soviet acquisition efforts Of the key technologies listed Innicroclecltonics, signal processing, and productionan especially broad impact For example, mieielectronidevelopments sic critical to advances in computers, signal processing, missileand communications systems.ritical prerequisite to advances in Soviet miaoelectronics. computers, marine systems, and some areas ol propulsion development. Furthermore, (he Soviets have attempted lo upgrade iheir precision machining capability by importing machine took. These imports have sigrulicantly improved Sovietmanufacturing capabilities in military-relatedexample, in the production of miniature bearings for strategic missile guidance.
Soviets lag behind the Western state ofin the design and manufacture ol certaincomponents, such as microprocessors,Optics, and high-temperaurbineareumber of keyby their Inability to developand integrated computer-aided
East-Woit Trado and the Soviet Economy
perfcansance of the Soviet economyAlthough the economy is still expanding.of growth has fallen drastically. Themainly from rising resource costs,shortfalls in agriculture and Insuch aa Bed. and an accumulation ol plan
mistakes.esult of these condiltons, growth of labor productivity has slowedime when demographic tiends have greatly curtailed the supply of new Ubor.
conomic growth In, projectedercent per year or less, will probably be insufficient to support past rates o( increase in defense spending and also toerceptible rise in living standards; indeed many Soviet citizens believe that livinghave been declining over the past few years. If defense outUys continue to rise atercent per year as we now project, they would preempt about two-thirds of annual increments to the gross national products compared with one-fourth now, making leadership choices lar more difficult Inallocations to consumer industry, agriculture, and transportation would inevitably suffer.
Use of Imports from the West in the Soviet Economy
IS. As productlviiy gains dwindled in, Moscow looked increasingly to the West forand equipment The leadership's decision to back President Brezhnev's program to upgrade the Soviet diet further increased (he USSR's reliance on imports from the West00 the value of Soviet imports increased nearly eightfoldnd the volume fourfold. Purchases of machinery, ferrous metal products, andgrain-dominated the USSR's importarge part of the Soviet imports of capital goods was financed bycredits.esult, the Soviet hard currency debt service ratio increasedercent1 toercenteading to more cautious borrowing
Soviet Hard Currency Imports
Value ofceccm of TotalCurrent US Ratio
import policies through the remainder of the decade
espite difficulties in assimilating equipment, imports from the West unquestionably helped the Soviet leadership deal wiih major economic problems, particularly in certain manufacturing sectors:
In. Imported chemical equipment accounting for about one-third of all Western machinery purchased by the Soviets, was largely responsible for doubling the output of ammonia, nitrogen fettiliier. and plastics and for tripling synthetic fiber production.
The Soviets could never have accomplished theiryear pror.ram ol modernization and expansion in the motor vehicle industry without Western help. The Flat-equipped VAZ plant, for example, produced hall of all Soviet passenger cars when II came fully on streamnd the Kama River truck plant, which is based almost eiclusively on Western equipment and technoiogv. now supplies nearly half of Soviet output of heavy trucks.
"computer systems' and minicomputers of"
Western origin have been imported in large
they (a} have capabilities that the Soviets cannot
match, (b) use complex software that the Soviets
have not developed, and (cj often are backed up
by expert training and support that the Soviets
t the same time, imports from the West contribute in various ways to Soviet defense
of the products of imported Western equipment and technoiogv are used by the Sovietexample, trucks from the Kama River production plant
mtports facilitate the production oflor defenseexample,controlled machine look, specialty studs, and the facilities and technology to(hem.
Finally, because most defense industries also produce for Ihe civilianble 6Xof Western machinery for the civilian sector also help lo prevent greater encroachment of civilian requirements on defense production facilities.
mports from the West played an Increasing role In energy development inecause of Soviet deficiencies in drilling, pumping, and pipeline construction:
The USSR bought about J5 bulion worth of oil and gas equipment.
By the beginning ofhe Soviets had seltled on (hecentrifugal compressor as (he basic equipment for (heir gas transmission lines. When several domestic design and production programs failed to producehigh-powered compressors, Moscow turnedmports. By the end of the decade, it had orderednitsost of about MOO million
the same time, grain imports inillion tons per year. WithoutSoviet consumers would not have hadin meat consumption ihat they received, and the fall in per capita consumptionwould have been far worselie
Sovier Benefits from Western Products tn
The resource bind facing the leadership suggests thai commercial relations with the West will be even more important to the USSR inhan in. Needing large improvements tourther decline in the rale of economic growth, Soviet leaders willigh priority to imports of Western techno! ogy and products to offset domestic shortfaUs-
Although (he USSR would benefit fromIn imports from the West during, it may lacs: Ihe necessary hard currency. With oilexpected to decline, and exports of other major exports, such as minerals and timber, barely holding ilirir own. (he USSR's main sources of hard currency will be sales of gas, gold, and aims, along with an increase in debt to (he West The keyalnUlning even the current level of Soviet trade with Ihe West will be the Slberia-tc-Europe (West Siberia) gasIf two lines are built, gas exports could amount7 billion per year in the, enough to tepay
Relationships Among Soviet Defenselian Industries
DcfCAM 1 ,
Chilian UnaFinal Aaaabty PI* Mi
Ctosdy ReUiedCMIian Pioduaioa Teeknolotiei
caniuner (oods. machine tools-
winr.com' bat aircraft ,
transportmail coroamcr (nods, hand local
ratary-wistf lir-craft, metal consumer aocdi
and fishierchemicalre ti1pans lor lumper-(alien and aarkaUural machinery
maehice tools, mining
thips, oilpant for In mlioa and atricaluuil machinery
machine tools, mining cquipraeni
rollint stock am) Ixomotira
and transports lice equipment
rruehincry.nd machine tools
billulic missile pUnl produces civilruehinc toots.
* One aurf ace-to-air motile ptani produce* cacavatiiuj equipment.
quickly the funds advanced by Western Europe and Japan and to finance rising levels of imports.on the gas pipeline would also encourageparticipation in other major projects, providing additional sources of credit
Potential impact on the USSR of Western Restrictions on Trade and Technology
estern restrict tons on economic relations with the (JSSH couldariety of forms including cool roll on: strategic lech no logy; credits; nonstralegic trade; and Western imports from the USSR.
Controls on Strategic Technology
Existing controls have denied to ihe USSR very powerful computers but have not prevented thefrom illegally acquiring embargoed semiconductor production machinery. In addition, many types of small computers useful for research and development, including, are available at the discretion of the exporting country. An extended COCOM list would affect both civilian and military industries but would have little impact on critical militarywhich are already controlled.
Expanded controls would force the USSR to make even greater use of non-COCOM suppliers and illegal channels. This would result in higher costs and delays but would probably not prevent the acquisition of high-priority items. Since the USSR uses Eastern Europe as an illegal conduit for hard-to-tracethe value of any extension of the COCOM list would be seriously weakened if Eastern Europe were not covered
Limits on Credits
Western sanctions on newboth governmental aod private, wouldhardships on the USSR. Soviet hardearnings are likely to decline, al least throughbefore the West Siberian pipeline canThe extent of the decline willon Soviet export earnings from gold,oil- To maintain hard currency imports atand pay interest on existing debt, Moscowto increase its hard currencyCurtailing Western credits would forcereduction of Soviet hard currencytwo or three years. US action alone to limit
credits would not be effective.
Controls on Nonstralegic Trade
complete halt on shipment offrom COCOM countries andreduce Moscow's imports of grain andby more thanercent and cut meatimports far more. If the USSR couldverage annua! meat production
ut byillion tons. An embargo on meat added to the grain embargo would reduce per capita availability of meat by roughlyercent. The impactnilateral US food embargo would be small and short lived.
Large steel imports will be needed for the foreseeable future. Denial of all large-diameter pipe exports to the USSR would severely undercut Soviet plans to boost natural gasS denial by itself would be meaningless because Western Europe and Japan account for all Soviet Imports of large-diameter pipe (the USSRignificant export market (or thesef the Soviets are to reduce dependence on Imports of Western specialty steels, they must have Western metallurgical technology. The French are helping to build the important Novolipetsk steelwhen completed in, will produceillion tons of specialty steels per year.
With the exception of molybdenum and steel, the USSR depends on the West for little of Its mineral and metals requirements. Although US producers and their subsidiaries in South America are the major suppliers of molybdenum, the Soviets could easily purchase molybdenum through multiple brokers and set up dummy corporations in non-CommunistThe Soviets buy some tin, cobalt, tungsten, and bauxite through Westein metals dealers, but the bulk of Soviet purchases are made directly from lesscountries.
The suspension of all contracts and impositionotal, effective, and sustained multilateralM embargo on exports of oil and gas equipment to the USSR and Eastern Europe would substantially retard Soviet energy development, and its impact would Increase over at least the next decade. Western pipe and compressors for transporting gas,pumps for oil wells, and advanced exploration equipment could not be repUced for many years. The losses In oil and gas production could amountillionay in oil equivalent in the middle and, of which the larger part would be gas. The impactnilateral US embargo would again be much smaller and short lived.
A decline in oil production, coupleduch smaller increase in gas production than is now expected, would have substantial cc<tsequences (or the Soviet economy. Hard currency earnings could fall sharply, and economic growth would probably be even slower than the rateercent or less which we now expect.
Boycott of Soviei Exports
controls, oo. imports fromwould cut the USSR's hard currencyThe bulk of Moscow's exports consistand other raw materials most suited for saleWestern markets and not easilythe less developed countries. Moscow couldlost sales to the European oil marketsales to tbe Third World, particularlyterms were offered Natural gas could notelsewhere. LDC demand for othertimber, metals, andsmall.
Soviet Leadership Responseestern Embargo
The Soviets do notin light of their experience with Western sanctions after the Afghanistanan effective economicis either likely or sustainable Their Initial reponse to an embargo would probably be an attempt to break it up by playing up to participating countries thought to be weak links. Sustained Western economic warfare against the USSR would make Moscow more truculent In its foreign policy. Such actions would also remove some of the economic considerations thai Moscow must confront In dealing with current and potential crisis situations.
With respect to economicroadly based embargo wouldore autarkic approach. The Western reaction to Afghanistan, In fact, has already moved the leadership in this direction. In addition, some Soviet leaders are worried aboutdependence on the West, and others arethat imports from the West have notreater contribution to Soviet productivity. Western economic pressure would Jtelp rally the leadershipourse of self-rdiance and would provide Itretext for soliciting public support tothis turn in development strategy. Western policy would be used at the same time to justify lowering consumer expectations and (he need for continued economic sacrifices.
Although an effective embargo would narrow (he range of choices available lo the leadership, 11
would force (he Politburo to deal with several painful choices regarding resource allocations (hat Iheregime has avoided. No easy, risk-free solutions are readily available. At least initially, (he regime is almost certain to maintain the high priority that the military has enjoyed. The tense internationaland the more assertive US defense posture would politically disarm any leader who mighta reduction in growth of military expenditures. The high priority accorded agriculture andunder Brezhnev, on the other hand, is likely to be questioned. Eventually growing economic problems may spur comicicration of radical changes in allocation of resources between (he civilian and military sectors and in the system of economic management, bul such changes are even less likely lo be adopted In an environment of East-West confrontation.
oo trade with the Soviet Union with minima! circum-vention would probablyrop in GNP in (he short term and slower economic growth in the Ions-term and force very hard choices on the leadership with regard to domestic resource decisions.
otal and effective trade embargo would create deeper and earlier energy imbalances lhan we now foresee. Facedotal cutoff of Western trade, Ihe leadership would be likely to adopt domestic economic policies restricting private consumptionIn order to protect essential investment sources and lo allow for growth in defense spending.esult, living standards could actually beginall Lower consumption levels in turn would increase popular dissatisfaction and binder leadership .attempts to raise productivity.
Impact on the Soviet Economy
Although the Western states, acting Icgcthor, have the potentialmpose severe economic costs on (he USSR, (heir ability to gain political leverage is circumscribed by two factors. First, the Sovietis large and self-sufficient enough to support Ihe main thrust of its current military and foreign policies in spite of any embargo the West might implement.estern embargo must contend with the ability of the USSR to circumvent COCOMthrough illegal acquisitions or Imports from non-COCOM countries.
The impact of Western restrictions could range from minimal tonilateral US denialfocused on strategic technology,orhave little impact. There are too many alternative sources of supply available to the USSR. Al tbe otherotal Western embargo
Impact on Soviet /Ailitory Power
iitle chance that Western economic sanctions, even if comprehensive and sustained, could markedly affect Soviet military power for tlte better partecade. The Soviet responseuch drastic Western actions would almost certainly be to raise even more the priority of defense programs in the allocation of resources.eakening of the industrial base force some cuts in .military programs, this would not happen quickly and the effects, on overall Soviet- military capabilities would be very gradual.
The main impact of Western economicwould be lo slow qualitative improvements in Soviet weapon systems. Given the time required to develop new or significantly modified weaponthe denial of Western technology would notajor impact until theaximum impact untilnd beyond.
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