SOVIET ECONOMIC AND TECHNOLOGICAL BENEFITS FROM DETENTE (ER IR 74-2)

Created: 2/1/1973

OCR scan of the original document, errors are possible

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CIA HISTORICAL REVIEW PROGRAM RELEASE AS8

Intelligence Report

Soviet Economic and Technological Benefits from Detente

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US-Soviel detente has alreadyuccession of economic and technological benefits to the USSR: grain torop failure, access to technology, and equipment previously denied, and long-term credits to finance imporls. If detente continues, these gains will accumulate. Nevertheless, overall Soviet economic growth is unlikely to be affected appreciably. Machinery imports from the United States will be small relative to total Soviet investment, and the USSR will continue to have problems in assimilating new technology. The USSR, moreover, has alicrnaiive sources of goods and technology if US-Soviet relations sour. Moscow could benefit substantially, however, if it is able to acquire key military-related technology under the umbrella of detente.

The size and terms of the grain purchases from the United States undoubtedly were influenced by the detente atmosphere. The prices paid for the grain were favorable, and Commodity Credit Corporation credits helped the USSRime when it was incurring its largest hard currency deficit in history. The US-Soviet maritime agreement also saved the USSR hard currency, as the USSR was able to move several million metric tons of gram on its own bottoms rather than on third-country ships.

Under detente, export controls were relaxed, and some highly prized US equipment and technology became available to the USSR for the first time. Third-generation computers and components and equipment for their manufacture were high on the Soviet shopping list. If science and technology agreements just signed with US computer firms are implemented. Moscow could modernize its computer industry and thus boost productivity in both mililary and civilian industry. If negotiations for advanced semiconductor production are successful, the Soviets also could be helped in developing complex electronics systems and instrumentation for advanced weapons.

Heavy industry has also received technological aid from the United States For the Kama truck complex, the Sovicls have been ableuy US equipmcnl and technology for the most advanced foundry in the world as well as other equipment not available elsewhere. US technology probably can also help lo alleviate Ihe many serious problems confronting Sovicl oil and gas industries, particularly exploration and drilling in permafrost and offshore.

ubstantial degree, these machinery purchaseslike the gramave been facilitated by US long-term credits, both Rximbank and private. The terms ofank credits are comparable with or heller III an those offered in Western Europe and Japan, contributing lo the already-existing world competition in promoting exports to Ihe USSR.

rade in technology stillarge potential for growth. Cooperative ventures with US companies for the development of Soviet resources offer important advantages to tlie USSR. US companies are able to provide the USSR with advanced crjuipmcul. technology, and know-how to carry out the large internal development projects currently scheduled. Equally important, the Soviets need to tap US financial markets for government-backed credits if the massive Soviet imports needed for such projects arc lo be financed af reasonable interest rates.

So far in (he detente period. Ihe USSR has obtained US technology mainly through Ihe trade channel. At the same lime,etwork of officially sponsored govermnent-to-eovernment bilateral agreements has been built up which could provide the Soviet economyood deal of US technology on an exchange basis. The US-USSR Science and Technology Agreement has led to the conclusion of more thangreements between Soviet agencies and private firms. Most of the agreements call for general cooperation, joint research and development, and exchanges of delegations, information. Iirocraes. know-how. and licenses. Most agreements are also in high-technology industries of pnmc interest to the USSR such ;is electronics, chemicals, energy, and construction.

The growing imports of machinery and equipment together with cooperative ventures and bilaterjJ agreements willubstantial amount of Western technology lo thehether in ihe form of informal (and sometimes inadvertent) disclosure of know-how. exchanges of technical data, or finished products. But the ultimate economic effect of technological transfer Ihrough either machinery imports or informal contnets and bilateral exchanges depends on how rapidly the technology is assimilated,nd economic administration have hecn weakest in carrying technology from research through the development and testing stages into production. Many of Ihe reforms in economic administration, science, ami education in the past decade attempted to deal withthib problem, but the reforms seem lo have petered out The Soviet economy must do better in (his area if imports til" US technology are loubstantial elfeci

Olhei factors will also reduce Ihe impact ol" US-Soviet trade and technological relations on Ihe USSR, first of all. US Kverj-ce is limned because Ihe USSR uui go elsewhere for credits anil roughly equivalent uiaehinerv andew seciois orew (iuiiiecond, the scale nt micIiihlnm^Ji iiieiv-iSinprenuifi small relative to loial production or trade for example, impoiietl US equipment will be equal lo no more thanit the total value of equipmentie inslalled in Soviet industry in I

Tlie effect on miliiary capabilities is another matter. Some US technology could help the Soviets considerably in developing new weapons, especially in modernizing (heir strategic weapons systems. Although thus far the trade, contacts, and technical agreements associated with two years of detente have not transferred discernible amounts of military technology, the changes in US-Soviet relations under detente have the potential to upgrade Soviet military capabilities. While continuing their efforts to acquire such technology by espionage and theft and by purchase from other countries who evade COCOM controls, the Soviets will attempt to acquire military-related technology directly from the United Slates by opening up new channels uf transfer and widening existing channels. Whether the full potential of transfer is realized depends in part on the care with which US firms, scientists, engineers, and technicians treat the developing contacts. In this regard, the guidelines set and administered by the US Government will be influential in determining pnvatc altitudes and decisive in limiting the transfer of military-related technology

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CONFIDENTIAL

DISCUSSION

Introduction

the easing of tensions, particularly since the Maythere hasubstantial increase in economic, technical,contacts and exchanges between the United States and thefrom political gains from the detente atmosphere, the USSRconcrete economic and technologicalhe acquisition oftechnology, and know-how, most of which have been denied tosince the beginning of the cold war. .

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In the past two,years the decrease; in tensions and detente have brought the casing of US and CpCOM export controls-Soviet imports from the United States have risen sharply, US Government-backed credits have been made available to the USSR, and numerous bilateral scientific and technical agreements have been concluded. The future also holds outossibility .of large commercial transactions between the two countries and important technology transfers to the USSR. The purpose of this report. is toeview .the nature of US-Soviet contacts ahd exchanges and (b) assess the economic and technological benefits that the USSR has obtained and may obtainesult ofecause benefits to the United States are not considered, this report does notet assessment of the benefits obtained by the USSR and the United States from detente.

The conclusions of this report should be considered to be preliminary because Soviet attempts to obtain US technology under detente are still in an early stage. Little firm evidence is yet availableumber of areas. Even where technology has been acquired by the USSR, often little is known of the impact it has had on the Soviet industry involved. Such factors as the energy crisis and changing attitudes-in the Unitedarticularly inn granting long-term credits to the USSR also may affect these Soviet programs to acquire US and Western technology.

The Impact of Detente on US-Soviet Trade3 Detente Establishes Preconditions for greater Trade

US-Soviet negotiations that created the politicalas detente also ledarked change in the atmosphere regarding

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US-Soviet trade. The preconditionsapid growth in trade were met when controls on US exports were eased, US credits became available, and the shipping impasse was broken.

Export Controls Relaxed

ne of the principal effects of detente has been the relaxation of export controls. Multilateral (COCOM) controls and US unilateral controls had been cased graduallyumber of years. Recent COCOM List Reviews and the passage of the Export Administration Act9 hastened the process.ongress amended the Export Administration Act. retaining the prohibition on exporting strategic items to the Communist countries but narrowing the definition to allow freer export of items that could be used for both military and civilian purposes. The Act required that the US Commodity-Control List (CCD items not controlled under COCOM agreements be eliminated unless their removal from controls would beational security risk.ntries not under COCOM control at the time the review began have been reduced tohe list is now made up largely of Computer, electronics, and telecommunication items. US policy positions on the above items and the technology for producing them will be prepared in time for the next COCOM List Review, which probably will begin in

he change in the US attitude on trade controls has resulted in US shipments to the USSR of items formerly banned and in US approval of exports by other COCOM countries that the United States had opposed earlier.cries of US applications to design and sell machinery for the Kama truck plant- in the USSR were approved. The removal of export restrictions on this equipment has given the USSR specialized machinery and technology that was not available elsewhere and that the USSR had sought for many years.

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S policy perhaps has changed most significantly in the computer and related electronic fields. Initial US reaction to the sale of third-generation computers to Eastern Europe and the USSR was negative because of the strategic uses to which these devices could be put and the risk of diversion. The United States, therefore,ystem of safeguards intended to limit the risk of exporting third-generationithin this framework, the United Stales has given its approval to the export of various third-generation computers throughout the Communis!ncluding the export to the USSR for "peaceful research" of two. twonnd others. Despite the existing safeguard system and olhcr end-use checks, it

* probably impossible to be certain thai these systems are not being diverted to strategic uses. Recent intelligence reports indicate that in the past year at least two third-generation computers were directed from their intended end uses in two East European countries to unknown activities within the Soviet Union.

Similarly, during the past few years videotape recorders (VTRs) -originally developed through US Government research andave been approved' for export in increasing numbers for civilian uses within Communist countries. Inor the first lime in Ihe history of trade controls.ighly sophisticated VTRs were approved for export lo ihe USSR. Because of their portability, exporting countries have thus far been unable to place effective controls against the strategic use of these recorders.

the United States no longer monopolizes the technology or equipment used in the manufacture of printed circuit boards or semiconductor packaging.onsequence, several US firms have exerted heavy pressure against US export controls on technology and equipment. COCOM approval has already been granted for the sale to Eastern Europe of production machinery and technology used in the manufacture of integrated circuits. The USSR has yet to purchase any US technology or equipment for the production of advanced semiconductors, but some technical knowledge is being absorbed through increased technical exchanges and greater contact with Western firms. More importantly, technical knowledge and finished devices could be furnished to the USSR from Poland and other East European countries under special agreements for mutual cooperation in semiconductor RAD.

US firms are now negotiating toumber of East European countries. Onewith Poland includes the technology to produceintegrated circuitsolish acquisiuon ofwould make it possible for the USSR to acquire (hiscould significantly enhance lis production capabilities over theparticularly in areas of strategic concern.

Offer of US Credits

second major factor encouraging the growth of US-Sovietthe detente period has been the opening uparge newtrade credits lo Ihe USSR. With Eximb-nk financing available, USnow compeic with those offered by other major Westernthen particular, the United Kingdom. France, and Italycompare favorably with those offered by West Germany. Lacking access

to low-inleresi Eximbank and other US Government backed credit*oscow tended to look to other Western countries instead of to the United Slates because the USSR's hard currency position required that large purchases of machinery be made on medium-term and long-term credit The meager amount of Soviet imports from the United States was either paid for in cash or financed by short-term credits with generally no more than US SIO million outstanding at any given time.1

y the endn sharp contrast to previous years, more0 million in US short-term, medium-term, and long-term credit had been made available to the USSR. Toward the end3 this total grew to roughlyillion, most of which is associated with low-intcrcst US Government-backed credits. They include the following:

Short-term bank credit outstanding as3illion, compared with less thanillion prior

Short-term non-bank claims outstanding as3illion, compared with less thanillion prior

l-ong-term bank credits outstanding as3 of SIilUon; priorrivate banks extended only short-term credits to the USSR.

Three-year CCC line of credit0 million; CCC credits were not previously available to the USSR;

illion in potential direct Eximbank long-term credits, including authorizations8 million and preliminary commitments8 million in direct credits (as of, Eximbank financing was not previously available for US machinery and equipment exports to the USSR,

illion in potential long-term credits from private banks lo match Rximbank participation, such financing previously was precluded by the absence of Eximbank participation.

J. xfxhu o/ui goo* (Wixrt byb-f. ofwentnot wtUbte. US pttromin, ^owm tot th* Somi PHI pUntirod b> long-icii* luljn atOtlt to the USSR.

he decision to open the Eximbank window and theCCC credils signaled the beginningew era in- US-Sovictand created an aura of excitement that attracted largeUS bankers and financiers eager to enter into or expand financialtbe USSR. This development has greatly enhanced the USSR'spick and choose among suppliers of credit, thereby enabling theextract credit concessions from the successfulorprivate US banks have so far waived the Eximbank insurance oncredits to the USSR, thereby-reducing the USSR's financingone-half percentage point. The large, multi-billion dollar liquefied(LNG) projects and other US-Soviet projects now underexpanded Eximbank participation as well as the mobilizationamounts of private fundsong-term basis. The availabilityhuge sums to. finance Soviet imports will depend on continuedon Eximbank lending

USSovtei Maritime Agreement

he conclusionS-Sovict Maritime Agreement2hird factor helping to promote trade. The agreement led to major cutbacks in the US port security program (making it caster for Soviet ships to visit US ports and increasing the number of US ports open to.iuch visits) and to withdrawalabor union's threat to boycott Sovietoviet cargo liners and tramp vessels can now participate freely in the movement of US-Soviet trade (moved entirely on third-flag shipsnd in the movement of US trade with other countries.

us and sonet SdM sn.pi nopptdatothers pomt. collided fioni us porlt both by ihe threat ofboycott by iieveooies or hie lnfeiiution.il longshoremen's association (ila1 at great lakes, east coait, and gulf poets and by the ussr's ofuul lo put up *tth the inconvenience of us poitnir regulations applying to comrnunitt ihap* inhe ussr overcame its uaanmiagdeti to operate ships -edei the us port meanlynd organcarta unci servicejapan and us west coastereas no (uiudKlton. for most pom tbt maritime agreement tcducci the numbei of days' notice ol arrival and incteaics the number ofof-callo mote than dfj.

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he USSR stands to save considerable hard currency by participating in the movement of its imports from the Unitedor example, by using Soviet vessels in moving moreillion metric tons of US grain, the USSR saved atillion in hard currency, and prospects for future earnings are good. It also stands to cam hard currency by carrying Soviet exports to the United Slates and cargoes moving in US trude with Europe and Japan. The USSR now has cargo lines linking the US West Coast with Japan and other Far Eastern countries and linking Great Lakes. East Coast, and Gulf-ports with Europe. In the tramp field (largely bulkoviet ships under charter have madeew cross-trade voyages between the United States and third countries thus far

When the demands of Ihe grain lift diminish, however, there should be more opportunities for such voyages, especially for ships returning to Europe after delivering Soviet cargoes to Cuba.

Soviet Imports from the United States Soar

he relaxation of export controls, the provision of trade credits, and the shipping agreement haveramatic impact on US-Soviet trade (see thehe USSR's imports from the United States increased much faster than its sales to the United States. Purchases of machinery and equipment and grain accounted for much of the growth in Soviet imports; Soviet sales to the United States continue to consist principally of platinum group metals, diamonds, and chrome ore, but fuel oil became an important commodity3 asesult of the sharp upswing in the volume of trade, the United States became the USSR's leading Western trade partner

Machinery and Equipment

in the last two years the USSR 'has contracted for0 million in US machinery and oquipment (seehis compares with more0 million1 andillion annually in previous years, The US share of Soviet orders also has risen0 (sec

The machinery and equipment that the USSR has sought especially in the United States include truck-manufacturing equipment, computers, and certain other electronics equipment, as well as various types of oil and gas field equipment. These are areas in which US technology excels. Most of the other equipment and technology ordered from the United States is availableumber of other countries, however.

For the Kama truck plant, the USSR contracted with Swindell Dressier to design and coordinate the procurement of machinery for the most advanced automated foundry complex in the world. Other Kama purchases include gear-making machinery, automated transfer machinery, and computer-controlled conveyor systems, all of which, for reasons of durability, precision, or productivity, are technologically superior to systems available in Western Europe.

Kama-built trucks will provide the USSR with badly needed transport for use in agriculture, relieve overtaxed railroads of some of the burden of freight hauling, and expand the supply of off-highway trucks

. j dU mc ior January-September only

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CONFIDENTIAL'

eONPlDEls'TlrtJ,

Table 1 SSR: Machinery and Equipmenl Orders'

US 5

840

Table 2

USSR: Machinery and Equipment Orders from the United States

Million USS

many roadlea areas in the USSR. The Soviet military

Cnem bViC,ainineitS 0W" usctrucks that, because of persistent short supply, are often preempted for use in agriculture, industry, and construction.

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The USSR has been seeking US technology across the whole spectrum of computer manufacture, including central processing units, peripherals, components (memories and integratednd computerized test equipment. The Soviets also want to conclude multimillton dollar, multicomputer system deals that include software and training of specialists. For example, they would like to contractegional air traffic control systemystem for production and inventory control at the Kama truck plant. Most of this equipment and technology is still embargoed under US and COCOM trade controls, although four large US systems have been sold to the USSR under the COCOM exceptions procedure. Although the benefits to the USSR from US computers already acquired probably are not large, the USSR stands to gain substantially if the large US systems now being negotiated are sold. These sales would include training for specialists in software maintenance and systems analysis, areas in which the USSR is particularly weak. Such training would make possible the creationey cadre qualified to train, in turn, large numbers of other specialists. Training in the operation and maintenance of large computer systems is directly applicable to industrial as well as complex military problems.

Some US firms in the semiconductor industry also have viewed detente as an opportunity to expand sales. The USSR has not yet acquired US equipment or technology for the production of integrated circuits or other advanced semiconductors because these items arc still embargoed.esult, the direct benefits from detente in this area have been restricted to the random bits of production know-how that may have been acquired through the technical exchanges program and through Soviet contacts with US businessmen and scientists Several US firms, however, arc now negotiating with the USSR for the sale of complete facilities foi the production of advanced types of semiconductors. Soviet accesseliable supply of these devices could speed Soviet development of complex electronic systems and instrumentation for advanced weapons.

To help overcome the many serious problems confrontinit its petroleum industry. Ihe USSR has been especially active in negotiations for US petroleum equipment and technology. Soviet problems include exploring and drilling for oil and gas in permafrost and offshore, maintaining production in older fields, building pipelines for transport of oil and gas. and improving the quality of refinedecent exposition in Moscow, at which US firms displayed the latest in petiolcum cquipmenl and technology, aroused considerable interest among Soviet petroleum officials and resulted in additional Soviet orders and purchases. Some of theown-hole submersible pumps, drill collars, and drill bits -that the USSR has ordered in large quantities are in short supply in the United States. Sales to the USSR of such equipment resulted in delayed deliveries to US petroleum firms

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Over Ihe pastoears the Soviet Union hasarge volume of chemical equipment from the West. American firms, however, accounted foregligible share of the Soviet orders. The United Slates usually supplied only technical data. Since detente, and particularlyhe US role in supplying chemical equipment and technology to the USSR has grown. An outstanding example of what may be in store for the future under detente isyear, SS billion agreement announced3 by the USSR and Occidental Petroleum Corporation. This agreement calls for an exchange of fertilizer materials and the construction of eight ammonia and two urea plants in the USSR. The Soviet Union is to receive one million tons of concentrated phosphoric acid starting8 in exchange for Soviet-produced ammonia, urea, and potash. The phosphoric acid should help to raise Soviet agricultural yields. In addition to increasing yields, phosphate fertilizers can hasten die ripening of grain, an important consideration in regions thathort growing season.

The ammonia plants will each have an annual production capacityons; the largest Soviet-manufactured ammonia units in operation have annual capacitiesons or less. The ammonia plants going to the USSR probably will incorporate technology belonging. Kellogg Company. Kellogg is the world's most experienced firm in engineering and erecting large single-train ammonia plants that use centrifugal compressors and minimize unit energy requirements.

Soviet Grain Purchases

3 the Soviets boughtillion tonsfrom the West, including aboutillion tons from theAlthough the decision to buy US grain was motivated bypolicy considerations, the exceptional size and the favorablethe puichases from the United States no doubt were influenced byatmosphere. Tlie extension0 million in CCC creditswas especially important.

grain output is subject to extreme fluctuations. Ingrain outpul fell byelow1 level as aunusually poor weather. Without imports of Western grain,would have been necessary because grain and potatoescore of the Soviet diet. Moreover, Ihe drop in grain productiona time when the demand for grain as livestock feed was increasingBrczhncv-sponsoied program begun5 to provide more meatquality foods had boosted the use of grain lor livestock feed.grain had not been available, the Brezhnev program wouldto be interrupted and perhaps abandoned. This would haveunpalatable to the leadership, which had pledged itself tolot of the consumer.

success of Ihe Soviet livestock program seems to dependaccess to Western grain. The Soviets could requireillion tons annually through the rest of, assumingincrease in grain output under normal weather conditions.this year illustrate their continued dependence on Westerna record net gram harvestillionomparedprevious highillion tonshe SovietsIhe delivery ofillion Ions of grain in fiscalis only one-half the amount delivered in the previous fiscal year,cost them two-thirds as much foreign exchange because of high

tho United States hasarge share-of worlda large Soviet grain requirement will almost have to includefrom Ihe Unitedumber of prominent Sovietagricultural officials have admitted to US visitors that the USSRlong-term imports of food and feed grains from the' Unitedif the USSR has good harvests.i erh

Outlook for Future Soviet Gains from Trade with the United Stales

continued growth of Soviet imports from theavorable climate for trade. Whether trade flourishespart on Congressional reception of the US-USSR trade agreement.seems uncertain, the credits necessary for an expansion ofdry up. Equally as decisive for trade will be the attitude oftoward the large cooperative ventures that the Soviets areto support their growing acquisitions of US equipment andventures are likely to materialize only in an atmosphere of confident*.

Trade Agreement and MFN Tariff Treatment

If Congress does not approve most-favored-nation (MFN) treatment and ratify the US-USSR trade agreement signedS-Soviet economic relations will no doubt be dampened. Ratification of (he agreement on the other hand will do little more than provide formal US approval of the upward trend in economic relations between the two countries.

The lack or MFN treatment in the past hasegligible effect on Soviet exports to the United Stala With few exceptions, Soviet exports to the United Stales entered either duty free or suffered Utile or no discrimination when subject to the0 tariff rate. This is largely because Soviet exports to the United States (and to other advanced market economies) have been dominated by raw materials and semimanufactures.

commodities gencratly at the low end of the spectrum of tariff discrimination. Currently, the USSR could conceivably increase exports of some commodities such as plywood, particle board, vodka, dressed furs, sheet glass, and the like if it had MFN status. But, in the short run, the additional foreign exchange earnings would be small.

Until the recent oil price increases, Soviet oil exports to the United Stales faced discrimination because oil is subject to the full rate, then equivalent tod valorem, compared with roughlyr less if the USSR qualified for MFN. Because the duty on oil is specific, at today's higher prices the fuU rate's ad valorem equivalent is onlyompared with an MFN rate ofrhus there is no longer any effective discrimination between the two rates. US imports of Soviet oil (mainly fuel oil) in the first nine months3 were valued atillion, compared with aboutillion in all

Benefits accruing to the USSR because of MFN might be substantial in the longer tenn if the USSR is successful in carrying out its current plans to produce manufactured goods designed for export to the United States. The product lines envisioned in this future trade are highly finished consumer-oriented goods that face significant discrimination unless the USSR obtains MFN treatment.

Cooperative

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Cooperative ventures with US companies probably offer the best chance for large, continuing growth in US-Soviet trade. The USSR wants US companies to provide advanced equipment, technology, and know-how to implement the large .development projects currently being considered. US firms are frequently singled out because in many cases they have the best equipment and technology. Equally important is the Soviet need to tap US financial markets for the huge credits required for the massive Soviet imports needed for such projects.

In addition lo the Occidental project discussed earlier, the USSR has signed preliminary agreements with US firms for two projects involving the exploitation, transportation, and liquefaction of Siberian natural gas. Together, the North Star and Yakutsk projects will require more thanillion in long-term credits to finance Western (mainly US) exports of equipment, with Soviet repayments to be covered by US and Japanese guarantees to purchase LNGeriod ofoears. If undertaken, these projects will provide the USSR with access to US technology and experience that would be extremely useful in developing other Siberian natural gas and petroleum resources. Moreover, if exploration proves successful, the Yakutsk project, as currently envisioned, will provide the

USSR vviih an additional one billion cubic feet of natural gas daily for cither domestic use or additional exports,

US investment in other Soviet raw material developmentakhalin offshore deposits and the proposed Tyumen-Nakhodka oils also being considered. US participation in offshore exploration for natural gas and oil deposits appears particularly desirable to Moscow because of the specialized equipment and large credits involved and the need for US offshore drilling technology. The Tyumen pipeline project, if realized, would generate more hard currency revenue for the Soviets than the two LNG deals combined and has interested some US firms- :

East Siberian projects such as the Udokan copper deposits and the Yakutsk coal fields are ventures that almost surely must have foreign assistance if they are to be started in the next decade. Besides financing. US participation would provide mining and ore processing equipment, generally superior to Soviet equipment, and US managerial, planning, and engineering skills.

The Soviets are also negotiating for the exchange of USand.technology for Soviet metals and minerals. The besta package of proposals put togetherroup of US firms, whicha variety of services, including specialists forand planning engineering, assistance in procurementadvisory construction management, training of USSRassistance, and royalty-free licenses to use the processes.the US participants will buy or accept as compensaliona number of metallurgicat and other manufactured products.

6 Additional US aniitarxx- would he required, however, if product quality is no! up to lUndud.

The large cooperative ventures discussed above would provide the USSR with significant inputs of technology and equipment and would enable it to repay the credits with products. In terms of technology transfer, the ventures differ little from direct purchases of turnkey projects because they provide for nothing in the way of technology transfer or Western assistance after the venture begins tohe Soviets, however, arc trying to elicit US commercial participation in cooperative ventures that offer continuing technology transfer and Western assistance or that otherwiseested US interest in the operation of the enterprise.

In discussions with some US oil companies for the exploration or onshore oil deposits, for example. Soviet proposals have gone beyond simple commodity pay-back arrangements. To interest US firms, which arc often loath to part with advanced technology and know-howixed

Soviet payment, the USSR hasillingness to establish jointly owned firms. Underlan, US firms wouldixed percentage of all crude oil discovered in return for their exploration expertise andn additionajor share of crude oil output, the USSR would acquire US equipment and access to drilling technology for the life of the agreement.

The USSR also has considered offering equity participation, which some US firms want if they are to make particularly valuable technology and equipment available to the USSR. After proposingS firmlant under such terms, the Soviets backed off, however. The two parties now are talkingong-term technology sale by the US company in return for periodic Soviet payments and an agreement not to market the output outside the USSR.

In still other cases, the USSR has sought to enter into cooperative agreements that would increase sales of their manufactured goods in the West. The Soviets have held discussions with several US firms on the marketing of Soviet products whereby the US firm would, where necessary, modify Soviet equipment to make it more acceptable to Western requirements/ Raymondeading industrial designer, hasooperative agreement with the Soviets that calls for the US firm to assist in the design of automobiles, hydrofoils, and watches. The agreement, which initiallyifeears, will provide the USSR with production and marketing expertise useful in selling manufactured goods on Western markets.

Soviet Acquisition of US Technology Outside die Trade Channel

USSR has acquired foreign technology mainly byand equipment. However, other channels of transferthe acquisition of technical data, attendance atvisits to Western firms, and formal agreements forresearch and the exchange of scientific and technical information.Moscow has been pushing hard to tap all possible sources of

informal Conlacls Increase

n important consequence of the detente atmosphere has been an increase in personal contacts between US and Soviet managerial, technical, scientific, and industrial personnel. In conferences and symposia, as well as in commercial negotiations, useful information is likely to be

he Sovko may be reading ihit potuioii. They tie no* xisseitinjC oil icpaymcmuwd on cuirenl worlJ prices, maxin* il aattiactpe propoiiliOfiS Omit.

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passed along. In terms of importance to the USSR, the most important of these contacts probably arc those associated with visits by Soviet officials to the United States. Aside from tourists and diplomats,housand Soviets arrived in the United States3 in connection with commercial activities and exchanges, including:

contract negotiations.

inspection and acceptance of US equipment destined for the USSR,

training of Soviet personnel in the use of US equipment and technology,

attendance at exhibits and conferences.

familiarization with US plants and factories andmarketing, shipping,umber of .

any of the several hundred scientists who visited the United States to attend conferences arranged sidctrips to laboratories, private firms, and universities. In addition, the commercial visits frequently entail visits to plants and laboratories. Some of the visits are quick tours of various plant and laboratory facilities, but those in connection with training and with inspection and acceptance of US equipment last for weeks or months. Other things being equal, thelonger the stay, the greater the opportunity to acquire information. Aside from firms with which the USSR lias placed orders, the installations visited generally are in those sectors which the USSR has demonstrated an interest in developing: commercial aircraft, computers, machine tools, electric power equipment, oil field equipment, chemicals and chemical equipment, electronic equipment, mining equipment, and others.

ajor aim of plant visitation is the acquisition of production technology through observation and briefings at US manufacturing facilities and laboratories. Soviet visitors usually ask many penetrating and detailed questions and usually lake extensive notes. The headecent delegationS plant stated that every member of his group was required toeport on all he saw and learned on their tour. This is probably standard operating procedure on all Soviet visiting groups.

n attempting to acquire as much information as possible, these delegations often visit several firms. They normally claim that the USSR is interested in acquiring the firms' products and/or technology or desire to undertake some oiher profitablease in point was the kmc

delegation of SovicI aviation officials that visited the United Stateshe delegationumber of installations andbriefings from officials of leading airframe and aircraft engineto help determine which of these companies could bestrequirements for manufacturing wide-body jets. The Sovietto the USSR having apparently succeeded in stimulatingamong the firms for Sovietf indeed, theto make such purchases. If they do not, the informationhelp them in developing their own wide-body and possibly

Access to US business and industry has also been facilitated by the establishment of the Soviet Purchasing Commission in New York for the procurement of equipment for the Kama truck complex. This commission supplements the work of Amtorg, the permanent Soviet trade organization in New York. The Kama River Commission was recently expanded to handle the long-term Occidental agreement involving the exchange of chemicals and the supply of US equipment, although the Soviets were permitted to add fewer people than they asked for.

The Soviets unquestionably have increased their knowledge of US technology through these visits and through personal contacts. In -many plants and laboratories the management is careful about what visitors see, while in others where less care is exercised, the Soviet visitors may obtain some useful information.

Bilateral Scientific and Technological Cooperation Before the2 Summit

Bilateral cooperation between the United States and the USSR in science and technology) had its origineries of agreements signed8 under the US-Soviet exchange program. These exchanges were arranged and monitored by the respective governments. The members of the delegations, the topics, and the itineraries were approved in advance, and the exchanges were balanced in terms of numbers and areas of access Data flow between the United States and USSR also took place during this period at international meetings.

ollaboration had many of the same characteristics seen in the USSR's bilateral programs with otherhe evasion of reciprocity and bureaucratic inertia on the part of the USSR. In retrospect, the USSR gained more than the United States, principally because the United States was ahead in practically all the cooperative areas. In nuclear energy, for example, the Soviets acquired valuable information from the United States on the technology of reprocessing nuclear reactor

16

OONTIDCMTlAf.

fuel elements and the water chemistry of light water reactors that enabled them to surmount some troublesome problems.

benefits to the USSR of tbe bilateral exchange programUnited States were probably modest, but the USSR wonfor its science program by portraying itself as the equal ofStates in the "big science" areas of space, nuclear scienceoceanography, and the like. While the USSR acquireddata, it received little know-how of appreciable benefit toeconomy or its military establishment.

thend thehe Soviets beganat ways in which Western technology could be brought to bearinternal problems. They recognized that bilateral programsbut that much of the desired technology wasin the hands of private industry.esult, the USSRhaveultidimensional approach to acquiring keyselected high-priority areas. Overt, persona) contacts in these areasthrough existing and new exchange agreements,and international forums. At the same time,agreements with Western governments and firmsThe USSR prefers these agreements, at least initially, toencompassing and government-to-government. Under thisthe USSR can then negotiate agreements with private firmsoften with firms or groups that would deal with it onlyresult of the government encouragement implied by or resultingoverall agreement.

Government-to-Government Agreements Under Detente

At the2 Summit Ihe United States and USSR signed four major agreements for bilateral cooperationagreements, exploration and use of outer space for peaceful purposes, environmental protection, and medical science and public health. At the3 Summit, five additional agreements for bilateral cooperation were signed. Three focusedtudies of the world oceans, transportation, and peaceful uses of atomic energy.

In some respects these agreements simply strengthened the adminislrative mechanism, not the substance, of cooperative efforts already underuch as those in oceanography, atmospheric modeling, earthquake prediction, and nuclear energy. Nevertheless, these agreements embodied some significant new features, especially as viewed by the Soviets. First, the two governmentslear endorsement to bilateral cooperation between the two countries. The language off

agreement was clearly of particular significar.cc torticlean explicit recitation of the various mechanismsalk for each party to encourage and facilitate contacts .

ince the signing of the first series of agreements in2 the Wis have moved vigorously toward initiating specific collaborative workh US scientistsery wide range of subjects, includm, joint manned space night, non-nuclear energy RAD. chemical catalysis microbiological synthesis, and the application of computers to management In general, the Soviets have selected their most capable scientists and their best inshtutes to participate in these bilateral programs. In addition, they,ms of 'standing concern to them have been included in the overall program. In contrast to thexcju.nge program, which tended to stress basic scientifiche current programriented more toward projects offering greater potential impacthorter penod ofrojects where additional work could leadkly to unproved products and Stepped-Up productivity for the USSR. For example, joint US-USSR research on catalytic reactor modeling and on the design and operation of thermal and hydroelectric power stationsursued along the lines the Soviets probably envision, is likely to benefit the USSR more extensively andhorter, period than the more scholarly work in pure mathematics or theoretical physics carried out under prior agreements.

Soviet activities during this year and one-half period clearly conlinue the multi-pronged approach to obtaining Western know-how in key technological areas of the previous decade. Computer technologyood Ulustralion. Undergreement, the Soviet* pushed forhe application of computers to management, and at leastec. of many of the other subject, for cooperauon -magnetohydrodynamicsnformation processing, metrology and standardization, and water resourcenvolves the use of computers. Moreover, the Soviets have signed agreements for joint research with the Control Data Corporation (CDC) and thejpuration,

Furthermore, the overall bilateral program appears to offer oppor.un.ty for the transfer of US technology to the USSR in areas no. cxpliutly identified forodest amount of advanced US semtconductor technology, for example, went to the USSR in the form of medical equipment under the bilateral agreement on medical science and public health, and other technology conceivably could be transferred in small amounts under other agreements with little notice being taken

w

Agreements with Private Firms Under Detente

he USSR has markedly increased the number of directUS industrial firms underfgreement andagreements or.protocols with specific US firms for

. US companies have given information to Soviet agencies in the hope ofoothold in Soviet markets. The Soviets often exploit this motivation by baiting US firms to enter into cooperative agreements with hints of subsequent sales to the USSR. With few exceptions, the Soviets have not revealed their own technology for possible licensing or trade with the US firms. There is some feeling, however, on the part of many US firms that there is not much Soviet technology that would interest them.

In bilateral agreements with private US firms, the Soviet State Committee for Science and Technology (SCST) has been the principal instrument on the Soviet side. This state committee has signed more thanong-term (mainly five-year) agreementsariety of USost of these agreements arc similar in content, calling" for general cooperation,, and exchanges of delegations, information, documentation, methods, processes, know-how, research results, production samples, and licenses. Most of the agreements are grouped in industries of high technology of great interest to the USSR, such as electronics, chemicals, energy, and construction.

The earliest group of firms togreements with the USSR were large multinational chemical firms, conglomerates of the type favored by the USSR. Agreements in the chemical field between SCST and Occidental Petroleum and BASF Wyandotte Corporation came inlthough the Occidental agreement also covered oil and gas, metal working and metal coating, ecology, and construction. Further agreements with SCST were negotiated by Monsanto, Union Carbide, Dow Chemical, and Armco International ins noted above. Occidental also enteredoint venture with the USSR involving the construction of fertilizer plants and the exchange of superphosphates. Most of the other firms hope that similar trade arrangements will result from their participationooperation agreements. The pervasive Soviet interest in computer applications is also in evidence in this initial round of agreements. Monsanto has agreed to cooperate with the USSR on computer applications in the chemical industry.

Another group of firms has signed agreements with SCST in the electronics field, with emphasis primarily on computers and communications

8. um of txt> of (be biiterjjiven In UK Appendix.

equipment CDCear agreement .lo cooperate ir. all phases of computer technology. The more standard five-year agreements were signed by.Singer Company, Hewlett-Packard. Litton, and General Dynamics for cooperation in-computers and other fields.international Telephone and Telegraph also signed an'agreement for telecommunications and related fields. In these fields, the technology flow is likely to go in only one direction, and the Soviet need is extensive. Although all of these firms obviously hope to obtain large trade contracts, .the extent of the trade and technology flow will depend on trade control policy decisions because much of this equipment .and .technology is still subject to export controls.

oot,resser Industries, and Stanford Research Institute have signed .agreements with SCST forcooperation in the gas andndustries. These firms havemuch technology that the Soviets need, andoot is already part of the consortium identified with the US-Sovict. North Star LNG project. Dresser,hasicense sale to the:USSR for Sovietodel compressor. Bechtcl Corporation signed an agreement with SCST that covers all branches of heavy, industry, but the USSR reportedly is most interested in Bechtel's capabilities.ield. .

General-Electriceries of agreements .withand, SCSTn2 agreement withower, and Transport Engineering provided for the exchangeand development data on gas turbines, including theof gas turbines. An outgrowth of this was an agreementof .Leningrad for. the production

etween GE and the. Soviet MinistryIndustry in2 called for exchanges ofcurrent commercial projects. InEand SCSTagreement for joint development of electric power generatingcould lead to licensing arrangements for the manufacture ofin the USSR. This agreementormal policyand the USSR of general scientific and technical cooperation, andpower generation technology ^including.steam, gass commanding immediate attention for-mutual exchange .

Opaiser Industries concluded anSCST. The agreement covers cooperation in the fieldsiron ore mining, pellet production, coal mining,and others.

moslear agreement concludedSSCST was the Lockheed agreement signed onhe

agreement provides for cooperation in navigation systems, civil aircraft building, air traffic control equipment, and other areas.

lion

Potential Benefits to the USSR from Bilateral Scientific and Technological Cooperati

69. The benefits.to the USSR fromooperation are hard to quantify .but can be described in general terms. Without doubt, implementation of the present array of agreements will bring many talented Soviet -scientists and engineers into intimate contact with their US counterpartside variety of disciplines. This will serve to spark at least some sectors of the USSR's lacklusterrogram and to help improve the management and quality of the work in these sectors Moreover, given the US lead over the USSR in practically every technology identified for cooperation, the Soviets through these contacts should avoid many of the mistakes they would otherwise encounter and thus achieve shorter development times for selected projects. The potential for benefits of. this nature is substantial in certainor example, chemical catalysis, micro-biological synthesis, and antipollution equipment all have their roots in chemical process technology, areas where US superiority is unquestioned. In non-nuclear, the Soviets may gain access to more accurate models of MMD phenomena afforded by stronger US computer capabilities and to better designs for MHD channels resulting from US specialization in this area. Also in the energy area, the United States clearly excels in cryogenic technology, which is necessary for the operation of superconducting magnets and transmission lines, and in the pollution control and heat transfer technology associated with conventional thermal powerplants. And in all the cooperative areas, those aspects of the work involving sophisticated instrumentation and automated controlotential boon to the Soviets, again because of the clear lead that the United States has in these technologies.

nother less tangible but potential benefit to the USSRarked enhancement of their international prestige. The gain is illustrated very well by the joint Apollo-Soyuz. Test Projecthich will support the illusion that,ack of manned lunar expeditions the USSR iscientific and technological par with the United Stales' in manned space flights. In fact, however, most of the technical and managerial responsibility is being assumed by the United States. The AST? also offers the possibility of additional benefits to the USSR such as the closest look to date at US scientific, technical, and managerial know-how as brought to bearajor undertaking. Thus the USSR isinimum risk andaximum gain. Potentialrestige also exist in the geophysical sciences such as climatology and earthquake prediction where some of the Soviets' creditable work will receive greater visibility and thus gain more acclaim worldwide.

potenlial for gains by the Soviets in the nuclear energyis extensive, once again becauseuxtaposition of USSoviet weaknesses. Although the Sovicls now have anfast breeder reactor, and the United States does not, theyalmost every aspect of fast breederore design, fuelat high fluence levels, control rod materials behavior,and quality control. In controlled thermonuclearresearch the Soviets could gain markedly in the pelletto laser-induced fusion where US work has drawn extensivelyskills and computers of its nuclear weapons designers, In theareas of CTR, the Soviets could benefit from access toin the plasma heating of Tokamak systems, inexperiments, and in fusion reactor engineeringand experiments.

commercial aircraft have been improving steadily inworld standards, but at least two remaining technical hurdles mustbefore Soviet civilian aircraft can be considered trulythe world market. They must have (I) internationallysystemserformance in terms of engine life andwith Western aircraft. The USSR presently is attemptingadvanced navigation systems by purchase of Western equipmentImproving engine performance may take longer,the Soviet metallurgical industry generally has not been ablequality adequately in the production of high-temperaturebecause the direct military application of Western technology inhas kept it on the embargo list.

inally, over the longer run, ihe technical agreements with US computer firms offer the prospect of large benefits to the USSR. Under the umbrella of these agreements, the Soviet could pin large-scale manufacturing know-how for advanced central proccssers, peripherals, and electronic components that it does not now possess, as well as advanced software 3nd training. In short, such agreements, if implemented, couldreat deal for the Soviet computer industry. Before these agreements are implemented, however, export controls will have to be relaxed considerably.

Problems in Assimilating Foreign Technology

he USSR has relied heavily on foreign technology throughout its history. In practically every industrial sector, much of the technology is of foreign origin. Technological transfer, however, has been too slow to bring the Soviet Union abreast of Western technology.ubstantial technological gap persists in most parts of the economy. The

Soviet campaign to acquire foreignarticularly vigorous now because traditional domestic sources of economic growth'have been drying

up

Research and Development

he great uncvcnness ofector hasajor hindrance to the assimilation of US or other foreign technology. Basic research, particularly theoretical work, is considered strong, whileas been weak except in priority military sectors (including military applications of the spacehich attract the best scientific and material assets. In large part, the weakness ofn the civilian economy stems from its incompatibility with rigidly centralized direction and management. In addition, the indifferent quality of many Soviet engineers and applied scientists has hampered theffort. The training of Soviet engineers and applied scientists is rather harrow, and many of the engineers arc best described as technicians by Western standards.

Piecemeal Purchase of Machinery

he USSR's difficulties stem partlyendency tothat is too advanced for rapid assimilation, given existingdomestic technological development This overreaching ism the computer field bul extends into other sectors suchof color television sets.8 the USSR purchasedomplete package of very advanced automated machineryfor the fabricalion of shadow masks for color televisionof supporting an output of one million color television sets dmbcf bbo,

toll off rtmplty io ihe mo, tooti.ii Mlo Ok future, SoWel leaden reweoiwe of

economic po-in silli.-rd upunloi. uKicawa in productmtr an be .mkiiKd B

Io*ct birththe boor ton* *lll rvnluill* crow more itawly whileamlon ol plant Mid equipment ahitdir to luiuin tn Hit Ix* of compellot con

mported machinery has been of less help to the Soviet Union than expectedreat many instances, especially when bought piecemeal. Frequently, the purchased machinery fails to mesh well with existing Soviet equipment, with other foreign equipment, or with Soviet.inputsroduction process. In part, this interface problematural one. The Sovietector, however, takes an inordinate length of time to solve problems of compatibility in the civilian economy. In the case of the Kama truck factory, where most of the equipment is being'supplied by numerous foreign firms, Western engineers estimate that several years will be required to interface all of the equipment into an integrated operation. By the time trucks roll off the assembly line, they will be obsolete by Western standards.

By the endear's trifling in the.United. States for four Soviet technicians, the equipment still was not operational, and, in fact, had suffered severe damage through improper operating procedures and poor maintenance. Thus the Soviets were forced to procure,ost greater than the original purchase price, additional technical assistance and parts to restore the line to its original condition. This line, now operating alraction of its rated capacity,ajor bottleneck in Soviet production of color television sets, which2evel ofear.

Secrecy

a result of Soviet reticence to supply foreign companieson how the imported machinery is to be used,machinery is sometimes less productive than it otherwiseThe Kama plant is an example; the buildings at the truck plaptand foreign' equipment will have to fit into space allotmentsalready- been designated. Yet foreign suppliers have been hindereduseful drawings of the factory and in obtaining permissionthe site. Where security is considered critical, the USSR woulda purchase than release details necessary to make anintcrfacethis reason, purchases of aircraft navigation equipment,and the like have been deferred in the past.

Labor Quality

of foreign technology also depends on thethe labor force. Soviet workers must first master the unfamiliarforeign machinery; therefore, many foreign-built plants reachonly after lengthy delays. For example, the hugecar facility in Tol'yatti became fully operational aboutajor factor retarding assimilation of thethe quality of the Soviet labor force. Soviet workers frequentlyan entire line to make minor adjustmentsingle pieceDespite intensive training in Italy, techniciansmachines improperly after repairs, and workers were casualapproach lo the maintenance of precision machinery.at the working level, reluctant to make even minorupstairs virtually all problem-solving decisions.

Spare Pans

keep foreign plants and equipment operating, the USSRsteady supply of spare parts and solid maintenancein these areas have often put foreign equipment out of

commission. Foreign-made spare parts seem* lo be purchased only for high-priority industries such as the chemical industry. Industries with lower priority apparently get no foreign exchange to buy spare parts. Because of the shortage of foreign spare parts, low-priority industries may favor less modern domestic machinery or East European machinery, even if hard currency is available for the purchase of original equipment from the West.

Cost of Turnkey Plants

of its problems in digesting importedthe USSR, as indicated earlier, has turned increasingly toof turnkey factories. Foreign firms design the factory,and are responsible for the selection and installationSoviet workers assume control once the plant is operating.

have not proved toompletelyto the .USSR's difficulties with foreign technologybecause theyexpensive to buyassive scale and because they do notof the interface problems. As in the case of the FIAT plant, theoften require labor skills in construction and operation thatskills available on site in the Soviet Union. In addition, as ihein taking over Western-built chemical plants, the processesraw and semi-finished materialsuality that theis not prepared to supply.

should be noted, too, that the Soviets' relative lackin managing large complexes of very modem technologyproblems. Soviet managers have been trained to concentratenarrowly defined production goals in an organizationaldoes not promote the coordination of many complex parts.management has invested heavily in specificallymanagers in problems of complex organization beforeto higher levels. The Soviets have displayed much interest inWestern management

The Impact of US Technology

assessment of the Soviet gains from technology transfershould consider both Ihe economic and the military gains. Onassessment is risky, primarily because measurement ofis elusive. First, wc do not fully understand the presentin some of the key areas for cooperation, so it is hard toneeds arid their ability to exploit ihe know-how they mightno satisfactory methodology exists for assessing the degree and

consequences of specific examples of technology transfer. Third, in the case of the bilaterals, Soviet gains dependreat extent on the actions of the individuals involved at or near the working level, particularly on the USll of whom appear to have considerable latitude. Last, in the case of the cooperative ventures and joint research involving US industry, proprietary considerations willart, and each firm will have to decide for itself how much technology it is willing to reveal or supply and what it expects to receive in return. The judgments set out below are therefore tentative.

The Economy

far, the impact of rising'Soviet-US trade on Soviethas been small. The volume of trade has not been largehave an appreciable effect on the Soviet economy. If trade andcontinue to develop, the benefits to the USSR willseveral reasons, the increasing US-Soviet economic ties are likelyuseful but not decisive in the efforts of the Soviet leadership todomestic economic problems.

77ie Question of leverage

of all, the United States has strong competition into the USSR. To some extent, the growing importance ofStates in Soviet machinery imports is politically motivated, notnecessity. US companies arc the preferred sources ofoil field equipment, both computer hardware and software,aircraft technology. In other areas, such as oil field equipmentexploration, the United States is the only technology source inof the Soviets. The Soviets are also seeking equipment andthe United States in numerous other specialized areas suchair traffic control, and advanced metallurgical processing.cannot be reached with US companies, however, thethat other countries often can provide technology that is asalmost as good. The USSR has had success, for example, inhardware and some kinds of automotive equipment andfrom Western Europe and Japan.

Tlie Quantity of US Technology

he United SIMM, of eonrie. win obtain tuluiantial economic benefit! in Ihe form of<animg> from its expom tod alternativeometime*imported

comnwdibM. An indicated in ihe Introduction, thli report doet not attemptalan^ of rain<

of US-Soviet trade suggest that the amountthe USSR will receive in the form of imported machinery will

be small relative to total domestic investment. Inlan period, for example, American machinery will be equal in value to no more thanf the equipment installed in industry and will be lessff all investment in equipment in the whole economy.

specific narrow sectors, of course, the acquisitions ofand machinery willelatively large impact. Forammonia plants now on order from the West incorporatewhich is far more advanced than Soviet technology. Bythey arc completed, they willapacityillionyear. Operating through, these plants would save the2 billionillion rubles, compared with the cost ofoperating ammonia plants tike those they already have.11

The Speed of Assimilation

the quantity of embodied technology transferredUnited States will be limited, greater weight attaches to itsThe imported machinery will be more productive thanavailable domestically, but clearly the contribution ofwill be limited unless it can be duplicated and adapted onscale. Similarly, the technology acquired outside the tradedirect and indirect contacts must be translated into blueprintsto series production. Thus the efficiency of assimilation willin determining the effect of US technology on SovietBut, there is no indication that theecord withassimilating foreign technology will improve markedly in either theor the medium term.

TVie Allocation of the Detente Dividend

II.ly equivalent lo tecent annual total Lnveflmot in the chemical and pet.ochemieal ndiuUiM,* comi-aied with etfmuled total oulp.it of chemical fanli/.eii duiLi;c ol aboutillion tubfct

technology transferred to the USSR will permit largerthe same amount of resources or, perhaps, the same output withIn cither case, the additional resources present the leadershippolicyow to allocate this dividend amongand defense. Some assessments of the effect ofon economic growth or military spending assume that thearc allocated all to investment or to defense. While thearc continually faced with the problem of balancing defensetheir economic objectives, defense has traditionally beenhighest priority claim on the resources of the Soviet economy.

however, Moscow's announced policy has been toattention to consumer needs. This reorientation in favor ofwas demonstrated concretely by Moscow's willingness to buyWestern grainolicy trend in favor of thealso be detected in the allocation of national product. The sharedevoted to consumption fell6however, the consumption share has been maintained at aboutaddition, many of the most expensive investment programs -ui agriculture and the chemicalill benefit theBecause of the commitment to improving theof living, additional resources will probably ultimately befor producing consumer goods.

Military Capabilities

The USSR is pursuingrogram to modernize its strategic weapons systems. This program had its origins in theefore the onset of detente and the signing of the SALT agreements but has continued unabated to the present time. The program seeks to introduce advanced technologies along the lines pursued earlier by the United States and incorporated into US offensiveor example, multiple independently targetable reentry vehicles (MIRVs) and computer-controlled in-flight navigation and guidance systems for lCBMs.

It is well documented that since World War II the Soviet Union's military-strategic capabilities have benefited from advances made by the United States. The USSR acquired US military technology by espionage and theft, capture of equipment in wartime, and purchase from other countries who evaded COCOM controls as well as by close scrutiny of the open literature. These efforts liavc continued in the detente era.

Nevertheless, this way of acquiring US high-technology hardware and know-how with potential military applications is often incomplete and does not give the USSR capabilities equivalent to those the United States enjoys. As in the case of civilian technologies, the Soviets have had only mixed success in mastering and replicating the production technologiesnd, in general, the more complex the manufacturing technology the less creditable have been their accomplishments. In addition, controls' on the export of military-related technology to the USSR have been reasonably successful, especially in the high-technology fields in which the United States hasronounced competitive advantage. In assessin-thc military benefits of dctcnle to the Soviets, then, the following question! should be addressed.

Is detente opening up new channels for the transfer of US v. military-related technology lo the USSR?

Is detente affecting the now of US military-related technology to the USSR through existing channels?

Benefits to Date

mililary capabilities probably have not yet beenthe US-Soviet detente in spite of the numerous developments thatplace sincet is true that personal contactsand Americans in government, academic, and, mostareas have increased substantially during this period. Andof machinery have expanded markedly during the detentecontracts already signed pointing to still greater exports ofthe Soviet .Union. At the same time,.the list of American firmsagreed to cooperate with Soviet organizations in science andgrowing week by week. Thus far, however, theontacts,agreements have not transferred discernible amounts ofAmerican firms have been relatively cautious sO far inSoviet delegations in sensitive technological areas. While exportbeen relaxed, the critical areas of military-related technology haveaffected appreciably. For example, the USSR is receiving helpbackward computer industry, but the aid has not yet includedto advanced weaponry.

Potential Benefits

Two years of detente marked by traditional Soviet opportunism, however, have (aid the groundwork for the possible transfer of important military-related technology to the USSR.

The cooperation agreements between American firms and the USSR have openedew channel for the potential transfer to the USSR of technology having ultimate military applications. Many of these firms produce military or military-related equipment. This new channel, therefore, could provide the USSR with valuable help through informal contacts, the supply of finished equipment, or cooperation. Soviet initiatives to US aircraft, computer, and metallurgical companies are of special interest in this connection,

The flow of technology through existingrade, technical exchanges, and theould also expand to encompass military-related technology. Under detente, the attitude of US firms doing business with the Soviet Union has changed. They are now requesting

29

feONFIOibNrt.

government approval for the sale of production technologies that they would not have considered supplying to theew years ago. Some Soviet acquisitions that are not now banned by export controls, moreover, could be adapted in time for military purposes. Quality control procedures and the employment of computers in managing complex development projects are examples.

Finally, detente is likely to improve Soviet prospects for obtaining military-related technology by lowering barriers in third countries. To the degree that the United States relaxes its controls on- the export of strategic goods, other countries will almost certainly let their standards fall to even lower levels. The COCOM partners of the United States have generally been less strict in applying controls, and they arc strong competitors in some of the advanced technologies that the Soviets are seeking.

In short, the changes in US-SOvIct relations under detente have the potential to upgrade Soviet military capabilities. The flow of technology already touches militarily significant areas in the computer and electronics fields. Whether the full potential is realized depends in part on the care with which US firms, scientists, engineers, and technicians treat the developing contacts. Moreover, the guidelines set and administered by the US Government win be influential in determining private attitudes and decisive in limiting the transfer of military-related technology.

APPENDIX

SOVIET SCIENTIFIC AND TECHNICAL COOPERATION AGREEMENTS WITH US FIRMS*

Can Company announced onadhree-year agreement with the Ministry of Engineeringand Food Industry and Domcslic Appliances. The agreementaspects of container and packaging technology involving variousAmerican Can operations, but centers initially on high-speedThe agreement reportedly stipulated an exchangeinformation and specialistseasibility study regardingpurchase.of American Can high-speed equipment.

Internationalive-year cooperationthe SCST inhe agreement covers ferrousoff-shore oil projects, but Armco reportedly hopes the agreementa favorable Soviet decision onroposedillion polyurethane complex for which Armco would be the

in

Andersen and Companyrotocol with theonhe agreement provides for the Andersen

accounting firm toeries of seminars in the USSR on such topics as production accounting, information systems, auditing and accounting operations, and taxation. In addition, the agreement provides for Soviet experts to visit the United States in an exchange program with the firm. The Anderson Company also hopes to receive permission to open an office in Moscow.

BASF Wyandotteember of the worldwide BASF Group of chemical companies, signed an agreementh the SCST onhe five-year agreement calls for exchanges in various fields, with the interests of several technical ministeries to be coordinated by SCST.

Bcchtel Corporation3ooperation agreement with SCST'. The agreement covers all branches of heavy industry and calls for transfer of technology. 'Ihe USSR reportedly is most interested in the energy operations of Bcchtel.

' TlieJibJc inagnenienit is .tetchy. Many of the Turn* no doubt ic$ird oVlailed information ai proprietary.

P.ONFI OFNTIA

Brown and Root. Inc.ive-year agreement with the SCST inhe agreement provides for the exchangenformation, documentation, and production samples; exchanges of delegations and specialists and trainees; organization of lectures and symposia and demonstration of production samples; mutual consultation to discuss androblems, principles, ideas, and concepts; joint research and development; exchanges in research results and experience; and joint programs and projects anywhere in the world. Other forms of cooperation are to include exchange, acquisition, or transfer of methods, processes,nd/or licenses.

Control Data Corporation in3year cooperation agreement with the SCST. The agreement could include cooperation in the joint developmentechnically advanced computer, computer, peripheral equipment, and information processing systems. Other areas of cooperation may include software development and communications equipment.

Dow Chemical is believed to havetandard five-ycsT cooperation agreement with the SCST inow hadraft for such an agreement

Dresser Industries' subsidiary. American Petroleum Service Division, in early3ooperation agreement with the SCST. An official of the Oilfields Products Division of American Petroleum signed the agreement that provides for the exchange of information, delegations of specialists, product samples, and research results as well asnd implementation of programs and projects. Initial cooperation is to be in increasing Soviet well-loggingicensing agreement has also been signed for Soviet productionresser-Clark model compressor.

Food Machinery Corporation (FMC) in3ive-year cooperation agreement with the SCST. The agreement coversf farm machinery and agro-industrial plants and cooperation in the food industry, production of soft drinks, packaging materials and machines, and mining equipment. FMC is also negotiating with Daktoroeksport for an order, expected to be worth almostillion,omplete set of machinery for growing and processing fruits and vegetables.

General Dynamics Corporation and the SCSTooperation agreement inhe agreement involves cooperation in the manufacture of telecommunications equipment, computers, computer-operated microfilm equipment, asbestos mining and

processing, commercial and special-purpose aircraft, ships and shipbuilding, and navigation and weather buoys.

General Electric and the SCST on3ide-ranging agreement for general scientific and technical cooperation. Power generation technology, including steam and gas turbine and nuclear. wm identified for immediate attention. Theo calls for exchange of specialist delegations, information, and production samples, for exchange, acquisition."or transfer of licenses; and for joint RAD projects. GE had signed two previous agreements, one with the Ministry ofower, and Transport Engineering in2 for the exchange of RAD on gas turbines and one with the Ministry of Electrotechnical Industry in2 for exchangen current commercial projects.

Hewlett-Packard signed an agreement with SCST on3 involving cooperation and exchanges on computers and other electronic equipment and technology.

International Telephone and Telegraph (ITT) on3ooperation agreement with SCST. According to irr. the agreement providesrading or knowledge in four fields -telecommunications, electronic and electromechanical components, consumer products, and publishingata.

oy Manufacturing Companyooperation agreement with the Ministry of Heavy. Power, and Transport Engjnecnngon2 The agreement provides for the exchange of technical licenses, scientific documentation, and the results of RAD in the manufacture of mining machinery. Exchanges of delegations of specialists also are expected.

Litton Industries has proposed and may haveooperation agreement with the SCST. Any agreement wouldide iinge of technology, including electronic, chemical, and machine building,

Monsanto Companyooperation agreement with the SCSThe agreement covers cooperation on computer applications in the chemical industry and ihe development of products for rubber compounding. It also envisions exchanges of information and delegations of specialists and Ihe joint development of new products and projects.

Occidental Petroleumroad SAT agreement with the SCST onhe agreement provides for the exchangenformation, documentation, specimens of products, delegations, and

trainees; arranging reports, symposia, and mutual consultationsiew to discussing androblems; joint research, elaborations, and tests; carrying oul joint programs and projects, and exchanging the know-how and licenses to manufacture products. The areas of cooperation include production and processing of oil and gas; production of agricultural fertilizers and chemicals; and metallurgy, ecology, and construction.

Singer Company on3ive-year agreement with the SCSTooperation and possible manufacture of Singer products in the USSR. Initially, the accord calls for cooperation in the fields of data collection and data*communications, education and training devices, aerospace and marine products, electronic instrumentation, advanced sewing technology, textile machinery, climate control equipment, industrial control equipment, -and metering equipment. The agreement covers the exchange of information, specialists, and production samples and joint research, development, and testing. Singer reportedly expects to deliver to the USSR computers, household appliances, cash registers, and navigation equipment. f

Stanford Research Institute on3ive-year agreement with the SCST to exchange scientific and economic information. The agreement provides for exchanges of experts and joint participationeries of studies on business opportunities. Areas for joint work are in determination of international business potential, arrangements of international industrial conferences, applicationo develop the economy and industry, and technical and economic estimation of various measures in which Soviet, American, and international firms participate.

Union Carbide is believed to havetandard five-year cooperation agreement with SCST innion Carbide had previously notified the SCST of its willingness to discuss such an agreement.

Kaiser Industriesgreement with SCST ont calls for cooperation in alumina-aluminum production; iron ore mining and pelletizing; coke, iron, and steel production; metal products fabrication; and other areas.

Lockheedgreement with SCST ont calls for cooperation in navigation systems, civil aircraft construction, air traffic control systems, oceanographic apparatus, and other areas.

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