COMMUNIST CHEMICAL INDUSTRIES: INTEGRATION AND TRADE (ER IR 71-22)

Created: 8/1/1971

OCR scan of the original document, errors are possible

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OF INTELLIGENCE

Intelligence Report

Communist Chemical Industries: Integration And Trade

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CENTRAL INTELLIGENCE AGENCY Directoraic of Intelligence1

INTELLIGENCE REPORT

COMMUNIST CHEMICAL INDUSTRIES: INTEGRATION AND TRADE

Introduction

During thcears the Communist countries. IJ anxious to increase their self-sufficiency in chemical production, havc devoted substantial resources to building up their chemical industries. They have hoped to avoid increasing dependence on the Free World for commodities important to their economies, to limit outflows of scarce foreign exchange needed to obtain these commodities, and to increase their own ability to export chemical products. The strategy for development called for increased coordination and cooperation of the chemical industries of thc several countries and also assigned an important role to the purchase of complejc chemical installations and related technology from the Free World, in order to upgrade produciion processes and improve efficiency.

This report evaluates the effect of cooperation in chemical production and of purchases of equipment and technology from the Free World on Communist foreign trade in chemicals. Prospects for increased interdependence of Communist chemical industries andhange in their competitive position in Free World markeis, including some traditional US markets for chemical products, also arc examined.

Conclusions

either efforts lo inciease cooperation in chemical production nor large purchases of Western equipment and lechnology have yet had thc desired effect of making rhe Communist countries more self-sufficient in chemicals. Nevertheless, these measures have made possible large increases in output and have facilitated the entry ofsomc Communist-made chemicals

nless otherwise indicated, the term Communisi countries is used throughout this report to refer only to the USSR and /he East European Communist countries, excluding Albania and Yugoslavia.

Note: This report ws prepared by the Office oj Economic Research

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into Free World markets. Over (lie next several yeais, as new plants come into operation, tlic degree of Communisi dependence on chemicals imported from the Free World probably will decrease.

Communist production of chemicals has grown rapidly -increasing, according to official Communisi data,%but it has failed to keep pace with rising requirements. Consequently, net chemical imports inlo the Communist area from developed Free World countries have been increasing rather than decreasing.et imports from the Free World, consisting mainly of expensive items, such as plastics, man-made fibers, rubber, pesticides. 3nd specially chemicals, were atreater than

In spite of thc lip-service given to cooperation among the Communist countries, nationalistic and autarkic tendencies have kept iielatively low level. Nevertheless, the countries depend on one another for many chemical products and raw materials. More than half of their total exports of chemicals go to one another. Thc USSR plays the major role in supplying raw materials to Easi European chemical industries and receives chemical intermediates and finished products in return. Thc USSR also receives substantial quantities of chemical equipment from Eastern Europe.

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Thus far. benefits from imported Western equipment have been less than expected, partly because or construction delays, and partly because inferior raw materials and inexperienced operation and management have led to high costs and poor quality of oulput. There are indications, however, that during the latter part of thche Communist countries may be able to reduce their net imports of chemicals. Although domestic consumption of chemicals is scheduled lo rise- in nil ihe countries, production probably will rise more rapidly. Many plants now under construction,umber of those purchased from the Free World, will be coming on-stream during the next two or three years. Increasing cooperation, in the form of specialization in production and joint efforts in research and development, may also become an important factor in boosting produciion. Some new planis being built will be large enough to cover ihe needs of several countries, permitting economies of scale and promoting integration of thc chemical industries.

During the next two or three years, some of (he new plants coming on-slream will lead to duplication of capacity rather than specialization. This is especially iruc in thc case of nitrogen fertilizer produciion. Hie Communist countries already produce nitrogen fertilizer in excess of Iheir own needs. Tie USSR. Romania, Poland, and Bulgaria already have begun to export substantial amounts of nitrogen fertilizer, especially urea. Their markets include countries (hat, like India, have been

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traditional customers of Western countries, incudinR thc United Slates, When additional plants become operational, output will increaseoint where the Communist countries may begin lo compete with one another for markets, as well as with producers in the Free World.

Some of the changes already evident or likely to develop in thc chemical trade of the Communist countries are the direct result of imports of Western equipment. Purchases of plants and technology from the Free World have been largely responsible for thc ability of the Communist countries to produce and export urea and have contributed to their growing capability to export pharmaceuticals and some synthetic materials. Installations lo be built under expansion programs scheduledrobably will rely heavily on Western equipment and licenses, and output from these plants probably will affect future Free World sales to some extent.

5 or shortly thereafter, increased Communist capability to produce and export chemical products will be felt in world markets. Communist exports of nitrogen fertilizer, potassium salts, phosphates, and sulfur probably will continue to grow even though world markets for these products are already highly competitive. Certain chemical firms in Western Furope and Japan, which provide thc bulk of Free World chemicals sold to Communist countries, may find sales of man-made fibers, certain plastics and soda products reduced as new Communis! installations go into operation. US firms, which havc nol sold significant amounts of cither chemicals or chemical equipment to Eastern Europe and thc USSR, may note little change in sales to thc area but probably will encounter heavier competition from Communist-produced chemicals, especially In Asia, the Middle East, and South America.

Discussion

Background

ooperation among the Communist chemical industries is by noecent innovation. Under bilateral agreements signed innd, for example, the USSR supplied equipment and technical dala for production of nitrogen fertilizers to Bulgaria. Hungary. Poland, and Romania, and Czechoslovakia provided cquipmcni for developing Polish sulfur deposits and thc East German polash industry. Multilateral agreements iilso were signed. Some provided for one or more countries to specialize in producing certain chemicals or certain types of equipment and to supply

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these products to thc other parties to thc agreement. Others called for joint investment in such projects as the cellulose installation built in Romania with aid from Poland, East Germany, and Czechoslovakia. Implementation of multilateral agreements, however, especially those calling for specialization in production, frequently fell far short of plans.

Cooperation in Process Development

hemical research and development projects are being coordinated through the Permanent Commission on Chemicals of the Council for Mutual Economic Assistanceajor products to be coordinatednclude advanced types of man-made fibers, plastics, synthetic rubber, olefins, and acetylene.

Past efforts at joint development of chemical processes have not been outstandingly successful. For example, cooperative accomplishments claimed by the members of CEMA during the period up6 included the development of processes for producing polyester fiber and acrylonitrile. Yetive of the CEMA members purchased polyester plants and related technology from Free World firms, and four bought acrylonitrile plants.

Efforts to improve thc efficiency of chemical plants by having multinational teams of experts study production facilities in various Communist countries and propose improvement have perhaps been more productive. Such teams reportedly have succeeded in improving production of caprolactam (an intermediate for nylon) in the USSR and of ammonia in East Germany and Hungary.

Cooperation in Production

hemical products (chiefly reagents, painls, dyesand pharmaceuticals) now are subject lo bilateralagreements on specialization among ihc members ofproducts, however, make upmall share of totalin Ihe Communist area, and many of the agreementsa specialization that already existed.hange in production schedules have not always been honored.

Cooperation in Construction and Investment

cooperation in building new chemical installationsthe exchange of technical data, Ihe rendering of variousconstruction, and lhc provision of equipment or financialsome cases such cooperation enables thc smaller Communistdevelop production in chemical sectors for which they lack technical

or financial resources. For example,f lhe invesimeni for construction of Bulgarian synthetic fiber plantsas scheduled to be provided by credits from thc USSR, East Germany, and Chechoslovakia.

construction and invesimeni projects, however,at best only stop-gap solutions to thc serious problemschemical industries. Some of the plants built throughhavc been too small to provide economies of scale. Moreover,countries often were unable to provide modem equipmentDuring the decade ending5 the USSR suppliedequipmenl to Bulgaria and Romania and rubber technologyand Czechoslovakia lhat were obsolete by thc time lhe plantsstarted operation or soon thereafter. Although thc installationssome internal needs of those countries for rubber and fertilizer,poor-quality products did little lo promote efficiency ineconomy or to enhance Communist capability lo compete in

Signs of Change in Cooperation

Trends Toward Large-Scale Plains

Startingignificant changes became discernible in some of the new Communist agreements on cooperation in Chemicals. Terms of lhe more recent agreements indicate lhat thc USSR and East European Communist countries plan to erect modem chemical plants that wilt provide economics of scale and arc ready to accept the higher level of interdependence this will generally entail. Hungary and lhe USSR, for example, are extending credits to Bulgaria forlant in the Devnya Valley that will have an annual production capacityillion tons of soda ashnd will be one of lhe largest such plants in Europe. Output fiom ihe plant will be used to repay lhe credits. Part, if not most, of the required equipment apparently will come from French and Japanese firms.

A Soviet-Hungarian agreement signed0 calls for constructionlant at Leninvaros in Hungary, with an annual production capacityons of ethylene. The plant will be comparable in size to some of the largest ethylene plants being built in the Free World, and its ethylene capacity will be about ten limes that of an existing installation obtained from Ihe USSR that took about ten years to build. Moreover, the plant also is to have capacity forons of propylene

otal output of soda ash in Bulgaria9ons, ofas exported.

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lly and reportedly will be large enough to permit piofitableyproducts such as butadiene. Most of the equipment for the plant 'hich is scheduled for operationrobably will be purchased from Free World firms. About half of the ethylenef thc propylene produced will be shipped by pipeline to the USSR. In return, Hungary is to receive other petrochemical products, including polymers derived from ethylene, lhat will have thc same total value (at world market prices) as the ethylene and propylene delivered. The annual value of additional trade between the USSR and Hungary resulting from this agreement will beillion, each country supplying products valued at about SI4 million.

Interchem

In order to promote integrationore efficient basis lhan in the past, the Communist countries at the beginning0 setEMA-sponsored organization known as Interchem. This organization is lo coordinate development and production of fairly expensive chemicals produced in relatively small quantities, such as pesticides, dyes, paints, and auxiliary chemicals for the textile, leather, and paper industries. Interchem also is to study world market conditions, coordinate trade in products under Hs jurisdiction, and decide on purchase or sale of licenses in third countries. Besides seeking to improve production efficiency, the new organization wjll aim to reduce or eliminate the importation of certain chemicals from ihe Free World.

The brief information published io date on Inierchem suggests that in therospective Communist purchaser of Western licenses may seek the right to pass thc technology on to one or more other members of Interchem. Presumably lhc Interchem negotiator, representing several countries, would be able toetter bargain lhan individual countries negotiating separately.

Cooperation with Nan-Comtwttui Countries

Communist countries arc noi restricting their effortsand cooperation in production of chemicals toother Communist countries. Hungary has shown more initiativeother members of CEMA in entering into agreements wiih Freein the chemical8 agiee.ncnt calls for thechemical firm Oestcrrcichischc Sticksioffwcrke lo supplyfor acrylic fiberungarian fiber plant in return forof synlhelic fiber. Other Hungarian agreements withSwiss, and West German firms concern delivery and processingfor pesticides, pharmaceuticals, dyes, and plastics. Inhas been discussing cooperation in the production of fertilizerand British firms. Other countries aic investigating cooperation

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possibilities in non-chemical fields; if these efforts are successful, they may pave the way for cooperative chemical ventures.

Terms of future joint ventures may include provisions permitting Western firms to hold minority ownership in Communist enterprises. Romania and Hungary recently passed legislation opening the door to partial ownership by Western firms of enterprises located in those countries. Joint ownership of enterprises in third countries also is being explored. The Romanian Minister of the Chemical Industry,isit to West Germany intated that his country intends to promote the formation of joint venture companies with large chemical firms in Western Europe. Free World firms, however, may be slow to undertake such projects.

There arc indications that Western credits, which will continue lo be needed, may be offeredess restrictive basis than in the past. Heretofore, Weslern credits for Communist chemical projects have been tied to purchases of equipment and technology in the country extending the credit, although the major conlraclor could subcontract to firms in other countries. Recently, however, an international banking consortium placed no restrictionsillion credit extended to Hungary for developing its pharmaceutical industry. The credit, if all used for this purpose, will cover about one-third of the scheduled investment in-the Hungarian pharmaceutical industry during that period.

Foreign Trade

Net Imports Grow Despite Cooperation and Modernization

large-scale investment (partly in chemicalfrom the Free World) and attempts at integrationto rapid growth in the production of chemicals.hcof thc Communist countries have been unable to satisfydemand. Net imports of chemicals and related materials fromWorld grew substantially during. Available data doprecise measurement of this growth, but thc trend is clear.based on data from Communist sources, indicates that9 imports

fficial Communisi data indicate thai produciion of chemicals increased%, while total industrial output rose byestern estimates indicate that real growth in the oulpul of chemicals in lhe Communist countries during this period probably was no more% and lhat the comparable growth in total industry was. Whichever series is used, the relationship between the growth of the chemical industries and growth in industryhole is approximately the same.

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of chemicals and related materials by thc USSR and Eastern Europe (excluding East Germany) totaled aboutillion and exceeded corresponding Communist exports2 million. This excess of imports over exports had grown from7 millionS2 millionespite an average annual increasen Communist exports. Tableased on data from Free World sources, indicates an even greater increase in net Communist imports of chemicals,ise of6 million58 millionlthough the data in the two tables are not precisely comparable, both tables demonstrate that Communist imports of chemicals grew rapidly during. All of thc Communist countries listed inxcept Romaniaise in net imports of chemicals, und the USSR accounted for more th3ii four-fifths of thc total net increase.

of the two tables indicates that trade witharea accounts for more than one-half of ihc total value ofexported by the USSR and Eastern Europe. The highlimited assortment, and inferior quality ofhave kept the volume of exports of chemicals relativelythe USSR and Eastern Europe accounted for anof total world output of chemicalsJ theyonlyf world exports of chemicals, andof chemicals generally havc hadinor effect onWithout the efforts to improve thc equipment andtheir chemical industries the Communist countries probably wouldeven larger deficits in their chemical trade.

Trade Among the Communist Countries

Trade III Chemicals and Haw Materials

potential for expanding hade among thehas not been fully exploited to date, partly because ofof ccnlral planning and of barter trade. Lack of acurrency has been another cause of failure to expandamong the Communist countries. Moreover, eachhas sought to produce as many as possible of thewhich domestic requirements were rising and which were ofin world markets.

ne Communist source has claimed that lhe CEMA member countries accountedf the world's output uf chemicalsuch claims, however, usually arc inflated, either becausenadequate sample is used for the comparison orommunisi concept of gross output is used that includes some double-counting

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Table 1

JSSR and Eastern Europe: Chemical Tradeus $

Country

t.fi

.7

.0

.9

.9

Table 2 does

inol

compre

on East Germany,

cheniaals. Pate on the other Communiet countries lifted in the

table, hcuever, include chemical trade ui th Fast Germany* All data

inre baaed on trad* handbook* pubtiehed by the Communist

Official foreign exchange rates were ussd to convert cur'

re nayhe presentation of trade data on chemicals by the

Comnuniet countries is not entirely uniform, eo the data probably

conceal eom* differences in coverage* These differences, however, are

oelieved to be relatively minor. A* far a* voeeible the data eelected

fornclud* basic and intermediate chemicals, fertilizers,

plastics, man-made fibers, rubber and rubber goods, pharmaceuticals,

p^nts, lacquers and pigments, photographic chemicals, eesentialcashing

Table 2

USSR and Eastern Europe: Chemical Trade with the Free World a/

Thousand US S

Country

Germany

Eastern Europe

The data inre basedublzcation of the US Department of Commerce, Summary of Country by Coirjnodity Series, As far ae possible, the data were selected to cover the same items as those described in the footnote to Table I, but the two tables are not precisely aomparable, eals only vith Communist chemical trade with the Free World and includes data on East Germany, whereaseals with total Soviet and East European foreign trade in chemicals except for the noted exception relating to trade involving East Germany. Data on Communist exports of man-made fiber yarn to the Free World59 and on Free World exports of the same item to Communist countriesS were not included inecause thes partasket category that included nonchemical terms* ew oiher categories covered by the data inay not equate exactly to item* covered in Table 2. Nevertheless, major trends revealed by both tables appear to be consistent.

CONJJiBENTIAI.

Soviei purchases of chemicals from Eastern Europe far outweigh corresponding sales to that area.or example, such imports by the USSR were valued9ore lhan the value of Soviet chemicals exported to Eastern Europe. East Germany and Poland accounted for almost half of all East European chemical sales to the USSRhe share of East Germany alone amounting. Soviei imports of chemicals from Easlcm Europe indirectly reflect earlier agreements on specialization of production and arc heavily weighted with pharmaceuticals, dyes, paints. lacquers, pesticides, and photographic matcnals.astern Europe was the sourcef ill Soviet imports of pharmaceuticalsf thc imported dyes, paints, and lacquers.

Eastern Europe, on Ihc other hand, is heavily dependent on the USSR for raw materials required in thc production of petrochemicals and phosphalc fertilizers, and also purchases significant quantities of Soviet potassium fertilizers, plastics and related intermediates, synthetic rubber, and tires. Soviet sales of chemicals to Easlcm Europe9 were valued at5 million and accountedf the total Soviet exports of chemicals. Fertilizers and fertilizer raw materials accounted. and plastics and related intermediates forf the Soviei sales of chemicals to Eastern Europe. The East European purchases of crude and finished fertilizers from the USSRillion tonsp sharplyillion tonsf thc Soviet fertilizer materials going to Eastern Europehipments of apatite concentratehosphate raw material) amountedillion tons, and export* of potassium salts, toons.East Germany, however, remains the chief supplier of potassium fertilizer to Eastern Europe, its exports to this area9 beingimes those of the USSR.)

Soviet exports of oil and gas, nol reflected in Ihe data on chemical trade, are of vital importance in lhe development of Eastern Europe's emerging petrochemical industries.9 Ihe USSRf lhe crude oil and natural gas imported by Eastern Europehe USSR exports crude oil to all East European countries except Romania, and natural gas to Poland and Czechoslovakia. Soviet shipments of oil to CEMA members, whichillion ions. arc scheduled toillion tons. Exports of natural gas to these countries, whichillion cubic meters in thc earlier period, are to beillion cubic meters during lhe current Five-Yearhipments of natural gas to Czechoslovakia and Poland will be increased and the USSR will begin to

5ons of potassium salts Is equivalent tu slightly moreons of fertilizer nutrient

lie bulk of the crude oil and natural gat going to Eastern Europe is used and will continuee used as fuel, but utilization for production ofising rapidly.

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supply such gasulgaria, Hungary, and East Germany on completion Of pipelines now being built.

Trade in Equipmenl

Ine quantity, assortment, and efficiency of the chemical equipment obtained by Communist countries from each other determines in part their capabilities to export chemical products. The trade in equipment consists mainly of exports from Eastern Europe to the USSR which receives about two-thirds of the total volume of chemical equipment exported by Eastern Europe. According to Soviet plans, the USSR was lo order chemical equipment valued5 million from Eastern Europeubstantial rise over corresponding imports5 millionI-6S. Actual East European deliveries to the USSRmounted8 million andf the total Soviet impotts of chemical equipment, the rest having come from the Free World Czechoslovakia and Easl Germany, the major Communisi suppliers of chemical equipment lo thc USSR, accountedf thc total of such deliveries from Eastern Europe

As with chemicals, the types of chemical equipment featured in trade among the Communist countries frequently reflect earlier agreements on specialization. Poland is specializing in manufacture of equipment for production of sulfuric acid, fertilizer, and rubber and plastic goods. East German specialties include equipment for production of basic inorganic chemicals, petrochemicals and plastics, while Czechoslovak exports include machinery for fertilizer, pharmaceutical, and petrochemical plants. Although the USSR supplies Eastern Europe with an unspecified but almost certainly smaller amount of chemical equipment than it receives in return, it lias helped these countries expand produciion of basic chemicals and synthetic materials.f the output of Bulgaria's chemical industryS was produced iu plants built with the aid of the USSR. More recently the USSR has been supplying equipment for petrochemical plants beingulgaria and Poland and is scheduled to supply equipment for Hungary's first synthetic rubber plant.

lthough, as noted, the mutual trade in chemical equipment has helped expansion of Communist chemical industries, Ihc productivity and quality of some of thc equipment has been inadequate to ensure rapid improvements in efficiency. The Soviet press implied0 that one-fourth of the chemical equipmenl sent io the USSR by Eastern Europe is obsolete, and Soviet manufacturers have not been immune to the same charge. To help remedy this situation, the Communist countries are beginning to use Western technology for manufacture of chemical equipment. Poland, for example, is supplying three large sulfuric acid plants

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to the USSR thai incorporate technology purchasedutch subsidiaryS firm.1 the USSR was negotiating to purchase US technology for produciion of centrifugal compressors, critical items in modern ammonia plants. Soviei plans call for ihe compressors to be produced in either thc USSR or Czechoslovakia, with the option of also marketing the equipment in East Germany, Hungary, Poland, and Romania.

Communist Trade with thc Free World

Trade In Chemicals and Raw Materials

The CEMA countries are large net importers of chemicals and related materials from the Free World.oviet and East European imports of these products exceeded Communisi exports of chemicals to the Free World by more0 million. West Germany, Italy, and the United Kingdom are the principal Free World suppliers of chemicals and related products lo the USSR and Eastern Europe. US trade in chemicals wiih the Communist countries is negligible.S exports of chemicals to the USSR and Eastern Europe amountedillion, compared with total US chemical exports3 billion. 7/

Communist purchases of Free World chemicals and related products are mainly high-priced items such as plastics, man-made fibers, rubber and pesticides, and various organic and inorganic chemicals. Communist sales of chemicals in ihe Free World largely consist of baste chemicals, fertilizers, and fertilizer raw materials. Also sales of plastics and pharmaceuticals to the Free World are increasing. Substantial quanlilies of oil have been exported from the USSR to Western Europe and Japanumber of years, and significant deliveries of Soviet natural gas to thc Free World arc expected. Some of thc Soviet oil and gas going to Free World countries probably'will be used for production of petrochemicals.

Trade In Equipment

capabilities of Communist countries lo export chemicalsFree World as wello each other improvedesult of thepurchases of Free World chemical equipmenturing this period Soviei and East European ordersWorld chemical process data and equipment amounlcd to aboutThc East European share in these ordeis wasf

These data exclude trade in fabricated rubber and plastic products

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(hereimelag between oiders and aclual delivery andinstallation of equipment, thc effect of Communistor Free World chemical technology and equipment is notin Communisi foreign irade in chemicals. Earlierprobably contributed less lo export capabilities of Ihe USSREurope than was anticipated hy Communist planners.data on trade in chemicals do not always reveal whichto Free World countries havc resulted from earlierthe purchases clearly havc enhanced Communisi capabilitiesnitrogen fertilizer, plastics, pharmaceuticals, rubber products,number of olher items to lhe Free World., forWorld firms contracted to supply to thc USSR and Eastcountries somerea fertilizer plants, atertilizer plants, andlants for producing ammonia, ain making nitrogen fertilizers.

Trade in Fertilizers

5 the Communist countries were net importers of manufactured fertilizers.ccording to data compiled by the US Department of Commerce and shown in Tablehey were net exporters to the cxlentillion. Aclual Communist sales of fertilizers9 are believed to exceed the total shown in Tabic/ but even the data provided confirm lhat it was the rising expoits of nitrogen fertilizers thai were instrumental in changing the Communisi countries from net importers to net exporters of manufactured fertilizers.

Sales of potassium fertilizers by the USSR and Easi Germanynd Soviet sales of natural phosphates (largely apatite) to Free World countries yield substantial earnings of foreign exchange.

Tlie data on fertilizer exports9 art' believed to understate actual Communis! sales lo Ihe Free World because details on exports of urea arc nol reported by all Communist countries tn addition, the Communist countries thai do report their exports of urea do nnt necessarily include ihe data wiih statistics on nitrogen fertilizer The USSR, for example, lists exports of urea with data on planus and related materials, and this practice also isS Departmeni of Commerce data on Communist sales of urea. Urea can be used as an intermediate in the produciion uf plastics or as an ingredient in animal feed, but its main use isertilizer.

These two countries arc the only Communisi countries possessing exploitable deposits of potash, lhe basic raw material for potassium fertilizers, and are the only exporters of these fertilizers

onet sales of apatite concentrate to Free World omnirles roseons5 toillion tons9

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Table 3

USSR and Eastern Europe: Fertilizer Trade with the Free World

Thousand US $

Type of

Free World purchases of these materials from the USSR and East Germanyillion compared with corresponding Free World exportsillion to various members of CEMA. East German and Soviet exports of potassium fertilizers to all areas (including thc Communist countries) during thc fertilizer year8 accounted forf world exports of Ihis commodity. JJ/f the Communist exports went lo iion-Commumsl areas. Free World equipment and technology did not contribute as much to Ihe buildup in Communist produciion of potassium fertilizers as they did in the case of nitrogen fertilizers., however, the USSR did purchase from US and West German firms potash mining equipment valued ai moreillion. In addition,9 lhc USSR and France signed an agreement on technical and scientific cooperation in Ihe potassium fertilizer industry. Some equipment for the Soviet and Easi German potassium fertilizer industries has come from Eastern Europe; Poland has supplied equipmentoviei combine; and Poland and Czechoslovakia have provided equipment for thc East German industry.

n ihe last few years. Communisi shipments of fertilizer have been increasing to some Free World countries, such as India, lhat are important

orld exports of potassium fertilizer in the fertilizermounted toillion tons, expressed as pure nutrient and excluding potassium contained in compound fertilizers. Soviet and East German exports for the same period are eslimaiedS million tons, Ihe overage of their exports during89 calendar years.

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customers of [he US fertilizer induslry. Communisi exports of manufactured fertilizers (including urea) to India in thc year starting9illion, compared with sales of onlyillion four years catlier.8 and again9 the USSR and Bulgaria togetherotal of0 tons of urea to India, although neither Communist country had exported this fertilizer to Indiaomania and Poland also exported urea to India in this period, but thc quantities are not known. US shipments of urea lo India, which amountedonsell byons9 3nd by an0 ionshc Communist sales of urea to India, however, probably have accounted forart of the reduction in US sales because India also imporis urea from other Free World countries and. in addition, is building up its own capaciiy to produce Ihis fertilizer.

exports of fertilizers to Free World areas areto ihe less developed countries. Large quantities ofare shipped to Japan by thc USSR and to Ihe UnitedEast Germany. Although capacity for production of fertilizer inrequirements, large amounts of fertilizer from Communistare being sold there at "dumpingetails of thesenot available, but some Soviet fertilizer originally going tohas been resold lo France. West German manufacturersalso have been hurt recently by imports from Easternfrom Romania (andllhough shipments alsoreceived from East Germany. Hungaiy. Poland, and Czechoslovakia.

Trade in Sulfur and Pharmaceuticals

Polish sjIcs of sulfur have been increasing rapidly,esult of large increases in production achieved parlly through cooperative aid from Czechoslovakia. Polish exports of elemental sulfur lo non-Communist countries amounted toonsonsillion tonshe Polish sales of sulfur to ihe Free World unquestionably have reduced potential sales by Free World countries, including the United States. US sales of sulfur fellillion tons5illion tonshe Polish sulfur sales. logclher wiih increased supplies of sulfur from Free World countries, have contributed lo falling world prices for sulfur. Inor example, sulfur sold in thc Untied Slates reportedly was moving al^ of the price it commanded two years earlier.

Among thc CEMA member countries, Hungary and Poland arc the major exporters of pharmaceuticals, and East Germany and

olish ex/xirts of sulfur nt all areas roseons57 million tons

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Czechoslovakia also arc ncl exporters. Hungarian and Polish sales of pharmaceuticals to all areas9 totaled9 million, of which sales to Free World countries amounted toillion. Hungarian pharmaceutical sales to the Free Worldepresented an increasever corresponding exportshile Polish sales increased byn thc same

Prospects for thc Future

Cooperation and Mutual Trade Among the Communisi Countries

Progress in cooperation among the Communist countries, as well as in the efficiency with which workers build and operate chemical plants purchased from Free World firms, will vitally affect thc degree to which plans fornd trade in chemicalsill be fulfilled. Production of chemical products, particularly fertilizers, synthetic materials, and related intermediates, is scheduled to increase substantially. Goser coordination of Communist chemical industries can be expected, in part because the East Europeans are increasingly dependent on thc USSR for vital chemical raw materials.

Despite the limited effectiveness of past efforts at specialization in production, due partly to delays in introducing new technology, the Communist regimes are promoting this form of cooperation in order to increase mutual trade. Poland and Hungary, for example, are to increase specialization in pharmaceuticals, and Czechoslovakia and Poland, in dyes and cosmetics. Bulgaria is greatly increasing its output of soda ashiew to supplying sizable quantitieshe other Communisi countries. An increase in chemical trade among thc Communist countries will also occur because the East Europeans wish lo make full use of lhc capacity of huge installations purchased from thc Free World which will provide outpui substantially in excess of any one country's domestic requirements. Greater interdependence among the Communis! chemical industries will be

IS. These data for Hungary and Poland were obtained or derived from Communisi publications. The value shown for Hungarian and Polish exports lo Free World countries9 are substantially higher than are shown In data9 compiled by the US Department of Commerce. It is possible that the Communist dataroader segment of pharmaceutical products.

ata on production of selected chemicals in the USSR and Eastern Europe50 and plans5 are shown in ihe Appendix.

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particularly noticeable with respect to petrochemicals, man-made fibers, plastics, fertilizers and fertilize! raw materials, and pesticides.Implementation of Communist agreements on specialization of production may also improve, in part because stiffer penalties are lo be imposed for nonfulfillment of obligations accepted under these agreements.5 the USSR and thc Communist countries of Eastern Europe probably willarger share of their requirements for chemicals from domestic output and from trade among themselves.

Equipment and Technology

In areas in which increased output and specialization arethe Communisi countries will continue iomanufactured equipmenl by purchasing chemicalFree World firms. Prospects appear good for Free World sales infuture of complete installations for production of ethylenepolypropylene, polyester libers, polybuladienecomplex fertilizer,umber of other chemicaladdition, Communist manufacture of chemical equipment underis likely to grow.

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their lack of experience in erecting and operatingthat have very large unit capacities, the Communist countrieswill experience delays that will prevent fulfillment ofgoalsS. In addition, the Fast Europeans arc unlikelya plan thai calls for them to send the USSR chemicalat4 billion. Thisimes thesuch deliveries.radual increase inof the Communist chemit.il industries should be achievedhelped in some casesong-overdue phasing out ofas new. modem plants go into operation. Some olderin the USSR, for example, are to be shut down, on completionmore efficient units purchased from Free World firms.

IS. lit addition to the Soviet Hungarian agreement on ethylene and polyethylene cited earlier, other agreements signed0 and1 call for Hungary to supply nylon and acrylic fibers to Poland III exchange for polyester fiber, Romania to Supply acrylic fiber to Poland in return for polypropylene, and East Germany to supply ethylene and propylene to the Czechoslovak plastics industry Hungary has agreed to help develop phospliate deposits in the USSR in rc mm for future deliveries of phosplmtcs. and Poland and Romania are to assist each other in setting up new produciion capacities for pesiicidcs. dyes; and phaimaceuticals.

CgpjHBErlTIAt

Trade with ihe Free World

structure and perhaps the volume of CommunistWestern Europe and Japan may change substantially as thebegin to cover more of their requirements for chemicalstrade. US exports of chemicals to thc Communistarc very small and probably will be little affected. Theprobably will be less dependent on the Free World foras polyethylene and polyvinylchloride plastics, man-made fibers,products. East Germany, which9 purchased5 million from the Free World, is likely to reduce orpurchaseshe Communist countries probably willpurchase Western reagents, catalysts, organic intermediates,special-purpose plastics.

appears toigh potential for Communist saleand fertilizer raw materials (including sulfur) in the neargrowing.world competition in this area that may restrictsuch0 and1 the USSR, Eastand Hungary contracted to purchase eightombined annua! production capacity of over 2and Romania ordered four plants capable ofotalmillion tons of complex fertilizer per year. Process technology andthc cquipmeni for the Romanian plants will come from Norway,US firm will provide construction and engineering services. Fiveordered by the USSRill incorporate USJapanese equipment, and willombinedillion tons, equivalent to aboul one-fourth of ihcoutput of ammonian' ihe West, economies ofwith such plants have reduced unit investment cosls byoperating costs by as much, so the ammonia plantsincrease Sovici capability lo compete in world nitrogenIn addition, lhc USSR and East Germany are planningin production of potassium fertilizer that could result incompetition with each olher as well as with Free World firms.Communist output of fertilizers may well reduce or limit Ihe growth

resent world capacity for production of sulfur exceeds demand. This situation may be aggravated by Free World measures to recover increasing quantities of sulfur from waste products and from natural and refinery gases.

ix of the urea plants were ordered from Czechoslovakia and two from Free World firms.

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Of future sales by tlie Uniled States and other Free World countries in areas such as India. Pakistan. Japan, and South America.

Foreign sales of elemental sulfur by Poland arc scheduled to riseillion tons0 toillion tonsnd markets arc to be expanded in bolh Free World and Communisi countries. Poland which specializes in manufacture of sulfuric acid plants, may offer attractive prices to prospective purchasers of such plants who agree to use Polish sulfur. The Poles recently contraclcd to sell sulfuric acid plants to Hungary and Czechoslovakia, and alsoest German firm, and these deals apparently included tie-in sales of sulfur.

Exports of pharmaceuticals to Free World countries by Hungary and Poland will continue to rise. Hungary, which exportedf its total output of pharmaceuticalsill continue io export these products mainly to Communisi countries, but pharmaceutical sales to non-Communist counlries arc scheduled lo increaseillion9illionis anticipated increase in sales probablyari fromillion loan for development of Hungary^ pharmaceutical industry obtainedree World banking consortium.

Communist sales of plastics probablyo continuecrease. Any substantial increase in these exports will reflect purchases ol Free World equipmenl and lechnology.he USSR and East European Communisi countries purchased five plants for production of polyethylene from Western firms, four for polyv.ny.chloride, three for polystyrene,roduciion or processing of other plastics. Part of the Communist plastics Output may be .distributed by Free World firms winch agree to accept such products in partial payment for chemical equipment Or technology sold lo the Communist countries.

Less developed countries in Asia, ihc Middle East, and South America are among likely targets for Communisi sales efforts Algeria currently at odds with France because of partial nationalization by Algeria' ol French-owned and jointly owned oil companies, may provide an outletceasnig amounts of chemicals from the Communis, counlries. Algerian imports of chemicals fiom France reportedly amounted toillionlthough ihe average level of technology employed in production of chemicals in the Communisi countries probably will continue lo lag belund thai in .he industrialized West, the greaterof Communist countries to accepi barter or olher terms of payment that do not involve hard currency probably will result in some new sales in thc less developed

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