(ESTIMATED PUB DATE) COMMUNIST PURCHASES OF CHEMICAL PLANTS AND TECHNOLOGY FROM

Created: 9/1/1967

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DIRECTORATE OF INTELLIGENCE

Intelligence Report

Communist Purchases of Chemical Plants and Technology from the Freend Prospects0

riA HISTORICAL REVIEW PROGRAM "ELEASE AS SANITIZED

This report focuses on5y the Communist countries for chemical plants (plus equipment and technology) from the Free World, against the background of contracts. It also considers the outlook for contracts

Communist contracts with the Free World provide largely for the delivery of complete plants, frequently including the associated technology and technical services. Miscellaneous items of equipmentery small portion of the total value of contracts and, for discussion purposes, are included under the general heading of plants. Because contracts usually are carried outeriod of years, the value of contracts concluded in any one year will not correspond with the value of imports by the Communist countries.

The value figures given throughout the report are in current US dollars and, unless otherwise indicated, refer to contract values.

This report updates information in CIA/RR, Acquisition of Chemical Equipment and Technology by the Communist Countries from the Free World, SECRET

Contents

Background

Purchases of Plants and Technology

56

Significance of Purchases

Sellers and Terms of

Appendix

Communist Contracts for theChemical Plants andthe Free

Tables

3,

4 .

and Easternof FreePurchased inPlanned Increases inSelected

Communist Countries: of Chemical PlantsPurchased

USSR: Contracts for theChemical Plants andthe Free

Bulgaria: Contracts for thechemical Plants andthe Free

Page

5. Czechoslovakia: Contracts for the

Purchase of Chemical Plantsfrom the Free

Germany: Contracts for tha

Purchase of Chemical Plantsfrom thc Free

Contracts for tlie

Purchase of Chemical Plantsfrom the Free

Contracts for the

Purchase of Chemical Plantsfrom the Free

Contracts for the

Purchase of Chemical Plantsfrom the Free

China: Contracts for the

Purchase of Chemical Plantsfrom the Free

Korea: Contracts for the

Purchase of Chemical Plantsfrom the Free

Charts

Figure 1. Communist Countries: andfromndfollowing page .

Paqe

2. Communist: Countries:

Distribution

of Chemical Plantsthe

Figure 3. Communist Countries:

Percentage Distribution of Chemical Plants and Technology Purchased from the Free World, byollowing.

Figure 4. Free World: Percentage

Distribution of Chemical

Plants and Technology Sold

to the Communist Countries,

bynd

CENTRAL INTELLIGENCE AGENCY Directorate of Intelligence

INTELLIGENCE REPORT

Communist Purchases cf Chemical Plants and Technology from the Freend Prospects0

Summary

The Communist countries* continued to place large orders for chemical plants and technology with the Free World. Contracts in

amounted3 million and in

rose7 million, bringing the total8 to3onsiderably more than for any other type of Western plant and technology. (Purchases8 weresmall.) The heavy pace of buyingnd it is estimated that the total value of contractsill range betweenillion14 billion during the previous four years. Annual purchases by thend estimates0 are shown in Figure 1.

Note: This report was produced by CIA. It was prepared by the Office of Economic Research; the estimates and conclusions represent the best judgment of the Directorate of Intelligence as of

* The USSR, the Eastern European Communist countries (Bulgaria, Czechoslovakia, East Germany, Hungary, Poland, andlbania, and the Far Eastern Communist countries (Communist China, North Korea, and North Vietnam).

In achieving their chemical goalshe Communist countries will be aided substantially by the plants purchased from the Free Worlds well as by those purchased in earlier periods but still uncompleted. In Eastern Europe, purchases from the Free World willnearlyercent of tha increasedplanned for chemical fibersboutercont of that for chemical fertilizers, and aboutercent of that for plastics. In the USSR, Free World plants will provide about one-fourth of the planned increase in chemical fibers and about one-fifth of that in fertilizers and plastics If contractseach anticipated levels, Free World facilities will play an even more vital role In Communiat chemical programs

West Germany and France were the leading sellers of chemical plants and technology5ccounting for half of the total value of the contracts. West Germany increased its share of the contracts fromercentoercent. France's share roseercentoercent. Host of the remaining contractsere obtained by the United Kingdom, Italy, Belgium, Japan, and the Netherlands, in that order. US sales during the period were comparatively small despite the acknowledged superiority of most types of US chemical technology and equipment. The United States failed toarger share of the Communist market for chemical plants partly because of its refusal to guarantee export credits beyond the five-year maximum stipulated by the Bern Union Agreement. Other signatories to the agreement, however, have ignored this provision, and roughly half of the contracts, by value,nvolved credits of more than five years.

help provide the chemicals needed forand modernization of agriculture andCommunist countries8 have beenamounts of chemical plants and relatedfrom the Free Worid. Purchasestotaled6 billion,than for any other type of Westernequipment. Most of the facilities were for

the production of agricultural chemicalsandynthetic materials (plastics, fibers, andnd basic and intermediate chemicals processed from petroleum and natural gas.

With Khrushchev's personal endorsement, the USSR8rogram of large-scale purchases of chemical facilities from the Free World. Soviet purchasesmounted to9 billion, or aboutercent of the total purchased by Communist countries during the period. Actual imports, as distinct from contracts to purchase, accounted for about one-fifth of the value of all industrial equipment imported from the Free World. Roughlyoercent of the fixed productive equipment in the Soviet chemical industry at the outset5 consisted of imports.

urchases by the Eastern European Communist countries were small compared with those of the USSR. In that year the value of contracts rose sharply6 million, compared with an annual average ofillion6 3. The increase was apparently promptedrowing awareness of the need for advanced chemical plants and technology, by che realization that the USSR and other Communist countries could provide little assistance, and by the enlarged supplies of petroleum and natural gas for use as raw materials in production of chemicals.

Communist China's purchases of chemical plants from the Free World began3 and amountedillion. In addition.

China3 contracted with Italy forertilizer plant to be erected in Albaniaillion. North Korea's purchases prior5 consisted of only one plant, valued at aboutillion.

Purchases of Plants and Technology5 andT

a sharp declineof chemical plants and technologyFree World6 reachedhe reccrd level attained inpattern of purchasesharply from that of the earlierUSSR, which madeercent of, accounted forillion) , Virtually allremaining contractsere made by the Eastern European Contractsy CommunistNorth Korea amounted toillion and

illion, respectively. hows thedistributions by country of the total value of Communist purchases of plants, equipment, and technology from the Free World.

, the chemical plants andpurchasedere largelyproduction of chemical fibers, basicagricultural chemicals, plastics, other chemical facilities represented

less than one-tenth of the total value. The percentage distribution of purchases by types shown in Figure 3. In line with the emphasis on expansion of the production of petrochemicals, purchases of related plants and technology rose fromercent of total chemical plant purchasesoercent. Although chemical fiber facilities continued to comprise the largest proportion of contracts, their share dropped fromercentoercent. Contracts for fertilizer, pesticide, and related plants constitutedercent of total

contractslightly less thanercent). Plastics plants retained the sameercent) of the totals. The Communist countries stepped up their purchases of facilities for tires and other rubber goods, including some equipment for production of synthetic rubber; their share increasedercentoercent.

Soviet purchases of chemical equipment from the Free World (see Appendix Table6 million, considerably lower than the record level4 millionhe decline reflected the lower priority given chemicals after the departure of Khrushchev and the increased claims by other industries onexchange reserves. As evidence of the decreased emphasis on chemical purchases, the share of chemical plant contracts in totalplant purchases from the Free World declined progressively

Albania did not contract for any chemical installations from the Free World5

Bulgaria hasubstantial buyer of chemical facilities from the Free World since3 (see Appendix Purchasesmounted2 million, bringing thc total8 to2 million. Most of the contracts in these years were for chemical fiber plants, valued atillion. The remainderpredominantly of petrochemical and rubber facilities. The majority of these plants will be situated at the petrochemical center in Burgas.

10. Czechoslovakia's purchases of chemical installations from thc Free Worldillion (see Appendixr about the same as during the entire. The stepped-up rate of buying stemmed largely from growing demands for petrochemical plants and technology. The importance attached to Western chemical facilities is attested to by the fact that such purchases accounted for about two-thirds of the total value of industrial installations contracted for from the Free World.

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Germany, like Czechoslovakia, ismanufacturer of chemical equipment andits purchases of chemical plants fromWorld to types incorporating advanced The main emphasis56 waspetrochemical plants related toof chemical fibers, plastics,herbicides. The value of contracts signedtwo-year period wasillion,the amountillion,

ercent of the Communist total (see Appendix

has been one of the smallestpurchasers of chemical plant andthe Free World. Contractsillion) constituted only

2 percent of the combined value of suchby the Communist countries in those years (see Appendix Nonetheless, chemical facilities madearge share of Hungary's purchases of industrial plants from the west. The major chemical purchase in this periodillion polyethylene plastics plant from the United Kingdom

cut back its Free Worldaillion4 to5illion6 (see8). Although it accounted for only about

5 percent of total Communist purchases, Poland ranked fourth among the Communist buyers of tVestern chemical plants and technology, with total purchases of0 Important acquisitionsncluded an ethylene-propylene facility from vest Germany and technology from the United States for the production of butadiene for synthetic rubber, both of which will be used to expand the large petrochemical center at Piock. An interesting contract with Switzerland6 calls for joint efforts in process development for and erectionaleic anhydride plant in Poland. Although it is not clear whether the Swiss firm will share in the output of the plant, the agreement does call for joint ownership of the patent riahts to the

process and for the division of proceeds from the sale of these rights to other countries. This type of arrangement, whereby Poland gains chemical know-how and equipment from the West and shares in sales to third countries, offers obvious advantages to the Poles and could presage similar contracts of this kind,

urchases of chemical facilities from the Free World jumpedcantillion56 millionr more than half of the Communist total (see Appendix The sharp upsurge6 wasatter of coincidence* in that negotiations were completed which had been under way for some time. Contractsmounted to slightly morerercent of the Communist total during the period.

Communist China, following an initial surge of buying, drastically curtailed its acquisitions of chemical plants from the Free world, which amounted toillion (see Appendix. For the entire, purchases totaled0 million,

North Korea's purchases from the Free World have been limited primarily to fertilizer facilities The value of contracts amounted toillion in

slightly more thanillion inAppendix; prior contractsaboutillion**

Vietnam made no contracts forchemical plantsnd few orearlier.

Significance of Purchases

sizable purchases of chemicaltechnology from the Free World5 and

substantially aid the growth andof the chemical industries of the hows the extent to whichwill contribute to the increasedfor selected sectors of the chemical

industries of the USSR and Eastern Europe. Such purchases willarge contribution to the goals for increased output of chemical fibers in all but two of the Communist countries listed in Table 1. The twoast Germany and theave contracted for facilities that indirectly will support the increased output of

Table 1

USSR and Eastern Europe: Contribution of Free World Plants Purchasedo Planned Increases in Output of Selected Chemicals

Percent ofeJ Increases

Sectors of Chemical Industry

Europe

Germany

It is assumed that these facilitiesompleted snd producing at designed capacity Because of insufficient data, the Far Eastern Communist countries are not included.

chemical fibers through production of fiber raw materials and intermediates. Plastics, fertilizers, and rubber are other major sectors that will benefit from the Free World facilities purchased. Rumania, which boughtercent of the total, has placed the greatest reliance on Free World plants

rflf PT

for achieving ita long-term goals; plantsforill provideercent of the scheduled increase in output of plastics1 percent of tbe increase in chemical fibers, andercent of the planned gain in chemical fertilizers.

addition to the plants purchaseda number of facilities bought inand still uncompleted6 willCommuniet goals for increased chemical output

In the case of the USSR these earlier purchases together with thoseillabout one-fourth of the planned increase in chemical fibers and about one-fifth of the scheduled gain in fertilizers and plastics In Eastern Europo the backlog of uncompleted plants acquired from the Free World, including those purchased, will contribute nearly half of the planned increase in output of chemical fiberspproximatelyercent of the scheduled gain In fertilizers, andf that in plastics. If contracting for additional plants proceeds as expected, the contribution of Free World facilities to the fulfillment of chemical plans0 will be even greater than that indicated in Table 1.

Sellers and Terms of Payment

Free World countriesercent of3 billion in salesplants and technology to. The percentageof these salesndshown in Figure 4. , WestFranca dominated sales by the Freefor half of the total value during West Germany's share of total Freerose fromercent. Sales by France increased from

9 percent of the totaloorcent. By contrast, the United Kingdom secured aboutercent of the salesut onlyercent. The United Kingdom,remains the largest seller with contracts

'-

FREE WORLD: PERCENTAGE DISTRIBUTION OF CHEMICAL PLANTS AND TECHNOLOGY SOLD TO THE COMMUNIST COUNTRIES, BY

i'm oa

mounting to7 billion. Other major Free World sellersere, in order of importance, Italy, Belgium, Japan, and the Netherlands.

21. Contracts generally have called for down-payments ofoercent with government-guaranteed credits for the remainder extending over several*years- Although the Bern Union Agreement* limits credits to the Communist

* The Bern Union, or Association of International Credit Assurers, is made up of private and public institutionsumber of Free World countries. Members have generally agreed that ordinary export-credit guarantees should (footnote continued on p. Ill

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countriesaximum of five years, mostexcept the United States have ignored this provision. Thus about half of the contracts by valuenvolved credits ranging from six to nine years. In large purchases, guaranteed credits are for longer periods. For example, the British governmentyear credit to the USSR4arge polyester fiber plant valuedillion.

by the United States to thelimitation on guaranteed credit to thecountries hasactor in preventing

US firms fromarger share of themarket for chemical facilities. Despite the acknowledged superiority of US chemical processes and plants, sales to date have been small and have consisted largely of technology provided through firms in other Free world countries where longer term financing is available..

trends in purchasing and evidenceneed suggest that Communist contractsWorld chemical facilitiessubstantial. Barring major changes init is estimated that thewill purchase2 billion to

illion of chemical plants and technology from the Free World, compared with. On an annual basis, purchasesre expected to0 million5 million. Contracts during the first half7 amounted to0 million but are expected to be more than double this amount for the whole year. The estimated total and annual average of Communist purchases of chemical plant and technology from the Free Worldre given in Table 2.

be limitedaximum of five years- Although many countries do not rigidly follow the Union's recommendations, the United States has continued to observe the five-year limitation in the case of credits for Communist countries.

Table 2

Communist Countries: Estimated Value of Checical Plants and Technology Purchased from the Free

Million US $

USSR

Eastern European Communist countries

Far Eastern Communist countries

Total

Total

0

l,gllOCO

Annual Average IPO

o

The Soviet purchases of Free World chemical equipment and technologyere estimated by two procedures which yielded fairly similar results: n estimate of domestic chemical equipment requirements (as implied by planned investment) and an estimate of the amount of this equipment which would be supplied by domestic sources and by imports from Eastern Europe,n estimate basedrojection of the trend in the ratio of chemical equipment imports from the Free World to chemical investment in the USSR.

24, Purchases by theof Free worldfacilities probably will0 million0 million per year Although contracts in the first half7 amounted toillion, the Soviet authorities were negotiating forore facilities with anvalue of well0 million. Soviet interest currently ip centered on obtaining plants for the production of tires and associated products such as synthetic rubber and carbon black. Other negotiations involve facilities for the production

of fertilizers and synthetic materials. The United States figures prominently in these negotiations, one of whichSO million polystyrene complex to be paid for in part by Soviet deliveries of products from the plant to the US contracting firm.

Average annual purchasesy the Eastern European Communist countries probably will rise to5 million5 million*evel of0 million during the previous four-year period. In the first halfontracts amounted to an5 million, largely because of heavy purchases by Polandillion. During the remainder of the period the other Eastern European countries may be expected to increase their purchases from the Free World, but it is doubtful that the average annual value ofby the Eastern European Communist countries will reach the highillion)

Although there is considerable uncertainty regarding the purchases of chemical plants byChina and North Korea, total purchases during the period are estimated at

illion0 million. hinaless thanillion worth of chemical equipment from the Free World, and it is not known to have placed any contracts with Japan or the West during the first half Negotiations with Free World countries have covered several areas of chemical technology and equipment, most notably petrochemicals, synthetic rubber, chemical fibers, plastics, and urea fertilizer. Because of China's many requirements for scarce foreign

*'This estimate was derived primarily0 the earlier relationship between plant purchases and chemical investment. Additions were made for plant purchases which East Germany, Czechoslovakia, and Poland probably will make in order to fulfill their commitments to supply the USSR with chemical plants and

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exchange and its reluctance to incur long-term debt, Chinese purchasesrobably will not exceed0 million. North Korea's purchases of chemical plant and equipment from the Free World are expected to remain small, amounting at mostillion.

1

COMMUNIST COUNTRIES: CHEMICAL PUNTS AND TECHNOLOGY PURCHASED FROM THE FREE WORLD

I*

COMMUNIST COUNTRIES: PERCENTAGE DISTRIBUTION OF CHEMICAL PLANTS AND TECHNOLOGY PURCHASED FROM THE FREE WORLD, BY VALUE

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COMMUNIST COUNTRIES': PERCENTAGE DISTRIBUTION OF CHEMICAL PLANTS AND TECHNOLOGY PURCHASED FROM THE FREE WORLD, BYS-66

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