Created: 8/14/1963

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KHKCRAfflXN Kfi) Kr. Allan Evans

Deputy Director for Seeearch Office of Intelligence and Research Dcpartoent of Stale Washington, D. C.

of Material on Eaot-Vaat Trsda

Requested, by Kr. Kirrls Gravforcl

Tho attached paper, vhloh Is cdarcssed touaoer of specific educations relating to Knot-West trade, vaa prepared at the request of hr. Vsixila Cravford,

Aaulatont Director


"Watcriol for Use by VU Representative ln

EC2 Export Qroup oa East-Uwi Trade Questions,"

dated ih August


Material for Uea by OS Representative In ECS Export Group on Bast-West Trade Questions


preparedTKAL HHBLmOEECE AQEHCY Office of Research and Beporta

by DS Representative lo ECS Export Qroup on

Cufltoqp Tariff Systems in the Soviot Bloc

lhe customs tariff systems of most of tho countries in the Soviet Bloc provide for double-column tariffs with minimum rates to be levied again ot goods imported from countries according HFH treatment to the individual Bloc country and maximum rates to ho applied to goods from other countries. Minimal rotes concede free entry to the majority of goods imported from the West, such as machinery and equipment, chemicals, fuels, and raw materials. Max-irann rates usually3 percent duty on imports of those goods essential to the domestic economy, vith considerablyates for imports of such non-essentials as manufactured consumer goods. In most Bloc countries, vhen goods ore imported at higher rates, the foreign trade corporation bearo the additional coat In terms of its internal accounting and plan fulfillment.

The tariff system currently in force in the Soviet Bloc Is patterned On thoariff reform of the Soviot Onion. The Soviet moaoure vas specifically drafted toommercial bargaining tool to be used ln negotiations vith the EEC ond EFTA. Helther the Soviet Union nor any other Bloc countryuropean custom union as legitimate grounds for ento the extension of MPH treatment.

Within thio Bloc tariff model there exist certain deviations, based on the individual circumstancesarticular country. Czechoslovakiaemper of QATT is required to extend MFH treatment to other member countries; however, the Czechoslovak eovernnont refuses tariff concessions to the OSA ond ths Federal Republic of Gonrumy, despite its QATT cannltcont. East Gorman tariff negotiations are tied to the problem of recognition of the GUtovereign state,esult of vhlch very restricted MFfi arrangemento exist between East Germany and con-Concuniot countries-The Polish tariff system is not of tbe same character as thoseln the Soviet Bloc. The current customs system vas established ln Poland on OoodG imported on the basis of yearly plans are duly free, whereas otherre subject tor II tariffs, depending upon the quantity imported. ates apply to goods imported in quantities not exceeding the amounts given in that column. Column XI rates apply to other listed^ to excess quantities oftems Imported. Certain specified commodities. Including non-^rrous Eetelo, fertilizers, timber, and flour, are imported duty-free, regardless of cuantlty. There is no information available on the current tariff system of Albania. The Effect of Customsn Bloc Imports

Generally, tbe customs tariffs on Bloc countries havo no real effect either on the volume or the sourcee of Bloc Imports. The


state monopoly of foreign trade and the divorce of foreign trade prices from final dome otic prices for all practical purposes eliminate the effect on Bloc foreign trade that customs tariffs have in Western countries.

Although affectingelatively small volnee of trade, the fact that customs duties are paid by the Importing foreign trade corporation may servo aa an indirect tool for control of foreign trade because bonuooo are paid on the baoio of the trading company "profits". To tho extentigher tariff can be avoided by jxircfaaclcgountry, tbe profits of the foreign trading company ln terms of internal accounting are Increased. This, in turn, may discourage the trading uceaiauy froa contracting for pur-cbasee in countries from vhlch Its government haalthdrovn MFH treatment. Hon over, since foreign tradetato monopoly, this Indirect control on tbe direction of trade may be nullified by executive order at any time, without penalty to tbo trading corporation, In order toarticular trading transaction. For Instance, It ls doubtful thatsport of soybeans froa thelesult of their unavailability froa Communist China orFH source actually caused ths Czechoslovak trading enterprise, KQOSPOL, to be charged tho higher tariff legally applicable to imports from tbe united States, whichon-MFE


rountry. To obtain tbe soybeans In tbe quantity required, the duty increment applicoblo to imports from tho United States vas probably either waived or paid from the Czechoslovak state budget.

A tariff has no effect on foreign exchange requlreosnts (except insofar es tho direction of trade might alter thc typo of exchange needed) because the amount paid in foreign exchange by the national Bankloc country on behalf of the Bloc importer is the eamo,igher or lover customs tariff in domestic currency lo charged to tho foreign trade importing corporation by the Bloc government. Furthermore, tbe difference ln domestic currency betveen the foreign trade price end the domestic price is not retained by the trade enterprice, but is paid into thc state budget, whether ln tho form of customs duties or "profits" paid Into the Compensation Fund.*

A non-Bloc nation can expect to gain little from being accorded MFH treatmentloc country. Tbe MFD concept vas designed for trade among nations uhoce chief weapon of commercial policy was the tariff. ation extended MFU treatment could legltieately claim discrimination if Its goods were later subjectuty higher than

f r

that levied again ot identical goods from "the most favoredn the caseloc country, hovever, tha state trading monopoly

* In terms of internal accounts, tho importer willarger "profit" in the case where the tariff is smaller.



can increase, reduce, or eliminate Ito purchasesiven country by administrative flat without making any change ln Its tariff legislation; hence It ls virtually impossible for tha affected country to prove discrimination, nevertheless, trade con be affectedloc country withdraws HFH treatment. Retaliatory increases in CtechocLovak duties were put into effect against Switzerland0esult of Swiss tariff changes. The How Intra-Bloc MultllflteraUGm

Tbe CEMA scheme for Intra-Bloc "multilateral clearing" which is to become operative in January willeparture from present Bloc trading practice but will differ markedly from Western multl-latoralifim. Curroncy convertibility looking in tho Bloo, is the basis of multilateralism ln the West vhere convertible currency holdlngn resulting from sales in one country can representn products in any other country. While tho new CEMA multilateral clearing system should facilitate expansion of Intra-Bloc trade exchanges, it will not allow free transferability of crodit balances with Bloc countries, aad represents no move toward convertibility or free transferability of any Bloc currency.

For the Bloc multilateral clearing irill mean that oacli Bloc country will be able to plan to balance Its demands and its obligations arising froa foreign trade, services performed, and other


exchanges xoitilaterolly, vith ell the other countries participating in the clearing agreement. This removes the inherent strictures of the present bilateral system, vhero planned turnover is Halted by tho buying or selling limitations of the veaker partner; but It in no vay reduces tbe planned, state-monopoly nature of Bloc trade. All aspects of trade, including bilateral Imbalances, vill bespecified goods in specified quantitiespecified trading partner vill ba stipulated through the planning process.

The most significant aspect of the shift to multilateral clearing oppearo to be the fact that tbo Bloc nov face the problem ofloc-vide foreign trade price system. The ere sent practice of bilateral negotiation of trade prices oust be abandonedredit balance acquired byn trade viths to represent Imports of equal value ln trade with countries, and X. The ostabUshmant of uniform Bloc foreign trade pricesirst stop tovard true multilateralism; hovever, complete convertibility vill come only vhen planned economies are trilling to accept the disrupting effect of unplanned clnimn on their goods and services. MultlUtcralism ln East-West Tmde

Because Bast European currencies are inconvertible on commercial account, trade vith the developed Wast ku been conducted on tbe basis of either bilateral clearing accounts or direct payment is transferable Western currencies. Since thc return to convertibility of most West


European currencieshere hacrend away fromclearing in East-Went trade. Even vhero clearinghave remained, greater Multilateral!cm has been encouraged because Imbalanceg Increasingly hava been settled in convertible currencies rather than in commodity deliveries. Bloc export earnings in tho West, therefore, aro for the most part no longer restricted bilaterally.

In order to remove the remaining restrictions on multilateral trade with the West there are two major lines of approach available to Bloc governments. One approach would ba to seek throughtbe elimination of remaining bilateral clearing agreements, or the reduction of oucho shopping lints that do not aim at balanced trado. Where bilateral clearing ogreemente still exist, hovever, the Western countries coy favor such arrangements due to their own weak trading position and/or balance of payments difficulties. They may, therefore, resisto modify or eliminate suchfor fear Bloc countries plan tourplus on trade account with which to pay for higher priority imports elsevhero.

As on alternative. Bloc governments could attempt to expand their multilateral tion with the West byotter market for nettling claaa log balanoos. lbo. proposed CEMA bonk, for example.



could bo made to serve oe broker within the Bloc for the trading of favorable Western clearing balances either against each other, against Intra-Bloc balances (in foroign trader for free Western currencies.

Original document.

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