LIMITED EFFECTIVENESS OF INTERNATIONAL TRADE AS A MEANS OF EXPANDING SINO-SOVIE

Created: 5/10/1961

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oewHBBNWMCIA HISTORICAL REVIEW PROGRAM N0 RELEASE AS SANITIZED

Economic Intelligence Memorandum

LIMITED EFFECTIVENESS OF INTERNATIONAL TRADEEANS OK EXPANDING SINO-SOVIET BLOC INFLUENCE IN BRAZIL

CENTRAL INTELLIGENCE AGENCY Office of Research and Reports

Economic Intelligence Memorandum

LIMITED EFFECTIVENESS OF INTERNATIONAL TRADEEANS OF EXPANDING SINO-SOVIET BLOC INFLUENCE IN BRAZIL

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Toll materia] canlaliu/rifocinaUon aflecUng Ihe National DcfenWof the United/ States withlB" the meaningthe rspionSfee Urn, TUla/lO, USC.c Irnns-nuutou or revelationwhich in ahy mannor lo/n'* prohl&lted by law.

CENTRAL INTELLIGENCE AGENCY Office of Research and Reports

LIMITED EFFECTIVENESS OF JframATIOHAL TRADEEANS OF EXPANDING SINO-SOVTRi BLOC INFLUENCE IN BRAZIL

Rconcoiic tics between Brazil and the Sino-Soviet Bloc have never reached significant proportions. The Bloc has Bade little effort to extend either credits or technical assistance, and trade has remained the chief economic means by which the Bloc has sought to expand its influence in Brazil, nevertheless, because it ismall share of Brazil's total trade and because of its ccemodlty composition, Bloc trade is of little economic importance to Brazil and thereforeoor instrument for the accompliohment of Bloc objectives. Aexpansion of the level of Bloc tradehift In itstoward substantially larger Imports of coffee by the Bloc would be necessary to establish Bloc trade as an Important element in the Brazilian economy. Thus far thc Bloc has shown little desire to bring these changes about. It therefore seems likely that future Bloc efforts to expand its economic influence in Brazil will place greater emphasis on financial and technical assistance.

In its campaign tooothold in the Western Hemiapherc, the Sino-Sovlet Bloc has concentrated its main attention on Cuba. Meanwhile, however, it has continued to seek positions of influence in other Latin American countries. In the decade ahead, Brazilthe first of these countries in size and mineral wealthcan be expected to emergearget of major importance.

Bloc economic approaches to Brazil so far have consisted primarily of sporadic efforts to expand conmercial tics. Credits extended by thc Bloc have amounted toew million dollars and have been of the medium-term commercial type. umber of Brazilianhave gone to countries of the Bloc to continue their academic and technical studies, very few Bloc technical experts have been sent to Brazil. Thus an analyois of the scope and potential significance to Brazil of trade with the Bloc should suggest the possibilities for expanding Bloc influence In the Brazilian economy through this channel.

Brazilian trade with the Bloc, although small, has Increased both in absolute and in relative terms over the past several years (see. Until recently thc European Satellites accounted for almost all of Brazil's trade with the Bloc. owever, the USSR Increased its share of this trade to almostercent.

Tabic 1

Brazilian Trade with theS-60

2 0 g/

Million Current US $

to Bloc Imports from* Bloc

0

Percent

Trade turnover with Blocercent of Brazil's

total trade

Preliminary estimate.

The data presented inuggest that Brazil hasery modest economic stake inraseith the Bloc- Furthermore, the ocononlc advantage that Brazil derives from this trade is considerably less than the statistics themselves suggest.

9 and the first halfrazilian exports to the Bloc were dominated by five productsoffee, cacao, iron ore, sisal and other natural fibers, and hides and skins (see

Table 2

Ccoaocdity Composition of Brazilian Exports to the9 and0

Percent

Coffee Cacao Iron ore

Sisal and other natural fiben

Hldcii and skins

Other

5

e

13

i960

52

5

17

Of these commodities, coffeenique problem and vill be considered separately. The rest of thc groups listed above are all basic comcodities sold on veil-organized international markets with standardized grades and prices. In such markets, because of the factingle price, the seller is Indifferent as to which buyer may take his product. The seller is concerned only with the number of buyers in the market and the aggregate demand for the product. Because lt is Bloc practice to trade at world market prices for both Itsand its imports, it does not matter to Brazil whether the four products under consideration arc sold to the Bloc orestern purchaser. The Bloc market is Important to Brazil only to the extent that lt contributes to the total demand of thc market and thus helps to maintain or increase the price at which Brazil's total exports of the commodity may be sold. More specifically the significance to Brazil of the Bloc market depends on (l) the size of Bloc purchases from Brazil relative to the size of the total world market andhe degree toossible reduction In Bloc purchases from Brazil wouldomplete withdrawal from the market ratherhift to other Western suppliers.

If thc Bloc withdrew from Brazil's export market and did not transfer its purchases to other Westernecline ln the total market demand would result and price declines would follow. In such circumstances, Brazil wouldecline in receipts from exports even If it were able to maintain the same export volume. The important factor here Is that the four categories of commodities under consideration account for only aboutercent of Brazil's total Thus It would require average price declines of at leastercent ln order toecline ofercent In Brazil's export earnings. Price changes of this size are not likely, however, becauseoderate increase in supplies on Western markets would be produced byhift In market destinations. For example, Brazilian exports of cacao to the Bloc9 were the equivalent toercent of the total sold in Western markets by all producers. The corresponding percentages for the other productsor sisal and other natural fibersach for hides and IronTherefore, it appears that the possible price declines are not likely to be of such magnitude that they could have moreery minor Impact on Brazil'a export earnings. Thus Brazil could lose Its entire Bloc market for these commodities more than one-half of its totalto the Blocwithout significant damage to its economy.

Exports of coffee to the Blocuch different problem because theyet increase in Brazil's export receipts to the full value of the sales. This fact results from the peculiar nature of the coffee market. Exports of coffee from the majorare regulateduota system under the Internationa: Coffee Afireeacnt. Sales to the Bloc, however, are regarded as taking place outside the regular market and are not charged against the export quotas of thc member countries. eduction of Bloc purchases could not be compensated for by additional sales to Western markets, which come under the quota system. ecline in (or loss of) the Bloc market would mean an accumulation of more surplus coffee stocks at the expense of export earnings. In teres9 coffee sales, the loss to the Brazilian economy would be $l8 million, orpercent of the value of total exports.

Because the loos of Bloc narkets for cacao, sisal and other natural fibers, hides, and iron ore would have little Impact on total export recelpto, Brazil's economic advantage in exporting to thc Bloc is derived primarily from its coffee sales. In terms9 trade it

seems unlikely that Brazil would haveoss of moreercent of total exports even if thc Bloc had withdrawn from itsmarkets completely. Inasmuch as trade with thc Bloc Increasedhe above percentage would be somewhat, but not appreciably, higher.

The import side of tbe problem offers no difficulty, becausefrom the Bloc are generated entirely by exports to the Bloc. In view of Brazilian preference for Western goods. Imports from the Bloc result almost entirely from the need to utilize inconvertible clearing balances earned through exports. Therefore, Brazil'sinterest in its imports from the Bloc is confined to thcloss in total capacity to import resultingecline of the Bloc export market. At the most, this loss would come to little more thanercent decline in export income noted above.

If the Bloc is toerious effort to increase appreciably Brazil's economic stake in such commerce, the Bloc must increase its imports from Brazil substantially, and coffee mustuch larger share than it has up to now.

Bloc attempts to expand trade with Brazil have met with some success (see Table During the lastonths, new commercial agreements providingonsiderable growth in trade have been signed. The most important of theserade agreement between the USSR and Brazil signed in December9 which stipulated that more than half of Soviet purchases would consist of coffee. During thc first halfrazil also concluded new agreements with Poland and Czechoslovakia. If the goals of these agreements were realized, Brazilian exports to the Bloc would show an increase0evel about double that9 and2 would expand tcXabout two and one-half times the level

* P-bove.

** Trade agreements are entered into in order to promote tradethc signators. Thc text usually establishes quotas for the commodities to be exchanged as well as payment and other technical arrangements needed to facilitate commercial transactions. The quota set forth in the agreements In no way bind the parties to buy or sell the full amount provided for, nor do they limit purchases or sales to the amount stated.

In spite of the apparent interest reflected in the new tradehowever, actual Bloc pcrfoimance0 was not particularly impressive. Preliminary estimates of total Bloc trade with Brazil0 indicate that thc goals set forth in the agreements probably were not achieved. Exports probably were lessillion, orercent of Brazil's total exports. On the basis of data for the first halft also appears that the share of coffee in exports to the Bloc declined in that year (see. Perhaps most significant of all, the USSR actually contracted for only about half of the coffee quota set forth in the trade agreement. Thus Brazil's economic advantage ln trade with the Bloc0 probably Increased only moderately comparedf It increased at all. Some Increase may be expectedI, but it probably will be quite small.

The limited significance of Bloc trade to Brazil thus suggests that the scope of economic relations ln the future will not necessarily be limited to commerce. Rather, once thc Bloc concludes that theforeign policy of the new Brazilian administration affords an opportunity to wean Brazil from Its heavy economic dependence on the United States and Western Europe, new efforts to establish aprogram of financial and technical assistance for economic development can be anticipated.

* P.bove.

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