THE ROLE OF CEMA IN THE SOVIET ECONOMIC OFFENSIVE

Created: 10/1/1960

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CIA HISTORICAL REVIEW PROGRAM RELEASE AS SANirtZEO

Economic Intelligence Report jgno

THE ROLE OF CEMA IN THE SOVIET ECONOMIC OFFENSIVE

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CENTRAL INTELLIGENCE AGENCY Office of Research and Reports

Economic Intelligence Report

THE ROLE OF CEMA IN THE SOVIET ECONOMIC OFFENSIVE

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WARNING Thia material contains Information affecting Uw National Defense ot thc United State* within the meaning of the espionage laws.SC.nd 7M. the Irani-mission or revelation of which in any manner to an unauthorized person Is prohibited by law.

CENTRAL INTELLIGENCE AGENCY

Office of Research and Reports

This report ll focused on tho coordination by CRMA of the Soviet Bloc ecoooaic offensive against the Free World. eview of CEMA activities relating to the economic coordination and integration of the economies of the European Satellites, see, Economic Coordination in the Soviet Bloc: reliminary Evaluation.ECRET/

, Recent Trends ln Zconoslc Coordination ln the Soviet Bloc,ECRET.

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Suamnry and

I.

II. Coordination of Satellite Support for thc Economic

Offensive In tho Underdeveloped Countries

of Market Research Studiee

of Exports of Coapletc Plant

Installations

Subcontracting of Soviet Credits to Under-

developed

of Technical Assistance

III. Coordination of Commodity Trade with tho Free World .

of Pricing

of Export and Import Hsnopollee

Appendix

Source References

THE ROLB OF CEMA TH THE SOVIET ECONOMIC OFFENSIVE-

*

Summary and Conclusions

Responding to the dictates of Soviet foreign policy, the Council for WUtual Economic Assistanceeretofore primarily concerned vitaconomic activities, nov also has become the center for organizing and coordinating the participation of the Satellites in tbe Soviet economic offensive in the underdeveloped countries. This important new function of CEMA has received very little publicity from Bloc spokesmen, as great caro is being taken to avoid any appearance ofonspiracy against theseevertheless,quietly behind the scenes,as made considerable progress in concerting the foreign trade activities of the Satellites in thecountries. ally, COU has begun to develop aprogram designed to exploit the growing economicbotween the Satellites and the underdeveloped countries in support of the foreign policy objectives of the USSR.

This CEMA program is built around the following principal features: (l) market resoarch studies of target countries;oordinatedfor tbe sale of complete plant installations, Includingof subcontracting under Soviet credit agreements;lanning of technical assistance. The CEKA market-research studies are best described as blueprints for the Soviet economic These studies are designed toomprehensive review of political and economic conditions In target countries and to explore the resource potential for further growth. To assist thlB growth and, ao far as possible, to guide lt ln the direction believed to be most favorable to the long-run interests of the Bloc, CEMA selects specific economic development projects to be offered to tbe underdeveloped countries by member states and recoaaenda attractive termst times more advantageous than those of the Westor effecting delivery of tbe requisite machinery and equipment. Of special importance ln this respect is the allocation of subcontracts for specific projectsin Soviet credit agreements, enabling the Satellites to bid on portions of projects that they could not undertake individually. In

*The estimates and conclusions in this report represent the best Judgment of this Office as of

*" The term Bloc as used throughout this report refers to tbe Soviet Bloc, and the term Satellites rofers to the European Satellites.

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addition, coordination of the form and substance of technicalls undertaken by CEMA to promote the buildupomprehensive. Bloc-wide pool of technical and administrative expertise that cao be supplied to the underdeveloped countries as the opportunity arises, at prices equal to if not better than those offered by theWest.

CEMA, following the lead of the Soviet credit program, In the past has focused planning and coordinating activities largely on Afghanistan, Burma, Ceylon, India, Indonesia, and the UAR. Morettention alao has been directed toward Iraq and the newly independent states of Africa and presumably toward the opportunity to infiltrate, the Western Hemisphere through revolutionary Cuba. In the future lt nay.reasonably be expected that, following thapattern, the USSR and the Satellites will- attempt to exploit through economic means potential sources of conflict between theWest and the underdeveloped countries and, againestablished practice, that CSMA will be the instrument forthe.activities of the various Bloc countries.

As an outgrowth of 'its coordination of Satellite support for the Soviet economic offensive In the underdeveloped countries, CEMA also has begun to coordinate Satellite trade with the Free World In general. By concerting the buying and selling activities of the Bloc In the Free World markets, CEMA hopes to strengthen the bargaining power of the Bloc In respect to its Western competitors in the underdeveloped countries and in respect to Its trading partners in the Industrialized West. Agreement on sale and purchase prices and on assignment ofand Import monopolies are among the principal tactics that thus far have been developed to achieve this end.

The Impact of CEMA activities In support of the Bloc economic offensive will be felt more generally in the next few years. During that time, programs and projects only recently begun ahould have had time to mature and to be brought to fruition, and the Industrial plant of the Bloc also should have been expanded considerably. Enhancing the effectiveness of this enlarged productive capacity by providing purposeful guidance and control, CEMA is expected to become anuseful instrument for marshaling the economic potential of the Satellites and directing it In line with Soviet objectives.

Toe Bloc economic offensive in the underdeveloped countries is perhaps the moat significant and, from the long-range point of view, the most challenging stratagem of Soviet foreign policy in recent years. Confronted by the prospectrolonged stalemate in Western Europe, which presumably could be broken only at the risk ofnuclear war, the Soviet leoders decided to outflank the Western position byoliticoeconomic program of penetration in the underdeveloped countries.

Soviet doctrine traditionally has considered colonial possessions as vital appendages of the West necessary to insure the efficient operation of the capitalist system. Even though many of the former colonies long ago achieved their political independence. Bloccontinue to regard them as essential sources of raw materials for the industrial West and as important outlets for disposing of the surplus production of capitalist industry. To divide these countries from the West would therefore greatly weaken the capitalist system and hasten Its demise. Accordingly, through the promise ofincreased trade and extensive financial and technicalfor national development, the Bloc economic offensive is designed to persuade the underdeveloped countries to follow an economic course independent of the West and toolicy of neutrality if not of outright support for the Soviet cause in the unfolding power struggle between East and West.

Before the economic offensive was launched. Bloc trade with the underdeveloped countries was spearheaded largely by the Satellites, the expanding economies of which require new sources for Imports of raw materials and new markets for exports of machinery and equipment. Initially uncoordinated in their efforts, the Satellites sought to further immediate national self-interest and patterned their trade accordingly. Once the decision was reached, however, to make thepenetration of the underdevelopedriority objective of Soviet foreign policy, the need for concerting the trade of all the Satellites was clearly recognized. This Important task was assigned to the Council for Mutual Economic Assistance (CEMA)

n- Coordination of Satainte Support for thethc Underdeveloped

The efforts ofo coordinate Bloc trade with thecountries date from its Sixth Plenary Session held in the fall By that time the USSR had decided to launch itsoffensive In the Free World, and CEMA was selected as the mechanism through which to organize Satellite support. Ho concrete

measures vere agreed oa at this session. Rather, the Satellites vere advised to avoid competition among themselves in trade with thecountries; to coordinate their exports to these countries; and, if necessary, to give each other mutual aid in order to fulfill export obligations. The difficult task ofomprehensive program that would consistently adapt the very real economic need of the Satellites for increased trade with the underdeveloped countries to the pursuit of the objectives of Soviet foreign policy in these areas was begun only after the reorganization of CEMAnd the creation of permanent committees for Foreign Trade and for the Delivery of Complete Plant Installations. In tho program that has evolved, there are three major areas of Bloc activity in thecountries now being systematically coordinatedarket research studies of target countries, the planning of sales ofplant installations, and the planning of technical assistance.

A. Preparation of Market Research Studies

The preparation of basic market research studies on thecountries represents the initial phase of the CEMA program for coordinating the foreign trade activities of the Satellites in support of the Soviet economic offensive in these areas. eeting of the CEMA Permanent Committee for Foreign Trade, called in the fall7 to consider ways and means for expanding Bloc trade with the underdeveloped countries, recommended that such studies be drawn up for those underdeveloped countries in which the participatingof CEMA have their greatest interest in developing economic

Hot unexpectedly the economic interests of the Satellites coincided with Soviet political objectives. Thus the initial studies included the key targets of the Soviet economic offensiveBurma, Ceylon, Egypt, Syria (these studies were preparedthe establishment of thendia, and Indonesia, as well as such politically sensitive Latin American areas as Argentina and Brazil. Inclusion of the Latin American countries Is particularly significant in view of the fact that the Bloc, at least initially, saw little prospect for penetrating the Latin American market ln the near future. iscussion8 of the market research studies on Argentina and Brazil, the Polish, Czechoslovak, and Soviet delegates reportedly agreed that offorts to expand trade with Latin America vould become economically profitable only ln the long run and then only if long-term credit arrangements could be vorked out. Nevertheless, these delegates urged that overriding politicaldemanded that thc members of CEMA make every effort lo

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build up their trade with Latin America because "the Latin American countries use the socialist countriesounterpoise against the United States, and this political situation snist be/

The market studies prepared for CEMA are best described as comprehensive economic surveys. These studies contain generalInformation on the political and social structure of each country and discuss in considerable detail the organisation andof the economy. Illustrative of the broad coverage of theseIs the following table of contents from the Polish study of the Turkish market

ChapterStructure, Administrative

Subdivisions, and Population

ChapterSituation

Chapterand An:sal Husbandry

Chapterand Mining Industry

ChapterIndustry

ChapterBranches of Industry

ChapterResources

Chapterand Railway Lines

Chapterand Shipyards

Chapterof Trade

Chapterof Foreign Trade

ChapterTrade

Chapter XIH Prospects for the Export of Complete Enterprises

ChapterIn Export Transections

ChapterExchange, Currency Regulation,

Foreign Exchange Regulation, and Customs

ChapterRestrictions

Chapter XVTI Guarantees of Payment In Export Trade Chapter XVTII Summary and Conclusiono ,

Each sector of the economy is examined, from the point of view of its current stage of development as well as Its potential for future growth. Key production data are provided for agriculture and industry, and foreign trade statistics are carefully analyzed to show recent trends in the commodity structure and geographic distribution of the cost Important imports and exports. Finally the domestic and foreign economic policies and plans of the individual countries are considered, particularly ln their relation to Bloc plans for expanding trade These reports are submitted to the CEMA Permanent Committee for the Delivery of Complete Planthere, following committee discussion and approval, they become the basis fora coordinated program for economic development in the country An East German delegate stated, "It is only on the basis of this type of documentation that CSMA countries are enabled to perform more effectively in the underdevelopedj

The CEMA program for individual target areas, as developed by the committee, is circulated to the member countries in the formummary report that contains the following sections:

short estimate of trends in the development ofsectors of the economy.

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A list of projects Chat the underdeveloped countries wish to construct, expand, or modernize, as well as the neededassistance.

A list of industries and projects recommended for development and construction with the participation of the members of CEMA through the supply of equipment for complete plants and the rendering of technical assistance.

* This committee originally was set up to organize and supervise the trade of the Bloc with the underdeveloped countries and now is being merged with the Permanent Committee for Foreign Trade.

U. Recommendations on directions for further study of the market of the target

Sectionhe core of therogram,erious attempt tolueprint for economic development in the target countries on the basis of available canpower and natural resources. Committedatter of principle to the preferential support and expansion of state-owned enterprises and the public sector of the economy,EMA recommends Bloc participation ln the construction of electric power generating plants in all of tbe target countries and in the expansion of mining industries in most of these countries. Heavy Industry is stressed in the list of recommendations for exports to India (work on the Bhilai steel complex already bad beenrgentina, and For other countries the plans of CEMA fordevelopment stress food processing and production ofmaterials, fertilizers, and consumer goods. Improvements Inand in agricultural techniques also are Included among the recommendations modo. In general, the establishment of small-scale plants le favored, partly ln recognition of the prevailing economic conditions and stage of development In the target areas and partly also ln recognition of the limited production capabilities of the CEMA countries.

Extensive technical assistance is recommended not only for the agricultural and Industrial sector i> slated for economic development but also, very significantly, for government planning and public Great emphasis ls placed on the need for conducting thorough geological and engineering surveys aod for other prospects yielding basic economic Information. Ho specific proposals arefor financing the development projects and technicalrecommended, although there appears toeneral presumption that the increasing output of industrial and agricultural rawwhich should result from systematic exploration andof available natural resources ultimately would provide tbe necessary exports to pay for Bloc equipment and trained personnel.

To coordinate the activities of the CEMA countries In the Implementation of specific programs, the Permanent Committee for the Delivery of Complete Plant Installations stipulated that member countries must provide the Permanent Secretariat with Uie following information responsive to the recorenondatlOPS made:

Tho equipment that the member country is interested In supplying, by project and by Industry; what countries it is interested ln supplying; the approximate volume of supplies;entative time schedule for the delivery of such supplies.

The types of equipment and the countries on which the member country wishes to concentrate special attention from

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the point of view of specialization of production and of

3. Tne types of plants and the specific projectswhich the member country needs cooperation with other(for what, equipment and approximately for what period of time).

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k. The types of technical .assistance that .con be rendered by the member country to individual underdeveloped countries, j/

On tho basis .of this information/ properly arranged andated, the secretariat of*the committee Is enabled, theoretically at least, .to balance .the estimated .import requirements (for economic development purposes) .of the underdeveloped countries against theavailabilities of the Bloc and to insure that all opportunities for expandingnd Bloc Influence in generalare exploited efficiently. The. secretariat can reconmend that member countries cooperateby means of Joint ventures or subcontractingIn bidding on specific projects in the underdevelopedwhich any. one.of-the Bloc countries might: find Inexpedient to undertakehen two or. more of the CEMA countries express an interest In selling the-same type of equipment or installation to the ease country, the secretariat,.can intervene and designate the supplier.In the absence of special political considerations, the designation ordinarily is accorded the country believed to be best able to meet possible competition from the West.ltimately the assignment of specialised- production responsibility is expected to carry with it the, corresponding specialized responsibility forthe necessary exports to.non-Bloc, countries.

It is too early, as yet to Judge the practical effectiveness of the CEMA market research studies and of the individual country programs based onhe initial programs were adopted only in the springnd many of the projects proposed in theserequire extensive planning and negotiation before they can be launched. Nevertheless, it should be noted that Bloc tradewith underdeveloped countries signed subsequent to theof market research studies generally include the type ofrecommended.

B. Coordination of Exports of Complete Plant Installations

Exports, of complete plant installationsnique potential for effecting economic and political penetration. Well aware of.this fact. Bloc leaders promote such exportB and theof credits necessary to finance them as key elements of the

economic offensive in the underdeveloped countries. Initially, such exports provide the opportunity for rendering technical assistance ln sotting up and operating the plant facilities provided, andthereecurring need for specialized repairs andparts. At the sane tlae, repayment of the investment creditsusually takes the form of goods and, therefore. Insures aflow of trade in the opposite direction. esult, trade ties once established are strengthened or renewed. Apart from these economic considerations, which motivate East and West alike, the Bloc attaches considerable political value to its exports of complete plants. Bloc spokesmen like to point to such exports as convincing proof of the viability of the socialist system and of its suporior ability toackward economy rapidly, thus proffering at least the implied promise to underdeveloped countries that they too can achieve economic progress if only they adopt socialist methods.

1, Planning

To coordinate Bloc exports of complete plant installations to underdeveloped countries in line with the recommendations contained in its market research studios, the member countries of COW undertook to prepare long-range plans for such exports, Indicating the types of machinery and equipment to be exported as well as thecountry of destination. 9j These plans were submitted to CEMA for coordination and approval.* The review of these plans reportedly resulted in the recommendation that member countries concentrate on the construction ofasic types of plant installations.** Throughplanning and organizing of production and by employing modern equipment and technology, thc Bloc expects ultimately to be able to make delivery at prices more favorable than those offered by the West. Uj

* Co the basis of the limited information available, individual plans seemed to conform generally to the recommendations set forth in the market research studies.

** Only sugar factories, cement plants, and power generating stations vere identified. Accordingubsequent report, Deutscher Innen-und Aussenhandel (DIA) Invest-Export, the East German foreign trade corporation coordinating exports of complete plant installations, is ln fact concentrating on the expert of such

Supplementing the coordination of the long-term plans of member countries for exports of complete plant installations, CEMA has set up an extensive mechanism for exchanging current information on trade inquiries from the Free World. At the direction of CEMA, member countries disseminate monthly reports specifying the country of inquiry, the inquiring firm or its agent, the type of plant or

equipment requested, the date of Inquiry, and the disposition made of theaster file on all inquiries received lsby tho secretariat of the foreign trade committee.

The ultimate objective of this exchange of information appears to be to channel trade inquiries to the particular member country that either has been selected to specialize in the production of the plant or equipment ln question or. In the absence ofassignments, that Is best qualified to supply lt. Thisalready has been followedumber of instances. Inquiries from Western firms have been referred by the original recipient ln one CEMA country to the corresponding foreign trade enterprise of another because the equipment requested was not ln tho export program of tbe original In other Instances the originalof an Inquiry noted that lt would be prepared to subcontract for part of the order but would not beosition to undertake the entire contract, lk/

2. Financing

-efforts of CEMA to coordinate Bloc exports of com-

plete plant installations to underdeveloped countries also extend to the necessary financing arrangements. In this context, CEMAa recommendation made by the USSR lnhat all member countries follow the Soviet lead by offering investment credits* at the low annual rate of interestercent. After considerable discussion revealed vigorous opposition to the Soviet proposal on the pert of several of the Satellitesnotably Czechoslovakia, Hungary, end Polandthe USSR declined to press its rec^eatendaticn, thus leaving the Satellites free to negotiate on their/

The term investment credits Is used to denote credits forpurchases of capital goods.

" The arguments presented by individual Satellites in the course of this debate provide considerable support for the view that they regard trade with the underdeveloped countries primarily as arather thanolitical, venture. Czechoslovakiademanded that the minimum rate of Interest be establishedercent, arguing that if the USSR extends credit at more favorable terms, the Satellites would be virtually forced to follow suitthey, unlike tbe USSR, could not carry the economic burden Involved. The Polish delegation supported the Czechoslovak position and buttressed its argument with thc observation that as there Is widespread demand for credit ln the underdevelopedigher rate of interest should be readily obtainable. The Hungarian delegate wont even further,inimum rater 7 In the face of this vigorous ootnote continued on p. llj

It should bo noted, however, that whereas tho USSR fatted to gain unanimous agreement in CEMAolicy of low-interest credits to underdeveloped countries, several Czechoslovak, Eastand Rumanian credits advanced to India and Egypt sinceo carryercont rate off/ These lower rates did noteneral pattern, however, far other credits alsosincey Czechoslovakia, Hungary, and Poland carry Interest rates of This disparity ln interest rates, particularly in the case of Czechoslovak credits, raises the interesting speculation that Satellite credits advancedaay represent in fact Soviet credits subrogated to the Satellites for additional political or propaganda effect.

opposition and nc outright support by the Satellites, the Soviet dele-gateompromise rateercent that also was turned down, leading to the above-mentioned/

* Of particular Interest among these creditszechoslovak credit for the third stage of constructionoundry-forge plant being erected ln India. Several monthd earlier, lnzechoslovakia hadredit for tho first stage ofof this plantercent rate of interest.his provision, however, does not make clear whether or not the Bloc governmentb would be empowered to decide unilaterally to take goods or cash in repayment, nor Is it clear when this option would be excrclsed-

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Whereas formal agreement could not be reached on alow rate of Interest to be charged on credits to underdeveloped countries, the CEMA countries adopted, with only minor modifications, the Soviet recommendationommon policy regarding theunder which such credits would be extended. In general, this policy prescribes that credits would be granted in eases in which lt did not sees possible otherwise toale. Creditwould be drawn up between the foreign trade enterprises of CEMA countries and the government enterprises or private firms in the underdeveloped countries. When private firms are Involved, bank or even government guarantees are required before credits are granted. The amount of the credits is to be expressed either ln the national currency of the contracting countries orutually agreeable, freely convertible currency, and repayment is to be aada either through commodity deliveries as specified by the creditor countryat world market prices or in freely convertible ourrency.** Credits are dated from the time of delivery and generally extend upears, although longer credits may be agreed on ln special cases. If for anyember country of CEMA should deviate from the agreed provisions, that country must notify the other member countries of the precise circumstances and

Activities of CEMA In support of soles of complete plant installations are expected to Increase ln scope and Importance. Under the pressure of the Soviet economic offensive ln underdevelopedand of the expanding Satellite export drive ln general, the need for closer cooperation le being recognized more and more. As the planning and coordinating activities of CEMA become more efficient and more readily responsive to the long-term economic requirements of the participating countries, its recommendations will gain Increasingand compliance. The intense competition among thepreviously so marked ln their trade with tho Vest, Is being replaced gradually by intra-Bloc cooperation In foreign markets.

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3. Subcontracting of Soviet Credits to

Proliferation of Soviet credits to underdevelopedhasew and Increasingly Important field for CEMA activities. Cooperating closely with the Soviet State Committee for Foreign Economic RelationsCEMA hasenter forand coordinating Satellite participation ln projects organized through large-scale Soviet development credits.

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The Soviet-Egyptlan credit agreement8 illustrates this new sphere of CEMA activity. As soon as agreement in principle waa reached between the USSR and Egypt, the Satellites were advised of the projects that had been tentatively agreed on. ubsequent meeting held under the auspices of CEMA, Individual Satellitesthe specific projects that they would like to undertake either as sole contractor or in conjunction with one cor more member20/ After detailed discussion of individual plans, it wasthat In instances where several of the member countries express an interest In supplying the same project, their responsible foreign trade representatives must decide which of the countries Is bestto act as the principal contractor. .

If several countries wish to subcontract the same project, the responsible foreign trade representatives similarly rust decide on an appropriate allocation of work among Thelanket Soviet credit agreement, retains control over all contractual assignments made. Satellite plans for Individual projects must be submitted to the Soviet foreign trade enterprise.

ekhnookeport, which hofl sole Bloc authority for signing contracts within the framework of the

Although detailed corroborative evidence is not available, it can reasonably be ossumed that Satellite subcontracting of projects to be financed through Soviet long-term credits will become onsignificant pattern for cooperation in trade with thecountries. Recent Information Indicates that the Satellites will participate extensively In the first stage of construction of the Aswan Bam project ln Egypt, and the visit to Iraqeam ofexports, composed not only of Soviet but also of Czechoslovak and East German nationals, suggests that the Soviet line of credit to Iraq also will be Implemented with Satellite/

* Under special circumstances, foreign trade enterprises of the Satellites may negotiate directly with an underdeveloped country. For example, the Bulgarian company Techno-Inpex negotiated directly with Syria regarding the Muhardah Dam to be constructed under the Soviet long-term

** The0 edition of the Iraqi newspaper al-Habda'that East Germany and Czechoslovakia will provide machinery and equipmentextile plant to be built In Iraq under the Soviet line of credit, %Xj

*** It is assumed that tho USSR, rather than the Satellitecarries most of the burden of the credit. Although It is not known how soon the Satellites are reimbursed for projectsunder Soviet lines of credit to underdeveloped countries, it seema reasonable to assumo that repayments usually are made onaccount through such Soviet exports as raw materials, machinery, equipment, and foodstuffs. Vere the Satellites themselves saddled with the credit burden, presumably they would be less ready tothis program.

This subcontracting arrangement enables the USSR togeneral direction and control over the implementation of credit arrangements and at the same time permits more efficient allocation of individual projects through better utilization of areawldeand production capacity. The Satellites also benefit from this arrangement because it enables them to participate ln projects that they either could not or would not have undertaken without Soviet financialhrough CEKA the implementation of the Soviet credit program con be more systematically worked into Bloc production schedules, thus lowering over-all costs and raising over-all

The USSR considers tbe extension of technical assistance to selected underdeveloped countriesmuch like tbe sale of complete plant installations at favorableital aspect of the Bloc economic offensive In the Free World. The technical assistance program, which has essentially long-range objectives, promises support to the underdeveloped countries in developing their agriculture and industry through the conduct of surveys of available natural resources, the training of specialists, and the furnishing of pertinent scientific and technical information. At the same time, the program promises to assist In the formulation (or revision) of economic plans and in the establishment of the governmental and administrative frameworkto carry out these plans. Through the skillful operation of its technical assistance program, the Bloc expects to .Intensify andits economic relations with the underdeveloped countries.

* An article that appeared in the Bulletin for Representatives Abroad published by the Czechoslovak Ministry of Foreign Affairs, stated quite frankly: "If Czechoslovakia is to cope effectively with the competition of capitalist states In the matter of technical aid, it must beosition to react promptly to the needs of thecountries. Up to now, in addition to obstacles caused by the capitalist countries, it was often the case that thezecho-slovak Socialist Republic/ vas not prepared to render ijnmediateaid. The biggest problem has been the question of available Ifituation existed in Czechoslovakia, the most highly developed of the Satellites, iteasonable assumption that it similarly existed ln the less developed Satellites.

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Formerly the limited .availability of adequately trainedand administrative, personnel appears to have Inhibited theof;some of the Satellites to provide;extensive or diversified technical' To increase.the effectiveness and.to widen the scope of the technical assistance program, the CBMA Permanentfor the Delivery of Complete Plant Installations directed the member countries to prepare and submit their long-range plans fortechnical assistance to underdeveloped On the basis of the information supplied, the committee then compiled aschedule setting forth the types of assistance that the member countries planned to undertaken selected underdeveloped The current objective of compiling this schedule appears to be to acquaint member countries with-all projects under consideration placing reliance on voluntary cooperation to avoid needless duplication or competition amongltimately, however, it ls expected that the committee will be empowered to make specific assignments, in which case

the schedule will represent the official Bloc program and perhaps will he binding on the countries concerned.

To make the Bloc technical assistanceore immediately responsive to thc needs of the underdeveloped countries, thc Permanent Committee for Foreign Trade reportedly also conducts extensive current research la Free World publications to assemble detailed information on plans for future economic development in targethis research is designed to enable thc Bloc to anticipate probable requests for specific types of assistance and to permit carefully coordinated advanced planning.

Quite apart from the availability of properly trainedand carefully coordinated plans, the success of the Bloc in expanding Its technical assistance program, ln competition with that of the West, depends on ItB ability to supply the required services ut sufficiently attractive terms. The Soviet chairmanEMA subcommittee, considering the technical assistance program, reportedly summarized this proposition as follows: "The question of the costs for specialists sent out to underdeveloped countries was extremely important, and there must be unity about calculating them as low as possible. One must not forget that the money which is paid out for this purpose will come ln again later. Through the employment of these specialists, the industrial plants now being built are tailored for the home country or countries of tho CEMA states, and that will pay off la the future In every . The employment of theis one of the most important ways of penetrating

" Immediately afterwards, however, the chairman reportedly realized that he hadaux pas and corrected himself as follows: "The expression 'penetration' ls not really suitable. It is used by the capitalist and imperialist powers, and we had better avoid it."

In spite of Initial strong protests by the Czechoslovak and, especially, the Hungarian delegations the latter objected to the proposal that technical assistance be granted at costthe Permanent Committee for Foreign Trade agreed to exchange detailed Information on actual costs Incurred as well as on the methods used in calculating The data submitted by member countries were to be processed by CEMAeneral rate schedule that, subject to member approval, would set the pattern to be followed by all members of CEMA. Tostrengthen tbe Bloc's technical assistance program, CEMA directed member countries to prepare recommendations for uniform codes to cover the dispatch of specialists from CEMA countries to thc underdeveloped areas and the training of personnel froa these areas at theor training centers of CEMA

Lees glamorous than either long-term credits or technicalprograms, commodity trade continues to be the mainstay of the Soviet economic offensive In the underdeveloped countries, and CKKA has strongly urged Its member states to expand this trade as rapidly as possible. Of considerable Importance to this drive to expand' trade, therefore, ls tbe effort of CEMA to coordinate Bloc trade with the Free World in general, for by concerting buying and selling activities in Free World markets, CEMA hopes to strengthen the Bloc's bargaining position with respect to its Western competitors ih thecountries and with respect to its trading partners in the Industrialized West. Coordination of the pricing policies of the Bloc ln trade with the West and the assignment of export and importare among the principal tactics that CEMA has thus far developed in Its programontrolled expansion of East-West commodity trade.

A. Coordination of Pricing Policy

Competition among the Satellites for Western markets and sources of supply has been one of the principal factors preventing'the Bloc fromnited front in its trade with the Free World. To reduce this competition, the CEMA Permanent Committee for Foreign Trade devised andomprehensive program for concerted action In exports to and imports from the Free World providing for extensiveamong the member countries. As an Initial phase of thie program, the foreign trade committee7 began toist of products, the purchase or sale of which in Free World marketswould require coordination between the Bloc countries primarily interested. 3J/ As early as the end7 the secretariat of the committee made tbe somewhat dubious claim that "the total value of those items which arc bought and sold cooperatively by the foreign trade enterprises of the CEMA nations Is estimated to beercent of the total amount of trade with thej*/

* These Items include the following:

Exports of lumber, ferrous metals, coal, oil products, sugar, grain, cement, aniline dyes, cotton fabrics, railroad rolllog stock, cars, motorcycles and bicycles, tractors /footnote continued on

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The list of products, which in trade with the Free World are subject to compulsory intra-Bloc coordination, is periodicallyand frequently expanded. According to an instruction8 from the Bulgarian Ministry of Trade to its missions abroad, the listide range of industrial and agricultural raw materials, semi-processed goods, machinery, and Coordination of sales

and purchases of these products is effected through the responsible foreign trade enterprises of the interested countries. Annually, orfrequently as appropriate, the authorlxed representatives of these countries meet to exchange information on market conditions in Free World countries. Based on this exchange of information, the foreign trade representatives seek to formulate agreed Bloc policy end tactics for trade in specific commodities and in specific markets. Most Important perhaps, these representatives establish minimumand maximum buying prices for the commodities under their Committee approval is required before large quantities of goods may be bought or sold outside the agreed price

In addition to the control exercised by the regularlyconferences of repreaentativeB of Bloc foreign trade enterprises, CTXA directives provide that before any exports or imports of large quantities of raw materials and foodstuffs ore mode, the appropriate foreign trade enterprise of the Bloc country that Is the principal trader in the commodity concerned must be consulted. Thisassures that the most recent trade information Is available and permits, if possible, the timing of planned exports and Imports so as to take advantage of favorable pricing trends ln Westernimilarly,irectives require consultation between the Interested foreign trade enterprises before making bids or negotiating contracts for the sale of large quantities of machinery or complete38/ In effect, according to one sourco,loc countryidree World trading partner for the export of items that also are manufactured elsewhere in theopy of tht offer must be immediately submitted to the other interested Bloc countries "to prevent their unwittingly offering the same items at lower

and agriculture machinery, metal cutting machinery, hammering-prosa equipment, drilling equipment, duplicating equipment, equipment for the textile and sewing Industry, roadbuilding equipment, dlesele and dlesel aggregates, electric motors of upilowatts, generators, power transformers, and electric meters and communication equipment (radio equipment and telephone and telegraph stations).

Imports of textile raw materials (cotton, wood, and artificialaw hides, nonferrous metals, ferrous metals, rubber, dyes, sugar, grain, citrus, coffee, cocoa beans, metal cutting machinery, and hammering-press equipment.

Reduction of competition among the Satellitesifficult task to achieve, for the many similarities in their economicere necessarily reflected in similar export availabilities and import requirements. In view of this parallelism In patterns oftrade, lt is unreasonable to expect that the Bloc will rapidly

overcome all rivalries far foreign markets and sources of supply. n8 report toy the Permanent Committee for Foreign Tradeumber of recurring shortcomings, such as lack of proper coordination between foreign trade enterprises in bidding on projects in Free World countries, failure to consult before contracting for major sales or purchases of key products, and violations of the price limitations agreed on. ko/ Scattered information since the date of this report suggests that competition among the Bloc countries in Free World markets continues, although apparentlymaller scale than before. At the same time, there is increasing evidence that collaboration among the Bloc countries Is improving, particularly In exports to underdeveloped countries. It can be tentatively concluded, therefore, that the Bloc is making progress in coordinating itspolicies and ln reducing competition ln its trade with the Free World, even though much remains to be donenited front can be achieved.

B. Assignment of Export and Import Monopolies

A further step in the coordination of Bloc trade with the Free World is the assignment of export and import monopolies toSatellites (the USSR apparently does not participate in this phase of the CEMA program). The purpose of such assignments appears to be generally to improve the bargaining power of tho Bloc in respect to its Free World trading partners and possibly also to enhance the political Impact of Bloc trade on these trading partners. CEMA has recommended monopoly assignments in the past, but no definitivehas developed as yet. In some instances, monopoly privileges were allocatedommodity basis, ln otherseographic basis, and In still othersommodity and geographic basis combinedthat Is, countries were assigned monopoly export or import privileges for specific commodities in specific markets, kl/ According to one report, Poland did not export trucks or automobiles to South.America, because this market was assigned to Theaccording to the same report, were to discontinue exports of rolling stock toarket reserved for Poland. In anotherlt is claimed that the Poles vere instructed to refer inquiries for oil drilling equipment to Rumania rather than to East GermanyRumania had monopoly rights to export such equipment, frg/

The program of assigning exclusive trading rights in Free World markets does not appear to have been very successful thus far, nor Indeed to have been aggressively pursued by the Permanentfor Foreign Trade. Individual Satellites continue to promote

thoir exports wherever possible in apparent disregard of commodity or geographic monopoly allocations. thus an official of theministry of foreign trade admitted9 that although hungary was to be the sole bloc exporter of buses and poland of certain types of machine tools, czechoslovakia continued to export its own buses and machine tools through czechoslovak export companies on an unlimited, worldwide basis, kh/

even though previous attempts at designating specificas sole bargaining representatives apparently have been largely ineffective, the ultimate pattern of cou coordination of bloc foreign trade may well point in this direction. as the economic integration of tho satellites progresses on the basis of specialization ofand division of labor, it seems reasonable to expect that the principal producer or consumer of specific commodities willact as their principal exporter or importer, subcontracting or reexporting to the other interested satellites as appropriate. in this manner the bargaining power of the bloc in western markets should be improved. at the same time, the economic.dependence of theon the patterns of production and trade developed ln the bloc should increase as their traditional trade ties with the free world aro supplanted by new. bloc-wide patterns of east-vest trade.

Original document.

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