PLANNED EXPANSION OF THE EAST GERMAN CHEMICAL INDUSTRY, 1959-65 (RR IM 59-19)

Created: 12/28/1959

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CIA HISTORICAL REVIEW PROGRAM RELEASE AS9

O W

INTELLIGENCE MEMORANDUM

PLANNED EXPANSION OF THE EAST HERMAN CHEMICAL INDUSTRY

CIA/RR89

.

ThliTnftUmal ronlims infoirtiiUon Nationalol Uie^JlPilxHf Ihe ui*

iuon- in tny rohibited by law"1

CENTRAL INTELLIGENCE AGENCY Office ol Research and Eteports

met

3ummary

I. Introduction

II- Program for

of the

for

It;

rtl. Factors Affecting Fulfillment of

A- Support for the

3. Anticipated ProbJenn and Measures for Solving

1.

?. Construction

3.

ft.

5- Supply of Raw Materials and

6.

IV. Prospects Tor Fulfilling the

V. Effects of the

Appendix

Source

Table

Production of Selected Chemical products In8

Suanary

The uxpansion of the Euut German chemical industry scheduleds designed to supplement the current expansion of the Soviet chemical industry and to help improve thc standard of living ln East Germany. The principal emphasis of the expansion is on plastics and synthetic fibers,etrochemical industry Is to be established toarge portion of the raw materials for the manufacture of these products.

Under the program the East German chemical Industry is to receive investment funds equal to more than three and one-half times those received during theears and Is to be granted top priority in plans for the development of the economy. The USSR is providing credits for some special purposes. Difficulties will be encountered, however, ln construction and ln procurement of materials, equipment, and technology from abroad, particularly from the Free World. It Is not expected that shortages of raw materials will Impede theof planned goals, although East Germany will continue to depend on imports for many materials. Supplies of electric power, however, may prove to be Inadequate if plans for expansion of the power industry are not strictly followed.

The planned increases ln production are to be attained almostwithout significant additions to the labor force. The program calledbeing applied throughout industry tomaximum production from existing installations with minimumTor modernization, is expected to provide nearly threc-fourtha of the total increases in production but probably will fall short of expectations.

It is doubtful that the program will be fulfilled on schedule, but undoubtedly there will be significant gains in production that will benefit both heavy industry and consumers ln East Germany. Thc USSR

*The estimates and conclusions in this memorandum represent the best Judgment of this Office as See the footnote on p.elow.

r-

also will derive economic benefits in the form of increased receipts from East Germany of certain chemical products, notably synthetic fibers and plastics.

T. Introduction

The East German chemicalhich is scheduled forduringcurrently rankschemi-

cal industries of the world, following the US, the USSR, WestBritain, France, and Japan,claims to be second only to

tbe US in production perIndustry Is the second largest

ir. East Germany, followinghe East German

chemical Industry provided aboutercent of gross Industrial output and the name percentage of all exports.

East Germany is the leading exporter of chemicals tot supplied nearly on*-third of allchemical products Imported by tbe Exports toInclude not only basic chemicals and intermeolates, suchrubber, but also finished products, such as artificialfilms, insecticides, plastic products, dyes, and Most of these products help to satisfy the Sovietconsumer goods, but many also can be used by hcuvy industry orforces.

The countries of tbe Sino-Soviet Bloc that have relatively well -developed chemical industries of their ownPoland, Czechoslovakia, Rumania, and Communist China are the largest consumers of Eastchemicals following the USSR. These countries obtain basicfor further processing by their own Industries, as well us finished products. Other countries of the Bloc receive mainly finished products.

The East Cerman chemical industry includes the production of synthetic liquid fuels.

Since about9 this period has been referred toSeven Yearndicating that plans for the remainder of thc Second Five Yearave been combined with those for the Third Ptve Year.

Exclusive of natural rubber.

I1. Program for Expansion

of the Program

In8 the USSR agreed to lend BastEast German marknor expanding production of plasticsfibers at several major chemical plants. ' Repaymentbe made ln kind, primarily in products of the Mm facilities. speech in East Germanyhrushchev stressed theof an International pooling of chemical raw materialscapacity and indicated that the chemical industry vas toln East Germany as well as in the USSR. 1 The nextGerman Deputy Premier Ulbrlcht, speaking beiore thc Fifthof the Socialist Unity Party, stated some of theset for the expansion and noted that the USSR would supplymaterials for building and operating new chemical

another speech,ovember, be outlined ln detail not only Lue purpose and goals of the expansion but also many of the anticipated problems and measures to be initiated to overcome then.

for Expansion

Statements of Khrushchev, subsequent statements byboth the USSR and East Germany, and Soviet willingness torow materials leave no doubt that tho East GermanSoviet-Inspired and was initiated primarily to supplement thcof the Soviet chemicalexploitingand capacity and also skilled manpower ln East Germanya portion of Soviet row materials, the USSR expects tosupplies of high-grade Intermediate and finishedsooner than would be possible If it bad to build all thefacilities Itself. These products include,rubber, polyvinyl chloride and other plastics, and

A second reason for the program, and one which has naturally received more publicity In East Germany, is to bolster the Easteconomy and to Improve the standard of living. Under thcrot, Wohl stand, Schoenbelt" (Bread, We LI-Being,ncampaign has been waged to convince thc people of their stake in the success of the program and to win their support for It.

' 5 million at the official rate of exchange, orillionillion in comparable values. At therote ofME equals approximately. ore realistic equivalent for investments (construction work and equipment)

is.

besides serving as an Incentive to thc workers. Increased benefits to the East Gcrnan economy are Important for the prestige of the Soviet Bloc because the present contrast between East and West Germany reflects unfavorably on the entire Bloc. Bast German leaders have stated repeatedly that catching up with production in "capitalist" West Geraany is "thc chief economic task" of thc moment and have cited the chemical industryajor contributor to its solution.

C. Specific Goals

, while output of industryhole inis to increase byercent, output of tbe chemicalscheduled to increaseof chemicals in

re scheduled to be twice those ofalthough total exports ore to increase by onlyercent.

A general expansion of the East German chemical Industrybut the emphasis is to tie on plastics and syntheticof which are scheduled to increaseercent ' ercent, espectively, Several newplastics ore to be proauced, Including both low-pressure andpolyethylene, polyester resins, and new types ofepoxy resins, production of silicone products, includingand greases, is toercent byin-

creases in production of plastics are to be accomplished oj expanding thc capacities of existing plants, particularly those at VEB* Leuns-Uerkc "Walter ulbricht" in Mcrseburg, VEB Chemische Werke Buna in Schkopau, and VEB Elektrochemisches Kombinat Bitterfeld In Bitterfcld.

The woollike fibers Prclnna andhich have already been made In limited amounts, are scheduled for large-scale productionnd two new plants are to be built to produce them. One, to produce Prelana, will be located at thc VEB Kunstseldenwark (Artificial Silk Plant) "Friedrich Engels" in PremnlU; the other, to producend Lanon, at Guben on the Suisse River-

The accompanyinghows some of the aore Important goals set for Increases in production of chemical products in East Germany

* Volkseigener BetricbPeople -Owned Enterprise. ** These fibers resemble, respectively, the US products Orion and Dacron.

*** ylon fiber formerly called The tabic follows on p. 5.

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A-L-

Production, of Selected Chemical Producta ir. East Germany85 Plan

Pmduct

8

Ibeu'ard mtrla Tor.i

122

go

ehlorlae

Srctaatlc ribara

ork* riua>Bt

iter Inlui flbar Ufion flbar

bar carblda

Soda nsh Cauaeic aoda Sulfuric Bold f/ Anion la,

Xltrocta familiaruiiphoruaC/

36

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JOd/ -

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u 10

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il a

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BOB Ud

panantaaa lMrvsie la tot oeaciE^ral,

i' tha 1*

Orcaat tuCUflO I

Aa nitrogen.

h. Aa phoapborua paalotlde.

In order toortion of the basic and intermediate chemicals required for this expansion, the establishment of aIndustry Is planned in East Germany. etroleum refinery, to operate on crude oil piped in from the USSR, is being built at Schuedt on the Oder River. It is to have an eventual throughput capacityillion tons per year but is scheduled to3apacity variously reported5 millionillion tons per year.

The establishmentetrochemical industry is primarilytoore economical base for the production of Selected products from the new refinery and from ato be set up at thc VEB Leuns-Werke ln Bezirk Halle will befurther into chemical starting materials to supplement,to replace, calcium carbide, the material principallypresent for thu production of plastics and synthetic fibers. etrochemical base will cut thc coots of products byone-half. ' The shift is desirable because production ofconsumes large quantities of scarce electric power and ofIs bulky and Is obtained in large measure from outside The Importation of petroleum by pipeline will reduceplaced on the transportation system for the movement ofproduction of synthetics from petroleum generallyless complex processing than production from carbide, has the additional advantage of furnishing other chemicalespecially aronatlcfi, such as benzol, toluol, andwhich East Germany has had to import In sizablebefore petrochemicals become available, It will beto expand production of calcium carbide to meet increasedthc manufacture of synthetics. roduction of carbideIncrease by aboutercent, toillion

he rate of expansion of carbide capacity is expected to decline as petrochemical capacity is increased.

D. Planned Investments

In the, investments in the East Germanare scheduled to9 billion DME, moreimesbillion DME Invested in the Industry during the precedingthisillion DME have been allocated for

illionnd thcillion for the5relatively small amount allocated forthe fact that most of the work of actually buildingplants must wait until the preliminary work of planningand preparation of sites has been completed.

T :

Ab evidence of thc cmphaols on synthetic fibers andillion DME, or nearly one-half of the total, is allocated to thc WB* Chemiofaser und Fotochemle (Chemical Fibers and Photochemicals) and the WB Rlcktrochemie und Ploste (Electrochemistry andlthough this amount includes some funds to be used for othert does not include the large sums for the refinery at Scbwedt or for thc expansion of petroleiao-refIning facilities at the VEB Lcuna-Werke and the VEB Kbablnat Espenhaln, which are subordinate to other WB's.

In line with the increased emphasis on production ofhe share of the East German chemical industry in total investmentsto be rising. illion DME,* percent of the total Investment, was utilized by the chemical Industry. * 9 the share Is scheduled toillion DME,orcoiic of the total investment. ' ' By comparison, the chemical industry in the USSR is scheduled to receiveercent of total investment.

presumably the investment figures given above include loansUSSR. In the autumnoviet loan of U0 millioncover Imports from the USSR of construction materials for theIndustry wasIt was not explainedev loan or part of the previously mentioned loanDME (see A, above). In either case, thc Soviet loan ortoercent of tho total funds allocated to theIndustry under the East German Seven Year Plan. The materialsUSSR Is to furnish against theae credits are vital to theand would be difficult to obtain from any other Pactor3 Affecting Fulfillment of Support for the Program

The East German chemical Industry, which vas formerly ranked behind the fuels and power industries in priority, has now been given top priority in all current plans for development of the economy. Various organizational measures have been taken to assure that the program receives the requisite cooperation from all branches ofInvolved (seendelow) in order to help avoid

* Vercinigung votkseigener BetrlebeAssociation of People-Owned Enterprises.

** Thc funds for WB Elektrochemle und Plaste, for example, also cover projects for expansion of capacity for production of light metals and for the construction of plants to produce zirconium and metallic calcium for use in the atomic energy program.

*** Approximatelyillion ot the official rate of exchange of

rubles to

administrative snarls suoh as have hampered industrial expansion in the past. Furthermore, os already mentioned (see II, D, above), the USSR has agreed to furnish both money and materials to support the program.

B- Anticipated Problems and Ifeaaures for Solving Them

Problems that will be encountered under the newEast Germany are essentially those encountered in anybut they will be magnified by thc fact that the programa major effortomparatively small economy witha decade of experience in centralized economic planning. of planning, procurement, allocation, and supervisionof plans underlie many of the problems connected with

Expansion of the East German chemical industry frequently has been hampered in thc past by the failure of thc constructionto meet commitments because of shortages of manpower, machinery, and materials and because of shortcomings in planning and scheduling, not only in the construction Industry itself but also in the design and engineering offices. Designing and engineering wort often Isschedule or improperly executed, partly becausehortage of terhnical personnel. These shortcomings frequently hove led to costly and time-consuming alterations after installations ore partly built. Allocation of investment funds according to an arbitrary time schedule, without regard to the actual work to be donelveo period, also has caused Irregularities and slowdowns in construction work.

To avoid or minimize these shortcomings in the future,and engineers are urged to collaborate closely duringend drafting stagesroject so that subsequentbe avoided. Furthermore, construction work Is net to beplans and drawings are completed. ew enterprise, theund Hontagekomblnat Chcale (Construction andas been formed to supervise and coordinateand installation work at the constructionto plans, construction wort on projects for the chemicalwill be reduced by utilizing open-air Installations

3- Equipment

Enterprises manufacturing equipment often fail to makeon schedule, frequently because their own suppliers fail to deliver materials or parts on Failure to meet delivery schedules is often attributable to tuc failure of foreign-tradeto obtain necessary imports, because many items of chemical equipment require materials which East Germany does not produce or produces only in limited quantities-Lack of standardization in chemical equipment ' s another problem which frequently delays execution of chemico* Components ordered from different enterprises are often made to different specifications and must be remade or adapted before they can be installed together. pecial enterprise designated VEB Kom-plette Chemieanlagen (Complete Chemical Installations) has been formed tb coordinate procurement of chemical equipment, assuring thestandardization and adherence to schedules.

The ability of East German manufacturers of chemicalto cover the demands of the chemical industry also will be limited by thc fact that East Germany has heavy commitments to furnish chemical equipment and also measuring and control devices to other countries of tbe Soviet Bloc, primarily the USSR. ' ' Steps have been taken by the Council for Mutual Economic Assistance ^CEMA) to work out specifications for chemical equipmentloc-wide basis.

Some chemical equipment produced in East Germany isstandards in both design anddesigners

have been exhorted to improve their work, some of the new equipment currently being installed is not of the most modem design.

1|. Technology

Some synthetic products, such as polyethylene andscheduled for large-scale production byarc producedin East Germany onlyaboratory or pilot-plantand drawings Tor full-scale plants will be neededif construction schedules are to be met, and East Germany doesadequate numbers of designers and engineers to handle all thein scaling up the processes for commercial production. thc USSR ia reported lo be supplying some technological data, the petrochemical processes for thc newnecessary for Eaut Germany to obtain additional process aata,and special materials ond equipment, particularlyand control devices, from the Kree World. Some Westernthe US, are opposed in certain instances to supplying technology

I-fi-t

that will enhance thc competitive stature ol" thc Soviet Bloc. the ability of Bast Gcroony to pay for Imports from the Free World la restricted. Bast Germany even may find Itself in somecompeting with the USSR for Western aid because the USSR Is planning to expand some of the same lines of production as Eastand also is seeking to purchase Western technology. Eastprobably will be persistent In its efforts, however, and may achieve some success. Ihe British firm Imperial Chemical Industries (iCl) reportedly has been negotiating with the VEB Leuna-Werke for delivery of equipment and technology for the production of ethylene and polyethylene.

One particularly Important factor ln plans for the East German chemical industry Is that aboutercent of the increases ln production are to be achieved through "Rekonstruktlon,' aaimed at minimizing obsolescence in existing plants, particularly with' respect to mechanization and automation. Increases in production of some products depend almost entirely on this program. Separatefunds are earmarked for it, and workers, technicians, and engineers all are encouraged to suggest improvements. Althoughincreases surely will result from this program, it is very doubtful that these increases will be as great as planned.

5. Supply of Raw Materials and Power

, Ho difficulties are foreseen during the plan period ln the supply of chemical raw materials. East Germany will continue to depend on Imports, mainly from tho USSR, but there is every indication that thc USSR will make the deliveries or will see that East Germany is able to obtain the materials elsewhere. Especially coke, phosphate rock, and pyrites will continue to be requiredarge scale in addition to the increases planned ln imports of petroleum.

The supply of electric power, which the East GermanIndustry consumes in enormousotential Impediment to the attainment of planned goals. As the chemical industry expands,

* 'Ilic term Rekonstruktlon, ln current usage, means modernization,oncomitant increase in productivity, to the greatest extent possible without extensive construction work or major expenditures. The program is in force throughout East German Industry, not in the chemical industry alone.

One-third of all the power produced in East Germany is consumed by the chemical Industry, approximately one-tenth of the total output being required for production of calcium carbide alone.

output of power, which at present is buroly adequate to satiufy the national demand, will, have to be expanded proportionately because opportunities for importing power or diverting it from other lndua-trieu ore limited.

6. Manpower

Laborcarce ccesnodity in East Germany, andthe low wartime birth rate the working population is expectedduring the next few years, even If defections

cease or are offset by Immigration. ' ' Initially the

dustry will be affected mainlyiwrtage ofbut as the new plants are completed, the supp' hemical workers will begin to become critical. Accordinr plans, the need for additional labor in the chemical Industry ' x> be covered largely by increasing productivity per worker throw- idespreador mechanization and automation. olution is based on the assumption that the technological ms associated with the introduction of automation can be Coaprehenslve trainingto train personnel to opetr -tore highly mechanized plants also will be required. In addltior s planned to employ more women, but this possibility is liic'.^u, becauseercent of all fjmuworking age arcvlVjyed. " ' An ad-MV.diii measure for stretching the labor f- ithout tncrcasing it is the training of chemical workers 1n second trade" in order to avoid having workers idle during some -ges of produetion. The "second trades" arethose cor cted with maintenance.

fee erection of the new refinery and the new plantfibers ln the eastern part of East Germany, wheref skilled chemical labor, complicates the problem. presi, has cited tbe necessity of starting to train cadres toto operate thc plants when they ore completed, it will beto find the requisite number of workers without depletingof labor for otherworkers ore moved in

from other areas, thc construction industry will be further burdenedrovide housing and other facilities for them. withai.ik,e-the floUoiisned centers of the chemical industry, there will be few trained workers who con be spared for the new plants, especially workers with maintenance skills.

IV.

In spite of the measures taken to overcome

above, prospects for fulfilling the program for expansion oferman chemical industry on schedule do not appear bright. Tbecannot in practice be given the unqualified top priority tliat it

c

I n

has beeu granted In theory, because the rest of the economy also Is scheduled to expand, although not so rapidly. Furthermore, all the other partB or the economy involved must meet their commitments fully if the program is to be fulfilled, and it is doubtful that East Grrmar will succeed In mobilizing the necessary maximum effort. Themeasures instituted (see III,ndbove) undoubtedly will help to keep the individual parts of the industrial networkand mobilised behind the program, but the past performance of the East German economy does not Indicate an ability to support large and rapid an expansion without more outside aid than is now evidence.

Moreover, the proeram apparently has begun slowly. Duringpart9 the East German press criticized lags inin particular. At the end of the first quarteronstruction on investment projects at four of theplants was reported to bend lk percent ofscheduled for theperformance of the machine-

building enterprises and of the enterprises producing controlalso has been cited as unsatisfactory. Other targets ofhave included tbe work of the designing and engineering offices and the inadequate coordination of activities among the separate branches of industry. Blectric power and manpower also have been reported to be inadequate.

All thc standard Communist methods"socialist" competitions, performance pledges by individual workers, and various speed-up methods that actuully amount to unpaid overtime workre being applied in East Germany in an effort to improve performance and to increase the rate of expansion. Although in the past such methods have been successful in increasing output, it is doubtful, thatcan be maintainedevel high enough to meet thegoals.

recise estimate of the degree of plan fulfillment is not possible at this early date, it appears that the East Cermnii7 the goals Oct- There has been no overt indication so rar, im-evcr, the East German cavern-mcnt expects anything less than complete fulfillment.

In view of the difficulties likely to be encountered, progress under the program probably will not be uniform. Becausearge part of the program depends on the completion of the petrochemical facilities, it Is probable thai construction of the" refinery at Schwedt will proceed more or less on schedule. If problems should arise in connection with construction or with deliveries of oil frcffi the USSR, however, or if the manpower problem at Schwedt should

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^

become insuperable, progress on the refinery might slow down andof capacity for calcium carbide might be further stressed.

Limiting factors ln the program are the extent to which electric power output keeps pace with Increased chemical capacity, the degree to which automation and other technological advances succeed inrequirements for manpower, and the amount of aid that can be obtained from abroad. Success ln procuring aid from abroad willboth on support from the USSR in obtaining products that the Soviet Bloc can furnish and on the willingness of Western countries and individual manufacturers to sell items that cannot be obtained within the Slno-Soviet Bloc. Payments for Items purchased from the West may prove an obstacle unless the USSR also furnishes adequate credits in Western currencies.

W Effects of the Program

The program for expansion of the chemical Industry will have certain adverse effects on the East German economy. For one thing, much of tho plant now existing probably will suffer excessive wear because of the prevailing practice of overworking equipment and slighting maintenance whenever plan goals appear in Jeopardy. Another probable result will be increased dissatisfaction of the workers, who will be required under the various speed-up methods to work harder without realizing many of the benefits that they have been promised. Housing problems, which probably will continue,of the emphasis on Industrial rather than residentialwill add to the dissatisfaction.

nevertheless, the program eventually will result in anet gain to the East German economy. Even if production5 does not reach tbe ambitious goals set, there will beincreases in production of plasties, synthetic rubber,fibers, and other chemical products. onsequence, heavy Industry will have larger supplies of modern materials at Itsand will be able to produce more products, and in many cases better products, both for domestic consumption and for export. East German dependence on Imports of nonferrous metals and other rawwill be reduced, because man-made materials will be available to replace large amounts of these Items. Consumers will benefit from increased supplies of textiles and consumer goods made of Both consumers and Industry will benefit from the Increase ln imports that can be paid for with exports of chemicals.

One or the most noticeable changes to result from the program will be ln East German foreign trade in cheralcnls. Hot only will therehift to more extensive imports of raw materials and larger

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exports of finished chemical products, but also the direction of trade will shift so that the economically strong countries of tbe Free World will become less important as tradlog partners. Dependence on Western deliveries will be diminished, while dependence on countries of tbe Sino-Soviet Bloc, both as suppliers of raw materials and as markets for finished goods, will increase. At tbe some time, exports ofgoods to underdeveloped countries of tbe Free World are to 'Die results will be to bind the East German economy more firmly to the economies of the other CommunlBt countries and totbe economic penetration of the underdeveloped countries.

The USSR also will benefit from thc expansion of the East German chemical industry, because the USSR can be expected to exercise first claim on additional quantities of East German chemical products that become available, particularly the synthetic materials to be produced from Soviet crude oil in plants partly financed with Soviet funds. Moreover, the greater availability of synthetic materials and other chemical products in the Bloc will contribute to an increased potential for the "economic competition" with the West that hasajor fciiture of Soviet foreign policy.

Expansion of tbe East German chemical industry also will affect other countries of the Sino-Soviet Bloc. Although the currentapparently wns Initiated by the USSR directly rather than through CEMA, the CEMA Permanent Commission for Cooperation in the Field of the Chemical Industry has been active in helping to work out details of the plans for speclallratloo and cooperation with other countries of the Bloc. Inasmuch as East Germany has been selected to specialize In several Important plastics and synthetic fibers, the success or failure of the East German plans for expanding production of these products will affect their availability throughout the Bloc.

The current program for develojmient of the East German chemical Industry may thus be considered one more Indication of Soviettoward East Germany. The Increased ties with the Sino-Soviet Bloc that will result from tho program indicate that East Germany In expected to play an important part In piano for the Integration of the chemical Industries of the Bloc. This projected integration provides the USSR vith further reason for resisting any efforts to loosen East Germany's economic tics with the rest of the Bloc.

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<>f

Doc

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Confirmed by other sources

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reliable

Probably true

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reliable

rnssibly true

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reliable

Doubtful

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usually reliable-

Probably false

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reliable

Cannot be judged

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Evaluations not otherwise designated are those appearing ondocument; thoseB" are by the author of this No "RE" evaluation is given when the author agrees with it. .

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