Part 3

This fact and the hefty amounts of trade which were called for in some of the agreements have given many people the impression that a historic increase in the size of East-West trade was taking place. The impression seems hardly justified.

In the first place, trade agreements are usually only hunting licenses. They merely authorize--but do not guarantee--the exchange of goods. The governments agree to permit the export and import of the types listed--if contracts can be arrived at between Soviet monopolies and Western business. If the goods turn out to be unavailable, or if the demand is not forthcoming, or if the price is too high or the quality too low, the publicized amounts of the trade agreements do not materialize in the export-import statistics. And this fact rarely receives as much public attention as the original announcement. To illustrate, a spokesman for the Greek Foreign Ministry told the press on January 19 that the U.S.S.R. had lagged far behind in shipments under the 1-year trade agreement of July 1953. That agreement had been publicized as calling for trade of $10 million each way, but the Greek official said few Russian deliveries had been made and "it will be a miracle" if these deliveries reached $3 million.

In the second place, even a big percentage of fulfillment would not necessarily increase trade between the U.S.S.R. and the free world to the high points of 1948 and 1952. The 1948 turnover--that is, the sum of exports and imports--had been about $1 billion. It declined to $545 million in 1950. By 1952 it was back up to $943 million. The preliminary estimate for 1953 is $790 million. Thus the year which saw the Kremlin's new trading tactics was also the year that saw a slump of about 16 percent in the dollar value of its trade with the free world. The trade was rising moderately in the last part of 1953 and a further moderate rise in 1954 would not be surprising.

But there is still another reason why the new Soviet trade arrangements will not necessarily mean a historic upsweep in East-West trade: The satellite countries have not been behaving in quite the same way.

The U.S.S.R. is only one part of the Soviet bloc, albeit the center of power. The U.S.S.R. accounts for about 30 percent of the trade which the European Soviet bloc carries on with the free world. (The percentage would be still less if Communist China were included, but Communist China will be discussed in another chapter.) In other words, Czechoslovakia, Poland, Hungary, the Soviet zone of Germany, Rumania, Bulgaria, and Albania, despite the long, steady decline of their trade with the free world ever since "sovietization" took hold in about 1948, still exchange about twice as much merchandise with free-world countries as does the U.S.S.R. These satellites, or some of them, have long had trade agreements with countries in Western Europe. During the last year or so they have renewed about 45 of those. In addition they renewed about a dozen agreements with non-European countries.

The brand-new agreements which the satellites concluded in Europe were mainly with France and Greece, thus conforming to the Soviet pattern of increased attention to those two countries. But in other respects the satellite trade pattern was different from that of the U.S.S.R., for while recent U.S.S.R. commitments, if fulfilled, seem to indicate increased trade, there was no evidence of a reversal in the long slide of the East-West trade of the satellites. Therefore one could not ignore the possibility that the U.S.S.R., with a flourishing of fountain pens and a blare of trumpets, was merely shifting to itself a bigger percentage of all bloc trade with the rest of the world.

Now let's see what kinds of goods are involved in the new trade agreements and other commitments that the U.S.S.R. has been making.

=More Consumer Goods Ordered=

Consumer goods, the items about which Malenkov, Khrushchev, and Mikoyan made such a fanfare in announcing the new course for the Soviet domestic economy, make up one class of commodities, though not the most important, that the U.S.S.R. has been ordering from the Western world. It appears that the U.S.S.R. has committed itself to buy consumer goods at a somewhat brisker rate than in recent years.

Most of these consumer goods were food items. During the last 6 months of 1953 and the first month of 1954, the known Soviet arrangements to buy food from the free world amounted to about $90 million. Some of the deliveries were scheduled in 1953, some in 1954.

Butter was the biggest item. In trade agreements and contracts, butter quotas amounted to 37,500 tons, with an estimated value of $40 million. Denmark was to provide about $18.6 million of this. The second most important source of butter was to be the Netherlands, with $13.7 million. Lesser amounts were to come from New Zealand, Australia, Sweden, and Uruguay.

Meat quotas came to about $22 million, with Denmark and Argentina the leading suppliers. Smaller amounts were to come from the Netherlands, Uruguay, and other countries.

Fish quotas amounted to $15 million. Nearly all of this was herring. The leading suppliers were to be Iceland and Norway, and others were the United Kingdom, the Netherlands, and Denmark.

The U.S.S.R. during the 7-month period also arranged to buy $7 million worth of citrus fruits from Italy, Japan, and Israel (and apparently made a whopping profit selling oranges to the Russian people); $4 million worth of cheese from Argentina and the Netherlands; $2.4 million worth of lard from Denmark and Argentina; and $1.4 million worth of sugar from the United Kingdom and Cuba.

Besides food, the most important consumer item ordered from the West was textiles. The amount is harder to estimate, but it was somewhat larger than the Soviet textile imports of any recent year. The principal suppliers were to be Belgium, France, the Netherlands, Italy, and the United Kingdom.

In addition to contracts already made, the Soviet officials were still putting out feelers for consumer goods. Some of them reached across the Atlantic. In January much publicity was given to the efforts of an American firm to buy a large quantity of Government-owned surplus butter and sell it abroad--ultimate destination Russia.

Secretary of Commerce Sinclair Weeks announced on January 15 that he would not approve any application "which would permit an exporter to buy butter at considerably lower prices than those paid by the American housewife and then send that butter into Russia." On February 10 he announced that it had been "decided as a matter of policy to deny commercial export license applications for the export for cash of United States Government-owned surplus agricultural or vegetable fiber products to Russia or her satellites." He pointed out, however, that this ban "does not preclude study of export license applications for these nonstrategic products to the Soviet bloc if acquired by exporters in the open market and not from the Commodity Credit Corporation surplus stocks."

It is difficult at this writing to compare the Soviet Union's new commitments to buy consumer goods with the actual imports of previous years. _Total_ free-world exports to the U.S.S.R. in 1953 are estimated at $410 million (compared with $481 million in 1952) but how much of this $410 million was consumer goods is not yet determined. The 1954 figure can only be speculated upon. But certain generalizations about consumer goods are possible.

As evident in chapter 1, the U.S.S.R. was never very much interested in importing consumer goods from the West. The items it did import for the consumer were not the household appliances and luxury items we sometimes think of as consumer goods--but were usually food. These imports have been higher at times than others: for example they were relatively high in the late 1930's and again in 1948. Since 1950 they have been rising again, but by 1953 they were still breaking no records. They have always represented a relatively small percentage of total Soviet imports. At the same time, during the postwar years Soviet policies were forcing the consumer-goods imports of the European satellites steadily downward.

These contrasting trends of rising Soviet imports and sinking satellite imports seemed likely to continue in 1954. This probability, plus Mikoyan's statement in his October speech that "we are helping the People's Democracies with certain commodities," made one wonder how much of the new Soviet imports of butter and other food were being reshipped to Eastern Germany and other satellites to alleviate the unrest there.

=A Shopping Spree for Ships=

The U.S.S.R., while ordering more consumer goods, seemed even more anxious to buy ships.

Every trade agreement which the U.S.S.R. has signed with a shipbuilding nation of Western Europe since mid-1953--that is, with Finland, Italy, Belgium, the Netherlands, Denmark, France and Sweden--has included a sizeable quota for ship purchases, particularly fishing vessels and refrigerator ships. Contracts for fishing vessels were also made with firms in the United Kingdom and Western Germany.

It was safe to say that Soviet activity with respect to Western European shipyards since mid-1953 surpassed the biggest previous shopping expedition for ships, which came around 1949. And it was clear that by early 1954 the U.S.S.R. had greater commitments on the books to buy ships from the West than at any other time in its history. This was true in tonnage, value, and number of vessels.

Probably not all the trade agreement commitments will result in actual deliveries; on the other hand, the shopping spree is still going on and further commitments are likely.

Because of Western restrictions on the export of certain types of ships, the new vessels destined for the Soviet Union were mainly of smaller types. A large number were fishing vessels, such as trawlers, fish processing craft, and refrigerator ships. Others were cargo ships, tugs and barges.

The buying of fishing vessels accords with the shortage of food in the Soviet bloc. Mikoyan in his October speech admitted there had been many complaints about the fish supply and that the Soviet fishing goals had not been met. But the Soviet search for ships could not be viewed entirely in the light of a desire to produce more consumer goods. The U.S.S.R. was seeking cargo ships in addition to fishing boats, ordering other marine equipment such as component parts and floating cranes and trying to arrange for more ship repairs in free-world ports. Western shipbuilders were inclined to be receptive to orders for vessels at a time when ship orders from Western countries were declining. At the same time it was impossible to ignore the fact that Soviet-bloc orders in the West can have the effect of freeing Soviet-bloc shipyards for the building of naval vessels. The campaign to buy ships thus presented the free world not only with more orders but also with a security problem.

The development of a Soviet merchant fleet is relatively recent. In 1939 the U.S.S.R. had seagoing merchant vessels totaling only 1,135,000 gross tons. It emerged from World War II with more than twice this tonnage. The main sources of the increase were lend-lease ships from the United States and war reparations. The United States in its lend-lease program leased to the U.S.S.R. 121 merchant vessels with gross tonnage of some 750,000 tons. Of these, 30 were returned to the United States and 4 were lost. The U.S.S.R. kept the others, and long exhaustive negotiations since 1946 have failed to settle this and other lend-lease claims. Through war reparations the U.S.S.R. acquired 170 more ships with gross tonnage just over one-half million tons. By 1953 the Soviet bloc--the U.S.S.R. and Poland for the most part--had a seagoing merchant fleet with a gross tonnage of 2-1/2 million tons, compared with free-world fleets totaling about 21 million tons.

=Most of All, They Want Hard Goods=

The new Soviet purchases of butter, meat, and other consumer items have sometimes obscured the continuing heavy demand for equipment and raw materials needed for industrialization. There has been no appreciable decline in the Soviet interest in buying industrial commodities. Such goods still dominate Soviet imports and new agreements to import--and that goes for the European satellites, too.

The Soviet bloc has shifted some of its priorities. The Soviet eagerness to buy ships is an example of a raised priority. The sharp drop in Soviet buying of Malayan rubber from the United Kingdom in 1953 was an example of a lowered priority. There are some other changes, but no change in the emphasis on industrial goods in general.

All the trade agreements concluded between countries of Eastern and Western Europe since mid-1953 have included quantities of such items--limited, of course, by the West's security controls which provide for the embargo of some items and quantitative restrictions on others. In the trade agreements of Czechoslovakia and Poland, we find quotas for deliveries from the free world of electrical equipment, ball bearings, steel products, pyrites, lead, zinc, aluminum, and many others. Bulgaria also has shopped for capital equipment. In exchange for their grain, vegetables, fruits, tobacco, and a small amount of manganese and chrome, the Bulgarians made trade-agreement commitments to get important amounts of cables, rods, bars, plate steel, railroad equipment, floating cranes, electrical machines and installations, mining equipment, and miscellaneous machinery. The U.S.S.R., besides its procurement program for ships, has written into its trade agreements certain kinds of machine tools, various kinds of steel, equipment for electric power plants, construction equipment, chemical products, textile machinery and machinery for the timber and food-processing industries. An analysis of one recent trade agreement showed that three-quarters of the value of the Soviet imports consisted of products of the metal working industries. Businessmen in the United Kingdom, which has concluded no recent trade agreement with the U.S.S.R., have reported that the Soviet bloc's real interest in buying British goods was confined mainly to items for production.

The attempts to purchase items like those named in the foregoing paragraph are nothing new. The point is, these efforts are continuing.

Many of these items have been under quantitative controls by the major free-world countries--that is, exported to the bloc in limited quantities only. Some of the most highly strategic items, such as the types of machine tools and bearings that are essential to war production, have been under embargo, and when that was true, the free countries that participate in the international control program have generally shipped them only to fulfill commitments made before controls went into effect, or in special cases where the countries felt strongly that the shipment was justified in view of the benefits to the free world that resulted from the two-way trade made possible by the shipment. In 1952 and 1953, for example, all nations receiving aid from the United States permitted the shipment to the Soviet bloc of roughly $15 million in items that were listed for embargo under the Battle Act (Mutual Defense Assistance Control Act of 1951), as compared with total free-world shipments to the bloc of about $2.7 _billion_ in the same 2 years.

These highly strategic items, of course, are the ones which the countries of the Soviet empire have wanted most of all. And when not able to get them legally, they have continued their efforts to get them illegally. The third semiannual Battle Act report, _World-Wide Enforcement of Strategic Trade Controls_, contained a detailed account of the underground trade that violates Western regulations. Since all foreign trade of a Soviet-bloc country is a state monopoly, it follows that the state is an active participant in this underground traffic. With the bloc, circumvention is an official policy.

The Soviet Union, despite its publicized buying of consumer goods--which have never been restricted by the free world--has definitely not slackened its efforts to obtain industrial goods whether strategic or nonstrategic in nature.

=Something Different in Soviet Exports=

As told in chapter I of this report, the economic planners of the Soviet empire first figure out their import requirements and then decide what they want to export in order to pay for the imports. They look upon exports primarily as a means of obtaining goods which are more advantageous to import than to produce, or which they cannot produce.

In the present chapter, we have seen what sort of items they are currently interested in importing. Now we turn the coin over and look at the export side.

The most noticeable feature is that the U.S.S.R. in the last half of 1953 and the early part of 1954 introduced into free-world markets a number of mineral products which they had not sold in such quantities for some years.

These commodities included manganese, petroleum, and gold. All of them at one time or another have been among the major Soviet exports. Together with grain, timber, and furs, they make up the principal means that the U.S.S.R. possesses to procure the imports they want.

Why have the mineral exports been revived at this time? This leads us to the grain situation.

Grain has long been the Soviet Union's No. 1 export commodity, and still is. But Soviet grain shipments declined precipitately in 1953. The United Kingdom, usually the main Western customer for this commodity, stopped buying grain on a government-to-government basis and turned the purchasing over to private firms. At the same time the U.S.S.R. apparently decided to keep more of its grain stores at home. The efforts to furnish more fodder to livestock, together with below-average crops and collective-farm headaches in the U.S.S.R. and satellites, suggest the motivation for this. At any rate the private British firms were unenthusiastic about signing large contracts at the high prices set by the U.S.S.R., and grain shipments to the United Kingdom skidded from $101 million in 1952 to only $10.1 million in 1953.

Although grain was far from disappearing as a Soviet export to the West, it became less potent--for the time being, at least--as a means of acquiring foreign exchange to pay for imports. This loss was only partially offset by a moderate increase in sales of Soviet timber to Britain and a big drop in the amount of Malayan rubber that the U.S.S.R. bought from the British. Meanwhile war reparations from Finland had ended in 1952, and deliveries of Swedish goods under a long-term credit agreement ended the same year. The Finnish and Swedish developments meant that about $80 million worth of goods which the U.S.S.R. had received from those countries in 1952 could not be duplicated in 1953 unless some other means of payment were created. All these events contributed to the reviving of some other export commodities.

How far the shift is going and how long it will continue cannot be predicted. Abrupt alteration in Soviet exports is hardly a novel development. For a time, around 1930, when forced collectivization of agriculture and forced exports of grain had induced famine in some areas of the U.S.S.R., the Kremlin opened the pressure valves a mite, heavily slashed the exportation of grain, and even _bought_ some grain on the Baltimore exchange. That was a breathing spell in the midst of the first big Soviet push toward rapid industrialization. During the same general period, the U.S.S.R. found it expedient to force more production and more exports of furs, coal, and some of the same commodities now receiving special attention--petroleum and metallic ores--in order to get imports of capital goods needed in the ambitious industrial program.

=They Have Dug Up Manganese=

Manganese is a silvery-white metal used in the making of hard steels. The U.S.S.R. is one of the world's major sources of manganese. It can produce a large amount each year, depending on how much manpower it decides to throw into the effort. It consumes a lot in its own steel industry, even using manganese as a substitute for scarcer alloys like nickel and molybdenum. In addition, its plans usually provide for certain quantities of manganese ore to sell abroad.

These exports have continually fluctuated. Before the war they ranged from about 400,000 metric tons a year to about 1 million. The United States, which produces very little manganese, was a major customer. In the 1930's we got about 40 percent of our manganese imports from the U.S.S.R. Other important customers were France, Germany, Belgium, and Japan.

During the war, Soviet manganese vanished from world markets. The United States and other customers turned to sources in Africa, Latin America, and India.

In March 1945, Soviet manganese ore reemerged. The United States was the principal buyer, receiving 1,168,000 tons in about 4 years. In February 1947 the Soviet Foreign Trade Journal pointed out the importance of the United States to future Soviet plans for the export of manganese. But late in 1948 the Kremlin suddenly reduced its shipments to the United States almost to the point of embargo. A few shipments trickled in during the next 2 years and stopped entirely in 1951. Meanwhile deliveries to Western Europe did not undergo a compensating rise; they were little more than 100,000 tons a year.

Came the season of the last half of 1953 and the early part of 1954. The Kremlin's zeal for exporting manganese bloomed again. Commitments to ship over 300,000 tons of the ore were written into trade agreements with Western European countries. Offers of manganese reached the United States through various channels.

Chrome is usually part of the package when manganese is sold. As could be expected, Soviet chrome commitments also climbed in late 1953.

There was also a revival of activity in the export of silver, platinum, and palladium.

=The Emergence of Russian Oil=

But a more interesting commodity which the U.S.S.R. has begun to put on the market in bigger quantities was oil.

In approximately the last half of 1953 the U.S.S.R. made agreements to ship to free-world countries about 3.5 million metric tons of crude petroleum, kerosene, diesel fuel, and other petroleum products. The countries due to receive the largest amounts--if delivered--were Finland, France, and Argentina. Other customers were Greece, Italy, Iceland, Denmark, Sweden, Israel, and the Netherlands. Some deliveries were made in 1953; more would be made in 1954; there was no certainty that all the commitments would be fulfilled. But even a two-thirds fulfillment apparently would be enough to hoist petroleum ahead of lumber and furs and place it second only to grain among Soviet exports to the free world.

What would this mean to the free world? What problems would it raise? Again we can find clues in the past. The present situation is not the first time that the U.S.S.R. has created a stir by abruptly entering oil markets. This also happened in the late 1920's, when the U.S.S.R. began exporting large amounts of oil as a means of obtaining industrial imports. These exports grew each year and were 6.1 million metric tons in 1932. This was around 10 percent of the world's oil exports, and was almost 30 percent of Soviet oil production at the time. The United Kingdom and Italy were the major customers for this oil, but there were many others. The marketing was done through various channels. The Soviet monopoly that controlled all oil exports set up a network of sales offices abroad. Long-term contracts were made in Spain, Italy, France, Belgium, and the Netherlands.