Soviet Trade Relations: Exploitation, Not Aid

A native of Greenville, Mississippi, who was educated at Yale, DAVID L. COHN is an author, world traveler, and economist, and one of the shrewdest political observers in Washington today. His books include an authoritative study of Southern economics, THE LIFE AND TIMES OF KING COTTON, and a study of the Negro in the South, WHERE I WAS BORN AND RAISED.

FOR a long time the German Nazis successfully cultivated in the United States the myth of their infallibility. Now the Soviet Union is implanting the myth here that in its trade-aid relations with other countries it is infallible, while we are stupid and bungling. Since the myth has acquired among many of us the force of truth, it is worth examining.

This is not to decry the Russians’ abilities or deny that we have made some horrendous mistakes in trade-aid. The trade offensive of the Soviet bloc is well planned and ably executed; it has high priorities; the best men are assigned to it. Yet the bloc’s operations, while rapidly growing, are still small by comparison with ours and are therefore the easier to execute. The task will become more difficult as its dimensions widen, and already the Communists’ errors in this field indicate that they are not infallible.

The Soviet Union long regarded with real or affected disdain the economic programs we have been conducting since 1948 through the Marshall Plan and Point Four. But in 1954 the Soviet Union and Red China began to emulate us. Economic penetration became their goal in certain countries, together with the use of devices to discredit American efforts.

Let us compare the scale of Soviet activities with ours. From 1955, when the Communist offensive started, to the end of 1958, the Soviet bloc agreed to provide eighteen countries with $2.373 billion in grants and credits for militaryeconomic aid. The corresponding figure for the United States is $4.442 billion. American aid extended to these countries since 1948 totals $8.628 billion. It is notable, moreover, that while the Soviet bloc has promised much and continues to promise more, its actual deliveries of goods amount to only $900 million, of which more than half is military.

The bloc’s task of administering its economic programs is the simpler because they have been concentrated in a few countries: the United Arab Republic (Egypt-Syria), Iraq, Afghanistan, India. Indonesia, Argentina, and, for a while, Yugoslavia. These countries, except Argentina, border on or are not remotely distant from the Soviet bloc.

Apparently Indonesia’s soft airs cause even hard-bitten Communists to nod. Else how account for the costly fiasco of the East-German-built sugar mill near Jogjakarta? It was scheduled for completion in 1956, and area cane-growers increased their plantings. For more than two years they had to ship cane at heavy expense to East Javan mills because of delay in completing the new mill. The mistake lay in installing beet sugar equipment in a cane sugar plant, thus making it imperative to convert many machines and to replace others entirely.

The Soviet Union granted Indonesia a credit equivalent to $100 million. But the Indonesians - as others have before them — found that Russian goods shipped against credits often come doubly dear, being high in price and low in quality. Russian jeeps cost them $4000. The Americanmade jeep then sold for $3100, the Japanese for $2500, and both are superior to the Russian product.

A famous example of Russian trade is the deal under which Burma agreed to take Russian goods in exchange for a huge quantity of rice. The goods included cement to be delivered to Rangoon, a port short of warehouses. The Soviet ship carrying the cement sailed at a moment when its arrival in Burma would coincide with the monsoon rains. The Burmese vainly appealed to the Russians to defer delivery because of lack of warehouses to store cement. This plea failing, they reportedly tried to sell the cargo at a loss to India. But the Soviet shipmaster followed his orders. He dumped thousands of bags of cement on the docks. There it solidified into giant blocks under the rains.

Burma, moreover, learned other sharp lessons as it dealt with the Soviet bloc. It thought that barter trade with the bloc would be highly profitable because the bloc was willing to pay the uncompetitive prices that its government monopoly had set for rice. It soon discovered, however, that Communist prices on barter goods sent to Burma were even more inflated. Burma also found that what it took to be a Soviet credit to Burma proved to be a Burmese credit to the Soviet Union. The process by which this miracle was accomplished is simple. Burma discovered that it was unable to obtain from the Soviet Union goods equal to the value of the rice it had shipped to Russia.

Egypt and other Middle East countries have had a similar experience and awakened to find that they were carrying Russian, East European, and Red Chinese import balances. Ethiopian merchants, because of the absence of recourse when orders are not properly filled or shipping dates are not met, are reluctant to deal with the Soviet Union, although it offers merchandise at prices below those of Western countries.

When Khrushchev began to play Big Brother to Colonel Nasser, he traded guns for a huge quantity of Egyptian cotton. Cotton is Egypt’s main source of foreign exchange and is overwhelmingly important in its weak economy. But the Soviet Union, rather than stockpile cotton in eastern Europe, sold it to France and other countries that have always bought cotton direct from Egypt, and furthermore sold it at discounts of 10 per cent or more from the Egyptian price. The result was that Big Brother got the foreign exchange, Egypt’s world cotton market was disorganized, and Nasser got obsolescent weapons.

In its Egyptian deals, the Soviet Union not only arbitrarily raised prices by as much as 40 per cent on goods delivered to Egypt, but it delivered inferior merchandise. The Egyptian government complained that nearly half of the wheat delivered to it was so wormy as to be inedible, that crude oil shipped to it was of such high sulphur content that it damaged Egyptian refineries, while Russian kerosene had to be refined before it could be used. The Egyptians also found bloc diesel units so unsatisfactory that they tried to work out an impossible deal to spend their rubles for General Motors diesels produced in West Germany.

The Soviet Union, in its dealings with underdeveloped countries, is the judge, within its sole and arbitrary discretion, of everything pertaining to its contracts, including delivery dates. The buyer has no recourse, and cancellation is refused however the U.S.S.R. has breached the contract. When the Suez fighting ended, Egypt ordered a quantity of Russian cement. It needed it badly, and quick shipment was promised. But delivery was so tardy that the Egyptian cement industry was able to satisfy local demands before the promised Russian shipments arrived. Egypt tried in vain to cancel the Russian order. When it finally arrived, one of Alexandria’s large cement plants had to close for a month.

The Soviet bloc overprices goods, changes contract terms at will, and delivers goods tardily; it also sometimes dumps goods to the severe injury of the underdeveloped countries. A notable example occurred in 1958 when the bloc, at a time of oversupply in the world tin market, dumped 18,000 long tons of tin on the free world. Tin prices dipped sharply, with severe effects upon the principal tin-producing countries — Bolivia and newly independent Malaya.

Dr. Ismail, chief of Malaya’s delegation to the United Nations, addressing the General Assembly on September 27, 1958, accused the Soviet Union of wrecking the International Tin Agreement by “consistent dumping.” This agreement, he said, was a “good manifestation” of the will of the underdeveloped countries to help themselves. “Yet hardly had the agreement begun to work when one great power, the Soviet Union, began to wreck it,” concluded Dr. Ismail.

Dumping of Red Chinese textiles led the Federation of Malaya and Singapore to ban certain imports of them. The minister of commerce and industry of the Federation told the Legislative Council on December 9, 1958, that “Chinese textiles have been known to be sold at prices which did not even cover the cost of the raw materials used in their manufacture.”

The minister concluded by saying that, although he expected local industries to meet fair competition, “ It is not reasonable to expect them to overcome such enormous odds, wielded by an enormous state trading corporation, which . . . does not trade in the commercially acceptable sense of that term.”

ONE of the boasts of the Soviet bloc is that its trade-aid is given with no strings attached, while similar American efforts are imperialist devices to trap the unwary. Three well-known examples may be cited to explode this myth.

Consider Yugoslavia. Following the Tito-Stalin break of 1948, the Soviet Union subjected it to ruthless economic pressures. Ten years afterward the performance was repeated. In May, 1958, the Soviet Union “suspended” agreements providing $285 million of developmental credits to Yugoslavia, although Belgrade had used only $41 million of this sum. Here the Russians tried to deal a mortal blow to the Yugoslav economy, a blow which fell only five weeks after Tito’s charge to the Yugoslav Party Congress that Moscow had failed to abide by the Yugoslav-Soviet declaration of 1956 advocating the concept of “many roads to socialism.”

Trade and aid, for the Soviet bloc, is an extension of politics by other means. Israel, for example, had a contract for buying Russian petroleum and had fulfilled its obligations. But the contract was canceled by the Soviet Union in 1956 when Israel invaded Egypt — an act that had nothing to do with the agreement. Then the Delek Israeli Fuel Corporation brought suit against Soyuz Neftcksport, the Russian oil-dealing agency, but the $2.4-million damage suit was rejected by the Moscow Chamber of Commerce in 1958.

Small, Westward-oriented Finland daily walks a tightrope in its relations with its Communist neighbor. Here again the Soviet Union uses trade as a weapon. Dissatisfied with the Fagerholm government of Finland because of its friendly attitudes toward the West, the Soviet Union destroyed it through economic pressures. Finnish economic planning hinges upon trade with the Soviet Union. Moscow, therefore, at a time of high Finnish unemployment, delayed the annual trade negotiations with Finland. Since Finland is heavily dependent upon exports of forest products, Moscow could hamper the Finns by ordering Budapest to buy Austrian timber rather than Finnish. The resulting economic pressures served to bring about the fall of the Fagerholm government in December, 1958.

The Russians, who break contracts at will, are infuriated when others do the same. In 1958, Argentine-Soviet trade relations bloomed when Argentina agreed to buy seven million barrels of Soviet oil at prices under the world level and the Soviet Union agreed to extend a $100-billion credit to Argentina for buying Russian oil equipment. The deal no longer looks good to the Argentineans because there has recently been a sharp drop in Middle East oil prices, spurred partly by American oil-import restrictions, and two giant private corporations, Esso and Shell, are offering oil to Argentina on easy credit terms.

It is also part of the Soviet bloc myth that their representatives are multilingual while ours are not. Let us turn again to Burma. There the services of the Russian Agricultural Mission are being terminated. The mission numbers twentythree persons. Nine of these are interpreters. They do not interpret from Russian to Burmese, but from Russian to English. Mission members live inconspicuously, for two reasons: the first is that they are ordered to live in this manner; the second is lack of funds. When the Russians were visited upcountry by an American he found them insufferably bored by their isolation, irritated by a lack of amenities, and feverishly impatient for their tours of duty to be over.

The Soviet bloc, for all the myths it disseminates, is not infallible in its trade-aid relations with underdeveloped countries, and it is a mistake to regard members of the Soviet bloc as supermen.

One other Soviet myth needs to be exploded. Ever since the 1956 rebellions in Poland and Hungary, spokesmen for the Soviet bloc have repeatedly said they trade fairly with the smaller members of the bloc; that, indeed, prices prevailing on the “capitalistic world market” set the standards for prices made in trade agreements between Communist countries.

What is the fact? It is that the Soviet Union cheats its satellites by underpaying them for what it buys from them and overcharging them for what it sells them. Dr. Horst Mendcrshausen, an economist of the Rand Corporation, according to a survey in The Review of Economics and Statistics, published by Harvard University, reports that during the years 1955 to 1957 the various satellites paid the Soviet Union from 8 to 16 per cent more than they would have if they had bought the same goods at the prices free Europe paid for them. At the same time, the satellites realized from 12 to 18 per cent less on their sales to the Soviet Union than if they had sold their goods at prices paid by the Soviet Union to suppliers elsewhere.

How great is the scale of this exploitation of the satellites? It is so great, suggests Dr. Mendershausen, that it may have cost the satellites in the period studied the staggering sum of 2 to 2.5 billion rubles. This is enough to offset the widely proclaimed Soviet credits to its satellites during the same period.