. . . . . . .
With respect to Finland, the growth of Finnish trade with the Soviet bloc
is a cause of increasing concern. On October 15, 1952, the Economic
Defense Advisory Committee (EDAC)
assigned to an inter-agency working group the problem of preparing a
program of possible U.S. actions to counteract the expansion of
Finland’s trade with the Soviet Union and to lessen Finland’s economic
dependence on the Soviet bloc in general.
The problem had come to a head as a result of Finland’s action in
September 1952 in concluding supplementary trade agreements with the
Soviet Union calling for a substantial increase in trade during
1952–1955 over the levels provided for in the basic Finnish-Soviet Trade
Agreement for 1951–1955 concluded in June 1950. These supplementary
agreements were concluded simultaneously with the ending of Finland’s
reparation deliveries to the USSR, and their effect has been to continue
as commercial exports to Russia that portion of Finland’s output of
ships, metals, and engineering products formerly delivered as
reparations. Under the current annual Finnish-Soviet Trade Agreement for
1953 the Soviet Union has assumed first place in Finland’s total foreign
trade this year. On the basis of Finland’s 1953 trade agreements, the
Soviet bloc will account for 30–35 percent of Finland’s total trade this
year. This estimate is borne out by the first quarter trade returns.
Direct approaches to the Finnish Government reiterating our concern over
the new commitments to deliver strategic items have received the same
response as in the past: the Finns indicated their helplessness to do
anything about the situation. Informal discussions have been held with
the British, Swedes, and Germans concerning the dangerous Finnish trade
situation with a view to enlisting their support in assisting the Finns
to disentangle themselves from economic dependence on the Soviet bloc.
These approaches have not been productive.
The inter-agency working group submitted its report to the Executive
Committee of the EDAC on April 27,
1953. A revised version of the report, brought up to date as of June 22,
is appended to this Progress Report. It is obvious from the report of
the working group that the approach on which its efforts have been based
cannot possibly yield results communurate [commensurate?] with the size and the seriousness of the
problem.
This approach is necessarily an improvised, piecemeal effort. It
comprises a series of positive and negative measures—positive in the
sense of supporting the Finnish economy and expanding Finland’s trade
with the West through such measures as assisting Finland to find markets
in the West, procuring in Finland for U.S. troop subsistence in Europe,
rechanneling off-shore procurement contracts to Finland, et cetera—and
negative in the sense of preventing or minimizing the Finnish
contribution through exports to the Soviet military-economic
potential.
Even if the measures which have been explored could be put into effect
immediately, they could not substantially reduce the degree of reliance
of Finland on Soviet trade. Finland is committed to at least its present
volume of trade with the Soviet Union until 1955. Even on the favorable
assumption of no further increase in such trade and a 50 percent
increase in Finnish trade with the West, the relative position of Soviet
bloc trade would only be reduced from its present 30 to 35 percent to
approximately 25 percent.
An effective action program would have to be a massive effort aimed at
diverting existing Finnish-Soviet trade to Western channels. In the face
of the existing long-term trade agreement and the precarious Finnish
strategic situation, this result could only be achieved by extraordinary
measures on the part of the West and specifically by the United States,
tending in the direction of preclusive buying and involving considerable
financial cost and possibly military guarantees. If these were taken
suddenly they would involve the Finns in reneging on their trade
agreement with the Soviet Union. Such a program would presumably not be
regarded as politically feasible by the Finnish Government.
It is the view of the State Department that the present policy on Finland
as set forth in NSC 121 including U.S.
export license policies should be continued. This view is based on the
judgment that a major U.S. initiative, which would involve considerable
financial costs, aimed at a massive re-direction of Finnish trade away
from the Soviet bloc would incur far greater political and military
risks than the present situation entails—risks which neither the U.S.
nor Finnish Governments would be prepared to take at this time. The
United States Government should, however, continue its present efforts
with other governments to expand Finnish trade with the free world and
should actively search for means of increasing Finnish trade with the
United States with the aim of decreasing Finland’s reliance on Soviet
markets.
Appendix
secret
[Washington, June 22, 1953.]
Progress Report on a Program of
Possible Us Actions to Lessen Finland’S Economic Dependence on
the Soviet Bloc
By operational memorandum dated October 15, 1952,3
the Administrator of the Battle Act and the Steering Group of the Economic
Defense Advisory Committee (EDAC)
assigned to an interagency working group the problem of preparing a
program of possible United States action to counteract the expansion
of Finland’s trade with the Soviet Union and to lessen Finland’s
economic dependence on the Soviet Bloc in general.
The problem came to a head as a result of Finland’s action in
September 1952 in concluding supplementary trade agreements with the
Soviet Union calling for a substantial increase in trade during
1952–55 over the levels provided for in the basic Finnish-Soviet
trade agreement for 1951–55. These supplementary agreements were
concluded simultaneously with the ending of Finland’s reparations
deliveries to the USSR, and their effect has been to continue as
commercial exports to Russia that portion of Finland’s output of
ships, metal, and engineering products formerly delivered
[Page 761]
as reparations. The
Finnish-Soviet trade agreement for 1953, which was concluded in
February, will accord the Soviet Bloc first place in Finland’s total
foreign trade this year. Legation Helsinki has estimated that the
Soviet Bloc will account for 30 to 35 per cent of Finland’s total
trade in 1953. This estimate has been borne out by the trade returns
for the first four months of this year.
The inter-agency group (a subcommittee of the EDAC Decreasing Reliance Working
Group) organized to deal with the problem, comprises representatives
of the Department of Commerce, Defense and State, and of MSA and DMS. The directive of October 15 referred to above
outlined the field of exploration, including both short-range and
long-range aspects, and suggested that consideration should be given
to positive and negative measures; positive in the sense of
supporting the Finnish economy and reducing its degree of dependence
on the Soviet Bloc, and negative in the sense of preventing or
minimizing the strategic Finnish exports to the Bloc.
Considerable study has been given to the problem, and a great deal of
activity has taken place within the agencies concerned with it. The
net result of these efforts, outlined below, has been anything but
encouraging.
1. US Representations to Finnish
Government
Under the heading of negative measures, the subcommittee was directed
to examine such measures as the possibility of steps to restrict
Finnish deliveries of strategic items to the Soviet Bloc. In
accordance with this directive, Legation Helsinki was instructed to
take the occasion of the arrival of Minister McFall in Helsinki4 to reiterate our concern over
the new Finnish commitments to deliver strategic items. (Our
outgoing Minister, Mr. Cabot,5 had
already made forceful representations on this score.)
The incoming Minister made the approach in November 1952, and the
outcome as expected, was the same as on previous occasions: the
Finns indicated their helplessness to do anything about the
situation. This type of negative approach is clearly unproductive,
and should be avoided in the future in the absence of our offering
practical alternatives to the Finns.
2. Possible COCOM Action
Also under the heading of negative measures, the subcommittee
considered steps which might be taken to prevent Finland from
receiving from Western sources raw materials and components for
[Page 762]
use in the production of
strategic goods for the Soviet Bloc. The obvious place to do this
would be in COCOM, which in the
past has regarded Finland as a special case because of its
geographical position. This is evidenced by a COCOM agreement to report on
shipments to Finland of strategic items. (In 1951 COCOM countries, including the United
States, licensed for exports to Finland a total of $22 million in
International List I items, $36 million in List II, and $15 million
in List III. Similar data for 1952 have not as yet been compiled in
the Department of Commerce.) The narrow interpretation which certain
other participating countries place on COCOM’s terms of reference would limit United States
objectives in any such approach to inducing Finland’s Western
suppliers to impose controls on their shipments to Finland of rated
(e.g., copper) and, as a maximum, certain non-rated (e.g.,
ship-plate) items that enable Finland to export strategic end-items
to the Bloc. Even if COCOM
agreement to exert this kind of pressure could be obtained, the
advisability of the action is open to serious question. Such
pressure, unaccompanied by positive alternatives, would be fiercely
resented in Finland, and would present the Soviet and Finnish
Communists with a first-class propaganda argument. The Soviet Bloc
might then be able and willing to step in to supply the strategic
goods withheld by the West, thereby further increasing the already
alarming reliance of Finland on its trade with the Bloc. In any
event, given the British attitude described below, and the likely
attitudes of the Norwegians and Danes, as ascertained from the Chief
of the United States COCOM
Delegation, it is unlikely that this type of United States proposal
would gain such support. On the contrary, it might cause a lot of
trouble. The proposed action would be unprecedented: for the first
time COCOM would be considering
strategic trade controls directed against a friendly country,
politically oriented to the West and having deeply rooted sympathies
for the Western cause. Moreover, the Danish representative in COCOM has periodically questioned the
propriety of even reporting statistics on strategic exports to
Finland. The question of Scandinavian solidarity would doubtless
have to be reckoned with.
3. Approaches to the
British
Under the heading of positive measures to assist the Finns in
disentangling themselves from Soviet economic influence, the
subcommittee was directed to explore the feasibility of an approach
to the United Kingdom suggesting that their trade policy towards
Finland be oriented towards supporting that country’s economy to the
greatest possible degree. This would seem to be logical since the
United Kingdom historically has been Finland’s most important
[Page 763]
trading partner. This
exploration has been made in an informal way.
The latest action taken along this line was in connection with the
Finnish-United Kingdom trade negotiations for 1953. Embassy London
was instructed to approach the Foreign Office, for the third time in
recent months, urging on the British the desirability of increasing
trade with Finland. Embassy London replied to the effect that it
does not believe a further general approach of this kind would serve
any useful purpose in the absence of concrete and detailed proposals
by us or the Finns. There are formidable economic counter-arguments
on the British side, particularly at the present time when British
efforts are concentrated on restoring the convertibility of the
pound sterling. Although it would be perhaps politically more
desirable to devote more resources to drawing supplies from Finland,
the United Kingdom appears to feel that the resources which would be
involved in this operation would make a greater contribution to the
common cause if used for export, direct defense, or capital
development purposes.
The disturbing element in the British attitude is that they
apparently admit the element of long-term danger inherent in the
present situation; yet they deny the necessity of taking immediate
measures of correction that might be carried forward into the
long-term. In any event, the several discussions held with British
Government representatives in London and Helsinki indicate that the
British would be unwilling, or at least are not presently persuaded,
that they should take the lead to initiate multilateral discussion
of the Finnish problem say in OEEC
or COCOM. The reason why it would
be desirable for the British rather than the United States to take
the lead, in addition to their historical importance in Finland’s
total trade is patent; any initiative on the part of the US is ipso facto disturbing to our Allies, having
as they do basic fears regarding United States objectives in the
Cold War.
Along this same general line, and related to the level of UK–Finnish
trade, the subcommittee undertook to explore the reasons why British
purchases of sawn timber cannot or should not be diverted from the
USSR to Finland, particularly in view of Finland’s needs for wool,
rubber, iron and steel, machinery, chemicals and industrial raw
materials from the sterling area, and in view of Finland’s desire to
double its imports from the United Kingdom as compared with 1952,
provided that Finnish exports to the United Kingdom reach a
corresponding value. The conclusions drawn from this exploration
were as follows:
- 1.
- In so far as the drop in British lumber imports from
Finland arose from abnormal conditions in 1952, a large
measure of correction is underway. Prospects for 1953 are
that Finland will increase
[Page 764]
its lumber exports to the UK by at
least 50 per cent over 1952, while those to the USSR have
been reduced in the 1953 trade protocol. British lumber
imports from the USSR, which had decreased in 1952, will
increase in 1953.
- 2.
- Beyond 1953, an increase in Finnish exports to the British
market will depend on whether: (a) this market itself is
expanded by a relaxation of internal controls on timber
consumption in the interests of an expanded housing program;
(b) a depression occurs and leads to decreased UK lumber
imports and restrictions on dollar area imports; and (c) the
USSR embarks on a trade offensive to gain a greater share of
British trade.
- 3.
- A re-extension of traditional short-term credits to
Finnish exporters by British banks and importing firms would
stimulate greater Finnish exports. Soviet lumber, if offered
at low prices, could be excluded from the UK market only by
a return to discriminatory trade controls.
4. Approaches to Other
Governments
It is clear from conversations with Swedish Government officials that
they also are concerned over the increased Finnish economic
dependence on the Bloc. However, the Swedes apparently feel there is
little they can do because in general Swedish and Finnish products
are competitive.
Discussions have also been held with representatives of the Western
German Government, but in this case the very large clearing deficit
of Finland, amounting at present to $33 million, clearly precludes
increased imports from Finland for the time being.
5. Increasing Finland’s Dollar
Earnings Through Commercial Exports
With regard to the prospects of increasing Finland’s direct dollar
earnings, the only area in which major purchases are possible is
forest products; however, the important expansion which has taken
place in the United States pulp and paper industry has decreased
United States dependence on imports of practically every pulp and
paper product except newsprint. Finnish officials, in informal
discussions in Washington, have expressed agreement with this
view.
Notwithstanding this discouraging general prospect for increased
direct dollar earnings, the Finns have enjoyed some small success
during the past three years in marketing doors in the United States.
Even this modest accomplishment is presently jeopardized, however,
by the refusal of local carpenters’ unions in this country to
install foreign-made doors. The Department of State is currently
making strong efforts to overcome this difficulty, since direct
Finnish efforts to improve the situation have failed thus far.
Other possibilities for assisting the Finns to market their products
in the United States have been explored as opportunities have
arisen. A recent case in point has been the investigation by the
Department
[Page 765]
of State of the
possibilities of selling Finnish alcohol in the United States. The
results in this case were negative, but in no event would the
magnitude of imports involved be significant in terms of the total
foreign trade of Finland.
As another example of recent action designed to enable Finland to
earn dollars, DMS has been exploring
the possibilities of diverting very small MSA–financed Yugoslav and Formosan purchases of pulp
and paper from the United States to Finland.
6. Subsistence Procurement for US
Occupation Forces in Europe
The subcommittee has explored the possibilities of military
subsistence procurement in Finland for United States occupation
forces in Europe. According to the Department of Defense, there is
little present likelihood of such procurement in Finland because
“the needs of our forces in Europe for the products that Finland is
likely to have for sale are probably not large enough to make
purchase in Finland feasible, in view of possible high prices,
transportation costs, duties, etc.” In any event, the extent to
which such purchases could assist in weakening Finland’s economic
ties with the Soviet Bloc is probably insignificant.
7. Off-Shore
Procurement—Economic
The possibility of off-shore procurement in Finland with MSA defense support funds has also been
looked into. Ordinarily, United States dollar assistance is extended
to recipient countries only for purchases which those countries must
of necessity make in the dollar area. Even if this fact could be
ignored, it is highly doubtful that recipient countries would be
willing to expend scarce dollars to draw supplies from Finland.
8. Off-Shore
Procurement—Military
The possibilities of defense off-shore procurement contracts being
placed in Finland have also been investigated. Apart from the fact
that Finland is not a NATO country,
with all that adherence to NATO
implies, the Department of Defense believes that “it may be
dangerous to embark on general programs for aiding the economy of
Finland unless such programs are tied definitely and unmistakably to
some kind of quid pro quo on the part of
Finland, which would result in elimination or at least a significant
reduction, of the flow of goods to the Bloc”. Beyond this argument,
however, the relative advantage to United States security of placing
specific offshore procurement contracts in Finland must be weighed
against the consequences of diverting such contracts from, say, the
depressed shipyards of a NATO
country.
In discussions between our people in Helsinki and the Finns, the
latter have suggested that means might be found to permit the sale
[Page 766]
for dollars of small
vessels for delivery to NATO
countries like Greece and Turkey. Admittedly, Finland probably could
not compete on the basis of prices with Dutch and other Western
European shipyards. The Legation suggestions, however, that Finnish
prices might be made competitive if dollar contracts were let. (The
Finns have indicated that they could possibly grant a 20 to 30%
discount if paid in dollars, since Finnish importers would be
willing to pay a surcharge of like percentage for their imports from
the United States thus made possible with the dollars acquired.
Finland would have to consult the International Monetary Fund before
introducing such an arrangement, but it appears on the basis of very
preliminary consideration that the proposal could be presented in
such a way that it would not create a serious problem.)
9. US Interest in Finnish
Cobalt
Considerable exploration and staff work have been done in the United
States Government in connection with the possibility of a
development loan to a Finnish firm for the production of cobalt.
Presumably, such a loan would serve both the United States objective
of increasing our stockpile of cobalt and the objective of
preempting any future Finnish supply that might otherwise become
available to the Soviet Bloc. Two officials of DMPA visited Finland in January 1953
to investigate this project, and at that time, advised the Finns as
to the possibility offered for financial assistance by DMPA. No reaction has been received
from the Finns, probably because of the possible political
repercussions of a loan from a United States Government agency.
The most recent information from EPS
and DMPA indicates that these
agencies are uncertain as to what their reaction would be if some
concrete Finnish proposal were forthcoming. At the present time,
EPS has contracted for the spot
purchase of as much cobalt as is needed for United States
stockpiling purposes.
In any event the direction of future Finnish action on the cobalt
processing project depends upon the outcome of certain litigation in
the Finnish courts. As to the possibility of United States
assistance in some feasible form, the most recent concensus of the
United States agencies concerned is that a decision has yet to be
made as to whether United States assistance would be in our security
interest. The vulnerability of the Finnish Government to Soviet
pressures and the strategically exposed position of Finland have
been mentioned as factors bearing on this question.
The problem, which was an immediate one in October 1952 of purchasing
the balance of cobalt metal to be returned to Finland under a
processing arrangement with a Western German firm seems to have
disappeared. The cobalt made available to Finland
[Page 767]
under this processing contract in 1952
has been sold to Western European countries, namely, France,
Belgium, the Netherlands, and the United Kingdom. The
Government-owned Finnish firm involved in the processing arrangement
expects to sell its share of the 1953 production to the same
customers, retaining about 10 tons to cover Finnish requirements.
Thus it appears that the Soviet Bloc has been precluded from
obtaining any of this production, except for the possibility that
the Finns might have to permit some cobalt to move to the Bloc in
order to assure their supplies of essential materials. This they
would do only under the most compelling circumstances.
10. Proposal for Expansion of
Small Rural Industrial Enterprises in Finland
During April and May of 1953 the Department of State held several
conversations with, and gave all possible assistance to Mr.
Jaakke Kahma, Director of the Finnish
Foreign Trade Association, in his effort to obtain a non-United
States Government credit of about $5 million on very liberal terms.
The purpose of the credit would be to expand existing small
industries producing specialty items in the northern rural areas of
Finland. The project is aimed basically at improving the social and
economic conditions of a large segment of the Finnish population by
providing additional employment opportunities and supplementary
incomes. There now exists some small industry scattered in the rural
areas, working entirely for the local market. The enterprises are
unorganized and their production is low. Machinery and equipment are
needed to increase productive capacity. Organization and advice are
needed so that production could be directed to the requirements of
foreign markets in the West. Activities need to be coordinated so
that large orders from a market like the United States might be
filled. (During the 1930’s the small producers of specialty goods
were often unable to meet big orders coming from the United
States.)
As of the end of June, Mr. Kahma had apparently
achieved some success in discussions at the IBRD, which has indicated its willingness to consider
Kahma’s general proposition. In addition,
private US foundations appeared ready to finance certain educational
aspects of the project.
