TRADE: the Soviet's not-so-secret weapon
Russia has declared economic war on the West. Canada is the Kremlin's most vulnerable target. Maclean's Ottawa editor reports on the coming struggle that could leave every Canadian poorer
Peter C. Newman
THE MILITARY, diplomatic and propaganda tactics that have so
spectacularly advanced the cause of international communism during the past two decades have, in most instances, involved Canada only in a minor way. With three oceans as a protective moat, we have so far managed to escape most of the direct consequences of the Soviet Union's bold postwar incursions.
But now that happy period may be ending. Canada is about to join — unwillingly but irrevocably — in economic battle with the Russians. If we lose, the Canadian economy could be dealt a blow that would sharply reduce our standard of living.
No further declaration of war by Russia is needed in this economic struggle. The leaders of the Soviet Union have repeatedly declared that their country's foreign trade will be doubled by 1965.
Because Russia has a climate and geology similar to ours, the majority of the Russian goods that will make up the projected leap in Communist sales abroad are the same commodities that account for the greatest portion of our exports. Foreign trade makes up nearly a third of our gross national product. The agricultural, forest and mineral resources that have made us a great trading nation now face the rivalry of a determined competitor with vastly greater political power, its price structure unhampered by any profit motive or excessive labor costs.
"There is no country that has more to lose than Canada if the
U. S.S.R. should launch an all-out trade offensive on the West,” says
V. C. Wansbrough, managing director of the Canadian Metal Mining
Association. "When Mr. Khrushchov declared that he will bury us, he was talking not of an atomic holocaust Continued on page 66
On the following pages, a second Maclean’s editor rubs shoulders with some of the Muscovites who will help to stock Russia’s export arsenal
Continued on page 66
continued iront page 13
“So far, Canada has felt only a touch of the knife — just a hint of what could happen”
but of an economic form of funeral, with trade as the grave-digger's spade."
Franklin Findsay. a New York economist who was once a member of Allen Dulles' Central Intelligence Agency, recently studied the probable effects of a
Russian export offensive on Canada, in a project sponsored by the CanadianAmerican Committee, a group of business. labor, agricultural and community leaders. "The Soviet Union is potentially the greatest rival to ( añada in world
trade." he concluded. "If Russia deployed her wheat, lumber, pulp and base metals in a serious attempt to become a leading world trader. Canada would be the first to suffer, and probably would suffer more than any other country."
Canadian exporters in several industries already have felt the effects of Soviet competition, although up to now they've endured only minor damage. "What has happened so far." says Wansbrough. "seems rather to be special raids into Western markets designed to earn foreign exchange, but perhaps also to make a show of strength of the weapons in the economic armory under the communist system: just a touch of the knife to let the victim know what could happen.” Among the Canadian products which have been involved with Russian trade competition are these:
ALUMINUM: Canada received its first direct economic jolt from Russia three years ago in the United Kingdom, where one third of our aluminum output is sold. The U.S.S.R. began to ship in aluminum priced at least two cents per pound less than the Canadian product. Customers were guaranteed the price advantage. regardless of any change in the Canadian quotation. Aluminium Limited, in Montreal, simultaneously faced with a slump in domestic demand, lowered its price by two cents a pound — the first drop since 194 1. The heavy flow' of Russian aluminum to Britain was reduced only after anti dumping measures were threatened by the U. K. government. Aluminum production is being doubled as part of Russia's current Seven Year Plan, leaving a huge exportable surplus by 1965. Lven Poland, whose aluminummaking facilities were set up partly in response to U. S. strategic export controls, now produces nearly all the aluminum it needs.
LUMBER: This essential Canadian industry, which exports half of its annual two billion dollar cut. is losing a large part of its important United Kingdom market to the Soviet Union. Seven years ago. Canada shipped three times as much lumber to the U. K. as Russia; last year, the U.S.S.R. outsold Canada three and a half to one. In developing British sales the Russians have not only undercut Canadian prices but have also re-introduced a commercial device of the Twenties known as "the fall clause." which protects buyers against price declines between the dales of purchase and delivery. "With the Seaway," says J. A. Schryburt. the director of public relations for the ( anadian Lumbermen's Association, "it would be possible for the Russians even to Hood the Canadian market with their timber, if the only consideration was a question of competitive price." The forested areas of the U.S.S.R. arc larger than those of the U. S. and Canada combined: Russian forestry employs more
than two million workers.
PULP AND PAPER: "At the moment we have a respite while Russia is building up capacity for domestic needs," says R. M. Fowler, head of the Canadian Pulp and Paper Association, which represents our largest export industry. "But by 1965 or 1968 Russia may emerge as a major exporter of pulp and paper products." The current Seven Year Plan calls for a doubling of Russian newsprint output; paperboard production is to be increased by four hundred percent; building-board production by more than eight hundred percent. Fowler notes that the Canadian
ptilp-and-paper industry employs sixtytwo researchers for each million tons of its product, while Russia, on a similar basis of comparison, will soon have five hundred and eighty researchers.
WHEAT: The pledge made by the Soviet Union in its current trade agreement with C anada to buy up to seven million bushels of our wheat a year is being interpreted by Ottawa grain experts simply as a recognition by the Russians that at this t me it is more economic for them to move Canadian wheat from Vancouver to Vladivostok than to strain the transSiberian transportation system by moving their own grain. It will probably be in w'hcat that the most furious CanadianKussian trade battles will be fought. In one recent year, the ¡¡urease alone in the Soviet wheat erop was greater than the total Canadian yield of the last three years. The Seven Year Plan calls for a seventy-percent boost in agricultural output. so that by 1965 Russia will easily be able to overtake us as a vs heat exporter. Russia will have additional wheat surpluses as a result of her rising standard of living, because people eat less and less bread as their living standards rise.
ASBESTOS: Nearly half of the million tons of asbestos produced annually in Canada has traditionally been sold in those European countries where small quantities ot Russian asbestos have recently begun appearing at quotations well under the Canadian export price. "The situation is not yet serious." say s the head of one large Canadian asbestos mining company, "but a cut-rate price on even ten percent of the quantity we sell in one of our markets disturbs the other ninety percent of the business."
This growing disruption of our traditional trading patterns may be arrested to some extent by the Soviet-Canadian trade agreement recently signed in Moscow' by Trade Minister Gordon Churchill and N.S. Patolichev. the Russian minister of foreign trade. I he treaty provides for annual discussions of mutual trade problems, including the difficulties created by the invasion of our export outlets by the state traders of the Soviet Union. The main ell ect of the three-year treaty is that it prolongs the granting to the U.S.S.R. of the "most-favored nation" tariff classification, given to the Soviet Union by the first Canadian trade treaty, signed in 1956. I his allows the state traders of the Soviet Union access to the Canadian market on exactly the same basis as that given private exporters from such traditional trading partners of C anada as the United States. Prance and Italy.
I he treaty sets a three-year target for Russian sales to Canada of $37.500,000 by 1963. The Soviet Union will buy Canadian products worth $75 million, including six hundred thousand tons of our wheat — provided we buy the promised quantity of Soviet goods.
The agreement places the Canadian government in a paradoxical situation. John Diefenbaker has repeatedly warned against the "economic and trade forces of hurricane proportions" being launched against the free world. But under the new agreement, the Diefenbaker ministry must do all it can to facilitate the sale of Russian products here. If Russia fails to break into our market—as it tailed under the last agreement —Canada will lose an important outlet for the burdensome grain surplus.
It is not yet clear exactly what goods will be involved in our exchange with Russia. The Ottawa officials who participated in the negotiation of the treaty
predict that the Russian products most likely to be introduced to Canadians in the next few months include vodka, crabmeat. toys, china, linens, hand-knotted carpets, watches, glass, various industrial materials, musical instruments, cameras, canned ham. and the Moskvitch automobile. (The car. a peppy four-cylinder model with a short-wave radio included as standard equipment, already has been ordered by an Ontario dealer. It's expected to sell for about $ 1.600.1 In addition to wheat. Canada will probably sell to Russia machine tools, nickel, petro-
chemicals and a limited amount of consumer goods. "If the mutual suspicions are overcome. Canadian-Russian trade could amount to $150 million to $200 million dollars a year within a decade." predicts Steve Läufer, a Montreal businessman who has set up the North America General Finding Corporation to participate in the new business.
Most of the Ottawa oflieials who took part in the year-long negotiation of the Russian-Canadian trade treaty disagree with 1 aider's assessment. I hey point out that the two countries have too much
geography and resource potential in common to make a large-scale exchange of products economically realistic. The current treaty, they say. is prompted mostly by Russia's desire to break into the North American market.
Such an entry would make good propaganda for the Russians, but this is not the aspect of Last-West trade which frightens our experts. They are much more concerned over the increasingly frequent communist tactic of offering the same products as C anada sells abroad to our traditional markets, at below our price
quotations. In attempting to compete with this intrusion, countries like Canada are at a tremendous disadvantage.
Under the General Agreement on Tariffs and Trade, to which most of the free world's major trading nations belong, exported goods cannot be priced below the fair market value in the supplying country. But it's virtually impossible to determine a “fair market" price for Russian goods. Not only because the communists conceal information, but because no market price, as we know it, exists in Russia. There is no free equilibrium between demand and supply, and no clear reckoning of actual costs. The capital tied up in the erection of a new factory, for instance, is not ordinarily included in Russian price calculations.
Another difficulty is that the ruble, the unit of account in all trade within the Soviet bloc, is a purely internal currency. No practical dollar - ruble relationship exists. The Russians are able to make the ruble worth what they say it's worth. Premier Khrushchov recently announced that next fall the ruble will be brought into an equal relationship with the dollar, instead of the existing four-to-one ratio. This will make little difference to foreign trade, because Russian export prices will continue to be quoted in the currency of the purchasing country. Some metal concentrates were recently priced inside the Soviet Union at a rate which implied a ruble exchange with the dollar of thirtynine cents, while non-ferrous metals for export were priced at an implied exchange rate of six cents.
The capitalist world has not yet discovered how to compete effectively with the state-controlled trade of the Soviet Union. "The obvious answer to continued below-cost selling, if indeed that is what the Russian moves represent, is that it cannot continue in any one industry without government subsidization. Funds must come from somewhere to cover the cost that is not covered by revenue from sales," says Nathanael Davis, the president of Aluminium Limited, whose firm has so far been the most seriously affected by Russian exports. Douglas Jung, the Chinese-Canadian Conservative who represents Vancouver Centre in the House of Commons, already has sug-
gested the establishment of a Canada Trade Council which would rally government. management and labor representatives in an attempt to work out a way of meeting communist competition.
Price is not the only problem in business dealings with the Soviet Union. A major frustration encountered by Western manufacturers who have exported equipment to Russia is that Soviet engineers promptly copy the unit's best features. The Soviet Union does not recognize the International Convention on Patents. When Robert Kipp, president of Kipp Kelly Limited in Winnipeg, last year sold the Soviet Union tw'o graincleaning machines of his own design, his Russian contact admitted that the equipment would probably be copied, but generously promised that any improvements discovered in the process would be relayed back to Kipp. The Winnipeg manufacturer is now waiting for further orders, but only because he is convinced the Russians couldn't use enough of the units to make copying economical.
Canadian exporters will have to find some method of competing with Russian traders in world markets before long. The current Seven Year Plan provides for doubling Russia’s foreign trade, to the equivalent of twenty billion dollars a year, by 1965 — twice the current Canadian export-import total.
Disruptions in the trade of capitalist countries could become an objective of Russian state planners in the future. But their much more immediate concern, and the most essential current economic fighting ground, is in the business relationship of the world's two major blocs with the one and a half billion inhabitants of the underdeveloped and politically uncommitted nations of the Middle and Far East.
Since Soviet Bloc economic aid started in 1955, credits for the equivalent of nearly three billion dollars (excluding military aid) have been granted to eighteen countries. This compares with U. S. assistance of seventy-three billion dollars (including military aid) to fiftyfive countries since 1946. But unlike the Russians, the Americans usually attach conditions designed to improve the economics of the receiving countries. Durga
Das, editor of the Hindustan limes in New Delhi, has compared U. S. aid to an elder brother who helps to provide the food, shelter and clothing for his struggling young brother, but cannot also afford to hand out spending money. He described Soviet aid as more like an uncle who gives the boy spending money and becomes popular, while the elder brother is taken for granted.
The spectacular success of Russian foreign aid in the building of Egypt's Aswan Dam and India's Bhilai steel plant arc well known, but there have also been
many Hops. In one deal with Burma, for instance, the Russians exchanged some cement for part of the Burmese rice crop. The cement arrived in Rangoon during the monsoon season, when there was no available storage space. Despite Burmese pleas not to unload, the Russian shipmaster dumped his load on the docks, where the cement hardened into giant blocks under the rains.
Nevertheless, the economic achievements of the Russians are impressive. No nation in peace time has been industrialized as swiftly as the Soviet Union since
the death of Stalin. Before the Revolution of 1917, Russia accounted for less than three percent of world industrial output. At the outbreak of World War II its share was just over ten percent. By the end of the current Seven Year Plan, in 1965, thirty percent of the world's manufacturing capacity will be within the Soviet Union. With the satellite nations and mainland China included, the Soviet bloc will in the mid-Sixties hold custody over half the world's industrial output.
Soviet industrial activity has now
reached the level the United States’ economy was at midway through World War II. But the U.S.S.R.'s annual production rate is growing twice as fast as that of the U. S. The current Seven Year Plan has as its target an eighty-percent boost in industrial output — a multiplication that will require a greater expansion of manufacturing facilities in seven years than has taken place in Russia during the forty years since the revolution.
"Our Seven Year Plan." Dr. A. A. Aroutunian. the Soviet ambassador to Canada, said recently, "is not a creation of the devil against humanity. It is a program of ordinary human beings trying to do their best to improve their economic and cultural life further at the fastest possible pace.”
Nearly till of the Western experts who have studied the details of Russian industrial capabilities agree that it is now within the power of the Soviet rulers to wipe out present discrepancies between the Russian and Western living standards (in terms of per capita production) within the next two decades. The political implications of this achievement frighten even the most optimistic Western diplomats. If comparative poverty should become the price of freedom, democracy will have lost an important part of its political appeal.
An equally serious long-term threat, especially to trading nations like Canada, is seen in the future economic emergence of mainland China. The Sino-Soviet alliance marshaled into a unified common market—covering a quarter of the earth's surface and containing a third of its population — would possess economic bargaining powers on a scale hitherto undreamed of. Such a development was hinted at in a little-noticed speech made at last year's Communist Party Congress in Moscow by Konstantin Ostrovityanov, a leading Russian economist. Ostrovityanov also predicted that by 1965 the ruble will begin to supplant the dollar as an instrument of international trade.
With the established failure of communist propaganda as a weapon for world conquest, and the increasing impracticably of nuclear war, economic competition could during this decade become the final battlefield between the world's two main ideologies. Notice of such tin intention has already been given by Premier Nikita Khrushchov. "We declare war upon you in the peaceful field of trade." he proclaimed at his meeting with New York businessmen last fall. "We are relentless in this, and it will prove the superiority of our system."
The opening skirmishes of the struggle are now being fought, and Canada is one of the main participants. If East-West trade evolves into full-scale warfare, this country could easily become the West's most severe casualty. Such a possibility seems disturbingly real in the face of the chilling prediction made forty years ago by Vladimir Ilyich Lenin, the chief prophet of international Communism, who wrote: "When the capitalist world starts to trade with us, on that day they will begin to finance their own destruction." ★
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