Industrial Electronics: Should We Sell to the Russians?
April 20, 1964 Electronics Magazine

April 20, 1964 Electronics [Table of Contents] Wax nostalgic about and learn from the history of early electronics. See articles from Electronics, published 1930 - 1988. All copyrights hereby acknowledged.

Here is an instructive look back at the near post World War II and Korean War timeframe when U.S. bureaucrats and industry titans were considering the pros and cons of selling our technology to foreign countries - especially to present and recent past sworn enemies. 1964, when this article appeared in Electronics magazine, was the Bay of Pigs era when the threat of nuclear war was on everybody's mind. In those days there were still company directors who would rather sacrifice potential profit in order to assure that their country would retain its technological leadership, its military superiority, and its national security. Others adopted the attitude that is the overwhelming rationale today - if we don't sell products and along with it the technological intelligence - then somebody else will. That philosophy slowly but surely resulted in the situation we find ourselves in today where China, Taiwan, et al, manufacture the vast majority of the world's goods - from hair ribbons to microprocessors - while domestic production is a small fraction of the world's output. They are doing it with technology (machinery, computers, vehicles, tools, intellectual property) eagerly passed on to them by companies whose stock market valuations trumped all other considerations. A largely unspoken maxim that goes by the name "Mutually-Assured Economic Destruction" holds that having adversarial countries' economies be critically interdependent keeps military aggression at bay the same way the Cold War "Mutual Assured Destruction" (MAD) mindset supposedly would.

Industrial Electronics: Should We Sell to the Russians?

An Electronics' staff report, compiled from dispatches by Electronics regional editors and McGraw-Hill World News Bureaus in the U.S., Moscow, London, Paris, Tokyo and Bonn.

Communist countries want to buy electronic equipment. They're already getting it from our allies. Should the U. S. relax its export ban?

On the wall of a Commerce Department office in Washington is a chart depicting the rise and fall of applications from American companies for licenses to export products to the Communist bloc.

"That," says a department official pointing to a steep rise in 1959, "is Camp David," where President Eisenhower and Premier Khrushchev reached agreements that eased international tensions.

Then skipping a few years of ups and downs on the chart, he comes to an almost perpendicular plunge. "That is the Bay of Pigs," the unsuccessful invasion of Cuba in 1961.

United States trade with the Soviet Union, and the attitude of business to that trade, reflects the headlines. The headlines now speak of relaxing tensions. The urge to do business with the Communists is on the rise again. As a result, the U. S. is beginning its first major reevaluation of East-West trade policy since the cold war began.

Whether the U. S. should, like its allies, reduce restrictions on sales of electronic and other technical products to the Communist bloc poses such a tangle of strategic, psychological, financial and political questions that the problem will probably not be resolved until after the fall elections.

The Johnson Administration has implied that it would accept some relaxation of restrictions. But before it makes any drastic changes it wants a mandate from Congress.

U.S. Restrictions. U. S. law prohibits exports that substantially contribute to the Soviet-bloc economy. This definition stretches wider than our allies' bans on selling militarily useful equipment.

The U. S. permits some electronic sales to the Red bloc, but these total only about $1 million a year. The U. S. bans all sales to Communist China and other Asian Communist countries, but other Western nations do business with Peking.

The Embargo List. The U. S. and 14 other Western nations prohibit sales of military and space equipment to Communist countries. The embargo list, kept up to date by a coordinating committee, includes practically all electronic equipment relevant to the production or use of military and space systems.

In 1958, much industrial electronic equipment was removed from the list. In 1962, the latest revision, several items, including electron-beam welders, were added and some of the transistors were removed.

U. S. restrictions, however, are more stringent than those of some European countries. Besides the coordinating panel's list, the Commerce Department has a "positive list" of products that cannot he exported without licenses. It includes practically every type of electronic equipment, components and materials worth selling, even radio and tv. This is what most of the argument is about. License applications are carefully screened and frequently refused.

To Sell Or Not to Sell?

There is no clear-cut consensus in the electronics industry on the wisdom of trading with the East.

"We believe in peace through trade," says Michel Bergerac, director of overseas operations, ITT Cannon Electric, Inc., a subsidiary of the International Telephone & Telegraph Corp., but "with the East it's a very complicated matter.

"As long as we don't sell products of an advanced state-of-the-art nature, there is no reason not to sell," he continues. "There are no bad moral connotations as long as the goods sold aren't strategic.

"A real objection is in the placement of sampling orders where the company is buying just one or two of a product in order to copy it. In this case, we charge a higher price."

A contrary view comes from Ray Gilmer vice president of marketing for Varo, Inc., in Garland, Tex. "I say let's don't sell them anything. I definitely oppose any trade with Communist countries," he declares. Varo is not trading with the Red bloc and doesn't intend to.

"Morally wrong." Adds the president of another Southwest firm: "It is ethically and morally wrong to trade with Communist nations ... Regardless of how some attempt to justify such trade, we think there is more than dollars involved here."

... "Why not let us compete?" ....

Other companies, with a stake in the European market, are rankled by the advantage their competitors gain through sales to the Soviet bloc.

B. A. Olerich, general manager of the international division of the Ampex Corp., thinks it "certainly does not represent anything constructive if U. S. firms are barred from selling behind the Iron Cur-tain when other \Vestern countries are free to sell."

"Why not let us compete." asks another Ampex official, "and have Russia pay for her equipment with dollars, contributing to our economy?"

Scope Is Criticized. U. S. trade restrictions "go far beyond the objective of keeping military equipment out of (Russian) hands," says James H. Binger, president of Honeywell Inc.

"The U. S. should broaden the list of items we can trade," he maintains. "We're not going to starve them out and we're not making it tough on them by keeping our products out. If they don't get these items from us, they will get them somewhere else."

"I know the French are selling (nuclear analyzers) to Russia," complains the sales manager of a Chicago company. "The French have even sold instruments they learned to make while working under license agreements from U. S. manufacturers. I am sure the British are selling nuclear instruments to Russia. Why shouldn't we have a piece of this business?" He says his company could sell 5% to 10% of its output to the Soviets. "If we had some super-secret technique of making these instruments, maybe there would be some excuse for dragging our feet," he argues.

Gertsch Products, Inc., in Los Angeles, doesn't trade with the Eastern bloc, but says it would if the United States Government okayed it.

"I know other countries do it, but we do not," says Elmer Gertsch, president. "I have an inquiry now on my desk from Yugoslavia about the newest state-of-the-art equipment, but we won't answer it."

London Wants More

The British government is developing a favorable climate for expanded East-West trade except in strategic products. Moreover, it wants the strategic list revised to take into account communist scientific achievements. It is foolish, the British insist, to embargo equipment the Russians are now producing.

Britain's economy depends on overseas sales. In addition the government believes that trade will ease tensions and raise the standards of living in the East.

"A fat man is less likely to become a Communist than a thin one," says Prime Minister Home.

Just a Few Million. United Kingdom exports of electrical machinery total about $200 million a year. Of this, Russia in 1962 and 1963 took $4.5 million and g4.2 million, or only 2%. Telecommunications exports to the Soviets rose from $153,000 in 1962 to $750,000 last year. Exports of scientific electrical instruments to Russia are around $2 million a year.

Major British exports to the East are civil radars, marine communications, direction finders, broadcast gear, plus some computers.

Most makers of electronic instruments here see more business coming in large plant contracts. Instrumentation and controls comprise as much as 10% of a chemical plant's cost. At least five such contracts are being negotiated with the Russians, Czechs and Communist Chinese, including a $111 million synthetic fiber plant for the Soviet Union.

The Soviets have just contracted for a $6-million plant to assemble cathode-ray tubes.

Trade with China. About $600,000 worth of scientific instruments including photographic and optical goods, was sold to Communist China in 1963. But there are signs that trade is expanding.

The Chinese need analytical instruments. This month, more than $1.5 million worth of British scientific equipment was shown .in Peking. The items displayed had been on a Chinese shopping list. The Chinese are expected to buy most of them at the end of the show.

In November there will be another British industrial exhibition in Peking. It will include telecommunications and electronic equipment and scientific instruments.

French Say "Oui". France, too, has relatively few restrictions except for strategic electronic equipment. But trade is hardly booming.

In 1962 France exported $1,738,367 worth of electronics gear to Rumania, $1,584,489 to Russia and only minor amounts to other Soviet satellites. For Rumania and Russia, the big categories were radio and television transmitters and receivers, various kinds of measuring instruments and cathode-ray tubes.

... Computers for the Red Chinese? ...

Nonetheless, Paris seems to want French industry to maintain a warm relationship with the Russians. This is why French companies participate in Russian trade shows.

Recently established diplomatic relations with Communist China have not yet resulted in any substantial trade in electronic equipment. In September, the French will exhibit measuring equipment in Peking.

Japan Is Doing Business

Japan has hade agreements with Russia, and unofficially promotes private trade with Red China. Japan is a converter nation with few raw materials. China has the raw materials, but little manufacturing.

Red China wants large digital computers, which could be used to develop nuclear weapons, power resources, oil refining and other industry. One rumor is that the Mitsubishi Electric Co. may produce the Gamma 60 computer for sale to China. Mitsubishi has a tie-in with Compagnie des Machines Bull, which makes the computer in France.

A group promoting Chinese-Japanese trade listed as other needs radio communications and broadcast equipment as well as other wireless equipment, including radar, loran and navigation aids. Test equipment is also needed, but much of it is on the embargo list.

Trouble in Taiwan

Nationalist China - a big Japanese customer - is unhappy about the trade with Peking. There have been serious repercussions in Taiwan over last September's agreement to sell China a chemical fiber plant. About 4% of the plant's $20 million cost is for control and measurement apparatus. Though the plant has not yet been shipped, there is talk of a second sale.

Under private agreements, Japanese shows were held last year in Peking and Shanghai. This year the Chinese will display their products in Tokyo and Osaka. China doesn't want to sell; it wants to show the technical level that Japanese equipment should surpass for sale to China.

During 1963, Japan exported more electronic equipment to Red China than to Russia: about $1,004,000 compared with $637,000. Best sellers were industrial controls and measuring equipment.

This year, Japan will sell Russia about $9 million worth of electronic products directly, plus the controls for fertilizer and chemical plants that Russia is expected to buy. Before long, Japan expects to be able to export numerically controlled metalworking tools too. Japan is a convenient source of products needed in Siberia.

View from the Kremlin

The Western electronics equipment that Russia most wants is advanced instrumentation and control systems.

The Soviets are striving for a 225% increase h their chemical industry, and will need from the West somewhere between $1 billion to $10 billion in plant equipment. Instrumentation will be a considerable portion of that.

They will also buy refineries, complete with controls, and will probably want computers for new power stations and high-voltage transmission networks.

The Soviets could also turn to the West for automatic production lines. Installation of 400 such lines was planned for last year, but only about half were completed. Western observers believe the Soviets are weak in sensors and servo-mechanisms, though their computing capability is good.

Because components are largely swallowed up in military electronics - more than 90% of Russia's electronics industry is engaged in military and space programs - components trade will probably never extend beyond spare parts and modules for imported control systems. Nor will consumer electronics be a substantial market for many years. Russia won't spend its gold reserves for tv sets.

Figures on foreign electronics trade are difficult to get. Practically all of Russia's electronics purchases ride piggyback on larger items and don't always show up in the trade figures. For instance, when England sold the Soviets a textile mill recently, the controls weren't listed under electronics.

... East Strives to Catch Up ...

But there is no doubt that trade is up sharply. For instance, between 1961 and 1962 (the last year for which figures are available in Moscow), instrument imports rose from about $45 million to nearly $60 million. Most of the instruments were bought from Soviet-bloc countries. England and West Germany together sold some $4 million worth to Russia during the Cuban crisis year of 1962, while U. S. sales were less than $250,000 in 1961 and about $90,000 in 1962.

Within the Soviet Bloc

The annual Leipzig Fair in East Germany, with exhibits from all over Eastern Europe, is a good indicator of technical developments and policies within the Soviet bloc.

At the 1964 show last month, it was clear that efforts to catch up are being made.

While Russia still supplies most military requirements, other Communist countries are planning to push development of such equipment as solid-state devices, micro-electronics gear and lasers.

Most bloc members, like Russia, are stressing chemical-industry and automation buildups, forcing a revamping of economic planning. After years of downgrading the electronics industry in favor of heavy machinery and other durables planners find they can't build modern industry without electronics.

Hardest Push in Germany. Of all the bloc nations, East Germany is giving electronics the most attention. Communist Party boss Walter Ulbricht has ordered that all industries rely on electronic data processing by 1970 to save manpower. He is giving top priority to solid-state devices and microelectronics-still in the laboratories in East Germany - and he wants automated production for use in computers and communications.

Plans are to introduce micro-modules into computers by 1965 and to transistorize telephone and radio systems by 1966. In 1965, the state-owned VEB Electromat, in Dresden, is to have an automatic line able to produce a million transistors a year. A similar line is being prepared for Czechoslovakia. In 18 months, the state plant in Hermsdorf is supposed to produce 500 micro-modules an hour. A plant in Frankfurt with 2,500 employees, is exporting power transistors to other bloc nations.

Look-Alikes. That East Germany is copying American equipment was obvious from a couple of electronic equipments on display at the fair, one a comparator and another a recorder. Prices were competitive too.

East Germany is well along in lasers and has displayed several models. It expects to export about 100 next year. Neodymium-doped glass, ruby crystal and gas-type lasers for research, welding and other industrial applications are made. About 100 East German engineers are now developing lasers.

East German exports of electronics spurted 180% between 1962 and 1963. But exports are tied to political strategy. Communications equipment, for example, is exported to Africa and Asia and is also bought from Western Europe.

Poorer Cousins. Poland and Hungary are advancing rapidly in fields such as lasers and building-block electronic elements. The Czechs appear to be making strides in computers. Bulgaria and Rumania are still the poor cousins in electronics technology.

Want More Details?

Exports to Communist countries are regulated under two primary laws: the Battle Act (Mutual Defense Assistance Control Act of 1951), for the strategic embargo list, and the Export Control Act of 1949, for the "positive list."

The Government Printing Office, Washington, D.C. 20402, sells reports on these acts, with the texts, actions taken to enforce the acts, lists of embargoed or to-be-licensed products, and statistics on East-West trade. Recommended are:

Export Control, 66th Quarterly Report, by the Secretary of Commerce, 1964. Price: 20 cents.

The 1958 Revision of East-West Trade Controls, the State Department report on the Battle Act. Price: 25 cents.

The Battle Act Report 1963, a Department of State Publication 7406. Price: 30 cents.

Posted March 29, 2019