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Trade Between the Soviet Satellites and the West During the Stalinist Era

By Nevin Gussack

During the early stages of the Cold War, the common perception was that the Soviet

satellites were entirely dependent on Moscow for all of its trade, including strategic goods.

Second, mainstream historical textbooks portray the noncommunist world as engaging in a

quarantine of the export and import of all goods between the non-communist world (including

the NATO countries) and the Soviet bloc nations. While the export controls levied by the West

on the communist world did indeed restrict the sale of goods to the East, they were never entirely

successful. Corporate greed and the communist creation of front corporations ensured the flow of

goods between the East and the West. In the wake of the Axis defeat in World War II, the United

Nations (UN) also channeled goods to Albania, Poland, and Yugoslavia. These relief goods were

used to enhance the power of the local communist movements over their respective populations.

In some cases, these UN relief goods were also used to buttress the military and security

apparatus of their communist recipients. Western goods were also exported for sale by

diplomatic and special shops in the Soviet bloc. Lastly, special hotels were also refurbished by

the Soviet bloc in order to attract Western progressives, businessmen, visiting delegations, and

diplomats. A comfortable, pampered hotel guest can easily turn into a lobbyist for increased

trade between the capitalist world and the communist country in question.

In 1944, the communist National Liberation Front of Enver Hoxha defeated the German

forces and their Albanian collaborators. Hoxha and has comrades established a communist

dictatorship aligned with the Soviet Union. The United States via the United Nations Refugee

Relief Agency (UNRRA) channeled aid to the communists. The UNRRA staff in Albania were

strictly controlled by the Hoxha regime. In reference to the UNRRA staff in communist Albania,

it was noted that “No Albanian was likely to hazard a complaint in the presence of the

government escort who always accompanied staff members on their observation tours, and in

Tirana the staff found themselves carefully avoided by most of the populace.”1

In August 1945, the Albanian communists and UNRRA2 signed an agreement for the

provisioning of the communists with relief supplies. Between August 1945 and early 1947,

UNRRA delivered over $26 million worth of relief supplies to Albania. Some imports from

Albania and the UNRRA supplies comprised all of Albania’s imports at this time.3

During the years 1944 and 1945, the Allies also channeled food and weapons to Albania

through Italy. In August 1944, an agreement was signed between the Allied Command in Italy

and Hoxha’s National Liberation Army in Bari, Italy to supply Allied-made war materials to the

Albanian communists. In April 1945, an agreement was signed between the Allied Military

Liaison in Italy and Hoxha’s government to supply relief supplies and food to Albania.4

The Albanians also conducted trade with the West during the early and mid-1950s.

Albania’s primary Western trade partners during this time period included Italy, West Germany,

and Switzerland. In December 1954, a trade agreement was signed between Albania and Italy to

the tune of $2.5 million. In 1955, Albania signed commercial trade agreements with private firms

1 Martin, Hubert. “The Heritage of UNRRA” The Freeman September 10, 1951 Accessed From:

http://mises.org/journals/oldfreeman/Freeman51-9.pdf 2 The United Nations refugee and relief organization.

3 Skendi, Stavro. Albania (Atlantic Press, 1957)

4 Skendi, Stavro. Albania (Atlantic Press, 1957)

2

in West Germany and Switzerland. Albania’s postwar trade with non-communist countries was

small and was carried through the Free Port of Trieste. Albania’s import trade with the Free Port

of Trieste included the purchase of foodstuffs, sugar, fishing equipment, precision instruments,

telecommunications supplies, medical supplies, leather, industrial fats, and textiles. Albania

exported herbs, citrus fruits, cotton, timber, raw hides, and chrome ore to non-communist

countries via the Free Port of Trieste. According to the US Department of Commerce, Albania

imported $232,000 worth of goods from non-communist countries in 1954 and exported

$122,000 worth of goods in 1954 to non-communist countries.5 In 1954, the Italian ITAKIMEX

Society of Trieste shipped 450 tons of sea salt to Albania.6 In December 1954, Italy and Albania

concluded a trade agreement with a clearing account with a ceiling of $400,000. Albania agreed

to export crude oil to Italy. Albania’s communist-controlled trade agencies requested drugs,

chemical products, and cotton from Italy.7

By the late 1950s, Albania’s factories exported goods to the West in exchange for

payment in hard currencies. In 1957, it was reported that Soviet-built factories in Albania

exported part of their production to Italy, West Germany, other hard currency countries, and the

Soviet bloc.8 In 1969, a Chinese-built copper wire factory in Shkoder exported its product to

Western countries in exchange for hard currency.9

Despite the hardline, Stalinist nature of Albanian communism, the Hoxha regime utilized

elements of the old capitalist class in its foreign trade relations with the West. Crony “private”

capitalists within Albania in the 1950s actually held government office. The leading capitalist in

this arrangement was Peristeri Pilo, whose net worth was a few hundred thousand US dollars. He

kept five and six figure bank accounts in the capitalist world and had large amounts of shares in

Western industrial companies and municipal corporations. Pilo became a delegate of the state-

controlled Albanian Trade Unions and visited Vienna and Paris, where he consummated business

deals. Pilo was also commissioned by the Soviets to participate in international black market

activities to raise money for communist espionage operations. Pilo was requested by the Soviets

to acquire Greek drachmas by selling goods to Greece.10

Like their Soviet counterparts, the Albanian communists opened special shops whose

purpose was the sale of luxury and imported goods in exchange for hard currencies and precious

metals. The sole purpose of these shops were to soak as many dollars and gold from the populace

and émigrés abroad. The Albanian “special trade enterprises” collected hoarded gold and hard

foreign currencies from the locals. Albanians dubbed these enterprises “dollar stores.”

According to a November 1950 article in an Albanian communist newspaper “special trade

5 Skendi, Stavro. Albania (Atlantic Press, 1957)

6 Radio Free Europe Research Eastern Europe Italo-Albanian Trade Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:fea3e272-ca0b-49d1-9886-9dba89c34c84 7 Radio Free Europe Research Eastern Europe Italo-Albanian Trade Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:fea3e272-ca0b-49d1-9886-9dba89c34c84 8 Salisbury, Harrison E. “Albania Persists as Nation in Arms” New York Times September 10,

1957 page 1. 9 “On Bus Tour to Albania, Visitor Sees Statues of Stalin in Towns” New York Times

September 29, 1969 page 20. 10

Albania’s Capitalist No. 1 Radio Free Europe Research Eastern Europe Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:4fd4685b-5000-4551-b82a-

eda061b96490

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enterprises were created in the country’s major cities to sell industrial articles and foodstuffs for

gold and platinum, and articles made of platinum, gold, and silver, as well as precious stones

and foreign currencies which are freely exchangeable.”11

During the summer of 1951, the Albanian communists forbade the use of gold for

monetary transactions and instead ordered average citizens to surrender all gold to the state-

owned banks in exchange for leks (local currency). Albanians were arrested and threatened with

torture if they did not surrender foreign currency and gold coins to the state. Trusted Albanian

communists were dispatched abroad to illegally obtain foreign currency in exchange for jewels.

The Albanian communists solicited Albanian-Americans to remit US dollars back home. Special

stores were opened for Albanians who retained special vouchers which were exchanged for

foreign currencies or precious metals. These stores were stocked with luxury goods that were

allegedly imported from communist Czechoslovakia.12

By June 1967, Albanians who departed their homeland after the Axis defeat in 1945 were

forbidden by decree to send parcels or hard currencies to their relatives and friends back in

Albania. If they did, the money and parcels would either be returned to the senders or confiscated

by the state. It is noteworthy that this decree did not cover the Albanians who left their homeland

in the years before World War II. Albanians who left their country before World War II actually

counted for the majority who resided abroad (mainly in the United States). They were the

primary source of hard currencies and parcels remitted to their Albanian relatives (and

consequently the Hoxha regime).13

The resident Western and Soviet diplomats and advisers also lived a pampered life in

Albania. Albanians reportedly commented on the high living standards of resident Soviet

officials in their country: “Rrojne si n’ Amerik-They Live as Though They Lived in America.”

They had access to unlimited funds, good quality clothing, Albanian servants, and access to

special shops reserved for the local Albanian Party of Labor (Communist) officials. An Albanian

schoolteacher reported that “For six years, they (the Soviets) have also been buying up clothes

and furniture and household goods from impoverished Albanians. Now most of us have nothing

to sell.” As of 1951, the French and Italians also maintained embassies in Tirana. The embassies’

activities were controlled by the Albanian Foreign Ministry’s protocol department.14

In 1950, the

Soviet missions in Tirana had access to special stores that were stocked with goods purchased in

Western Europe with funds from the accounts of the Albanian government.15

Soviet engineers

and other technicians in Albania were provided with copious quantities of food, all paid for by

the Albanian government. They also had access to the services of Albanian cooks. The foods

served to resident Soviet advisers and technicians included butter, olive oil, fats, meat, eggs,

11

Skendi, Stavro. Albania (Atlantic Press, 1957) 12

Central Intelligence Agency. “Albanian Government Attempts to Secure Gold and Foreign

Currency” January 11, 1952 Accessed From:

www.foia.cia.gov/KoreanWar/DailyReports/1952/1952-01-11b.pdf 13

One Less Source of Hard Currency for Albania Radio Free Europe Research Eastern Europe

August 14, 1967 Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:ced7730c-b5a9-41d0-a63d-acf6606b07bd 14

Baker, Francis Noel. “Land of the Devil” Life Magazine November 26, 1951 pages 135 and

142. 15

Handler, M.S. “3,000 Soviet Officials in Control of Albania” New York Times November 19,

1950 page E8.

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alcoholic drinks, sugar, and honey. The Albanian governments paid these Soviet technicians

35,000 to 50,000 leks per month. Special shops sold imported Western goods such as British

woolens, silk shirts, and Swiss-made Omega and Zenith watches to the Soviet advisers and their

families.16

During the Stalinist era, Albania quickly developed a system of privileges for its native

elites. Despite the austere exterior of the Hoxha regime, the communist officials lived in a world

of comparative luxury. Entire agencies were created to cater to their creature comforts. In 1956,

the Directorate of Receptions was created by the Albanian communists to serve the privileged

classes, their families, and close allies.17

One manifestation of such privileges were the special

shops which sold high quality goods to foreigners and the Party elite. As of 1954, there were four

different kinds of Dyqani Special in Tirana. One shop sold food and clothes to Soviet and other

foreign specialists. The food and clothes were of good quality and sold at low prices. Another

Dyqani Special was for members of the Government and the Central Committee of the Albanian

Party of Labor. It was located near the Blloku, which was a luxurious quarter of Tirana where the

elite resided. The Dyqani Special I Funksionareve te Larte was a shop which sold food and

clothing to high ranking Albanian communist officials. The Dyqani Special I Valutave te Husja

were shops that sold goods for foreign currency. They were located in Tirana, Korce,

Gjinokaster, Vlore, and Durres. It was significant that these cities were largely either port cities

or locations where foreigners resided/worked. Most of the American dollars exchanged at these

stores were remitted by friends and relatives living in the United States.18

The Albanian Party of Labor displayed no compunctions in employing collaborators with

the Italian Fascists and German Nazis. Some were able to transfer their loyalties from one form

of collectivism (fascism) to another (communism). Others sought to save their lives or were

attracted by the privileges bestowed to them by serving the Hoxha dictatorship. This was a

source of embarrassment for the Albanians and their Soviet sponsors. Stavrou commented that

“many prominent communists, among them Ramiz Alia, (secretary general of the Communist

Party) started their careers as fascists. Omer Nishani, first president of communist Albania, had

fashioned himself as the theoretician of fascism. But when his fascist past surfaced at the Paris

Peace Conference, even V.M. Molotov blushed.”19 Hysni Peja was a gendarmerie captain during

the German occupation of Albania. He became a general in the People’s Army of Albania under

Hoxha. Islam Radovicka was a member of the Albanian General Staff under the Italian Fascist

occupation. In the postwar period, Radovicka became a deputy in the communist People’s

Assembly. Riza Kodheli was the commander of the Albanian Fascist Party Militia who then

became a colonel in the People’s Army under Hoxha. Rexhep Plako was the Albanian Fascist

leader who offered the Albanian crown to King Victor Emmanuel of Italy. During the German

occupation of Greece, Plako committed war crimes in the Greek town of Rizo. Plako transferred

16

Contrast in Living Conditions of Soviet Engineers and Albanian People Radio Free Europe

Research Eastern Europe July 9, 1953 Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:04bf9fc0-1ed5-4d0d-9e9b-d22dd4ec26a2 17

“Finance Minister on Former Leaders’ Corruption” Tirana Bashkimi July 31, 1991 18

Special Shops in Tirana Radio Free Europe Research Eastern Europe August 4, 1954 Accessed

From: http://www.osaarchivum.org/greenfield/repository/osa:8b9ff289-bc9b-45ef-8fa7-

b274c2df89a8 19

Stavrou, Nikolaos A. “KFOR: Repeating history” Washington Times August 11, 1999 page

A15 Accessed From: http://www.srpska-mreza.com/Kosovo/NATO-attack/KFOR-Nazis.html

5

his loyalties to the communists and eventually helped Hoxha form the communist National

Liberation Front (NLF) of Albania. Tahir Kandare was a member of the Albanian Fascist Tomori

Regiment, which assisted German and Italian troops in their invasion of Greece. Kandare

switched loyalties and joined Hoxha’s troops. Musa Demi was an Albanian VIP who cooperated

with the Germans and Italians. Musa eventually found a new political home in Hoxha’s

Albania.20

The Frontier and Internal Communications Protection Department of Albania was

directed by Lt. Col. Iljaz Sevrani. He was originally an officer of the Albanian Fascist Militia

who subsequently became the Secretary of the Communist Party Regional Committee in Barat.21

Two Albanian Fascists became “ardent communists” and they were General Maltsiou Spyro and

Captain Roushi Atif. Both retained their military ranks and remained in active service in the

army.22

There were reports that even high-level German Nazi nationals served the Albanians and

their other communist allies in the years following the collapse of the Third Reich. It was

reported that former Gestapo chief Heinrich Muller shifted his loyalties to the Soviets in 1945

and helped reorganize Stalin’s secret police (NKGB and later the MGB). After Stalin’s death in

1953, Muller then assisted the Hungarian secret police, known as the AVO. After the 1956 revolt

in Hungary, Muller moved on to assist the Albania secret police, known as the Sigurimi. He

allegedly changed his name to Abedin Bekir Nakoschirl and held the rank as captain in the

Sigurimi. Muller allegedly headed the Sigurimi’s Western Section.23

By 1948, the Stalinist Communist Party consolidated complete control over Bulgaria.

Despite the close ties and control exerted by the Soviet Union, Bulgaria continued its trade

relations with the West. The trade fair at Plovdiv was a tool used by the Bulgarian Communists

and the Soviets in lobbying and attracting trade and legitimacy from the Western capitalist

countries. In September 1948, the Plovdiv Fair hosted firms from the United States, Switzerland,

the USSR, Czechoslovakia, and the Soviet Zone of Germany (East Germany).24

The 1952

Plovdiv Fair hosted companies from Italy (Microtecnica, Cirardengo & Company, SA Emilio

Bozzi, and S.p.A. Mario Alberti), Austrian firms (forty total), West Germany, Switzerland,

Sweden, Holland, Britain, USSR, China, East Germany, Poland, Hungary, Czechoslovakia, and

Romania.25

The Bulgarians repaid their Western partners with exports of low cost, shoddy goods. In

August 1952, an Austrian independent newspaper noted that “…If Austria delivers machinery to

Bulgaria, Bulgaria does not pay in foreign currency, but in low quality goods. Czechoslovakia,

Bulgaria, and Rumania are still behind with their deliveries…while Austria has done her utmost

in complying with her trade agreements. The communists are responsible for the fact that the

20

Plain Talk Volume 2 1947 page 52. 21

Continental News Service, Issues 39-62 1947 page 9. 22

Albania Turncoat Fascists Radio Free Europe Research Eastern Europe February 22, 1952

Accessed From: http://www.osaarchivum.org/greenfield/repository/osa:984d34b0-8d35-4a9f-

ac9b-643b04ec281c 23

“Ex-Gestapo Boss in Albania, Magazine Says” The Stars and Stripes January 7, 1964 page 3. 24

Handler, M.S. “Soviet Exhibits Copy Tools of West; Moscow Shows Eastern Leadership”

New York Times September 5, 1948 page 36. 25

International Fair of Plovdiv Radio Free Europe Research November 14, 1952 Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:911d8f07-44cd-48e2-a24c-459c3d74ac76

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Eastern states, which in the past were punctual in their deliveries, do not care to live up to their

obligations.”26

As of 1955, Bulgaria utilized Swiss firms to import strategic goods (such as US-made

machinery) from the capitalist world (including the United States, Belgium, and The

Netherlands). Bulgaria deposited Belgian and Swiss francs and American dollars in the

Schweizerischer Bankverband and Bank von Ernst and Company in Zurich. The Soviets also

used the Bulgarian funds in Swiss banks to make purchases of its own. To this end, the Soviets

contributed hard currency and gold to the Bulgarian funds.27

In the early years of Bulgarian communist rule, trade relations were maintained between

the United States and Sofia. In December 1947, Bulgaria and the United States agreed to

establish normal trade relations. An agreement was inked between the US Commercial Attaché

in Bulgaria, Louis Beck, and Kosta Georgiev, the General Secretary of the Bulgarian Ministry of

Trade. Bulgaria was interested in exporting tobacco, carpets, scent oils, and herbs to the US.

Bulgaria expressed interest in importing items such as mining machinery, spare parts for trucks,

soda caustics, textile plants, and electrical equipment from the United States.28

In 1949 Bulgaria

exported over $1.9 million worth of goods to the US, which consisted mostly of agricultural

products. However, by the Korean War, the trade relations between Bulgaria and the United

States soured considerably. In 1951, favored nation status (MFN) was withdrawn from Bulgaria

by the US Congress.29

By the mid-1950s, trade relations were cautiously reestablished between Bulgaria and the

United States. In 1955, the US government granted licenses to Chevrolet to ship over $1 million

worth of passenger cars to Bulgaria.30

Another report from 1955 indicated that an unnamed

Brooklyn NY auto dealer received a license to ship 500 Chevrolets to Bulgaria. These cars were

five passenger models equipped with heaters intended for the use of Bulgarian officials.31

Between 1944 and 1954, Bulgaria had a minimal number of tourists and foreign visitors

traveling from the West. These tourists were mostly communists or fellow travelers who were

used by the Bulgarian communists for propaganda purposes. In 1956, a small number of tourists

visited Bulgaria from France and other Western European countries, while the vast majority of

tourists to Bulgaria in 1955 and 1956 traveled from European communist nations such as the

USSR, Romania, Poland, and East Germany. In 1957, Radio Sofia reported that the state tourist

corporation Balkantourist arranged the visit of 20,000 tourists to hotels and international resorts

(Golden Sands and Varna). These tourists originated from the USSR, Czechoslovakia, Poland,

Romania, Germany, Hungary, France, Sweden, and Belgium. Revenues generated from tourism

in 1957 reached 30 million leva in foreign currency. Balkantourist and the Bulgarian Chamber of

26

Kirk, Grayson. What Is Communism? (Dutton 1955) 27

Switzerland Buying for Bulgaria in the West Radio Free Europe/Radio Liberty Research

Institute June 25, 1955 Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:afb0aca4-1f2e-4cca-9af6-7718d1984d96 28

“Sofia Announces Accord: U.S. and Bulgaria to Establish Normal Trade Relations” New York

Times December 3, 1947 page 18. 29

“US Trade Benefits Denied Bulgaria” New York Times September 18, 1951 page 10. 30

“Interest on Rise in US-Red Trade: Sales of 100 Autos to Bulgaria Produces Many Inquiries”

New York Times July 2, 1955 page 19. 31

Egan, Charles E. “Bulgaria to Get 500 Chevrolets” New York Times June 17, 1955 page 3.

7

Commerce were commissioned to modernize and expand the tourist industry as a means of

winning legitimacy from the West and to garner hard currencies.32

As of 1954, all hotels in Bulgaria were operated and owned by Balkantourist, which was

led by the staunch communist Georgi Barell. First class level hotels were frequented by high

level Party and government officials, along with citizens who traveled to Sofia for specific

duties.33

Special restaurants were reserved for high level Party officials and foreign diplomats. In

September 1951, there were two major restaurants in Sofia: the Bulgaria and the Diplomats. The

Diplomats was open for foreign personnel employed by legations and other missions, while the

Bulgaria was open to high Party and government officials for receptions and other special

occasions. For example, the Bulgaria Restaurant hosted an anniversary meeting of the liberation

of Bulgaria by Soviet troops. The Bulgaria Restaurant served delegations from the USSR and

other satellite countries during this meeting.34

The ruling Bulgarian Communists in Sofia maintained access to special shops to

foodstuffs at reduced prices. Trucks supplied food to these shops for Central Committee

members, Soviet officials, ministers, and other high level people. A bakery produced high

quality white bread on Lavele Street. A Soviet jeep arrived at the bakery every day to buy 80

loaves of bread. A vegetable shop catered to high level Bulgarian officials and Soviet officials.

This shop received its produce by truck delivery.35

Various pro-Nazi Bulgarian industrialists, militarists, and fascists cooperated with the

ruling communists. Before the surrender of Bulgaria to the Soviets in 1944, Nikola Boyaciev was

a merchant, assistant to the chief of police and a member of the Pazarcik District Council. He

quickly became a communist and a sawmill owner. Boyaciev’s commercial activities were

protected by the Bulgarian Communist Party. He was also nominated as president of the

Rakitovo Soviet.36

Metodi Tachev was a merchant who became the purchasing agent for the

large firm Kobilarov. This firm supplied German Nazi occupation forces in Bulgaria. After 1941,

Tachev bought, on behalf of the Germans, fruit pulps, fruit, preserves, wheat, meat, medicinal

plants, and 50% of the crops raised in Vratsa and Vidin areas. By 1942, he amassed a huge

fortune and employed 12 purchasing agents and 1,000 employees. Tachev retained close ties

with government banks and high level secret police officers during World War II. Through the

32

The Growth of Foreign Tourism in Bulgaria Radio Free Europe Research Eastern Europe

October 22, 1957 Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:412f80b1-0ea6-4d55-b4c7-4039f03382a1 33

Hotel Organization in Bulgaria Radio Free Europe Research Eastern Europe January 19, 1954

Accessed From: http://www.osaarchivum.org/greenfield/repository/osa:0167e402-3555-47ad-

81d7-4854083cd95a 34

“Bulgaria” and “Diplomats,” the Only Two Restaurants in Sofia Radio Free Europe Research

Eastern Europe September 24, 1951 Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:ee636bbe-cf32-43eb-b81d-5d2124b66c0b 35

Special Supply Shops for Communists Radio Free Europe Research Eastern Europe March 19,

1952 Accessed From: http://www.osaarchivum.org/greenfield/repository/osa:4a0e8177-040c-

412b-ae90-63b07816b86f 36

Ex-Fascists Turned Communists Radio Free Europe Research Eastern Europe October 17,

1951 Accessed From: http://www.osaarchivum.org/greenfield/repository/osa:c2c7c16d-06c6-

47d8-8c38-3c2e6c532657

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influence of high level communist relatives, Tachev became a high level inspector in the

Ministry of Trade. In 1952, he became a high level administrator in the communist Bulgarian

Chamber of Commerce.37

In this period (from September 1944 to October 1946) the head of the coalition,

communist-dominated Fatherland Front government was General Kimon Georgiev. He had

played a leading part in the military, semi-fascist coup d'etat of 1923, in which tens of thousands

of workers and peasants were massacred. General Georgiev was the direct author of the military

coup of 1934 which led to the terrible persecution of Communists, Socialists and Agrarians, and

to the dissolution of the trade unions. His supporters wielded such influence in the Fatherland

Front government which prompted a Western commentator to remark that “the composition of

the government suggests that the group that has now taken over in Sofia is the famous Military

League that took power by coup d’etat in 1934.”38

Spas Andonov was an active member of the

fascist Bulgarian Legion who became a communist officer in the TVO (Labor Educational

Institution). Alexander Vlasev was an assistant in the Bulgarian Legion and a member of the

Tsankov fascist group. He became a communist municipal reception clerk and was actively

engaged in denouncing former fascists.39

By 1948, the Communist Party in Czechoslovakia achieved total domination. Previously,

the Communists exercised de facto control over Czechoslovakia through the administration of

important ministries and careful infiltration. The United States pumped relief goods into

Czechoslovakia through UNRRA. Unfortunately, these goods boosted the power of the

increasingly communist-dominated government in Prague. In Czechoslovakia, the earnings from

the sale of UNRRA goods accounted for 27% of the government revenue.40

During the mid to

late 1940s, the Czechoslovak Communist Minister of Agriculture under the Benes government

made distribution of farming equipment and supplies from UNRRA41

and allocation of

expropriated lands dependent on support for communist candidates and programs.42

During the increasingly communist-dominated government of Eduard Benes, trade

relations were maintained with the United States and other Western countries. By March 1947,

eleven nationalized industries in Czechoslovakia dispatched representatives to the United States.

They received welcoming treatment by American businessmen who offered commercial credits,

raw materials, chemicals, machines, and leather hides.43

37

Metodi Tachev: Former Supplier of the Nazi Armies, Now Important Member of the Sofia

Chamber of Commerce Radio Free Europe Research Eastern Europe January 13, 1952 Accessed

From: http://www.osaarchivum.org/greenfield/repository/osa:778a41d5-ce48-47be-88ce-

5c9a45719612 38

Harman, Chris. “Class Struggle in Eastern Europe 1945-1983” Accessed From:

http://www.vorhaug.net/politikk/ist/harman/eastern_europe/repression.html 39

Ex-Fascists Turned Communists Radio Free Europe Research Eastern Europe October 17,

1951 Accessed From: http://www.osaarchivum.org/greenfield/repository/osa:c2c7c16d-06c6-

47d8-8c38-3c2e6c532657 40

Martin, Hubert. “The Heritage of UNRRA” The Freeman September 10, 1951 Accessed From:

http://mises.org/journals/oldfreeman/Freeman51-9.pdf 41

Acronym for United Nations Refugee and Relief Administration. 42

Kirk, Grayson. What Is Communism? (Dutton 1955) 43

Ross, Albion. “Czechs Seeking Aid of US on Industry” New York Times March 12, 1947

page 14.

9

The ruling communists pledged their intention to maintain trade links with the West after

their accession to power in 1948. In March 1948, Czechoslovak Foreign Trade Minister Antonin

Gregor noted to foreign business audiences in the West and the United States that 55% of

Czechoslovakia’s trade would be with capitalist countries and 45% with Soviet bloc countries.44

In August 1948, the Czechoslovak Ministry for Foreign Trade highlighted the importance of

shipping goods to hard currency countries in exchange for raw materials. Twenty five categories

of Czechoslovak exports were sent to the British pound sterling countries, while 16 percent went

to the countries of the American dollar zone.45

As of May 1952, Czechoslovakia exported massive quantities of food to Switzerland via

Koospol Ltd. Foodstuffs exported to Switzerland included eggs, some wheat, barley, fresh and

tinned vegetables, malt, and beer. In December 1951, the Czechoslovak corporations Centrotex

Ltd. and Chemapol Ltd. exported via dumping chemicals and textiles to the Swiss market.

Czechoslovakia imported machinery, cables, nickel goods, nonferrous metals, and special

chemicals.46

The communists also engaged in unfair foreign trade practices such as dumping in their

commerce with the West. Czechoslovakia’s commercial offices abroad were taken over by the

state organization Torbred by 1951.47

It was reported in 1949 that Czechoslovakia dumped goods

in the West at subsidized prices set below the costs of production. It was suspected that

Czechoslovakia conducted this dumping in order to generate foreign currency and to serve an

unknown political purpose. In December 1948, the USSR provided a gold loan to the

Czechoslovaks. This loan was used to assist Czechoslovakia in its dumping of exports to the

West. This program was conducted under the auspices of COMECON. The Czechoslovaks

dumped textiles, Tatra cars, and many other products into European and Asian markets.48

During the early years of Stalinist Communist rule, West Germany was an important

noncommunist trade partner. Initially, during the early 1950s, legal and illegal West German-

Czechoslovak trade was greatly reduced due to stoppages conducted by American forces

stationed in Bavaria. These controls negatively affected the Bavarian economy, which depended

on Czechoslovak coal and other materials for the glass and ceramic industries. In mid-

September 1950, US Military Police Customs Units seized 21 licensed railroad cars containing

pipes and fittings sold to Czechoslovakia by the West German firms Mannesmann and

Stahlunion.

In other cases, American occupation officials in West Germany allowed companies to

export products to Czechoslovakia. American officials on the Allied High Commission in West

Germany allowed West German firms to sell 10,000 tons of iron and steel scrap to

Czechoslovakia. West German-Czech trade totaled $15.1 million for 1955, as opposed to the

1949 level of $14.5 million. By 1955, West Germany was Czechoslovakia’s biggest Western

44

“West is Reassured by Czech on Trade” New York Times March 7, 1948 page 10. 45

“Czech Seeking Dollars” New York Times August 13, 1948 page 8. 46

Czechoslovak Trade with Switzerland Radio Free Europe/Radio Liberty Research Institute

May 5, 1952 Accessed From: http://www.osaarchivum.org/greenfield/repository/osa:75521694-

0a25-4b21-8b18-66ca1fbe240d 47

Sulzberger, C.L. “Soviet Smuggles Brazil Diamonds, Using Czech Diplomatic Pouches” New

York Times September 25, 1951 page 15. 48

Daniell, Raymond. “Czechs Dumping Goods in the West” New York Times September 11,

1949 page 22.

10

trade partner. In 1953, Czechoslovakia bought $7.7 million worth of West German goods.

Spaulding wrote that “Czechoslovakian exports to Germany were actually larger at the height of

the embargo in 1951 than they were thereafter.”49

The Czechoslovaks also established front companies in the West in order to import

strategic goods. The West German firm Clemens of Hamburg was the main agent for the

Czechoslovak importing agencies Metrans, Chemapol, and Czecho-Fracht. Clemens channeled

Western European goods (especially West German) to the Czechoslovak state importing

agencies. Josef Spiero managed an import-export business based in Hamburg which handled

trade with the Czechoslovaks as well. Mentz Decker & Company of Hamburg handled the

shipping of these to the Czechoslovaks via Soviet Black Sea ports. A wholesale chemist agent

named Josef Lad of Hamburg shipped (via its West Berlin agent) chemicals to East Germany and

Czechoslovakia.50

Representatives of Czechoslovak industries continued to visit the United States after the

communist takeover in 1948. The Czechoslovak representatives noted that their close trade

relations with the USSR should not be an impediment on trade with the US. In January 1949, Dr.

Jaroslav Fukatko, secretary general of the Central Federation of Industries of Czechoslovakia

stated “As we see it, through expanding trade between all countries regardless of political creeds

we are contributing towards the maintenance of world peace.”51 By 1948, the United States even

experienced trade deficits in its trade with Czechoslovakia. By June 1948, the Czechoslovaks

exported $10 million worth of goods to the US, while the US shipped $2.7 million per month of

goods to the Czechoslovaks.52

In May 1950, American exports to Czechoslovakia totaled $1.4

million. In May 1951, the US bought $2.1 million worth of goods from Czechoslovakia.53

In

early 1951, American imports from Czechoslovakia totaled $9.2 million, which consisted of

glassware, costume jewelry, and textiles. These goods were very inexpensive, whose subsidized

production undercut US producers.54

The Stalinist Communists in Czechoslovakia also established a chain of special stores

managed by the Darex Trading Company. Around 1949, the Czech communist government

opened the Darex shops in Prague, Bratislava, Karlovy Vary, Kosice, and Pilsen. Czechoslovaks

and foreigners who possessed American dollars, Swiss and Belgian francs, and British pound

sterling exchanged this foreign currency for special coupons where they purchased export-

quality Czechoslovak goods. In April 1949, the communists declared an “amnesty” for Czech

citizens who possessed foreign currencies. This was an effort by the government to capture

precious hard currencies.55

In 1951, one report mentioned the existence of ten Darex National

Enterprise shops in nine Czechoslovak cities. Eighty five percent of the customers were

49

Spaulding, Robert Mark. Osthandel and Ostpolitik: German Foreign Trade Policies in Eastern

Europe from Bismarck to Adenauer (Berghahn Books, 1997) pages 373-375 50

West German Firms Trading in Strategic Commodities with CSSR Radio Free Europe

Research July 15, 1952 Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:d7146ff8-e592-45e6-ae2b-b47e584d925a 51

“Czechoslovakia Sees No Bar to US Trade” New York Times January 16, 1949 page S9. 52

“Czechs’ Industry 95% Nationalized” New York Times June 14, 1948 page 8. 53

“Czech Trade with US Holds About Steady” New York Times July 26, 1951 page 46. 54

“Injustice Is Seen in Higher Tariffs” New York Times July 28, 1951 page 28. 55

Schmidt, Dana Adams. Anatomy of a Satellite (Little, Brown and Comp., 1952) page 368.

11

Czechoslovaks who generated foreign currency. High quality Czechoslovak-made goods and

foreign items were stocked for sale in the Darex shops.56

The hard currency was exchanged through the Czechoslovak banking system and Darex

stores into special certificates for citizens to purchase the goods. In August 1949, Darex assigned

Centex as its agent in the United States. Centex deposited US dollars accrued from its sales in the

Zirnostenal Bank located in Prague. From November 1949 to December 1952, Centex sold over

$3.5 million worth of special certificates. Darex’s American agent John Fisher collected over

$578,000 in the first six months of 1953. From November 1950 to 1958, the Czechoslovaks

collected a total of $4.8 million from parcel operation in the US.57

Even under the Benes government, the Czechoslovak Communists attained many

privileges with the power they quickly achieved. In 1948, many Czechoslovak factory managers

earned 40,000 crowns per month, received a car with chauffer, a villa, and other privileges.

President Benes’ newspaper Svobodne Slovo noted that the bureaucracy was “living in the style

of millionaires…enjoy every comfort and luxury, thanks to the villas and limousines which they

have been allocated by the authorities and to their high incomes.”58 As of January 1952, five

high level Czech communists and officials received villas located in the High Tatra Mountains

and in Harmonie. These villas were confiscated from “reactionaries.” The Minister of Defense,

General Secretary of the Slovak Communist Party, Foreign Minister, Industrial Sub-Minister,

and the Chairman of the Council of Commissioners were all recipients of such confiscated

luxury properties.59

Foreign diplomats and visitors were also subjected to luxuries unavailable to the general

public. Taborsky noted that “at the height of Stalinism it (tourism from the West to

Czechoslovakia) was limited almost entirely to foreigners coming on official business, such as

accredited diplomats, newspaper correspondents, businessmen, and various official or

semiofficial delegations. Some sympathizers from the West, such as the Red Dean of Canterbury,

were let in for propaganda reasons.”60 As of January 1956, the Hotel Alcron in Prague was

reportedly was “a pretty good hotel with nice rooms and good service.” However, the food was

reportedly poor.61

The Communists also sought to infiltrate the Nazi collaborationist apparatus in an effort

to consolidate power. Other fascists and pro-Nazis exchanged one form of collectivism for

another after the Axis defeat in May 1945. The pro-Nazi trade union NOUZ became the first

target for infiltration by the Communist Party of Czechoslovakia. In 1942, communist agents

were instructed to take over the collaborationist Czech union, NOUZ. The communist front

group, the Revolutionary Trade Union (ROH) took over the structure and personnel of the

56

“Dollars Welcome in Czechoslovakia” Reno Evening Gazette February 8, 1951 page 16. 57

Communist Parcel Operation Report by the Committee on Un-American Activities (GPO

1959) Accessed From: http://babel.hathitrust.org/cgi/pt?id=uc1.$b654294;view=1up;seq=5 58

Gluckstein, Ygael. Stalin’s Satellites in Europe (George Allen & Unwin, 1952) page 100. 59

Red Bosses Living in Luxury Radio Free Europe Research Eastern Europe January 25, 1952

Accessed From: http://www.osaarchivum.org/greenfield/repository/osa:3f7e145c-762a-46ee-

8f95-7a934f376d4f 60

Taborsky, Edward. Communism in Czechoslovakia 1948-1960 (Princeton University Press

1961) page 475. 61

Raymond, Jack. “Tourist Facilities Beyond the Iron Curtain” New York Times January 8,

1956 page X38.

12

NOUZ.62

The Czechoslovak scholar Vilem Hejl wrote that “The NOUZ organization was too

useful for the KSC to want to shock it or upset it by adherence to some sort of abstract justice.”63

It was also noted that the government unions of the Czech Communist inherited “many, many

leading officials” of the old NOUZ.64

An officer of the NOUZ Evzen Erban was made Secretary

General of the official Czech Communist Party union, the URO. Emmanuel Moravec’s65

son

served as a high ranking officer in the German Army and became a German citizen. He refused

to be repatriated to West Germany in the fear of punishment of crimes as a Nazi collaborator.

Moravec was re-naturalized as a Czechoslovak citizen. He henceforth became a technical

draftsman at a big state industrial enterprise.66

Officials and activists from the old fascist Slovak Republic were also incorporated into

the communist apparatus. Political indoctrination courses for released fascist prisoners were held

in Bratislava, Sastin, Rusovce, and several other cities. Imprisoned Slovak fascists received

political re-education at these course. Several of these ex-fascists were given responsible

positions of authority in industry and did well as communists. It was noted that “the communists

intend to build up a corps of reliable servants from former fascist prisoners.”67 Former Slovak

Fascist judge Rudolf Gajdos became an agent of the StB at the Bratislava Town Hall.68

After the Allied defeat of the Third Reich, the Soviets sought to construct a communist

dictatorship in the eastern part of Germany. The Soviets conducted trade with various Western

nations and corporations during the period from 1945 to 1949. Business was also conducted

between Soviet corporations in the Eastern Zone of Germany and the Western occupation area.

In June 1947, the War Department of the US signed an agreement with the Soviet Military

Administration of Germany for over $3.2 million worth (95,000 tons) of Soviet Zone potash.69

In

May 1947, the Soviet Military Administration in eastern Germany noted that trade agreements

were signed with The Netherlands, Switzerland, and the USSR. Thousands of tons of fertilizers

were imported by the Soviet Zone from the USSR, France, the French occupation zone of

Germany, North Africa, and The Netherlands. The Soviet Zone also signed an agreement with

Sweden, where the Swedes would receive industrial potash, electric parts, cement, clay and

62

Korbel, Josef. The Communist Subversion of Czechoslovakia (Princeton University Press

1959) pages 156-157. 63

Frommer, Benjamin. National Cleansing (Cambridge University Press, 2005) pages 301-304. 64

Frommer, Benjamin. National Cleansing (Cambridge University Press, 2005) page 302. 65

Moravec was the Czechoslovak Nazi Minister of Education and head of the Office of

Enlightenment during the occupation period. 66

Moravec, Nazi collaborator and son of former wartime minister said to have repudiated

adopted German nationality to remain in CSR Radio Free Europe Research Eastern Europe

March 11, 1954 Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:07aa38ef-00de-4326-bfe2-961a7c0ba745 67

Czechoslovakia Former Fascists to Become Fellow Travelers Radio Free Europe Research

Eastern Europe July 24, 1951 Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:0ee7e8c1-1041-413d-96c9-0125eeb4c44c 68

Fascist Working for StB Radio Free Europe Research Eastern Europe June 7, 1951 Accessed

From: http://www.osaarchivum.org/greenfield/repository/osa:7ad869bb-2a4a-4ae8-a53f-

d16a7d991086 69

Morrow, Edward A. “US Buying Potash From Soviet Zone” New York Times June 24, 1947

page 12.

13

glassware. The Swedes would ship the Soviet Zone “special sorts of steel,” materials for

tanning, fish and other goods. The Netherlands was to ship the Soviet Zone fertilizer, fish, and

industrial raw materials. The Soviet Zone shipped the Dutch finished goods, such as textiles,

machines, spare parts, and glassware. The Swiss pledged to supply a glass plant in Thuringia

and molybdenum, wire, and wolfram.70

In the Leipzig Fair of August 1948, Heinrich Rau,

Chairman of the German Economic Commission in the Soviet Zone signed trade agreements

with Belgium, The Netherlands, and Britain.71

The Soviets also groomed their German collaborators to administer the economy and

foreign trade of the Eastern Zone of Germany. In February 1948, Soviet Marshal Vassily

Sokolovsky ordered the creation of the German Economic Commission to develop “peacetime

industry in the Soviet zone of Germany” and centralize economic administration in the SBZ. The

Commission was “to carry through according to plan reparations deliveries and to satisfy the

needs of Soviet occupation forces in Germany.”72

Soviet Zone companies also dumped goods in the West in exchange for hard currencies.

These companies were: Rasno Export (consumer goods including Meissen porclain and Zeiss

cameras), Techno Export (machinery), and Prima Export (fertilizers and raw materials such as

brown coal). These companies produced German goods and displayed them at the Leipzig Trade

Fairs.73

Many of the Soviet directors of the Soviet export-oriented enterprises such as Rasno in

the Soviet Zone of Germany were trained by the Third Reich between 1939 and 1941. Nettl

commented that these “men who ran these firms in Germany were among the most able Soviet

commercial experts, and the results they achieved were impressive.”74

Companies such as the Greater Berlin Trading Company were created by the SED’s

German Economic Commission. These companies requested that West German firms buy their

energy and raw materials in exchange for manufactured products exported exclusively to the

Soviet Zone. One West German industrialist commented “It’s a swindle, but knowing the

Russians we weren’t surprised.” Another stated “We could have gotten our money if we had

agreed to cooperate with the Greater Berlin Trading Company and deal only in East Marks.”75

Soviet Zone export-oriented firms also sold goods to capitalist countries at a lower cost than their

competitors in Western Germany. These goods were then dumped in countries such as Sweden,

Switzerland, and Belgium. Thus, BMW and Siemens had factories in both the Western and

Soviet Zones of Germany which produced exactly the same goods.76

The profits of these trade corporations also funded subversion in Western Germany. In

1948, it was reported that the Soviet Zone Administration was financing the communist party in

70

Raymond, Jack. “Russians Disclose Zone Trade Pacts” New York Times May 25, 1947 page

7. 71

“Soviet Zone Seeks Trade with West” New York Times August 30, 1948 page 2. 72

“Order Germans to Set Up Own Economic Unit” The Gettysburg Times February 13, 1948 73

Morrow, Edward A. “Soviet Seeks Funds by German Sales” New York Times March 4, 1948

page 12. 74

Nettl, J.P. The Eastern Zone and Soviet Policy in Germany 1945-50 (Oxford University Press,

1951) pages 225-230. 75

Evans, Joseph. “Currency War” Wall Street Journal August 7, 1948 page 1. 76

“Illegal Competition Studied in Germany” New York Times February 26, 1948 page 3.

14

West Germany through hard currency sales of consumer goods through Rasno Export

Corporation outlets.77

The proceeds generated from the sale of cigarettes by Rasno were used to purchase

scientific instruments from Hamburg and antiques and jewelry in West Berlin. During the

Western blockade of the Soviet Zone of Germany in late 1948, Moscow’s trading companies

attempted to continue to obtain goods from the Western Zone of Germany and nations such as

Switzerland, Liechtenstein, and Austria. The Soviet Zone of Germany concluded trade

agreements with Austria, Belgium, Holland, and Switzerland in 1947, and with Sweden in 1948.

Trading relations were also re-opened with Italy and Norway. The Soviet Zone also generated

hard currency through the export of potash to Switzerland, Sweden, and Western Germany. The

Soviet Zone also shipped coal to Switzerland and Sweden. The Soviet Zone also exported scrap

metal in exchange for hard currency. Pre-war and wartime stocks of German-made products

were also exported from the Soviet Zone to Western Europe.78

The Soviets and the ruling SED in East Germany used the Leipzig Trade Fair as a tool to

ensnare Western businessmen into concluding trade deals. In 1947, the communist-controlled

Leipzig newspaper described the Trade Fair as “exemplary for all German reconstruction.”79

In May 1946, the Leipzig Trade Fair was restarted by the Soviet Military Administration.

German businessmen told buyers that they could not sell anything due to Soviet reparations

demands and they could only sell occasional surplus items. Many businessmen used ersatz

materials resulting in low quality items.80

In May 1946, over 2,750 firms displayed their wares at

the Leipzig Fair. Items ranging from toothbrushes and cars were on display. However, these

displays did not reflect the actual production of goods in the Soviet Zone. For example, the

Bavarian Motor Works produced 400 cars a month, which were then turned over to the USSR.

Dr. Werner Land, the Saxon Secretary of State for Industry, noted that 18,000 tons of steel and

8,000 tons of iron ore was exported from a firm in Dusseldorf to the Soviet Zone. The Soviet

Zone then exported these finished products to the West. Over 250 Western German firms

displayed the following wares at the Leipzig Trade Fair: leather from Offenbach; silver from

Hanau; handmade art work from Munich; and toys from Nuremberg. These firms were located in

the American Zone in Germany. There were a total of 8,000 firms from the American Zone and

9,000 firms from the Soviet Zone at the Fair. Over 15 German civilian trains crossed the Soviet-

US Zone border without being stopped by the communist authorities.81

In March 1947, foreign buyers inspecting high quality leatherwear, china, and tableware

at the Leipzig Trade Fair. However, no goods were for sale at the Fair. Britain sent a delegation

at the request from the Board of Trade in London. Meissen and Kahla china were sent to the

USSR as reparations and the remainder was exported to other countries.82

Eight hundred

77

“Berlin Reds Seeking Western Currency” New York Times July 2, 1948 page 2. 78

Nettl, J.P. The Eastern Zone and Soviet Policy in Germany 1945-50 (Oxford University Press,

1951) pages 225-230. 79

Crew, David F. Consuming Germany and the Cold War (Berg, 2003) pages 22-25. 80

McLaughlin, Kathleen. “Leipzig Fair an Aid to Soviet Prestige” New York Times May 10,

1946 page 12. 81

Evans, Joseph E. “Leipzig Fair” Wall Street Journal May 11, 1946 page 1. 82

Evans, Joseph E. “Leipzig Fair” Wall Street Journal March 8, 1947 page 1.

15

companies from the Western Zones of Germany and 200 West Berlin-based firms participated in

the Leipzig Trade Fair of 1948.83

In March 1949, the Leipzig Fair opened with the head of the German Economic

Commission for the Soviet Zone Heinrich Rau speaking.84

The March 1949, Leipzig Fair

displayed and sold mostly poor quality goods such as toys, textile products, and leather goods to

foreign buyers. The exhibitors and the Soviets blamed the Western embargo of imports of raw

materials. One exception was the Meissen porcelain. The man in charge of the display stated:

“People say that Meissen quality has changed for the worse because the Russians expropriated

the plant. It is not true.” Despite the Western embargo, over 400 Western German firms

participated in the Fair. These firms were small enterprises which maintained branches in the

East. All Soviet satellite countries, a Soviet export company, France, Belgium, Austria, and Italy

also participated in the Fair. The unnamed Soviet export company sold goods in exchange for US

dollars and other hard currencies.85

All bills for the Fair paid by foreigners had to be settled in

special “valuta marks.”86

The 1950 Leipzig Fair sought to drive a wedge between West German industrialists and

NATO countries. The communists urged West German businessmen to “protect their

investments…send your business to Leipzig and help to build an economy based on peace.”87

East German officials were on hand to conduct this influence operation directed at West German

businessmen. The East German Representative for Inter-Zonal Trade Josef Orlopp addressed

West German businessmen in attendance at the July 1950 Leipzig Fair.88

One hundred and four West German firms and 21 West Berlin firms displayed their

products at the April 1951 Leipzig Trade Fair. The USSR, China, Belgium, Czechoslovakia,

Denmark, Finland, Holland, Hungary, India, Poland, and Switzerland also dispatched delegations

and established exhibits at the Fair. Contracts between West German businessmen and East

Germany totaled 230 million DM. Large orders for East German cameras were booked for

American accounts, while Meissen porcelain was exported to Canada, the United States,

Belgium, Switzerland, Italy, and Denmark. Forty eight percent of the East German exhibitors

were from nationalized firms, while the rest were from East German private firms who occupied

smaller booths.89

According to the East German news agency ADN, the following countries displayed their

products at the September 1952 Leipzig Trade Fair: Belgium, Denmark, Finland, France,

Holland, Norway, Austria, Belgium, French North Africa, Britain, Italy, Morocco, and Pakistan.

West Germany was represented by several South German trade offices and the Hanseatic Trade

Chamber based in Hamburg.90

83

“Leipzig Fair Sponsored by Communists” The Canberra Times August 31, 1948 page 1. 84

“Leipzig Fair Opens” Financial Times March 8, 1949 page 5. 85

Gruson, Sydney. “Soviet Promotes Nationalism at Leipzig Fair” New York Times March 9,

1949 page 4. 86

“Leipzig Fair Has Bleak Opening With Snow and a New Soviet Mark” New York Times

March 7, 1949 page 7. 87

“Leipzig Fair Appeals for West German Tie” New York Times August 28, 1950 page 8. 88

“German Zonal Trade” Financial Times July 10, 1950 page 1. 89

“East Germany’s Trade Pattern” Financial Times April 3, 1951 page 5. 90

“Leipzig Trade Fair” Financial Times September 4, 1952 page 8.

16

Five hundred and fifty West German firms were present at the September 1953 Leipzig

Trade Fair. They included 25 cutlery firms from Solingen; 50 shoe and leather manufacturers;

and small fishing companies represented jointly as the Company for Eastern Trade. Exhibits

were also established by Portugal, Brazil, France, Belgium, Holland, Switzerland, Denmark,

Norway, the USSR, and Czechoslovakia (Skoda).91

In preparation for the September 1953

Leipzig Fair, the Italian communist trading company ASSOCAMBI propagandized among

Italian exporters and importers the desirability to display at Leipzig. East German commercial

organizations supplied ASSOCAMBI with the propaganda materials.92

East German private firms who originally had their properties confiscated found that their

companies were returned and were to be accorded prominence at the Leipzig Trade Fair of

August 1953. Austria, China, France, Italy, and Switzerland also were present at the Fair.93

At the September 1954 Leipzig Fair, 1,940 firms originated from the Western world (840

from Western Europe) and 1,100 from West Germany. Eighty British companies were partly

represented by agents, while China, Czechoslovakia, and East Germany displayed machinery.

West Germany was represented at Leipzig by all four successor companies to IG Farben,

Kloeckner, and M.A.N. amongst others.94

West German businessmen traded with the Soviet Zone and East Germany for the

following reasons:

a) Greed.

b) A sentimental nationalist desire to maintain contacts between the two Germanys as a

precursor to unification.

c) As securing protection in the event of reprisals stemming from a Soviet occupation of

West Germany.

Two types of West German businessman existed since the late 1940s: the Inter-Zonal

trader and the so called reinsurer or Ruckversicherer who traded with the Soviet Zone (SBZ)

which became the GDR in October 1949. The Ruckversicherer, as he was contemptuously

known by West Germans, is a businessman who funded the communists and/or extreme

nationalist organizations which maintained strong ties to the Soviets and East Germans. The

Ruckversicherer financed these elements as a means of exempting themselves from arrest or

execution in case the Soviets occupied West Germany.95

The American High Commissioner for

Bavaria George Shuster reported in 1951 that the “Ruhr industrialists were taking out insurance

with the Communist party and that the coffers of the Communist party were filled with their

money.”96 The German Communist Party (KPD) also sought to utilize the industrialists to lobby

for freer trade with East Germany. German Communists urged their cadres at a 1950 congress to

launch sabotage in a so-called “fighting program.” This subversive plan included a program to

induce West German Ruhr industrialists to invest in East Germany.97

East German officials and

91

“Trade With East Germany” Financial Times September 3, 1953 page 8. 92

The Leipzig Fair Radio Free Europe Research Eastern Europe Satellite Countries September

10, 1953 93

“Leipzig Trade Fair” Financial Times August 26, 1953 page 8. 94

“Western Views of Leipzig Fair” Financial Times September 9, 1954 page 5. 95

Tauber, Kurt P. Beyond Eagle and Swastika (Wesleyan University Press, 1967) 96

Pearson, Drew. “Germans Cutting Throats by Help To Red Nations” Charleston Gazette

March 19, 1951 page 6. 97

“German Reds Urge Sabotage in West” New York Times August 27, 1950 page 20.

17

propagandists also aggressively lobbied West German businessmen to trade with the SED. In

1952, three East German ministers and the SED’s chief propagandist Gerhardt Eisler regaled

businessmen from West Germany, Switzerland, and Sweden with assurances of good bargains

and great profits if they traded with East Germany.98

Starting the late 1940s, the West German government provided the East Germans with

“swing” credits to purchase goods. The “swing” credit originally dated back to the 1949

Frankfurt Agreement on Interzonal Trade between West Germany and East Germany. As

originally conceived, the “swing” credit was an interest free account established between the

West German Federal Bank and the East German State Bank to finance temporary imbalances in

the level of trade between the two parts of Germany. In practice the “swing” has developed into

an interest free foreign trade credit for East Germany.99

A March 1950 CIA document noted “Federal authorities in West Germany display little

desire to cooperate in halting this extra-legal trade, which is already larger than that legally

authorized, and border controls are inadequate. Meanwhile, West German industrialists

apparently believe not only that extensive trade relations can be developed with the Soviet orbit,

including China, but that West Germany cannot exist without this trade…Other effects of this

illegal trade will be to contribute to the fulfillment of the East German Two-Year Plan and to the

war potential of the Soviet orbit generally; accelerate the attainment by East Germany of

economic independence of the West by Western exports of much-needed capital goods; improve

gradually the living standards of the East Germans, who will then be less inclined to resist the

Communist regime; divert capital goods that could be used in the West; provide propaganda

material for German unification to the National Front in East Germany and to ultra-nationalists

in West Germany, many of whom favor a modus vivendi with the USSR.”100

In 1951, SPD Bundestag member Herbert Wehner noted that West German industrialists

legally and illegally shipped $238 million worth of machine tools, ball bearings, steel, and other

strategic materials to the East Germans through third countries and dummy firms in Western

European countries (Belgium, France, Sweden, and the Netherlands) and West Berlin. It was

significant that the CDU-CSU101

Minister of Economic Affairs Ludwig Erhard downplayed the

magnitude of this trade between East and West Germany. It was reported that these firms also

dealt directly with East German firms which acted as fronts for Soviet purchasing agencies.102

In

1950, Ruhr industrialists were reported by Western Allied authorities to have provided East

German firms with $3.3 million worth of private credits that were outside the inter-zonal trade

treaty.103

Interzonal Trade between the East and West German states were managed by the

Trusteeship for Interzonal Trade, which was under the control of the German Chamber of

98

99

Asmus, Ronald D. “New Inter-German Agreement on Swing Credit Announced” Radio Free

Europe Research RAD Background Report/141 June 28, 1982 Accessed From:

http://files.osa.ceu.hu/holdings/300/8/3/text/26-12-74.shtml 100

Central Intelligence Agency. “Intelligence Memorandum Number 282: Trade Between East

and West Germany” March 28, 1950 Accessed From:

http://www.foia.cia.gov/sites/default/files/document_conversions/89801/DOC_0001117633.pdf 101

Conservative coalition of the Christian Democratic Union and Christian Social Union of West

Germany. 102

“German Goods Aid Soviet in Arming” New York Times April 14, 1951 page 6. 103

“Ruhr Men Give East Undercover Loans” New York Times April 12, 1950 page 1.

18

Commerce and Industry. In 1953, Interzonal Trade totaled $123.3 million and it rose to $270.5

million in 1955.104

The profits derived from Inter-German trade were siphoned into the SED’s subversive

actions against the Bonn government. West German Chancellor Konrad Adenauer noted in 1953

that the SED had 100 million DM at its disposal for subversive activities in the West. This

money derived from the profits of East-West trade.105

As of June 1955, East Germany imported various goods which possessed a strategic

military value. West German firms sold 75,000 tons of coke to East Germany. Coke is used in

steel-making/weapons production. West Germany also sold pipes (nahtlose Rohre or common

barrels) to the East Germans. These pipes were believed to be easily converted to cannon barrels.

In turn, East Germany sold the strategic metal molybdenum to West Germany. Molybdenum is

used in the metallurgical industries, which is tied in with weapons production.106

The Soviets also provided financial support to the East German SED in its trade deals

with West Germany. Stalin and East German figurehead President Wilhelm Pieck met in 1952 to

discuss a Soviet subsidy for trade with West Germany: “Comrade Grotewohl says that they

would need to get short-term credit for 2.5 million dollars to purchase a pipe-rolling complex

from West Germany because of a serious lack of whole-rolled pipes (19 thousand tons less than

needed).

Comrade Stalin says that we can give them credit, and asks what amount of whole-rolled pipes

they need.

Comrade Stalin says that we would give as much as possible. We will give you the 2.5 million-

dollar credit any time. Tomorrow if you want.

Comrade Malenkov asks where is the rolling complex now, in West Germany?

Comrade Grotewohl responds that the rolling complex was made in West Germany, but it has

already left it, and should be transported to the GDR via England and Switzerland.”107

West German industrialists, bankers, and politicians joined together to form lobbying

organizations to support an increase in Inter-German trade. In 1952, West German bankers and

industrialists formed, with the Adenauer government’s encouragement, the East Committee to

promote trade with the Soviet Union and other communist countries. Executives from Demag,

Farbwerke, Hoechst (formerly IG Farben), C.S. Corrsen & Company, and Suedeutsche Bank

comprised the board of the East Committee.108

104

Stent, Angela. From Embargo to Ostpolitik (Cambridge University Press, 2003) page 29. 105

Handler, M.S. “Adenauer Charges Foes Got Red Cash” New York Times August 16, 1953

page 16. 106

Trade in Strategic Materials February 17, 1955 Radio Free Europe/Radio Liberty Research

Institute Accessed From: http://www.osaarchivum.org/greenfield/repository/osa:68ba8601-3cf8-

416e-b56c-62899e59ae18 107

“Conversations between Joseph V. Stalin and SED leadership” April 1, 1952 Cold War

International History Project Accessed From:

http://www.wilsoncenter.org/index.cfm?topic_id=1409&fuseaction=va2.document&identifier=5

034FD88-96B6-175C-

93105576DC034850&sort=Collection&item=Stalin%20and%20the%20Cold%20War 108

Handler, M.S. “Bonn Unit to Seek Soviet Bloc Trade” New York Times December 19, 1982

page 5.

19

Early on, the East Germans also engaged in predatory trade practices in its relations with

various Western nations. In 1954, East Germany sold IFA cars worth $1,500 a piece and

motorcycles to Austria, thus invading its market.109

As of January 1955, East German companies

such as Rossbach undercut the prices of West German firms by offering silk made frocks (with

the silk from China) at the same price as West German-made rayon frocks. East German

pullovers and cardigans were also displayed at the Dusseldorf Fair at 20% below the prices of

similar West German-made goods. This was an effort to gain hard currency for East Germany

and USSR.110

The East Germans also displayed a gross disrespect for intellectual property. Starting in

early 1951, the West German firm AEG, under the Agreement for Inter-Zonal Trade, delivered

electric equipment valued at 200,000 Deutschmarks to the Soviet-owned company Transmasch

in Leipzig East Germany. The machines were repackaged and sent to East Berlin, where East

German and Soviet officials unpacked the items, photographed them, and produced blueprints.

The East Germans and Soviets then copied these electric machines purchased from AEG.111

In 1955 the Leipzig Fair Agency set up a London office under the British communist

businessman Denis Hayes. LaPorte noted “The relative success of the GDR’s lobby was reflected

in the doubling of British exports to the GDR between 1955 and 1958.” In 1952, East Germany

formed the Gesellschaft fur kulturelle Verbindungen mit dem Ausland (GkV) to undertake such

propaganda work. It targeted politicians and trade unionists as a means of lobbying for

recognition of East Germany. By the early 1950s, the British Board of Trade supported 100

companies that displayed their products at the Leipzig Trade Fair. Regular exhibitors included

Massey Ferguson, Standard Motors, and Rolls Royce. In the fall of 1953, Conservative MP

Burnaby Drayson, who was a director of Dominion Export Ltd and inked the first major trade

agreement worth 3 million pounds. Dominion Export was a major player in the early East

German-British trade, and parliamentary advocates of this trade included Rudy Sternberg,

Silverman, Bill Owen, Drayson, Terence Clarke, and Lord Boothby. Drayson was a Stasi

contact. In 1954, Conservative Minister of Trade Peter Thorneycroft supported increased trade

with East Germany. In April 1955, the Leipzig Fair Agency opened an office in London under

the control of the British communist Denis Hayes. In July 1955, a trade agreement was signed

worth 5.4 million pounds between the Britain and East Germany. In 1955, British exhibitors at

the Leipzig Fair from the communist dominated companies organized within the British Council

for the Promotion of International Trade (BCPIT), established companies such as Standard

Motors, formed the British Exhibitioners Leipzig Fair Association (BELFA). A trade agreement

negotiated between BELFA and East Germany totaled 5.4 million pounds112

By the early 1950s, the East Germans opened a bank account in the Bank of England.

The British allowed this action because they thought this would lesson Soviet control over East

109

East Germans Begin Selling Cars in Austria Radio Free Europe Research September 28,

1954 Accessed From: http://www.osaarchivum.org/greenfield/repository/osa:cfbc2f7c-a5b0-

4250-81b8-4649cb008b4d 110

“East German Textile Price Cutting” Financial Times January 13, 1955 page 4. 111

East Plagiarizes Western Products Radio Free Europe Research February 25, 1954 Accessed

From: http://www.osaarchivum.org/greenfield/repository/osa:6bae6a5a-ac32-49ae-8d0e-

83d75ea3ef19 112

LaPorte, Norman. Friendly Enemies: Britain and the GDR 1949-1990 (Berghahn Books,

2010)

20

German economic life. Since 1949, the British company Sternberg Propane Company Ltd

conducted barter trade with the East German DIA agency for foreign and Inter-German trade.

One historian commented that “Sternberg was acting as the DIA’s and thus as the GDR

government’s UK agent.” In 1953, British MP Burnaby Drayson brokered a deal between the

Dominions Export Ltd and the East Germans. In this deal, East Berlin purchased $1.5 million

worth of coffee and cocoa beans from Britain.113

East Germany also served as an intermediary for the trading relationship between West

Germany and Red China. In the summer of 1950 Walter Ulbricht noted that “We are sure West

German businessmen will sensibly seek to benefit from foreign trade opportunities developed by

our efforts.” As of 1951, West German goods were shipped to China from the free ports of

Hamburg, Luebeck, and Bremen. In April 1950, a Chinese trade delegation visited East Berlin.

This delegation was led by Wu Seng-po and they met with the East German Foreign Trade

Minister Georg Handke. This meeting was attended by private West German “observers.” When

an East German trade delegation visited China in August 1950, it was accompanied by the

communist West German lawyer Alfred Kroth. Kroth was a member of the Bonn Economic

Council and the leading figure of the West-East Trading Company based in Dusseldorf. Kroth

then traveled to Dusseldorf and met with businessmen and bankers who maintained close ties

with Chancellor Adenauer. Kroth offered to buy over $500 million worth of West German

products in return for payment in 70% Chinese goods and 30% US dollars.114

Limited trade ties were maintained between the United States and East Germany during

the early years of Stalinism. It was reported that buyers from Chicago attended the Leipzig Trade

Fair in 1950.115

Some European subsidiaries of US companies participated in the Leipzig Trade

Fairs as far back as 1953.116

In 1956, it was reported the US importers purchased 24,000 Exakta

Varex cameras from East Germany at the Leipzig Trade Fair.117

In 1955, 100 businessmen from

the US visited the Leipzig Fair and only a book company exhibited at the Fair from the US.118

East Germany also engaged in predatory dumping of goods in the American market. In

1954, the East Germans dumped 576,000 tons of potash for three years at prices $3-$8 below the

domestic market price. The East Germans sent shiploads of potash into US ports at intervals

calculated to disrupt the US market.119

By the mid-1960s, trade between the United States and

East Germany increased. Between 1956 and 1962, US-East German trade totaled $4.9 million

per year and rose to $7.5 million in 1964. In 1965, US-East German trade totaled $10 million.120

Top SED leaders and the East German government maintained limited assets in

American banks. The East German Deutsche Notenbank established accounts in American banks

to purchase goods on behalf of Red China by 1952. The US banks having East German dollar

113

Larres, Klaus and Meehan, Elizabeth. Uneasy Allies (UP Oxford, 2000) pages 74-75. 114

Joesten, Joachim. “Red China Trade” Barron’s National Business and Financial Weekly July

9, 1951 page 9. 115

“East German Pact with Soviet Nears” New York Times March 6, 1950 page 6. 116

Junker, Detlef. The United States and Germany in the Era of the Cold War, 1945-1990

(Cambridge University Press, 2004) page 325. 117

“Americans Buy Reds’ Cameras” New York Times March 6, 1956 page 47. 118

“Leipzig Fair Opens” New York Times September 5, 1955 page 12. 119

Egan, Charles E. “US Acts to Block Dumping by Reds” New York Times November 25,

1954 page 50. 120

Crossland, Norman. “US Explains Deal” Winnipeg Free Press January 2, 1965 page 12.

21

accounts included Manufacturers Hanover Trust, National City Bank, and Chase National

Bank.121

East German SED party boss Walter Ulbricht was alleged to have an account in an

American bank. His intermediary in this transaction was a niece living in the United States.122

As far back as the late 1940s, the SED and Soviets maintained special shops, hotels, and

restaurants geared to absorbing precious hard currencies from foreign diplomats, delegations,

and businessmen. Some of the German hotels and restaurants confiscated by the Soviet tourist

corporation Intourist were closed to German customers. In 1947, delegations to the Leipzig

Trade Fair patronized the Auerbach-Keller restaurant, whose foreign customers paid in American

dollars, Swiss francs, and Swedish kroner.123

In 1947, it was reported that Intourist managed a

hotel in East Berlin which accepted old Reichsmarks, Swedish kroner, francs, and Dutch

guilders.124

Intourist restaurants and hotels were located in East Berlin, Dresden, Leipzig, Weimar,

Rostock, Schwerin, Wurnemuende, Stralsund, and Wismar. Only wealthy Germans and

collaborators with the Soviets could enter these restaurants. These establishments were

transferred to full East German control in 1951.125

In August 1949, the Leipzig Trade Fair featured restaurants for the delegations. These

restaurants were managed by the SED firm Handelsorganisation (HO) and Intourist. The food

offered was luxurious compared to the average Eastern German diet at the time. Specifically, the

foods and beverages served at these restaurants included vodka, champagne, caviar, soups,

shashlik, and desserts. The only currencies accepted were the Belgian and Swiss francs, Swedish

kroner, and American dollars.126

The SED also used the HO shops to absorb Western currency from visiting residents of

West Berlin. In 1949, it was reported that West Berlin citizens could exchange West Marks into

East Marks and then spend the communist issued money in the Handelsorganisation (HO)

stores. The HO stores stocked plentiful quantities of food and consumer goods, while the regular

state stores were poorly stocked. HO even employed vendors to sell goods at special stands in

East Berlin’s streets.127

As of June 1, 1953, the East German Deutsche Notenbank maintained cash reserves of 25

million West German Deutschmarks. The accounts kept were kept in the following accounts:

1) Interzonal Trade.

2) Other Payments.

3) AS-Account.

The Other Payments account received West German Deutschmarks from:

1) S-Bahn passengers/traffic.

121

“Bank Funds Here Aided Red China” New York Times March 17, 1952 page 5. 122

Deriabin, Peter and Gibney, Frank. The Secret World (Ballantine Books, 1987) 123

Nettl, J.P. The Eastern Zone and Soviet Policy in Germany 1945-50 (Oxford University Press,

1951) pages 225-230. 124

“Russians' Intourist Hotel in Berlin Opened to Allies” New York Times November 21, 1947

page 7. 125

“Russians Giving Up Exclusive Hotels in East Germany” Corpus Christi Times July 27, 1951

page 6. 126

James, Michael. “Goods Poor, Hospitality Is Marked As Fall Fair at Leipzig Is Opened” New

York Times August 31, 1949 page 12. 127

“Soviets Conducting Legal Black Market in Berlin” Altoona Mirror October 22, 1949 page 4.

22

2) Confiscated money at East-West border points.

3) The mandatory currency exchanges for visitors to East Germany.

These sources generated 5.6 million Deutschmarks for East Germany. Deutschmarks from the

AS Account was shipped via courier to Czechoslovakia and then to Switzerland. These funds

were then exchanged for Swiss marks. The excess Deutschmarks were used to fund illegal

Interzonal trade and subversive groups in West Germany.128

The East Germans raised foreign currency through fixing low exchange rates for hard

currency conversions to Ostmarks. These hard currencies included British pounds, Swiss francs,

and Swedish kronas. For example, hard currency exchanges occurred at the 1951 Soviet

front/celebration World Youth Festival that was held that year in East Berlin. The Festival

accumulated a fund reserve of $5 million in various hard currencies, a little more than 5 million

in Deutschmarks, and 35 million Ostmarks in other currencies. The surplus hard currencies were

transferred to the World Federation of Democratic Youth while the Deutschmarks were turned

over to the Bureau West of the FDJ129

for an underground FDJ organization in West Germany.130

Early on, the SED and Soviet elites constituted a highly privileged oligarchy in the Soviet

Zone. Wolfgang Leonhard, a SED defector, reported that KPD officials lived in the Soviet Zone

of Germany in luxury. They had special food rations, paper, and vehicles which carried Soviet

markings. They lived in large country houses sealed off from the population and guarded by

Soviet Army soldiers. These houses were located in Niederschonhausen and were fenced off and

occupied by Walter Ulbricht, Wilhelm Pieck, Otto Grotewohl, Anton Ackermann, and other top

SED officials. The Rest Home for the Central Committee was specially equipped for the SED

and was located in a park in Bernicke. The fittings were luxurious and the food was plentiful.

Special rations or payoks for the SED and Soviet elites consisted of food, drinks, cigarettes,

tobacco, and chocolate.131

It was reported that the special HO stores also catered to SED officials, satellite

diplomats, and Soviet personnel. These HO stores sold food, beverages, and select luxuries.

These shops were run by hard-core communists or people deemed trustworthy by the SED and

Soviets. Nine HO stores which operated in Karlshorst were located at:

1) The swimming pool.

2) The German and Soviet buffets at the Opera.

3) Schonfeld International Airport.

4) The High Commissioner’s office.

The Ministry of Trade and Supply under Kurt Wach administered these stores. The HO stores

only received first class food products. Soviet nationals purchased these goods with ration

tickets, thus avoiding the high prices that average East Germans had to contend with. Items such

as sweet and sour cream, butter, meat, eggs, milk, beef, pork, apple, poultry, bananas, oranges,

potatoes, vegetables, fish, trout, pike, breads, other baked products, West German wines,

128

Western Marks in East Germany Radio Free Europe Research July 9, 1953 Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:8d3f27de-c7b6-48ce-958a-e0edc7a26342 129

The FDJ was the acronym for the Free German Youth, which was the official youth

organization of the East German SED. 130

World Youth Festival Serves to Raise Hard Currency Funds Radio Free Europe Research

Eastern Europe September 14, 1951 Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:f15d1e0a-4395-4cca-9e43-060fbc5473b8 131

Leonhard, Wolfgang. Child of the Revolution (H. Regnery Company, 1958) pages 377-379.

23

Chinese, Bulgarian, and Hungarian wines, French cognac and rum, Dutch gin, Reis-Schnapps

from China, Soviet vodka, sweets, and chocolates, and Vienna sausage were all sold at the HO

stores. Vienna sausage was prepared by a butcher named Werner in Alt-Freidrichsfeld. These

sausages were sold to the Soviet headquarters in Karlshorst.

These special HO stores also sold furniture, textiles, porcelain, fur coats, pianos, cameras,

radios, TVs, and East German-made chocolates and cigarettes. The turnover generated at these

stores totaled 25 million Ostmarks. The Minister of Trade and Supply Kurt Wach and his

associates inspected these stores once a week. The top East German communists (Ulbricht,

Pieck, Grotewohl), ministers, state secretaries, and members of the SED Central Committee had

access to special HO stores in Pankow.132

In January 1954, the HO shops reportedly stocked

scarce items in stock such as oranges, British textiles, IFA cars, and aluminum coffee pots. East

Germans could also send flowers via FLEUROP (the state-owned florists’ organization) to

relatives and friends in West Germany. 133

These stores were also useful in pampering visiting Western delegations. In February

1954, these HO stores were responsible for feeding the delegates of the Allied Four Power

Conference in East Berlin. Much of the items served were purchased from companies in West

Berlin. The imported goods included pineapples, tomatoes, salads, tinned fish, cigars, and

liquors.134

The city of East Berlin was dressed up on the occasion of the Four Powers foreign

ministers’ meeting (USSR, France, Britain, and the US). The state-owned Handelsorganization

shops were also spruced up by artists and designers from Dresden and Leipzig.135

In order to

convey an image of a prosperous East Germany, the SED stocked the HO shops with copious

amounts of foreign-made and domestic goods. The HO shops were stocked with British cloth,

French cognac, Lebanese bananas and other luxuries. Shop window designers from Dresden and

Leipzig were called in to refurbish the appearance of the HO shops in East Berlin. The East

Germans concluded special trade agreements with various Western countries for the specific

purpose of importing goods for the Allied delegations. Recent East German trade agreements

included:

1) $900,000 worth of fruit, cognac, and wine from France.

2) $300,000 worth of grapes and oranges worth from Greece.

3) Food imports from Sweden.136

In the early years of the GDR, the international hotels catered to the tastes of Western

guests. They were also closely monitored by the Stasi (and in all likeliness, the Soviet KGB).

The Stasi and KGB were clearly tasked to gather intelligence and blackmail visiting Westerners

132

Special Shops for SED Functionaries Radio Free Europe Research Eastern Europe Accessed

From: http://www.osaarchivum.org/greenfield/repository/osa:ce7e599a-17a5-472b-8ff1-

f2713ac6891d 133

Hartrich, Edwin. “Reds Hastily Dress Up East Berlin on Eve Of Big Four Talks” Wall Street

Journal January 18, 1954 page 1. 134

Special Shops for SED Functionaries Radio Free Europe Research Eastern Europe Accessed

From: http://www.osaarchivum.org/greenfield/repository/osa:ce7e599a-17a5-472b-8ff1-

f2713ac6891d 135

Hartrich, Edwin. “Reds Hastily Dress Up East Berlin on Eve Of Big Four Talks” Wall Street

Journal January 18, 1954 page 1. 136

“E. Berlin Shops Re-Stocked” The Financial Times (London, England) January 18, 1954 page

5.

24

lodged at the international hotels maintained by the HO. As of August 1954, listening devices

were installed in the Leipzig HO Hotel Bayrischer Hof by the Stasi. This hotel maintained

special rooms where the Stasi could eavesdrop on conversations of the hotel guests. The hotel

was reserved for journalists mainly from capitalist countries. Employees at the hotel were

screened by the Stasi, while servants were replaced with politically reliable individuals. A hotel

manager named Kummer maintained close ties with the Stasi. Kummer took over the

management of the Hotel Bayrischer Hof and was said to be a “man of excellent manners.”137

By 1948, the Hungarian Communists achieved full power in Hungary. It continued to

maintain trade relations with Western countries and corporations as a means of acquiring vital

technologies and goods for Hungarian industries. The Communists made it very clear that

Western trade would not lead to a compromise in its Marxist principles. Laslo Foldes noted to

the communist Hungarian Parliament in January 1950 that “We intend to set up foreign trade

representations in fourteen countries next year of which twelve are not people’s democracies.

But we shall make no concessions whatsoever concerning our independence.”138

The Hungarian Communists even sought to maintain trade relations with the United

States. In 1949, Hungarian Embassy Commercial Counselor Lajos Kadar criticized the American

export licensing system on a visit to the United States. He noted that: “This system causes the

loss of good business chances to American business men. If we cannot buy the different articles

in the United States we must buy them somewhere else and we can buy them somewhere else.”139

Some of the investments in Hungary were clearly of a military/security nature. For example, the

equipment of Division IX of the Hungarian Intelligence was secretly manufactured by

Communist workers at the plant owned by the local subsidiary of the American multinational

corporation, the International Telephone and Telegraph Corporation (ITT).140

Hungary established trading companies during the Stalinist period to acquire Western-

made goods that were subjected to embargo controls. Hungarian Communist dictator Matyas

Rakosi recalled “America’s Western partners assisted the evasion of the American embargo and

export controls in the hope of receiving the appropriate profits.” Israel sold ball bearings in

exchange for the immigration of Jews. Sweden also sold ball bearings to Hungary during this

period. The US Embassy in Vienna named Austria, Egypt, and Finland as important sources for

embargoed goods for Hungary. France sold ball bearings and specialty steel alloys under a trade

agreement. In 1955, capitalist states supplied Hungary with all or the majority of leather, tin,

copper, rubber, coke, and cotton. Hungary exported massive amounts of agricultural products,

including wheat, to earn hard currency.141

137

SSD Spies on Visitors to Leipzig Fair Radio Free Europe Research Eastern Europe September

24, 1954 Accessed From: http://www.osaarchivum.org/greenfield/repository/osa:9adc3ce1-fc40-

489b-8a34-d37ea045b192 138

MacCormac, John. “Hungary Watched on Vogeler Action” New York Times January 3, 1950

page 16. 139

“Hungarian Commercial Aide Here Deplores Proposal for U. S. to Sever Trade Relations”

New York Times February 12, 1949 page 6. 140

“The Spy and His Masters” Accessed From: http://www.xenu.net/archive/go/felix/ch_ii3.htm

and http://www.xenu.net/archive/go/felix/ch_ii4.htm 141

Borhi, Laszlo. Hungary in the Cold War 1945-1956 (Central European University Press,

2004) pages 278-279.

25

In January 1950, it was reported that administrators and experts within the heavy

industrial section of the Hungarian Foreign Trade Ministry maintained reliable sources for

Western exports of strategic goods. These business connections in the West circumvented

embargoes of goods to Hungarian heavy industries, some of which were engaged in weapons

production. Forbidden raw materials were purchased from companies in Austria, West Germany,

and Sweden. In reality, these firms were special front companies where the Hungarian

government was a senior partner. Despite popular perceptions, the European Cooperation

Administration (ECA) was predicated back around 1948 on a revival of trade with the East

Bloc.142

The Hungarian Communists also maintained special hard currency-raising operations

even during the years of Stalinism. By late 1949, the Hungarian government placed the control

of the distribution of relief food and materials under the bureau called IKKA. It sold coffee,

food, clothing, cars, radios, and building supplies. The agency Monimpex succeeded IKKA in

Hungary. From 1950 to 1958, IKKA and Monimpex collected over $9.9 million from the US and

transmitted the money to Hungary.143

These goods were exchanged for American dollars.144

In May 1956, an IKKA branch office was opened in Salzburg Austria. IKKA contracted

with the Austrian transportation company Franz Welz to handle the transport of packages from

the West to Hungary. This IKKA office accepted payments for parcels, furniture, watches, and

other items, along with spa vacations for Hungarian nationals.145

The Hungarian Communist Party economic expert Zoltan Vas created the West Orient

Corporation. It was a front company for the Hungarian communists. The West Orient

Corporation engaged in the following operations:

1) It pilfered cars in Austria and sold them in Hungary.

2) It imported scarce goods from the West and sold them at enormous profits in

Hungary.

3) It sold export-quality Hungarian goods to the rest of Europe by means of the

international communist apparatus.

West Orient also smuggled cigarettes through Czechoslovakia to Europe for hard currency.146

Journalist Fred Sparks reported in September 1949 that “The Hungarian Ministry of Trade

distributes the dollars (from the West Orient Company profits) according to the Kremlin’s quota.

Soon these greenbacks will circulate around the world, supporting Soviet trade, espionage,

diplomacy, and propaganda.”147

142

MacCormac, John. “Hungarian Deals in West Reported” New York Times January 27, 1950

page 10. 143

Communist Parcel Operation Report by the Committee on Un-American Activities (GPO

1959) Accessed From: http://babel.hathitrust.org/cgi/pt?id=uc1.$b654294;view=1up;seq=5 144

May, George. “Behind the Curtain in Hungary” New York Times March 15, 1953 page

SM10. 145

IKKA Service Branch Office Established in Salzburg Radio Free Europe Research Eastern

Europe May 4, 1956 Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:9ea2062d-d239-4fa7-818c-bb9369182f81 146

“The Spy and His Masters” Accessed From: http://www.xenu.net/archive/go/felix/ch_ii3.htm

and http://www.xenu.net/archive/go/felix/ch_ii4.htm 147

Sparks, Fred. “Black Market Money Juggling Simple Trick for Russ Plotters in Vienna”

Oakland Tribune, Sunday, Sept. 25, 1949 page 4A.

26

As of October 1949, Hungary secretly sold over $4.6 million worth of art treasures for

US dollars. These art treasures were confiscated from wealthy Hungarians after the communists

took over Hungary. The Hungarian communist front company which engaged in this trade was

ARTEX, which was administered by Hungarian Under-Secretary of State Istvan Antos. The

Director of Hungary’s Five Year Plan Erno Gero admitted that the industrial part of the Plan

would fail unless a large amount of American dollars were generated to finance imports. One of

the directors of ARTEX was the former priest, Istvan Balogh, who was a specialist in what the

communists termed the “socialization” of art treasures.148

The Hungarians also attracted a limited number of foreign visitors to their country in the

early 1950s. In the early 1950s, 15,000 foreigners traveled to Hungary and most of them were

not tourists.149

The foreign delegations of communists, leftwing fellow travelers, and

businessmen were treated to the best the Hungarian Communists had to offer. As of January

1956, most foreigners in Hungary were lodged at the Hotel Dunav. This hotel even cashed

traveler’s checks denominated in American banks. The food and wines served at the Hotel

Dunav were of a high quality.150

As of September 1955, the Park Hotel in Tihany and the Margit

Hotel on Margaret Island in Budapest “compare favorably for luxury with any in the world.”

The Park Hotel was a former Habsburg royal palace luxuriously appointed with marble. White

coated waiters at the Park Hotel served one inch thick steaks with fried eggs on top. Some night

clubs had American-style jazz bands and floor shows. The bar at the Hotel Duna was a sleek

establishment frequented by Western businessmen and well-dressed Hungarian nationals.151

By the mid-1950s, the hotels also exchanged hard currency for the domestic Hungarian

forints. A British Communist who visited Hungary in 1956 noted that the Ibusz152

office in

Budapest was near a major hotel and changed British pounds for Hungarian forints.153

As of 1952, Hungarian hotels were replete with hidden microphones which were located

in wall ornaments, heating, lamps, and headboards of beds. Waiters, chambermaids, and porters

were ordered to report on the visiting foreigners to the AVH. Prostitutes frequented the big

Budapest hotels. They were required to report to the AVH on information acquired from the

guests.154

State-owned night clubs allowed prostitutes to work in a legal capacity. They carried

papers indicating that they were involved in “socially useful work.”155

148

“Dollar-Shy Hungary Quietly Seeks To Sell Art Treasures” Lebanon Daily News October 18,

1949 page 14. 149

Tourist Trade in Hungary Radio Free Europe Research Eastern Europe May 8, 1970

Accessed From: http://www.osaarchivum.org/greenfield/repository/osa:20cab4fe-71d9-4548-

86d4-330aad092e0a 150

Raymond, Jack. “Tourist Facilities Beyond the Iron Curtain” New York Times January 8,

1956 page X38. 151

Moss, Norman. “Tourism in Piercing the Iron Curtain” New York Times September 11, 1955

page X29. 152

Ibusz was the Hungarian tourist agency. 153

Fryer, Peter. Hungarian Tragedy (Indexreach Limited, 1997) page 54. 154

New Control System in Hungarian Hotels Radio Free Europe Research Eastern Europe

February 2, 1952 Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:ac5f5604-7cea-4cca-858c-5cadc3b64af3 155

May, George. “Behind the Curtain in Hungary” New York Times March 15, 1953 page

SM10.

27

In the 1950s, hunting parties traveled to Hungary from West Germany, Belgium, France,

Scandinavia, and Britain. Hungarian communist newspapers quoted often the enthusiastic

comments of West German industrialists and other wealthy “capitalists” who comprised these

parties.156

These trips provided the Hungarian Communists to favorably lobby Western

businessmen to increase trade relations with Budapest. Such businessmen could also become

emissaries to increase the political legitimacy of the Hungarian Communists in the West.

Special shops sold Western goods at low prices to Soviet garrison forces and privileged

classes in the Hungarian Communist hierarchy. In December 1956, Anna Kethly told a meeting

of the British Parliamentary Labor Party that the Hungarians maintaiend four types of shops

which were patronized by Soviet residents in Hungary. They were staffed by carefully chosen

Hungarian shop assistants who were forbidden to reveal information of the clients inside.157

In 1956, the AVO secret police officers had their own state-subsidized stores where

Western-made goods were sold at inexpensive prices.158

A diplomatic shop existed to serve

diplomats and Western “goodwill missions.” Special shops sold export quality Hungarian goods

to the Party elite.159

Members of the Hungarian Communist Party Politburo used air-conditioned,

heavily armored US-made Chevrolets or West German Mercedes. Ministers drove in Soviet-

made ZIS and ZIM cars. Deputy Ministers and AVO personnel were provided with Soviet-made

Pobodas. Deputy Heads of Departments drove in Czech-made Skodas.160

Former officials of the Horthy and Szalasi dictatorships, along with military and fascist

collaborationist figures transferred their loyalties to the Communists. Some were attracted by the

collectivism and anti-Zionism of the Communists, while others were needed for their military

and intelligence expertise. The following Hungarian Nazi collaborators joined the communists:

1) Kalman Zolnay, was formerly a county judge who clung to anti-Jewish prejudices. He

became the director of prisons for the communist Ministry of Justice.

2) Marton Bodonyi was formerly a military prosecutor under the Nazi occupation who

sentenced Hungarian Army deserters to death. He became the communist Chief State

prosecutor in Nyiregyhaza.

3) Gyula Alapi was a fanatical Arrow Cross party agitator who became a communist state

prosecutor who sentenced Cardinal Mindszenty to imprisonment.

4) Vilmos Olty was a pro-Nazi, anti-Jewish official in the Ministry of Justice who was also

an official of the Hungarian-German Society. Olty was trained in Nazi Germany and

subsequently became a judge in the communist People’s Court.

5) Sandor Zold was an anti-Jewish rioter who became a communist Minister of the Interior;

6) Janos Vikol was a leader of a racial nationalist, anti-Jewish medical association who was

then sent to a communist party school in the USSR.

7) Alajos Rottenbiller was Arrow Cross member who became a communist and an inspector

for public health.

8) Antal Babits was Arrow Cross member who turned communist.

156

East Europe Volumes 7-8 Free Europe Press Free Europe Committee 157

Urban, George R. The Nineteen Days: A Broadcaster’s Account of the Hungarian Revolution

(Heinemann, 1957) page 8. 158

Barber, Noel. Seven days of freedom: the Hungarian uprising (Stein and Day, 1974) page 105. 159

May, George. “Behind the Curtain in Hungary” New York Times March 15, 1953 page

SM10. 160

Barber, Noel. Seven days of freedom: the Hungarian uprising (Stein and Day, 1974) page 105.

28

9) Ivan Boldizsar was a self-hating Jew who became a member of the collaborationist

government Ministry for Foreign Affairs. Ivan then became an official of the communist

Ministry for Foreign Affairs.

10) Laszlo Piros was a agitator involved in the communist pogrom of the Jews in 1946. He

became the commander of the communist Frontier Guards.

11) Bela Csikos Nagy was secretary to the pro-Axis Minister of Finance Lajos Remenyi

Schneller. He later became the right hand man in the Planning Bureau under the

communist Zoltan Vas.

12) Tibor Fajth was an Arrow Cross member who served in the Budapest city government.

He was responsible for the death of his Jewish colleagues. Fajth then became a

communist party member.

13) As an Arrow Cross militant, Joseph Takacs was involved in the deportation of Jews.

Takacs then became a section chief in the Communist Planning Bureau.

14) Sandor Schmidt was the director general of the largest coal mining company in Hungary

who was accused of brutally treating Jewish slave laborers. The communists retained

Schmidt in his position after the war.

15) Ivan Bakocz was a member of the Arrow Cross who became the deputy chief of the

Economic Police under the communists.

16) Akos Mayor was an assessor who served on the Military Court during wartime Hungary.

He then joined the communists’ People’s Court.161

17) Division VII of the AVO was headed by a former Hungarian Nazi, Gyula Princz, who

was charged with surveillance and kidnapping.162

18) Chief Engineer Plati was in charge of the construction of a typewriter factory. This

factory was rumored to have been built for military production purposes. He was

formerly a militant Nazi who later became a devout communist. He was a privileged man

who owned a two story villa in Berva. Another former Nazi was named Koporny, who

became the Chief Engineer and Director of the Machinery Department of the Matyas

Rakosi Works in Csepel. Plati worked at the Mercedes Benz factory in Hungary during

World War II and Koporny worked at the Manfred Weiss Works in Csepel as Chief

Engineer.163

19) Hungarian Royal Army Colonel Janos Sulyan was a former fascist who became a

communist colonel in the Ministry of War under Rakosi. In 1946, Sulyan was Secretary

of the Communist Party in Eger. He became a Colonel/Political Officer in 1948 in the

Hungarian People’s Army.164

161

Fabian, Bela. “Hungary's and Rumania's Nazis-in-Red” Commentary Magazine November

1951 162

“The Spy and His Masters” Accessed From:

http://www.xenu.net/archive/go/felix/contents.htm 163

Two More Nazis Who Are Now Communists Radio Free Europe Research Eastern Europe

May 28, 1951 Accessed From: http://www.osaarchivum.org/greenfield/repository/osa:f8a36c00-

5c46-4a20-9284-1ac9cc1fa134 164

Nazi Now in Communist War Ministry Radio Free Europe Research Eastern Europe May 28,

1951 Accessed From: http://www.osaarchivum.org/greenfield/repository/osa:dc5b4a88-0d12-

4c0d-8b7a-7364f5816640

29

Ede Bundity noted that “The other group joining the MKP (Hungarian Communists) was

low-profile ex-Nazis. In fact, the Party purposefully sought out these war criminals for several

reasons. The Communists needed new members and wanted to present themselves as appealing

to the nationalist, conservative public. For this reason, they recruited many former Nyilas party

members. Rákosi explicitly stated that, in his opinion, it was easier to make good Communists

out of the ‘little Nazis’ than out of Jewish intellectuals. Both ideological movements promised an

all-encompassing Weltanschauung and rapid social change to the existing conservative order.

These Nyilas men had many reasons to switch sides from far-right to far-left. They received

amnesty and material benefits. At the same time, they also brought with them their deeply

ingrained anti-Semitism. Jews in the MKP sought to assimilate completely and often denied their

Jewish heritage. Many even changed their family names or came from such families…(Rakosi)

was also known for making anti-Semitic remarks. In mid-1947, the propaganda chief of the party

in Komárom-Esztergom County travelled to Budapest to attend a Communist training program.

Upon his return he noted that: ‘Szálasi did half-a-job. As long as there are Jews in Hungary,

there will be no real Communism.’” Hungarian Communist Party demonstrators carried signs

which pictured a Jewish man with peyos (long sideburns) with the caption “for your fatherland

proudly, annihilate them without mercy.” Another flyer read “they’re starting the second

collection now, while the proletariat works, they racketeer, rather we shall collect them for a

ticket to Palestine.” A communist mob protested with signs which read “Death to Jews” and

“Death to speculators.” This mob also lynched the two Jewish men. The local Hungarian

Communist leader István Oszip, personally convicted two Jewish mill owners for price control

violations.165

Despite its isolationist image, North Korea maintained some trade ties with the

noncommunist world. A large number of North Korean factories were built by the Japanese.

Hence, North Korean industries necessitated a continued supply of Japanese-made parts. The

North Koreans were supported by Stalin in the effort to open limited trade ties with the

noncommunist world. In March 1949, Stalin and Kim il-sung held a meeting where topics such

as foreign trade were discussed. Stalin inquired as to whether North Korea maintained trade

relations with Japan, China, and the Philippines. Kim noted that North Korea had trade relations

with China, despite the fact that it was in the throes of a civil war. Kim noted to Stalin that North

Korea had “not traded with other countries. They conduct trade with Hong Kong, but

unofficially and on a case by case basis.” Stalin then asked Kim whether the government

organized “trading societies” within North Korea. Kim noted that North Korea created such a

society, which conducted “trade in the main with Hong Kong, with the city of Dairen and with

China.” Stalin commented to Kim that “Stalin says that it is necessary to have such a society,

there is nothing wrong with it. The national bourgeoisie exists; among the bourgeoisie there are,

apparently, also good people, it is necessary to help them. Let them trade and deliver goods,

there is nothing bad in this. I do not have questions.”166

In the early years of the Soviet occupation of northern Korea, the communists covertly

conducted trade with South Korea and other noncommunist countries and zones. As of June

165

Bundity, Ede. “From Horthy to Rakosi: Political anti-Semitism in Hungary under Fascism

and Communism” University of Wisconsin-Madison WI, USA 2011 Accessed From:

http://minds.wisconsin.edu/bitstream/handle/1793/53134/Ede%20Bundity.docx?sequence=1 166

Stalin’s meeting with Kim Il Sung March 5, 1949 Accessed From:

http://digitalarchive.wilsoncenter.org/document/112127

30

1947, South Korea served as a transit point for Japanese goods destined for China, North Korea,

and Communist-held Manchuria. Imports from China, communist-held Manchuria, North Korea,

and Hong Kong were re-shipped via South Korea. North Korean soap emblazoned with the

hammer and sickle was smuggled to gain hard currency. The Soviet occupation forces in North

Korea established a yen-denominated fund to promote smuggling. The profits generated by these

covert trade operations were expended on imports of rice and warm American Army-issue

clothing. North Korea also imported South Korean rice, American Army clothing, US-made

sulpha drugs, Japanese silk and light bulbs, South Korean shoes, and goods sold at American

Army PX stores (cigarettes, candy, and chewing gum), and American gasoline. Soviet occupied

North Korea exported cement, paper, wood pulp, caustic soda, soap, candies, cotton socks,

apples, fertilizer, and fish in exchanged for goods from the noncommunist world.167

Even after the declaration of the “independent” Democratic People’s Republic of Korea

(North Korean state), the communists continued the smuggling trade with South Korea.

President Syngman Rhee of South Korea noted in 1948 that smugglers carried a profitable illicit

trade across the Demilitarized Zone (DMZ) to South Korea. It was noted that this covert trade

was controlled by the Soviet authorities.168

As of June 1950, clandestine North Korean trade was

also reportedly carried out with South Korea according to the CIA.169

From 1946 to 1949, North Korea concluded barter trade deals with India, the Philippines,

and various nations located in Southeast Asia. At that time, covert smuggling was also carried

out between Japan and North Korea. Ten to fifteen percent of North Korea’s non-communist

trade in 1949 was concluded with Portuguese Macao, Japan, India, and Southeast Asia. North

Korea smuggled industrial machinery, copper wire, radio equipment, steel and manila rope and

wire, paper, ball bearings, and spare parts from Japan.170

Large amounts of Japanese parts and

equipment were imported from Hong Kong to service North Korean factories.171

During 1949, 85% to 90% of North Korea’s trade with the non-communist world was

with Hong Kong. The North Koreans purchased textile machinery, printing presses, machine

tools, textiles, chemicals, pharmaceuticals, paper, electrical equipment, transportation equipment,

dying and tanning material, rubber and other industrial raw materials from Hong Kong. North

Korea exported foodstuffs, animal feeds, fats, fertilizers, and oils to Hong Kong.172

By February

1949, Hong Kong and North Korea had trade relations, where woolen piece goods, tires, cars,

and petroleum jelly for industries were sent to the communist country. Hong Kong received

167

Cromley, Ray. “Oriental Smugglers: Their Business Booms” Wall Street Journal June 20,

1947 page 1. 168

“South Korea Puts Guards on Border” New York Times October 14, 1948 page 14. 169

Central Intelligence Agency. Current Capabilities of the Northern Korean Regime June 19,

1950 Accessed From: http://media.npr.org/documents/2010/june/19June1950.pdf 170

Central Intelligence Agency. Intelligence Memorandum 311 Northern Korea’s Dependence

on Outside Supplies August 2, 1950 Accessed From:

http://www.foia.cia.gov/sites/default/files/document_conversions/89801/DOC_0001117734.pdf 171

Department of State. North Korea: A Case Study in the Techniques of Takeover (Washington

1961) Accessed From:

http://babel.hathitrust.org/cgi/pt?id=umn.31951t00466606h;view=1up;seq=3 172

Central Intelligence Agency. Intelligence Memorandum 311 Northern Korea’s Dependence

on Outside Supplies August 2, 1950 Accessed From:

http://www.foia.cia.gov/sites/default/files/document_conversions/89801/DOC_0001117734.pdf

31

graphite and chemical fertilizer from North Korea.173

In January 1950, the North Korean trade

representatives were recalled from Hong Kong. This possibly occurred in preparation for the

Korean War of June 1950.174

However, the trade between North Korea and Hong Kong

continued.

The North Koreans also harnessed the government-controlled “private” sector to acquire

smuggled raw materials from South Korea. The ruling communists found the “private” sector

useful in serving as smuggling channels in trade links with South Korea. The scope of this trade

was limited in size and was controlled by the North Korean government. This early Inter-Korean

trade alleviated specific shortages in the North. The state-owned Korean Trade Company

ultimately controlled trade with Hong Kong and South Korea.175

In 1947, the Soviet-North Korean shipping firm Mortrans carried goods to the USSR,

Soviet-occupied Dairen, ports in communist-occupied northern China, and Hong Kong. In 1949

and 1950, Mortrans exclusively shipped goods to Hong Kong and communist-occupied northern

China. Mortrans also conducted trucking services with used American-made trucks from Soviet

Lend Lease stocks, along with ones procured via Hong Kong.176

The ruling North Korean Workers’ Party elite maintained access to luxuries and

privileges denied to many average citizens. In 1950, the biggest hotel in Pyongyang was known

simply as “the Russian hotel.” Obviously, its guest were mainly Soviet nationals who controlled

the Kim-il-sung dictatorship. Resident Soviet diplomats and advisers maintained a special

commissary in Pyongyang which distributed fine wines, vodkas, caviar, and cosmetics. The

Soviet Embassy in North Korea was equipped with expensive radios, photographic equipment,

heavy silver ashtrays, and plentiful food. The Workers Party officials also lived very well. Kim

il-sung’s residence had multiple anterooms, a grand office, gaudy rugs, and expensive furniture.

Kim’s office also had an enormous mahogany desk. Kim’s private air raid bunker was 70 to 100

feet underground. It was connected by a tunnel to the residence of Kim’s Soviet advisers. The

bunker itself was equipped with a complete living quarters, a music room with an organ, and a

one-chair barber shop.177

By the late 1940s, the top Workers Party and government officials

received special rations that allowed them to eat meat daily, lived in huge houses that were

usually expropriated from the former Japanese officials, had servants, and sent their children to

special schools that were off-limits for the average North Korean family.178

173

Lieberman, Henry. “Hong Kong Builds Brisk Trade With Red-Controlled North Korea” New

York Times February 24, 1949 page 12. 174

Central Intelligence Agency. Intelligence Memorandum 311 Northern Korea’s Dependence

on Outside Supplies August 2, 1950 Accessed From:

http://www.foia.cia.gov/sites/default/files/document_conversions/89801/DOC_0001117734.pdf 175

Department of State. North Korea: A Case Study in the Techniques of Takeover (Washington

1961) Accessed From:

http://babel.hathitrust.org/cgi/pt?id=umn.31951t00466606h;view=1up;seq=3 176

Department of State. North Korea: A Case Study in the Techniques of Takeover (Washington

1961) Accessed From:

http://babel.hathitrust.org/cgi/pt?id=umn.31951t00466606h;view=1up;seq=3 177 “

Substantial Citizens” Time Magazine October 30, 1950 Accessed From:

http://www.time.com/time/magazine/article/0,9171,805551,00.html 178

Lankov, Andrei. “All Things Being Equal” Korea Times July 19, 2005 Accessed From:

http://www.nkeconwatch.com/page/197/

32

Since 1948, the North Koreans operated special stores which sold books, newspapers,

stationary, furniture, porcelain and metal products, sports equipment, imported commodities, and

non-rationed goods. These stores were originally set up in the properties originally owned by the

Japanese and “national traitors.” These properties were confiscated by the state or purchased

from private businessmen. These goods were sold at high prices, hence limiting their customer

base to the top elites.179

By 1946, the Communists attained near-total power in Poland. The Soviets and their

Polish Communist allies wiped out the opposition and extended total Stalinist control by 1949.

Despite the strict controls, the Polish Communists sought to maintain trade ties with the West.

The Polish Communists and their Soviet masters viewed elements of the Western capitalists as a

self-interested, malleable class of powerful individuals. Important British industrialists were

reportedly visitors to the Polish Embassy during the Stalinist years, along with officials of the

Communist Party of Great Britain. The Embassy at that time was used for intelligence work and

propaganda. Soviet Ambassador Georgi Zarubin noted to Spasowski: “Even among the fattest

industrialists there is a decent person here and there who can understand us and attend to his

own interests at the same time. A great deal can be done through them, sometimes a very great

deal, but the opportunities are rare.”180

Polish legations and the heads of the propaganda departments of the Polish Communist

Party realized that they could not successfully lobby Western public opinion and especially

business circles in a “direct, frontal attack.” Therefore, the Polish Communists used their

legations in the Third World and neutral countries to penetrate business circles through Polish

Commercial Attaches. The Poles praised one commercial attaché in Pakistan (Karachi) named

Stanislav Pollak, who used the ruse as a “Western businessman.” Reportedly, “he was not only

able to influence opinion (in business circles) but also to successfully organize a political and

economic intelligence service.”181

The Poznan Fair was utilized by the Polish Communists and Soviets to extract strategic

goods, intelligence, and influence from visiting businessmen and politicians from the West.

Various large West German firms participated at the 1956 Poznan Fair. They included Bayer,

Salzgitter, Mannesmann AG, and Daimler Benz AG.182

In April 1949, 11 British companies

which specialized in technical goods, along with 17 other European countries such as the USSR

displayed their goods at the Poznan Trade Fair. The Polish communist economic boss Hilary

Minc opened the Fair in the presence of the foreign diplomatic corps and British Ambassador.183

179

Department of State. North Korea: A Case Study in the Techniques of Takeover (Washington

1961) Accessed From:

http://babel.hathitrust.org/cgi/pt?id=umn.31951t00466606h;view=1up;seq=3 180

Spasowski, Romuald. The Liberation of One (Harcourt Brace Jovanovich, 1986) page 324. 181

Poles Are to Infiltrate Far Eastern Business Circles Radio Free Europe Research April 4, 1952

Accessed From: http://www.osaarchivum.org/greenfield/repository/osa:b5c1d685-dc45-4051-

9db4-2f8527ae442d 182

West German Firms Participating in Poznan Fair Radio Free Europe Research June 12, 1956

Accessed From: http://www.osaarchivum.org/greenfield/repository/osa:214836e8-075a-48a1-

94a1-b8ab685d41e7 183

“11 U. K. Firms at Pozhan Fair” The Financial Times (London, England April 25, 1949 page

5.

33

In 1946, Polish foreign trade became a state monopoly under the communists. The

Ministry of Foreign Trade (MHZ) was formed in February 1949. Foreign trade enterprises that

were administered by the Ministry of Foreign Trade included ANEMEX (Central Import and

Export Office of Animal Products); CETEBE (Export-Import Central Trading Office of the

Textile Industry); ELEKTRIM (Polish Foreign Trade Company for Electrical Equipment);

IMPEXMETAL (Central Bureau for Iron and Steel); PETROL (Central Bureau for Mineral Oil

Products); and WEGLOKOKS (Central Coal Sales Bureau). The Polish Chamber of Foreign

Commerce was formed in September 1949.184

Between 1946 and the end of the Three-Year Plan in 1949, Poland received $675 million

in loans and grants from the West.185

In 1949, Poland imported $632 million worth of goods in

its conventional foreign trade. By 1949/1950, the USSR, Eastern European nations, Sweden,

Austria, France, Denmark, Finland, Argentina, Italy, Switzerland, West Germany, and Britain

conducted foreign trade with Poland. A number of the imported goods from the West were of a

strategic nature. Such goods included machinery, chemicals, ball bearings, and conventional

items which garnered hard currency. Poland imported industrial goods, iron ores, and raw

materials such as rubber and wool from the West. Poland exported goods such as coal, food, and

timber to the West. During the Korean War, Polish exports of coal earned the communists $250

million per year. Sweden exported iron ore, ball bearings, generators, and various types of

machines to Poland.186

In July 1950, Poland exported $32.6 million worth of farm products and coal to West

Germany. West Germany exported machines, chemicals, iron and steel products, motor vehicles,

and electrical equipment to Poland. After October 1950, the Poles exported pork products and

live pigs to West Germany. By March 1951, West Germany accumulated a surplus of $5.1

million in their clearing account at the Narodowy Bank Polski. The Poles also imported West

German wheat flour and grain. Poland had difficulty meeting some of its agricultural export

obilgations to West Germany. Since late 1952, the West German Agriculture Ministry became an

agency for the promotion of West German agricultural exports to Poland.187

Polish firms which purchased machinery from West German firms requested that these

same enterprises dispatch expert mechanics to install these machines. The West German firms

supplied the Poles with a list of mechanics to choose from. The applications were then forwarded

to the Polish Ministry of Trade, who then sent the list of West German mechanics to the Polish

184

Pitzsimmons, Thomas. Poland and Its People (Human Relations Area Files New Haven CT

1958) Accessed From:

http://www.archive.org/stream/polanditspeoplei006974mbp/polanditspeoplei006974mbp_djvu.tx

t 185

Pitzsimmons, Thomas. Poland and Its People (Human Relations Area Files New Haven CT

1958) Accessed From:

http://www.archive.org/stream/polanditspeoplei006974mbp/polanditspeoplei006974mbp_djvu.tx

t 186

Pitzsimmons, Thomas. Poland and Its People (Human Relations Area Files New Haven CT

1958) Accessed From:

http://www.archive.org/stream/polanditspeoplei006974mbp/polanditspeoplei006974mbp_djvu.tx

t 187

Spaulding, Robert Mark. Osthandel and Ostpolitik: German Foreign Trade Policies in Eastern

Europe from Bismarck to Adenauer (Berghahn Books, 1997) pages 373-375

34

Military Mission in West Berlin. The Mission then selected the names of the desired mechanics

and submitted the paperwork to the government in Warsaw. Before October 1952, the Polish

firm POLIMEX employed 8 technicians from the West German firm Siemens-Schuckert to

establish a paper factory. In October 1953, POLIMEX requested from Siemens two more

technicians to install the papermaking machines. Since 1953, the West German firm Lurgi

manufactured machinery for two coke plants in Poland.188

The Fiat Company provided diesel

engines for the Polish Navy and 400 trucks, tractors, and other means of transport. It was noted

that Fiat and the Ansaldo Company of Genoa were “helping to increase the power of the

East.”189 In July 1953, the British firm A.E. Hemsworth & Company Ltd provided Poland with

raw and processed rubber from Indonesia and Ceylon, which was shipped through London.190

The United States also conducted trade with communist Poland. Such goods were

exported via UNRRA and various disbursements of credits. Between 1946 and the end of the

Three-Year Plan in 1949, the United States provided $90 million in credits to communist

Poland.191

During the period from 1945 to 1947, UNRRA provided Poland with $171 million in

direct aid to industry and agriculture, along with food, clothing and, medicines.192

Former US

Ambassador to Poland Arthur Bliss Lane noted that, per the agreement with the Polish

government, the political distribution of UNRRA relief supplies could not be prevented. Supplies

such as blankets were only distributed to government employees and members of the Socialist

and Workers’ Parties who possessed special ration cards. Meanwhile, Catholic institutions had

difficulty acquiring UNRRA supplies. In fact, one Polish municipal official commented that

“reactionary” organizations such as the Catholic Church were not allowed to receive UNRRA

supplies. Supplies were also sold to Polish state-owned shops, which in turn, charged high prices.

Some UNRRA supplies were even utilized in the state-owned Polonia Hotel. Polish Marshal

Rola-Zymierski requested from Ambassador Lane that American Export-Import Bank credits be

diverted for the benefit of the secret police (UB). Lane ruefully recalled that “I observed that

such credits would be interpreted in Poland as an acquiescence on the part of the United States

in UB activities which were repulsive to the American people.”193

188

Expert West German Mechanics Sent to Poland to Install Machinery Supplied by West

German Firms Radio Free Europe Research June 14, 1956 Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:8494d2a4-3461-4b54-b494-ef3ec8d8c09b 189

Fiat Company of Turin Collaborates with Poland Radio Free Europe Research February 22,

1952 Accessed From: http://www.osaarchivum.org/greenfield/repository/osa:bccd3dcd-863e-

4e20-b821-9f24f7c27e71 190

London Firm Offers Rubber for Poland Radio Free Europe Research July 28, 1953 Accessed

From: http://www.osaarchivum.org/greenfield/repository/osa:f8bc40e6-9ae9-4b94-b5f7-

364d7c98069c 191

Pitzsimmons, Thomas. Poland and Its People (Human Relations Area Files New Haven CT

1958) Accessed From:

http://www.archive.org/stream/polanditspeoplei006974mbp/polanditspeoplei006974mbp_djvu.tx

t 192

Pitzsimmons, Thomas. Poland and Its People (Human Relations Area Files New Haven CT

1958) Accessed From:

http://www.archive.org/stream/polanditspeoplei006974mbp/polanditspeoplei006974mbp_djvu.tx

t 193

Lane, Arthur Bliss. I Saw Poland Betrayed (Bobbs-Merrill Indianapolis 1948) pages 225-228.

35

The Intelligence Division in the Ministry of Public Security of Poland created a number

of trade enterprises which served as “covers” for espionage operations abroad. As early as 1946,

Polish foreign trade companies such as the Orbis Travel Agency and Bank Pekao S.A. were staff

with Polish intelligence officers. The Central Committee of the Polish Workers’ Party received

part of the profits accrued from the business activities of these trade firms. In 1948, the Polish

intelligence services created the following trade companies in Berlin (Dimex); Frankfurt

(Welthandel); and Vienna (Polcomerce). The Poles also dispatched purchasing representatives

to the United States and Belgium. These trade enterprises exported Polish food in exchange for

products and raw materials restricted by embargoes or higher prices. These firms also trafficked

in currencies. In the years from 1947 to 1949, these Polish trade enterprises garnered profits

worth $2.7 million.194

The Poles also fronted for Red Chinese purchases in Western nations. As of March 1954,

Polish trading firms purchased goods from Britain. British firms then shipped these goods to Red

China via Belgium and The Netherlands. These goods were shipped to the Portuguese colony of

Macao and Lisbon (Portugal) and then smuggled them to communist China. The British

company Freight Express Ltd and the Belgian firm Staimann & Company handled the shipping

of such strategic goods.195

The Polish Communists also raised hard currency through parcel operations aimed at

Polish-Americans. In 1948, the Polish communist formed the Pekao Trading Corporation under

the control of Bank Kasa Opiski. Since 1948, Pekao sold food, clothing, livestock machinery,

and building materials from its warehouses in Poland in order to generate hard currency.196

It

was reported in 1952 that Pekao siphoned off hard currency from Polish-Americans to their

relatives in their native country. Polish natives who received this money were forced to exchange

them. These lucky Poles were then able to purchase Polish-made goods in short supply. Pekao

garnered approximately $1 million per year through these operations.197

From 1954 to 1958, over

$20 million was transmitted to the communists in Poland from the operations of Pekao.198

Even in the days of Stalinism, foreign communist, progressive leftist and business

delegations were feted in Poland. Foreign tourists in Poland received special coupons from the

Orbis travel agency to pay for restaurants and hotel charges. Waiters in the special restaurants

receive commissions based on the bills paid by the host governments for visiting delegations.199

194

Paczkowski, Andrzej. Civilian Intelligence 1 in Communist Poland, 1945-1989 An Attempt at

a General Outline Institute of Political Studies and Collegium Civitas, Warsaw Accessed From:

http://ece.columbia.edu/research/intermarium/vol10no1/Civilian%20Intelligence%20in%20Com

munist%20Poland,%201945-1989.pdf 195

British and Belgian Firms Involved in Smuggling Forbidden Goods to China Radio Free

Europe Research March 6, 1954 Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:ad552327-2a81-4e0a-89c0-91936b2c1a5a 196

Communist Parcel Operation Report by the Committee on Un-American Activities (GPO

1959) Accessed From: http://babel.hathitrust.org/cgi/pt?id=uc1.$b654294;view=1up;seq=5 197

Riesel, Victor. “Inside Labor” Waterloo Daily Courier February 6, 1952 page 6. 198

Communist Parcel Operation Report by the Committee on Un-American Activities (GPO

1959) Accessed From: http://babel.hathitrust.org/cgi/pt?id=uc1.$b654294;view=1up;seq=5 199

Raymond, Jack. “Tourist Facilities Beyond the Iron Curtain” New York Times January 8,

1956 page X38.

36

After Poland became communist in the mid-to-late 1940s, the Bristol Hotel was

nationalized and managed by Orbis for foreigners only. The Security Service (UB) spied on hotel

guests from the foyer and phone lines were tapped. The hotel gift shop accepted hard currency

and was considered the best-stocked store in Poland.200

The Bristol Hotel in Warsaw served

excellent food. However, service at the Bristol was not up to par with Western standards.201

In

1949, the Bristol Hotel opened the People’s Tavern. Tips were officially frowned upon by the

hotel management. The Soviet-Polish menu admonished patrons that “tipping offends the dignity

of the working man.” Orbis took over the management of the Bristol in 1952. Orbis then

launched a program to redecorate and modernize the hotel. Foreign VIPs were lodged at the

Bristol Hotel.202

Other Orbis hotels and restaurants located in Gdynia, Gdansk, and Szczecin charged high

prices. They were frequented by high Party and state officials, along with members of foreign

“delegacja.” The public called these hotels “Bonzosko partyjne schronisko.” Food served at the

Orbis hotels included ice cream, vegetables, meat, potatoes, cake, beer, coffee, and liquor.203

The Orbis restaurant in Szczecin housed “foreign industrial experts.” It was considered a

first class restaurant or “restaurant of special category.” Foreign guests who patronized this

Orbis restaurant included Germans, Czechoslovaks, British, and Frenchmen. An adjoining Orbis

hotel had rooms with telephones and bathrooms and the restaurant had dancing. All hotel guests

were assigned a specific table in the restaurant reserved for them where their national flag was

placed on the table. The tables were decorated with flowers (mostly roses). The head-waiters

were dressed in white jackets and black trousers in the day and in tails during the evening.

Soups, vegetarian dishes, roast meats, poultry, and fish were served at this restaurant.204

The Party, military, and secret police officials constituted a privileged class in Stalinist

Poland. As of 1951, the upper class in Poland consisted of Party bosses, UB officers and agents,

army officers, members of the secret police and Militia. The Party elites had access to special

shops where they could purchase goods at prices 30% lower than at regular state-owned shops.

The UB maintained a shop in Szczecin, while the Militia had a shop in Gdansk. These shops sold

unlimited quantities of goods such as meat and textiles.205

Luxury food shops in Poland sold

imported food to Stakhanovite workers, high-level officials, and Party bosses. This food was

originally confiscated from food parcels that were sent from Polish émigrés intended to their

200

Cater, Nick. “Historic Bristol’s a right royal survivor” The Sunday Telegraph (Sydney,

Australia) October 26, 2003 201

Raymond, Jack. “Tourist Facilities Beyond the Iron Curtain” New York Times January 8,

1956 page X38. 202

Menaker, Drusilla. “Poles Trying to Restore Old Elegance of Warsaw’s Hotel Bristol” The

Associated Press April 3, 1989 203

Prices in Orbis Hotels Radio Free Europe Research Eastern Europe February 19, 1955

Accessed From: http://www.osaarchivum.org/greenfield/repository/osa:c6c68696-7f0c-446c-

8cbc-5f7264eb59ac 204

The Orbis Restaurant in Szczecin Radio Free Europe Research Eastern Europe Accessed

From: http://storage.osaarchivum.org/low/cb/a0/cba07a81-b87f-45b9-a5a5-86da55dcb665_l.pdf 205

Well Stored Shops for Party Bosses October 5, 1951 Radio Free Europe Research Eastern

Europe Accessed From: http://storage.osaarchivum.org/low/24/4c/244c5130-1d2c-4baa-b490-

5db3bf12de74_l.pdf

37

relatives in Poland.206

During the early 1950s, special shops known as Galuks were opened in

Poland. These shops sold imported Western-made goods and export quality Polish goods. One

was located at Szczecin and Gdynia. They sold items such as Pallas and Soviet-made Pobieda

watches and nylon nightgowns.207

Foreign sailors constituted another privileged class of foreigners in Poland. Foreign

sailors had to spend at least 45% of their hard currency at the Baltona shop in Gdynia and Soviet

sailors were allowed to use rubles. The Baltona store was opened in 1951 and did a brisk

business. The privileged Polish sailors were required to turn in their American dollars in

exchange for special dollar coupons. These sailors received these coupons before they

disembarked from their ships docked at Polish ports. Products sold at the Baltona shops

included:

1) Czechoslovak, British, and Dutch textiles.

2) Export-quality Polish jewelry, porcelain, and glassware.

3) British and Dutch carpets.

4) East German-made cameras and field glasses.

5) Hungarian hats, shawls, and playing cards.

6) German and Czechoslovak radios.

7) Swiss watches and nylon stockings.

8) US-made pens.

9) Perfumes and cosmetics from the United States and France.208

Special restaurants and clubs catered to foreign sailors visiting Poland. The sailors were

required to pay their bills in hard currency. In October 1955, all foreign sailors had to pay in hard

currency at the Interclub in Gdynia.209

These establishments were also monitored by the UB,

who were always on the lookout for new recruits and tidbits of intelligence. In 1953, the UB

opened the International Restaurant in Gdynia for foreign sailors. The UB hired “girl servants”

and held variety and floor shows.210

By the late 1940s, the Romanian Communists consolidated total power over the already

leftwing government of Prime Minister Petru Groza. Despite the hard-line Stalinism of the

Romanian party bosses, Bucharest maintained trade ties with various Western nations. Some

206

Luxury Shops with Food Parcels Radio Free Europe Research Eastern Europe Accessed

From: http://www.osaarchivum.org/greenfield/repository/osa:a113f19d-f861-4454-8f2a-

31e0c4373b66 207

Special Shops for Imported Goods Radio Free Europe Research Eastern Europe Accessed

From: http://www.osaarchivum.org/greenfield/repository/osa:20f57c4f-9f8a-4e77-a4b6-

cd57735bbeac 208

Baltona Privileges for Merchant Seamen and Soviets Radio Free Europe Research Eastern

Europe April 3, 1954 Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:298c3492-9efc-4777-b89b-28b622acfe1f 209

Foreign Currency at the Interclub in Gdynia Radio Free Europe Research Eastern Europe

November 4, 1955 Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:4a15e402-b6c0-4c04-912b-

05d12d42ce96 210

Exclusive UB Restaurant for Foreign Sailors Radio Free Europe Research Eastern Europe

September 19, 1953 Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:3645abe6-7b87-4a69-a230-32f666509ae6

38

even engaged in the export of strategic goods to Romania. In October 1951, Romanian

government representatives acting in the name of a Romanian-Soviet holding company

negotiated with the Swiss firm Sulzer to repair and reconstruct the naval slipways at Galati.211

In

April 1953, the French firm I.A. Goldschmidt and Cie of Paris bought 40,000 tons of wheat from

Romania and the French paid the Romanians with francs and unspecified French products. The

Romanian oil industry previously ordered pipelines from the Franco-Belgian Company.212

Throughout 1954, Romania signed trade agreements with India, Indonesia, Denmark,

Holland, Israel, Turkey, Iceland, Greece, Argentina, Austria, West Germany Egypt, Sweden

(SUKAB), France, and Norway (Norsk Kompensation). Dr. Stefan Gall, the head of a

department in the Romanian Ministry of Foreign Trade, departed Romania for the West in May

1954 to launch an export offensive in the West. The 30-man delegation landed in Amsterdam.

The Romanian delegation split up into mini-delegations and visited Canada, Argentina, and

Indonesia. Dr. Gall visited European countries such as Finland, Denmark, Norway, Sweden, and

Holland.213

By 1955, Romania imported machine tools, electric motors, and wool from Britain and

Switzerland. Romanian corn and wheat were dumped into the Swedish market via the British

firm Lamet Trading Ltd of London. Even before 1955, Romanian farming produce was dumped

into Western markets. The Swiss firm Ernst Debrunner AG of Zurich imported and sold the

dumped Romanian products. Since 1952, Ernst Debrunner AG exported electric motors to

Romania worth several million Swiss francs. The British firm B Rush Group of London engaged

in business relations with Romanian state companies such as Machinimport, Energoimport, and

Industrialimport. The Romanians received industrial diesels, machine tools, and generators from

Britain. Romania then exported oil, Vaseline, and other goods to Britain. Romanian goods

exported to Swiss and British firms were then dumped onto the Swedish market.214

In the early years of Soviet-occupied Romanian, American business interests sought to

restore trade relations with Bucharest. In January 1946, the Romanian-American Chamber of

Commerce and Industry was formed with Max Ausnit as president. It served as a tool to increase

Romanian-US trade.215

In April 1947, the American-Romanian Trading & Development

Corporation was formed to “foster and develop trade between Romania and the United States.”

Ralph Bolton of Standard Oil was elected president of this group. Shareholders included ITT,

Westinghouse, Continental Grain, Standard Oil, and Occidental Trading and Investing Company.

Most of the shareholders maintained important investments in Romania.216

211

Negotiations with Swiss Firm Radio Free Europe Research October 18, 1951 Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:cb8bc3db-92a0-4cb5-9474-b3863df19013 212

French Company Purchases Romanian Wheat Radio Free Europe Research April 27, 1953

Accessed From: http://www.osaarchivum.org/greenfield/repository/osa:96765863-bb39-4091-

abb5-60d04f154800 213

Romanian Export Offensive in the West Radio Free Europe Research Eastern Europe May

July 1954 Accessed From: http://www.osaarchivum.org/greenfield/repository/osa:ea363e61-

fd7e-459a-a384-51b2e86d33e3 214

Dumping of Romanian Deficit Goods Radio Free Europe Research Eastern Europe July 30,

1955 Accessed From: http://www.osaarchivum.org/greenfield/repository/osa:cb790dd1-5a94-

48da-83b3-c370581ea107 215

“Rumanian-U.S. Chamber Formed” New York Times January 28, 1946 page 25. 216

“Sees Trade with Rumania” New York Times April 26, 1947 page 20.

39

The Romanian Communists also developed various operations which generated hard

currency revenues for the Party. Romania depended on the Jewish emigration to Israel as a

means of getting hard currency according to a 1951 government report: “It is difficult for the

state, at this point, to renounce a yearly income in hard currency of about two million.”217

The trading firm Carpati was supervised by the Romanian Communist Party through an

agency called the “Housekeeping Unit.” Profits earned from Romanian exports were sold via

Carpati.218

Carpati also managed the international tourist trade in Romania. As of 1955, Carpati

and its hotels accepted hard currencies such as American dollars, British pounds, West German

deutschmarks, and Swiss francs.219

Carpati also constructed the hotels at Romanian mountain

and sea resorts.220

In 1955, when Carpati was formed, 1,000 tourists visited Romania.221

Some of

the most luxurious international hotels were located in Bucharest. As of January 1956, the Hotel

Athenee Palace was considered a “pretty good hotel by Eastern European standards.” The

dining room at that hotel offered a good variety of food, including high quality fish. Waiters in

the special restaurants receive commissions based on the bills paid by the host governments for

visiting delegations.222

The Soviet front World Youth Festival of 1953 was held in Bucharest. It presented the

Party leaders with an opportunity to influence large groups of friendly foreign visitors. In August

1953, the Communists spruced up Bucharest in preparation for the Festival. Over 30,000

Western Europeans and other foreigners from 102 countries attended this event. Battalions of

soldiers and workers worked for over three months to repair and paint the houses and buildings

in Bucharest. Youth delegates received packages of meat, cheese, fruit and white bread. Western

communist parties provided financial support for delegates to travel to Bucharest in order to

attend the Festival.223

The Festival attendees were ferried in Soviet-built ZIS limousines and

were lodged at the luxurious Athenee Palace Hotel. They enjoyed two types of coffee and drank

vodka, Romania tuika, imported Czech Pilsener beer, and Romanian white and red wines. The

delegations ate three meat meals a day at the luxurious and refurbished Athenee Palace Hotel.224

The Party and government elites enjoyed vast privileges during the early years of

Stalinism. As of January 1952, Central Committee members of the Romanian Communist Party

could shop at the Bonaparte Soviety food store, while Central Committee members could

purchase food and clothing at the Jianu Society store. The unmarked shop on Number 12 Diana

Street sold food and clothing for the diplomatic corps. A plainclothes security agent checked the

ration card of each customer. The goods had no prices marked on them. The special shops were

elegantly furnished, with carpets and window curtains added to enhance the hidden and luxurious

217

Ioanid, Radu. The Ransom of the Jews (Ivan R. Dee 2005) page 63. 218

Possamai, Mario. Money On the Run (Viking, 1992) page 218. 219

Romania Tourism Radio Free Europe Research Eastern Europe October 5, 1955 Accessed

From: http://www.osaarchivum.org/greenfield/repository/osa:90d86a5b-e470-455f-a941-

94b1d23e46db 220

News From Behind the Iron Curtain Volumes 4-5 1956 Free Europe Press page 9 221

ASTA Travel News Volume 34 American Society of Travel Agents 1965 page 22. 222

Raymond, Jack. “Tourist Facilities Beyond the Iron Curtain” New York Times January 8,

1956 page X38. 223

“Rumania Spotless for ‘Peace’ Rally” New York Times August 3, 1953 page 4. 224

MacCormac, John. “Rumania Primps for US Reporters” New York Times August19, 1953

page 13.

40

appearance of these establishments. Products sold at these special shops included carp, Sibiu

salami, fish, caviar, veal, chicken, beef, pork, oil, fats, American-made chocolates, coffee, first

quality MAT wines, cakes, fruit, cheese, bread, imported non-Soviet dress materials, and

preserved meats. These goods were sold at half price to Central Committee members.225

Even certain high level Nazi collaborators also enjoyed vast privileges in communist

Romanian. As of June 1956, the ex-Liberal Party boss and Nazi collaborator Gheorghe

Tartarescu lived in a luxurious nationalized mansion off of Boulevard Stalin. Tartarescu also

drew a comfortable salary and possessed a big car. Tartarescu lectured the old politicians on the

“bright future the Communist Party is reserving to the country.”226

The Romanian communists also invited officials and participants in the wartime

Antonescu governments and Iron Guard movement to join the new regime. Both the Communists

and fascists retained hostility towards Zionism and capitalism. Other fascists and pro-Nazi

collaborationists possessed various technical, military, and propaganda skills that were valued by

the communists. Top Romanian Communist Ana Pauker publicly called upon the Iron Guardists

to join the communists in 1945.227

Gheorghiu-Dej quoted Ana Pauker as having said in a speech

that “we are glad to receive them (the legionnaires) and to shake hands with them.” In 1944,

Iron Guard leader Horia Sima dispatched a delegation to establish relations with the Romanian

Communist Party. Teohari Georgescu, who was Minister of the Interior, a Party Secretary and

member of the Politburo, inked the final agreement with the Iron Guard which re-legalized their

movement.228

After the surrender of the Romanian government of King Michael to the Soviets, various

fascists and collaborators were retained for their technical skills. The coalition government

consisted of the Stalinist Romanian Communist Party and the pro-fascist, pro-Axis Vice-Premier

Georges Tatarescu and his political allies. This regime was referred to as “a queer coalition of

the local Darlans and the parties of the Left” by The Economist in late December 1944. A New

York Times correspondent based in Romania reported in March 1945 that “Industrialists,

businessmen and hankers will escape punishment as war criminals under a law being drawn up

by Lucretsiu Patrascanu, Minister of Justice and Communist member of the Government, it was

learned today. Rumania could not afford to lose the services of merchants and industrialists, M.

Patrascanu said. He expressed the opinion that the country would pursue a more liberal policy

225

Special Distributing Stores Instituted for the Families of Central Committee Party Members

Radio Free Europe Research Eastern Europe January 29, 1952 Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:eaa30f2d-a554-4b4c-9798-01fc8dacf873 226

Ex-Liberal Tartarescu Lives in Luxury Radio Free Europe Research Eastern Europe June 16,

1956 Accessed From: http://www.osaarchivum.org/greenfield/repository/osa:cf50076e-fb36-

4994-9073-22a67289bce0 227

Fabian, Bela. “Hungary's and Rumania's Nazis-in-Red” Commentary Magazine November

1951 228

“Gheorghiu-DEJ Shifts the Blame” December 11, 1961 Accessed From:

http://www.osaarchivum.org/files/holdings/300/8/3/text/49-5-21.shtml

41

toward this class than the French have.”229 The pro-Nazi, Iron Guardist industrialist Malaxa sold

Stalin steel after Soviet troops occupied Romania in 1944.230

The President of the Military Tribunal was the former wartime Director General of

prisons and concentration camps under the fascist, pro-Nazi regime of Prime Minister Ion

Antonescu. Lieutenant-Colonel Nicolas Cambrea, the former commander of Romanian troops

that fought the Soviets at Stalingrad, was promoted to the rank of General and appointed

Assistant Chief of Staff by the pro-Soviet, pro-communist government of Prime Minister Petru

Groza. Major Popescu-Argetoia, a prominent wartime fascist, was made the head of the

Romanian communist secret police. General Vasiliu Rascanu, Chief of Military Police during the

war against the Soviet Union, was appointed Minister of War under the postwar pro-communist

regime. Another Antonescu-era general named Pretorian was appointed Chief of Staff under the

Groza regime. General Lascar, Brigadier-General in the war against the Soviet Union and

recipient of the Iron Cross from Hitler, joined the Romanian Communist Party after the war and

was considered “loyal” enough to be appointed Minister of War under the Groza regime.231

A Radio Free Europe/Radio Liberty report noted that “Many former Iron Guards are

today among the Romanian Communist Party’s most fanatic activists and propagandists.” Two

such former Iron Guardists-turned communists in Braila were V. Virforeanu and N.

Kotsofanu.232

Former Iron Guard official and priest Ion Burdycea joined the communists and

even became the Minister for Education in 1946. He was responsible for the brutal progrom of

Iasi’s Jews. Witnesses working on the slave labor project for the Danube-Black Sea Canal noted

that many guards were former Iron Guardists. Other pro-Nazi collaborators and fascists who

served the Communists included:

1) Stefan Vojtec, who was the editor of Sentinell, a publication of the joint German-

Romanian General Staff during World War II. He then became Minister of Education,

director of the state-owned cooperatives, and Politburo member under the communist

regime.

2) Aurel Vijoli was a legionary commander in the Iron Guard who subsequently became

Assistant Minister of Finance and governor of the State Bank under the communists.

3) Lotar Radaceanu was a German agent during World War II who then became a

member of the Politburo and Minister of Labor and Social Security. He was also an

official of King Carol’s totalitarian Renaissance Front.

229

Cliff, Tony. “On the Class Nature of the People’s Democracies” Written in 1950 Accessed

From: http://www.revolutionaryhistory.co.uk/eastern-europe-after-wwii/on-the-class-nature-of-

the-peoples-democracies.html 230

Rashke, Richard. Useful Enemies: John Demjanjuk and America’s Open-Door Policy for

Nazi War Criminals (Open Road Media, 2013) 231

Cliff, Tony. “On the Class Nature of the People’s Democracies” Written in 1950 Accessed

From: http://www.revolutionaryhistory.co.uk/eastern-europe-after-wwii/on-the-class-nature-of-

the-peoples-democracies.html 232

Two Former Fascists in Braila Now Communists Radio Free Europe Research Eastern

Europe March 12, 1952 Accessed From:

http://www.osaarchivum.org/greenfield/repository/osa:8518f462-73d9-4662-8e65-089baf8d206b

42

4) Victor Vojen was a former Iron Guard commander who became private secretary to

communist bigwig Ana Pauker. Witnesses working on the slave labor project for the

Danube-Black Sea Canal noted that many guards were former Iron Guardists.233

5) The Minister of Culture in the pro-communist regime, Mihail Ralea, was a former

minister under King Carol and a fanatical pro-Nazi personality. The Minister of Cults

under the pro-communist regime was Father Burducea, who was a notorious member

of the Fascist Iron Guards.234

6) Nichifor Cranic was a fascist ideologist and Propaganda Minister in the Antonescu

government who then wrote for Glasul Patriei (Voice of the Fatherland), a rabid anti-

Jewish communist newspaper in Romania. He later became a propagandist for the

communists. Former Iron Guard priest Father Dumitrescu Borsa and former LANC

(Christian League for National Defense) journalist Alexander Hodos all became

propagandists for the communists.235

In the immediate years after the 1944 takeover of Yugoslavia by the USSR and the

communist forces of Marshal Josip Broz Tito, the new dictatorship sought to deceive the West

and the United States in order to acquire valuable goods and technologies. Yugoslav deception

plans were also aimed at securing increased political legitimacy of the ruling communists.

Defector Bogdan Raditsa revealed that the Yugoslav communists bragged in 1945 on their

abilities to deceive the West: “Tito and Kardelj as well as the smaller communist leaders were

confident that they could outsmart any Anglo-American representative sent to deal with them.

We tried to convince them of the subtlety of Western diplomacy but they only laughed at us. ‘We

know better than you how to fool those innocents in London and Washington,’ they said again

and again. As things turned out, who can deny they were right.”236

In 1946, Yugoslav

communist dictator Josip Broz Tito allegedly stated in a secret speech: “Our collaboration with

the capitalistic powers during the last war must not be regarded in any way as collaboration and

allegiance with them in the future. On the contrary, those powers are our natural enemies even

though they helped us through force of circumstances to destroy the most aggressive section of

their own ranks. It may well be that we shall be able to make some use of their help to

accomplish their own definite and final destruction.”237 Perhaps it was no surprise that the

Yugoslav Communists actually coined a variation of the Leninist term “useful idiot.” In 1946,

former high-level Yugoslav communist official Bogdan Raditsa reported that “In the Serbo-

Croat language the communists have a phrase for true democrats who consent to collaborate

with them for ‘democracy.’ It is Koristne Budale, or Useful Innocents.”238

The United States channeled goods to communist Yugoslavia through UNRRA and more

traditional commercial transactions. After the conclusion of World War II UNRRA delivered

233

Fabian, Bela. “Hungary's and Rumania's Nazis-in-Red” Commentary Magazine November

1951 234

Harman, Chris. “Class Struggle in Eastern Europe 1945-1983” Accessed From:

http://www.vorhaug.net/politikk/ist/harman/eastern_europe/repression.html 235

Lehrman, Harold Arthur. Rebellion in Russia’s Europe: fact and fiction (Government Printing

Office 1965) Accessed From: http://babel.hathitrust.org/cgi/pt?id=uc1.$b643079 236

Ibid, page 124. 237

Von Wiegand, Karl H. “Light Thrown On U. S. Policy: Reported Tito Talk Stirs” San

Antonio Light October 7, 1946 page 5A. 238

“Useful Idiot” Accessed From: https://en.wikipedia.org/wiki/Useful_idiot

43

American goods to Yugoslavia totaling $430 million. Seventy three percent of these goods were

financed by the United States. Sadly, Tito sold this aid to the people at six times their real value.

Hence, the Yugoslav communists collected $600 million dollars derived from the sales of this

aid. The United States also allowed a Soviet Colonel Sergeichik to be appointed as the Director

General of the UNRRA Mission in Yugoslavia. One Yugoslav Colonel commented that the

UNRRA aid was misused from the humanitarian perspective, “but not from that of building

communism…nothing your country does makes much sense politically…”239

From 1945 to 1947, UNRRA provided Yugoslavia with over $415 million worth of

reconstruction aid. It consisted of food, medical supplies, clothing, footwear, livestock, 4,000

tractors, (which were dispatched to collective farms), coal, mining and milling equipment,

locomotives, rolling stock, barges, and port facilities. The Supreme Economic Council and

Ministry of Commerce and Supply distributed these supplies through the Reconstruction Fund.

Concerns were expressed about the diversion of the UNRRA goods to the Yugoslav Army and

for export to foreign countries.240

By the end of the summer of 1947, UNRRA had spent $415.6

million in Yugoslavia. Yugoslav communist Vladimir Dedijer wrote “There is no doubt that the

aid UNRRA extended to Yugoslavia during those days played an enormous role in alleviating

hardship. It was sent urgently, when it was most required.” The US Embassy reported that the

Yugoslav communists distributed the UNRRA goods to the army and secret police. The

Yugoslavs also refused to grant the right of UNRRA officials to inspect the factories that were

reconstructed with UNRRA funds. New York dock workers refused to load a UNRRA ship with

goods bound for Yugoslavia. A spokesman for the New York dock workers commented that they

would “rather see the cargo going to Greece or any other country that gave us some help in the

war.” The American Federation of Labor (AFL) and the International Labor Association (ILA)

sympathized with the work stoppage.241

The Yugoslavs also maintained trade ties with their communist allies, along with the

West and the United States. In 1946, Yugoslavia signed trade agreements with the USSR and

communist-dominated Czechoslovakia. In 1947, the Yugoslavs invited Ford Motor Company to

set up an assembly plant in Yugoslavia. Tito expressed interest to the US Ambassador for

increased trade in January 1948.242

Despite Tito’s pleadings for US food aid, Yugoslavia fed its

700,000 troops with good wheat bread and exported wheat to Romania and Albania. In 1947, a

Swiss newspaper reported that Yugoslavia exported 5,000 pigs to Switzerland. Trade agreements

were signed between Yugoslavia and Hungary, Poland, Italy, and Sweden.243

The Party and government elites in Yugoslavia also enjoyed privileges and imported

foreign made goods from the capitalist world. The homes and property of the old wealthy elites

were confiscated by the communists and redistributed to generals, Party officials, foreign

diplomats, and government ministers. Meals for these VIPs were ordered from the central, state-

239

Kalvoda, Josef. Titoism and Masters of Imposture (Vantage Press Inc New York 1958) pages

106-107. 240

John R. Lampe, Russell O. Prickett, Ljubisa S. Adamovic. Yugoslav-American Economic

Relations Since World War II (Duke University Press, 1990) pages 21-29. 241

Lees, Lorraine M. Keeping Tito Afloat: The United States, Yugoslavia, and the Cold War

(Penn State Press, 2010) pages 19-21. 242

John R. Lampe, Russell O. Prickett, Ljubisa S. Adamovic. Yugoslav-American Economic

Relations Since World War II (Duke University Press, 1990) pages 21-29. 243

Korbel, Josef. Tito’s Communism (University of Denver Press 1951) pages 67-70.

44

owned hotel. The Yugoslav communists were also passionate hunters. Their apartments and

villas retained the same furnishings as their previous owners. The Yugoslav leaders traveled in

luxurious American cars and sports cars imported from Italy and Switzerland.244

In 1950, the

Neue Zurcher Zeitung noted that in Yugoslavia “The proletarians who stands in the queues near

the bus stops looks with greedy eyes at the lit up American cars of the state leaders, resplendent

in chrome and colored varnish, which pass swiftly by them. The higher ups of the State and Party

travel in the latest cabriolets, the great ones of second rank travel in limousines. Skoda and

Opeldienst cars are at the disposal of high officers and officials. In the entrance to the People’s

Front Street in Marshal Tito Boulevard stands a big warehouse. Men in khaki or white uniforms

with gold epaulettes go in and out. The warehouse is reserved for officers and their families.

There they can buy clothes, shoes, furniture, carpets, and other goods of better quality and

cheaper price than the common mortal can buy. The officers get their food rations there too-far

larger rations than those of workers and clerks. So large are these rations, that in the spring, at

the time of the great food scarcity, peasants came to town in order to buy from the officers their

surplus fat and flour at black market prices.” Soviet experts in Yugoslavia reportedly earned

even more than military commanders and Federal Ministers, while Yugoslav generals received

apartments, servants, and plentiful quantities of food.”245

Lastly, the Yugoslav Communists welcomed into their ranks “converted” fascists and

pro-Nazi collaborationists from the puppet governments and movements in Croatia and Serbia.

Seventy three of the signatories of the pro-fascist Appeal to the Serbian Nation of 1941 later

became prominent members in communist Yugoslav society. Twenty eight of the signatories of

the Appeal became members of the Academy of Arts and Sciences under communism. Twelve

received state honors from the communist state for allegedly opposing fascism. Historian Philip

Cohen noted that Tito included several pro-Nazi Serbian collaborators in his postwar

dictatorship.246

I. Andric was the Deputy Foreign Minister to the pro-German government of

Prime Minister Stojadinovic and Yugoslavia’s Ambassador to Nazi Germany. He became the

Chairman of the Communist-controlled organization of Yugoslav writers. Franz Pierts was the

head of the Ustasha’s air force who became a colonel in Tito’s communist partisans. Marko

Mesitch served in Ustasha units and then switched sides and became the commander of Tito’s

Guards. Sulejman Filipovitch was an Ustasha officer who committed war crimes in Croatia who

subsequently became a cabinet minister in Tito’s communist regime. Tito’s Ambassador in

London, Dr. Ljuba Leontitch, was the founder of the Yugoslav fascist movement called

ORJUNA. The Croatian sculptor, Antun Augustinchitch, was previously a sycophant for the

Croatian fascist dictator Dr. Ante Pavelich. Vladimir Nazor was a court poet of the Ustasha who

became the President of the communist Anti-Fascist Council of Croatia. Monsignor Svetozar

Rittig of the Roman Catholic Church was a court priest for Tito. He was previously a supporter

of the Ustasha and its repression of the Serbian Orthodox Church. Markham reported that “There

are many active war criminals in the ranks of Tito’s Partisans--I mean men who killed women

and children and massacred civilians for political reasons…Such Ustasha war criminals are

now sheltered in Partisan ranks and are active in the Partisan regime. Not only will they never

244

Korbel, Josef. Tito’s Communism (University of Denver Press 1951) pages 67-70. 245

Gluckstein, Ygael. Stalin’s Satellites in Europe (George Allen & Unwin, 1952) page 103. 246

Cohen, Philip. Serbia’s Secret War (Texas A&M University Press, 1996) page 137.

45

be tried, but they are clamoring for the extermination of persons who fought for the Allies

against these Nazi agents.”247

Despite the hard-line Stalinism-Leninism of the Soviet bloc satellites, trade ties with the

West and even the United States were maintained. They clearly valued the technology that the

capitalist world had to offer to the communist bloc. Despite their anti-fascism, the same satellite

countries conscripted former Nazi collaborators for their technical expertise. Other collaborators

joined the communists on the account of easily shifting from one form of collectivism (fascism)

to another (Marxism-Leninism). Lastly, the Stalinists sought to improve the tourist facilities for

visiting delegations of businessmen, resident diplomats, and foreign sympathizers. Such a

strategy would help create lobbyists for the communist cause once the visitor(s) in question

returned to their native countries. Hence, the Stalinist-Communists of the 1940s and early 1950s

clearly adhered to what I have termed in other writings “The Theology of Power.”

247

Markham, R.H. Tito’s Imperial Communism (University of North Carolina Press 1947) pages

194-204.