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SECRET controls had been re-established, private trading was resumed Exports during 1946 were conducted almost entirely on a private basis, but UNRRA and government pur- chases accounted for more than three-quarters of the imports. The prewar pattern of import trade was altered in 1946 and 1947 by drought-blighted grain harvests and the necessity of conserving foreign exchange for the purchase of food and industrial raw materials; the prewar import of finished and semifinished products was halved while the import of foodstuffs was doubled. The export pattern has changed less. As a result of the war, Italy lost many of its traditional markets and sources of supply. European countries were able to provide only about one-fifth of Italy's total imports in 1946 as compared with 62.5 percent in 1938. Conversely, shipments from the United States accounted for three-fifths of total Italian imports in 1946, as compared with 11.9 percent in 1938. But the long haul from the US of heavy raw materials-especially coal, formerly supplied by Germany, Poland, and J--was both awkward and expensive. Loss of German, Rumanian, and Yugoslav markets had meant the loss of means of payment for coal from the first country and grain from the others. The loss of these markets was counterbalanced by increased shipments to the sterling area (30 percent in 1946; 12.2 in 1938) and to the United States (18 percent in 1946; 7.5 in 1938). But the inability of the UK to pay for Italian products either in essential raw materials or in dollars mars the importance of the expanded trade. Until Italy's potential customers can afford to import non-essential goods, Italy will find difficulty in mark- eting its characteristic products, fruits, nuts, vegetables, and wines. Besides trading with the sterling area and with the free currency areas, Italy has entered into bilateral agreements with many European countries. Two of the recent bilateral agreements are with Bulgaria and Yugoslavia, countries whose un- industrialized economies provided before the war a natural complement for Italy's exports. A special protocol of the new Yugoslav agreement is remarkable for its com- mitting Italy to deliver, over a period of five years, $150 million worth of electrical equipment, machinery, complete plants, and special equipment. Against these ex- ports, the Yugoslav Government will furnish agricultural and industrial raw materials. In terms of actual trade values, and especially in terms of imports, bilateral agreements are as yet relatively unimportant in Italian foreign trade. And even if the projected totals were to be reached this year, agreements would contribute less than a quarter of Italy's international trade. Qualitatively, bilateral agreements are even less impressive, for imports received or to be received under bilateral agreements can- not supply many of the raw materials and foodstuffs Italy is obtaining from the United States or all of the reconstruction goods available only in the US or in other hard cur- rency areas overseas. Although industrial production has risen, export trade has failed to reach the level that had been expected and there has been a decline especially to the hard currency countries. During the first third of 1947, Italian exports to the United States averaged monthly only about one-half the value exported each month during the last quarter of 1946. Moreover, the controls over dollar income from export trade have been moderate SECRET II-10

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    "ocrText": "SECRET\ncontrols had been re-established, private trading was resumed Exports during 1946\nwere conducted almost entirely on a private basis, but UNRRA and government pur-\nchases accounted for more than three-quarters of the imports. The prewar pattern\nof import trade was altered in 1946 and 1947 by drought-blighted grain harvests and the\nnecessity of conserving foreign exchange for the purchase of food and industrial raw\nmaterials; the prewar import of finished and semifinished products was halved while\nthe import of foodstuffs was doubled. The export pattern has changed less.\nAs a result of the war, Italy lost many of its traditional markets and sources\nof supply. European countries were able to provide only about one-fifth of Italy's\ntotal imports in 1946 as compared with 62.5 percent in 1938. Conversely, shipments\nfrom the United States accounted for three-fifths of total Italian imports in 1946, as\ncompared with 11.9 percent in 1938. But the long haul from the US of heavy raw\nmaterials-especially coal, formerly supplied by Germany, Poland, and J--was both\nawkward and expensive.\nLoss of German, Rumanian, and Yugoslav markets had meant the loss of\nmeans of payment for coal from the first country and grain from the others. The loss\nof these markets was counterbalanced by increased shipments to the sterling area (30\npercent in 1946; 12.2 in 1938) and to the United States (18 percent in 1946; 7.5 in 1938).\nBut the inability of the UK to pay for Italian products either in essential raw materials\nor in dollars mars the importance of the expanded trade. Until Italy's potential\ncustomers can afford to import non-essential goods, Italy will find difficulty in mark-\neting its characteristic products, fruits, nuts, vegetables, and wines.\nBesides trading with the sterling area and with the free currency areas, Italy\nhas entered into bilateral agreements with many European countries. Two of the\nrecent bilateral agreements are with Bulgaria and Yugoslavia, countries whose un-\nindustrialized economies provided before the war a natural complement for Italy's\nexports. A special protocol of the new Yugoslav agreement is remarkable for its com-\nmitting Italy to deliver, over a period of five years, $150 million worth of electrical\nequipment, machinery, complete plants, and special equipment. Against these ex-\nports, the Yugoslav Government will furnish agricultural and industrial raw materials.\nIn terms of actual trade values, and especially in terms of imports, bilateral\nagreements are as yet relatively unimportant in Italian foreign trade. And even if the\nprojected totals were to be reached this year, agreements would contribute less than a\nquarter of Italy's international trade. Qualitatively, bilateral agreements are even\nless impressive, for imports received or to be received under bilateral agreements can-\nnot supply many of the raw materials and foodstuffs Italy is obtaining from the United\nStates or all of the reconstruction goods available only in the US or in other hard cur-\nrency areas overseas.\nAlthough industrial production has risen, export trade has failed to reach the\nlevel that had been expected and there has been a decline especially to the hard currency\ncountries. During the first third of 1947, Italian exports to the United States averaged\nmonthly only about one-half the value exported each month during the last quarter of\n1946. Moreover, the controls over dollar income from export trade have been moderate\nSECRET\nII-10"
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