The USSR Trades with Latvia: The Treaty of 1927

The USSR Trades with Latvia: The Treaty of 1927Author(s): Edgar AndersonSource: Slavic Review, Vol. 21, No. 2 (Jun., 1962), pp. 296-321Published by:Stable URL: http://www.jstor.org/stable/3000634 .

Accessed: 18/06/2014 18:15

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected].

.

Association for Slavic, East European, and Eurasian Studies is collaborating with JSTOR to digitize, preserveand extend access to Slavic Review.

http://www.jstor.org

This content downloaded from 62.122.72.20 on Wed, 18 Jun 2014 18:15:57 PMAll use subject to JSTOR Terms and Conditions

http://www.jstor.org/stable/3000634?origin=JSTOR-pdf

http://www.jstor.org/page/info/about/policies/terms.jsp


THE USSR TRADES WITH

LATVIA: THE TREATY OF 1927

BY EDGAR ANDERSON

The Baltic countries, which were absorbed by the Russian Empire between 1721 and 1795 (Estonia and Livonia in 1721, Latgale in 1772, Lithuania in 1793 and 1795, and Courland in 1795), have played a significant role in Russian economic life, and have been regarded as an important, if not a vital Russian outlet to the Baltic Sea. Before the First World War 20.6 per cent of all Russian imports and 28 per cent of all Russian exports passed through the Latvian territory alone. This was not only because Latvia is situated on the most direct trade routes between Russia and Western Europe but also because of her excellent harbors-Riga, Liepaja (Libau), and Ventspils (Windau). Three of Russia's principal railroad lines converged on these ports. In 1912 the port of St. Petersburg handled 2,500,000 tons of shipping. The corresponding figures for the Latvian ports were 1,940,000 tons for Riga, 796,000 tons for Liepaja, and 604,000 tons for Ventspils (a total of 3,340,000 tons for the three ports). In addition, 610,000 tons of shipping went through the Estonian harbors of Tallinn (Reval), Parnu (Pernau), and Narva. The value of the cargo entering and leaving the Latvian ports amounted to 26.8 per cent of the total value of the cargo entering and leaving all Russian Baltic ports and Odessa.'

Considerable industries were developed in Latvia and Estonia. The huge Provodnik Rubber Factory, the Salamandra factory (largest manufacturer of files in the world), the Felser Shipboiler Works, the Phoenix Railroad Car Factory, and the AEG Electric Works were all in Riga; the Dvigately Railroad Car Factory and the Baltic Shipyards, M:R. ANDERSON is associate professor of histoty at San Jose State College.

1 Latvia, Ministry of Foreign Affairs, Latvia: Actual Conditions and Possibilities in Onie of the Baltic Republics (Riga: Government Printing Office, 1922), p. 51; Great Britain, Royal Institute of International Affairs, The Baltic States: A Survey of the Political and Econominic Structure and the Foreign Relations of Estonia, Latvia, and Lithiuania (London: Oxford University Press, 1938), p. 4; Hermann Felix Crohn-Wolfgang, Lettlands Bedeutung fur die ostliche Frage (Berlin: Walter de Gruyter, 1923), pp. 15, 61; Great Britain, Foreign Office, Historical Section, Handbook No. 50-Courland, Livonia and Estonia (London: H. M. Stationery Office, 1920), p. 44; Reinhold Breneisen, Lettland, Das TWVerden unld TWlesen einer neuen Volkswirtschaft (Berlin: Volk und Reich Verlag, 1936), p. 23; Gaston Gaillard, L'Allemagne et le Baltikurm (Paris: Librairie Chapelot, 1919), p. 72; Aleksandrs I. Leits, Burzuaziska Latvija arzeinju kapitala juga (1921-1929) (Riga: Latvijas valsts izdevnieciba, 1957), p. 131; Janis E. Kalnberzins, Ten Yea-s of Soviet Latvia (Moscow: Foreign Languages Publishing House, 1951), p. 55; Alfred Bilmanis, Baltic States and WVorld Peace and Se- curity Orgaanization: Facts in Reviezw (Washington, D.C.: Latvian Legation, 1945), p. 2.



The USSR Trades with Latvia: The Treaty of 1927 297

in Tallinn; and the Krenholm Textile Mills, in Narva. Despite her small size, Latvia was credited with 4 per cent of the value of the total industrial output of the Russian Empire, and she produced as much as one-fourth of all the metal goods in the empire. All of these Baltic industries were built with foreign capital-chiefly British, French, Ger- man, Dutch, Belgian, and Swedish-and they did not use Russian rawNT materials. Russia exported millions of tons of flax, hides, timber, rye, butter, eggs, and other products through the Baltic ports. The foreign ships that came for these Russian commodities carried as ballast raw materials for the Baltic industries, such as rubber from the Straits Settlements, steel from Sweden and Scotland, kaolin from Denmark, and cotton and coal from England. It would not have been economically advantageous to carry coal by railroad from the Urals or the Ukraine. Most of the Baltic industrial output was sold in the Russian Empire.2

In the years just before the First World War an industrial crisis loomed over the Baltic. Russia had begun to establish large industries near her own sources of raw materials in Russia proper. Moreover, the Latvian and Estonian producers were artificially cut off from supplies in Western Europe by huge protective tariffs imposed upon the Baltic provinces by the imperial Russian government.3 The First World War also caused a heavy setback to the Baltic industries. Many industrial plants were destroyed by the retreating Russians, and the equipment was either pilfered by the Russian and Gerinan armies of occupation or evacuated to Russia. The Russian revolution and the blockade of the Soviet territories also harmed the Baltic industries by temporarily de- priving them of Russian markets. The foreign trade that passed through the Latvian harbors during the early postwar years amounted to only one-fourth the prewar trade.4

After regaining their independence from Russia, the Baltic States had to reorganize their economic system completely. The Russians did not return evacuated machinery to the Baltic industrial plants, nor did they utilize the Baltic ports for transit, even though they were offered for that purpose. There was not even a Russian market left for Baltic goods, chiefly because the postwar Soviet Russian economic life was still in a chaotic condition. Consequently, the Baltic States had to

2 Latvia: Actual Conditions..., pp. 83-85, 49; Bilmanis, op. cit., p. 26; Leits, op. cit., pp. 9-10.

3 Latvia: Actual Conditions . ,pp. 49-50; Bilmanis, op. cit., p. 26. 4 Alfred von Hedenstrbm, Rigaer Kriegschronik 1914-1917 (Riga: E. Bruhns, 1922), pp.

54-55, 61-63; General Pavel Grigor'evich Kurlov-Komarov, Das Ende des russischen Kaiser- tums: Persdnliche Erinnerungen des Chefs der russischen Geheirnpolizei, Generals der Kavallerie (Berlin: August Scherl, 1920), pp. 321-27; Spricis Paegle, Ka Latvijas valsts tap(a (Riga: Autora apgads, 1923), pp. 64-67; Latvijas PSR vestutre: Saisinats kurss, ed. K. Strazdins (Riga: Latvijas PSR Zinatnu akademijas izdevnieciba, 1958), pp. 287-89; Latvia: Actual Conditions. .., pp. 51, 71; Bilmanis, op. cit., pp. 26-27.



298 Slavic Review

concentrate their attention on agriculture. They were, after all, essentially agricultural countries because they lacked important raw materials needed for most industries, and they thought it too dangerous to create new artificial industries that would have to compete with the well-developed industries of Western Europe. The governments of the Baltic States succeeded in finding markets for their agricultural products in Western Europe. Their industries, however, were only partially restored, and produced goods for domestic use. Great Britain and Germany began to compete for the monopolization of the re- conditioned Baltic markets.5 But this did not eliminate the Russian question.

The Baltic countries and Soviet Russia had a number of problems to solve-Russian reparations to the Baltic States for the damage done to their economic life, restoration of evacuated machinery, repatriation of the Baltic citizens evacuated to Russia, and so forth. There was much evidence of distrust and lack of good will on both sides. Soviet authorities believed that the small Baltic States would not be able to survive economically, and that with a little "help" from the Soviets, such as redirection of all trade and transit to Leningrad, the Baltic States would probably be economically strangled. To escape this catastrophe they would be forced to merge with the Soviet empire. The Baltic States survived, however, and fared even better than Soviet Russia. The Soviets therefore decided to become more co-operative.6

On February 26, 1921, a transit agreement was concluded between Latvia and Soviet Russia, followed by further agreements on March 3 and December 23. An economic conference of all the Baltic countries, including Finland and Soviet Russia, was held from October 27 to 31, 1921. It turned out to be little more than a series of complaints about Russia's failure to fulfill the terms of her treaties with the Baltic States. One outcome of the conference was the Russo-Estonian agreement regarding the passage of goods in transit.7

As long as the Soviets seemed to be primarily interested in preparing for a world revolution, the Baltic States were naturally cautious. When the Soviets seemed to have temporarily discarded that idea, the Baltic States became more interested in co-operation with their huge neighbor.

At the end of 1921 the Latvian government established a trading agency in Moscow to supply the Latvian traders and merchants with

5 Latvia: Actual Conzditions . . . pp. 39, 41, 43, 45, 71, 73; Bilmanis, op. cit., p. 27; Leits, op. cit., pp. 10, 88, 89; Royal Institute, Baltic States: A Survey . .. , pp. 121-23.

6 Eduards Virza, ed., Z. A. Meierovics: Latvijas pirma arlietu minisra darbibas atcerei veltits rakstu krajunms (Riga: Z. A. Meierovica pieminas fonda izdevums, 1935), pp. 82-83.

7 Leits, op. cit., pp. 122-23; Alfred L. Dennis, The Foreign Policy of Soviet Russia (New York: E. P. Dutton, 1924), p. 182, quoting Ost Information, Nov. 2 and 12, 1921, and Revaler Bote, Nov. 11, 1921.




reliable information on Soviet market conditions. Most of the Latvian traders understood the Russian language, knew the Russian people, and had first-hand knowledge of the country because of their past association with it. Therefore, they hoped to act as intermediaries between Russia and the Western world.8 They also expected to see more life in the Latvian harbors. As late as 1924 the three principal Latvian seaports handled only 32.3 per cent of the 1913 turnover. In 1923 the transit to Russia amounted to a mere 170,046 tons, and the transit from Russia to only 71,580 tons. In 1924 the corresponding figures were 308,014 and 31,015 tons.9

It is almost impossible to separate economic problems from political ones in modern European history. The Soviet Union added even ideological problems to this complex. In an atmosphere of mutual distrust, the Soviet and Baltic statesmen tried to find a common basis for economic co-operation. The invitation for Soviet Russia as well as the Baltic States to participate in the Genoa Conference seemed to offer such an opportunity. On March 29 and 30, 1922, Estonian, Latvian, Polish, and Russian representatives (and a few Finnish "ob- servers") met in Riga to discuss the possibilities of co-operation at the forthcoming conference. They agreed to combine their efforts in main- taining peace, in asking for credit from the Western Powers, and in pressing for the diplomatic recognition of the Soviet government. The Baltic States also decided to fight attempts to hold them partially responsible for the Russian war debts. They considered these attempts especially unfair because Latvia had received no German reparation payments even though the war had left her more devastated than any other country. The Baltic governments hoped that economic advan- tages might result from an increased Soviet trade through their countries.'0

The totally unexpected Russo-German treaty of Rapallo, on April 16, 1922, shattered the hopes of the Baltic businessmen that they might act as intermediaries between Russia and the Western countries and that they might supply Russian markets with their industrial goods and find employment for their engineers and technicians in Russia.,l The Russians could count now upon German industry, facilities, and

8 Virza, op. cit., p. 90. 9 Leits, op. cit., p. 131, quoting Latvijas Statistikas gada gramnata, 1931 (Riga, 1931), p.

284; Crohn-Wolfgang, op. cit., p. 17. 10 Bneunuu nojuniumca CCCP 1917-1944 vt.: C6opnuKc aogymenmoo (Moscow: TnIIorpa4an.

ra3eTBI <<HpaBAa,>> 1944), II, 288; T36eCMnnI, JunLe 14, 1922; Jlpaeoa, June 14, 1922; New York Times, June 16, 1922; Leits, op. cit., p. 131; William P. Coates and Zelda K. Coates, A History of Anglo-Soviet Relations (London: Lawrence & Wishart, 1944), p. 71; Virza, op. cit., pp. 384-87, 391; Latvia, Constituent Assembly, Latwijas Satwersmes Sapulzes Steno- gramas (1922), VIII, Fifth Session, Thirty-second Meeting, March 31, 1922.

11 Virza, op. cit., pp. 85, 90.



300 Slavic Review

experts, and would need no help from the Baltic countries for the time being.

The spectacular inflation in Germany revived the hopes of the Lat- vian government, and early in 1923 a commission was set up to prepare for commercial talks with Russia that were scheduled for April 23, 1923. But the Latvian proposals did not satisfy the Soviets. Occasional discussions took place throughout 1924. The Latvians wanted to safe- guard their agricultural markets, and they wanted to sell to Russia only such industrial goods as would not require the building of new factories solely for the Russian markets. Because of their contacts with the Germans, the Soviets saw no advantage in particularly close co-operation with the Latvians, because it was more in the interests of the Latvians than the Soviets. Many Soviet authorities were more interested in seeing a desperate and economically crippled Latvia within the boundaries of the Soviet Union than they were in helping to develop an economically healthy and strong Latvian "separatist" state. They presented counterproposals which the Latvians believed were aimed at the destruction of their economy. Latvia did not want to become dependent on the doubtful Bolshevik good will.12

Some traffic, however, existed between Latvia and the Soviet Union in the early postwar years, when the Soviets were not yet recognized by most countries. It is quite obvious that some Latvian agencies acted as unofficial intermediaries between the Soviet Union and the countries that refused to recognize it. In 1922 Latvia imported from Soviet Russia certain commodities in quantities seventeen times larger than was actually needed for home consumption, and she exported to Russia eight times more goods of non-Latvian origin than goods produced in Latvia. The situation was much the same in 1923.13 But as different states recognized the Soviet Union they entered into direct trade relations, and the Latvian assistance was no longer needed even in this kind of trade.

When the economic non-co-operation did not cripple the Baltic States and did not induce them to join the Soviet Union as urged by their propagandists, the Soviet authorities tried other means. Soviet troops were massed in considerable strength near the Latvian border in the fall of 1923, and there was an attempt to overthrow the Estonian government when the local Communists, led by Soviet army officers and trading agents, made an armed attack on the Estonian govern- mental and military installations on December 1, 1924.14 These events

12 Leits, op. cit., pp. 125, 127. 13 Ibid., p. 128. 14 Zanis Unams, Laiku atspulga (Oldenburg: Logs, 1953), pp. 75-77; Walter C. Krivitsky,

In Stalinl's Secret Service: An Exposd of Russia's Secret Policies by the Former Chief of the Soviet Iltelligen?ce in WVestern Europe (New York: Harper & Bros., 1939), pp. 47-48; Ruth Fischer, Stalini and German Commnuznismii: A Studzy of the Originis of the State Party (Cam-




could not possibly improve relations between the Baltic nationals and the Soviets.

At a meeting held in January, 1925, Finland, Estonia, Latvia, and Poland, all of whom dreaded further Communist machinations, reached a partial understanding in their attempt to organize a united front against the Soviet Union. At this point the Soviets interfered and offered to sign treaties of nonaggression and neutrality separately with all the Baltic States. Poland was not mentioned. The Baltic States, suspecting a trap, simultaneously declined the offer. Tentative discussions on this matter continued, however, throughout 1925 and 1926.15

In October, 1925, a Latvian economic delegation, headed by the able Minister of Finance Ringolds Kalnings, arrived in Moscow to discuss further possibilities of trade with the Soviet Union. The Latvian representatives were told that economic problems could not be separ- ated from political agreements.16 The Soviet authorities wanted to destroy a common front of all the Baltic countries, Finland, and Poland, and to sign separate treaties with some of them. Promises of advantageous treaties of commerce and transit agreements could be used as bait.

On March 5, 1926, the Soviet government made fresh proposals in connection with nonaggression pacts. The insistence of the Soviet authorities on separate treaties with the Baltic States and their refusal to include agreements on arbitration or conciliation forced Estonia and Finland to break off negotiations.17 But the Soviets scored success with Germany and Lithuania. They concluded separate treaties of nonaggression and neutrality with Germany, on April 25, 1926, and with Lithuania, on September 28, 1926. The Treaty of Berlin con- formed with the policy launched at Rapallo in 1922. By signing a

bridge, Mass.: Harvard University Press, 1948), pp. 463-64; Lionel Kochan, Rutssia and the Weimar Republic (Cambridge, Eng.: Bowes and Bowes, Ltd., 1954), pp. 85-86; Louis Fischer, The Soviets in T4'orld Affairs: A History of the Relations Betzween the Soviet Union atnd the Rest of the TWorld, 1917-1929 (New York: J. Cape & H. Smith, 1930), I, 459; Philip Farr, Soviet Russia and the Baltic Republics (London: Russia Today, 1944), pp. 39-40; Kurt Gloger, Baltikumz (Greifswald: Edwin Runge Verlag, 1938), p. 155; Malbone NV. Graham, Nezv Governmnents of Eastern Eturope (New York: H. Holt, 1927), p. 308; Xenia Joukoff Eudin and Harold H. Fisher, eds., Soviet Russia and the West, 1920-1927: A Docut- mentary Survey (Stanford: Stanford University Press, 1957), p. 281; I13eeenomu, No. 277, Dec. 4, 1924.

15 Alfred Bilmanis, A History of Latvia (Princeton, N.J.: Princeton University Press, 1951), p. 383-hereafter cited as History; Royal Institute, Baltic States: A Survey ... , p. 70; Eudin, op. cit., p. 281.

16 Leits, o0. cit., p. 125. 17 Eudin, op. cit., p. 281; Royal Institute, Baltic States: A Survey . .. , pp. 72-73; The

Times (London), April 29, 1926; Die Sozvjetunion utnd die Baltischen Staaten (Berlin: Deutsche Informationsstelle, 1942), p. 9; Sutrvey of 1International Affairs, 1927, ed. Arnold J. Toynbee (London: Oxford University Press, 1929), pp. 266, 228.



302 Slavic Revietv

treaty with Lithuania the Bolsheviks pierced the united Baltic front at its weakest point. Because the Poles had occupied their historical capital Vilnius (Wilna) in 1920, the Lithuanians were looking for allies against Poland, and some of them thought that they had found them in Moscow.18

Latvians continued discussions with the Soviet officials, and at the same time studied the Soviet proposals for an economic treaty. By the end of 1926 many Latvians believed that expansion ot trade relations with Russia was absolutely necessary to improve the Latvian economy.19 Some left-wing Socialists, such as A. Busevics and F. Menders, even went so far as to propose not only a customs union with the Soviet Union but also a Baltic socialist federation attached to its Communistic neighbor. In October, 1926, Latvian representatives worked out new proposals for a commercial treaty with the Soviet Union, but they were still unacceptable to the Soviets.20

A brilliant Latvian right-wing politician, Arveds Bergs, warned the nation that the outlook for an increased trade with the Soviet Union was not bright for several reasons: (1) The inhabitants of the Soviet Union were very poor and could not be considered good customers. (2) It would be foolhardy and even dangerous to enter into a customs union with the Soviet Union, considering their different economic systems. (3) The Western Powers were the buyers of Latvia's natural products. (4) Latvia's economic structure was Western-oriented. (5) It would be dangerous to build industries solely for Russian markets, which were unpredictable, uncontrollable, and not very promising. (6) If the Latvian industrial goods could not be sold in the Soviet Union, the Latvian industrialists should not entertain any hope of com- peting for markets with the highly industrialized Western countries.21

1S Eudin, op. cit., p. 282; Royal Institute, Baltic States: A Survey ...p. 71; Pavel N. AMliliukov, La politiqute exterieure des Soviets (Paris: Librairie g6n'rale de droit et de juris- prudence, 1936), p. 320; Arveds Schwabe, Histoire du peuple Letton (Stockholm: Bureau d'Information de la Legation de Lettonie hi Londres, 1953), p. 210; Thomas G. Chase, The Story of Lithuania (New York: Stratford House, 1946), p. 290; Owen J. C. Norem, Tinmeless Lithuania (Chicago: Amerlith Press, 1943), p. 126; Jane Degras, ed., Soviet Documents on Foreign Policy (London: Oxford University Press), II, 135, 139, 224; 113eeomufl Sept. 29, 1926; Survey of International Affairs, 1927, pp. 226, 326, 544-45; Thze Times (London), Oct. 13 and Dec. 92, 1996.

19 Leits, op. cit., p. 126; Schwabe, op. cit., p. 210; Gregory Meiksins, The Baltic Riddle: Finland, Estoniia, Latvia, Lithuan-ia-Key-Points of Eutr-opeani Peace (New York: L. B. Fischer, 1943), p. 80.

20 Meiksins, op. cit., p. 94; Graham, op. cit., p. 291; Leits, op. cit., p. 126; Survey of Internzation2al Affairs, 1926, p. 538; Survey ... 1927, p. 279; The Times (London), Sept. 14, 1927; Latvjut Enciklopedija, ed. Arveds Svabe (Stockholm: Tris Zvaigznes, 1950), I, 115; M. P. Bax [FepTc6ax], Ho.sumunco-atcooaotu'tealcue 63mo oomaau outeumn texOy CCCP it npui6aAnuncoiu aa Oeansb .emn (1917-1927) (Moscow: HaaTeaeTBo ROMMyHHCTqeCeOlo AsKaAemun, 1928), pp. 123-24.

21 Arveds Bergs, "Uz austrumiem vai uIz vakariem,' Burtnieks, No. 4, April, 1927, pp 259-66.




On December 17, 1926, the Lithuanian right-wing nationalist party (Tautininkai) overthrew the existing left-of-center government of Mikolas Slezevicius and established the dictatorship of Professors Augustinas Voldemaras and Antanas Smetona. On December 18, 1926, the left-of-center government of Margers Skujenieks replaced a right- wving government in Latvia. The new legally established Latvian government had to cope with an economic depression and the resulting problems caused by increasing unemployment and industrial bankruptcy.22 Skujenieks' government had to charter its course very cautiously.

The new Latvian Minister of Foreign Affairs, Felikss Cielens, was described by an American observer as one of the ablest European statesmen at that time. Several members of the American Legation in Latvia shared this view and characterized him as one of Latvia's most intelligent politicians, although the American Minister to the Baltic States, F. W. B. Coleman, felt that Cielens was going too far in order to please the Soviet Union, and resented some of his unguarded statements about imperialism and the role of the United States in connection with it.22

Cielens advocated closer economic relations with the Soviet Union and an internationally-guaranteed, neutral Baltic bloc that would serve as a bridge between the Soviet Union and the rest of Europe. Unfor- tunately, this idea was expressed just when relations between Great Britain (the unofficial protector of Latvia) and the Soviet Union began to deteriorate.24

Cielens' explanation of his policy was very simple: "If economic rivalries, political jealousies, and competitions in armaments continue, nothing is more certain than that ivithin the next decade or so another great European conflict vill be precipitated. It is to guard against such a catastrophe by insuring political stability along the southern side of the Baltic."25

On March 2, 1927, Cielens initialed a nonaggression pact with the Soviet Union. Actual signature was made dependent on the simul- taneous signature of a convention of conciliation providing for a neutral chairman as well as on the Soviet assent to a unilateral declaration of Latvia's fidelity to her obligations under the Covenant of the League of Nations, of which the Soviet Union was not yet a member. The

22 Meiksins, op. cit., p. 94; Graham, op. cit., p. 291; Leits, op. cit., p. 126; B3ax, op. cit., pp. 123-24.

23 Edward A. Powell, Emtibattled Borders: Eastern Europe from the Balkanzs to thle Baltic (New York: Century Co., 1998), pp. 322-94; U.S. Department of State, American Legation in Latvia, National Archives, 860. P. 00/107, 108; 860. N. 0/68-hereafter cited as National Archives.

24 Powell, op. cit., pp. 322-24. 25 Private Archives of Felikss Cielens, Stockholm, Sweden-hereafter cited as Cielens'

Archives; Powell, op. cit., pp. 322-23.



304 Slavic Review

Soviets never agreed to it, and the treaty was not signed.26 Estonia, Latvia's ally, took the initialing of this pact as an offense, nonetheless, because she had refused to consider a similar pact with the Soviet Union.

On April 19, 1927, the Chairman of the Soviet Council of People's Commissars, Aleksei I. Rykov, while outlining the fundamental principles of the Soviet foreign policy at the Fourth Congress of Soviets, expressed the following ideas:

The economic development of most of the Baltic countries depends to a considerable extent on their economic co-operation with the U.S.S.R., since their economic organization, their industry, and their railways were an integral part of tsarist Russia before the October Revolution....

The principle upon which the negotiations for a trade agreement with Latvia are being conducted, our readiness to extend export-import operations with Latvia and to place a number of orders there, provides the best possible proof of the desire of the U.S.S.R. not only to proclaim in words, but also to show in deeds, the need for developing economic relations with the Baltic states.27

However, the orders that the Soviets wanted to place were not the ones the Latvians were expecting. Unfortunately, Latvia did not have much choice. Although her neighbor Estonia received from England ?1,500,000 in loans through the League of Nations, Latvia did not: receive a single penny to help stabilize her economic life. There were hints that the British had planned it that way to intimidate the Latvian "left-wingers" who were attempting to launch a program uninfluenced by Great Britain, who because she was at odds with the Soviet Union could easily lead the small Baltic states into great difficulties with their- huge neighbor.28

The Latvian economy badly needed a boost, however, and on May 1, 1927, the Latvian economic delegation, headed by Roberts Bilmanis, a Social Democrat, arrived in Moscow and began negotiations with the Soviet representatives, headed by the Chairman of the People's Com- missariat for External and Internal Trade, Anastas I. Mikoyan. The course of negotiations was a difficult one. The Latvian delegation asked for the right to maintain a permanent economic exposition in Moscow. The Russian delegation rejected this request, but insisted

26 Royal Instittute, Baltic States: A Survey ... , pp. 73-74; Leits, op. cit., pp. 152. 1547 Schwabe, op. cit., p. 211; Graham, op. cit., pp. 347-48; interviews by Felikss Cielens, March 10 and 31, 1927, speech by Felikss Cielens, March 28, 1927, Cielens' Archives; National Archives, 860. I. 00/151; Blax, op. cit., p. 160.

27 Eudin, op. cit., p. 366. 28 Leits, op. cit., p. 134; Bax, op. cit., p. 163; Ewald Uustali, The History of Estonian

People (London: Boreas Publishing Co., 1952), p. 208; Survey of i7nternational Affairs,. 1932, p. 74; William F. Reddaway, Problemns of the Baltic (Cambridge, Eng.: Cambridge University Press, 1940), pp. 29-30.




on permission for an extraterritorial Soviet economic mission in Latvia, with its agents to enjoy diplomatic immunity. It was granted to the Soviet Union. The Latvian request for a fixed volume of Soviet transit through Latvia was also rejected. The Soviets showed very little interest in the natural Latvian agricultural products, but asked instead for industrial goods.20

While the Latvians negotiated with the Russians in Moscow, British authorities raided the headquarters of the Soviet Trade Delegation and Arcos, Ltd., in London and found that the Soviet trading agents had abused their extraterritorial rights and diplomatic immunity by inter- fering with British domestic affairs. On May 26, 1927, Great Britain interrupted her diplomatic relations with the Soviet Union, revoked her trade covenant, organized an economic blockade of Russia, and apparently attempted to form an Anglo-Franco-German coalition against their Soviet adversary. The rate of exchange of the Russian chervonets fell rapidly, and the total of Russian foreign short-term debts soon approached the figure of one million gold rubles.30

The Baltic States were alarmed. They feared involvement in a possible war between Great Britain and the Soviet Union. Arveds Bergs wrote in his paper Latvis on May 10:

England will not tolerate the policy of a bridge between the U.S.S.R. and Europe. If Cielens wants to try this policy, he can do so only against the wvill of England. To speak of any kind of neutrality between England and Russia is childishness.... For Latvia there is only one way-to reach an accord with England and her future ally, Germany.31

On June 1, 1927, Cielens steadfastly refused to take sides in the possible conflict between the big powers. He said that he did not wvant to sacrifice Latvia's neutrality, and hoped that Latvia would gain economically during the forthcoming conflict.32

After fifty meetings of the cautious Latvian government officials with Latvian economic leaders and five weeks of incessant negotiations and bargaining with the Russian officials, the Latvian delegates finally decided to take a chance. The Latvian-Soviet Treaty of Commerce wvas signed on the afternoon of June 2, 1927, and immediately after- wvards the Latvian delegation headed for home.31

29 Leits, op. cit., pp. 126-27, 132. 30 These Names Accuse (Stockholm: Latvian National Fund, 1951), p. 6; Leits, o1). cit.,

p. 153; Sir Charles Alexander Petrie, Life and Letters of the Right Hon. Sir Auisten Chain- berlain (Londoni: Cassell 8& Co., 1940), II, 315; Frederick L. Schuman, Russia Since 1917: Foutr Decades of Soviet Politics (New York: Alfred A. Knopf, 1957), p. 159; Donald W. Treadgold, Twventieth Century Russia (Chicago: Rand McNally, 1959), p. 940.

31 Latvis, No. 1071, May 10, 1927; Meiksins, op. cit., p. 83; Leits, op. cit., p. 154. 32 Hpao65a, June 2, 1927. 33 Latvian-Russian Relatiotns: Documents, comp. Alfred Bilhtuanis (Washington, D.C.:

Latvian Legation, 1944), pp. 145-46; Ipao)a6, June 3, 1927; interview by the Latvian For- eign Minister Felikss Cielens, June 2, 1927, Cielens' Archives.



306 Slavic Review

The treaty was based upon the most-favored-nation principle. The Soviet government undertook to buy annually, for the next four years, Latvian produce in the amount of 15 million rubles (40.7 million lats). Surprisingly, agricultural Latvia would export industrial products amounting to 82 per cent of the total value of goods to be exported to the Soviet Union. These goods would include railroad cars (in the amount of 5.3 million rubles), paper (2.3 million rubles), wvoolen yarn and leather goods, hardware goods and wire, bicycles, agricultural machinery, knitted goods, furs, cellulose, glass, linoleum, cinema accessories, paints, needles, and oilcloth. The Latvian agricultural products exported to the Soviet Union, representing only 18 per cent of the total value of exports to that country, would include clover seeds, pedigreed cattle, horses, fow-l, canned fish, and so forth. Latvia undertook to buy petroleum, naphtha, gasoline, wheat, sugar, sunflower and cotton seed oil, perfumes and eau de cologne, auto- mobile and bicycle tires, pig iron, sheet iron, fibrous vegetable substances, dried fruit and berries, tobacco, cotton goods, feathers, bristles, caustic soda, sodium carbonate, salt, electric motors, and so forth. Im- ported goods from the Soviet Union would therefore consist mostly of raw materials and agricultural products.

Because of the Soviet difficulties with the British, Latvia was able to gain certain privileges. The Soviets agreed to buy four times more goods from Latvia than they had before. The Latvians, on the other hand, were free to spend whatever amount of money they wished on Russian export goods.

The contracting parties established special customs reductions on the minimum rates of their customs tariffs. The Soviet authorities reduced customs duties on the Latvian railroad cars (50 per cent), hardware goods and wire manufactures, agricultural machinery and implements, knitted and woven goods (25 per cent), preserved and canned fish, leather goods, plate glass, photographic glass, and needles (20 per cent). There were no customs reductions on Latvian agricultural products. The Latvian authorities reduced customs dues on Soviet chemical products, cast iron and sheet iron, fibrous vegetable substances, bristles (100 per cent), mineral waters, mustard, salt and tires (60 to 50 per cent), dried fruit and berries and nuts (33 per cent), wines, naphtha, petroleum, and electric motors (25 per cent), wheats, oils, perfumes, and some other products (20 per cent). It is obvious that the Russian goods received preferential treatment.

The Latvian authorities had hoped to attract the Soviet transit through the Latvian territory and their ice-free ports; therefore, the treaty included articles for mutual facilitation of transit trade.

Finally, the Soviets were granted the special privilege of keeping a commercial mission in Riga, and its members were to enjoy diplomatic



The USSR Tr-ades with Latvia: The Treaty of 1927 307

immunity. The Latvians, however, did not obtain similar privileges on Soviet soil.34 The Latvian representatives apparently had disre- garded the British-Soviet incident in London.

The Latvian Foreign Minister Cielens was quite optimistic. In his interview on June 2, 1927, he stated: "Although [the treaty] will not bring about ... extraordinary expansion of our industry reaching its prewar size, it will, nevertheless, revive to a certain extent our industry, and, in connection with that, stabilize our economy, which presently, at the moment of economic stagnation, is of very great importance." He pointed out that the Soviet Union would not dominate the Latvian markets, that there was also room for other neighboring countries. He added: "Presently we have to push toward conclusion of economic treaties with Poland and Lithuania as well as the preparatory work for the conclusion of a customs union with Estonia with all possible vigor and energy."35 But Cielens' statements failed to console Latvia's neighbors.

It was pretty difficult to lay a solid foundation for customs unions and expansion of trade between Baltic countries because they all produced more or less the same commodities, and were apt to regard themselves as competitors rather than collaborators. The idea of international economic co-operation and common markets had not developed enough to induce the nations producing similar goods to organize interest blocs. Estonia and Lithuania were afraid that Latvia would dominate their economic life because of her more advantageous geo- graphical position and her more advanced industries."

The Latvian-Soviet treaty of commerce had alarmed many European countries. After Great Britain had severed diplomatic relations with the USSR, France followed suit by a de facto breaking of relations with the Soviets. The assassination in June of P. L. Voikov, the Soviet Minister in Warsaw, was the climax to a series of diplomatic difficulties between the Soviet Union and Western Europe. There was a "war scare" in Europe, and Lord Birkenhead tried to effect an Anglo- French-German coalition against the USSR, with a possible participa- tion of Poland and probably even the Baltic States. For several years the Soviet government had refused to sign a commercial treaty with Latvia. It finally chose to sign the treaty at a time when Latvia might be discredited by world opinion as a traitor and defector from the Western community of nations if she chose to accept the Soviet proposals. If the Western countries were to expel Latvia from their com-

34 Latvian-Russian Relaitionls, pp. 148-59; League of Nations, Treaty Series, 1927, LXVIII, No. 349-71; Ekonomnists (Riga), No. 22, pp. 812-16; Leits, op. cit., pp. 198-30; Emils Zol- ianis, Latvia Amot7g the Baltic States (Riga: Latvian Farmers' Unioni, 1931), p. 108.

35 Cielens' interviews, June 2, 1927, Cielens' Archives. 3 lilja Romas, Die Wirtschaftliche Struktur der Baltischen Stoaten 7(nd die Idee einev

Zollunioiz (Klaipeda: Rytas, 1934), pp. 189-93, 198-99.



308 Slavic Review

munity of interests, she would be at the mercy of the Soviets. One may wonder if the Latvian government at that time understood the gamble it was making and the possible consequences.

The Latvian-Soviet commercial treaty caused particular resentment against Latvia in Great Britain. According to some Communist sources, the British Minister to Latvia, Sir Tudor Vaughan, had given an interview to the Latvian newspaper Jaunakas Zinas a few days before the ratification of the treaty in order to "dispel" what he called "false rumors" that Great Britain had not actually objected to that treaty. He had pointed out that if the Latvian-Russian treaty were to include privileges that would be harmful to the British trade interests the treaty would be considered undesirable in London.

The right-wing British newspapers had advocated a credit blockade against Latvia if she ratified the treaty. A group of British businessmen had tempted some Latvian business circles with the prospects of new investments and credits. Representatives of certain Latvian firms had even been invited to London for negotiations. It had been pointed out to them that if Latvia entered the sphere of Russian economic influence they would lose this opportunity.37 Great Britain's interfer- ence had been quite forceful and sometimes not in Latvia's best interests. The former Latvian Minister of War General Rudolfs Ban- gerskis says in his memoirs that the British Minister even tried to force the Latvians to buy from Great Britain outdated and damaged British military aircraft instead of modern and less expensive Italian airplanes. When the Latvians refused to accept this deal, the British Minister became so upset that he threatened to leave the Latvian territory.38

Poland, Latvia's wartime ally, feared that her neighbor might become an economic satellite of the Soviet Union and that the Soviet government would use economic pressure to convert Latvia into a Soviet republic. Officially, Poland did not express concern, but she let it be known unofficially that she was opposed to the Latvian-Soviet economic co-operation.39

The Polish newspaper Kurjer Poranny said that the Latvian For- eign Minister was only acting as a tool in the hands of the German and Soviet diplomatists. Even some Latvian publicists suspected that the Latvian-Soviet treaty had been signed with tacit German encourage- nent.40

The Latvian government opened negotiations with Poland concern-

37 Leits, op. cit., p. 132, quoting Jaunakas Zinias, Oct. 10, 1927; Meiksins, op. cit., pp. 81- 82, quoting Briva Zeme, June 2, 1927, and Jaunakas Zinas, No. 237, Oct. 20, 1927.

38 Rudolfs Bangerskis, Mana mi uza atminas (Copenhagen: Imanta, 1959), II, 104-5. 39 Arveds Svabe, "Arpolitika," Latvju Enciklopedija, I, 116-17; letter of Cielens, Oct. 15,

1960; Royal Institute, Baltic States: A Survey . . ., p. 74. 40 National Archives, 860. I. 00/152; Ernests Blanks, Hitlers, zidi un latviesi (Riga:

Auitors, 1933), p. 11.




ing a Latvian-Polish commercial treaty about June 15. The Latvian officials had been criticized so severely regarding the Soviet treaty that they were very sensitive on the subject, and were obviously anxious to hasten the negotiations with Poland in order to be in a position to submit at least another treaty to the Latvian Parliament (Saeimna) for ratification along with the Soviet treaty. Negotiations in this connection wsTere being conducted at Riga between Cielens and the Polish Minister Lukasiewicz. The Polish Minister had informed the American Minis- ter, Coleman, in July that he saw no insuperable obstacles to the conclusion of a one-year Polish-Latvian commercial treaty but that his government would not hurry the negotiations merely to enable the Latvian government to hand over another commercial treaty for ratification along with the controversial Latvian-Soviet commercial treaty.4'

Particularly strong criticisms of Latvian activities were voiced by her ally, Estonia. The Estonians already resented Latvia's independent action in regard to the nonaggression pact. The Communist attempt to overthrow their democratic regime was still fresh in their minds. Now the Estonians attacked the Latvian-Soviet commercial treaty on the grounds that it rendered unworkable the projected Estonian- Latvian customs union. Thanks to Great Britain they had received a large loan from the League of Nations. Naturally, the Estonians sided with the British in their feud with the Soviet Union, and were opposed to any kind of co-operation with the Soviets. Last but not least, there was also a certain amount of jealousy in Estonian attacks. The development of Estonian economy vas as dependent on Russian markets and Russian transit as was the development of the Latvian economy.

In 1920 the Latvians had not been particularly pleased that Estonia was signing an extremely favorable peace treaty with Soviet Russia when the other Baltic countries were still at war with the Bolsheviks. They were also displeased when the Russians began to send almost all of their transit trade through the Estonian territory. In 1927 the Estonians feared that the Latvians would benefit by their treaty with the Soviets and that Estonian economic relations with the Soviet Union wvould deteriorate. They also suspected that the Soviets would divert all of their transit from Estonian to Latvian ports. Although the government of Estonia, having been faithfully informed by the Latvian government on all phases of the Latvian-Soviet negotiations, officially refrained from expressing disapproval, the Estonian newspapers attacked Latvia. Some of the editorials went so far as to advocate an armed occupation of Latvia to prevent Communist infiltration there. Of course, not all of these attacks were meant seriously.42

41 National Archives, 860. P. 00/112, 113. 42 Latvju Enciklopedija, I, 116-17; Royal Institute, Baltic States: A Survey .... p. 74;

letter of Cielens, Oct. 15, 1960.



310 Slavic Review

On June 21, 1927, Cielens went to Tallinn to discuss the Estonian- Latvian commercial treaty with his Estonian counterpart, Dr. Friedrich Akel. The Estonian Minister in Riga, Julius Seljamaa, informed the American Minister that his government felt a certain amount of anxiety lest, in return for the commercial treaty, the Latvian government might have promised to yield to some of the Soviet demands regarding the nonaggression treaty-such as an agreement detrimental to Latvia's relations with the League of Nations or an indication that Latvia would accept something shiort of arbitration with a neutral chairman. Cielens, however, denied that he had ceded anything. The American Minister to the Baltic States reported on July 2, 1927, that, nevertheless, Cielens had made various demagogic statements to the press concerning foreign affairs, which were regarded in the Baltic States as "stupid" attempts to curry favor with the Soviets. On June 11, for instance, Cielens had given an interview concerning Latvia's neutrality in the Anglo-Soviet conflict. Both the American Minister and the British Minister had considered Cielens' statement as amounting to an expression of sympathy for the Soviets.43

An American observer, Colonel Edward A. Powell, wrote at that time that of all the Russian border states Latvia stood to benefit most from good relations with Russia, and that the proposed economic treaty would result in an enormous increase in Latvian trade, trans- forming that small country into an intermediary between Russia and the outside world. A more sober British observer, Edward W. New- man, pointed out that the Latvians were actually in a very delicate position. They did not want to be attached to the Russian orbit, yet they realized that good economic relations with Moscow were essential to their prosperity. Newman said that it wvould have been foolish for the Latvians to allow political considerations to outweigh their economic interests, but he doubted that there was much wisdom in the means they adopted to promote their economic interests. He said that "in dealing with the U.S.S.R. there is always a danger that a small neigh- bouring country may be drawn farther than it intends to go; and it is not easy to negotiate matters so that national interests are promoted in one direction and safeguarded in another."44

During the five-month interval between the signing of the Latvian- Soviet treaty and its ratification by the Latvian Parliament, hot debates raged between its defenders and opponents. The leading Latvian business interests were unanimous in their condemnation of the treaty, and went on record with resolutions of protest passed in a special joint meeting of the principal commerce associations at Riga on July 28,

43 National Archives, 860. P. 00/113; Benjamin Siew, Lettlands Folks- und Staatswirtsclzaft (Riga: Riti, 1927), p. 185.

44 Powell, oP. cit., p. 322; Newman, op. cit., pp. 94-95.




1927. Their chief objections to the treaty were threefold: (1) The treaty permitted greater freedom of trade in Latvia to Soviet commerce than was accorded to Latvian merchants and manufacturers, who were restricted in their activity in the Soviet Union by the foreign trade monopoly and the existing political regime; the liberty of action accorded to the Russian commercial delegation in Latvia was not accorded reciprocally in the same measure to the Latvian representatives in the Soviet Union, and the treaty invested several members of the Soviet Trade Agency in Latvia with diplomatic immunities so notori- ously abused in Germany and Great Britain. (2) The loss to Latvia which would arise from the tariff reductions on Russian imports ex- ceeded many times the possible increase of profits the Latvian industries could expect from the promised Soviet orders. (3) The treaty granting important commercial privileges to the Soviet Union was signed in spite of the latter's flagrant failure to fulfill its obligations arising from the peace treaty with Latvia.45

There was still another point. There was a "war scare" in Latvia, too. The organ of the Latvian Farmers' Union (right-of-center party), Briva Zeme, wrote on June 2, 1927: "We cannot fail to take into ac- count that England will watch closely the conduct of the Baltic States." Most Latvians still thought of Great Britain as their ally despite the fact that though Great Britain considered Latvia as belonging to her sphere of influence, she had assumed no responsibility for Latvia's protection. Some Latvian circles were afraid that the British might withdraw their investments from Latvian enterprises. The right-wing newspaper Latvis warned the Minister of Foreign Affairs in an editorial on June 3, 1927:

[The conclusion of the treaty] takes place at the moment when England breaks up [her relations] with the Soviet Union. . . It is at least heedless to get in touch with one of the parties and to conclude treaties with it while there is such darkness in regard to the fate of affairs. Our foreign minister has found it necessary to declare [at this moment] his "neutrality" toward the Soviet Union during her conflict with England. Is the conclusion of a treaty with one of hostile parties considered to be a neutral action?

Briva Zeme was even worried that Latvia's action might weaken Brit- ish preparations for a war with the Soviet Union.46

Because of the widespread opposition to the treaty, the Soviet Trade Delegation in Riga spared no effort to prove that it really had an earnest intention of placing orders in Latvia immediately upon ratifi-

45 National Archives, 860. P. 00/114; 860. P. 032. 46 Leits, op. cit., pp. 134-35; Newman, op. cit., pp. 94-95; Meiksins, op. cit., p. 81; Royal

Institute, Baltic States: A Survey .. . , p. 74; Survey of International Affairs, 1927, p. 279; The Tines (London), Sept. 14, 1927.



312 Slavic Review

cation of the treaty, and had gone so far as to open preliminary negotiations with several manufacturers in Riga and Liepaja. The head of the Delegation even stated in a press interview that his government intended to buy in Latvia not only goods of domestic origin but also such foreign-made articles as American automobiles, which formerly were imported into Soviet Russia through England.47

On August 29, 1927, the Estonian Foreign Minister, Dr. Akel, made a sudden trip to Riga and asked Cielens how the Latvian government proposed to reconcile the Soviet commercial treaty with Latvia's com- mitments to Estonia. Cielens apparently had no definite plan in mind. He was only able to reply that there was nothing contradictory in the Latvian-Soviet and Latvian-Estonian treaties. He repeated the same in writing on September 26. The Estonian members of the joint Commission on Customs Union decided that it was useless to meet the Latvian members until these difficulties were cleared up. There wvere also rumors that Dr. Akel had tried to persuade his Latvian col- league to refrain from a policy that might cause a collision with Eng- land. On September 1 Dr. Akel criticized Cielens for not giving to the Estonian government a complete text of the proposed treaty although Latvia was obligated to do so by her alliance treaty with Estonia. Cielens accused Estonia of failing to inform Latvia about Estonian- Polish and Estonian-Czechoslovak treaties.48

It would not be correct to conclude that the Latvian government had become lenient toward communism or that the Communists had stopped harassing it. In July, 1927, eight Communists and in October, 1927, twenty-two others were arrested in Latvia and charged with spy- ing for the Soviet Union. In the Estonian capital city, on August 4, a Communist organizer from the Soviet Union had even opened fire on police. The Communists continued to publish their clandestine newspapers and broadsides calling for the overthrowv of the existing re- gimes.49

In September, 1927, both Cielens and Akel arrived in Geneva to participate in the Eighth Session of the Assembly of the League of Nations. On September 7, Cielens addressed the Fourth Plenary Meeting. He expressed his concern for peace, security, and disarma- ment as well as his alarm at the lack of methods to eliminate certain dangers confronting the world. He tried to explain Latvia's policy:

Our country has suffered from the Great War more, perhaps, than any other country in Europe . . . [but], free from social unrest, in peace and spirit of fairness to the rights of minorities, we are applying ourselves to

47National Archives, 860. P. 032. 48 Ibid., 860. P. 00/115; 860. I. 00/157; Leits, op. cit., p. 134; Meiksins, op. cit., p. 82. 49 The Times (London), July 7, Aug. 5 and 6, Oct. 15, 1927; Frankfurter Zeitunlg, Auig. 5,

1927; Survey of International Affairs, 1927, p. 221.




the reconstruction and development of our. ... country.... We endeavour, in our relations with our great eastern neighbour [the Soviet Union] to establish peace and to arrive at some formula which, although of but relative value, might help to establish our security.

Cielens said that Latvia was sparing no effort to ensure that her neighbors would have free access to the sea for economic purposes. He pointed out that the Baltic States should not be considered the bulwark of the Western world against the Soviet Union and be expected to express hostility toward communism, and yet be left unprotected. He asked the Western Powers to define what they thought to be adequate guarantees for a general, lasting, and well-organized peace in the East. The solution of the problem of security, as outlined in the Geneva Protocol of 1924, was replaced by the Locarno Agreements, but

these agreements have ... benefited the countries of WVestern Europe. W\Vestern Europe [however] is not the whole of Europe, still less the whole of the world. . . . We have in mind a "Locarno Agreement of the East." Such an agreement would guarantee the status quo on the eastern shores of the Baltic.... Our own political efforts to achieve a stable peace and an increase of security cannot lead to decisive results. The problem is more far-reaching and must be solved by international agreements.

Sensing a certain reluctance on the part of the big powers to commit themselves, Cielens warned them: "If rivalry in armaments cannot bring security to the small nations, it will likewise fail to bring it to the larger ones, too, in the war of the future."50

In an interesting interview for foreign newspapers Cielens declared that he was no prophet, but if the economic competition and the political struggles continued for the next ten years, particularly the race for supremacy in armament, the possibility of a new world war in twenty or twenty-five years was not excluded. Actually, only twelve years later the Soviet Union and Germany partitioned Poland and the Baltic States and enabled Hitler to start the Second World War.5'

Cielens had to return home without much success. The French Foreign Minister Aristide Briand and the German Foreign Minister Gustav Stresemann had expressed some interest in Cielens' proposals, but the British representative Austen Chamberlain had refused to discuss matters with that "Latvian Communist."52

The Latvian-Soviet treaties of commerce and nonaggression were not yet ratified. Latvia had received no real assistance from the League

5c0 League of Nations, Verbatim Record of the Eighth Ordinary Session of the Assembly of the League of Nations, Fourth Plenary Meeting, Sept. 7, 1927; Cielens' interviews, Cieleins' Archives; letter of Cielens, Oct. 15, 1960.

51 MSeiksins, op. cit., p. 82; letter of Cielens, Oct. 15, 1960. 52 Ibi c.



314 Slavic Review

of Nations, and the Soviets tried to steer her away from that body. Cielens, however, still believed in the League:

Latvia must live on good terms, both political and economical, . .. with her huge neighbour Russia.... But Latvia will not buy a treaty of nonaggression from Russia.... She will not accept undertakings with Russia which conflict with her obligations as a member of the League of Nations, . . . She will [likewise] sign no agreement which would put difficulties in the way of a close alliance between all three of the little Baltic States.

He made it clear, however, that he wvanted to consider Latvia a natural bridge that would connect the Soviet Union with Western Europe:

It is the object of the Latvian policy to promote the Russian commercial relations with Western Europe via Latvia and to keep the territory of Latvia free fromii anly influences of other states. . . . Latvia is advocating a neuLtrali- zation of the Baltic region, which would be also of interest to Germany, France, and other European States in case of a possible conflict with Russia. A netutral Latvia is of value to Russia in case of conflict with the western powers and also to the western powers.... Latvia's foreign policy is aimed at a union between the three Baltic States.53

Shortly afterwards there began the great debate in the Latvian Parliament on the ratification of the Latvian-Soviet treaty of commerce. The very idea of ratification was violently attacked by the right-wing newspapers Latvis and Latvijas Sargs. The representatives of the Committee of the Exchange of Riga, the Latvian Merchants' Association, the Association of Latvian Industrialists and Craftsmen, the Chamber of Commerce of Riga, the Association of Latvian Ship- owners, and others, jointly addressed the Parliament on October 21, 1927, and asked that its members refuse to ratify the treaty. They suspected some dangerous political motives in the sudden Russian willingness to sign a treaty of commerce. They were also afraid of losing contacts with the Western world. The Farmers' Union worried about the possible damage the treaty might do to Latvian agriculture, which was the backbone of Latvian economic life. The farmers' party also feared that Great Britain might refuse to buy Latvian agricultural products at a time when the Soviet Union was not interested in them. It would spell a real catastrophe. The spokesman for the Farmers' Union, a clever politician and gifted orator, Adolfs Klive, feared that the treaty would cause a great increase of the urban proletariat. The new factories needed to fulfill the treaty obligations would lure many farmhands to the cities and change them from contented rural workers into a restless urban proletariat. If the Soviet Union, for political reasons, should stop buying Latvian indust-ial goods and cause layoffs, factory closings, unemployment, and bankruptcy, the helpless Latvian

53 Cielens' Archives.




workers would become potential tools in the hands of Communist agitators.54

On October 25, 1927, Foreign Minister Cielens defended the treaty:

The balance of our export-import trade is unfavorable . . . to a great extent.... The prolongation of such a situation can become a catastrophe not only for our national economy but for the whole of our monetary system.... During the first years of our independence the export consisted only of raw materials, products of agriculture and timber.... It is necessary to transform the raw materials into fabrics and finished goods on the spot ainid export them . . Side by side with our agriculture, the industry is slowly developing.... We have secured Western European markets for our agrictultural products, . . . [but] our agriculture is unable to produce high lrofits.... Therefore, we must . . . pay particular attention to an increase in the export of indutstrial prodlIcts. Because Latvia had found it impossible to compete successfully with the industrialized Western countries for markets for her industrial goods, she had to find these markets in the Soviet Union and the Balkan countries.55

At midnight on October 27, 1927, the Latvian Parliament finally ratified the Latvian-Soviet treaty of commerce. Fifty-two deputies voted for the treaty, forty-five voted against it, and two abstained. A few days later the Latvian government negotiated with the Soviets an arrangement for pooling agreed quantities of flax on world markets. A month and a half later the Latvian government was quite embar- rassed to find that after this agreement the Soviet government had thrown considerable quantities of flax on world markets at "under- cutting" prices in order to undermine the Latvian agriculture. It was a bad omen.56

As the Soviet orders started to pour in, the Latvian government built an up-to-date free port at Liepaja and great storehouses in Riga just for the expected Russian trade. The government also built an additional railroad line to facilitate this trade and changed Latvia s principal railroad lines from the normal gauge to the Russian gauge. Russian goods were transported at a rate 75 per cent below Latvia's own tariffs.

It was soon discovered that the existing factories were inadequate to satisfy the Russian requirements, so new factories and workshops were built solely for the Russian needs. During the first year of operations

54 Latvi as Reputblikas Saeimas Sten7oguramas, Second Saeim4a, Seventh Session, Folulth Meeting, Oct. 25, 1922, pp. 177, 205; Fifth Meeting, Oct. 26, pp. 243, 952; Leits, ob. cit., PI-). 133, 135-36, 139, 144; interview by A. Klive, Atgiust 9, 1960.

55 Cielens' Archives. 56 Leits, op. cit., p. 136; Latvijas Republikas Saeimiias Ste?iog-ramas, Secolnd Saeilm-a,

Seventhl Session, Sixth Meeting, Oct. 28, 1927, pp. 265-66; HlpaCa5. Oct. 28, 1997; Tlilhe Tiowe-; London), Oct. 31, 1927; Dec. 8, 1927; Surve3 of Intermational Agairs, 1927. p. 930.



816 Slavic Review

only 51.3 per cent of the Soviet orders could be satisfied. During the second year the percentage was even lower.57

The Latvian-Soviet commercial treaty made the materialization of the proposed Estonian-Latvian customs union next to impossible. According to the report of the American Legation, Latvia gave the Russians great customs reductions, which made it impossible for Estonia to enter into a customs union with Latvia unless she was willing to become economically dependent upon the Soviet Union. Re- ductions that Latvia proposed to make in favor of the Soviet Union were lower than those proposed for the contemplated Estonian-Latvian uinified tariff, which rendered this unified tariff useless. Last but not least, the Soviet enterprises would have a decided advantage in Latvia not only over Estonian traders but over Latvian firms as well. The influential Estonian newspaper Postimees wrote that the Latvian treaty with Russia had started a stone rolling that might easily damage the national independence of other Baltic countries as well as Latvia. The newspaper pointed out that Estonia had no reason to be pleased by the ratification of the Latvian-Soviet commercial treaty. The treaty had caused an obvious split among the Baltic allies.58

In the period from November 5, 1927, to November 5, 1932, the Soviet Union had ordered goods in the amount of 200 million lats, but had received Latvian goods only in the amount of 146.9 million lats (53.6 per cent of these goods had been foreseen in the treaty, but 43.7 per cent of them had not even been mentioned). Almost all of these goods were products of Latvian industry. With the exception of 1928, during all the years the treaty was in force 95 per cent of the total amount of goods exported by Latvia to the Soviet Union were industrial products. The Soviets tried to avoid buying Latvian agricultural products. One-half to one-third of all the railroad cars produced in Latvia, nine-tenths of all bicycles, all of the exported cotton goods and hosiery, one-third to four-fifths of all the leather goods, and one-half of all yarn produced went to the Soviet Union. These figures indicate that Latvian industry had become very dependent on the Soviet markets.

In the period from 1927 to 1929 the Latvian exports to the Soviet Union had multiplied tenfold (from 3,753,000 to 40,079,000 lats). The Soviet transit through Latvia also increased from 68,756 tons in 1928 to 283,325 tons in 1931. The treaty had envisaged the transportation of a total of 1,220,000 tons of Russian goods through the Latvian territory in a period of five years. Actually the Soviets had transported a total of 2,126,000 tons of goods. Even though the Soviets enjoyed great tariff reductions, they still left in Latvia about forty million lats in

57 Sch-wabe, op. cit., p. 211; These Names Accuse, p. 6; Leits, op. cit., p. 142. 58 National Archives, 860. I. 00/157; also dispatch of Nov. 5, 1927.




transit dues and taxes. The treaty had also undermined the mnonopoly of the British-Dutch Shell Oil Company in Latvia.59 This was one side of the picture.

There was another side, too. Political considerations played a great role in the Soviet economic policy toward the rest of the world. In 1929 the world was shattered by the sudden economic depression. The Latvians hoped that their treaty with the Soviet Union would give them a chance to escape this calamity. Some of their leaders testify, however, that pretty soon the dreamers were rudely awakened. Adolfs Blodnieks, a member of the Latvian Parliamentary Committee on Economic Treaties at that time, writes as follows:

The principal Soviet aim, it became clear to us, was to undermine, if possible, the economy of its trade partners by various undertakings and agreements. Soviet orders, which at the outset seemed promising and seemingly justified consideerable investment in industrial buildings and equipment rarely led to long-time normal trade relations. In most cases the Bolsheviks soon cut or revoked their orders.

Blodnieks, who was the leader of the centrist Party of New Farmers and Smallholders, states that the Bolsheviks were canceling their coI- tracts under tenuous pretexts and, to add insult to injury, were putting the blame on the Latvian producers. He says that in other cases initial orders were not revoked but were not followed up by other orders, and the plants that meanwhile had expanded were usually unable to market their products elsewhere and were doomed to bankruptcy. Since in most cases the necessary industrial equipment had been purchased abroad, one inevitable result was an uneconomic drain of the national foreign currency reserves. Still another result was an increase in unemployment and a corresponding increase in government expenditures for social assistance. The forecast of the spokesman for the Farmers' Union, Adolfs Klive, was correct. Blodnieks says that the people who had formerly been self-supporting as farm laborers or artisans were artificially turned into public charges.60 In 1927, for example, the Phoenix Railroad Car Factory at Riga obtained Russian orders for a large number of refrigerator cars. But in 1930 the orders were not renewed, and about eight hundred idle workers became the most ardent promoters of "economic rapprochement" with Soviet Russia.61

The Soviets held out the promise of exporting large amounts of grain through Ventspils, which had huge grain elevators. This and many other Soviet promises were not kept. The Soviet transit goods were carried by the Latvian railroads at freight rates that were well

59 Leits, op. cit., pp. 136-37, 139, 141-42; Cielens' letter, Oct. 15, 1960. 60 Adolfs Blodnieks, The Undefeated Nation (New York: Robert Speller &8 Solns, 1960),

p. 202; Blodnieks' interview, Aug. 9, 1960. 61 Bilmanis, History, p. 27.



318 Slavic Review

below cost. For various flimsy reasons the Soviet officials made deduc- tions even from these low rates and in most cases failed to pay whatever small freight charges were left.62

The Communist sources point out, however, that the Latvians were often unable to produce sufficient quantities of the ordered goods, and the Russians were unwilling to accept other goods in lieu of the promised ones. According to some contemporary Latvian sources, the great difference between the regimented Soviet economic life with its planned economy on the one hand and the small-scale Latvian economic organization based on the principles of free enterprise on the other hand has been the real cause of many difficulties. The Soviets expected specified goods in agreed quantities and at certain times in order to fit them into their five-year plan. The small-scale Latvian industry was often unable to meet these requirements, and offered other goods which wvere not foreseen in the Soviet plans no matter how useful they might be for the Soviets. Whereas the Latvian econ- omny was quite flexible, the Soviet economy was based on rigid long- range planning. The Latvians had to cope with it as best they could. The Soviet sources also blamed the "faulty" Latvian system of transportation. This charge is obviously groundless because the Latvian system of transportation was much more efficient and better organized than the Soviet system at that time.63

The Bolshevik Politburo probably interpreted the Latvian willingness to co-operate as a sign of internal weakness, and, utilizing the relative political isolation of Latvia in 1927 and 1928, decided to exploit this situation. The illegal Latvian Communist Party, number- ing only 650 members in 1928 (from a total population of 1,845,000) and comprising only 1.2 per cent of the total number of wiorkers, began to infiltrate the trade unions. According to Professor Arveds Svabe, the extensive cadre of the Russian commercial agencies in Latvia lavishly subsidized the Latvian Communist Party with a view to activ- izing Communist propaganda in Latvia and regaining the position lost when the Latvian agrarian reform was carried out in 1920 to 1925. These agencies made a point of emphasizing the dependence of the longshoremen and transport workers on Russian exports. Obeying directions from the Comintern, the Latvian Bolsheviks participated in th-e Latvian Parliament elections in 1928 with two camouflaged lists anid obtained 7 per cent of all the votes and seven of the one hundred seats in the Parliament.64

Communist sources state that about 17,000 Latvian workers wvere employed in producing goods for the Soviet Union, and an additional

62 Blodnieks, op. cit., pp. 202-3. (33 Leits, op. cit., p. 139; Alberts Zalts, "Latvijas un PSRS tirdzlnieciba un tirclzniecibas

iguLls,"' Bur-tnieks, No. 1, Jan., 1929, pp. 38-39, 42, 45. 814 These Names Accutse, p. 6; Schwabe, op. cit., p. 211.




3,000 to 4,000 workers were employed in Soviet transit trade. These authors conclude that about 20,000 Latvian workers were dependent on the Soviet treaty in one way or another. This figure would repre- sent one-third of the total Latvian labor force of 62,581 in 1930.65

Other Communist sources point out that the Communist movemen;t in Latvia reached its highest tide in 1929. In their viewv this advance had no connection w\lith economic depression because, thanks to the Soviet orders, Latvia had reached the highest level of prosperity since 1914. The Communist agents had not only infiltrated eight trade unions but had also created such "front organizations" as workers' cultural societies, associations of physical culture and "toiling" students, within which illegal cells of the Communist Party and the Communist Youth Organization were organized. They had also organized mass movements and strikes. There were 190 strikes in 1929 witlh a total of 103,000 participants. In different meetings the Communist agents in disguise had assembled about 99,000 persons. Even the nula- ber of Communist publications of all sorts had multiplied many times in comparison with the previous years. All of this had happened only two years after the Soviet government signed a commercial treaty with the Latvian government. The Communist sources describe this movement as a political struggle that had little to do with economic conditions. In 1930, however, the Latvian police started to attack the Com- munist strongholds, and when the world economic crisis finally reached Latvia in the second half of 1930 the Communist movement in that country was almost at a standstill.66

On April 16, 1930, a commercial accord was signed by Great Britain and the Soviet Union providing for most-favored-nation treatment. As a result the British imports from the Baltic States fell severely. This affected Latvian agriculture. Simultaneously, the Russians began to cut down their imports from Latvia. This was reflected in employment figures: In 1931 the total number of industrial laborers had decreased from 62,500 to 56,000; one year later the total number was only 51,900. Latvia faced considerable difficulties. Since the Soviets had restored normal relations with Great Britain, the political and economic importance of Latvia greatly diminished in the eyes of the Soviet leaders.

Finally, on November 5, 1932, the Bolshevik Minister to Latvia, Aleksei Svidersky, visited the new Latvian Foreign Minister, Karlis Zarins (Charles Zarine), and informed him that the Latvian-Soviet Treaty of Commerce had to be considered expired and a new treaty

65 Leits, op. cit., pp. 144, 146, 152. 66 Auseklis Spreslis, Stradnieku kustiba burzuaziskaja Latvija pasaules ekonomiskas krizcs

gados (1929-1933 g.) (Riga: Latvijas PSR Zinatnu Akademijas izdevnieciba, 1958), pp. 28, 36-37, 52, 53-55, 58, 64-65, 73, 74-76, 84; P. Dzerve, 1929-1933 g. ekonormiska krize burzuaziskaja Latvija un tas ipatnibas (Riga: Latvijas valsts izdevnieciba, 1953), pp. 109-10, 117-18.



320 Slavic Review

had to be concluded. Svidersky added that the termination of the commercial treaty should not be considered a political act.6 He was just trying to be polite.

Many Latvian industrial establishments built for the sole purpose of fulfilling the Soviet treaty requirements were already closed, their owners bankrupt. The unemployment of thousands of workers was causing unrest in what was usually a tranquil country. Latvian-British relations were considerably strained, and Latvia had almost lost the British markets for her agricultural products. Latvia could continue economic co-operation with the Soviet Union on a large scale only on Soviet terms, which would mean an inevitable integration of the Lat- vian economy into the Soviet system and the resulting loss of political independence. It was the last thing the Latvians desired.

After more than a year, on December 4, 1933, Latvia concluded another commercial treaty with the Soviets, but this treaty was on a small scale. The total value of Latvian imports from the Soviet Union was decreased from 8,506,000 to 3,643,000 lats, and the total value of the Latvian export to the Soviet Union was decreased from 14,220,000 to 1,181,000 lats. This time the Latvian exports to the Soviet Union consisted mostly of agricultural products. The Latvian economy survived, but it had to be completely revamped.68

It was clear to the Latvians that the Soviet Union did not intend to use the Baltic States as a bridge to Western Europe. It was also clear to them that the Soviet Union actually did not need the Baltic ports and railroads. By signing a treaty with Latvia purportedly to bolster tihe Latvian economy, the Soviet UJnion actually intended to alienate its small neighbor from her allies and to induce her to become a Soviet economic satellite or even a Soviet republic. No doubt Latvia had reaped some economic benefits while the treaty of 1927 was in force, but she could very easily become a Soviet pawn or even lose her independence. The Latvian statesmen understood the situation and became very cautious in dealing with their big neighbor. Gone was their hope of co-operating with the Soviet Union and acting as intermediaries between it and the Western wiorld. The little country bordering the Soviet Union faced two alternatives, to join the USSR or to struggle alone. Latvia chose the second alternative.

Communist authors frankly admit that the goals of the Soviet Union in Latvia were (1) to help the Latvians rebuild their industries and at the same time increase their prosperity; (2) to lure agricultural laborers to the cities; (3) to increase the numbers of the Latvian industrial proletariat; (4) to tie the Latvian industry to the Soviet economic sys-

67 Schuman, op. cit., p. 159; Royal Institute, Baltic States: A Survey . .. , p. 154; Leits, op. cit., pp. 140, 147. In 1929 the number of industrial laborers in Latvia had reached 71,736; Arturs Berzins, Karlis Zarins dzive un darba (London: Ruja, 1959), p. 209.

68 Leits, op. cit., p. 146; Bilmanis, History, p. 28; Latvian-Russian Relations, pp. 178-84.




tem; (5) to make the Latvians realize that their future should be tied more closely to the Soviet Union for their own survival.

To achieve their goal the Soviets were willing to pay a price, no matter how distasteful it might be to the Bolsheviks, namely, to allow certain circles of capitalists and industrialists to reap benefits from the trade with the Soviet Union. In their eagerness to increase their profits these industrialists would try to transform Latvia from an essentially agricultural country into an industrial one. Without natural resources and without trade outlets other than the Soviet markets, industrialized Latvia would be utterly dependent on Soviet good will. By increasing and decreasing their imports the Soviet Union could create periods of prosperity and depression in Latvia. Periods of depression would awaken class consciousness and promote class struggle, supported by the members of the Soviet trade missions. The Soviet sources proudly point out that from 1929 to 1933 there was indeed a class struggle in the small republic between the restless proletariat and the bourgeoisie that started as a promoted political struggle and was later transformed into an economic struggle because of the effects of the world depression. The Communist Party had tirelessly urged the proletariat to overthrow the existing bourgeois regime.69

The Soviets failed to achieve their goals in Latvia but continued to use the same methods in a number of countries after the Second World War more or less successfully. Their commercial treaties with the other countries were used not only to their economic but also to their political and ideological advantage. The treaty with Latvia was an early example.

69 Leits, op. cit., pp. 127, 131-33, 135-36, 144-45, 147; Homopuf Jaan6UiCuKO0 CCP (Riga: Ha3aTeJIcTBo AiaAeuiHu Hayi JIaTBHuIiKoJI CCP, 1958), III, 314-55; Harald Frisch, "Zti Lettlandpolitik der Soviets," Baltische Montatsschrift, LXI, No. 5 (1930), 289, 293-94.

